<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 5, 1997.
REGISTRATION NO. 333-18533
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
NATIONWIDE FINANCIAL SERVICES, INC.
NATIONWIDE FINANCIAL SERVICES CAPITAL TRUST
(Exact name of Registrant as specified in its charter)
DELAWARE 6719 31-1486870
DELAWARE APPLIED FOR
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification Number)
incorporation or Code Number)
organization)
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(614) 249-7111
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
-----------
W. SIDNEY DRUEN
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
NATIONWIDE FINANCIAL SERVICES, INC.
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(614) 249-7640
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------
COPIES TO:
ALEXANDER M. DYE/MICHAEL GROLL JEFF LIEBMANN
LEBOEUF, LAMB, GREENE & MACRAE, L.L.P. JONATHAN FREEDMAN
125 WEST 55TH STREET DEWEY BALLANTINE
NEW YORK, NEW YORK 10019-5389 1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6092
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APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
___________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
___________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
-----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 5, 1997
$100,000,000
[LOGO] NATIONWIDE FINANCIAL SERVICES CAPITAL TRUST
% Capital Securities
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
NATIONWIDE FINANCIAL SERVICES, INC.
--------
The % Capital Securities (the "Capital Securities") offered hereby
represent preferred undivided beneficial interests in the assets of
Nationwide Financial Services Capital Trust, a statutory business trust
formed under the laws of the State of Delaware (the "Trust"). Nationwide
Financial Services, Inc., a Delaware corporation (the "Company"), will be
the owner of all of the undivided beneficial interests in the assets of
the Trust represented by common securities of the Trust (the "Common
Securities" and, together with the Capital Securities, the "Trust
Securities"). The Trust exists for the sole purpose of issuing the
Trust Securities and investing the proceeds thereof in an equivalent
amount of % Junior Subordinated Deferrable Interest Debentures
due 2037 (the "Junior Subordinated Debentures") of the Company
having the terms described herein. Whenever a Declaration Event of
Default (as defined herein) shall have occurred and be
continuing, the holders of the Capital Securities will have a
preference over the holders of the Common Securities with
respect to cash distributions and amounts payable upon
liquidation, redemption or otherwise. See "Description of the
Capital Securities--Subordination of Common Securities."
Prior to the public offering of the Capital Securities (the "Capital
Securities Offering"), the Company expects to consummate the sale of shares
of its Class A Common Stock, $0.01 par value ("Class A Common Stock"), in
concurrent underwritten initial public offerings (the "Equity
Offerings"). Concurrently with the Capital Securities Offering, the
Company expects to consummate the public offering (the "Note
Offering") of $300 million aggregate amount of Senior Notes due
2027 (the "Notes"). The Equity Offerings and the Note Offering
are being made pursuant to separate prospectuses. See "The
Equity Offerings, the Note Offering and the Capital
Securities Offering."
(continued on next page)
The Capital Securities have been approved for listing on the New York Stock
Exchange (the "NYSE"), subject to official notice of issuance. Trading
of the Capital Securities on the NYSE is expected to commence
within a 30-day period after the initial delivery of the
Capital Securities. See "Underwriting."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE CAPITAL SECURITIES, SEE
"RISK FACTORS" BEGINNING ON PAGE 17 HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO THE
PUBLIC(1) COMMISSION TRUST(1)(2)(3)
--------- ------------ ---------------
<S> <C> <C> <C>
Per Capital Security..................... $ (3) $
Total.................................... $ (3) $
</TABLE>
(1) Plus accrued distributions, if any, from , 1997.
(2) Expenses of the offering, which are payable by the Company, are estimated
to be $ .
(3) In view of the fact that the proceeds of the sale of the Capital Securities
will be invested in the Junior Subordinated Debentures, the Company has
agreed to pay to the Underwriters as compensation for their arranging the
investment therein of such proceeds $ per Capital Security (or $
in the aggregate). See "Underwriting."
The Capital Securities are offered by the several Underwriters when, as and
if issued by the Trust, delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is expected
that the Capital Securities will be ready for delivery in book-entry form only
through the facilities of The Depository Trust Company on or about , 1997,
against payment in immediately available funds.
CREDIT SUISSE FIRST BOSTON MORGAN STANLEY & CO.
INCORPORATED
MERRILL LYNCH & CO.
Prospectus dated , 1997.
<PAGE>
(continued from front cover)
Holders of the Capital Securities will be entitled to receive cumulative
cash distributions at an annual rate of % of the liquidation amount of
$1,000 per Capital Security, accruing from the date of original issuance and
payable semi-annually in arrears on and
of each year, commencing , 1997. See "Description of the Capital
Securities--Distributions." The distribution rate and the distribution and
other payment dates for the Capital Securities will correspond to the interest
rate and interest and other payment dates on the Junior Subordinated
Debentures, which will be the sole assets of the Trust. As a result, if
principal or interest is not paid on the Junior Subordinated Debentures, no
amounts will be paid on the Capital Securities.
The Company has, through the Guarantee (as defined herein), the Junior
Subordinated Debentures, the Indenture (as defined herein) and the Declaration
(as defined herein), taken together, fully and unconditionally guaranteed all
of the Trust's obligations under the Capital Securities. The Company will
guarantee the payment of distributions and payments on liquidation of the
Trust or the redemption of Capital Securities, as described below, but only in
each case to the extent of funds held by the Trust (the "Guarantee"). See
"Description of the Capital Securities," "Description of the Guarantee" and
"Description of the Junior Subordinated Debentures." If the Company fails to
make principal or interest payments on the Junior Subordinated Debentures held
by the Trust, the Trust will have insufficient funds to pay distributions on
the Capital Securities. The Guarantee does not apply to payment of
distributions when the Trust does not have sufficient funds to pay such
distributions. In such event, a holder of Capital Securities may institute a
proceeding directly against the Company for enforcement of payment to such
holder of the principal of or interest on the Junior Subordinated Debentures
without first instituting any legal proceeding against the Property Trustee
(as defined herein) or any other person or entity. Further, under the
Guarantee, when the Trust has funds available for distribution, holders of the
Capital Securities may proceed directly against the Company, as guarantor,
rather than having to proceed against the Trust before attempting to collect
from the Company.
The Company's obligations under the Guarantee are subordinate and junior in
right of payment to all other liabilities of the Company, except any
liabilities that may be made pari passu expressly by their terms. The
Guarantee will rank pari passu with the most senior preferred or preference
stock now or hereafter issued by the Company and certain other related
guarantees. See "Description of the Guarantee--Status of the Guarantee;
Subordination." The obligations of the Company under the Junior Subordinated
Debentures are unsecured and will be subordinate and junior in right of
payment, to the extent set forth herein, to all existing and future Senior
Indebtedness (as defined herein) of the Company. Because the Company is a
holding company, the right of the Company to participate in any distribution
of assets of any subsidiary upon such subsidiary's liquidation or
reorganization or otherwise, is subject to the prior claims of creditors of
the subsidiary, except to the extent the Company may itself be recognized as a
creditor of that subsidiary. Accordingly, the Guarantee and the Junior
Subordinated Debentures (and therefore the Capital Securities) will be
effectively subordinated to all existing and future liabilities and
obligations of the Company's subsidiaries, including obligations to
policyholders, and the holders of the Junior Subordinated Debentures should
look only to the assets of the Company for payments thereon. At December 31,
1996, after giving effect to the Note Offering, the aggregate amount of Senior
Indebtedness and liabilities and obligations of the Company's subsidiaries
that would effectively rank senior to the Guarantee and the Junior
Subordinated Debentures was approximately $45.9 billion. See "Capitalization."
The terms of the Junior Subordinated Debentures place no limitation on the
amount of Senior Indebtedness that may be incurred by the Company.
So long as no Event of Default (as defined herein) has occurred and is
continuing, the Company has the right at any time under the Indenture, subject
to the conditions set forth herein, to defer the interest payments due from
time to time on the Junior Subordinated Debentures for successive periods not
exceeding 10 consecutive semi-annual periods (each group of successive
periods, a "Deferral Period"), and, as a consequence, semi-annual
distributions on the Capital Securities would be deferred by the Trust until
the end of any such Deferral Period. During a Deferral Period, the Company
will be prohibited from paying dividends on any of its capital stock (subject
to certain exceptions) and making certain other restricted payments until
semi-annual interest payments are resumed and all accumulated and unpaid
interest (including interest thereon to the extent
2
<PAGE>
permitted by law) on the Junior Subordinated Debentures is made current.
During such Deferral Period, distributions will continue to accrue with
interest thereon (to the extent permitted by applicable law) at a rate of %
per annum compounded semi-annually, and during any Deferral Period, holders of
Capital Securities will be required to include deferred interest income in
their gross income for United States federal income tax purposes in advance of
receipt of the cash distributions with respect to such deferred interest
payments. There could be multiple Deferral Periods of varying lengths
throughout the term of the Junior Subordinated Debentures. See "Risk Factors--
Factors Relating to the Capital Securities--Option to Extend Interest Payment
Period," "--Tax Consequences of Extension of Interest Payment Period,"
"Description of the Capital Securities--Distributions" and "Description of the
Junior Subordinated Debentures--Option to Extend Interest Payment Period."
The Junior Subordinated Debentures are redeemable by the Company (i) in
whole at any time or in part from time to time at par plus the applicable
Make-Whole Premium (as defined herein) or (ii) under certain circumstances, in
whole, within 90 days following the occurrence of a Tax Event (as defined
herein), at par, plus, in the case of clause (i) or (ii) above, accrued and
unpaid interest thereon to the date fixed for redemption. If the Company
redeems Junior Subordinated Debentures, the Trust must redeem Trust Securities
on a pro rata basis having an aggregate liquidation amount equal to the
aggregate principal amount of the Junior Subordinated Debentures so redeemed
at a redemption price per Trust Security of $1,000 plus any additional amount
payable upon redemption of the Junior Subordinated Debentures as a result of
the Make-Whole Premium and, in all cases, accrued and unpaid distributions
thereon to the date fixed for redemption (the "Redemption Price"). See
"Description of the Capital Securities--Mandatory Redemption." The outstanding
Trust Securities will be redeemed upon maturity of the Junior Subordinated
Debentures. In addition, at any time, the Company will have the right to
terminate the Trust and, after satisfaction of the liabilities of creditors of
the Trust as provided by applicable law, cause the Junior Subordinated
Debentures to be distributed to the holders of the Trust Securities in
connection with the liquidation of the Trust.
In the event of a Liquidation (as defined herein) of the Trust, the holders
of the Capital Securities will be entitled, after satisfaction of liabilities
to creditors of the Trust as provided by applicable law, to receive for each
Capital Security a liquidation amount of $1,000 per Capital Security plus any
additional amount payable upon redemption of the Junior Subordinated
Debentures as a result of the Make-Whole Premium and accrued and unpaid
distributions thereon to the date of payment, unless, in connection with such
Liquidation, Junior Subordinated Debentures are distributed to the holders of
the Capital Securities. See "Description of the Capital Securities--
Distribution of Cash Upon Liquidation of the Trust." If the Junior
Subordinated Debentures are distributed to the holders of the Capital
Securities, the Company will use its best efforts to have the Junior
Subordinated Debentures listed on the NYSE or on such other exchange as the
Capital Securities are then listed. See "Description of the Capital
Securities--Distribution of the Junior Subordinated Debentures Upon
Liquidation of the Trust."
The Capital Securities will be issued only as fully registered securities
registered in the name of Cede & Co., as nominee for The Depository Trust
Company ("DTC"). One or more fully registered global Capital Security
certificates will be issued, representing in the aggregate the total number of
Capital Securities, and will be deposited with DTC. See "Description of the
Capital Securities--Book-Entry-Only Issuance--The Depository Trust Company."
------------
IN CONNECTION WITH THE CAPITAL SECURITIES OFFERING, THE UNDERWRITERS MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE
OF THE CAPITAL SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NYSE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
FOR NORTH CAROLINA INVESTORS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA,
NOR HAS THE COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY OR ADEQUACY OF
THIS DOCUMENT.
----------------
3
<PAGE>
NO EMPLOYEE BENEFIT PLAN SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR INDIVIDUAL RETIREMENT
ACCOUNT OR PLAN SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986,
AS AMENDED (THE "IRC") (EACH, A "PLAN"), NO ENTITY WHOSE UNDERLYING ASSETS
INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S INVESTMENT IN THE ENTITY (A
"PLAN ASSET ENTITY"), AND NO PERSON INVESTING "PLAN ASSETS" OF ANY PLAN, MAY
ACQUIRE OR SHOULD HOLD THE CAPITAL SECURITIES OR ANY INTEREST THEREIN, UNLESS
SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER
U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE") 96-
23, 95-60, 91-38, 90-1 OR 84-14. ANY PURCHASER OR HOLDER OF THE CAPITAL
SECURITIES OR ANY INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS
PURCHASE AND HOLDING THEREOF THAT IT EITHER (A) IS NOT A PLAN OR A PLAN ASSET
ENTITY AND IS NOT PURCHASING SUCH SECURITIES ON BEHALF OF OR WITH "PLAN
ASSETS" OF ANY PLAN OR (B) IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE
UNDER PTCE 96-23, 95-60, 91-38, 90-1 OR 84-14 WITH RESPECT TO SUCH PURCHASE
AND HOLDING. SEE "ERISA CONSIDERATIONS."
-----------
AVAILABLE INFORMATION
The Company and the Trust have filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-1 (together
with all amendments, exhibits, schedules and supplements thereto, the
"Registration Statement") pursuant to the provisions of the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations
promulgated thereunder, for the registration of the Capital Securities offered
hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the
rules and regulations of the Commission. For further information with respect
to the Company, the Trust and the Capital Securities offered hereby, reference
is made to the Registration Statement, including exhibits thereto and
financial statements and notes filed as a part thereof. Statements made in
this Prospectus concerning the contents of any contract or other document are
not necessarily complete. With respect to each such contract or other document
filed with the Commission as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. The Registration Statement and the exhibits and schedules
thereto filed by the Company and the Trust with the Commission may be
inspected at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the regional
offices of the Commission located at Seven World Trade Center, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a Web site on the Internet at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
As a result of the Equity Offerings, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). So long as the Company is subject to the periodic
reporting requirements of the Exchange Act, it will continue to furnish the
reports and other information required thereby to the Commission. The Company
intends to furnish the holders of the Capital Securities with annual reports
containing, among other information, audited consolidated financial statements
reported upon by an independent public accounting firm and quarterly reports
for each of the first three quarters of each fiscal year containing unaudited
condensed consolidated financial information. The Company also intends to
furnish such other reports as it may determine or as may be required by law.
No separate financial statements of the Trust have been included or
incorporated by reference herein. The Company does not consider that such
financial statements would be material to the holders of Capital Securities
because (i) all of the voting securities of the Trust will be owned by the
Company, a reporting company under the Exchange Act, (ii) the Trust has and
will have no independent operations but exists for the sole purpose of issuing
securities representing undivided beneficial interests in the assets of the
Trust and investing the proceeds thereof in Junior Subordinated Debentures,
and (iii) the Company's obligations described herein, under the Declaration,
the Indenture, the Junior Subordinated Debentures and the Guarantee, taken
together, constitute a full and unconditional guarantee of all the Trust's
obligations under the Capital Securities. See "Description of the Capital
Securities," "Description of the Guarantee," "Description of the Junior
Subordinated Debentures" and "Effect of Obligations Under the Junior
Subordinated Debentures, the Guarantee and the Declaration."
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and financial statements
appearing elsewhere in this Prospectus. The Company was formed in November 1996
as a holding company for Nationwide Life Insurance Company and the other
companies within the Nationwide Insurance Enterprise that offer or distribute
long-term savings and retirement products. The information contained in this
Prospectus gives effect to the contribution by Nationwide Corporation to the
Company of Nationwide Life and such other companies described under "Recent
History." Except as otherwise indicated, all financial data and ratios
presented herein have been prepared using generally accepted accounting
principles ("GAAP"). See "Glossary of Selected Insurance Terms" for the
definitions of certain insurance terms used herein.
As used in this Prospectus, the "Company" means Nationwide Financial
Services, Inc. and, unless the context otherwise requires, its subsidiaries;
"Nationwide Life" means Nationwide Life Insurance Company and, unless the
context otherwise requires, Nationwide Life and Annuity Insurance Company;
"Nationwide Corp." means Nationwide Corporation; "Nationwide Mutual" means
Nationwide Mutual Insurance Company; and "Nationwide Insurance Enterprise"
means Nationwide Mutual and its subsidiaries and affiliates. Nationwide(R) is a
registered service mark of Nationwide Mutual, and The Best of America(R) is a
registered service mark of Nationwide Life.
THE COMPANY
OVERVIEW
The Company is a leading provider of long-term savings and retirement
products to retail and institutional customers throughout the United States.
The Company offers variable annuities, fixed annuities and life insurance as
well as mutual funds and pension products and administrative services. By
developing and offering a wide variety of products, the Company believes that
it has positioned itself to compete effectively in various stock market and
interest rate environments. The Company markets its products through a broad
spectrum of wholesale and retail distribution channels, including financial
planners, pension plan administrators, securities firms, banks and Nationwide
Insurance Enterprise insurance agents.
The Company is one of the leaders in the development and sale of variable
annuities. For the year ended December 31, 1996, the Company was the fourth
largest U.S. writer of individual variable annuity contracts based on sales,
according to The Variable Annuity Research & Data Service ("VARDS"). Its
principal variable annuity series, The Best of America, allows the customer to
choose from 36 investment options, including mutual funds managed by such well-
known firms as American Century, Dreyfus, Fidelity, Janus, Neuberger & Berman,
Oppenheimer, T. Rowe Price, Templeton, Vanguard and Warburg Pincus, as well as
mutual funds managed by the Company.
The Company is a member of the Nationwide Insurance Enterprise, which is
known nationally as a writer of automobile and homeowners' insurance throughout
the United States. The property/casualty insurers within the Nationwide
Insurance Enterprise are the fifth largest property/casualty insurance group in
the United States based on 1995 net premiums written, according to A.M. Best
Company, Inc. ("A.M. Best").
In the mid-1970s, to capitalize on anticipated opportunities in the growing
market for long-term savings and retirement products, the Company embarked on a
specific strategy of broadening its distribution channels and product offerings
beyond selling traditional life insurance to the automobile and homeowner
customers of
5
<PAGE>
the Nationwide Insurance Enterprise. Over a 20-year period, the Company added
financial planners, pension plan administrators, securities firms and banks as
new distribution channels. Such distribution channels in the aggregate
accounted for approximately 93.8% of the Company's sales in 1996. Currently,
the Company administers approximately 15,000 pension plans and has distribution
arrangements with 125 banks and other financial institutions, over 1,000
broker/dealers and over 30,000 registered representatives. The Company has
payroll deduction variable annuity enrollee customers in approximately 6,000
state and local government entities and 1,800 school districts, which have been
obtained principally through sponsorship relationships with the National
Association of Counties and The United States Conference of Mayors and an
exclusive contractual arrangement with The National Education Association of
the United States.
The Company has grown substantially in recent years as a result of its long-
term investment in developing the distribution channels necessary to reach its
target customers and the products required to meet the demands of these
customers. The Company believes its growth has been further enhanced by
favorable demographic trends, the growing tendency of Americans to supplement
traditional sources of retirement income with self-directed investments, such
as products offered by the Company, and the performance of the financial
markets, particularly the U.S. stock markets, in recent years. From 1992 to
1996, the Company's assets grew from $20.8 billion to $47.8 billion, a compound
annual growth rate of 23.1%. Asset growth during this period resulted from
sales of the Company's products as well as market appreciation of assets in the
Company's separate accounts and in its general account investment portfolio.
During the same period, the Company's net operating income (i.e., net income
excluding realized gains and losses on investments (net of related federal
income tax), discontinued operations and cumulative effect of accounting
changes) grew from $97.0 million to $211.3 million, a compound annual growth
rate of 21.5%. The Company's sales of variable annuities grew from $1.56
billion in 1992 to $6.50 billion in 1996, a compound annual growth rate of
42.9%. The Company's separate account assets, which are generated by the sale
of variable annuities and variable universal life insurance, grew from 29.3% of
total assets at December 31, 1992 to 56.4% of total assets at December 31,
1996. During this period of substantial growth, the Company controlled its
operating expenses by taking advantage of economies of scale and by increasing
productivity through investments in technology. From 1992 to 1996, the
Company's total assets increased by 130.1% while operating expenses increased
by only 55.1%. As a result, its ratio of operating expenses to total assets
fell from 1.10% in 1992 to 0.74% in 1996.
The Company believes that demographic trends and shifts in attitudes toward
retirement savings will continue to support increased consumer demand for its
products. According to U.S. Census Bureau projections, the number of Americans
between the ages of 45 and 64 will grow from 55.7 million in 1996 to 71.1
million in 2005, making this "preretirement" age group the fastest growing
segment of the U.S. population. The Company believes that Americans
increasingly are supplementing traditional sources of retirement income, such
as employer-provided defined benefit plans and Social Security, with self-
directed investments. Reflecting this shift, industry sales of individual
variable annuity products grew from $28.5 billion in 1992 to $73.8 billion in
1996, a compound annual growth rate of 26.9%, according to VARDS. During the
same period, industry individual variable annuity assets grew from $212 billion
to $501 billion, a compound annual growth rate of 24.0%, according to VARDS.
The Company has three product segments: Variable Annuities, Fixed Annuities
and Life Insurance. The Variable Annuities segment, which accounted for $90.3
million (or 27.5%) of the Company's operating income before federal income tax
expense in 1996, consists of annuity contracts that provide the customer with
the opportunity to invest in mutual funds managed by independent investment
managers and the Company, with investment returns accumulating on a tax-
deferred basis. The Fixed Annuities segment, which accounted for $135.4 million
(or 41.2%) of the Company's operating income before federal income tax expense
in 1996, consists of annuity contracts that generate a return for the customer
at a specified interest rate, fixed for a prescribed period, with returns
accumulating on a tax-deferred basis. Such contracts consist of single premium
deferred annuities, flexible premium deferred annuities and single premium
immediate annuities. The Fixed Annuities segment also includes the fixed option
under the Company's variable annuity contracts, which
6
<PAGE>
accounted for 70.5% of the Company's fixed annuity policy reserves as of
December 31, 1996. For the year ended December 31, 1996, the average crediting
rate on contracts (including the fixed option under the Company's variable
annuity contracts) in the Fixed Annuities segment was 6.3%. Substantially all
of the Company's crediting rates on its fixed annuity contracts are guaranteed
for a period not exceeding 15 months. See "Business--Product Segments--Fixed
Annuities." The Life Insurance segment, which accounted for $67.2 million (or
20.5%) of the Company's operating income before federal income tax expense in
1996, consists of insurance products, including variable life insurance, that
provide a death benefit and may also allow the customer to build cash value on
a tax-deferred basis.
BUSINESS STRATEGIES
The Company's objective is to continue its record of profitable growth by
following the strategies set forth below:
Enhance the Company's Leading Position in the Market for Variable
Annuities. The Company believes that the variable annuity business is
attractive because it generates fee income and requires significantly less
capital support than fixed annuities and life insurance. The Company also
believes, based on the aging of the U.S. population and recent increases in
sales of retirement savings products, that variable annuities will continue to
experience high rates of industry sales growth and that the Company possesses
distinct competitive advantages that will allow it to continue to benefit from
this anticipated growth. Some of the Company's most important advantages
include its innovative product offerings and strong relationships with
independent, well-known fund managers. For example, the Company's The Best of
America IV and The Best of America--America's Vision individual variable
annuity contracts allow the customer to choose from 36 investment options,
including mutual funds managed by a variety of well-known fund managers and the
Company. In the aggregate, the Company's group variable annuity products offer
over 100 underlying investment options. The Company works closely with its
investment managers and product distributors to adapt the Company's products
and services to changes in the retail and institutional marketplace.
Capture a Growing Share of Sales in all Distribution Channels. The Company's
broad distribution system permits it to offer its products across a wide range
of markets and customers. The Company continually seeks to gain a larger share
of each of its distributor's sales by offering products that are attractive to
its distributors from both a financial perspective and in helping the
distributor build relationships with its customers. In addition to providing
new products to its distributors, the Company seeks to increase sales in each
of its existing distribution channels by cross-selling those products not
currently offered through such channel. The Company also seeks to add new
distributors to its existing channels and regularly evaluates possible new
distribution channels. While many of the Company's competitors employ a variety
of distribution channels, the Company believes that few of its competitors have
a developed distribution system that is as broad as the Company's and that this
distinguishing characteristic provides the Company with an important
competitive advantage.
Maintain a Diverse Product Portfolio. The Company offers a diverse mix of
variable annuity, fixed annuity, mutual fund and life insurance products. Based
on its experience, the Company believes that demand for, and financial results
of, certain of these products are sensitive to stock market and/or interest
rate environments, while some products are relatively insensitive to such
factors. The Company emphasizes the sale and development of variable annuities,
which tend to experience higher sales growth when interest rates are low, and
fixed annuities, which tend to experience higher sales growth when interest
rates are high. The Company also sells traditional life insurance products
which it believes provide it with a stable source of revenues throughout
changing market conditions. The Company's strategy is to rely on a variety of
products, each of which may perform differently in given stock market and
interest rate environments, so that the Company will be able to grow profitably
in a variety of such environments.
Emphasize Payroll Deductions and Tax-Qualified and Group Annuities. To
further enable it to grow profitably in a variety of stock market and interest
rate environments, the Company concentrates on the sale of annuities through
payroll deductions and the sale of tax-qualified and group annuities. Annuities
sold through
7
<PAGE>
payroll deductions are somewhat insulated from changes in market conditions
because of the recurring nature of their deposits. In 1996, 38.2% of the
Company's total annuity statutory premiums and deposits were attributable to
payroll deductions. Group annuities and tax-qualified annuities are also
somewhat insulated from changes in market conditions because they usually are
provided through employers as a voluntary retirement benefit with a limited
number of competing investment options. In addition, tax-qualified annuities
subject the customer to a tax penalty for early withdrawal. Tax-qualified
annuities accounted for 70.3% and group annuities accounted for 43.6% of the
Company's total annuity statutory premiums and deposits in 1996.
Build on the Company's Brand Strength. The Company believes that the brand
names it uses in connection with its products, such as Nationwide and The Best
of America, are well-known and have a strong reputation in the financial
services market. The Company intends to extend its brand names across markets,
applying The Best of America name across many of its wholesale and retail
distribution channels. The Company believes that, as the numbers of products
and competitors in its markets grow, consumers, distributors, retirement plan
sponsors and other decision makers in the market for long-term savings and
retirement products will continue to emphasize nationally known brand names.
See "Certain Relationships and Related Transactions--New Agreements with the
Nationwide Insurance Enterprise--Intercompany Agreement."
Continue Commitment to Technological Excellence. The Company has made and is
committed to continue making significant investments in information systems to
enable it to offer innovative products, to more effectively cross-sell products
across distribution channels and to offer high quality service. The information
systems that the Company has developed for its variable products are costly to
replicate. The Company believes that these systems provide it with a
significant competitive advantage and impose a barrier to entry for new
competitors.
PRINCIPAL STOCKHOLDER
Following the Equity Offerings, Nationwide Corp. will be the controlling
stockholder of the Company. Upon completion of the Equity Offerings, Nationwide
Corp. will own all of the outstanding shares of the Class B Common Stock, $0.01
par value, of the Company ("Class B Common Stock and, together with Class A
Common Stock, the "Common Stock"), representing 83.6% and 98.1% (81.6% and
97.8% if the Underwriters' over-allotment option is exercised in full) of the
total number of shares of Common Stock outstanding and the combined voting
power of the stockholders of the Company, respectively. Nationwide Corp. is a
subsidiary of Nationwide Mutual. Nationwide Mutual and Nationwide Mutual Fire
Insurance Company ("Nationwide Mutual Fire") are mutual companies which are the
controlling entities of the Nationwide Insurance Enterprise. The Nationwide
Insurance Enterprise is an affiliated group of over 100 companies that offers a
wide range of insurance and investment products and services. Nationwide Mutual
and Nationwide Mutual Fire control the companies within the Nationwide
Insurance Enterprise through a variety of means, including security ownership,
management contracts and common directors. The Nationwide Insurance Enterprise
had $68.0 billion in total statutory assets as of December 31, 1996. See "Risk
Factors--Control by and Relationship with the Nationwide Insurance Enterprise;
Conflicts of Interest" and "Certain Relationships and Related Transactions."
THE EQUITY OFFERINGS, THE NOTE OFFERING AND THE CAPITAL SECURITIES OFFERING
Prior to the Capital Securities Offering, the Company expects to consummate
the Equity Offerings, and, concurrently with the Capital Securities Offering,
the Company expects to consummate the Note Offering. The consummation of the
Capital Securities Offering is not conditioned on the completion of the Note
Offering. There can be no assurance that the Note Offering will be consummated.
See "Use of Proceeds," "Recent History" and "The Equity Offerings, the Note
Offering and the Capital Securities Offering." The Equity Offerings and the
Note Offering are being made pursuant to separate prospectuses.
----------------
The Company's executive offices are located at One Nationwide Plaza,
Columbus, Ohio 43215, and its telephone number is (614) 249-7111. The place of
business and the telephone number of the Trust are the principal executive
offices and telephone number of the Company.
8
<PAGE>
THE CAPITAL SECURITIES OFFERING
The Trust..................... Nationwide Financial Services Capital Trust, a
Delaware business trust.
Securities Offered............ $100,000,000 aggregate liquidation amount of
% Capital Securities (Liquidation Amount,
$1,000 per Capital Security).
Distributions................. Distributions on the Capital Securities will
accrue from the date of original issuance of
the Capital Securities and will be payable at
the annual rate of % of the liquidation
amount of $1,000 per Capital Security. Subject
to the distribution deferral provisions
described below, distributions will be payable
semi-annually in arrears on and
of each year, commencing ,
1997. Because distributions on the Capital
Securities constitute interest, corporate
holders thereof will not be entitled to a
dividends-received deduction.
Distribution Deferral The ability of the Trust to pay distributions
Provisions.................... on the Capital Securities is solely dependent
on its receipt of principal and interest
payments from the Company on the Junior
Subordinated Debentures. So long as no Event of
Default has occurred and is continuing, the
Company has the right at any time to defer the
interest payments due from time to time on the
Junior Subordinated Debentures during any
Deferral Period for a period not exceeding 10
consecutive semi-annual periods. Semi-annual
distributions on the Capital Securities would
be deferred by the Trust (but would continue to
accumulate semi-annually and would accrue
interest to the extent permitted by law) until
the end of any such Deferral Period. There
could be multiple Deferral Periods of varying
lengths throughout the term of the Junior
Subordinated Debentures. See "Risk Factors--
Factors Relating to the Capital Securities--
Option to Extend Interest Payment Period" and
"--Tax Consequences of Extension of Interest
Payment Period," "Description of the Capital
Securities--Distributions" and "Description of
the Junior Subordinated Debentures--Option to
Extend Interest Payment Period." If a deferral
of an interest payment occurs, the holders of
the Capital Securities will continue to accrue
income for United States federal income tax
purposes in advance of any corresponding cash
distribution. See "Risk Factors--Factors
Relating to the Capital Securities--Option to
Extend Interest Payment Period" and "--Tax
Consequences of Extension of Interest Payment
Period," and "United States Federal Income
Taxation--Original Issue Discount."
Rights Upon Deferral of During any Deferral Period, interest on the
Distributions................. Junior Subordinated Debentures will compound
semi-annually and semi-annual distributions
(compounded semi-annually at the distribution
rate) will accrue on the Capital Securities.
The Company has agreed, among other things, not
to declare or pay any dividend on its
9
<PAGE>
capital stock (subject to certain exceptions)
or make certain other restricted payments
during any Deferral Period. See "Description of
the Junior Subordinated Debentures--Option to
Extend Interest Payment Period" and
"Description of the Guarantee--Certain
Covenants of the Company."
Distribution of Junior
Subordinated Debentures Upon
Liquidation of the Trust.....
At any time, the Company will have the right to
terminate the Trust and, after satisfaction of
liabilities to creditors of the Trust as
provided by applicable law, cause Junior
Subordinated Debentures to be distributed to
the holders of the Trust Securities in
connection with the liquidation of the Trust.
Such Junior Subordinated Debentures shall have
an aggregate principal amount, an interest rate
and accrued and unpaid interest equal to,
respectively, the aggregate liquidation amount,
distribution rate and accrued and unpaid
distributions of the Trust Securities. See
"Description of the Capital Securities--
Distribution of Junior Subordinated Debentures
Upon Liquidation of the Trust."
Distribution of Cash Upon
Liquidation of the Trust.....
In the event of a Liquidation of the Trust, the
holders will be entitled, after satisfaction of
liabilities to creditors of the Trust as
provided by applicable law, to receive $1,000
per Capital Security plus any additional amount
payable upon redemption of the Junior
Subordinated Debentures as a result of the
Make-Whole Premium and accrued and unpaid
distributions thereon to the date of payment,
unless, in connection with such Liquidation,
Junior Subordinated Debentures are distributed
to such holders. See "Description of the
Capital Securities--Distribution of Cash Upon
Liquidation of the Trust" and "--Distribution
of Junior Subordinated Debentures Upon
Liquidation of the Trust."
Mandatory Redemption.......... Upon the repayment or payment of the Junior
Subordinated Debentures, whether at maturity or
upon redemption or otherwise, the Trust must
use the proceeds from such repayment or
redemption to redeem Trust Securities having an
aggregate liquidation amount equal to the
aggregate principal amount of Junior
Subordinated Debentures so repaid or redeemed
at the Redemption Price. See "Description of
the Capital Securities--Mandatory Redemption."
Tax Event..................... If at any time a Tax Event shall occur and be
continuing, the Trust shall, except in limited
circumstances, be dissolved and Junior
Subordinated Debentures shall be distributed to
the holders of Trust Securities. See "--
Distribution of Junior Subordinated Debentures
Upon Liquidation of the Trust." In certain
circumstances, upon the occurrence of a Tax
Event, cash will be distributed in redemption
of the Junior Subordinated Debentures at the
Redemption Price; provided, that no Make-Whole
Premium shall be payable in connection with
such redemption. See "Description of the
Capital Securities--Tax Event Distribution."
10
<PAGE>
Guarantee..................... The Company will guarantee, as described
herein, the payment in full of (i) the
distributions on the Capital Securities to the
extent of funds held by the Trust, (ii) the
amount payable upon redemption of the Capital
Securities to the extent of funds held by the
Trust and (iii) generally, the liquidation
amount of the Capital Securities to the extent
of the assets of the Trust available for
distribution to holders of Capital Securities.
The Guarantee will be subordinated and junior
in right of payment to all other liabilities of
the Company, except any liabilities that may be
made pari passu expressly by their terms. The
Guarantee will rank pari passu with the most
senior preferred or preference stock now or
hereafter issued by the Company and any
guarantee now or hereafter entered into by the
Company in respect of any preferred or
preference stock or preferred securities of any
affiliate of the Company. Upon the liquidation,
dissolution or winding up of the Company, its
obligations under the Guarantee will rank
junior to all of its other liabilities, except
as aforesaid, and as a result, funds may not be
available for payment under the Guarantee. See
"Risk Factors--Factors Relating to the Capital
Securities--Subordination of Guarantee and
Junior Subordinated Debentures" and
"Description of the Guarantee--Status of the
Guarantee; Subordination."
The Company has, through the Guarantee, the
Junior Subordinated Debentures, the Indenture
and the Declaration, taken together, fully and
unconditionally guaranteed all of the Trust's
obligations under the Capital Securities. No
single document standing alone or operating in
conjunction with fewer than all of the other
documents constitutes such guarantee. It is
only the combined operation of these documents
that has the effect of providing a full and
unconditional guarantee of the Trust's
obligations under the Capital Securities. See
"Description of the Guarantee" and "Effect of
Obligations Under the Junior Subordinated
Debentures, the Guarantee and the Declaration."
Voting Rights................. Except as specified herein, holders of the
Capital Securities will have no voting rights.
See "Description of the Capital Securities--
Voting Rights; Amendment of Declaration."
Junior Subordinated The Junior Subordinated Debentures will mature
Debentures.................... on , 2037 and will bear interest at
the rate of % per annum, payable semi-
annually in arrears. So long as no Event of
Default has occurred and is continuing,
interest payments may be deferred from time to
time by the Company (during any Deferral
Period, interest would continue to accrue and
compound semi-annually) for a Deferral Period
not to exceed 10 consecutive semi-annual
periods, provided that no such Deferral Period
may extend beyond the maturity date of the
Junior Subordinated Debentures. Prior to the
termination of any Deferral Period of less than
10 consecutive semi-annual periods, so long as
no Event of Default has occurred and is
continuing, the Company may
11
<PAGE>
further extend the Deferral Period; provided,
that no such Deferral Period, as extended, may
exceed 10 consecutive semi-annual periods or
extend beyond the maturity date of the Junior
Subordinated Debentures. Upon the termination
of any Deferral Period, the Company is required
to pay all amounts then due and, upon such
payment, the Company may select a new Deferral
Period, subject to the preceding sentence. No
interest shall be due during a Deferral Period
until the end of such period. During a Deferral
Period, the Company will be prohibited from
paying dividends on any of its capital stock
(subject to certain exceptions) and making
certain other restricted payments until semi-
annual interest payments are resumed and all
accumulated and unpaid interest (including
interest thereon to the extent permitted by
law) on the Junior Subordinated Debentures is
made current. The Company may optionally redeem
the Junior Subordinated Debentures at any time
at the Redemption Price, which includes (except
in the case of a redemption following a Tax
Event) the Make-Whole Premium. The payment of
the principal of and interest on the Junior
Subordinated Debentures will be subordinated
and junior in right of payment, to the extent
set forth herein, to all existing and future
Senior Indebtedness of the Company. Further,
the Junior Subordinated Debentures (and
therefore the Capital Securities) will be
effectively subordinated to all existing and
future liabilities and obligations of the
Company's subsidiaries, including obligations
to policyholders. At December 31, 1996, after
giving effect to the Note Offering, the
aggregate amount of Senior Indebtedness and
liabilities and obligations of the Company's
subsidiaries, including obligations to
policyholders, that would effectively rank
senior to the Junior Subordinated Debentures
was approximately $45.9 billion. See
"Capitalization" and "Pro Forma Selected
Consolidated Financial Data." See "Description
of the Junior Subordinated Debentures" and
"Risk Factors--Factors Relating to the Capital
Securities--Subordination of Guarantee and
Junior Subordinated Debentures."
Form of Capital Securities.... The Capital Securities will be issued only as
fully-registered securities registered in the
name of Cede & Co., as nominee for DTC. One or
more fully registered global Capital Security
certificates will be issued, representing in
the aggregate the total number of Capital
Securities, and will be deposited with DTC. See
"Description of the Capital Securities--Book-
Entry-Only Issuance--The Depository Trust
Company."
12
<PAGE>
Use of Proceeds............... All of the proceeds from the sale of the
Capital Securities will be invested by the
Trust in Junior Subordinated Debentures and the
net proceeds to the Company of $98.6 million
from the sale of Junior Subordinated Debentures
will be contributed by the Company to the
capital of Nationwide Life. Of the $426.6
million estimated net proceeds from the Equity
Offerings, the Company will contribute $371.6
million to the capital of Nationwide Life and
retain the balance for general corporate
purposes. All of the net proceeds from the Note
Offering will be contributed by the Company to
the capital of Nationwide Life. See "Use of
Proceeds" and "The Equity Offerings, the Note
Offering and the Capital Securities Offering."
RISK FACTORS
Potential purchasers of the Capital Securities offered hereby should
carefully consider the risk factors set forth herein under "Risk Factors"
commencing on page 17, as well as other information contained in this
Prospectus.
13
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth certain summary consolidated financial data
for the Company. The consolidated income statement data set forth below for the
years ended December 31, 1992 through 1996 and the consolidated balance sheet
data as of December 31, 1992 through 1996 are derived from the consolidated
financial statements of the Company, which have been audited by KPMG Peat
Marwick LLP, independent certified public accountants. Segment and Other Data
and Pro Forma Consolidated Balance Sheet Data appearing below are unaudited.
The summary consolidated financial data set forth below should be read in
conjunction with the consolidated financial statements of the Company and notes
thereto and the other financial information, including "Management's Discussion
and Analysis of Financial Condition and Results of Operations," included
elsewhere herein.
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA:
Total revenues.......... $ 2,016.6 $ 1,837.0 $ 1,634.1 $ 1,639.3 $ 1,405.6
Total benefits and
expenses............... 1,688.5 1,555.8 1,393.7 1,363.5 1,289.2
--------- --------- --------- --------- ---------
Income from continuing
operations before
federal income tax
expense and cumulative
effect of accounting
changes................ 328.1 281.2 240.4 275.8 116.4
Federal income tax
expense................ 115.8 96.3 82.5 96.7 32.1
--------- --------- --------- --------- ---------
Income from continuing
operations before
cumulative effect of
accounting changes..... 212.3 184.9 157.9 179.1 84.3
Income from discontinued
operations, net of
federal income tax
expense................ 11.3 24.7 20.5 28.6 2.1
--------- --------- --------- --------- ---------
Income before cumulative
effect of accounting
changes................ 223.6 209.6 178.4 207.7 86.4
Cumulative effect of
accounting changes, net
of federal income tax
benefit................ -- -- -- (0.1) --
--------- --------- --------- --------- ---------
Net income.............. $ 223.6 $ 209.6 $ 178.4 $ 207.6 $ 86.4
========= ========= ========= ========= =========
CONSOLIDATED BALANCE
SHEET DATA:
General account assets.. $20,843.5 $19,915.0 $17,156.2 $15,697.5 $14,674.8
Separate account
assets................. 26,926.7 18,591.1 12,087.1 9,006.4 6,081.4
Total assets............ 47,770.2 38,506.1 29,243.3 24,703.9 20,756.2
Long-term debt.......... -- -- -- -- --
Total liabilities....... 45,638.5 35,889.4 27,382.7 23,094.3 19,358.6
Shareholder's
equity(1).............. 2,131.7 2,616.7 1,860.6 1,609.6 1,397.6
SEGMENT AND OTHER DATA:
Operating income (loss)
before income taxes by
segment(2):
Variable Annuities..... $ 90.3 $ 50.8 $ 24.6 $ 10.4 $ 13.1
Fixed Annuities........ 135.4 137.0 139.0 105.9 95.3
Life Insurance......... 67.2 67.6 53.0 49.7 46.1
Corporate and
Other(1)(3)........... 35.4 27.5 40.3 3.6 (18.7)
Policy reserves by
segment:
Variable Annuities(4).. 24,278.1 16,761.8 10,751.1 7,854.8 5,028.2
Fixed Annuities(4)..... 13,511.8 12,784.0 11,247.0 10,154.1 9,659.8
Life Insurance......... 2,938.9 2,660.5 2,425.2 2,255.0 2,084.8
Corporate and
Other(3).............. 3,302.5 2,644.3 2,252.7 2,103.9 1,823.0
Statutory premiums,
deposits and other
considerations by
product segment(5):
Variable Annuities(6).. 6,500.3 4,399.3 3,821.1 2,414.2 1,561.8
Fixed Annuities(6)..... 1,600.5 1,864.2 1,308.6 1,300.9 1,637.8
Life Insurance......... 439.3 352.4 320.8 279.4 264.7
Corporate and
Other(3).............. 502.6 182.1 148.5 205.3 91.7
Net operating
income(2).............. 211.3 184.8 168.2 109.7 97.0
Ratio of earnings to
fixed charges(7)....... 1.3x 1.3x 1.3x 1.3x 1.1x
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
-----------------------
(DOLLARS IN MILLIONS)
<S> <C>
PRO FORMA CONSOLIDATED BALANCE SHEET DATA(8):
General account assets.................................. $19,993.5
Separate account assets................................. 26,926.7
Total assets............................................ 46,920.2
Long-term debt.......................................... --
Total liabilities....................................... 45,638.5
Shareholder's equity(1)................................. 1,281.7
</TABLE>
- -------
(1) The Company has received cash capital contributions and declared cash
dividends over the periods presented as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994 1993 1992
------ ----- ------ ------ -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Cash capital contributions.... $ -- $ -- $200.0 $100.0 $13.5
Cash dividends................ (52.0) (8.5) (1.0) (10.6) (4.6)
------ ----- ------ ------ -----
Net contributions............. $(52.0) $(8.5) $199.0 $ 89.4 $ 8.9
====== ===== ====== ====== =====
</TABLE>
The cash capital contributions and cash dividends and the related increases
and decreases to net investment income are recorded in the Corporate and
Other segment. The cash capital contributions and cash dividends had a
direct impact on the Company's shareholder's equity and the operating
income/(loss) before federal income tax expense of the Corporate and Other
segment.
(2) Excludes realized gains/(losses) on investments (net of related federal
income tax expense where applicable), discontinued operations and
cumulative effect of accounting changes.
(3) The Corporate and Other segment includes net investment income on
investments not allocated to the three product segments; all realized
investment gains and losses; investment management fees, other revenues
and operating expenses of Nationwide mutual funds other than the portion
allocated to the Variable Annuities and Life Insurance segments;
commissions and other income earned by the marketing and distribution
subsidiaries of the Company; and revenues, benefits and expenses
associated with group annuity contracts issued to Nationwide Insurance
Enterprise employee and agent benefit plans.
(4) Policy reserves related to the fixed option under the Company's variable
annuity contracts are included in Fixed Annuities. As of December 31,
1996, 1995 and 1994, such amounts were $9.52 billion, $8.83 billion and
$7.27 billion, respectively.
(5) Statutory data have been derived from the Annual and Quarterly Statements
of Nationwide Life, as filed with insurance regulatory authorities and
prepared in accordance with statutory accounting practices.
(6) Statutory premiums, deposits and other considerations related to the fixed
option under the Company's variable annuity contracts are included in
Fixed Annuities. For the years ended December 31, 1996, 1995 and 1994,
such amounts were $1.24 billion, $1.57 billion and $1.05 billion,
respectively.
(7) For purposes of this computation, earnings consist of income from
continuing operations before federal income tax expense and cumulative
effect of accounting changes and fixed charges. Fixed charges consist of
interest expense on debt plus interest credited to policyholder account
balances. There was no interest expense on debt for any of the periods
presented.
(8) Pro forma to give effect to the Special Dividend totalling $850.0 million
as if the Special Dividend had occurred as of December 31, 1996. The
Special Dividend will have been paid by the Company prior to the
completion of the Equity Offerings.
15
<PAGE>
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
The summary pro forma consolidated financial data for the Company set forth
below give effect to the Special Dividend (as defined herein), the Equity
Offerings, the Note Offering, the Capital Securities Offering and, with respect
to Consolidated Income Statement Data only, the 1996 Cash Dividend (as defined
herein) as if they had been consummated at the beginning of the period
indicated or, in the case of the balance sheet data, as of the date indicated.
The summary pro forma consolidated financial data do not purport to reflect
what the Company's financial position or results of operations would actually
have been if the Special Dividend, the Equity Offerings, the Note Offering, the
Capital Securities Offering and the 1996 Cash Dividend had in fact occurred on
such date nor should they be taken as indicative of the future results of
operations of the Company. The summary pro forma consolidated financial data
should be read in conjunction with the consolidated financial statements of the
Company and the notes thereto and the other financial information pertaining to
the Company included elsewhere herein. See "Recent History," "Pro Forma
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR
ENDED
DECEMBER 31, 1996
-----------------------
ACTUAL PRO FORMA(1)
--------- ------------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA:
Income from continuing
operations............. $ 212.3 $ 148.0
Income from continuing
operations per common
share(2)............... 2.03 1.18
CONSOLIDATED BALANCE
SHEET DATA:
General account assets.. 20,843.5 20,820.1
Separate account as-
sets................... 26,926.7 26,926.7
Total assets............ 47,770.2 47,746.8
Long-term debt.......... -- 300.0
Capital Securities(3)... -- 100.0
Shareholders' equity.... 2,131.7 1,708.3
Debt/capital ratio(4)... -- 15.5%
Debt and Capital
Securities/capital ra-
tio(4)................. -- 20.7%
Book value per common
share(2)............... $ 20.35 $ 13.64
Adjusted book value per
common share(2)(4)..... 18.69 12.25
OTHER DATA:
Ratio of earnings to
fixed charges(5)....... 1.3x 1.2x
</TABLE>
- --------
(1) Pro forma to give effect to (i) the Equity Offerings (assuming net proceeds
of $426.6 million and the issuance of 20,540,000 shares of Class A Common
Stock), (ii) the Special Dividend totalling $850.0 million which will have
been paid by the Company prior to the completion of the Equity Offerings,
(iii) the Note Offering and the Capital Securities Offering (assuming net
proceeds of $394.9 million from such offerings) and (iv) with respect to
Consolidated Income Statement Data only, the 1996 Cash Dividend totalling
$50.0 million which was paid by the Company on December 31, 1996. Results
reflect the reduction of $68.2 million of pre-tax net investment income for
the year ended December 31, 1996 as a result of the decrease in invested
assets of the Company from the 1996 Cash Dividend totalling $50.0 million
and the Special Dividend totalling $850.0 million. If this reduction were
partially offset by net investment income on the proceeds from the Equity
Offerings, the Note Offering and the Capital Securities Offering at an
assumed reinvestment rate of 7.5%, the net adjustment would be a reduction
of $6.6 million. The $300 million aggregate principal amount of Notes is
assumed to bear interest at a rate of 7.5% per annum for the periods
indicated. The $100 million aggregate liquidation amount of the Capital
Securities is assumed to bear a distribution rate of 8.0% per annum for the
periods indicated. There can be no assurance that these will be the actual
rates borne by such instruments. An increase of 1.0% per annum on the
assumed interest rate on the Notes and on the assumed distribution rate on
the Capital Securities would result in an increase of $4.0 million to
interest expense for the year ended December 31, 1996. Interest expense
includes amortization of deferred issuance costs.
(2) Actual is based on 104,745,000 shares of Class B Common Stock outstanding.
Pro forma is based on 125,285,000 shares outstanding, which consists of
104,745,000 shares of Class B Common Stock and 20,540,000 shares of Class A
Common Stock assumed to be issued in the Equity Offerings.
(3) The Capital Securities will be reflected separately in the Company's
consolidated financial statements as "Company-obligated mandatorily
redeemable capital securities of the Nationwide Financial Services Capital
Trust, holding solely junior subordinated debentures of Nationwide
Financial Services, Inc." with a footnote indicating that all of the Common
Securities of the Trust, which are the only voting securities of the Trust,
are owned by the Company, that the sole assets of the Trust are the junior
subordinated debentures (indicating the principal amount, interest rate and
maturity date thereof) and that the Trust's obligations with respect to the
Capital Securities, through the Guarantee, the Junior Subordinated
Debentures, the Indenture and the Declaration, taken together, are fully
and unconditionally guaranteed by the Company.
(4) Adjusted to exclude net unrealized gains and losses recorded in
shareholder's equity in accordance with Statement of Financial Accounting
Standards No. 115 ("SFAS 115").
(5) For purposes of this computation, earnings consist of income from
continuing operations before federal income tax expense and fixed charges.
Fixed charges consist of interest expense on debt plus interest credited to
policyholder account balances. There was no actual interest expense on debt
for the year ended December 31, 1996.
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RISK FACTORS
Prospective purchasers of the Capital Securities offered hereby should
consider carefully the risk factors set forth below, as well as the other
information set forth in this Prospectus.
FACTORS RELATING TO THE CAPITAL SECURITIES
Subordination of Guarantee and Junior Subordinated Debentures. The Company's
obligations under the Guarantee are unsecured, subordinate and junior in right
of payment to all other liabilities of the Company, with certain limited
exceptions. The obligations of the Company under the Junior Subordinated
Debentures are subordinate and junior in right of payment to all existing and
future Senior Indebtedness of the Company. There are no terms of the Capital
Securities, the Junior Subordinated Debentures or the Guarantee that limit the
Company's ability to incur additional unsecured or secured indebtedness or
liabilities, including indebtedness or liabilities that would rank senior to
the Junior Subordinated Debentures and the Guarantee. Because the Company is a
holding company, the right of the Company to participate in any distribution
of assets of any subsidiary upon such subsidiary's liquidation or
reorganization or otherwise, is subject to the prior claims of creditors of
the subsidiary, except to the extent the Company may itself be recognized as a
creditor of that subsidiary. In addition, the principal sources of the
Company's income are dividends, interest and fees from its insurance and non-
insurance affiliates. In addition, payment of dividends to the Company by the
subsidiary insurance companies is subject to ongoing review by insurance
regulators and is subject to various statutory limitations and in certain
circumstances requires approval by insurance regulatory authorities. See
"Business--Regulation--Regulation of Dividends and Other Payments from
Insurance Subsidiaries." Accordingly, the Guarantee and the Junior
Subordinated Debentures (and therefore the Capital Securities) will be
effectively subordinated to all existing and future liabilities and
obligations of the Company's subsidiaries, including obligations to
policyholders. Holders of Junior Subordinated Debentures should look only to
the assets of the Company for payments of interest and principal and premium,
if any, thereon. See "Description of the Guarantee--Status of the Guarantee;
Subordination," "Description of the Junior Subordinated Debentures--
Subordination," "The Equity Offerings, the Note Offering and the Capital
Securities Offering," "Capitalization" and "Pro Forma Consolidated Financial
Data." At December 31, 1996, after giving effect to the Note Offering, the
aggregate amount of Senior Indebtedness and liabilities and obligations of the
Company's subsidiaries that would effectively rank senior to the Guarantee and
the Junior Subordinated Debentures was approximately $45.9 billion. See
"Capitalization" and "Pro Forma Consolidated Financial Data."
The ability of the Trust to pay amounts due on the Capital Securities is
wholly dependent upon the Company's making payments on the Junior Subordinated
Debentures as and when required.
Option to Extend Interest Payment Period. So long as no Event of Default has
occurred and is continuing, the Company has the right at any time under the
Indenture to defer interest payments from time to time on the Junior
Subordinated Debentures during any Deferral Period for a period not exceeding
10 consecutive semi-annual periods. Upon the termination of any Deferral
Period and the payment of all amounts then due, the Company may select a new
Deferral Period, subject to the requirements described herein. As a
consequence, during any such Deferral Period, semi-annual distributions on the
Capital Securities would be deferred (but would continue to accrue with
interest thereon) by the Trust. In the event that the Company exercises this
right, during such period the Company (i) shall not declare or pay dividends
on, make distributions with respect to, or redeem, purchase or acquire, or
make a liquidation payment with respect to, any of its capital stock (other
than stock dividends paid by the Company which consist of stock of the same
class as that on which the dividend is being paid), (ii) shall not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by the Company that rank pari passu with or
junior to the Junior Subordinated Debentures, and (iii) shall not make any
guarantee payments with respect to the foregoing (other than pursuant to the
Guarantee). Prior to the termination of any such Deferral Period, the Company
may further extend the Deferral Period, so long as no Event of Default has
occurred and is continuing, provided that such Deferral Period, as extended,
may not exceed 10 consecutive semi-annual periods and may not extend beyond
the maturity date of the Junior Subordinated Debentures. Upon the termination
of any Deferral Period and the payment of all
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amounts then due, the Company may commence a new Deferral Period, subject to
the above requirements. Consequently, there could be multiple Deferral Periods
of varying lengths prior to the maturity date of the Junior Subordinated
Debentures. See "Description of the Capital Securities--Distributions" and
"Description of the Junior Subordinated Debentures--Option to Extend Interest
Payment Period."
Tax Consequences of Extension of Interest Payment Period. Should the Company
exercise its right to defer payments of interest on the Junior Subordinated
Debentures by extending the interest payment period, each holder of Capital
Securities will accrue income (as original issue discount ("OID")) in respect
of the deferred interest allocable to its Capital Securities for United States
federal income tax purposes. Such income will be allocated but not distributed
to holders of the Capital Securities. As a result, each such holder of the
Capital Securities will recognize income for United States federal income tax
purposes in advance of the receipt of cash and will not receive the cash from
the Trust related to such income if such holder disposes of its Capital
Securities prior to the record date for the date on which distributions of
such amounts are made. The Company has no current intention of exercising its
right to defer payments of interest by extending the interest payment period
on the Junior Subordinated Debentures. However, should the Company determine
to exercise such right in the future, the market price of the Capital
Securities is likely to be adversely affected. A holder that disposes of its
Capital Securities during a Deferral Period, therefore, might not receive the
same return on its investment as a holder that continues to hold its Capital
Securities. In addition, as a result of the existence of the Company's right
to defer interest payments, the market price of the Capital Securities (which
represent an undivided beneficial interest in the Junior Subordinated
Debentures) may be more volatile than the market price of other securities on
which OID accrues that do not have such rights. See "United States Federal
Income Taxation--Original Issue Discount."
Rights Under the Guarantee. The Guarantee Trustee (as defined herein) will
hold the Guarantee for the benefit of the holders of the Capital Securities.
The Guarantee guarantees to the holders of the Capital Securities the payment
(but not the collection) of (i) any accrued and unpaid distributions on the
Capital Securities to the extent of funds held by the Trust, (ii) the amount
payable upon redemption, including all accrued and unpaid distributions, of
the Capital Securities called for redemption by the Trust, to the extent of
funds held by the Trust and (iii) upon a Liquidation (other than in connection
with a redemption of all of the Capital Securities), the lesser of (a) the
aggregate of the liquidation amount and all accrued and unpaid distributions
on the Capital Securities to the date of payment, to the extent of funds held
by the Trust and (b) the amount of assets of the Trust remaining available for
distribution to holders of the Capital Securities upon a Liquidation. The
holders of a majority in liquidation amount of the Capital Securities have the
right to direct the time, method and place of conducting any proceeding for
any remedy available to the Guarantee Trustee or to direct the exercise of any
trust or power conferred upon the Guarantee Trustee under the Guarantee. Any
holder of the Capital Securities may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Trust, the Guarantee Trustee or any
other person or entity. If the Company were to default on its obligations
under the Junior Subordinated Debentures, the Trust would lack available funds
for the payment of distributions or amounts payable on redemption of the
Capital Securities or otherwise, and, in each such event, holders of the
Capital Securities would not be able to rely upon the Guarantee for payment of
such amounts. Instead, the remedy of holders of the Capital Securities is to
enforce the rights of the Trust to receive payments on the Junior Subordinated
Debentures held by the Trust against the Company pursuant to the terms of the
Junior Subordinated Debentures. See "Description of the Guarantee" and
"Description of the Junior Subordinated Debentures--Events of Default." The
Declaration will provide that each holder of Capital Securities by acceptance
thereof agrees to the provisions of the Guarantee (including the subordination
provisions thereof) and the Indenture.
Tax Event Distribution. If, at any time, a Tax Event shall occur and be
continuing, the Trust shall, except in the limited circumstances described
below, be dissolved with the result that the Junior Subordinated Debentures
will be distributed to the holders of the Trust Securities in connection with
the liquidation of the Trust. Furthermore, under certain circumstances, the
Company shall have the right to redeem the Junior Subordinated Debentures at
par plus accrued and unpaid interest thereon to the date fixed for redemption,
in
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whole or in part, in lieu of a distribution of the Junior Subordinated
Debentures by the Trust in which event the Trust will redeem the Trust
Securities on a pro rata basis to the same extent as the Junior Subordinated
Debentures are redeemed by the Company. See "Description of the Capital
Securities--Tax Event Distribution."
Under current United States federal income tax law, a distribution of Junior
Subordinated Debentures upon the dissolution of the Trust would not be a
taxable event to holders of the Capital Securities. Upon occurrence of a Tax
Event, however, a dissolution of the Trust in which holders of the Capital
Securities receive cash would be a taxable event to such holders. See "United
States Federal Income Taxation--Receipt of Junior Subordinated Debentures or
Cash Upon Liquidation of the Trust."
There can be no assurance as to the market prices for the Capital Securities
or the Junior Subordinated Debentures that may be distributed in exchange for
Capital Securities. Accordingly, the Capital Securities that an investor may
purchase, whether pursuant to the offer made hereby or in the secondary
market, or the Junior Subordinated Debentures that a holder of Capital
Securities may receive on dissolution and liquidation of the Trust, may trade
at a discount to the price that the investor paid to purchase the Capital
Securities offered hereby. Because holders of Capital Securities may receive
Junior Subordinated Debentures upon the occurrence of a Tax Event or upon
liquidation or dissolution of the Trust, prospective purchasers of Capital
Securities are also making an investment decision with regard to the Junior
Subordinated Debentures and should carefully review all the information
regarding the Junior Subordinated Debentures contained in this Prospectus. See
"Description of the Capital Securities--Tax Event Distribution" and "--
Distribution of Junior Subordinated Debentures Upon Liquidation of the Trust"
and "Description of the Junior Subordinated Debentures--General."
Distribution of the Junior Subordinated Debentures. At any time, the Company
will have the right to terminate the Trust and, after satisfaction of the
liabilities of creditors of the Trust as provided by applicable law, cause the
Junior Subordinated Debentures to be distributed to the holders of the Trust
Securities in connection with the liquidation of the Trust. Under current
United States federal income tax law and interpretations thereof and assuming,
as expected, the Trust is treated as a grantor trust, a distribution of the
Junior Subordinated Debentures should not be a taxable event to holders of the
Capital Securities. Should there be a change in such law, or a change in the
legal interpretation thereof, however, the distribution of the Junior
Subordinated Debentures could be a taxable event to the holders of the Capital
Securities. In addition, a dissolution of the Trust in which holders of the
Capital Securities receive cash would be a taxable event to such holders. See
"United States Federal Income Taxation--Receipt of Junior Subordinated
Debentures or Cash Upon Liquidation of the Trust."
Prepayment Considerations. At the option of the Company, the Junior
Subordinated Debentures may be redeemed, at any time, at a redemption price
equal to the sum of (i) 100% of the principal amount of the Junior
Subordinated Debentures to be redeemed and (ii) the Make-Whole Premium (except
that in the event of a redemption following a Tax Event, the redemption price
shall not include the Make-Whole Premium), plus any accrued and unpaid
interest to the redemption date. See "Description of the Junior Subordinated
Debentures--Optional Redemption." If Junior Subordinated Debentures are
redeemed, the Trust must redeem Trust Securities having an aggregate
liquidation amount equal to the aggregate principal amount of Junior
Subordinated Debentures so redeemed. See "Description of the Capital
Securities--Mandatory Redemption."
Proposed Tax Law Changes. On February 6, 1997 the revenue portion of
President Clinton's Budget proposal (the "Proposal") was released. The
Proposal would, among other things, deny deductions for interest on a debt
instrument issued by a corporation with a maximum weighted average maturity of
more than 40 years or which has a maximum term of more than 15 years and is
not shown as indebtedness on the separate balance sheet of the issuer. An
instrument would not be shown as indebtedness on a balance sheet merely
because it was described as indebtedness in footnotes or other narrative
disclosures. The Proposal would apply only to corporations which file annual
financial statements with the Commission, and the relevant balance sheet would
be the balance sheet filed with the Commission. The proposal would be
effective generally for instruments issued on or after the date of first
committee action. As currently drafted, the Proposal could affect the Junior
Subordinated Debentures unless the Junior Subordinated Debentures were issued
prior to the first date of any
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committee action. In addition, the Proposal could be enacted with retroactive
effect. If the Proposal is enacted so as to apply to the Junior Subordinated
Debentures, the Company would not be entitled to an interest deduction with
respect to the Junior Subordinated Debentures. There can be no assurance that
current or future legislative proposals or final legislation will not give
rise to a Tax Event, which would permit the Company to cause a redemption of
the Junior Subordinated Debentures or a distribution of the Junior
Subordinated Debentures in a Liquidation. See "Description of the Capital
Securities--Tax Event Distribution."
Limited Voting Rights. Except as specified herein, holders of Capital
Securities will have no voting rights. See "Description of the Capital
Securities--Voting Rights; Amendment of Declaration."
Trading Characteristics of Capital Securities. The Capital Securities may
trade at a price that does not fully reflect the value of accrued but unpaid
distributions. A holder who disposes of its Capital Securities between record
dates for payments of distributions thereon will be required to include
accrued but unpaid interest on the Junior Subordinated Debentures through the
date of disposition in income as ordinary income. To the extent the selling
price is less than the holder's adjusted tax basis a holder will recognize a
capital loss. Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal income tax
purposes. See "United States Federal Income Taxation--Sales of Capital
Securities."
Lack of Public Market for the Capital Securities. The Capital Securities
have been approved for listing on the NYSE, subject to official notice of
issuance. Trading of the Capital Securities on the NYSE is expected to
commence within a 30-day period after the initial delivery of the Capital
Securities. There is no existing trading market for the Capital Securities,
and there can be no assurance regarding the future development of a market for
the Capital Securities, or the ability of holders of the Capital Securities to
sell their Capital Securities or the price at which such holders may be able
to sell their Capital Securities. If such a market were to develop, the
Capital Securities could trade at prices that may be higher or lower than the
initial offering price depending on many factors, including prevailing
interest rates, the Company's operating results and the market for similar
securities.
CONTROL BY AND RELATIONSHIP WITH THE NATIONWIDE INSURANCE ENTERPRISE;
CONFLICTS OF INTEREST
Control by Nationwide Corp.
The Company has two classes of common stock with different voting rights
that enable Nationwide Corp. (the holder of all of the outstanding Class B
Common Stock) to control the Company. On all matters submitted to a
stockholder vote, each share of Class A Common Stock is entitled to one vote
per share and each share of Class B Common Stock is entitled to ten votes per
share. Both classes vote together as a single class on all matters, subject to
certain exceptions described under "Description of Capital Stock." Upon any
transfer of shares of Class B Common Stock to a person other than a member of
the Nationwide Insurance Enterprise, such shares will convert automatically
into shares of Class A Common Stock. See "Description of Capital Stock."
Upon completion of the Equity Offerings, Nationwide Corp. will own all of
the outstanding shares of Class B Common Stock representing 83.6% and 98.1%
(81.6% and 97.8% if the Underwriters' over-allotment option is exercised in
full) of the total number of shares of Common Stock outstanding and the
combined voting power of the stockholders of the Company, respectively. For so
long as Nationwide Corp. and its affiliates (excluding the Company and its
subsidiaries) continue beneficially to own shares of Common Stock representing
more than 50% of the combined voting power of the stockholders of the Company,
Nationwide Corp. will control the Company, will be able to elect all of the
Company's directors and will be able to determine the outcome of corporate
actions requiring stockholder approval, including, among other things, the
adoption of amendments of the Certificate of Incorporation of the Company (the
"Certificate"), the approval of mergers and sales of all or substantially all
of the Company's assets, the incurrence of indebtedness in excess of specified
amounts, the issuance of additional Common Stock or other equity securities
and, with certain specified exceptions, the
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payment of dividends with respect to the Common Stock. Pursuant to an
intercompany agreement (the "Intercompany Agreement") among Nationwide Mutual,
Nationwide Corp. and the Company, until such time as Nationwide Corp. and its
affiliates no longer own at least 50% of the combined voting power of the
outstanding voting stock of the Company, the prior written consent of
Nationwide Mutual is required in connection with these and other corporate
actions. See "Certain Relationships and Related Transactions--New Agreements
with the Nationwide Insurance Enterprise--Intercompany Agreement."
Use of Nationwide Insurance Enterprise Insurance Agents
Nationwide Mutual has informed the Company that it currently intends that
the Company will be its principal affiliate in the U.S. offering variable
annuity, fixed annuity and individual universal, variable and traditional life
insurance products. In the Intercompany Agreement, Nationwide Mutual has
agreed that the Company has the exclusive right, subject to certain limited
exceptions, to distribute such products through Nationwide Insurance
Enterprise insurance agents for at least five years following the Equity
Offerings. Thereafter, the Intercompany Agreement provides that Nationwide
Mutual will have the option to terminate such right on one year's notice if
Nationwide Corp. and its affiliates no longer own at least 50% of the combined
voting power of the outstanding voting stock of the Company. The termination
of such right could have an adverse effect on the Company's ability to
distribute certain of its life insurance products. In 1996, 5.8% of the
Company's statutory premiums and deposits were attributable to products sold
by Nationwide Insurance Enterprise insurance agents. See "Certain
Relationships and Related Transactions--New Agreements with the Nationwide
Insurance Enterprise--Intercompany Agreement--Nationwide Insurance Enterprise
Insurance Agents."
Deconsolidation and Control of Tax Matters
Beneficial ownership of at least 80% of the combined voting power and value
of the outstanding capital stock of the Company is required in order for
Nationwide Mutual to continue to include the Company in its consolidated group
for federal income tax purposes. Either a sale by Nationwide Corp. of some of
its shares of Class B Common Stock to persons other than its affiliates or the
Company's issuance of additional shares of voting stock to persons other than
Nationwide Corp. or its affiliates (except the Company and its subsidiaries)
could cause Nationwide Corp.'s ownership of the combined voting power and
value of the outstanding capital stock of the Company to fall below 80%,
resulting in the loss of the ability of the Company and its domestic
subsidiaries to join with Nationwide Mutual and its domestic subsidiaries in
the filing of a consolidated federal income tax return. Under applicable law,
each member of Nationwide Mutual's consolidated tax group, which includes the
Company and its subsidiaries, is jointly and severally liable for the federal
income tax liability of each other member of the group and is also jointly and
severally liable for pension and benefit funding and termination liabilities
of other group members, and certain benefit plan taxes. If the Company were no
longer included in Nationwide Mutual's consolidated tax group for federal tax
purposes, there is no assurance that the Company's tax position would be as
favorable as it is at present. Additionally, deconsolidation would result in
the payment by the Company of approximately $54.0 million of deferred income
taxes. The Company has recorded this amount as a deferred tax liability and
therefore the payment would have no impact on net income or shareholders'
equity. However, the payment would result in a $54.0 million decrease in
Nationwide Life's statutory surplus. See "Certain Relationships and Related
Transactions--New Agreements with the Nationwide Insurance Enterprise--Tax
Sharing Agreement."
By virtue of its control of the Company and the terms of a tax sharing
agreement (the "Tax Sharing Agreement") among Nationwide Mutual and, among
others, the Company, Nationwide Mutual effectively will control all of the
Company's tax decisions. Under the Tax Sharing Agreement, Nationwide Mutual
will have sole authority to respond to and conduct all tax proceedings
(including tax audits) relating to the Company, to file all returns on behalf
of the Company and to determine the amount of the Company's liability to (or
entitlement to payment from) Nationwide Corp. under the Tax Sharing Agreement.
This arrangement may result in conflicts of interest between the Company and
Nationwide Mutual. For example, under the Tax Sharing
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Agreement, Nationwide Mutual may choose to contest, compromise or settle any
adjustment or deficiency proposed by the relevant tax authority in a manner
that may be beneficial to Nationwide Mutual and detrimental to the Company.
Under the Tax Sharing Agreement, however, Nationwide Mutual is obligated to
act in good faith with regard to all persons included in the applicable
returns. See "Certain Relationships and Related Transactions--New Agreements
with the Nationwide Insurance Enterprise--Tax Sharing Agreement."
Use of "Nationwide" Name and Certain Other Service Marks
Pursuant to the Intercompany Agreement, among other things, Nationwide
Mutual has granted to the Company and certain of its subsidiaries a non-
exclusive, non-assignable, revocable license to use the "Nationwide" name and
certain other service marks solely in connection with the Company's annuity,
pension and life insurance businesses and activities related to such
businesses. The Intercompany Agreement provides that, subject to Nationwide
Mutual's right to revoke such license under certain circumstances, such
license will remain in effect for at least five years following the Equity
Offerings. Thereafter, the Intercompany Agreement provides that, subject to
certain exceptions, Nationwide Mutual will have the option to revoke such
license on one year's notice if Nationwide Corp. and its affiliates no longer
own at least 50% of the combined voting power of the outstanding voting stock
of the Company. Upon the revocation of such license, the Company and any of
its subsidiaries shall change their names to exclude the word "Nationwide" and
shall discontinue the use of the other licensed service marks. The revocation
of such license could have a material adverse effect on the Company's ability
to conduct its business. See "Certain Relationships and Related Transactions--
New Agreements with the Nationwide Insurance Enterprise--Intercompany
Agreement--License to Use Nationwide Name and Service Marks." Nationwide Life
owns "The Best of America" service mark and does not license such mark from
Nationwide Mutual.
Common Directors and Officers
The Company's Board of Directors currently consists of ten members, seven of
whom serve concurrently on the boards of directors of other companies within
the Nationwide Insurance Enterprise. In addition, a significant number of
officers of the Company also serve as officers of Nationwide Mutual or other
companies within the Nationwide Insurance Enterprise. Service as a director or
officer of both the Company and another company (other than a subsidiary of
the Company) within the Nationwide Insurance Enterprise could create or appear
to create potential conflicts of interest when the director or officer is
faced with decisions that could have different implications for the Company
and such other company. A conflict of interest could also exist with respect
to allocation of the time and attention of persons who are officers of both
the Company and one or more other companies within the Nationwide Insurance
Enterprise. Under Delaware law, directors and officers have a fiduciary duty
to act in good faith and in what they believe to be in the best interests of
the corporation and its stockholders. Such duties include the duty to refrain
from impermissible self-dealing and to deal fairly with respect to
transactions in which such directors or officers, or other companies with
which they are affiliated, have an interest. See "--Allocation of Corporate
Opportunities."
Intercompany Transactions
The Company has engaged in various transactions, and is party to various
arrangements, with members of the Nationwide Insurance Enterprise, certain of
which will continue after the consummation of the Capital Securities Offering.
In the future, the Company may enter into agreements with members of the
Nationwide Insurance Enterprise that will not be the result of arm's-length
negotiations between independent parties. Conflicts of interest could arise
with respect to transactions involving members of the Nationwide Insurance
Enterprise, on the one hand, and the Company, on the other hand. Any such
transactions that are material to the Company will be subject to approval by a
vote of disinterested members of the Company's Board of Directors. In
addition, under Ohio insurance holding company laws, arrangements and
agreements between the Company's insurance subsidiaries and other members of
the Nationwide Insurance Enterprise must be fair and equitable and may be
subject to the approval of the Superintendent of Insurance of the State of
Ohio. Finally, the Company's
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credit facility requires that any transaction between the Company and any of
its affiliates be on an arm's-length basis on terms at least as favorable to
the Company as could have been obtained from a third party which is not an
affiliate. See "Business--Regulation," "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Certain Relationships and Related Transactions."
Allocation of Corporate Opportunities
Nationwide Mutual has informed the Company that it currently intends that
the Company will be its principal affiliate in the U.S. offering variable
annuity, fixed annuity and individual universal, variable and traditional life
insurance products. However, conflicts may exist between the Company and other
members of the Nationwide Insurance Enterprise with respect to the allocation
of corporate opportunities among the Company and such other members. The
Certificate provides that members of the Nationwide Insurance Enterprise have
no duty to refrain from engaging in the same or similar lines of business as
the Company. The Certificate further provides that in the event a member of
the Nationwide Insurance Enterprise or a director or officer of the Company
who is also a director or officer of another member of the Nationwide
Insurance Enterprise acquires knowledge of a potential transaction or other
matter that may constitute a corporate opportunity of either or both the
Company and another member of the Nationwide Insurance Enterprise, such member
of the Nationwide Insurance Enterprise, officer or director may allocate such
opportunity among the Company and the other members of the Nationwide
Insurance Enterprise as such member, officer or director deems appropriate
under the circumstances. The Certificate specifies that none of the foregoing
members, officers or directors will be liable to the Company or any
Stockholders of the Company for breach of any fiduciary duty by reason of such
action. These provisions may limit the liability of such persons under
Delaware law. See "Description of Capital Stock--Certain Certificate and Bylaw
Provisions--Certain Provisions Relating to Corporate Opportunities."
INTEREST RATE RISK
The Company's Fixed Annuities segment is subject to several inherent risks
arising from movements in interest rates. Interest rate changes can cause
compression of the Company's net spread between interest earned on investments
and interest credited on customer deposits, thereby adversely affecting the
Company's results. Interest rate changes can also produce an unanticipated
increase in transfers to separate account (variable) options or withdrawals of
the Company's fixed annuity products which may force the Company to sell
investment assets at a loss in order to fund such transfers or withdrawals.
The Company will experience spread compression when it is unable or chooses
not to maintain the same margin between its investment earnings and its
crediting rates. When interest rates rise, the Company may not be able to
replace the assets in its investment portfolio with higher-yielding assets
that will be necessary to fund the higher crediting rates necessary to keep
the products in its Fixed Annuities segment competitive. As a result, the
Company may experience either a decrease in sales and an increase in transfers
to separate account (variable) options or withdrawals (as described below) if
it chooses to maintain its spread by not raising its crediting rates, or
spread compression if it does increase its crediting rates. Conversely, when
interest rates fall, the Company would have to reinvest the cash received from
its investments (i.e., interest and payments of principal upon maturity or
redemption) in the lower-yielding instruments then available. If the Company
were unable (e.g., due to guaranteed minimum or fixed crediting rates or
limitations on the frequency of crediting rate resets) or chose not to reduce
the crediting rate on the products in its Fixed Annuities segment or acquire
relatively higher-risk securities yielding higher rates of return, spread
compression would occur.
If, as a result of interest rate increases, the Company were unable or chose
not to raise its crediting rates to keep them competitive, the Company may
experience an increase in transfers to separate account (variable) options or
withdrawals. If the Company lacked sufficient liquidity, the Company might
have to sell investment securities to fund associated payments. Because the
value of such securities would likely have decreased in response to the
increase in interest rates, the Company would realize a loss on the sales.
Although certain of the
23
<PAGE>
Company's products contain market value adjustment features which approximate
and transfer such loss to the customer if the selected time horizon for the
fixed return investment is terminated prior to maturity, there can be no
assurance that the Company would be fully insulated from realizing any losses
on sales of its securities. In addition, regardless of whether the Company
realizes an investment loss, the withdrawals would produce a decrease in
invested assets, with an adverse effect on future earnings therefrom. Finally,
premature withdrawals may also cause the Company to accelerate amortization of
deferred policy acquisition costs and value of insurance in force which would
otherwise be amortized over a longer period, but the impact of such
acceleration generally would be offset to some extent by surrender charge
fees.
INVESTMENT PORTFOLIO EXPOSURE
The Company's general account investment portfolio consists primarily of
investment grade fixed maturity securities. The fair value of these and the
Company's other general account invested assets fluctuates depending upon
general economic and market conditions and the interest rate environment. In
general, the market value of the Company's general account fixed maturity
securities portfolio increases or decreases in inverse relationship with
fluctuations in interest rates. For example, if interest rates rise, the
Company's fixed maturity investments will generally decrease in value.
Additionally, the Company's net investment income may be affected by interest
rate changes. If interest rates decline, net investment income will decrease
if high-yielding fixed maturity investments mature or are sold and the
proceeds therefrom are reinvested in securities yielding a lower rate.
Mortgage backed securities ("MBSs"), including collateralized mortgage
obligations ("CMOs"), are subject to prepayment risks that vary with, among
other things, interest rates. Such securities accounted for approximately 30%
of the carrying value of the Company's general account fixed maturity
securities as of December 31, 1996. During periods of declining interest
rates, MBSs generally prepay faster as the underlying mortgages are prepaid
and refinanced by the borrowers in order to take advantage of the lower rates.
MBSs that have an amortized cost that is greater than par (i.e., purchased at
a premium) may incur a reduction in yield or a loss as a result of such
prepayments. In addition, during such periods, the Company will generally be
unable to reinvest the proceeds of any such prepayment at comparable yields.
Conversely, during periods of rising interest rates, prepayments generally
slow. MBSs that have an amortized value that is less than par (i.e., purchased
at a discount) may incur a decrease in yield or a loss as a result of slower
prepayments.
The Company attempts to mitigate the negative impact of interest rate
changes through asset/liability management, including purchasing non-callable
bonds where practical and investing in private placement bonds, mortgage loans
and mortgage-backed securities which provide prepayment protection. There can
be no assurance, however, that management will be able to manage successfully
the negative impact of interest rate changes. See "Business--Investments."
Additionally, the Company may, from time to time, for business, regulatory or
other reasons, elect or be required to sell certain of its general account
invested assets at a time when their fair values are less than their original
cost, resulting in realized capital losses, which would reduce net income.
The risk of fluctuations in market value of substantially all of the
Company's separate account assets is borne by the policyholders. The Company's
policy charges for administering such separate account assets, however, are
generally set as a percentage of such assets. Accordingly, fluctuations in the
market value of separate account assets may result in fluctuations in the
Company's revenue from policy charges.
RESTRICTIONS ON DIVIDENDS
As an insurance holding company, the Company's ability to meet debt service
obligations, including payment of principal and interest on the Junior
Subordinated Debentures, and pay operating expenses and dividends depends
primarily on the receipt of sufficient funds from its principal operating
subsidiary, Nationwide Life. The inability of Nationwide Life to pay dividends
to the Company in an amount sufficient to meet debt service obligations and
pay operating expenses and dividends would have a material adverse effect on
the Company. The payment of dividends by Nationwide Life is subject to
restrictions set forth in the insurance laws and regulations of Ohio, its
domiciliary state. The Ohio insurance laws require Ohio-domiciled life
insurance
24
<PAGE>
companies to seek prior regulatory approval to pay a dividend or distribution
of cash or other property if the fair market value thereof, together with that
of other dividends or distributions made in the preceding 12 months, exceeds
the greater of (i) 10% of policyholders' surplus as of the prior December 31
or (ii) the net income of the insurer for the 12-month period ending as of the
prior December 31. The Ohio insurance laws also require insurers to seek prior
regulatory approval for any dividend paid from other than earned surplus. As a
result of the Special Dividend and the dividend by Nationwide Life of the
stock of certain subsidiaries that do not operate in the long-term savings and
retirement market, any dividend paid by Nationwide Life during the 12-month
period immediately following the Special Dividend would be an extraordinary
dividend under Ohio insurance laws. Accordingly, no such dividend could be
paid without prior regulatory approval. See "Recent History." The payment of
dividends by Nationwide Life may also be subject to restrictions set forth in
the insurance laws of New York that limit the amount of statutory profits on
Nationwide Life's participating policies (measured before dividends to
policyholders) that can inure to the benefit of the Company and its
stockholders. The Company currently does not expect such regulatory
requirements to impair its ability to pay operating expenses and stockholder
dividends in the future, and to meet its debt service obligations. The Company
can give no assurance, however, that any dividends will be declared or paid by
Nationwide Life. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Business--Regulation--Regulation of Dividends and Other Payments from
Insurance Subsidiaries."
REGULATION
The Company's insurance subsidiaries are subject to extensive regulation and
supervision in the jurisdictions in which they do business. Such regulations,
in addition to limiting the amount of dividends and other payments that can be
paid by the Company's insurance subsidiaries without prior approval, impose
restrictions on the amount and type of investments the Company's insurance
subsidiaries may hold. These regulations also affect many other aspects of the
Company's insurance subsidiaries' businesses, including risk-based capital
requirements, the type and amount of required asset valuation reserve accounts
and policy forms. These regulations are primarily intended to protect
policyholders rather than stockholders and other investors. The Company cannot
predict the effect that any proposed or future legislation may have on the
financial condition or results of operations of the Company and its insurance
subsidiaries. See "Business--Regulation."
COMPETITION
The Company competes with a large number of other insurers as well as non-
insurance financial services companies, such as banks, broker/dealers and
mutual funds, some of which have greater financial resources, offer
alternative products and, with respect to other insurers, have higher ratings
than the Company. The Company believes that competition in the Company's lines
of business is based on price, product features, commission structure,
perceived financial strength, claims-paying ratings, service and name
recognition. National banks, with their preexisting customer bases for
financial services products, may pose increasing competition in the future to
insurers who sell annuities, including the Company, as a result of the U.S.
Supreme Court's 1994 decision in NationsBank of North Carolina v. Variable
Annuity Life Insurance Company, which permits national banks to sell annuity
products of life insurance companies in certain circumstances.
Several proposals to repeal or modify the Glass-Steagall Act of 1933, as
amended, and the Bank Holding Company Act of 1956, as amended, have been made
by members of Congress and the Clinton Administration. Currently, the Bank
Holding Company Act restricts banks from being affiliated with insurance
companies. None of these proposals has yet been enacted, and it is not
possible to predict whether any of these proposals will be enacted, or, if
enacted, their potential effect on the Company. See "Business--Competition."
RATINGS
Ratings with respect to claims-paying ability and financial strength have
become an increasingly important factor in establishing the competitive
position of insurance companies. Ratings are important to maintaining public
confidence in the Company and its ability to market its annuity and life
insurance products. Rating
25
<PAGE>
organizations continually review the financial performance and condition of
insurers, including the Company. Any lowering of the Company's ratings could
have a material adverse effect on the Company's ability to market its products
and could increase the surrender of the Company's annuity products. Both of
these consequences could, depending upon the extent thereof, have a material
adverse effect on the Company's liquidity and, under certain circumstances,
net income. Nationwide Life is rated "A+" (Superior) by A.M. Best and its
claims-paying ability is rated "Aa2" (Excellent) by Moody's Investors Service,
Inc. ("Moody's") and "AA+" (Excellent) by Standard & Poor's Corporation
("S&P"). Moody's recently confirmed and S&P recently affirmed Nationwide
Life's claims-paying ability rating with a negative outlook. Such ratings
reflect the rating agency's opinion of Nationwide Life's financial strength,
operating performance and ability to meet its obligations to policyholders and
are not evaluations directed toward the protection of investors. Such factors
are of concern to policyholders, agents and intermediaries. Such ratings
should not be relied upon when making a decision to invest in the Capital
Securities. See "Business--Ratings."
SALES PRACTICE LITIGATION
In recent years, life insurance companies, have been named as defendants in
lawsuits, including class actions, relating to life insurance pricing and
sales practices. A number of these lawsuits have resulted in substantial jury
awards or settlements. Nationwide Life has been named as a defendant in two
lawsuits, including one in which the plaintiff seeks to represent a national
class, related to the sale of whole life policies on a "vanishing premium"
basis. There can be no assurance that any future litigation relating to
pricing and sales practices will not have a material adverse effect on the
Company. See "Business--Legal Proceedings."
FEDERAL INCOME TAX LEGISLATION
Current federal income tax laws generally permit the tax-deferred
accumulation of earnings on the premiums paid by the holders of annuities and
life insurance products. Taxes, if any, are payable on the accumulated tax-
deferred earnings when such earnings are actually paid. Congress has, from
time to time, considered possible legislation that would eliminate the
deferral of taxation on the accretion of value within certain annuities and
life insurance products. The 1994 United States Supreme Court ruling in
NationsBank of North Carolina v. Variable Annuity Life Insurance Company that
annuities are not insurance for purposes of the National Bank Act may cause
Congress to consider legislation that would eliminate such tax deferral at
least for certain annuities. Other possible legislation, including a
simplified "flat tax" income tax structure with an exemption from taxation for
investment income, could also adversely affect purchases of annuities and life
insurance if such legislation were to be enacted. There can be no assurance as
to whether legislation will be enacted which would contain provisions with
possible adverse effects on the Company's annuity and life insurance products.
See "Business--Regulation--Potential Tax Legislation."
26
<PAGE>
NATIONWIDE FINANCIAL SERVICES CAPITAL TRUST
GENERAL
Nationwide Financial Services Capital Trust is a statutory business trust
which was formed under Delaware law pursuant to a declaration of trust, dated
as of December 18, 1996, executed by the Company, as sponsor of the Trust, and
the trustees of the Trust named therein and the filing of a certificate of
trust with the Secretary of State of the State of Delaware on December 19,
1996. Such declaration of trust will be amended and restated in its entirety
by the Company, as sponsor of the Trust, and the trustees of the Trust (as so
amended and restated, the "Declaration"), as of or prior to the date the Trust
issues any of the Trust Securities. The Company will directly acquire Common
Securities in an aggregate liquidation amount equal to 3% or more of the total
capital of the Trust. The Common Securities will rank pari passu, and payment
will be made thereon pro rata, with the Capital Securities, except that, upon
the occurrence and during the continuance of a Declaration Event of Default,
the rights of the holders of the Common Securities to payment in respect of
distributions and payments upon liquidation, redemption and otherwise will be
subordinated to the rights of the holders of the Capital Securities. The
assets of the Trust will consist solely of the Junior Subordinated Debentures,
and payments under the Junior Subordinated Debentures will be the sole revenue
of the Trust. The Trust exists for the exclusive purposes of (i) issuing the
Trust Securities representing undivided beneficial interests in the assets of
the Trust, (ii) investing the gross proceeds of the Trust Securities in the
Junior Subordinated Debentures and (iii) engaging in only those other
activities necessary or incidental thereto. The term of the Trust will expire
on , 2052.
Pursuant to the Declaration, the number of trustees will initially be four.
Three of the trustees (the "Regular Trustees") will be individuals who are
employees or officers of or who are affiliated with the Company. The fourth
trustee will be a financial institution that is unaffiliated with the Company
(the "Property Trustee") and will maintain its principal place of business in
the State of Delaware (the "Delaware Trustee"). Initially, Wilmington Trust
Company, a Delaware banking corporation, will act as Property Trustee and as
Delaware Trustee until, in each case, removed or replaced by the holder of the
Common Securities. The Property Trustee will also act as indenture trustee
under the Guarantee (the "Guarantee Trustee") and under the Indenture (the
"Indenture Trustee"). See "Description of the Guarantee," "Description of the
Capital Securities" and "Description of the Junior Subordinated Debentures."
The Property Trustee will hold title to the Junior Subordinated Debentures
for the benefit of the holders of the Trust Securities and will have the power
to exercise all rights, powers and privileges under the Indenture as the
holder of the Junior Subordinated Debentures. In addition, the Property
Trustee will maintain exclusive control of a segregated non-interest bearing
trust account (the "Property Account") to hold all payments made in respect of
the Junior Subordinated Debentures for the benefit of the holders of the Trust
Securities. The Guarantee Trustee will hold the Guarantee for the benefit of
the holders of the Capital Securities. The Company, as the holder of all of
the Common Securities, will have the right to appoint, remove or replace any
of the Regular Trustees, the Property Trustee and the Delaware Trustee,
provided, however, that if a Declaration Event of Default shall have occurred
and be continuing, the Property Trustee may be removed only by the vote of
holders of a majority in liquidation amount of the Capital Securities voting
as a class. The Company will pay all fees and expenses related to the Trust
and the offering of the Capital Securities.
The rights of the holders of the Capital Securities, including economic
rights, rights to information and voting rights, are as set forth in the
Declaration and the Delaware Business Trust Act, as amended (the "Trust Act").
See "Description of the Capital Securities." The Declaration, the Indenture
and the Guarantee also incorporate by reference the terms of the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). At the time the
Registration Statement becomes effective, the Declaration, the Indenture and
the Guarantee will be qualified under the Trust Indenture Act.
The place of business and the telephone number of the Trust are the
principal executive offices and telephone number of the Company.
27
<PAGE>
ACCOUNTING TREATMENT
The financial statements of the Trust will be included in the Company's
consolidated financial statements, with the Capital Securities shown
separately as "Company-obligated mandatorily redeemable capital securities of
the Nationwide Financial Services Capital Trust, holding solely junior
subordinated debentures of Nationwide Financial Services, Inc." A footnote to
the Company's consolidated financial statements will indicate that all of the
Common Securities of the Trust, which are the only voting securities of the
Trust, are owned by the Company, that the sole assets of the Trust are the
Junior Subordinated Debentures (indicating the principal amount, interest rate
and maturity date thereof) and that the Trust's obligations with respect to
the Capital Securities, through the Guarantee, the Junior Subordinated
Debentures, the Indenture and the Declaration, taken together, are fully and
unconditionally guaranteed by the Company. See "Capitalization" and "Pro Forma
Consolidated Financial Data."
USE OF PROCEEDS
The proceeds to the Trust (without giving effect to expenses of the offering
payable by the Company) from the offering of the Capital Securities will be
$100,000,000. All of the proceeds from the sale of the Capital Securities will
be invested by the Trust in Junior Subordinated Debentures and the net
proceeds to the Company of $98.6 million from the sale of Junior Subordinated
Debentures will be contributed by the Company to the capital of Nationwide
Life. The net proceeds to the Company from the Equity Offerings (after
deduction of underwriting discounts and commissions and estimated offering
expenses payable by the Company in connection therewith) are estimated to be
$426.6 million. The net proceeds to the Company from the sale of the Notes are
estimated to be $296.3 million. Of the $426.6 million estimated net proceeds
to the Company from the Equity Offerings, the Company will contribute
approximately $371.6 million to the capital of Nationwide Life and retain the
balance for general corporate purposes, which amount will be invested in
short-term interest-bearing securities. The Company expects to contribute all
of the net proceeds from the Note Offering to the capital of Nationwide Life.
28
<PAGE>
RECENT HISTORY
The Company was formed in November 1996 as a holding company for Nationwide
Life and the other companies within the Nationwide Insurance Enterprise that
offer or distribute long-term savings and retirement products. On January 27,
1997, Nationwide Corp. contributed to the Company all of the outstanding
capital stock of Nationwide Life and the other companies within the Nationwide
Insurance Enterprise that offer or distribute long-term savings and retirement
products. The historical financial information contained in this Prospectus
gives effect to such contribution to the Company.
In anticipation of the Equity Offerings, Nationwide Life effected the
following transactions: (i) on September 24, 1996, the Board of Directors of
Nationwide Life declared a dividend to Nationwide Corp. consisting of the
stock of those subsidiaries of Nationwide Life that do not operate in the
long-term savings and retirement market and (ii) effective January 1, 1996,
Nationwide Life reinsured all of its accident and health and group life
insurance business to other members of the Nationwide Insurance Enterprise.
The historical financial information contained in this Prospectus does not
give effect to the dividend of such subsidiaries or such reinsurance. Such
subsidiaries and the accident and health and group life insurance business
have been accounted for herein as discontinued operations.
On December 31, 1996, Nationwide Life paid a $50.0 million cash dividend to
Nationwide Corp. (the "1996 Cash Dividend"). In addition, prior to the
consummation of the Equity Offerings, Nationwide Life will dividend to the
Company, and the Company will subsequently dividend to Nationwide Corp.,
securities having an aggregate market value of $850.0 million (the "Special
Dividend"). The historical financial information contained in this Prospectus
does not give effect to the Special Dividend, except where indicated in pro
forma presentations. See "Certain Relationships and Related Transactions--
Existing Arrangements with the Nationwide Insurance Enterprise--Organization
of the Company" and "--Modified Coinsurance Agreements."
Following the Equity Offerings, Nationwide Corp. will be the controlling
stockholder of the Company. Upon completion of the Equity Offerings,
Nationwide Corp. will own all of the outstanding shares of the Class B Common
Stock, representing 83.6% and 98.1% (81.6% and 97.8% if the Underwriters'
over-allotment option is exercised in full) of the total number of shares of
Common Stock outstanding and the combined voting power of the stockholders of
the Company. Nationwide Corp. is a subsidiary of Nationwide Mutual. Nationwide
Mutual and Nationwide Mutual Fire are mutual companies which are the
controlling entities of the Nationwide Insurance Enterprise. The Nationwide
Insurance Enterprise is an affiliated group of over 100 companies that offers
a wide range of insurance and investment products and services. Nationwide
Mutual and Nationwide Mutual Fire control the companies within the Nationwide
Insurance Enterprise through a variety of means, including security ownership,
management contracts and common directors. The Nationwide Insurance Enterprise
had $68.0 billion in total statutory assets as of December 31, 1996. See "Risk
Factors--Control by and Relationship with the Nationwide Insurance Enterprise;
Conflicts of Interest" and "Certain Relationships and Related Transactions."
29
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1996, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the
Company after giving effect to the Special Dividend, (iii) the pro forma
capitalization of the Company after giving effect to the Special Dividend and
the Equity Offerings (assuming net proceeds of $426.6 million from the
issuance of 20,540,000 shares of Class A Common Stock), (iv) the pro forma
capitalization of the Company after giving effect to the Special Dividend, the
Equity Offerings and the Note Offering, (v) the pro forma capitalization of
the Company after giving effect to the Special Dividend, the Equity Offerings
and the Capital Securities Offering and (vi) the pro forma capitalization of
the Company after giving effect to the Special Dividend, the Equity Offerings,
the Note Offering and the Capital Securities Offering. This table should be
read in conjunction with the consolidated financial statements of the Company
and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
----------------------------------------------------------------
PRO FORMA
FOR THE
PRO FORMA PRO FORMA SPECIAL
FOR THE FOR THE DIVIDEND,
SPECIAL SPECIAL THE EQUITY
PRO FORMA DIVIDEND, DIVIDEND, OFFERINGS,
FOR THE THE THE EQUITY THE NOTE
SPECIAL EQUITY OFFERINGS OFFERING
PRO FORMA DIVIDEND OFFERINGS AND THE AND THE
FOR THE AND THE AND THE CAPITAL CAPITAL
SPECIAL EQUITY NOTE SECURITIES SECURITIES
ACTUAL DIVIDEND OFFERINGS OFFERING OFFERING OFFERING
-------- --------- --------- --------- ---------- ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Notes................... $ -- $ -- $ -- $ 300.0 $ -- $ 300.0
Company-obligated
mandatorily redeemable
capital securities of
the Nationwide
Financial Services
Capital Trust, holding
solely junior
subordinated debentures
of Nationwide Financial
Services, Inc.(1)...... -- -- -- -- 100.0 100.0
Shareholders' equity:
Preferred stock, $0.01
par value; 50,000,000
shares authorized; no
shares issued and
outstanding.......... -- -- -- -- -- --
Class A Common Stock,
$0.01 par value;
750,000,000 shares
authorized(2)........ -- -- 0.2 0.2 0.2 0.2
Class B Common Stock,
$0.01 par value;
750,000,000 shares
authorized(3)........ 1.0 1.0 1.0 1.0 1.0 1.0
Additional paid-in
capital.............. 551.5 551.5 977.9 977.9 977.9 977.9
Unrealized gains on
securities available-
for-sale, net........ 173.6 173.6 173.6 173.6 173.6 173.6
Retained earnings..... 1,405.6 555.6 555.6 555.6 555.6 555.6
-------- -------- -------- -------- -------- --------
Total shareholders'
equity............... 2,131.7 1,281.7 1,708.3 1,708.3 1,708.3 1,708.3
-------- -------- -------- -------- -------- --------
Total capitalization.. $2,131.7 $1,281.7 $1,708.3 $2,008.3 $1,808.3 $2,108.3
======== ======== ======== ======== ======== ========
Debt/capital ratio(4)... -- % -- % -- % 16.4% -- % 15.5%
Debt and Capital
Securities/capital
ratio(4)............... -- -- -- 16.4 6.1 20.7
Book value per common
share(2)(3)............ $ 20.35 $ 12.24 $ 13.64 $ 13.64 $ 13.64 $ 13.64
Adjusted book value per
common share(2)(3)(4).. 18.69 10.58 12.25 12.25 12.25 12.25
</TABLE>
- --------
(1) The Capital Securities will be reflected separately in the Company's
consolidated financial statements as "Company-obligated mandatorily
redeemable capital securities of the Nationwide Financial Services Capital
Trust, holding solely junior subordinated debentures of Nationwide
Financial Services, Inc." with a footnote indicating that all of the
Common Securities of the Trust, which are the only voting securities of
the Trust, are owned by the Company, that the sole assets of the Trust are
the junior subordinated debentures (indicating the principal amount,
interest rate and maturity date thereof), and that the Trust's obligations
with respect to the Capital Securities, through the Guarantee, the Junior
Subordinated Debentures, the Indenture and the Declaration, taken
together, are fully and unconditionally guaranteed by the Company.
(2) Based on no shares of Class A Common Stock outstanding for "Actual" and
"Pro Forma for the Special Dividend" columns and 20,540,000 shares of
Class A Common Stock outstanding for all other columns.
(3) Based on 104,745,000 shares of Class B Common Stock outstanding for all
columns.
(4) Adjusted to exclude net unrealized gains on securities available-for-sale
in accordance with SFAS 115.
30
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected consolidated financial data
for the Company. The consolidated income statement data set forth below for
the years ended December 31, 1992 through 1996 and the consolidated balance
sheet data as of December 31, 1992 through 1996 are derived from the
consolidated financial statements of the Company, which have been audited by
KPMG Peat Marwick LLP, independent certified public accountants. Segment and
Other Data and Pro Forma Consolidated Balance Sheet Data appearing below are
unaudited. The selected consolidated financial data set forth below should be
read in conjunction with the consolidated financial statements of the Company
and the notes thereto and the other financial information, including
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere herein.
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA:
Revenues:
Policy charges......... $ 400.9 $ 286.6 $ 217.2 $ 165.5 $ 131.3
Life insurance
premiums.............. 198.6 199.1 176.7 188.4 200.2
Net investment income.. 1,357.8 1,294.0 1,210.8 1,131.2 1,049.4
Realized gains/(losses)
on investments........ (0.2) (1.7) (16.5) 106.2 (19.4)
Other income........... 59.5 59.0 45.9 48.1 44.1
--------- --------- --------- --------- ---------
Total revenues......... 2,016.6 1,837.0 1,634.1 1,639.3 1,405.6
--------- --------- --------- --------- ---------
Benefits and expenses:
Benefits and claims.... 1,160.6 1,115.4 992.7 982.2 966.3
Policyholder
dividends............. 41.0 39.9 38.8 43.0 45.7
Amortization of
deferred policy
acquisition costs..... 133.4 82.7 85.6 70.2 49.2
Operating expenses..... 353.5 317.8 276.6 268.2 228.0
--------- --------- --------- --------- ---------
Total benefits and ex-
penses................ 1,688.5 1,555.8 1,393.7 1,363.5 1,289.2
--------- --------- --------- --------- ---------
Income from continuing
operations before
federal income tax
expense and cumulative
effect of accounting
changes................ 328.1 281.2 240.4 275.8 116.4
Federal income tax
expense................ 115.8 96.3 82.5 96.7 32.1
--------- --------- --------- --------- ---------
Income from continuing
operations before
cumulative effect of
accounting changes..... 212.3 184.9 157.9 179.1 84.3
Income from discontinued
operations, net of
federal income tax
expense................ 11.3 24.7 20.5 28.6 2.1
--------- --------- --------- --------- ---------
Income before cumulative
effect of accounting
changes................ 223.6 209.6 178.4 207.7 86.4
Cumulative effect of
accounting changes, net
of federal income tax
benefit................ -- -- -- (0.1) --
--------- --------- --------- --------- ---------
Net income............. $ 223.6 $ 209.6 $ 178.4 $ 207.6 $ 86.4
========= ========= ========= ========= =========
CONSOLIDATED BALANCE
SHEET DATA:
General account assets.. $20,843.5 $19,915.0 $17,156.2 $15,697.5 $14,674.8
Separate account
assets................. 26,926.7 18,591.1 12,087.1 9,006.4 6,081.4
Total assets............ 47,770.2 38,506.1 29,243.3 24,703.9 20,756.2
Long-term debt.......... -- -- -- -- --
Total liabilities....... 45,638.5 35,889.4 27,382.7 23,094.3 19,358.6
Shareholder's
equity(1).............. 2,131.7 2,616.7 1,860.6 1,609.6 1,397.6
SEGMENT AND OTHER DATA:
Operating income (loss)
before income taxes by
segment(2):
Variable Annuities..... $ 90.3 $ 50.8 $ 24.6 $ 10.4 $ 13.1
Fixed Annuities........ 135.4 137.0 139.0 105.9 95.3
Life Insurance......... 67.2 67.6 53.0 49.7 46.1
Corporate and
Other(1)(3)........... 35.4 27.5 40.3 3.6 (18.7)
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Policy reserves by seg-
ment:
Variable Annuities(4).. $24,278.1 $16,761.8 $10,751.1 $ 7,854.8 $5,028.2
Fixed Annuities(4)..... 13,511.8 12,784.0 11,247.0 10,154.1 9,659.8
Life Insurance......... 2,938.9 2,660.5 2,425.2 2,255.0 2,084.8
Corporate and
Other(3).............. 3,302.5 2,644.3 2,252.7 2,103.9 1,823.0
Statutory premiums,
deposits and other
considerations by
product segment(5):
Variable Annuities(6).. 6,500.3 4,399.3 3,821.1 2,414.2 1,561.8
Fixed Annuities(6)..... 1,600.5 1,864.2 1,308.6 1,300.9 1,637.8
Life Insurance......... 439.3 352.4 320.8 279.4 264.7
Corporate and
Other(3).............. 502.6 182.1 148.5 205.3 91.7
Net operating in-
come(2)................ 211.3 184.8 168.2 109.7 97.0
Ratio of earnings to
fixed charges(7)....... 1.3x 1.3x 1.3x 1.3x 1.1x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
-----------------------
(DOLLARS IN MILLIONS)
<S> <C>
PRO FORMA CONSOLIDATED BALANCE SHEET DATA(8):
General account assets.................................. $19,993.5
Separate account assets................................. 26,926.7
Total assets............................................ 46,920.2
Long-term debt.......................................... --
Total liabilities....................................... 45,638.5
Shareholder's equity(1)................................. 1,281.7
</TABLE>
- --------
(1) The Company has received cash capital contributions and declared cash
dividends over the periods presented as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994 1993 1992
------ ----- ------ ------ -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Cash capital contributions............. $ -- $ -- $200.0 $100.0 $13.5
Cash dividends......................... (52.0) (8.5) (1.0) (10.6) (4.6)
------ ----- ------ ------ -----
Net contributions...................... $(52.0) $(8.5) $199.0 $ 89.4 $ 8.9
====== ===== ====== ====== =====
</TABLE>
The cash capital contributions and cash dividends and the related increases
and decreases to net investment income are recorded in the Corporate and
Other segment. The cash capital contributions and cash dividends had a
direct impact on the Company's shareholder's equity and the operating income
(loss) before federal income tax expense of the Corporate and Other segment.
(2) Excludes realized gains/(losses) on investments (net of related federal
income tax where applicable), discontinued operations and cumulative
effect of accounting changes.
(3) The Corporate and Other segment includes net investment income on
investments not allocated to the three product segments; all realized
investment gains and losses; investment management fees; other revenues
and operating expenses of Nationwide mutual funds other than the portion
allocated to the Variable Annuities and Life Insurance segments;
commissions and other income earned by the marketing and distribution
subsidiaries of the Company; and revenues, benefits and expenses
associated with group annuity contracts issued to Nationwide Insurance
Enterprise employee and agent benefit plans.
(4) Policy reserves related to the fixed option under the Company's variable
annuity contracts are included in Fixed Annuities. As of December 31,
1996, 1995 and 1994, such amounts were $9.52 billion, $8.83 billion and
$7.27 billion, respectively.
(5) Statutory data have been derived from the Annual and Quarterly Statements
of Nationwide Life, as filed with insurance regulatory authorities and
prepared in accordance with statutory accounting practices.
(6) Statutory premiums, deposits and other considerations related to the fixed
option under the Company's variable annuity contracts are included in
Fixed Annuities. For the years ended December 31, 1996, 1995 and 1994,
such amounts were $1.24 billion, $1.57 billion and $1.05 billion,
respectively.
(7) For purposes of this computation, earnings consist of income from
continuing operations before federal income tax expense and cumulative
effect of accounting changes and fixed charges. Fixed charges consist of
interest expense on debt plus interest credited to policyholder account
balances. There was no interest expense on debt for any of the periods
presented.
(8) Pro forma to give effect to the Special Dividend totalling $850.0 million
as if the Special Dividend had occurred as of December 31, 1996. The
Special Dividend will have been paid by the Company prior to the
completion of the Equity Offerings.
32
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL DATA
The pro forma consolidated financial data for the Company set forth in the
tables below give effect to (i) the Special Dividend, the Equity Offerings,
the Note Offering and the Capital Securities Offering, (ii) the Special
Dividend and the Equity Offerings, (iii) the Special Dividend, the Equity
Offerings and the Note Offering and (iv) the Special Dividend, the Equity
Offerings and the Capital Securities Offering. The Consolidated Income
Statement Data and Other Data set forth in the tables below also give effect
to 1996 Cash Dividend. The tables below are presented as if each of the
Special Dividend, the Equity Offerings, the Note Offering, the Capital
Securities Offering and the 1996 Cash Dividend, as applicable, had been
consummated at the beginning of the period indicated or, in the case of the
balance sheet data, as of the date indicated. The pro forma financial data do
not purport to reflect what the Company's financial position or results of
operations would actually have been if any or all of the Equity Offerings, the
Special Dividend, the Note Offering, the Capital Securities Offering and the
1996 Cash Dividend had in fact occurred on such dates nor should they be taken
as indicative of the future results of operations of the Company. The pro
forma consolidated financial information should be read in conjunction with
the consolidated financial statements of the Company and the notes thereto and
the other financial information pertaining to the Company included elsewhere
herein. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
PRO FORMA FOR THE SPECIAL DIVIDEND, THE EQUITY OFFERINGS, THE NOTE OFFERING,
THE CAPITAL SECURITIES OFFERING AND, WITH RESPECT TO CONSOLIDATED INCOME
STATEMENT DATA AND OTHER DATA ONLY, THE 1996 CASH DIVIDEND
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED
DECEMBER 31, 1996
------------------------------------
ACTUAL ADJUSTMENTS PRO FORMA(1)
-------- ----------- ------------
(DOLLARS IN MILLIONS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Revenues:
Policy charges.......................... $ 400.9 $ -- $ 400.9
Life insurance premiums................. 198.6 -- 198.6
Net investment income................... 1,357.8 (68.2)(2) 1,289.6
Realized losses on investments.......... (0.2) -- (0.2)
Other income............................ 59.5 -- 59.5
-------- ------- --------
Total revenues......................... 2,016.6 (68.2) 1,948.4
-------- ------- --------
Benefits and Expenses:
Benefits and claims..................... 1,160.6 -- 1,160.6
Policyholder dividends.................. 41.0 -- 41.0
Amortization of deferred policy acquisi-
tion costs............................. 133.4 -- 133.4
Operating expenses...................... 353.5 -- 353.5
Interest expense........................ -- 30.7 (3) 30.7
-------- ------- --------
Total benefits and expenses............ 1,688.5 30.7 1,719.2
-------- ------- --------
Income from continuing operations before
federal income tax expense.............. 328.1 (98.9) 229.2
Federal income tax expense............... 115.8 (34.6)(4) 81.2
-------- ------- --------
Income from continuing operations.... $ 212.3 $ (64.3) $ 148.0
======== ======= ========
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED
DECEMBER 31, 1996
-------------------------------------
ACTUAL ADJUSTMENTS PRO FORMA(1)
--------- ----------- ------------
(DOLLARS IN MILLIONS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
General account assets.................... $20,843.5 $(23.4)(5) $20,820.1
Separate account assets................... 26,926.7 -- 26,926.7
Total assets.............................. 47,770.2 (23.4) 47,746.8
Long-term debt............................ -- 300.0 (6) 300.0
Capital Securities........................ -- 100.0 (7) 100.0
Shareholders' equity...................... 2,131.7 (423.4)(8) 1,708.3
OTHER DATA:
Net operating income(9)................... $ 211.3 $(64.3) $ 147.0
Realized gains/(losses) on investments,
net of tax............................... 1.0 -- 1.0
--------- ------ ---------
Income from continuing operations........ $ 212.3 $(64.3) $ 148.0
========= ====== =========
Income from continuing operations per
common share(10)........................ $ 2.03 $ 1.18
========= =========
Ratio of earnings to fixed charges(11).... 1.3x 1.2x
</TABLE>
- --------
(1) Pro forma to give effect to (i) the Equity Offerings (assuming net
proceeds of $426.6 million and the issuance of 20,540,000 shares of Class
A Common Stock), (ii) the Special Dividend totalling $850.0 million which
will have been paid by the Company prior to the completion of the Equity
Offerings, (iii) the Note Offering and the Capital Securities Offering
(assuming net proceeds of $394.9 million from such offerings) and (iv)
with respect to Consolidated Income Statement Data and Other Data only,
the 1996 Cash Dividend totalling $50.0 million which was paid by the
Company on December 31, 1996.
(2) Reduction in net investment income on the 1996 Cash Dividend and the
Special Dividend at an assumed rate of 7.5%. If this reduction were
partially offset by net investment income on the proceeds from the Equity
Offerings, the Note Offering and the Capital Security Offering at an
assumed reinvestment rate of 7.5%, the net adjustment would be a
reduction of $6.6 million, resulting in pro forma net operating income of
$187.0 million.
(3) The $300 million aggregate principal amount of Notes is assumed to bear
interest at a rate of 7.5% per annum for the period indicated. The $100
million aggregate liquidation amount of the Capital Securities is assumed
to bear a distribution rate of 8.0% per annum for the period indicated.
There can be no assurance that these will be the actual rates borne by
such instruments. An increase of 1.0% per annum on the assumed interest
rate on the Notes and on the assumed distribution rate on the Capital
Securities would result in an increase of $4.0 million to interest
expense for the year ended December 31, 1996. Interest expense includes
amortization of deferred issuance costs.
(4) Income tax effect of the pro forma adjustments at the statutory rate.
(5) The excess of the Special Dividend over the proceeds from the Equity
Offerings, the Note Offering and the Capital Securities Offering. Also
included are capitalized issuance costs.
(6) Represents aggregate principal amount of Notes.
(7) The Capital Securities will be reflected separately in the Company's
consolidated financial statements as "Company-obligated mandatorily
redeemable capital securities of the Nationwide Financial Services
Capital Trust, holding solely junior subordinated debentures of
Nationwide Financial Services, Inc." with a footnote indicating that all
of the Common Securities of the Trust, which are the only voting
securities of the Trust, are owned by the Company, that the sole assets
of the Trust are the junior subordinated debentures (indicating the
principal amount, interest rate and maturity date thereof) and that the
Trust's obligations with respect to the Capital Securities, through the
Guarantee, the Junior Subordinated Debentures, the Indenture and the
Declaration, taken together, are fully and unconditionally guaranteed by
the Company.
(8) The excess of the Special Dividend over the proceeds from the Equity
Offerings.
(9) Excludes realized gains/(losses) on investments (net of related federal
income tax) and discontinued operations.
(10) Actual is based on 104,745,000 shares of Class B Common Stock
outstanding. Pro forma is based on 125,285,000 shares outstanding, which
consists of 104,745,000 shares of Class B Common Stock and 20,540,000
shares of Class A Common Stock assumed to be issued in the Equity
Offerings.
(11) For purposes of this computation, earnings consist of income from
continuing operations before federal income tax expense and fixed
charges. Fixed charges consist of interest expense on debt plus interest
credited to policyholder account balances. There was no actual interest
expense on debt for the year ended December 31, 1996.
34
<PAGE>
PRO FORMA FOR THE SPECIAL DIVIDEND, THE EQUITY OFFERINGS AND, WITH RESPECT TO
CONSOLIDATED INCOME STATEMENT DATA AND OTHER DATA ONLY, THE 1996 CASH DIVIDEND
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED
DECEMBER 31, 1996
------------------------------------------------------
ACTUAL ADJUSTMENTS PRO FORMA(1)
--------------- ---------------- -----------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA:
Revenues:
Policy charges......... $ 400.9 $ -- $ 400.9
Life insurance premi-
ums................... 198.6 -- 198.6
Net investment income.. 1,357.8 (67.5)(2) 1,290.3
Realized losses on in-
vestments............. (0.2) -- (0.2)
Other income........... 59.5 -- 59.5
--------------- ------------- ---------------
Total revenues........ 2,016.6 (67.5) 1,949.1
--------------- ------------- ---------------
Benefits and Expenses:
Benefits and claims.... 1,160.6 -- 1,160.6
Policyholder divi-
dends................. 41.0 -- 41.0
Amortization of de-
ferred policy acquisi-
tion costs............ 133.4 -- 133.4
Operating expenses..... 353.5 -- 353.5
Interest expense....... -- -- --
--------------- ------------- ---------------
Total benefits and
expenses............. 1,688.5 -- 1,688.5
--------------- ------------- ---------------
Income from continuing
operations before fed-
eral income tax ex-
pense.................. 328.1 (67.5) 260.6
Federal income tax ex-
pense.................. 115.8 (23.6)(3) 92.2
--------------- ------------- ---------------
Income from continu-
ing operations..... $ 212.3 $ (43.9) $ 168.4
=============== ============= ===============
CONSOLIDATED BALANCE
SHEET DATA:
General account assets.. $ 20,843.5 $ (423.4)(4) $ 20,420.1
Separate account as-
sets................... 26,926.7 -- 26,926.7
Total assets............ 47,770.2 (423.4) 47,346.8
Long-term debt.......... -- -- --
Capital Securities...... -- -- --
Shareholders' equity.... 2,131.7 (423.4)(4) 1,708.3
OTHER DATA:
Net operating income
(5).................... $ 211.3 $ (43.9) $ 167.4
Realized gains/(losses)
on investments, net of
tax.................... 1.0 -- 1.0
--------------- ------------- ---------------
Income from continuing
operations............ $ 212.3 $ (43.9) $ 168.4
=============== ============= ===============
Income from continuing
operations per common
share(6).............. $ 2.03 $ 1.34
=============== ===============
Ratio of earnings to
fixed charges (7)...... 1.3x 1.3x
</TABLE>
- --------
(1) Pro forma to give effect to (i) the Equity Offerings (assuming net
proceeds of $426.6 million from the issuance of 20,540,000 shares of Class
A Common Stock), (ii) the Special Dividend totalling $850.0 million which
will have been paid by the Company prior to the completion of the Equity
Offerings and (iii) with respect to Consolidated Income Statement Data and
Other Data only, the 1996 Cash Dividend totalling $50.0 million which was
paid by the Company on December 31, 1996.
(2) Reduction in net investment income on the 1996 Cash Dividend and the
Special Dividend at an assumed rate of 7.5%. If this reduction were
partially offset by net investment income on the proceeds from the Equity
Offerings at an assumed reinvestment rate of 7.5%, the net adjustment
would be a reduction of $35.5 million, resulting in net operating income
of $188.2 million.
(3) Income tax effect of the pro forma adjustments at the statutory rate.
(4) The excess of the Special Dividend over the proceeds form the Equity
Offerings.
(5) Excludes realized gains/(losses) on investments (net of related federal
income tax) and discontinued operations.
(6) Actual is based on 104,745,000 shares of Class B Common Stock outstanding.
Pro forma is based on 125,285,000 shares outstanding, which consists of
104,745,000 shares of Class B Common Stock and 20,540,000 shares of Class
A Common Stock assumed to be issued in the Equity Offerings.
(7) For purposes of this computation, earnings consist of income from
continuing operations before federal income tax expense and fixed charges.
Fixed charges consist of interest expense on debt plus interest credited
to policyholder account balances. There was no actual interest expense on
debt for the year ended December 31, 1996.
35
<PAGE>
PRO FORMA FOR THE SPECIAL DIVIDEND, THE EQUITY OFFERINGS, THE NOTE OFFERING
AND, WITH RESPECT TO CONSOLIDATED INCOME STATEMENT DATA AND OTHER DATA ONLY,
THE 1996 CASH DIVIDEND
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------
ACTUAL ADJUSTMENTS PRO FORMA(1)
--------------- ---------------- -----------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA:
Revenues:
Policy charges........ $ 400.9 $ -- $ 400.9
Life insurance
premiums............. 198.6 -- 198.6
Net investment
income............... 1,357.8 (68.1)(2) 1,289.7
Realized losses on
investments.......... (0.2) -- (0.2)
Other income.......... 59.5 -- 59.5
--------------- ------------- ---------------
Total revenues...... 2,016.6 (68.1) 1,948.5
--------------- ------------- ---------------
Benefits and Expenses:
Benefits and claims... 1,160.6 -- 1,160.6
Policyholder
dividends............ 41.0 -- 41.0
Amortization of
deferred policy
acquisition costs.... 133.4 -- 133.4
Operating expenses.... 353.5 -- 353.5
Interest expense...... -- 22.6 (3) 22.6
--------------- ------------- ---------------
Total benefits and
expenses........... 1,688.5 22.6 1,711.1
--------------- ------------- ---------------
Income from continuing
operations before
income tax expense.... 328.1 (90.7) 237.4
Federal income tax
expense............... 115.8 (31.7)(4) 84.1
--------------- ------------- ---------------
Income from
continuing
operations........ $ 212.3 $ (59.0) $ 153.3
=============== ============= ===============
CONSOLIDATED BALANCE
SHEET DATA:
General account
assets................ $ 20,843.5 $ (123.4)(5) $ 20,720.1
Separate accounts
assets................ 26,926.7 -- 26,926.7
Total assets........... 47,770.2 (123.4) 47,646.8
Long-term debt......... -- 300.0 (6) 300.0
Capital Securities..... -- -- --
Shareholders' equity... 2,131.7 (423.4)(7) 1,708.3
OTHER DATA:
Net operating income
(8)................... $ 211.3 $ (59.0) $ 152.3
Realized gains/(losses)
on investments, net of
tax................... 1.0 -- 1.0
--------------- ------------- ---------------
Income from continu-
ing operations....... $ 212.3 $ (59.0) $ 153.3
=============== ============= ===============
Income from
continuing
operations per
common share (9)..... $ 2.03 $ 1.22
=============== ===============
Ratio of earnings to
fixed charges (10).... 1.3x 1.2x
</TABLE>
- --------
(1) Pro forma to give effect to (i) the Equity Offerings (assuming net
proceeds of $426.6 million from the issuance of 20,540,000 shares of
Class A Common Stock), (ii) the Special Dividend totalling $850.0 million
which will have been paid by the Company prior to the completion of the
Equity Offerings, (iii) the Note Offering (assuming net proceeds of
$296.3 million) and (iv) with respect to Consolidated Income Statement
Data and Other Data only, the 1996 Cash Dividend totalling $50.0 million
which was paid by the Company on December 31, 1996.
(2) Reduction in net investment income on the 1996 Cash Dividend and the
Special Dividend at an assumed rate of 7.5%. If this reduction were
partially offset by net investment income on the proceeds from the Equity
Offerings and the Note Offering at an assumed reinvestment rate of 7.5%,
the net adjustment would be a reduction of $13.8 million, resulting in
pro forma net operating income of $187.6 million.
(3) The $300 million aggregate principal amount of the Notes is assumed to
bear interest at a rate of 7.5% per annum for the period indicated. There
can be no assurance that this will be the actual rate borne by the Notes.
An increase of 1.0% per annum in the assumed interest rate on the Notes
would result in an increase of $3.0 million to interest expense for the
year ended December 31, 1996. Interest expense includes amortization of
deferred issuance costs.
(4) Income tax effect of the pro forma adjustments at the statutory rate.
(5) The excess of the Special Dividend over the proceeds from the Equity
Offerings and Note Offering. Also included are capitalized issuance
costs.
(6) Represents aggregate principal amount of Notes.
(7) The excess of the Special Dividend over the proceeds from the Equity
Offerings.
(8) Excludes realized gains/(losses) on investments (net of related federal
income tax) and discontinued operations.
(9) Actual is based on 104,745,000 shares of Class B Common Stock
outstanding. Pro forma is based on 125,285,000 shares outstanding, which
consists of 104,745,000 shares of Class B Common Stock and 20,540,000
shares of Class A Common Stock assumed to be issued in the Equity
Offerings.
(10) For purposes of this computation, earnings consist of income from
continuing operations before federal income tax expense and fixed
charges. Fixed charges consist of interest expense on debt plus interest
credited to policyholder account balances. There was no actual interest
expense on debt for the year ended December 31, 1996.
36
<PAGE>
PRO FORMA FOR THE SPECIAL DIVIDEND, THE EQUITY OFFERINGS, THE CAPITAL
SECURITIES OFFERING AND, WITH RESPECT TO CONSOLIDATED INCOME STATEMENT DATA
AND OTHER DATA ONLY, THE 1996 CASH DIVIDEND
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED
DECEMBER 31, 1996
------------------------------------------------------
ACTUAL ADJUSTMENTS PRO FORMA(1)
--------------- ---------------- -----------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA:
Revenues:
Policy charges........ $ 400.9 $ -- $ 400.9
Life insurance
premiums............. 198.6 -- 198.6
Net investment
income............... 1,357.8 (67.7)(2) 1,290.1
Realized losses on
investments.......... (0.2) -- (0.2)
Other income.......... 59.5 -- 59.5
--------------- ------------- ---------------
Total revenues....... 2,016.6 (67.7) 1,948.9
--------------- ------------- ---------------
Benefits and Expenses:
Benefits and claims... 1,160.6 -- 1,160.6
Policyholder
dividends............ 41.0 -- 41.0
Amortization of
deferred policy
acquisition costs.... 133.4 -- 133.4
Operating expenses.... 353.5 -- 353.5
Interest expense...... -- 8.0 (3) 8.0
--------------- ------------- ---------------
Total benefits and
expenses............ 1,688.5 8.0 1,696.5
--------------- ------------- ---------------
Income from continuing
operations before
federal income tax
expense............... 328.1 (75.7) 252.4
Federal income tax
expense............... 115.8 (26.5)(4) 89.3
--------------- ------------- ---------------
Income from
continuing
operations........ $ 212.3 $ (49.2) $ 163.1
=============== ============= ===============
CONSOLIDATED BALANCE
SHEET DATA:
General account
assets................ $20,843.5 $(323.4)(5) $20,520.1
Separate account
assets................ 26,926.7 -- 26,926.7
Total assets........... 47,770.2 (323.4) 47,446.8
Long-term debt......... -- -- --
Capital securities..... -- 100.0 (6) 100.0
Shareholders' equity... 2,131.7 (423.4)(7) 1,708.3
OTHER DATA:
Net operating
income(8)............. $ 211.3 $ (49.2) $ 162.1
Realized gains/(losses)
on investments, net of
tax................... 1.0 -- 1.0
--------------- ------------- ---------------
Income from
continuing
operations.......... $ 212.3 $ (49.2) $ 163.1
=============== ============= ===============
Income from
continuing
operations per
common share(9)..... $ 2.03 $ 1.30
=============== ===============
Ratio of earnings to
fixed charges(10)..... 1.3x 1.3x
</TABLE>
- --------
(1) Pro forma to give effect to (i) the Equity Offerings (assuming net
proceeds of $426.6 million and the issuance of 20,540,000 shares of Class
A Common Stock), (ii) the Special Dividend totalling $850.0 million which
will have been paid by the Company prior to the completion of the Equity
Offerings, (iii) the Capital Securities Offering (assuming net proceeds
of $98.6 million) and (iv) with respect to Consolidated Income Statement
Data and Other Data only, the 1996 Cash Dividend totalling $50.0 million
which was paid by the Company on December 31, 1996.
(2) Reduction in net investment income on the 1996 Cash Dividend and the
Special Dividend at an assumed rate of 7.5%. If this reduction were
partially offset by net investment income on the proceeds from the Equity
Offerings and the Capital Securities Offering at an assumed reinvestment
rate of 7.5%, the net adjustment would be a reduction of $28.3 million,
resulting in pro forma net operating income of $187.7 million.
(3) The $100 million aggregate liquidation amount of the Capital Securities
is assumed to bear a distribution rate of 8.0% per annum for the period
indicated. There can be no assurance that this will be the actual rate
borne by the Capital Securities. An increase of 1.0% per annum on the
assumed distribution rate on the Capital Securities would result in an
increase of $1.0 million to interest expense for the year ended December
31, 1996. Interest expense includes amortization of deferred issuance
costs.
(4) Income tax effect of the pro forma adjustments at the statutory rate.
(5) The excess of the Special Dividend over the proceeds from the Equity
Offerings and Capital Securities Offering. Also included are capitalized
issuance costs.
(6) The Capital Securities will be reflected separately in the Company's
consolidated financial statements as "Company-obligated mandatorily
redeemable capital securities of the Nationwide Financial Services
Capital Trust, holding solely junior subordinated debentures of
Nationwide Financial Services, Inc." with a footnote indicating that all
of the Common Securities of the Trust, which are the only voting
securities of the Trust, are owned by the Company, that the sole assets
of the Trust are the junior subordinated debentures (indicating the
principal amount, interest rate and maturity date thereof) and that the
Trust's obligations with respect to the Capital Securities, through the
Guarantee, the Junior Subordinated Debentures, the Indenture and the
Declaration, taken together, are fully and unconditionally guaranteed by
the Company.
(7) The excess of the Special Dividend over the proceeds from the Equity
Offerings.
(8) Excludes realized gains/(losses) on investments (net of related federal
income tax) and discontinued operations.
(9) Actual is based on 104,745,000 shares of Class B Common Stock
outstanding. Pro forma is based on 125,285,000 shares outstanding, which
consists of 104,745,000 shares of Class B Common Stock and 20,540,000
shares of Class A Common Stock assumed to be issued in the Equity
Offerings.
(10) For purposes of this computation, earnings consist of income from
continuing operations before federal income tax expense and fixed
charges. Fixed charges consist of interest expense on debt plus interest
credited to policyholder account balances. There was no actual interest
expense on debt for the year ended December 31, 1996.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following analysis of consolidated results of operations and financial
condition of the Company should be read in conjunction with "Selected
Consolidated Financial Data," "Pro Forma Consolidated Financial Data" and the
Consolidated Financial Statements and related footnotes included elsewhere in
this Prospectus.
The Company was formed in November 1996 as a holding company for Nationwide
Life and the other companies within the Nationwide Insurance Enterprise that
offer or distribute long-term savings and retirement products. The
consolidated financial information discussed below includes the results of
operations of Nationwide Life and the related marketing and distribution
companies as though they had been consolidated with the Company for all
periods presented. See "Recent History," "Certain Relationships and Related
Transactions--Existing Arrangements with the Nationwide Insurance Enterprise--
Organization of the Company" and "--Modified Coinsurance Agreements."
RESULTS OF OPERATIONS
Policy Charges. Policy charges include asset fees, which are primarily
earned from separate account assets generated from sales of variable
annuities; administration fees, which include fees charged per contract on a
variety of the Company's products and premium loads on universal life
insurance products; surrender fees, which are charged as a percentage of
assets withdrawn during a specified period (usually the first seven years) of
annuity and certain life insurance contracts; and cost-of-insurance ("COI")
charges earned on universal life insurance products. For 1996, policy charges
were $400.9 million, a 39.9% increase from $286.6 million in 1995. Policy
charges increased 32.0% in 1995 from $217.2 million in 1994. Increases in
policy charges have resulted primarily from increases in separate account
assets and the resulting higher levels of asset fees, as well as a moderate
increase in all of the fees discussed above due to the growth in customer
accounts.
Life Insurance Premiums. Life insurance premiums are earned primarily from
traditional life insurance in the Life Insurance segment, but are also earned
from the sale of life-contingent immediate annuities in the Fixed Annuities
segment. Life insurance premiums from traditional life insurance policies are
recognized as revenue when due from the policyholder. For life-contingent
immediate annuities, net premium (i.e., the portion of the premium which
covers benefits and expenses) is recognized as revenue when received. Any
premium received in excess of the net premium is deferred and recognized as
revenue over the expected benefit period. Traditional life insurance products
accounted for 87.9%, 83.5% and 88.6% of the total life insurance premiums in
1996, 1995 and 1994, respectively. Life insurance premiums were $198.6 million
for 1996, a 0.3% decrease from $199.1 million for 1995. The slight decrease in
1996 was due to an $8.7 million decrease in sales of life-contingent immediate
annuities offset by an $8.3 million increase in traditional life insurance
premiums. Life insurance premiums increased 12.7% in 1995 from $176.7 million
in 1994. The 1995 increase in life insurance premiums resulted from an
increase in traditional life insurance in-force in the Life Insurance segment
and growth in the Fixed Annuities segment.
Net Investment Income. Net investment income includes the gross investment
income earned on investments supporting fixed annuities and certain life
insurance products as well as the yield on the Company's general account
invested assets which are not allocated to product segments. Net investment
income was $1.36 billion in 1996, $1.29 billion in 1995 and $1.21 billion in
1994. Net investment income has increased as a result of growth in the
Company's general account invested assets. General account invested assets
were $18.32 billion, $17.83 billion and $15.23 billion as of December 31,
1996, 1995 and 1994, respectively.
Realized Gains/(Losses) on Investments. Realized gains on investments are
not considered by the Company to be a recurring source of earnings. The
Company makes decisions concerning the sale of invested assets based on a
variety of market, business, tax and other factors. All realized gains and
losses are reported in the Corporate and Other segment. Net realized losses on
investments were $0.2 million in 1996, $1.7 million in 1995 and $16.5 million
in 1994.
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<PAGE>
Other Income. Other income consists of investment management fees earned by
a subsidiary of the Company from the management of Nationwide mutual funds, as
well as commission and other income earned by the Company's marketing and
distribution subsidiaries. Net investment management fees earned on Nationwide
mutual fund assets selected as investment options for variable annuity
products and variable life insurance products are reported in the Variable
Annuities segment and Life Insurance segment, respectively. The Company also
sells its mutual fund products separately, and investment management fees from
these assets are included in the Corporate and Other segment. Other income was
$59.5 million in 1996, a 0.8% increase from 1995. Other income increased 28.8%
to $59.0 million in 1995 from $45.9 million in 1994. The increase in other
income in 1996 and 1995 resulted primarily from an increase in commission
income.
Benefits and Claims. Benefits and claims consist primarily of interest
credited on fixed annuity products and life insurance benefits in the Life
Insurance segment. Benefits and claims increased 4.0% to $1.16 billion in 1996
from 1995. Benefits and claims increased 12.4% to $1.12 billion in 1995 from
$992.7 million in 1994. The changes in benefits and claims from year to year
are primarily attributable to the changes in interest credited which are
discussed in the Fixed Annuities segment results below. Life insurance
benefits have remained consistent over the periods.
Policyholder Dividends. Policyholder dividends are paid on certain
participating policies, primarily in the Life Insurance segment. Policyholder
dividends were $41.0 million in 1996, a 2.8% increase over 1995. Policyholder
dividends increased 2.8% to $39.9 million in 1995 from $38.8 million in 1994.
Amortization of DAC. Amortization of deferred policy acquisition costs
("DAC") results from the capitalization of commissions and other costs of
acquiring new contracts and the amortization of these costs over the estimated
life of the contract. Amortization of DAC was $133.4 million in 1996, a 61.3%
increase over 1995. Amortization of DAC decreased 3.4% to $82.7 million in
1995 from $85.6 million in 1994. The increase in 1996 was primarily
attributable to growth in all product segments while the decrease in 1995
resulted from a decrease in the amortization rate for variable and fixed
individual annuities due to lower than anticipated lapse rates and strong
separate account asset performance.
Operating Expenses. Operating expenses were $353.5 million in 1996, an 11.3%
increase 1995. Operating expenses increased 14.9% to $317.8 million in 1995
from $276.6 million in 1994. These increases were primarily due to the
increasing number of individual and group annuity contracts in-force and the
related increase in administrative processing costs. The Company has
controlled its operating expenses by taking advantage of economies of scale
and by increasing productivity through investments in technology. As a result,
the ratio of operating expenses to total assets declined to 0.74% in 1996 from
0.83% in 1995 and 0.95% in 1994.
Federal Income Tax Expenses. Federal income tax expense was $115.8 million,
$96.3 million and $82.5 million, representing effective tax rates of 35.3%,
34.3% and 34.3%, for 1996, 1995 and 1994, respectively. The increase in the
1996 effective tax rate is the result of greater benefits in 1995 and from
charitable donations of appreciated securities.
Net Operating Income. Net operating income is net income, excluding realized
gains and losses on investments (net of related federal income tax) and
discontinued operations. Net operating income for 1996 was $211.3 million, a
14.3% increase from 1995. The Company's net operating income increased 9.9% to
$184.8 million in 1995 from $168.2 million in 1994.
Discontinued Operations. Discontinued operations include the results of (i)
the three Nationwide Life subsidiaries whose outstanding capital stock, on
September 24, 1996, was declared as a dividend to Nationwide Corp. and (ii)
all of the Company's accident and health and group life business which was
ceded to affiliates effective January 1, 1996. Income from discontinued
operations was $11.3 million, $24.7 million and $20.5 million in 1996, 1995
and 1994, respectively. The Company did not recognize any gain or loss on the
disposal of these subsidiaries or discontinuance of the accident and health
and group life insurance business. Income from discontinued operations was
$11.3 million in 1996, a 54.3% decrease from $24.7 million in 1995. The
decrease is attributable to losses incurred on group accident and health
business, which are due to increases in the volume of claims and medical
costs. Income from discontinued operations was $24.7 million in 1995, a 20.5%
increase from $20.5 million in 1994. The increase is attributable to the
income reported by Employers Life Insurance Company of Wausau ("Employers
Life"), which the Company acquired effective December 31, 1994.
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<PAGE>
EFFECT OF THE SPECIAL DIVIDEND, THE NOTE OFFERING AND THE CAPITAL SECURITIES
OFFERING
Prior to the Capital Securities Offering, the Company expects to consummate
the Equity Offerings and concurrently with the Capital Securities Offering,
the Company expects to consummate the Note Offering. The consummation of the
Capital Securities Offering is not conditioned on the completion of the Note
Offering. There can be no assurance that the Note Offering will be
consummated. See "Use of Proceeds," "Recent History" and "The Equity
Offerings, the Note Offering and the Capital Securities Offering." The Equity
Offerings and the Note Offering are being made pursuant to separate
prospectuses.
The proceeds from the Capital Securities Offering will be used by the Trust
to purchase Junior Subordinated Debentures of the Company. The proceeds
received by the Company from the sale of the Junior Subordinated Debentures,
together with proceeds from the Note Offering, will be contributed to the
capital of Nationwide Life. Prior to the consummation of the Equity Offerings,
Nationwide Life will dividend to the Company, and the Company will
subsequently dividend to Nationwide Corp., securities having an aggregate
market value of $850.0 million. Together with the effect of the proceeds of
the Equity Offerings, these transactions are expected to result in a net
decrease in invested assets of the Company of $28.5 million, which is expected
to result in a slight decrease in net investment income in the future.
Interest expense generated by the securities sold in the Note Offering and the
Capital Securities Offering is expected to be approximately $30.7 million per
year. See Note 3 to "Pro Forma Consolidated Financial Data--Pro Forma for the
Special Dividend, the Equity Offerings, the Note Offering, the Capital
Securities Offering and, with respect to Consolidated Income Statement Data
and Other Data only, the 1996 Cash Dividend."
The Notes are expected to have a maturity of approximately 30 years from the
date of issuance, with interest payable semi-annually. The Notes are expected
to include the option for the Company to redeem part or all of the outstanding
Notes beginning approximately 10 years from the date of issuance. The Notes
will not require any sinking fund payments.
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<PAGE>
RESULTS OF OPERATIONS BY PRODUCT SEGMENT
The Company has three product segments: Variable Annuities, Fixed Annuities
and Life Insurance. In addition, the Company reports corporate income and
expenses and investments and related investment income supporting capital not
specifically allocated to its product segments in a Corporate and Other
segment. All information set forth below relating to the Company's Variable
Annuities segment excludes the fixed option under the Company's variable
annuity contracts. Such information is included in the Company's Fixed
Annuities segment.
The table below presents summary financial data for the Company by segment.
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
REVENUES:
Variable Annuities(1)................. $ 284.6 $ 189.0 $ 132.7
Fixed Annuities(1).................... 1,092.6 1,052.0 939.9
Life Insurance........................ 435.6 409.1 383.1
Corporate and Other................... 204.0 188.6 194.9
--------- --------- ---------
Total operating revenues............ 2,016.8 1,838.7 1,650.6
Realized losses on investments........ (0.2) (1.7) (16.5)
--------- --------- ---------
Total revenues...................... $ 2,016.6 $ 1,837.0 $ 1,634.1
========= ========= =========
INCOME FROM CONTINUING OPERATIONS BE-
FORE FEDERAL INCOME TAX
EXPENSE:
Variable Annuities.................... $ 90.3 $ 50.8 $ 24.6
Fixed Annuities....................... 135.4 137.0 139.0
Life Insurance........................ 67.2 67.6 53.0
Corporate and Other................... 35.4 27.5 40.3
--------- --------- ---------
Total operating income.............. 328.3 282.9 256.9
Realized losses on investments........ (0.2) (1.7) (16.5)
--------- --------- ---------
Total income from continuing
operations before income federal
tax expense........................ $ 328.1 $ 281.2 $ 240.4
========= ========= =========
POLICY RESERVES:
Variable Annuities(2)................. $24,278.1 $16,761.8 $10,751.1
Fixed Annuities(2).................... 13,511.8 12,784.0 11,247.0
Life Insurance........................ 2,938.9 2,660.5 2,425.2
Corporate and Other................... 3,302.5 2,644.3 2,252.7
--------- --------- ---------
Total policy reserves(3)............ $44,031.3 $34,850.6 $26,676.0
========= ========= =========
</TABLE>
- --------
(1) Revenues related to the fixed option under the Company's variable annuity
contracts are included in Fixed Annuities.
(2) Policy reserves related to the fixed option under the Company's variable
annuity contracts are included in Fixed Annuities. As of December 31,
1996, 1995 and 1994, such policy reserves represented $9.52 billion, $8.83
billion and $7.27 billion, respectively.
(3) Total policy reserves as presented here differ from the amounts set forth
in the Company's financial statements because the presented amounts
exclude (i) accident and health and group life insurance business ceded to
other members of the Nationwide Insurance Enterprise and (ii) the fixed
annuity policy reserves ceded to Franklin Life Insurance Company
("Franklin Life"). See "Business--Reinsurance" and "Certain Relationships
and Related Transactions--Existing Arrangements with the Nationwide
Insurance Enterprise--Modified Coinsurance Agreements."
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<PAGE>
Variable Annuities
Revenues. Revenues in the Variable Annuities segment consist of policy
charges and other income. Policy charges consist of asset fees, which are
generally a percentage of separate account assets deposited for the purchase
of variable annuities; administration fees, which are generally a specific
dollar amount per contract; and surrender fees, which are charged against
assets withdrawn during a specified period (generally the first seven years)
of variable annuity contracts. The separate account assets generated by the
Variable Annuities segment do not contribute to net investment income of the
Company because the customer receives the investment benefit and bears the
investment risk of these assets. Other income includes net investment
management fees earned on separate account assets held in mutual funds managed
by a subsidiary of the Company.
Revenues were $284.6 million in 1996, a 50.6% increase from 1995. Revenues
increased 42.4% to $189.0 million in 1995 from $132.7 million in 1994.
Revenues have increased primarily as a result of growth in separate account
assets related to this segment and the corresponding growth in asset fees,
which were $261.8 million, $172.8 million and $120.4 million in 1996, 1995 and
1994, respectively. Asset fees as a percentage of variable annuity separate
account assets have remained relatively stable during the periods presented,
reflecting minimal changes in the levels of asset fees charged on most
variable annuity products.
Income from Continuing Operations Before Federal Income Tax Expense. Income
from continuing operations before federal income tax expense was $90.3 million
in 1996, a 77.8% increase from 1995. Income from continuing operations before
federal income tax expense increased 106.5% to $50.8 million in 1995 from
$24.6 million in 1994. Increases have primarily resulted from growth in
variable annuity separate account assets and the corresponding increases in
asset fees combined with expense levels which have decreased as a percentage
of revenues. Total expenses were $189.7 million, $135.4 million and $105.8
million, or 66.7%, 71.6% and 79.7% of total revenues for 1996, 1995 and 1994,
respectively. During the period, the Company has controlled its operating
expenses by taking advantage of economies of scale and by increasing
productivity through investments in technology.
Policy Reserves. Variable annuity policy reserves increased 44.9% from
$16.76 billion as of December 31, 1995 to $24.28 billion as of December 31,
1996. Of this increase, $2.72 billion was due to market appreciation of
separate account assets, while $6.50 billion of statutory premiums and
deposits offset by $1.70 billion of withdrawals and policy charges resulted in
the remainder of the increase. Variable annuity policy reserves increased
55.9% to $16.76 billion as of December 31, 1995 from $10.75 billion as of
December 31, 1994, which was a 36.8% increase from $7.86 billion as of
December 31, 1993. Market appreciation accounted for $2.93 billion of the
increase in 1995 while market depreciation accounted for an $84.0 million
decrease in 1994. Statutory premiums and deposits were $4.40 billion and $3.82
billion, while withdrawals and policy charges were $1.32 billion and $840.0
million, in 1995 and 1994, respectively.
Fixed Annuities
Revenues. Revenues in the Fixed Annuities segment consist mainly of net
investment income, which is earned on invested assets allocated to support
fixed annuity policy reserves and shareholders' equity allocated to such
segment. Total revenues were $1.09 billion, $1.05 billion and $939.9 million
in 1996, 1995 and 1994, respectively. Net investment income was $1.05 billion,
$1.00 billion and $903.7 million, representing average pre-tax yields on the
assets supporting this segment of 8.22%, 8.50% and 8.59% in 1996, 1995 and
1994, respectively. The increase in net investment income for each period
presented is the result of the increases in policy reserves discussed below
and the corresponding increase in invested assets.
Interest Credited. Interest credited on account balances was $805.0
million, $775.7 million and $680.9 million, representing crediting rates of
6.30%, 6.58% and 6.47% for 1996, 1995 and 1994, respectively. The differential
between net investment income and interest credited on account balances
resulted in spreads of $245.6 million, $227.1 million and $222.8 million, or
1.92%, 1.92% and 2.12%, in 1996, 1995 and 1994, respectively. Spreads vary
depending on crediting rates offered by competitors, performance of the
investment portfolio and other factors. The higher spread in 1994 is primarily
the result of declining interest rates in late 1993 and early 1994 which
resulted in lower crediting rates.
42
<PAGE>
Income from Continuing Operations Before Federal Income Tax Expense. Income
from continuing operations before federal income tax expense was $135.4
million in 1996, a 1.2% decrease from 1995. Income from continuing operations
before federal income tax expense decreased 1.4% to $137.0 million in 1995
from $139.0 million in 1994. Narrowing spreads, offset by asset growth, caused
1996 and 1995 earnings to decline from 1994.
Policy Reserves. Fixed annuity policy reserves increased 5.7% to $13.51
billion as of December 31, 1996, from $12.78 billion as of December 31, 1995.
Statutory premiums and deposits of $1.60 billion and interest credited of
$805.0 million were offset by $1.68 billion of withdrawals, annuity benefits
and policy charges. Policy reserves increased 13.6% to $12.78 billion as of
December 31, 1995 from $11.25 billion as of December 31, 1994. Statutory
premiums and deposits were $1.86 billion and $1.31 billion, while interest
credited was $775.7 million and $680.9 million in 1995 and 1994, respectively.
Withdrawals and policy charges were $1.10 billion and $895.0 million in 1995
and 1994, respectively.
Life Insurance
Revenues. Revenues in the Life Insurance segment consist of the life
insurance premiums and policy charges, as well as net investment income. Total
revenues were $435.6 million, $409.1 million and $383.1 million for 1996, 1995
and 1994, respectively. The increases are attributed to increases in life
insurance in-force with the majority of the growth coming from the variable
universal life product.
Income from Continuing Operations Before Federal Income Tax Expense. Income
from continuing operations before federal income tax expense was $67.2 million
in 1996, a 0.6% decrease from $67.6 million for 1995. The decrease is
attributable to the increased amount of amortization of DAC due to increased
volume and higher general expenses due to increased sales offset by an
increase in revenues from the variable universal product. Income from
continuing operations before federal income tax expense increased 27.5% to
$67.6 million in 1995 from $53.0 million in 1994. The increase is due to
growth in insurance in-force, particularly variable universal life, combined
with only minimal increases in expenses.
Life Insurance In-Force. Life insurance in-force was $37.72 billion, $33.41
billion and $30.13 billion as of December 31, 1996, 1995 and 1994,
respectively. Nearly two-thirds of the growth of life insurance in-force is in
variable universal life and term insurance policies.
Corporate and Other
Revenues. Revenues in the Corporate and Other segment consist of net
investment income on invested assets not allocated to the three product
segments, all realized investment gains and losses, investment management fees
and other revenues earned from Nationwide mutual funds other than the portion
allocated to the Variable Annuities and Life Insurance segments, commissions
and other income earned by the marketing and distribution subsidiaries of the
Company and net investment income and policy charges from group annuity
contracts issued to Nationwide Insurance Enterprise employee and agent benefit
plans. Total revenues excluding realized gains and losses were $204.0 million
for 1996, an 8.2% increase from 1995. The increase in 1996 is the result of an
increase in investment income, investment management fees and commissions
earned. Total revenues excluding realized gains and losses were $188.6 million
and $194.9 million in 1995 and 1994, respectively. The decrease is a result of
a reduction of $155.0 million of invested assets discussed below. Effective
December 31, 1994, the Company transferred $155.0 million of invested assets
from the Corporate and Other segment for the purchase of Employers Life.
Realized losses on investments were $0.2 million, $1.7 million and $16.5
million in 1996, 1995 and 1994, respectively.
Income from Continuing Operations Before Federal Income Tax Expense. Income
from continuing operations before federal income tax expense excluding
realized gains and losses was $35.4 million, $27.5 million and $40.3 million
in 1996, 1995 and 1994, respectively. The changes between years are primarily
attributed to the changes in revenues discussed above. Interest expense
related to the Note Offering and the Capital Securities Offering will be
recorded in the Corporate and Other segment which will reduce income from
continuing operations before federal income tax expense for the Corporate and
Other segment in periods after the completion of such offerings.
43
<PAGE>
INTERCOMPANY AGREEMENTS
The Company has existing arrangements with Nationwide Mutual and other
affiliates that address the sharing of federal income taxes, the leasing of
office space and the sharing of certain operational and administrative
services. These arrangements have been in effect for all periods for which
financial data is presented herein. See "Certain Relationships and Related
Transactions--Existing Arrangements with the Nationwide Insurance Enterprise."
The Company does not believe that expenses recognized under the intercompany
arrangements are materially different from expenses that would have been
recognized had the Company operated on a stand-alone basis.
Nationwide Mutual and its U.S. subsidiaries, including the Company and its
subsidiaries, file a consolidated federal income tax return. The members of
the consolidated group currently have a tax sharing arrangement which provides
for each member to bear essentially the same federal income tax liability as
if separate tax returns were filed. For the years ended December 31, 1996,
1995 and 1994, the Company made federal income tax payments under the tax
sharing arrangement of $117.3 million, $58.1 million and $84.9 million,
respectively. See "Certain Relationships and Related Transactions--Existing
Arrangements with the Nationwide Insurance Enterprise--Federal Income Taxes."
The Company leases 512,000 square feet of office space at a current market
rate of $19.53 per square foot, with limited exceptions, from Nationwide
Mutual and certain of its subsidiaries. For the years ended December 31, 1996,
1995 and 1994, the Company made lease payments to Nationwide Mutual and its
subsidiaries of $10.0 million, $9.9 million and $9.0 million, respectively.
See "Certain Relationships and Related Transactions--Existing Arrangements
with the Nationwide Insurance Enterprise--Lease."
Pursuant to a cost sharing agreement among Nationwide Mutual and certain of
its direct and indirect subsidiaries, including the Company, Nationwide Mutual
provides certain operational and administrative services, such as sales
support, advertising, personnel and general management services, to those
subsidiaries. Expenses covered by such agreement are subject to allocation
among Nationwide Mutual and such subsidiaries. Amounts allocated to the
Company were $101.6 million, $107.1 million and $100.6 million for the years
ended December 31, 1996, 1995 and 1994, respectively. Under the cost sharing
agreement, expenses are allocated in accordance with NAIC guidelines and are
based on standard allocation techniques and procedures acceptable under
general cost accounting practices. Measures used to allocate expenses include
individual employee estimates of time spent, special cost studies, salary
expense, commissions expense and other measures that are agreed to by the
participating companies and are within regulatory and industry guidelines and
practices. The cost sharing agreement will remain in effect following the
Equity Offerings until terminated upon the consent of both Nationwide Mutual
and the Company. See "Certain Relationships and Related Transactions--Existing
Arrangements with the Nationwide Insurance Enterprise--Cost Sharing
Agreement."
Upon consummation of the Equity Offerings, certain other intercompany
agreements will become effective, including the revised Tax Sharing Agreement,
a lease agreement (the "Lease Agreement") and the Intercompany Agreement. The
Company will be subject to the Tax Sharing Agreement until such time as
Nationwide Mutual no longer beneficially owns at least 80% of the combined
voting power and value of the outstanding capital stock of the Company. The
initial term of the Lease Agreement is for 12 months and automatically renews
upon the same terms and conditions unless either Nationwide Mutual or the
Company gives 30 days' written notice to the other party prior to the end of
such 12-month period. Neither the Tax Sharing Agreement nor the Lease
Agreement may be amended without the prior written consent of the Company. See
"Certain Relationships and Related Transactions--New Agreements with the
Nationwide Insurance Enterprise."
The Intercompany Agreement will govern, among other things, the use by the
Company of certain trade names and service marks owned by Nationwide Mutual,
Nationwide Mutual's approval of certain extraordinary transactions involving
the Company, Nationwide Corp.'s preemptive and registration rights, certain
indemnification matters and the use by the Company of Nationwide Insurance
Enterprise insurance agents. The Intercompany Agreement may not be amended
without the prior written consent of the Company and certain
44
<PAGE>
material provisions thereof may not be amended without the approval of a
majority of the directors of the Company who are not officers or directors of
members of the Nationwide Insurance Enterprise other than the Company and its
subsidiaries. See "Certain Relationships and Related Transactions--New
Agreements with the Nationwide Insurance Enterprise--Intercompany Agreement."
The Company does not believe its results of operations will be materially
adversely affected as a result of any of the new intercompany agreements that
will become effective upon the consummation of the Equity Offerings.
REINSURANCE
The Company follows the customary industry practice of reinsuring ("ceding")
a portion of its life insurance and annuity risks with other companies in
order to reduce net liability on individual risks, to provide protection
against large losses and to obtain greater diversification of risks. The
ceding of risk does not discharge the original insurer from its primary
obligation to the policyholder. The Company has entered into a reinsurance
contract to cede a portion of its general account individual annuity reserves
to Franklin Life. Total recoveries due from Franklin Life were $240.5 million
and $245.3 million as of December 31, 1996 and 1995, respectively. Under the
terms of the contract, Franklin Life has established a trust as collateral for
the recoveries. The trust assets are invested in investment grade securities,
the market value of which must at all times be greater than or equal to 102%
of the reinsured reserves. The Company has no other material reinsurance
arrangements with unaffiliated reinsurers.
The only material reinsurance agreements which the Company has with
affiliates are the modified coinsurance agreements pursuant to which
Nationwide Life reinsured all of its accident and health and group life
insurance business to Employers Life and Nationwide Mutual. See "Certain
Relationships and Related Transactions--Existing Arrangements with the
Nationwide Insurance Enterprise--Modified Coinsurance Agreements." Nationwide
Life entered into these reinsurance agreements because its accident and health
and group life insurance business was unrelated to the Company's long-term
savings and retirement products. Accordingly, all accident and health and
group life insurance business is accounted for as discontinued operations.
Under the modified coinsurance agreements, invested assets are retained by the
ceding company and investment earnings are paid to the reinsurer. Under the
terms of such agreements, the investment risk associated with changes in
interest rates is borne by Employers Life or Nationwide Mutual, as the case
may be. Risk of asset default is retained by the Company, although a fee is
paid by Employers Life or Nationwide Mutual, as the case may be, to the
Company for the Company's retention of such risk. The contracts will remain in
force until all policy obligations are settled. However, with respect to the
agreement between Nationwide Life and Nationwide Mutual, either party may
terminate the contract on January 1 of any year with prior notice. The Company
believes that the terms of such modified coinsurance agreements are consistent
in all material respects with what the Company could have obtained with
unaffiliated parties.
Total premiums ceded under the intercompany reinsurance agreements were
$321.6 million during 1996. The effect of the reinsurance agreements was an
increase in the Company's income from discontinued operations before federal
income tax expense of $4.5 million during 1996. The Company does not expect
the intercompany reinsurance agreements to have any material adverse effect on
the Company's future operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company is an insurance holding company whose principal asset is the
common stock of Nationwide Life. The principal sources of funds for the
Company to pay principal, interest, dividends and operating expenses are
dividends from Nationwide Life and other subsidiaries and payments from
Nationwide Life under the Tax Sharing Agreement.
State insurance laws generally restrict the ability of insurance companies
to pay cash dividends in excess of certain prescribed limitations without
prior approval. The ability of Nationwide Life to pay dividends is subject to
restrictions set forth in the insurance laws and regulations of Ohio, its
domiciliary state. The Ohio insurance
45
<PAGE>
laws require life insurance companies to seek prior regulatory approval to pay
a dividend or distribution of cash or other property if the fair market value
thereof, together with that of other dividends or distributions made in the
preceding 12 months, exceeds the greater of (i) 10% of policyholders' surplus
as of the prior December 31 or (ii) the net income of the insurer for the 12-
month period ending as of the prior December 31. The Ohio insurance laws also
require insurers to seek prior regulatory approval for any dividend paid from
other than earned surplus. The payment of dividends by Nationwide Life may
also be subject to restrictions set forth in the insurance laws of New York
that limit the amount of statutory profits on Nationwide Life's participating
policies (measured before dividends to policyholders) that can inure to the
benefit of the Company and its stockholders. The Company currently does not
expect such regulatory requirements to impair its ability to pay operating
expenses and dividends in the future. However, the Company can give no
assurance that dividends will be declared or paid by the Company.
As a result of the Special Dividend and the dividend by Nationwide Life of
the stock of certain subsidiaries that do not operate in the long-term savings
and retirement market, any dividend paid by Nationwide Life during the 12-
month period immediately following the Special Dividend would be an
extraordinary dividend under Ohio insurance laws. See "Recent History."
Accordingly, no such dividend could be paid without prior regulatory approval.
The Company has no reason to believe that any reasonably foreseeable dividend
to be paid by Nationwide Life would not receive the required approval.
However, in order to increase liquidity at the holding company level, the
Company will retain approximately $55.0 million from the net proceeds of the
Equity Offerings. The $55.0 million, which will be invested in short-term
interest-bearing securities, will be available initially to pay interest
associated with the Note Offering and the Capital Securities Offering,
stockholder dividends, and expenses.
Nationwide Life's statutory capital and surplus was $1.00 billion at
December 31, 1996. Nationwide Life will pay the Special Dividend of $850.0
million prior to the consummation of the Equity Offerings. The Company will
contribute to Nationwide Life approximately $371.6 million of the net proceeds
from the Equity Offerings. The Company believes that after the Special
Dividend and such contribution of the proceeds from the Equity Offerings,
Nationwide Life will have adequate statutory capital and surplus to satisfy
all regulatory requirements and to support its growth over the following year.
In addition, any proceeds from the Note Offering and the Capital Securities
Offerings will be contributed to Nationwide Life, providing it with additional
capital resources.
Nationwide Life will pay the Special Dividend by transferring primarily
fixed maturity investments with an aggregate market value on the date of
transfer of $850.0 million from the Corporate and Other segment. The Company
may recognize a gain or loss on the transfer of the securities. The related
tax impact of any gain or loss would be recognized but would not be paid as
long as the securities are held by Nationwide Mutual and the Company remains
within the consolidated federal tax return of Nationwide Mutual.
Nationwide Life's principal sources of funds are premiums and other
considerations paid, contract charges earned, net investment income received
and proceeds from investments called, redeemed or sold. The principal uses of
these funds are the payment of benefits on annuity contracts and life
insurance policies, operating expenses and the purchase of investments. Net
cash provided by operating activities (reflecting principally (i) premiums and
contract charges collected, less (ii) benefits paid on life insurance
products, plus (iii) income collected on invested assets, less (iv)
commissions and other general expenses paid) was $341.6 million, $192.8
million and $77.9 million for the years ended December 31, 1996, 1995 and
1994, respectively. Net cash used by investing activities (principally
reflecting investments purchased less investments called, redeemed or sold)
was $765.9 million, $1.73 billion and $1.43 billion in the years ended
December 31, 1996, 1995 and 1994, respectively. Net cash provided by financing
activities (principally reflecting deposits to investment product and
universal life insurance product account balances less withdrawals from such
account balances and capital contributions less dividends paid) was $457.5
million, $1.54 billion and $1.33 billion for the years ended December 31,
1996, 1995 and 1994, respectively.
A primary liquidity concern with respect to life insurance and annuity
products is the risk of early policyholder and contractholder withdrawal. The
Company closely evaluates and manages this risk. The
46
<PAGE>
following table summarizes the Company's annuity policy reserves as of
December 31, 1996 and 1995 by the contractholder's ability to withdraw funds.
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------ ------------------
POLICY POLICY
RESERVES % RESERVES %
------------------ ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Not subject to discretionary withdrawal.. $ 1,139.5 2.8% $ 1,087.2 3.4%
Subject to discretionary withdrawal with
adjustment:
With market value adjustment........... 35,463.2 86.3 27,312.1 84.8
At contract value, less surrender
charge of 5% or more.................. 1,046.6 2.5 992.1 3.1
---------- ------- ---------- -------
37,649.3 91.6 29,391.4 91.3
Subject to discretionary withdrawal at
contract value with no surrender charge
or surrender charge less than 5%........ 3,443.2 8.4 2,798.7 8.7
---------- ------- ---------- -------
Total annuity policy reserves........ $41,092.5 100.0% $32,190.1 100.0%
========== ======= ========== =======
</TABLE>
Life insurance policies are also subject to withdrawal. However, they are
less susceptible to withdrawal than are annuity contracts because
policyholders may incur surrender charges and undergo a new underwriting
process in order to obtain a new insurance policy.
Nationwide Life's principal sources of liquidity to meet unexpected cash
outflows are its portfolio of liquid assets and its net operating cash flow.
See "Business--Investments."
The short- and long-term liquidity requirements of the Company are monitored
regularly to match cash inflows with cash requirements. The Company
periodically reviews its short- and long-term projected sources and uses of
funds and the asset/liability, investment and cash flow assumptions underlying
these projections. Adjustments are made periodically with respect to the
Company's investment policies to reflect changes in the Company's short- and
long-term cash needs and changing business and economic conditions.
The Company employs an asset/liability management approach tailored to the
specific requirements of each of its product lines. The Company's general
account investment assets are primarily managed in a number of pools that are
separated by weighted average maturity of the assets acquired by the pools. On
bonds and mortgages, the weighted average maturity is based on repayments
which are scheduled to occur under the terms of the asset. For mortgage backed
securities, repayments are determined using the current rate of repayment of
the underlying pool of mortgages and the terms of the securities. Each product
line has an investment strategy based on the specific characteristics of such
product line. The strategy establishes asset duration, quality and other
guidelines. The Company's actuaries determine the amount of new investments
needed for each line to arrive at the amount of new investments needed for
each pool by month. The investments acquired for each pool are shared on a
proportional basis by each of the lines requesting investments in the pool
based on their actual investment needs. See "Business--Investments."
For all business having future benefits which cannot be changed at the
option of the policyholder, the underlying assets are managed in a separate
pool. The duration of assets and liabilities in this pool are kept as close
together as possible. For assets, the repayment cash flows, plus anticipated
coupon payments, are used in calculating asset duration. Future benefits and
expenses are used for liabilities. On December 31, 1996, the average duration
of assets in this pool was 6.80 years and the average duration of the
liabilities was 7.44 years. Policy reserves on this business were $1.11
billion as of December 31, 1996.
Because the timing of the payment of future benefits on the majority of the
Company's business can be changed by the policyholder, the Company employs
cash flow testing techniques as a final step in its asset/liability management
process. Annually, the Company's annuity and insurance business is analyzed to
determine the adequacy of the reserves supporting such business. This analysis
is accomplished by projecting under a number of possible future interest rate
scenarios the anticipated cash flows from such business and the assets
required to support such business. The first seven of these scenarios are
required by state insurance laws. Projections are also made using 13
additional scenarios which involve more extreme fluctuations in future
interest rates. Finally, to get a statistical analysis of possible results and
to minimize any bias in the 20 predetermined scenarios, additional projections
are made using 200 randomly generated interest rate scenarios. For the
Company's 1996 cash flow testing process, interest rates for 90-day treasury
bills ranged from 0.4% to 11.5% under the 20 predetermined scenarios and 0.8%
to 25.3% under the 200 random scenarios. Interest rates
47
<PAGE>
for longer maturity treasury securities had comparable ranges. The values
produced by each projection are used to determine future gains or losses from
the Company's annuity and insurance business, which, in turn, are used to
quantify the adequacy of the Company's reserves over the entire projection
period. The results of the Company's cash flow testing for year end 1996 (the
most recent year for which results are available) indicated that the Company's
reserves were adequate at December 31, 1996.
The Company manages its investment portfolio in part to reduce its exposure
to interest rate fluctuations. In general, the market value of the Company's
fixed maturity portfolio increases or decreases in inverse relationship with
fluctuations in interest rates. For example, if interest rates rise, the
Company's fixed maturity investments will generally decrease in value.
Additionally, the Company's net investment income may be affected by interest
rate changes. If interest rates decline, net investment income will decrease
if high-yielding fixed maturity investments mature or are sold and the
proceeds therefrom are reinvested in securities yielding a lower rate.
On August 12, 1996, Nationwide Life and Nationwide Mutual entered into a
Credit Facility (the "Credit Facility") which provides for a $600.0 million
loan over a five-year term on a fully revolving basis with a group of banks
led by Morgan Guaranty Trust Company of New York. The Credit Facility provides
for several and not joint liability with respect to any amount drawn by either
Nationwide Life or Nationwide Mutual. To date, neither Nationwide Life nor
Nationwide Mutual has drawn down any amount under the Credit Facility. The
Credit Facility provides for several borrowing options including interest at a
spread over LIBOR, money market auction, CD or base rate. The Credit Facility
also provides covenants, including, but not limited to, restrictions on
decreases in the statutory surplus of Nationwide Mutual below $2.75 billion,
mergers and sales of assets if a default has occurred and is continuing,
transactions with affiliates (which must be on an arm's-length basis on terms
at least as favorable to Nationwide Life or Nationwide Mutual as could have
been obtained from a third party who was not affiliated with Nationwide Life
or Nationwide Mutual) and restrictions on the creation, assumption or
suffering to exist of liens. In addition, the Credit Facility provides for
customary representations, warranties and events of default. Pursuant to the
terms of the Credit Facility, Nationwide Life may not declare or pay a
dividend if it is, or if the payment thereof would cause it to be, in default
under such facility. Events of default under the Credit Facility include,
among others, the failure of Nationwide Mutual and its affiliates to maintain
beneficial ownership of more than 50% of the combined voting power of
Nationwide Life's outstanding voting stock and the failure of Nationwide Life
to maintain statutory surplus in excess of $875.0 million. Amounts borrowed
under the Credit Facility may be used for, among other things, general
corporate purposes.
Given the Company's historic cash flow and current financial results,
management of the Company believes that the cash flow from the operating
activities of the Company over the next year will provide sufficient liquidity
for the operations of the Company, as well as provide sufficient funds to
enable the Company to make dividend payments, satisfy debt service obligations
and pay other operating expenses. Although the Company currently anticipates
that it will be able to make dividend payments and pay other operating and
capital expenses for the foreseeable future, the Company can give no
assurances as to whether the net cash provided primarily by dividends from
Nationwide Life and its other subsidiaries will provide sufficient funds for
the Company to do so.
INFLATION
Many of the Company's assets and liabilities are monetary in nature and
sensitive to the interest rate environment which can be affected by inflation.
The Company is exposed to the risk of a reduction in interest spread or profit
margins when interest rates fluctuate. Bond calls, mortgage prepayments,
contract surrenders and withdrawals of annuities and life insurance policies
are influenced by the interest rate environment. In general, the fair value of
the Company's fixed maturities portfolio increases or decreases inversely with
fluctuations in interest rates. For example, if interest rates rise, the
Company's fixed maturity investments will generally decrease in value.
Additionally, the Company's net investment income may be affected by interest
rate changes. If interest rates decline, net investment income will decrease
if high-yielding fixed maturity investments mature or are sold and the
proceeds therefrom are reinvested in securities yielding a lower rate.
Management attempts to mitigate the negative impact of interest rate changes
through asset/liability management, product design, management of crediting
rates, relatively high surrender charges and management of mortality charges
and dividend scales with respect to its in-force life insurance policies, but
there can be no assurance that such attempts will be completely successful.
Extreme changes in the interest rate environment could cause net interest
margins to fluctuate from historical levels.
48
<PAGE>
BUSINESS
OVERVIEW
The Company is a leading provider of long-term savings and retirement
products to retail and institutional customers throughout the United States.
The Company offers variable annuities, fixed annuities and life insurance as
well as mutual funds and pension products and administrative services. By
developing and offering a wide variety of products, the Company believes that
it has positioned itself to compete effectively in various stock market and
interest rate environments. The Company markets its products through a broad
spectrum of wholesale and retail distribution channels, including financial
planners, pension plan administrators, securities firms, banks and Nationwide
Insurance Enterprise insurance agents.
The Company is one of the leaders in the development and sale of variable
annuities. For the year ended December 31, 1996, the Company was the fourth
largest U.S. writer of individual variable annuity contracts based on sales,
according to VARDS. Its principal variable annuity series, The Best of
America, allows the customer to choose from 36 investment options, including
mutual funds managed by such well-known firms as American Century, Dreyfus,
Fidelity, Janus, Neuberger & Berman, Oppenheimer, T. Rowe Price, Templeton,
Vanguard and Warburg Pincus, as well as mutual funds managed by the Company.
The Company has grown substantially in recent years as a result of its long-
term investment in developing the distribution channels necessary to reach its
target customers and the products required to meet the demands of these
customers. The Company believes its growth has been enhanced further by
favorable demographic trends, the growing tendency of Americans to supplement
traditional sources of retirement income with self-directed investments, such
as products offered by the Company, and the performance of the financial
markets, particularly the U.S. stock markets, in recent years. From 1992 to
1996, the Company's assets grew from $20.8 billion to $47.8 billion, a
compound annual growth rate of 23.1%. During the same period, the Company's
net operating income grew from $97.0 million to $211.3 million, a compound
annual growth rate of 21.5%. Asset growth during this period resulted from
sales of the Company's products as well as market appreciation of assets in
the Company's separate accounts and in its general account investment
portfolio. The Company's sales of variable annuities grew from $1.56 billion
in 1992 to $6.50 billion in 1996, a compound annual growth rate of 42.9%. The
Company's separate account assets, which are generated by the sale of variable
annuities and variable universal life insurance, grew from 29.3% of total
assets at December 31, 1992 to 56.4% of total assets at December 31, 1996.
During this period of substantial growth, the Company controlled its operating
expenses by taking advantage of economies of scale and by increasing
productivity through investments in technology. From 1992 to 1996, the
Company's total assets increased by 130.1% while operating expenses increased
by only 55.1%. As a result, its ratio of operating expenses to total assets
fell from 1.10% in 1992 to 0.74% in 1996.
The Company believes that demographic trends and shifts in attitudes toward
retirement savings will continue to support increased consumer demand for its
products. According to U.S. Census Bureau projections, the number of Americans
between the ages of 45 and 64 will grow from 55.7 million in 1996 to 71.1
million in 2005, making this "preretirement" age group the fastest growing
segment of the U.S. population. The Company believes that Americans
increasingly are supplementing traditional sources of retirement income, such
as employer-provided defined benefit plans and Social Security, with self-
directed investments. Reflecting this shift, industry sales of individual
variable annuity products grew from $28.5 billion in 1992 to $73.8 billion in
1996, a compound annual growth rate of 26.9%, according to VARDS. During the
same period, industry individual variable annuity assets grew from $212
billion to $501 billion, a compound annual growth rate of 24.0%, according to
VARDS.
PRODUCT SEGMENTS
The Company has three product segments: Variable Annuities, Fixed Annuities
and Life Insurance. The Variable Annuities segment, which accounted for $90.3
million (or 27.5%) of the Company's operating income
49
<PAGE>
before federal income tax expense for 1996, consists of annuity contracts that
provide the customer with the opportunity to invest in mutual funds managed by
independent investment managers and the Company, with investment returns
accumulating on a tax-deferred basis. The Fixed Annuities segment, which
accounted for $135.4 million (or 41.2%) of the Company's operating income
before federal income tax expense for 1996, consists of annuity contracts that
generate a return for the customer at a specified interest rate, fixed for a
prescribed period, with returns accumulating on a tax-deferred basis. Such
contracts consist of single premium deferred annuities, flexible premium
deferred annuities and single premium immediate annuities. The Fixed Annuities
segment also includes the fixed option under the Company's variable annuity
contracts, which accounted for 70.5% of the Company's fixed annuity policy
reserves as of December 31, 1996. For the year ended December 31, 1996, the
average crediting rate on contracts (including the fixed option under the
Company's variable contracts) in the Fixed Annuities segment was 6.3%.
Substantially all of the Company's crediting rates on its fixed annuity
contracts are guaranteed for a period not exceeding 15 months. See "--Product
Segments--Fixed Annuities." The Life Insurance segment, which accounted for
$67.2 million (or 20.5%) of the Company's operating income before federal
income tax expense for 1996, consists of insurance products, including
variable life insurance products, that provide a death benefit and may also
allow the customer to build cash value on a tax-deferred basis. In addition,
the Company reports corporate income and expenses not specifically allocated
to its product segments in a Corporate and Other segment, which accounted for
$35.4 million (or 10.7%) of the Company's operating income before federal
income tax expense for 1996. After giving pro forma effect to the 1996 Cash
Dividend, the Special Dividend, the Equity Offerings, the Note Offering and
the Capital Securities Offering as if each had been consummated at January 1,
1996, and assuming the aggregate proceeds of the Equity Offerings, the Note
Offering and the Capital Securities Offering had been invested to earn a
return of 7.5%, the Variable Annuities, Fixed Annuities, Life Insurance and
Corporate and Other segments would have represented 31.0%, 46.5%, 23.1% and
(0.6%), respectively, of the Company's operating income (loss) before federal
income tax expense for 1996. See "Pro Forma Consolidated Financial Data."
Variable Annuities
The Company is one of the leaders in the development and sale of individual
and group variable annuity products. For the year ended December 31, 1996, the
Company was the fourth largest U.S. writer of individual variable annuity
contracts based on sales, according to VARDS. The Company believes that
demographic trends and shifts in attitudes toward retirement savings will
continue to support increased consumer demand for its variable annuity
products.
The Company believes that it possesses distinct competitive advantages in
the market for variable annuities. Some of the Company's most important
advantages include its innovative product offerings and strong relationships
with independent, well-known fund managers. For example, the Company's The
Best of America IV and The Best of America--America's Vision individual
variable annuity contracts allow the customer to choose from 36 investment
options, including mutual funds managed by a variety of well-known fund
managers and the Company. In the aggregate, the Company's group variable
annuity products offer over 100 underlying investment options.
The Company markets its variable annuity products through a broad spectrum
of channels, including broker/dealers, financial planners, banks and
Nationwide Insurance Enterprise insurance agents. See "--Marketing and
Distribution." The Company seeks to capture a growing share of variable
annuity sales in these channels by working closely with its investment
managers and product distributors to adapt the Company's products and services
to changes in the retail and institutional marketplace in order to enhance its
leading position in the market for variable annuities. The Company is
following a strategy of extending The Best of America brand name to more of
its products and distribution channels in an effort to build upon its brand
name recognition.
50
<PAGE>
The wide array of investment options available under the Company's variable
annuity contracts include mutual funds managed by the nationally recognized
money managers set forth below:
AIM Advisors, Inc. Neuberger & Berman Management
American Century Investors Incorporated
Research Corporation Oppenheimer Management Corporation
Banc One Investment Advisers Phoenix Investment Counsel, Inc.
Corporation Putnam Investment Management, Inc.
Capital Research and Management SEI Financial Management Corporation
Company Smith Barney Advisers, Inc.
Davis Selected Advisors, L.P. Smith Barney Mutual Funds
Delaware Management Company, Management, Inc.
Inc. Strong Capital Management, Inc.
Evergreen Asset Management T. Rowe Price-Flemington
Corp. International, Inc.
Federated Advisers Templeton Global Advisors Limited
Fidelity Management & Research Templeton Investment Counsel, Inc.
Company Tiffany Capital Advisors, Inc. (The
INVESCO Funds Group, Inc. Dreyfus Socially Responsible Growth
J&W Seligman & Co. Incorporated Fund, Inc.)
Janus Capital Corporation Van Eck Associates Corporation
Lexington Management Van Kampen American Capital Asset
Corporation Management, Inc.
Massachusetts Financial Service The Vanguard Group, Inc.
Company (MFS(R) Variable Warburg Pincus Counsellors, Inc.
Insurance Trust) Weiss, Peck & Greer, L.L.C.
Mellon Equity Associates
(Dreyfus Stock Index Fund,
Inc.)
Miller Anderson & Sherrerd
The Company believes that the variable annuity business is attractive because
it generates fee income. In addition, because the investment risk on variable
annuities is borne principally by the customer and not the Company, the
variable annuity business requires significantly less capital support than
fixed annuity and traditional life insurance businesses. The Company receives
income from variable annuity contracts primarily in the form of asset and
administration fees. In addition, most of the Company's variable annuity
products provide for a contingent deferred sales charge, also known as a
"surrender charge" or "back-end load," that is assessed against customer
withdrawals in excess of specified amounts made during a specified period,
usually the first seven years of the contract. Surrender charges are intended
to protect the Company from withdrawals early in the contract period, before
the Company has had the opportunity to recover its sales expenses. Generally,
surrender charges on variable annuity products are 7% of premiums withdrawn
during the first year, scaling ratably to 0% for the eighth year and each year
thereafter.
The Company's variable annuity products consist almost entirely of flexible
premium deferred variable annuity ("FPVA") contracts. FPVA contracts are
distributed through broker/dealers, financial planners, banks, pension plan
administrators and Nationwide Insurance Enterprise insurance agents. Such
contracts are savings vehicles in which the customer makes a single deposit or
a series of deposits. The customer has the flexibility to invest in mutual
funds managed by independent investment managers and the Company. Deposits may
be made at regular or irregular intervals and in regular or irregular amounts.
The value of the annuity fluctuates in accordance with the investment
experience of the mutual funds chosen by the customer. The customer is
permitted to withdraw all or part of the accumulated value of the annuity, less
a surrender charge for withdrawals during an initial penalty period of
generally seven years. As specified in the FPVA contract, the customer
generally can elect from a number of payment options that provide either fixed
or variable benefit payments.
51
<PAGE>
The following table summarizes certain selected unaudited financial data for
the Company's Variable Annuities segment for the periods indicated.
VARIABLE ANNUITIES SELECTED FINANCIAL DATA(1)
<TABLE>
<CAPTION>
AS OF OR FOR THE
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Policy charges................................... $ 293.5 $ 196.8 $ 137.9
Net investment income and other income(2)........ (8.9) (7.8) (5.2)
-------- -------- --------
Total revenues................................. 284.6 189.0 132.7
-------- -------- --------
Benefits and claims.............................. 4.6 2.9 2.3
Amortization of deferred policy acquisition
costs........................................... 57.4 26.3 22.1
Operating expenses............................... 132.3 109.0 83.7
-------- -------- --------
Total benefits and expenses.................... 194.3 138.2 108.1
-------- -------- --------
Operating income before federal income tax
expense..................................... $ 90.3 $ 50.8 $ 24.6
======== ======== ========
OTHER DATA:
Statutory premiums, deposits and other
considerations(3)............................... $6,500.3 $4,399.3 $3,821.1
Withdrawals...................................... 1,697.3 1,071.6 684.8
Policy reserves at period end.................... 24,278.1 16,761.8 10,751.1
Ratio of policy charges/average policy reserves.. 1.43% 1.44% 1.48%
</TABLE>
- --------
(1) Excludes the fixed option under the Company's variable annuity contracts
which is reported in the Company's Fixed Annuities segment.
(2) The Company's method of allocating net investment income results in a
charge (negative net investment income) to this segment which is
recognized as net investment income in the Corporate and Other segment.
The charge relates to non-invested assets which support this segment on a
statutory basis.
(3) Statutory data have been derived from the Annual and Quarterly Statements
of Nationwide Life, as filed with insurance regulatory authorities and
prepared in accordance with statutory accounting practices.
The Company offers individual variable annuities under The Best of America
brand name. In addition to The Best of America individual variable annuities,
the Company markets employer-sponsored variable annuities to both public
sector employees and teachers for use in connection with plans described under
Sections 457 and 403(b) of the IRC, and to private sector employees for use in
connection with IRC Section 401(k) plans. These employer-sponsored variable
annuities are marketed under several brand names, including Group Best of
America. The Company also markets variable annuities as "private label"
products. Such products are offered through banks and are also offered to
members of The National Education Association of the United States (the "NEA")
under The NEA Valuebuilder brand name.
The Best of America. The Company's principal FPVA contracts are sold under
the brand names The Best of America--America's Vision and The Best of America
IV. These two brand name variable annuities accounted for $3.50 billion (or
53.8%) of the Company's variable annuity sales in 1996, and $13.97 billion (or
57.5%) of the Company's variable annuity policy reserves as of December 31,
1996. The Company's The Best of America--America's Vision product is intended
to appeal to distributors in the market for large initial deposits. The
contract requires a minimum initial deposit of $15,000. The Company's The Best
of America IV product is intended primarily for the tax-qualified, payroll
deduction market, where initial deposits are often smaller. The Best of
America IV generally pays a lower up-front commission to distributors but
requires only $1,500 as an initial deposit. Both products generate an annual
asset fee and annual administration fees for the Company.
52
<PAGE>
Group Best of America. These group variable annuity products accounted for
$1.62 billion (or 25.0%) of the Company's variable annuity sales in 1996, and
$4.37 billion (or 18.0%) of the Company's variable annuity policy reserves as
of December 31, 1996. Group Best of America products are typically offered
only on a tax-qualified basis. These products may be structured with a variety
of features which may be arranged in over 600 combinations of front-end loads,
back-end loads and asset-based fees.
Section 457 Contracts. These products accounted for $799.3 million (or
12.3%) of the Company's variable annuity sales in 1996, and $4.10 billion (or
16.9%) of the Company's variable annuity policy reserves as of December 31,
1996. The Company offers a variety of group variable annuity contracts that
are designed primarily for use in conjunction with plans described under IRC
Section 457. Section 457 permits employees of state and local governments to
defer a certain portion of their yearly income and invest such income on a
tax-deferred basis. These contracts typically generate an annual asset fee and
may also generate annual administration fees for the Company.
Private Label Variable Annuities. These products accounted for $487.8
million (or 7.5%) of the Company's variable annuity sales in 1996, and $1.65
billion (or 6.8%) of the Company's variable annuity policy reserves as of
December 31, 1996. The Company has developed several private label variable
annuity products in conjunction with other financial intermediaries, including
Bank One, Fidelity Asset Management Corporation and First Union Bank. These
products allow financial intermediaries to market products with substantially
the same features as The Best of America IV to their own customer bases under
their own brand names. The Company believes these private label products
strengthen the Company's ties to certain significant distributors of the
Company's products. These contracts generate an annual asset fee and may also
generate annual administration fees for the Company.
The NEA Valuebuilder. This product accounted for $89.5 million (or 1.4%) of
the Company's variable annuity sales in 1996, and $196.8 million (or 0.8%) of
the Company's variable annuity account balances as of December 31, 1996. The
Company offers individual variable annuity contracts to the Teacher Market
under Section 403(b) of the IRC. Section 403(b) permits teachers and other
employees of educational organizations to defer a certain portion of their
yearly income and invest such income on a tax-deferred basis. These contracts
generate an annual asset fee and may also generate annual administration fees
for the Company.
Fixed Annuities
The Company has sought to maintain its ability to grow profitably in a
variety of market environments. The Company believes that periods of rising
interest rates, that tend to cause lower sales growth in its Variable
Annuities segment, make its fixed annuity products more attractive to
consumers. In addition to providing balance to the Company's variable annuity
business, its fixed annuity business allows the Company to offer a
comprehensive portfolio of savings alternatives to its customers and
distributors as the Company seeks to capture a growing share of sales in all
distribution channels. The Fixed Annuities segment includes the fixed option
under the Company's variable annuity products. Customers who purchase variable
annuities are able to designate some or all of their deposits to fixed options
which, like the Company's fixed annuity contracts, offer a guarantee of
principal and a guaranteed interest rate for a specified period of time. The
Company includes such business in its Fixed Annuities segment because of its
similar characteristics. The fixed option under the Company's variable annuity
products accounted for $1.24 billion (or 77.3%) of the Company's fixed annuity
sales in 1996, and $9.52 billion (or 70.5%) of the Company's fixed annuity
policy reserves as of December 31, 1996.
Fixed annuity products are marketed to individuals who choose to allocate
long-term savings to products that provide a guarantee of principal, a stable
net asset value and a guarantee of the interest rate to be credited to the
principal amount for some period of time. The Company's fixed annuity products
are offered both to individuals and as group products to employers for use in
employee benefit programs. The Company's individual fixed annuity products are
distributed through its wholesale and retail channels and include single
premium deferred annuity contracts, flexible premium deferred annuity
contracts and single premium immediate annuity contracts. The Company's group
fixed annuity contracts are also distributed through its wholesale and retail
53
<PAGE>
channels. The Company invests fixed annuity customer deposits in its general
account investment portfolio. See "--Investments." Unlike variable annuity
assets that are held in the Company's separate account, the Company bears the
investment risk on assets held in its general account. The Company attempts to
earn a spread by investing a customer's deposits for higher yields than the
interest rate it credits to the customer's fixed annuity contract.
For the year ended December 31, 1996, the average crediting rate on
contracts (including the fixed option under the Company's variable contracts)
in the Fixed Annuities segment was 6.3%. Substantially all of the Company's
crediting rates on the Company's fixed annuity contracts are guaranteed for a
period not exceeding 15 months.
The following table summarizes certain selected unaudited financial data for
the Company's Fixed Annuities segment for the periods indicated.
FIXED ANNUITIES SELECTED FINANCIAL DATA(1)
<TABLE>
<CAPTION>
AS OF OR FOR THE
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
--------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Policy charges.......................... $ 18.0 $ 16.4 $ 16.1
Life insurance premiums................. 24.0 32.8 20.1
Net investment income................... 1,050.6 1,002.8 903.7
--------- --------- ---------
Total revenues........................ 1,092.6 1,052.0 939.9
--------- --------- ---------
Benefits and claims..................... 838.5 805.0 702.1
Policyholder dividends.................. 0.3 0.2 (1.0)
Amortization of deferred policy acquisi-
tion costs............................. 38.6 29.5 29.9
Operating expenses...................... 79.8 80.3 69.9
--------- --------- ---------
Total benefits and expenses........... 957.2 915.0 800.9
--------- --------- ---------
Operating income before federal
income tax expense................. $ 135.4 $ 137.0 $ 139.0
========= ========= =========
OTHER DATA:
Statutory premiums, deposits and other
considerations(2)...................... $ 1,600.5 $ 1,864.2 $ 1,308.6
Interest credited....................... 805.0 775.7 680.9
Withdrawals and benefits................ 1,375.4 1,151.6 906.8
Policy reserves at period end........... 13,511.8 12,784.0 11,247.0
Net spread earned (basis points)........ 192 192 212
</TABLE>
- --------
(1) Includes the fixed option under the Company's variable annuity contracts.
(2) Statutory data have been derived from the Annual and Quarterly Statements
of Nationwide Life, as filed with insurance regulatory authorities and
prepared in accordance with statutory accounting practices.
Fixed Option Under Variable Annuity Contracts. Fixed options under variable
annuity contracts accounted for $1.24 billion (or 77.3%) of the Company's
fixed annuity sales in 1996, and $9.52 billion (or 70.5%) of the Company's
fixed annuity policy reserves as of December 31, 1996. Fixed options are
available to customers who purchase certain of the Company's variable
annuities by designation of some or all of their deposits to such options. A
fixed option offers the customer a guarantee of principal and a guaranteed
interest rate for a specified period of time. Substantially all crediting
rates on fixed options under variable annuity contracts are guaranteed for a
period not exceeding 15 months. Such contracts have no maturity date and
remain in force until the customer elects to take the proceeds of the annuity
as a single payment or as a specified income for life or for a fixed number of
years. The Company reports its fixed option business in its Fixed Annuities
segment because the characteristics of such business are similar to those of
its fixed annuity business. Although the customer may elect, subject to
limitations for certain products, to transfer balances from the fixed option
to other investment options, it is the Company's experience that historically
few have made such election.
54
<PAGE>
Single Premium Deferred Annuity ("SPDA") Contracts. SPDA contracts accounted
for $211.0 million (or 13.2%) of the Company's fixed annuity sales in 1996,
and $1.74 billion (or 12.9%) of the Company's fixed annuity policy reserves as
of December 31, 1996. SPDA contracts are distributed through broker/dealers,
financial planners, banks and Nationwide Insurance Enterprise insurance
agents. An SPDA contract is a savings vehicle in which the customer makes a
single deposit with the Company. The Company guarantees the customer's
principal and credits the customer's account with earnings at an interest rate
that is stated and fixed for an initial period, typically at least one year.
Thereafter, the Company resets, typically annually, the interest rate credited
to the contract based upon market and other conditions. SPDA contracts have no
maturity date and remain in force until the customer elects to take the
proceeds of the annuity as a single payment or as a specified income for life
or for a fixed number of years. No front-end sales charges are imposed for the
Company's SPDA contracts. All such contracts, however, provide for the
imposition of certain surrender charges, which are assessed against
withdrawals in excess of specified amounts and which occur during the
surrender charge period. The surrender charges are typically set within the
range of 7% and 0% and typically decline from year to year, disappearing after
seven contract years.
Flexible Premium Deferred Annuity ("FPDA") Contracts. FPDA contracts
accounted for $96.8 million (or 6.0%) of the Company's fixed annuity sales for
1996, and $1.22 billion (or 9.0%) of the Company's fixed annuity policy
reserves as of December 31, 1996. FPDA contracts are distributed through
broker/dealers, financial planners, banks and Nationwide Insurance Enterprise
insurance agents. FPDA contracts are typically marketed to teachers and
employees of tax-exempt organizations as tax-qualified retirement programs.
Under these contracts, the Company accepts a single deposit or a series of
deposits. Deposits may be paid at intervals which are either regular or
irregular. FPDA contracts contain substantially the same guarantee of
principal and interest rate terms included in the Company's SPDA contracts.
Surrender charges are typically set within the range of 7% and 0% and
typically decline from year to year, disappearing after seven contract years.
Single Premium Immediate Annuity ("SPIA") Contracts. SPIA contracts
accounted for $55.3 million (or 3.5%) of the Company's fixed annuity sales for
1996, and $1.03 billion (or 7.6%) of the Company's fixed annuity policy
reserves as of December 31, 1996. The Company's SPIA contracts are offered
through its retail and wholesale distribution channels and are offered as
either direct purchases or as fixed annuity options under the Company's
various individual and group annuity contracts. An SPIA is an annuity that
requires a one-time deposit in exchange for guaranteed, periodic annuity
benefit payments, often for the contract holder's lifetime. SPIA contracts are
often purchased by persons at or near retirement age who desire a steady
stream of future income.
The following table sets forth policy reserves as of December 31, 1996 for
the Company's fixed annuity contracts by crediting rates in effect on such
date. Substantially all of the Company's fixed annuity contracts are
guaranteed for a period not exceeding 15 months.
FIXED ANNUITY POLICY RESERVES BY CREDITING RATES
<TABLE>
<CAPTION>
AMOUNT OF
CREDITING RATES POLICY RESERVES(1)
- --------------- ------------------
(DOLLARS IN
MILLIONS)
<S> <C>
up to 4.75%.................................................. $ 257.0
4.76 to 5.75%................................................ 4,136.2
5.76 to 6.75%................................................ 5,196.3
6.76 to 7.75%................................................ 2,982.0
7.76 to 8.75%................................................ 23.7
8.76 to 9.75%................................................ 5.9
greater than 9.75%........................................... 910.7
---------
Total Policy Reserves...................................... $13,511.8
=========
</TABLE>
- --------
(1) Policy reserves are net of reinsurance of $240.5 million.
55
<PAGE>
Life Insurance
The Company's Life Insurance segment is composed of a wide range of whole
life, universal life, term life and variable universal life products. In
recent years, the Company has placed particular emphasis within this segment
on the sale of variable life insurance products that offer multiple investment
options. From 1992 to 1996, first year premiums related to the Company's
variable universal life insurance products grew from $16.5 million to $140.7
million, a compound annual growth rate of 70.9%. The Company distributes its
variable universal life insurance products through its wholesale distribution
channels as well as through Nationwide Insurance Enterprise insurance agents.
The Company's target markets for its life insurance products include the
holders of personal automobile and homeowners' insurance policies issued by
members of the Nationwide Insurance Enterprise and select customers to whom
the accumulation of cash values is of paramount importance. As of December 31,
1996, approximately 10% of the Nationwide Insurance Enterprise's 7.7 million
property/casualty policyholders also owned at least one of the Company's life
insurance products. The Company distributes its traditional and universal life
insurance products through Nationwide Insurance Enterprise insurance agents.
See "Certain Relationships and Related Transactions--New Agreements with the
Nationwide Insurance Enterprise-- Intercompany Agreement--Nationwide Insurance
Enterprise Insurance Agents." During 1996, approximately 24.9% of first year
premiums were provided by Nationwide Insurance Enterprise insurance agents and
approximately 75.1% were provided by the Company's wholesale distribution
channels.
The following table summarizes certain selected unaudited financial data for
the Company's Life Insurance segment for the periods indicated.
LIFE INSURANCE SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF OR FOR THE
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
--------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Policy charges.................................... $ 86.6 $ 71.3 $ 60.2
Life insurance premiums........................... 174.6 166.3 156.6
Net investment income............................. 174.0 171.3 166.3
Other income...................................... 0.4 0.2 --
--------- --------- ---------
Total revenues.................................. 435.6 409.1 383.1
--------- --------- ---------
Benefits and claims............................... 211.4 202.0 191.0
Policyholder dividends............................ 40.7 39.7 39.8
Amortization of deferred policy acquisition
costs............................................ 37.4 31.0 29.5
Operating expenses................................ 78.9 68.8 69.8
--------- --------- ---------
Total benefits and expenses..................... 368.4 341.5 330.1
--------- --------- ---------
Operating income before federal income tax
expense...................................... $ 67.2 $ 67.6 $ 53.0
========= ========= =========
OTHER DATA:
First year premiums (sales):
Traditional life................................. $ 35.1 $ 31.9 $ 32.1
Universal life/variable universal life........... 149.1 95.4 87.2
Life insurance in force:
Traditional life................................. 19,098.5 17,657.9 16,381.6
Universal life/variable universal life........... 18,621.1 15,748.5 13,745.9
</TABLE>
Traditional Life Insurance Products. The Company offers whole life and term
life insurance. Whole life insurance combines a death benefit with a savings
plan that increases gradually in amount over a period of years. The customer
pays a level premium over the customer's expected lifetime. The customer may
borrow against
56
<PAGE>
the savings and also has the option of surrendering the policy and receiving
the accumulated cash value rather than the death benefit. Term life insurance
provides only a death benefit without any savings component. These traditional
life insurance products are distributed on a retail basis by Nationwide
Insurance Enterprise insurance agents.
Universal Life and Variable Universal Life Insurance Products. The Company
offers universal life and variable universal life insurance products including
both flexible premium and single premium designs. These products provide life
insurance under which the benefits payable upon death or surrender depend upon
the policyholder's account value. Universal life insurance provides whole life
insurance with flexible premiums and adjustable death benefits. For universal
life, the policyholder's account value is credited based on an adjustable rate
of return set by the Company relating to current interest rates. For variable
universal life, the policyholder's account value is credited with the
investment experience of the mutual funds chosen by the customer. The variable
universal life products also typically include a general account guaranteed
interest investment option. All of the Company's variable universal life
insurance products are marketed under the Company's The Best of America--Life
Planning Series brand name and have the same wide range of investment options
as the Company's variable annuity products. These products are distributed on
a retail basis by Nationwide Insurance Enterprise insurance agents as well as
through wholesale distribution channels by broker/dealers, financial planners
and banks.
MARKETING AND DISTRIBUTION
The Company defines wholesale channels of distribution as channels in which
an unaffiliated company, such as a securities broker/dealer, pension plan
administrator, bank or other financial institution, sells the Company's
products to its own customer base. The Company defines retail channels as
those in which the Company's representatives, such as Nationwide Insurance
Enterprise insurance agents, agents of the Company's sales subsidiaries and
affiliates or individual financial planners, market products directly to a
customer base identified by the Company. The Company provides, through both
its retail and wholesale channels, the means for employers sponsoring tax-
favored retirement plans (such as those described in IRC Sections 401(k),
403(b) and 457) to allow their employees to make contributions to such plans
through payroll deductions. Typically, the Company receives the right from an
employer to market products to employees and arrange to deduct periodic
deposits from the employees' regular paychecks. The Company believes that the
payroll deduction market is characterized by more predictable levels of sales
than other markets because these customers are less likely, even in times of
market volatility, to stop making annuity deposits than customers in other
markets. In addition, the Company believes that payroll deduction access to
customers provides significant insulation from competition by providing the
customer with a convenient, planned method of periodic saving. In both the
Pension Market, where the Company's products are distributed primarily on a
wholesale basis, and in the Public Sector and Teacher Markets, where the
Company's products are distributed primarily on a retail basis, payroll
deduction is the primary method used for collecting premiums and deposits.
57
<PAGE>
The following table summarizes certain selected unaudited financial data for
the Company's distribution channels.
STATUTORY PREMIUMS, DEPOSITS AND OTHER CONSIDERATIONS BY DISTRIBUTION
CHANNEL(1)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994
-------------- --------------- ---------------
$ % $ % $ %
-------- ----- -------- ------ -------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Wholesale channels:
Investment dealers..... $3,627.8 40.1% $2,835.4 41.7% $2,279.0 40.7%
Pension market......... 1,911.6 21.1 1,573.7 23.1 1,366.5 24.4
Financial
institutions.......... 947.2 10.5 515.4 7.6 324.3 5.8
-------- ----- -------- ------ -------- ------
Total wholesale
channels............. 6,486.6 71.7 4,924.5 72.4 3,969.8 70.9
-------- ----- -------- ------ -------- ------
Retail channels:
Public sector and
teacher markets....... 1,528.0 16.9 1,244.9 18.3 1,104.4 19.8
Nationwide Insurance
Enterprise insurance
agents................ 525.5 5.8 446.5 6.6 376.3 6.7
-------- ----- -------- ------ -------- ------
Total retail
channels............. 2,053.5 22.7 1,691.4 24.9 1,480.7 26.5
-------- ----- -------- ------ -------- ------
Other(2)................ 502.5 5.6 182.1 2.7 148.5 2.6
-------- ----- -------- ------ -------- ------
Total statutory
premiums, deposits and
other considerations.. $9,042.6 100.0% $6,798.0 100.0% $5,599.0 100.0%
======== ===== ======== ====== ======== ======
</TABLE>
- --------
(1) Statutory data have been derived from the Annual and Quarterly Statements
of Nationwide Life, as filed with insurance regulatory authorities and
prepared in accordance with statutory accounting practices.
(2) Statutory premiums, deposits and other considerations from Nationwide
Insurance Enterprise employee and agent benefit plans.
Wholesale Channels
Investment Dealers. The Company sells individual and group variable
annuities, fixed annuities and variable life insurance through broker/dealers
in all 50 states and the District of Columbia. The Company has access to over
1,000 broker/dealers and over 30,000 registered representatives. Target
markets include retirement planning for individuals, retirement planning for
institutions of higher education and 501(c)(3) hospitals, participant-directed
401(k) plans covering less than 1,000 lives, small business life insurance
(fewer than 500 employees) and IRA rollovers and tax-sheltered annuity
transfers. The Company historically has focused on distributing through mid-
sized regional broker/dealers and financial planning firms. The Company
believes that it has strong broker/dealer relationships based on its diverse
product mix, large selection of fund options and administrative technology. In
addition to such relationships, the Company believes its financial strength
and The Best of America brand name are competitive advantages in this
distribution channel. The Company regularly seeks to add new broker/dealers to
its distribution network.
Pension Market. The Company defines the Pension Market as defined
contribution plans pursuant to Section 401 of the IRC sponsored by employers
as part of employee retirement programs. The Company markets group variable
annuities, group fixed annuities and record-keeping services to these plan
sponsors primarily through over 200 regional pension plan administrators
located in 45 states. The Company targets employers having between 25 and
2,000 employees because it believes that these plan sponsors tend to require
more extensive record-keeping services from pension plan administrators and
therefore tend to become long-term customers. As of December 31, 1996, 401(k)
plans administered by the Company included over 280,000
58
<PAGE>
participants. These participants generally make deposits through payroll
deductions. The Company believes, based on industry survey data, that it is
the third largest administrator of 401(k) plans based on total number of
plans.
Financial Institutions. The Company markets individual variable annuities
(under its brand names and on a private-label basis), individual fixed
annuities and variable universal life insurance through financial
institutions, consisting primarily of banks and their subsidiaries. The
Company seeks to establish marketing relationships with financial institutions
having assets of $500.0 million or more. From January 1, 1991 to December 31,
1996, the number of financial institutions through which the Company
distributes its products increased from 7 to 125. The Company is actively
seeking to increase the number of financial institutions with which it has
distribution arrangements. The Company believes that its expertise in training
financial institution personnel to sell annuities, its breadth of product
offerings, its financial strength and the Nationwide and The Best of America
brand names are competitive advantages in this distribution channel. See
"Certain Relationships and Related Transactions--New Agreement with the
Nationwide Insurance Enterprise--Intercompany Agreement--License to Use
Nationwide Name and Service Marks".
Retail Channels
Public Sector and Teacher Markets. The Company markets various products and
services on a retail basis through several subsidiary sales organizations to
both the Public Sector and Teacher Markets. With respect to the Public Sector
Market, the Company markets group variable annuities and fixed annuities to
state and local governments for use in their IRC Section 457 retirement
programs. Section 457 permits employees of state and local government entities
and certain tax-exempt organizations to defer receipt of up to 33% of their
taxable income, not to exceed $7,500 per year, and have such amounts
accumulate on a tax-deferred basis until received. The Company currently
markets such products to, and administers Section 457 retirement programs for,
approximately 6,000 state and local government entities in 48 states. The
Company believes that its existing relationships with state and local
government entities and the Company's sponsorship by such entities as the
National Association of Counties ("NACO") and The United States Conference of
Mayors ("USCM") provide it with distinct competitive advantages in this
market. NACO sponsorship, which began in 1980 and has been renewed three
times, expires on December 31, 2005, and USCM sponsorship, which began in 1979
and has been renewed twice, expires on December 31, 2004.
With respect to the Teacher Market, the Company has an exclusive contractual
arrangement with the NEA to offer and sell certain products to its 2.2 million
members. Under The NEA Valuebuilder brand name, the Company markets both
qualified and non-qualified (under IRC Section 403(b)) individual variable
annuity contracts. The Company also offers IRAs in this market. The Teacher
Market is primarily serviced by the Company's network of approximately 140
representatives known as Valuebuilder Investment Professionals. As of December
31, 1996, the Company administers plans for over 1,800 school districts in 48
states. Section 403(b) permits teachers and employees of certain tax-exempt
organizations to defer receipt of a portion of their taxable income, not to
exceed $9,500 per year, and invest the amount deferred in tax-deferred annuity
products. The Company's marketing approach to these customers emphasizes
educational seminars and other targeted communication channels such as direct
mail. The NEA exclusive contractual arrangement, which began in 1990,
automatically renewed on July 26, 1995 for an additional 5-year period.
Nationwide Insurance Enterprise Insurance Agents. The Company sells
traditional life, universal life and variable universal life insurance
products and individual annuities through approximately 4,500 licensed
Nationwide Insurance Enterprise insurance agents who primarily target the
holders of personal automobile and homeowners' insurance policies issued by
the Nationwide Insurance Enterprise. As of December 31, 1996, approximately
10% of the Nationwide Insurance Enterprise's 7.7 million property/casualty
policyholders also owned at least one of the Company's life insurance
products. The Nationwide Insurance Enterprise insurance agents sell
exclusively Nationwide Insurance Enterprise products and may not offer
products which compete with those of the Company. See "Certain Relationships
and Related Transactions--New Agreements with Nationwide Insurance
Enterprise--Intercompany Agreement--Nationwide Insurance Enterprise Insurance
Agents."
59
<PAGE>
Mutual Funds
Nationwide Mutual Funds. In addition to including Company-managed mutual
funds among the investment options for its variable products, the Company
markets 10 public, open-end mutual funds through Nationwide Insurance
Enterprise insurance agents and directly to Nationwide Insurance Enterprise
employees and their families. These products employ the existing investment
management, shareholder services, accounting and administrative capabilities
developed by the Company to support its variable annuity products. As of
December 31, 1996, these mutual funds had $6.0 billion of assets under
management, of which $3.9 billion related to variable annuities and variable
life insurance and $2.1 billion related to retail mutual fund customers.
CORPORATE AND OTHER SEGMENT
The Corporate and Other segment includes net investment income on
investments not allocated to the three product segments; all realized
investment gains and losses; investment management fees, other revenues and
operating expenses of Nationwide mutual funds other than the portion allocated
to the Variable Annuities and Life Insurance segments; commissions and other
income earned by the marketing and distribution subsidiaries of the Company;
and revenues, benefits and expenses associated with group annuity contracts
issued to Nationwide Insurance Enterprise employee and agent benefit plans.
The following table summarizes certain selected unaudited financial data for
the Company's Corporate and Other segment for the periods indicated.
CORPORATE AND OTHER SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF OR FOR THE
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net investment income........................ $ 154.7 $ 137.6 $ 154.2
Other income................................. 49.3 51.0 40.7
-------- -------- --------
Total revenues............................. 204.0 188.6 194.9
-------- -------- --------
Interest credited............................ 106.1 105.6 97.3
Operating expenses........................... 62.5 55.5 57.3
-------- -------- --------
Total benefits and expenses................ 168.6 161.1 154.6
-------- -------- --------
Operating income before federal income
tax expense(1).......................... $ 35.4 $ 27.5 $ 40.3
======== ======== ========
OTHER DATA(2):
Nationwide mutual fund assets................ $2,136.2 $2,113.9 $1,665.6
</TABLE>
- --------
(1) Excludes realized gains (losses) on investments and discontinued
operations.
(2) Excludes mutual funds selected as investment options under the Company's
variable annuity and variable universal life insurance contracts and
mutual funds selected as investment options under Nationwide Insurance
Enterprise employee and agent benefit plans.
Interest expense related to the Note Offering and the Capital Securities
Offering will be recorded in the Corporate and Other segment which will reduce
income before taxes for the Corporate and Other segment in periods after the
completion of such offerings.
LIFE INSURANCE UNDERWRITING
Life insurance policies are individually underwritten based on standardized
underwriting guidelines and procedures. After initial processing, each file is
reviewed and additional information (such as medical examinations, doctors'
statements and special medical tests) is obtained to make an underwriting
decision. The Company follows detailed, uniform underwriting procedures
designed to assess and quantify insurance risks before issuing life insurance
policies to individuals.
60
<PAGE>
LIFE INSURANCE AND ANNUITY RESERVES
In accordance with applicable insurance regulations, the Company records in
its statutory financial statements actuarially determined reserves that are
calculated to meet future obligations under outstanding insurance contracts.
The reserves are based on statutorily recognized methods using prescribed
morbidity and mortality tables and interest rates. Reserves include unearned
premiums, premium deposits, claims that have been reported but are not yet
paid, claims that have been incurred but have not been reported and claims in
the process of settlement. The Company's reserves satisfy applicable statutory
requirements.
The reserves reflected in the consolidated financial statements of the
Company are calculated based on GAAP. These reserves are based upon the
Company's best estimates of mortality, persistency, expenses and investment
income with appropriate provisions for adverse statistical deviation and the
use of the net level premium method for all non-interest-sensitive products
and the retrospective deposit method for interest-sensitive products. GAAP
reserves differ from statutory reserves due to the use of different
assumptions regarding mortality and interest rates and the introduction of
lapse assumptions into the GAAP reserve calculation.
REINSURANCE
The Company follows the customary industry practice of reinsuring a portion
of its life insurance and annuity risks with other companies in order to
reduce net liability on individual risks, to provide protection against large
losses and to obtain greater diversification of risks. The maximum amount of
individual ordinary life insurance retained by the Company on any one life is
$500,000, which amount will increase to $1.0 million effective April 1, 1997.
The Company cedes insurance primarily on an automatic basis, under which risks
are ceded to a reinsurer on specific blocks of business where the underlying
risks meet certain predetermined criteria, and on a facultative basis, under
which the reinsurer's prior approval is required for each risk reinsured. The
Company also cedes insurance on a case-by-case basis particularly where the
Company may be writing new risks or is unwilling to retain the full costs
associated with new lines of business. The ceding of risk does not discharge
the original insurer from its primary obligation to the policyholder. The
Company has entered into a reinsurance contract to cede a portion of its
general account individual annuity reserves to Franklin Life. Total recoveries
due from Franklin Life were $240.5 million and $245.3 million as of December
31, 1996 and 1995, respectively. Under the terms of the contract, Franklin
Life has established a trust as collateral for the recoveries. The trust
assets are invested in investment grade securities, the market value of which
must at all times be greater than or equal to 102% of the reinsured reserves.
The Company has no other material reinsurance arrangements with unaffiliated
reinsurers. The only material reinsurance agreements the Company has with
affiliates are the modified coinsurance agreements pursuant to which
Nationwide Life reinsured all of its accident and health and group life
insurance business to other members of the Nationwide Insurance Enterprise.
See "Certain Relationships and Related Transactions--Existing Arrangements
with Nationwide Insurance Enterprise--Modified Coinsurance Agreements."
Premiums and policy reserves ceded to unaffiliated reinsurers were 0.3% of
statutory premiums and considerations in 1996 and 0.8% of policy reserves as
of December 31, 1996. The Company's principal unaffiliated reinsurers of
individual life insurance and annuity policies at December 31, 1995 (and their
corresponding A.M. Best ratings) were: American United Life Insurance Company
(A+), Reinsurance Group of America (A+), Lincoln National Life Insurance
Company (A+), Franklin Life (A+), and Indianapolis Life Insurance Company
(A+). See "--Ratings."
INVESTMENTS
General
The Company's assets are divided between separate account and general
account assets. As of December 31, 1996, $26.9 billion (or 56%) of the
Company's total assets were held in separate accounts and $20.8 billion (or
44%) were held in the Company's general account, including $18.3 billion of
general account investments. Separate account assets consist primarily of
deposits from the Company's variable annuity business. Most separate account
assets are invested in various mutual fund options available within the
variable annuity products sold by the Company. All of the investment risk in
the Company's separate account assets is borne by the Company's customers,
with the exception of $280.2 million of policy reserves as of December 31,
1996 ($205.7 million as of December 31, 1995) for which the Company bears the
investment risk. General account assets consist mainly of investments
generated by premiums on life insurance products and deposits in the Company's
61
<PAGE>
Fixed Annuities segment. The Company generates profits on these products, in
part, based on the spread between the yield on general account invested assets
and crediting rates on these products.
The Company's general account investment policies emphasize high credit
quality, diversification across asset classes and individual investment risks,
and a buy and hold strategy. As noted in the table below, the Company's
general account assets are invested primarily in fixed maturity securities and
commercial mortgage loans. The Company has a general policy of diversifying
investments within asset categories. Additionally, the Company's investment
policy provides that fixed maturity investments are limited to purchases of
investment grade securities or unrated securities which, in the opinion of the
Company, should qualify for such rating. The Company monitors its exposure to
individual borrowers, credit risks, industries or property types and
geographic locations. The Company's investments are subject to suitability and
diversification requirements under applicable insurance laws. See "Business--
Regulation." The Investment Committee of the Board of Directors of Nationwide
Life, which is comprised of the Chairman and five outside directors, meets ten
times a year. Such committee approves investment policy and strategy, approves
all mortgage loans and large private placements and reviews and ratifies all
other investments. In relation to the life insurers reporting to the American
Council of Life Insurance ("ACLI"), the Company's general account investment
portfolio has achieved (i) higher net investment yields, (ii) lower bond
default rates and (iii) lower mortgage delinquency rates, in each case in each
of the five years ended December 31, 1995 (with ACLI data not yet available
for the year ended December 31, 1996).
The following table summarizes the Company's consolidated invested assets by
asset category as of December 31, 1996 and December 31, 1995.
CONSOLIDATED INVESTED ASSETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
------------------------- -------------------------
% OF % OF
CARRYING GENERAL ACCOUNT CARRYING GENERAL ACCOUNT
VALUE INVESTED ASSETS VALUE INVESTED ASSETS
--------- --------------- --------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Fixed maturities(1):
Public.................... $ 8,395.6 45.8% $ 8,609.8 48.3%
Private................... 3,914.9 21.4 3,891.8 21.8
Mortgage loans, net:
Commercial................ 5,269.4 28.8 4,624.3 25.9
Residential............... 2.7 -- 3.1 --
Real estate, net........... 265.8 1.5 229.4 1.3
Policy loans............... 371.8 2.0 336.4 1.9
Equity securities(1)....... 59.1 0.3 37.5 0.2
Other long-term
investments............... 28.7 0.2 62.0 0.4
Short-term investments..... 9.3 -- 42.7 0.2
--------- ----- --------- -----
Total general account
invested assets......... $18,317.3 100.0% $17,837.0 100.0%
========= ===== ========= =====
Total separate account
assets.................. $26,926.7 $18,591.1
========= =========
</TABLE>
- --------
(1) As of December 31, 1996, all fixed maturities and equity securities are
classified as available-for-sale and are carried at fair value.
The Company employs an asset/liability management approach tailored to the
specific requirements of each of its product lines. The Company's general
account investment assets are primarily managed in a number of pools that are
separated by weighted average maturity of the assets acquired by the pools. On
bonds and mortgages, the weighted average maturity is based on repayments
which are scheduled to occur under the terms of the asset. For mortgage backed
securities, repayments are determined using the current rate of repayment of
the underlying pool of mortgages and the terms of the securities. Each product
line has an investment strategy based on the specific characteristics of such
product line. The strategy establishes asset duration, quality and other
guidelines. The Company's actuaries determine the amount of new investments
needed for each line to
62
<PAGE>
arrive at the amount of new investments needed for each pool by month. The
investments acquired for each pool are shared on a proportional basis by each
of the lines requesting investments in the pool based on their actual
investment needs.
For all business having future benefits which cannot be changed at the
option of the policyholder, the underlying assets are managed in a separate
pool. The duration of assets and liabilities in this pool are kept as close
together as possible. For assets, the repayment cash flows, plus anticipated
coupon payments, are used in calculating asset duration. Future benefits and
expenses are used for liabilities. On December 31, 1996, the average duration
of assets in this pool was 6.80 years and the average duration of the
liabilities was 7.44 years. Policy reserves on this business were $1.11
billion as of December 31, 1996.
Because the timing of the payment of future benefits on the majority of the
Company's business can be changed by the policyholder, the Company employs
cash flow testing techniques as a final step in its asset/liability management
process. Annually, the Company's annuity and insurance business is analyzed to
determine the adequacy of the reserves supporting such business. This analysis
is accomplished by projecting under a number of possible future interest rate
scenarios the anticipated cash flows from such business and the assets
required to support such business. The first seven of these scenarios are
required by state insurance laws. Projections are also made using 13
additional scenarios which involve more extreme fluctuations in future
interest rates. Finally, to get a statistical analysis of possible results and
to minimize any bias in the 20 predetermined scenarios, additional projections
are made using 200 randomly generated interest rate scenarios. For the
Company's 1996 cash flow testing process, interest rates for 90-day treasury
bills ranged from 0.4% to 11.5% under the 20 predetermined scenarios and 0.8%
to 25.3% under the 200 random scenarios. Interest rates for longer maturity
treasury securities had comparable ranges. The values produced by each
projection are used to determine future gains or losses from the Company's
annuity and insurance business, which, in turn, are used to quantify the
adequacy of the Company's reserves over the entire projection period. The
results of the Company's cash flow testing for year end 1996 (the most recent
year for which results are available) indicated that the Company's reserves
were adequate at December 31, 1996.
The Company manages its investment portfolio in part to reduce its exposure
to interest rate fluctuations. In general, the market value of the Company's
fixed maturity portfolio increases or decreases in inverse relationship with
fluctuations in interest rates. For example, if interest rates rise, the
Company's fixed maturity investments will generally decrease in value.
Additionally, the Company's net investment income may be affected by interest
rate changes. If interest rates decline, net investment income will decrease
if high-yielding fixed maturity investments mature or are sold and the
proceeds therefrom are reinvested in securities yielding a lower rate.
The following table summarizes the net investment yield of the Company's
general account invested assets relative to that of the life insurers
reporting to the ACLI.
NET INVESTMENT YIELD
<TABLE>
<CAPTION>
THE BASIS POINT
YEAR COMPANY ACLI(1) DIFFERENCE
- ---- ------- ------- -----------
<S> <C> <C> <C>
1991................................................ 9.34% 9.09% 25
1992................................................ 8.93 8.58 35
1993................................................ 8.57 8.07 50
1994................................................ 8.37 7.63 74
1995................................................ 8.21 7.90 31
1996................................................ 8.00 -- --
</TABLE>
- --------
(1) Source: ACLI Statistical Bulletin #97-1 (January 8, 1997) entitled
"Revised Rate of Investment Income of U.S. Legal Reserve Life Insurance
Companies." ACLI data for the year ended December 31, 1996 are not yet
available.
63
<PAGE>
Fixed Maturity Securities
As of December 31, 1996, general account fixed maturity securities were
$12.3 billion (or 67.2%) of the carrying value of consolidated general account
invested assets. As of such date, public and private fixed maturity securities
constituted $8.4 billion (or 68.3%) and $3.9 billion (or 31.7%), respectively,
of total general account fixed maturity securities. The Company's general
account fixed maturity securities portfolio consists primarily of investment
grade corporate fixed maturity securities, high-quality mortgage-backed
securities and U.S. government and agency obligations.
The following table summarizes the composition of the Company's general
account fixed maturity securities by category as of December 31, 1996.
GENERAL ACCOUNT FIXED MATURITY SECURITIES -- COMPOSITION
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
--------------------------
CARRYING
VALUE % OF TOTAL
------------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
U.S. government/agencies............................ $ 285.0 2.3%
Foreign governments................................. 102.0 0.9
State and political subdivisions.................... 6.6 --
Mortgage-backed securities:
U.S. government/agencies........................... 3,665.3 29.8
Non-government/agencies............................ -- --
Corporate........................................... 8,251.6 67.0
------------- ---------
Total............................................. $ 12,310.5 100.0%
============= =========
</TABLE>
The following table sets forth scheduled maturities for the Company's
general account fixed maturity securities as of December 31, 1996.
GENERAL ACCOUNT FIXED MATURITY SECURITIES -- SCHEDULED MATURITIES(1)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
--------------------------
CARRYING
VALUE % OF TOTAL
------------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Due in one year or less............................. $ 444.2 3.6%
Due after one year through five years............... 4,059.1 33.0
Due after five years through 10 years............... 2,871.8 23.3
Due after 10 years.................................. 1,270.1 10.3
Mortgage-backed securities.......................... 3,665.3 29.8
------------- ---------
Total fixed maturity securities................... $ 12,310.5 100.0%
============= =========
</TABLE>
- --------
(1) General account fixed maturity securities with call dates are classified
on their earliest call date.
The average duration and average maturity of the Company's general account
fixed maturity securities as of December 31, 1996 were approximately 3.75 and
7.97 years, respectively. As a result, the market value of the Company's
general account investments may fluctuate significantly in response to changes
in interest rates. In addition, the Company may also be likely to experience
investment losses to the extent its liquidity needs require the disposition of
general account fixed maturity securities in unfavorable interest rate
environments.
The Company's portfolio of general account investment grade fixed maturity
securities is diversified by number and type of issuer. As of December 31,
1996, general account investment grade fixed maturity securities
64
<PAGE>
included the securities of over 548 issuers, with no issuer, other than the
U.S. government or its agencies, representing more than 0.6% of the carrying
value of general account investment grade fixed maturity securities. As of
December 31, 1996, one investment with a value of $0.5 million had been
restructured and is currently performing.
Below investment grade fixed maturity securities in the Company's general
account as of December 31, 1996 included the securities of 23 issuers
representing approximately 1.8% of the carrying value of total fixed maturity
securities. The Company's investment policy provides that fixed maturity
investments are limited to purchases of investment grade securities or unrated
securities which, in the opinion of the Company, should qualify for such
rating. All of the below grade fixed maturity securities held in the Company's
general account as of December 31, 1996 were investment grade securities when
purchased by the Company.
The NAIC assigns securities quality ratings and uniform valuations called
"NAIC Designations" which are used by insurers when preparing their annual
statements. The NAIC assigns designations to publicly traded as well as
privately placed securities. The designations assigned by the NAIC range from
class 1 to class 6, with a designation in class 1 being of the highest
quality. Of the Company's general account fixed maturity securities, 98.2% by
the carrying value were in the highest two NAIC Designations as of December
31, 1996.
The following tables set forth an analysis of the credit quality, as
determined by NAIC Designation, of the Company's general account fixed
maturity securities portfolio and general account public fixed maturity
securities portfolio as of December 31, 1996 and December 31, 1995.
GENERAL ACCOUNT FIXED MATURITY SECURITIES -- CREDIT QUALITY
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
-------------------------- --------------------------
NAIC RATING AGENCY CARRYING CARRYING
DESIGNATION(1) EQUIVALENT DESIGNATION(2) VALUE % OF TOTAL VALUE % OF TOTAL
-------------- ------------------------- ------------- ------------ ------------- ------------
(DOLLARS IN MILLIONS)
<C> <S> <C> <C> <C> <C>
1 Aaa/Aa/A.. $ 8,453.4 68.7% $ 8,659.9 69.3%
2 Baa....... 3,629.9 29.5 3,562.9 28.5
3 Ba........ 166.6 1.3 224.1 1.8
4 B......... 49.7 0.4 44.9 0.4
Caa and
5 lower..... 10.9 0.1 2.8 --
In or near
6 default... -- -- 7.0 --
Redeemable preferred stock and other..... -- -- -- --
------------- ---------- ------------- ----------
Total................................. $ 12,310.5 100.0% $ 12,501.6 100.0%
============= ========== ============= ==========
</TABLE>
- --------
(1) NAIC Designations are assigned no less frequently than annually. Some
designations for securities shown as of December 31, 1996 have been
assigned to securities not yet assigned an NAIC Designation in a manner
approximating equivalent public rating categories.
(2) Comparisons between NAIC and Moody's designations are published by the
NAIC. In the event no Moody's rating is available, the Company has
assigned internal ratings corresponding to the public rating.
65
<PAGE>
GENERAL ACCOUNT PUBLIC FIXED MATURITY SECURITIES -- CREDIT QUALITY
<TABLE>
<CAPTION>
AS OF DECEMBER
31, 1996 AS OF DECEMBER 31, 1995
------------------- -------------------------
NAIC RATING AGENCY CARRYING CARRYING
DESIGNATION(1) EQUIVALENT DESIGNATION(2) VALUE % OF TOTAL VALUE % OF TOTAL
-------------- ------------------------- -------- ---------- ------------ ------------
(DOLLARS IN MILLIONS)
<C> <S> <C> <C> <C> <C>
1 Aaa/Aa/A......... $6,540.4 77.9% $ 6,730.2 78.2%
2 Baa.............. 1,776.6 21.2 1,811.0 21.0
3 Ba............... 52.7 0.6 49.0 0.6
4 B................ 25.9 0.3 19.6 0.2
5 Caa and lower.... -- -- -- --
In or near
6 default.......... -- -- -- --
Redeemable preferred stock and other..... -- -- -- --
-------- ------ ------------ ----------
Total................................. $8,395.6 100.0% $ 8,609.8 100.0%
======== ====== ============ ==========
</TABLE>
- --------
(1) NAIC Designations are assigned no less frequently than annually. Some
designations for securities shown as of December 31, 1996 have been
assigned to securities not yet assigned an NAIC Designation in a manner
approximating equivalent public rating categories.
(2) Comparisons between NAIC and Moody's designations are published by the
NAIC. In the event no Moody's rating is available, the Company has
assigned internal ratings corresponding to the public rating.
The Company invests in private fixed maturity securities because of the (i)
generally higher nominal yield available compared to comparably rated public
fixed maturity securities, (ii) more restrictive financial and business
covenants available in private fixed maturity security loan agreements and
(iii) stronger prepayment protection. Although private fixed maturity
securities are not registered with the Commission and generally are less
liquid than public fixed maturity securities, restrictive financial and
business covenants included in private fixed maturity security loan agreements
generally are designed to compensate for the impact of increased liquidity
risk. A significant majority of the private fixed maturity securities that the
Company holds are participations in issues that are also owned by other
investors. In addition, some of the private fixed maturity securities are
rated by nationally recognized rating agencies and substantially all have been
assigned a rating designation by the NAIC.
The following table sets forth an analysis of the credit quality, as
determined by NAIC Designation, of the Company's general account private fixed
maturity securities portfolio as of December 31, 1996 and December 31, 1995.
GENERAL ACCOUNT PRIVATE FIXED MATURITY SECURITIES -- CREDIT QUALITY
<TABLE>
<CAPTION>
AS OF DECEMBER
31, 1996 AS OF DECEMBER 31, 1995
------------------- --------------------------
NAIC RATING AGENCY CARRYING CARRYING
DESIGNATION(1) EQUIVALENT DESIGNATION(2) VALUE % OF TOTAL VALUE % OF TOTAL
-------------- ------------------------- -------- ---------- ------------- ------------
(DOLLARS IN MILLIONS)
<C> <S> <C> <C> <C> <C>
1 Aaa/Aa/A....... $1,913.0 48.9% $ 1,929.7 49.6%
2 Baa............ 1,853.4 47.3 1,751.9 45.0
3 Ba............. 113.9 2.9 175.1 4.5
4 B.............. 25.7 0.6 25.3 0.6
Caa and
5 lower.......... 10.9 0.3 2.8 0.1
In or near
6 default........ -- -- 7.0 0.2
Redeemable preferred stock and other..... -- -- -- --
-------- ----- ------------- ----------
Total................................. $3,914.9 100.0% $ 3,891.8 100.0%
======== ===== ============= ==========
</TABLE>
- --------
(1) NAIC Designations are assigned no less frequently than annually. Some
designations for securities shown as of December 31, 1996 have been
assigned to securities not yet assigned an NAIC Designation in a manner
approximating equivalent public rating categories.
(2) Comparisons between NAIC and Moody's designations are published by the
NAIC. In the event no Moody's rating is available, the Company has
assigned internal ratings corresponding to the public rating.
66
<PAGE>
The following table sets forth the bond default rates for the Company and
the life insurers reporting to the ACLI for the periods indicated.
COMPANY AND LIFE INDUSTRY
BOND DEFAULT RATES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Company................................. 0.00% 0.04% 0.03% 0.01% 0.03%
ACLI(1)................................. -- 0.09 0.19 0.28 0.60
</TABLE>
- --------
(1) Source: ACLI Statistical Bulletins entitled "Quality Distribution of Bond
Holdings of U.S. Legal Reserve Life Insurance Companies:" Bulletin #'s 96-
2, 95-7, 94-5 and 93-5, dated May 15, 1996, July 24, 1995, July 28, 1994
and August 3, 1993, respectively. ACLI data for the year ended December
31, 1996 are not yet available.
The Company maintains significant general account investments in MBSs. The
Company's general account MBS investments include residential MBSs and
commercial MBSs. As of December 31, 1996, MBSs were $3.67 billion (or 29.8%)
of the carrying value of the general account fixed maturity securities, all of
which were guaranteed by the U.S. government or an agency of the U.S.
government.
The Company believes that general account MBS investments add
diversification, liquidity, credit quality and additional yield to its general
account fixed maturity securities portfolio. The objective of the Company's
general account MBS investments is to provide reasonable cash flow stability
and increased yield. General account MBS investments include CMOs and
mortgage-backed pass- through securities. The Company's general account MBS
investments do not include interest-only securities or principal-only
securities or other MBSs which may exhibit extreme market value volatility.
Prepayment risk is an inherent risk of holding MBSs. However, the degree of
prepayment risk is particular to the type of MBS held. The Company limits its
exposure to prepayments by purchasing less volatile types of MBSs. As of
December 31, 1996, $2.97 billion (or 81.0%) of the carrying value of the
general account MBS portfolio was invested in planned amortization class CMOs
("PACs"). PACs are securities whose cash flows are designed to remain constant
over a variety of mortgage prepayment environments. Other classes in the CMO
security are structured to accept the volatility of mortgage prepayment
changes, thereby insulating the PAC class. Of the remaining general account
MBS portfolio, $2.5 million (or 0.1%) was invested in mortgage-backed pass-
throughs or sequential CMOs. Pass-throughs are securities in which the monthly
cash flows of principal and interest (both scheduled and prepayments)
generated by the underlying mortgages are distributed on a pro rata basis to
the holders of securities. A sequential MBS is structured to divide the CMO
security into sequentially ordered classes. Receipt of principal payments are
made currently on all classes. While these securities are more sensitive to
prepayment risk than PACs, the Company does not consider them highly volatile
securities.
The following table sets forth the distribution by investment type of the
Company's general account MBS portfolio as of December 31, 1996.
GENERAL ACCOUNT MORTGAGE-BACKED SECURITIES -- INVESTMENT TYPE(1)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
--------------------------
CARRYING
VALUE % OF TOTAL
------------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Accrual............................................ $ 41.4 1.1%
PAC................................................ 2,970.6 81.0
Sequential......................................... 2.5 0.1
Scheduled.......................................... 167.2 4.6
TAC................................................ 87.7 2.4
VADM............................................... 395.9 10.8
------------- ----------
Total............................................ $ 3,665.3 100.0%
============= ==========
</TABLE>
- --------
(1) All general account mortgage-backed securities are agency-backed.
67
<PAGE>
Pursuant to the Company's investment policies, the Company does not invest
in derivative securities other than MBSs.
Mortgage Loans
As of December 31, 1996, general account mortgage loans were $5.27 billion
(or 28.8%) of the carrying value of consolidated general account invested
assets. As of such date, commercial mortgage loans constituted substantially
all (99.9%) of total general account mortgage loans with the remainder being
76 residual residential loans originated prior to 1981 with a principal
balance of $2.7 million. These mortgages, substantially all of which are made
on a non-recourse basis, consist primarily of fixed rate mortgages on existing
income-producing properties. As of December 31, 1996, there were two second
mortgages totaling $2.6 million and no construction loans, participating or
convertible mortgages or land development loans. Commitments to fund mortgage
loans of $327.5 million extending into 1997 were outstanding as of December
31, 1996.
The following tables set forth the distribution by property type and region
of the Company's commercial mortgages as of December 31, 1996 and December 31,
1995.
GENERAL ACCOUNT COMMERCIAL MORTGAGE
LOAN PORTFOLIO -- PROPERTY TYPE
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
----------------------------- -----------------------------
% OF TOTAL % OF TOTAL
NUMBER PRINCIPAL PRINCIPAL NUMBER PRINCIPAL PRINCIPAL
OF LOANS BALANCE BALANCE OF LOANS BALANCE BALANCE
-------- --------- ---------- -------- --------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Property Type(1):
Apartment......... 192 $1,216.0 22.8% 159 $ 995.8 21.3%
Retail............ 426 2,337.6 43.9 396 2,237.3 47.8
Office............ 153 891.0 16.7 131 785.8 16.8
Industrial........ 190 864.3 16.2 159 660.9 14.1
Hotel/motel....... 5 18.6 0.4 2 1.5 --
Other............. 2 0.3 -- 3 0.9 --
--- -------- ----- --- -------- -----
Total........... 968 $5,327.8 100.0% 850 $4,682.2 100.0%
=== ======== ===== === ======== =====
</TABLE>
- --------
(1) As defined by the ACLI.
68
<PAGE>
GENERAL ACCOUNT COMMERCIAL MORTGAGE
LOAN PORTFOLIO -- REGION
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
----------------------------- -----------------------------
% OF TOTAL % OF TOTAL
NUMBER PRINCIPAL PRINCIPAL NUMBER PRINCIPAL PRINCIPAL
OF LOANS BALANCE BALANCE OF LOANS BALANCE BALANCE
-------- --------- ---------- -------- --------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Region(1):
New England............ 35 $ 238.9 4.5% 30 $ 197.5 4.2%
Middle Atlantic........ 62 362.5 6.8 57 350.0 7.5
East North Central..... 180 1,022.5 19.2 160 930.9 19.9
West North Central..... 33 244.5 4.6 36 262.4 5.6
South Atlantic......... 225 1,103.4 20.7 187 901.4 19.3
East South Central..... 65 319.1 6.0 63 307.1 6.5
West South Central..... 105 725.7 13.6 91 618.4 13.2
Mountain............... 51 247.5 4.6 45 203.8 4.4
Pacific and other...... 212 1,064.0 20.0 181 910.7 19.4
--- -------- ----- --- -------- -----
Total................ 968 $5,327.8 100.0% 850 $4,682.2 100.0%
=== ======== ===== === ======== =====
</TABLE>
- --------
(1) The ACLI defines each of the regions set forth above as follows: (i) New
England includes Connecticut, Maine, Massachusetts, New Hampshire, Rhode
Island and Vermont; (ii) Middle Atlantic includes New York, New Jersey and
Pennsylvania; (iii) East North Central includes Illinois, Indiana,
Michigan, Ohio and Wisconsin; (iv) West North Central includes Iowa,
Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota; (v)
South Atlantic includes Delaware, District of Columbia, Florida, Georgia,
Maryland, North Carolina, South Carolina, Virginia and West Virginia; (vi)
East South Central includes Alabama, Kentucky, Mississippi and Tennessee;
(vii) West South Central includes Arkansas, Louisiana, Oklahoma and Texas;
(viii) Mountain includes Arizona, Colorado, Idaho, Montana, Nevada, New
Mexico, Utah and Wyoming; and (ix) Pacific and other includes Alaska,
California, Hawaii, Oregon, Washington, Puerto Rico, U.S. Territories and
Possessions, Canada and other foreign jurisdictions.
As of December 31, 1996, the Company's largest mortgage loan exposure to any
borrowing group was $95.7 million, or 1.8% of the Company's general account
mortgage portfolio.
The following table sets forth the composition of the Company's general
account commercial mortgage loan portfolio by loan size as of December 31,
1996 and December 31, 1995.
GENERAL ACCOUNT COMMERCIAL MORTGAGE LOAN PORTFOLIO -- LOAN SIZE
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
----------------------------- -----------------------------
% OF TOTAL % OF TOTAL
NUMBER PRINCIPAL PRINCIPAL NUMBER PRINCIPAL PRINCIPAL
SIZE OF LOANS BALANCE BALANCE OF LOANS BALANCE BALANCE
---- -------- --------- ---------- -------- --------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Under $5 million........ 559 $1,393.4 26.1% 482 $1,195.4 25.5%
$5 million to $9.9
million................ 273 1,911.7 35.9 251 1,771.3 37.9
$10 million to $19.9
million................ 121 1,582.0 29.7 106 1,387.5 29.6
$20 million to $29.9
million................ 10 238.8 4.5 7 168.4 3.6
Over $30 million........ 5 201.9 3.8 4 159.6 3.4
--- -------- ----- --- -------- -----
Total................. 968 $5,327.8 100.0% 850 $4,682.2 100.0%
=== ======== ===== === ======== =====
</TABLE>
69
<PAGE>
The Company's investment policy with regard to the origination of new
mortgage loans involves a review of the economics of the property being
financed, adherence to guidelines that provide for diversification of the
mortgage portfolio by property type and location, a review of industry lending
practices prevailing from time to time and diversification of the Company's
total general account investment portfolio. Guidelines for new mortgage loans
generally require a loan-to-value ratio of not greater than 75% at the time of
origination.
Substantially all of the general account commercial mortgage loans were
originated by the Company and not purchased from third parties. The Company
originates general account commercial mortgage loans through a national
network of mortgage banking correspondent companies which represent the
Company in many of the major metropolitan areas of the United States.
Typically, a correspondent company is an independent business which has a
staff of experienced specialists in property finance who are highly
knowledgeable about the real estate market in the company's local or regional
area. The correspondent company is an expert in the appraisal, underwriting
and servicing of commercial mortgage loans. Typically, the correspondent
company is the Company's one representative through which all mortgage
investment opportunities in the particular market must originate. The
correspondent company presents commercial mortgage loan opportunities to the
Company on property types and with respect to borrowers that meet the
Company's stringent underwriting requirements. After a mortgage loan is made,
the correspondent company services the loans for the Company by, among other
things, collecting all mortgage payments as well as amounts escrowed for the
payment of any taxes and insurance premiums. For its services, the
correspondent company receives from the Company an annual fee generally
ranging between .0625% and .125% of the mortgage balance.
Currently, the Company is represented by 24 correspondent companies that
originate commercial mortgage investment opportunities and service the general
account mortgage loans. In addition, the Company is represented by another 10
companies that service general account mortgage loans but do not originate
mortgage loan investment opportunities.
The general account commercial mortgage loan portfolio includes both
amortizing and balloon loans. The Company defines balloon loans to be
mortgages with periodic installments of principal and interest that do not
fully amortize the loan. The balance is due at a specified date in the future
which represents the end of the loan term.
The following table sets forth the maturity and principal repayment schedule
for the Company's general account mortgage loan portfolio as of December 31,
1996 and December 31, 1995.
GENERAL ACCOUNT MORTGAGE LOAN PORTFOLIO -- SCHEDULED MATURITIES
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
--------------------------------- ---------------------------------
AGGREGATE AGGREGATE
PRINCIPAL BALANCE % OF PRINCIPAL BALANCE % OF
OF MORTGAGE TOTAL PRINCIPAL OF MORTGAGE TOTAL PRINCIPAL
LOANS MATURING BALANCE LOANS MATURING BALANCE
----------------- --------------- ----------------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
1996.................... $ -- 0.0% $ 254.9 5.4%
1997.................... 162.0 3.0 210.4 4.5
1998.................... 210.2 3.9 230.2 4.9
1999.................... 349.3 6.6 347.3 7.4
2000.................... 519.5 9.7 564.6 12.1
2001.................... 357.1 6.7 367.1 7.8
2002.................... 429.8 8.1 439.1 9.4
2003.................... 490.0 9.2 303.5 6.5
2004.................... 378.5 7.1 369.4 7.9
2005.................... 686.7 12.9 694.6 14.8
2006.................... 453.5 8.5 103.3 2.2
After 2006.............. 1,293.9 24.3 800.9 17.1
-------- ------ -------- ------
$5,330.5 100.0% $4,685.3 100.0%
======== ====== ======== ======
</TABLE>
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The Company monitors all of the mortgage loans in its general account
mortgage loan portfolio on an ongoing basis and identifies mortgage loans
that, because of certain objective or subjective characteristics, cause
management to conclude that such loans require additional investigation. Among
criteria that cause a loan to be so identified are (i) borrower bankruptcies,
(ii) bankruptcies of major tenants of mortgaged properties, (iii) requests
from borrowers for loan restructuring or relief, (iv) known or suspected cash
flow deficiencies, (v) lateness of payments, (vi) noncompliance with
covenants, (vii) known or suspected loan-to-value imbalances, (viii) lease
rollovers affecting debt service coverage or property value, (ix) property
vacancy rates, (x) maturing loans identified as potential refinancing risks
and (xi) other subjective factors relating to the borrower or the mortgaged
property.
The Company and the ACLI define problem mortgage loans as loans which are 60
or more days delinquent and/or are in foreclosure. The following tables set
forth as of December 31, 1996 and 1995 the distribution by property type and
region of the Company's commercial mortgage loans that were delinquent or in
the process of foreclosure as compared to the life insurers reporting to the
ACLI.
COMMERCIAL MORTGAGE LOANS DELINQUENT OR IN THE
PROCESS OF FORECLOSURE BY PROPERTY TYPE
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
------------------------------------------- -------------------------------------------
COMPANY ACLI(1) COMPANY ACLI(2)
------------------------------- ----------- ------------------------------- -----------
DELINQUENCY DELINQUENCY DELINQUENCY DELINQUENCY
AND AND AND AND
NUMBER OF PRINCIPAL FORECLOSURE FORECLOSURE NUMBER OF PRINCIPAL FORECLOSURE FORECLOSURE
LOANS BALANCE RATE(3) RATE LOANS BALANCE RATE(3) RATE
--------- --------- ----------- ----------- --------- --------- ----------- -----------
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property Type(4):
Apartment.............. -- $ -- -- % -- % -- $ -- -- % 0.23%
Retail................. 4 26.3 0.49 -- 5 29.5 0.63 0.43
Office................. 3 15.8 0.30 -- -- -- -- 1.20
Industrial............. -- -- -- -- -- -- -- 0.21
Hotel/motel............ -- -- -- -- -- -- -- 0.14
Mixed Use.............. -- -- -- -- -- -- -- 0.01
Other Commercial
Property.............. -- -- -- -- -- -- -- 0.13
--- ----- ---- --- --- ----- ---- ----
Total.................. 7 $42.1 0.79% -- % 5 $29.5 0.63% 2.35%
=== ===== ==== === === ===== ==== ====
</TABLE>
- --------
(1) ACLI data as of December 31, 1996 are not yet available.
(2) Source: ACLI Investment Bulletin entitled "Quarterly Survey of Mortgage
Loan Delinquencies and Foreclosures," Number 1326, dated February 28,
1996.
(3) Reflects, by individual property types, commercial mortgage loans that are
delinquent 60 days or more or in the process of foreclosure as a
percentage of composite total loans.
(4) As defined by the ACLI.
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COMMERCIAL MORTGAGE LOANS DELINQUENT OR IN THE
PROCESS OF FORECLOSURE BY REGION
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
------------------------------------------- -------------------------------------------
COMPANY ACLI(1) COMPANY ACLI(2)
------------------------------- ----------- ------------------------------- -----------
DELINQUENCY DELINQUENCY DELINQUENCY DELINQUENCY
AND AND AND AND
NUMBER OF PRINCIPAL FORECLOSURE FORECLOSURE NUMBER OF PRINCIPAL FORECLOSURE FORECLOSURE
LOANS BALANCE RATE(3) RATE LOANS BALANCE RATE(3) RATE
--------- --------- ----------- ----------- --------- --------- ----------- -----------
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Region(4):
New England............ 2 $14.6 0.27% -- % 2 $14.8 0.32% 0.17%
Middle Atlantic........ 1 10.5 0.20 -- -- -- -- 0.51
East North Central..... 2 9.5 0.18 -- -- -- -- 0.36
West North Central..... -- -- -- -- -- -- -- 0.04
South Atlantic......... 1 3.1 0.06 -- 2 9.1 0.19 0.34
East South Central..... -- -- -- -- -- -- -- 0.05
West South Central..... -- -- -- -- -- -- -- 0.14
Mountain............... -- -- -- -- -- -- -- 0.06
Pacific................ 1 4.4 0.08 -- 1 5.6 0.12 0.60
Other.................. -- -- -- -- -- -- -- 0.08
--- ----- ---- --- --- ----- ---- ----
Total.................. 7 $42.1 0.79% -- % 5 $29.5 0.63% 2.35%
=== ===== ==== === === ===== ==== ====
</TABLE>
- --------
(1) ACLI data as of December 31, 1996 are not yet available.
(2) Source: ACLI Investment Bulletin entitled "Quarterly Survey of Mortgage
Loan Delinquencies and Foreclosures," Number 1326, dated February 28,
1996.
(3) Reflects, by region, commercial mortgage loans that are delinquent 60 days
or more or in the process of foreclosure as a percentage of composite
total loans.
(4) The ACLI defines each of the regions set forth above as follows: (i) New
England includes Connecticut, Maine, Massachusetts, New Hampshire, Rhode
Island and Vermont; (ii) Middle Atlantic includes New York, New Jersey and
Pennsylvania; (iii) East North Central includes Illinois, Indiana,
Michigan, Ohio and Wisconsin; (iv) West North Central includes Iowa,
Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota; (v)
South Atlantic includes Delaware, District of Columbia, Florida, Georgia,
Maryland, North Carolina, South Carolina, Virginia and West Virginia; (vi)
East South Central includes Alabama, Kentucky, Mississippi and Tennessee;
(vii) West South Central includes Arkansas, Louisiana, Oklahoma and Texas;
(viii) Mountain includes Arizona, Colorado, Idaho, Montana, Nevada, New
Mexico, Utah and Wyoming; and (ix) Pacific includes Alaska, California,
Hawaii, Oregon and Washington and (x) Other includes Puerto Rico, U.S.
Territories and Possessions, Canada and other foreign jurisdictions.
In certain situations delinquent mortgages may be restructured or modified.
As of December 31, 1996, the amortized cost of restructured mortgages totaled
$57.5 million, as compared with $66.0 million and $77.0 million as of December
31, 1995 and 1994, respectively.
The Company aggressively seeks to manage and resolve its troubled commercial
mortgage loans. Commercial mortgage loans are placed into default by the
Company immediately following the Company failing to receive a payment when
due. With respect to a delinquent mortgage loan, the Company seeks to enforce
the assignment of rents clause in order to gain control of the rental income
from the property shortly following the default in payment. The foreclosure
process with respect to a delinquent mortgage loan is generally initiated by
the Company prior to the second mortgage payment becoming delinquent. Over the
last five years, the Company has recovered approximately 74% of the unpaid
principal of all of its mortgage loans in default.
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<PAGE>
The following table sets forth the delinquency, foreclosure and restructured
commercial mortgage loan experience for the Company and for the life insurers
reporting to the ACLI for the periods indicated.
THE COMPANY AND LIFE INSURANCE INDUSTRY
PROBLEM LOAN COMPARISON
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992
--------------------- ------------------- ------------------- ------------------- -------------------
COMPANY ACLI(1) COMPANY ACLI(2) COMPANY ACLI(2) COMPANY ACLI(2) COMPANY ACLI(2)
---------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Delinquent(3)...... 0.79% --% 0.63% 2.35% 0.48% 3.38% 0.80% 4.54% 1.41% 6.62%
In foreclosure(4).. 0.79 -- 0.63 1.45 0.48 1.80 0.80 2.17 1.41 3.16
Restructured(5).... 1.11 -- 1.48 8.27 1.95 9.58 1.87 9.35 1.25 7.44
---------- -------- -------- --------- -------- --------- -------- --------- -------- ---------
Subtotal.......... 1.90 -- 2.11 10.62 2.43 12.96 2.67 13.89 2.66 14.06
Foreclosed--year to
date.............. 0.35 -- 0.74 1.75 1.18 2.52 1.48 3.21 3.33 3.31
---------- -------- -------- --------- -------- --------- -------- --------- -------- ---------
Total............. 2.25% --% 2.85% 12.37% 3.61% 15.48% 4.15% 17.10% 5.99% 17.37%
========== ======== ======== ========= ======== ========= ======== ========= ======== =========
</TABLE>
- --------
(1) ACLI data for the year ended December 31, 1996 are not yet available.
(2) Source: ACLI Investment Bulletins entitled "Quarterly Survey of Mortgage
Loan Delinquencies and Foreclosures," numbers 1326, 1289, 1253 and 1213,
dated February 28, 1996, March 9, 1995, March 1, 1994 and March 2, 1993,
respectively.
(3) Commercial mortgage loans are classified by the Company and the ACLI as
delinquent when they are 60 days or more past due.
(4) Delinquent includes loans in foreclosure; therefore, subtotal and total
lines exclude "In foreclosure" amounts.
(5) Commercial mortgage loans are classified by the Company and the ACLI as
restructured when they are in good standing, but the basic terms have been
modified as a result of an actual or anticipated delinquency.
The following table shows credit-related realized and unrealized gains and
losses before taxes on the Company's general account commercial mortgage loans
for the periods indicated. Realized losses on general account commercial
mortgage loans are generally a result of delinquent loans 30 days or more past
due. The following table focuses on credit losses and does not reflect gains
from prepayment penalties of $4.5 million, $3.2 million, $6.4 million, $5.2
million and $1.3 million in 1996, 1995, 1994, 1993 and 1992, respectively.
GENERAL ACCOUNT COMMERCIAL MORTGAGE LOAN
CREDIT-RELATED LOSSES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994 1993 1992
----- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Realized losses......................... $ 4.1 $ 7.1 $ 20.4 $ 28.2 $ 36.1
Unrealized losses....................... -- -- -- -- --
----- ----- ------ ------ ------
Total................................. $ 4.1 $ 7.1 $ 20.4 $ 28.2 $ 36.1
===== ===== ====== ====== ======
Percentage of beginning of year
portfolio.............................. 0.09% 0.17% 0.53% 0.79% 1.12%
</TABLE>
Real Estate
As of December 31, 1996, equity real estate assets were $265.8 million, or
1.5% of the carrying value of general account invested assets. The equity real
estate category consists of retail, office, industrial and other properties.
Retail properties constitute the largest component of the category and are
primarily grocery store- anchored neighborhood shopping centers.
Policy Loans
The Company held $371.8 million of general account policy loans as of
December 31, 1996. Of such policy loans, 56.6% were on traditional life
policies and 43.4% were on universal life policies and annuities. Policy loans
are permitted to the extent of a policy's contractual limits and are
collateralized fully by policy cash values. Loan rates are fixed in the
contracts and range from 5% to 8%. For policies with variable rate provisions,
the
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<PAGE>
loan interest rates were tied to external indices. The weighted average policy
loan interest rate was 7.39% as of December 31, 1996.
Equity Securities
As of December 31, 1996, the Company held general account equity securities
of $59.1 million, or 0.3% of general account consolidated invested assets. The
Company's general account equity security investments consist of a diversified
portfolio primarily of publicly traded common stocks.
Other Long-Term Investments
As of December 31, 1996, other long-term investments were $28.7 million, or
0.2% of the carrying value of general account invested assets. Such
investments primarily consist of joint ventures and limited partnership
interests in real estate.
Short-Term Investments
As of December 31, 1996, short-term investments were $9.3 million, or 0.05%
of the carrying value of general account invested assets. Such short-term
investments comprised cash and cash equivalents. The Company invests in U.S.
Treasury bills, commercial paper and certificates of deposit.
RATINGS
Ratings with respect to claims-paying ability and financial strength have
become an increasingly important factor in establishing the competitive
position of insurance companies. Ratings are important to maintaining public
confidence in the Company and its ability to market its annuity and life
insurance products. Rating organizations continually review the financial
performance and condition of insurers, including the Company. Any lowering of
the Company's ratings could have a material adverse effect on the Company's
ability to market its products and could increase the surrender of the
Company's annuity products. Both of these consequences could, depending upon
the extent thereof, have a material adverse effect on the Company's liquidity
and, under certain circumstances, net income. Nationwide Life is rated "A+"
(Superior) by A.M. Best and its claims-paying ability is rated "Aa2"
(Excellent) by Moody's and "AA+" (Excellent) by S&P. Moody's recently
confirmed and S&P recently affirmed Nationwide Life's claims-paying ability
rating with a negative outlook.
A.M. Best's ratings for insurance companies currently range from "A++" to
"F," and some companies are not rated. A.M. Best publications indicate that
"A++" and "A+" ratings are assigned to those companies that in A.M. Best's
opinion have achieved superior overall performance when compared to the norms
of the life insurance industry and generally have demonstrated a strong
ability to meet their policyholder and other contractual obligations.
Moody's rating for insurance companies currently range from "Aaa" to "Caa."
S&P ratings for insurance companies range from "AAA" to "CCCq." In evaluating
a company's financial and operating performance, Moody's and S&P review its
profitability, leverage and liquidity as well as its book of business, the
adequacy and soundness of its reinsurance, the quality and estimated market
value of its assets, the adequacy of its policy reserves and the experience
and competency of its management.
The foregoing ratings reflect each rating agency's opinion of Nationwide
Life's financial strength, operating performance and ability to meet its
obligations to policyholders and are not evaluations directed toward the
protection of investors. Such factors are of concern to policyholders, agents
and intermediaries. Such ratings should not be relied upon when making a
decision to invest in the Capital Securities.
COMPETITION
The Company competes with a large number of other insurers as well as non-
insurance financial services companies, such as banks, broker/dealers and
mutual funds, some of whom have greater financial resources, offer
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<PAGE>
alternative products and, with respect to other insurers, have higher ratings
than the Company. The Company believes that competition in the Company's lines
of business is based on price, product features, commission structure,
perceived financial strength, claims-paying ratings, service and name
recognition. National banks, with their preexisting customer bases for
financial services products, may pose increasing competition in the future to
insurers who sell annuities, including the Company, as a result of the U.S.
Supreme Court's 1994 decision in NationsBank of North Carolina v. Variable
Annuity Life Insurance Company, which permits national banks to sell annuity
products of life insurance companies in certain circumstances.
Several proposals to repeal or modify the Glass-Steagall Act of 1933, as
amended, and the Bank Holding Company Act of 1956, as amended, have been made
by members of Congress and the Clinton administration. Currently, the Bank
Holding Company Act restricts banks from being affiliated with insurance
companies. None of these proposals has yet been enacted, and it is not
possible to predict whether any of these proposals will be enacted, or if
enacted, their potential effect on the Company.
REGULATION
General Regulation at State Level
As an insurance holding company, the Company is subject to regulation by the
states in which its insurance subsidiaries are domiciled and/or transact
business. Most states have enacted legislation that requires each insurance
holding company and each insurance company in an insurance holding company
system to register with the insurance regulatory authority of the insurance
company's state of domicile and, annually, to furnish financial and other
information concerning the operations of companies within the holding company
system that may materially affect the operations, management or financial
condition of the insurers within such system. The Company is subject to the
insurance holding company laws in Ohio. Under such laws, all transactions
within an insurance holding company system affecting insurers must be fair and
equitable and each insurer's policyholder surplus following any such
transaction must be both reasonable in relation to its outstanding liabilities
and adequate for its needs. The Ohio insurance holding company laws also
require prior notice or regulatory approval of the change of control of an
insurer or its holding company and of material intercorporate transfers of
assets within the holding company structure. Generally, under such laws, a
state insurance authority must approve in advance the direct or indirect
acquisition of 10% or more of the voting securities of an insurance company
domiciled in its state.
In addition, the laws of the various states establish regulatory agencies
with broad administrative powers to approve policy forms, grant and revoke
licenses to transact business, regulate trade practices, license agents,
require statutory financial statements and prescribe the type and amount of
investments permitted. In recent years, a number of life and annuity insurers
have been the subject of regulatory proceedings and litigation relating to
alleged improper life insurance pricing and sales practices. Some of these
insurers have incurred or paid substantial amounts in connection with the
resolution of such matters. In addition, state insurance regulatory
authorities regularly make inquiries, hold investigations and administer
market conduct examinations with respect to insurers' compliance with
applicable insurance laws and regulations. None of the Company's insurance
subsidiaries is the subject of any such investigation by any regulatory
authority or any such market conduct examination in any state at this time.
The Company's subsidiaries continuously monitor sales, marketing and
advertising practices and related activities of their agents and personnel and
provide continuing education and training in an effort to ensure compliance
with applicable insurance laws and regulations.
Insurance companies are required to file detailed annual and quarterly
financial statements with state insurance regulators in each of the states in
which they do business, and their business and accounts are subject to
examination by such agencies at any time. In addition, insurance regulators
periodically examine an insurer's financial condition, adherence to statutory
accounting practices and compliance with insurance department rules and
regulation. Applicable state insurance laws, rather than federal bankruptcy
laws, apply to the liquidation or the restructuring of insurance companies.
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<PAGE>
As part of their routine regulatory oversight process, state insurance
departments conduct detailed examinations periodically (generally once every
three years) of the books, records and accounts of insurance companies
domiciled in their states. Such examinations are generally conducted in
cooperation with the departments of two or three other states under guidelines
promulgated by the NAIC. Nationwide Life's last examination occurred during
1993 for the three-year period ended December 31, 1992. Final reports of these
examinations have been issued by each of the Ohio, California and Delaware
insurance departments, and none of such reports raised any significant issues
or adjustments.
Regulation of Dividends and Other Payments from Insurance Subsidiaries
As an insurance holding company, the Company's ability to meet debt service
obligations, including payment of principal and interest on the Junior
Subordinated Debentures, and pay operating expenses and dividends depends
primarily on the receipt of sufficient funds from its primary operating
subsidiary, Nationwide Life. The inability of Nationwide Life to pay dividends
to the Company in an amount sufficient to meet debt service obligations and
pay operating expenses and dividends would have a material adverse effect on
the Company. The payment of dividends by Nationwide Life is subject to
restrictions set forth in the insurance laws and regulations of Ohio, its
domiciliary state. The Ohio insurance laws require Ohio-domiciled life
insurance companies to seek prior regulatory approval to pay a dividend or
distribution of cash or other property if the fair market value thereof,
together with that of other dividends or distributions made in the preceding
12 months, exceeds the greater of (i) 10% of policyholders' surplus as of the
prior December 31 or (ii) the net income of the insurer for the 12-month
period ending as of the prior December 31. The Ohio insurance laws also
require insurers to seek prior regulatory approval for any dividend paid from
other than earned surplus. Earned surplus is defined under the Ohio insurance
laws as the amount equal to the Company's unassigned funds as set forth in its
most recent statutory financial statements, including net unrealized capital
gains and losses or revaluation of assets. Additionally, following any
dividend, an insurer's policyholder surplus must be reasonable in relation to
the insurer's outstanding liabilities and adequate for its financial needs. As
a result of the Special Dividend and the dividend by Nationwide Life of the
stock of certain subsidiaries that do not operate in the long-term savings and
retirement market, any dividend paid by Nationwide Life during the 12-month
period immediately following the Special Dividend would be an extraordinary
dividend under Ohio insurance laws. See "Recent History." Accordingly, no such
dividend could be paid without prior regulatory approval. The payment of
dividends by Nationwide Life may also be subject to restrictions set forth in
the insurance laws of New York that limit the amount of statutory profits on
Nationwide Life's participating policies (measured before dividends to
policyholders) that can inure to the benefit of the Company and its
stockholders. The Company currently does not expect such regulatory
requirements to impair its ability to pay operating expenses and dividends and
to meet its debt service obligations in the future.
NAIC IRIS Ratios
In the 1970s, the NAIC developed a set of financial relationships or "tests"
known as the Insurance Regulatory Information System ("IRIS") that was
designed for early identification of companies which may require special
attention by insurance regulatory authorities. There are separate but similar
tests for property/casualty companies and life and health companies. Insurance
companies submit data annually to the NAIC, which in turn analyzes the data by
utilizing, in the case of life insurance companies, 13 ratios, each with
defined "usual ranges." An insurance company may fall out of the usual range
for one or more ratios because of specific transactions that are in themselves
immaterial or eliminated at the consolidated level. Generally, an insurance
company will become subject to regulatory scrutiny if it falls outside the
usual ranges of four or more of the ratios, and regulators may then act, if
the company has insufficient capital, to constrain the company's underwriting
capacity. No ratios for the Company's insurance subsidiaries currently fall
outside the usual range for any of the ratios.
Risk-Based Capital Requirements
In order to enhance the regulation of insurer solvency, the NAIC has adopted
a model law to implement risk-based capital ("RBC") requirements for life
insurance companies. The requirements are designed to monitor capital adequacy
and to raise the level of protection that statutory surplus provides for
policyholders.
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<PAGE>
The model law measures four major areas of risk facing life insurers: (i) the
risk of loss from asset defaults and asset value fluctuation; (ii) the risk of
loss from adverse mortality and morbidity experience; (iii) the risk of loss
from mismatching of asset and liability cash flow due to changing interest
rates and (iv) business risks. Insurers having less statutory surplus than
required by the RBC model formula will be subject to varying degrees of
regulatory action depending on the level of capital inadequacy.
The RBC formula provides a mechanism for the calculation of an insurance
company's Authorized Control Level RBC and its total adjusted capital. The
model law sets forth the points at which a superintendent of insurance is
authorized and expected to take regulatory action. The first level is known as
the Company Action Level RBC, which is set at twice the Authorized Control
Level RBC. The second level is the Regulatory Action Level RBC, set at 1.5
times the Authorized Control Level RBC. The third is the Authorized Control
Level RBC, and the fourth is the Mandatory Control Level RBC, set at 70
percent of the Authorized Control Level RBC.
If an insurance company's adjusted capital is higher than the Regulatory
Action Level but below the Company Action Level, the insurance company must
submit to its superintendent of insurance a comprehensive financial plan. If
an insurance company's adjusted capital is higher than the Authorized Control
Level but lower than the Regulatory Action Level, the superintendent of
insurance shall perform such examination or analysis as he or she deems
necessary of the insurer's business and operations and issue any appropriate
corrective orders to address the insurance company's financial problems. If an
insurer's adjusted capital is higher than the Mandatory Control Level but
lower than the Authorized Control Level, the superintendent may place the
insurer under regulatory control. If the insurance company's adjusted capital
falls below the Mandatory Control Level, the superintendent will be required
to place the insurer under regulatory control. Based on the formula adopted by
the NAIC, Nationwide Life exceeded the Company Action Level by a substantial
amount as of December 31, 1995. After giving pro forma effect to the Special
Dividend and the contribution to Nationwide Life by the Company of $766.5
million of proceeds from the Equity Offerings, the Note Offering and the
Capital Securities Offering, Nationwide Life exceeded the Company Action Level
by a substantial amount as of December 31, 1996. See "Use of Proceeds,"
"Recent History" and "The Equity Offerings, the Note Offering and the Capital
Securities Offering."
Assessments Against Insurers
Insurance guaranty association laws exist in all states, the District of
Columbia and Puerto Rico. Insurers doing business in any of these
jurisdictions can be assessed for policyholder losses incurred by insolvent
insurance companies. The amount and timing of any future assessment on the
Company's insurance subsidiaries under these laws cannot be reasonably
estimated and are beyond the control of the Company and its insurance
subsidiaries. Recent regulatory actions against certain large life insurers
encountering financial difficulty have prompted the various state insurance
guaranty associations to begin assessing life insurance companies for the
deemed loss. Most of these laws do provide, however, that an assessment may be
excused or deferred if it would threaten an insurer's solvency and further
provide for annual limits on such assessments. A large part of the assessments
paid by the Company's insurance subsidiaries pursuant to these laws may be
used as credits for a portion of the Company's insurance subsidiaries' premium
taxes. Based on the best information presently available, the Company believes
the total assessments will not be material to its operating results or
financial position. For the years ended December 31, 1996, 1995 and 1994, the
Company paid $4.5 million, $7.5 million and $5.3 million, respectively, in
assessments pursuant to state insurance guaranty association laws.
General Regulation at Federal Level
Although the federal government generally does not directly regulate the
insurance business, federal initiatives often have an impact on the business
in a variety of ways. Current and proposed federal measures that may
significantly affect the insurance business include limitations on antitrust
immunity, minimum solvency requirements and the removal of barriers
restricting banks from engaging in the insurance and mutual fund business.
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<PAGE>
Securities Laws
Certain of the Company's insurance subsidiaries and certain policies and
contracts offered by them are subject to regulation under the federal
securities laws administered by the Commission and under certain state
securities laws. Certain separate accounts of the Company's insurance
subsidiaries are registered as investment companies under the Investment
Company Act of 1940, as amended (the "Investment Company Act"). Separate
account interests under certain variable annuity contracts and variable
insurance policies issued by the Company's insurance subsidiaries are also
registered under the Securities Act. Certain other subsidiaries of the Company
are registered as broker/dealers under the Exchange Act and are members of,
and subject to regulation by, the National Association of Securities Dealers.
Certain of the Company's subsidiaries are investment advisors registered
under the Investment Advisers Act of 1940, as amended. The investment
companies managed by such subsidiaries are registered with the Commission
under the Investment Company Act and the shares of certain of these entities
are qualified for sale in certain states in the United States and the District
of Columbia. A subsidiary of the Company is registered with the Commission as
a transfer agent. Certain subsidiaries of the Company are also subject to the
Commission's net capital rules.
All aspects of the Company's subsidiaries' investment advisory activities
are subject to various federal and state laws and regulations in jurisdictions
in which they conduct business. These laws and regulations are primarily
intended to benefit investment advisory clients and investment company
shareholders and generally grant supervisory agencies broad administrative
powers, including the power to limit or restrict the carrying on of business
for failure to comply with such laws and regulations. In such event, the
possible sanctions which may be imposed include the suspension of individual
employees, limitations on the activities in which the investment advisor may
engage, suspension or revocation of the investment advisor's registration as
an advisor, censure and fines.
ERISA Compliance
On December 13, 1993, the United States Supreme Court issued its opinion in
John Hancock Mutual Life Insurance Company v. Harris Trust and Savings Bank
holding that certain assets in excess of amounts necessary to satisfy
guaranteed obligations held by John Hancock in its general account under a
participating group annuity contract are "plan assets" and therefore subject
to certain fiduciary obligations under ERISA, which specify that fiduciaries
must perform their duties solely in the interest of ERISA plan participants
and beneficiaries. The Court limited the imposition of ERISA fiduciary
obligations in these instances to assets in an insurer's general account that
were not reserved to pay benefits of guaranteed benefit policies (i.e.,
benefits whose value would not fluctuate in accordance with the insurer's
investment experience). The Secretary of Labor is required to issue proposed
regulations not later than June 30, 1997, providing guidance for the purpose
of determining, in cases where an insurer issues one or more policies backed
by the insurer's general account to or for the benefit of an employee benefit
plan, which assets of the insurer constitute plan assets for purposes of ERISA
and the IRC. Final regulations, after a notice and comment period, must be
issued by December 31, 1997. The regulations will apply only with respect to a
policy issued by an insurer on or before December 31, 1998. In the case of
such a policy, the regulations will take effect at the end of the 18-month
period following the date such regulations become final. Generally, no person
will be liable under ERISA or the IRC for conduct occurring prior to the end
of such 18-month period, where the basis of a claim is that insurance company
general account assets constitute plan assets. New policies issued after
December 31, 1998, which are not guaranteed benefit policies will be subject
to the fiduciary obligations under ERISA.
The regulations should indicate the requirements that must be met in order
to satisfy ERISA's fiduciary standards. A review of Nationwide Life's
procedures with respect to its general account contracts will be required to
ensure compliance with the regulations.
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Potential Tax Legislation
Congress has, from time to time, considered possible legislation that would
eliminate the deferral of taxation on the accretion of value within certain
annuities and life insurance products. The 1994 United States Supreme Court
ruling in NationsBank of North Carolina v. Variable Annuity Life Insurance
Company that annuities are not insurance for purposes of the National Bank Act
may cause Congress to consider legislation that would eliminate such tax
deferral at least for certain annuities. Other possible legislation, including
a simplified "flat tax" income tax structure with an exemption from taxation
for investment income, could also adversely affect purchases of annuities and
life insurance if such legislation were to be enacted. There can be no
assurance as to whether legislation will be enacted which would contain
provisions with possible adverse effects on the Company's annuity and life
insurance products.
PROPERTIES
The Company's principal executive offices are located in Columbus, Ohio. The
Company leases its home office complex, consisting of approximately 512,000
square feet, from Nationwide Mutual and its subsidiaries at One Nationwide
Plaza, Two Nationwide Plaza and Three Nationwide Plaza, Columbus, Ohio. See
"Certain Relationships and Related Transactions."
The Company believes that its present facilities are adequate for the
anticipated needs of the Company.
LEGAL PROCEEDINGS
From time to time the Company is a party to litigation and arbitration
proceedings in the ordinary course of its business, none of which is expected
to have a material adverse effect on the Company.
In recent years, life insurance companies have been named as defendants in
lawsuits, including class action lawsuits, relating to life insurance pricing
and sales practices. A number of these lawsuits have resulted in substantial
jury awards or settlements. In October 1996, a policyholder of Nationwide Life
filed a complaint in Alabama state court against Nationwide Life and an agent
of Nationwide Life (Wayne M. King v. Nationwide Life Insurance Company and
Danny Nix) related to the sale of a whole life policy on a "vanishing premium"
basis and seeking unspecified compensatory and punitive damages. In February
1997, Nationwide Life was named as a defendant in a lawsuit filed in New York
Supreme Court also related to the sale of whole life policies on a "vanishing
premium" basis (John H. Snyder v. Nationwide Mutual Insurance Company,
Nationwide Mutual Insurance Co. and Nationwide Life Insurance Co.). The
plaintiff in such lawsuit seeks to represent a national class of Nationwide
Life policyholders, and claims unspecified compensatory and punitive damages.
This lawsuit is in an early stage and has not been certified as a class
action. Nationwide Life intends to defend these cases vigorously. There can be
no assurance that any future litigation relating to pricing and sales
practices will not have a material adverse effect on the Company.
EMPLOYEES
As of December 31, 1996, the Company had approximately 3,550 employees. None
of the employees of the Company is covered by a collective bargaining
agreement, and the Company believes that its employee relations are
satisfactory.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information regarding the executive officers
and directors of the Company. Of such executive officers, Messrs. Gasper,
Brock, Galloway, Karas, B. Barnes and Easley work exclusively for the Company.
The other executive officers perform duties for the Company and other members
of the Nationwide Insurance Enterprise.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<C> <C> <S>
Dimon Richard McFerson(1)........ 59 Chairman and Chief Executive Officer--
Nationwide Insurance Enterprise and
Director
53 President and Chief Operating Officer
Joseph J. Gasper................. and Director
Galen R. Barnes.................. 49 Executive Vice President
Richard D. Crabtree.............. 56 Executive Vice President
61 Executive Vice President--Law and
Gordon E. McCutchan.............. Corporate Services and Secretary
50 Executive Vice President--Chief
Robert A. Oakley................. Financial Officer
55 Executive Vice President--Chief
Robert J. Woodward, Jr........... Investment Officer
49 Senior Vice President--Company
James E. Brock................... Operations
54 Senior Vice President and General
W. Sidney Druen.................. Counsel
63 Senior Vice President--Chief Actuary--
Harvey S. Galloway, Jr........... Life and Annuities
54 Senior Vice President--Sales--Financial
Richard A. Karas................. Services
Bruce C. Barnes.................. 49 Vice President--Information Systems
Dennis W. Click.................. 58 Vice President and Assistant Secretary
David A. Diamond................. 41 Vice President--Controller
40 Vice President--Marketing and
Matthew S. Easley................ Administrative Services
Mark R. Thresher................. 40 Vice President--Finance and Treasurer
Charles L. Fuellgraf, Jr.(1)(2).. 65 Director
Henry S. Holloway(1)............. 64 Director
Lydia Micheaux Marshall(3)....... 48 Director
Donald L. McWhorter(2)(3)........ 61 Director
David O. Miller(1)(2)............ 58 Director
James F. Patterson(1)............ 55 Director
Gerald D. Prothro(3)............. 54 Director
Arden L. Shisler(1).............. 55 Director
</TABLE>
- --------
(1) Member of Executive Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
Biographical information for each of the individuals listed in the above
table is set forth below.
DIMON RICHARD MCFERSON has been Chief Executive Officer of the Nationwide
Insurance Enterprise since December 1992. He has been Chairman and Chief
Executive Officer--Nationwide Insurance Enterprise of the Company since
December 1996 and a director of the Company since November 1996. Mr. McFerson
has been a director of Nationwide Life and Nationwide Mutual since April 1988
and Chairman and Chief Executive Officer--Nationwide Insurance Enterprise of
Nationwide Life and Nationwide Mutual since April 1996. Previously he was
elected Chief Executive Officer of Nationwide Life in December 1992, and
President and Chief Executive Officer--Nationwide Insurance Enterprise of
Nationwide Life in December 1993. He was President and General Manager of
Nationwide Mutual from April 1988 to April 1991; President and Chief Operating
Officer of Nationwide Mutual from April 1991 to December 1992; and President
and Chief Executive Officer of Nationwide Mutual from December 1992 to April
1996. Mr. McFerson has been with the Nationwide Insurance Enterprise for 17
years.
JOSEPH J. GASPER has been President and Chief Operating Officer of the
Company since December 1996 and a director of the Company since November 1996.
Mr. Gasper has been President and Chief Operating Officer of Nationwide Life
since April 1996. Previously, he was Executive Vice President--
Property/Casualty
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Operations of Nationwide Mutual from April 1995 to April 1996. He was Senior
Vice President--Property/Casualty Operations of Nationwide Mutual from
September 1993 to April 1995. Prior to that time, Mr. Gasper held numerous
positions within the Nationwide Insurance Enterprise. Mr. Gasper has been with
the Nationwide Insurance Enterprise for 30 years.
GALEN R. BARNES has been Executive Vice President of the Company since
December 1996. Mr. Barnes has been President of the Nationwide Insurance
Enterprise since April 1996. Previously, he was President and Chief Operating
Officer of the Wausau Insurance Companies, members of the Nationwide Insurance
Enterprise, from May 1993 to September 1996 and was Senior Vice President of
the Nationwide Insurance Enterprise from May 1993 to April 1996. Prior to that
time, Mr. Barnes held several positions within the Nationwide Insurance
Enterprise. Mr. Barnes has been with the Nationwide Insurance Enterprise for
21 years.
RICHARD D. CRABTREE has been Executive Vice President of the Company since
December 1996. Mr. Crabtree has been a director and President and Chief
Operating Officer of Nationwide Mutual, Nationwide Mutual Fire and Nationwide
Property and Casualty Insurance Company since April 1996. Previously, he was
Executive Vice President--Property/Casualty Operations of the Nationwide
Insurance Enterprise from April 1995 to April 1996. Prior to that time, Mr.
Crabtree held various positions within the Nationwide Insurance Enterprise.
Mr. Crabtree has been with the Nationwide Insurance Enterprise for 31 years.
GORDON E. MCCUTCHAN has been Executive Vice President--Law and Corporate
Services and Secretary of the Company since December 1996. Mr. McCutchan has
been Executive Vice President--Law and Corporate Services and Secretary of the
Nationwide Insurance Enterprise since September 1994. Previously, he was
Executive Vice President, General Counsel and Secretary of the Nationwide
Insurance Enterprise from November 1989 to September 1994. Prior to that time,
Mr. McCutchan held several positions within the Nationwide Insurance
Enterprise. Mr. McCutchan has been with the Nationwide Insurance Enterprise
for 33 years.
ROBERT A. OAKLEY has been Executive Vice President--Chief Financial Officer
of the Company since December 1996. Mr. Oakley has been Executive Vice
President--Chief Financial Officer of the Nationwide Insurance Enterprise
since April 1995. Previously, he was Senior Vice President--Chief Financial
Officer of the Nationwide Insurance Enterprise from October 1993 to April
1995. Prior to that time, Mr. Oakley held several positions within the
Nationwide Insurance Enterprise. Mr. Oakley has been with the Nationwide
Insurance Enterprise for 21 years.
ROBERT J. WOODWARD, JR. has been Executive Vice President--Chief Investment
Officer of the Company since December 1996. Mr. Woodward has been Executive
Vice President--Chief Investment Officer of the Nationwide Insurance
Enterprise since August 1995. Previously, he was Senior Vice President--Fixed
Income Investments of the Nationwide Insurance Enterprise from March 1991 to
August 1995. Prior to that time, Mr. Woodward held several positions within
the Nationwide Insurance Enterprise. Mr. Woodward has been with the Nationwide
Insurance Enterprise for 32 years.
JAMES E. BROCK has been Senior Vice President--Company Operations of the
Company since December 1996. Mr. Brock has been Senior Vice President--Life
Company Operations of Nationwide Life since April 1996. Previously, he was
Senior Vice President--Investment Product Operations of Nationwide Life from
November 1990 to April 1996. Prior to that time, Mr. Brock held several
positions within the Nationwide Insurance Enterprise. Mr. Brock has been with
the Nationwide Insurance Enterprise for 27 years.
W. SIDNEY DRUEN has been Senior Vice President and General Counsel of the
Company since December 1996. Mr. Druen has been Senior Vice President and
General Counsel and Assistant Secretary of the Nationwide Insurance Enterprise
since September 1994. Previously, he was Vice President, Deputy General
Counsel and Assistant Secretary of the Nationwide Insurance Enterprise from
October 1989 to September 1994. Prior to that time, Mr. Druen held several
positions within the Nationwide Insurance Enterprise. Mr. Druen has been with
the Nationwide Insurance Enterprise for 27 years.
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HARVEY S. GALLOWAY, JR. has been Senior Vice President--Chief Actuary--Life
and Annuities of the Company since December 1996. Mr. Galloway has been Senior
Vice President--Chief Actuary--Life, Health and Annuities of the Nationwide
Insurance Enterprise since April 1993. Previously, he was Senior Vice
President and Chief Actuary of the Nationwide Insurance Enterprise from
January 1983 to April 1993. Prior to that time, Mr. Galloway held several
positions within the Nationwide Insurance Enterprise. Mr. Galloway has been
with the Nationwide Insurance Enterprise for 27 years.
RICHARD A. KARAS has been Senior Vice President--Sales--Financial Services
of the Company since December 1996. Mr. Karas has been Senior Vice President--
Sales--Financial Services of the Nationwide Insurance Enterprise since March
1993. Previously, he was Vice President--Sales--Financial Services of the
Nationwide Insurance Enterprise from February 1989 to March 1993. Prior to
that time, Mr. Karas held several positions within the Nationwide Insurance
Enterprise. Mr. Karas has been with the Nationwide Insurance Enterprise for 32
years.
BRUCE C. BARNES has been Vice President--Information Systems of the Company
since February 1997. Mr. Barnes has been Vice President--Life Systems of the
Nationwide Insurance Enterprise since May 1996. Previously, he was Vice
President--Investment Product Systems of the Nationwide Insurance Enterprise
from April 1995 to May 1996. Prior to that time Mr. Barnes was Vice
President--Individual Investment Products/Common Systems of the Nationwide
Insurance Enterprise from May 1994 to April 1995 and Associate Vice
President--Individual Investment Products/Common Systems of Nationwide Life
from May 1992 to May 1994. Mr. Barnes was Vice President--Information Services
of PHP Benefits Systems, Inc. from January 1987 to January 1992. Mr. Barnes
has been with the Nationwide Insurance Enterprise for 5 years.
DENNIS W. CLICK has been Vice President and Assistant Secretary of the
Company since December 1996. Mr. Click has been Vice President and Assistant
Secretary of the Nationwide Insurance Enterprise since August 1994.
Previously, he was Associate Vice President and Assistant Secretary of the
Nationwide Insurance Enterprise from August 1989 to August 1994. Prior to that
time, he held several positions within the Nationwide Insurance Enterprise.
Mr. Click has been with the Nationwide Insurance Enterprise for 36 years.
DAVID A. DIAMOND has been Vice President--Controller of the Company since
December 1996. Mr. Diamond has been Vice President--Enterprise Controller of
the Nationwide Insurance Enterprise since August 1996. Previously, he was Vice
President--Controller of Nationwide Life from October 1993 to August 1996.
Prior to that time, Mr. Diamond held several positions within the Nationwide
Insurance Enterprise. Mr. Diamond has been with the Nationwide Insurance
Enterprise for 8 years.
MATTHEW S. EASLEY has been Vice President--Marketing and Administrative
Services of the Company since December 1996. Mr. Easley has been Vice
President--Life Marketing and Administrative Services of the Nationwide
Insurance Enterprise since May 1996. Previously, he was Vice President--
Annuity and Pension Actuarial of the Nationwide Insurance Enterprise from
August 1989 to May 1996. Prior to that time, Mr. Easley held several positions
within the Nationwide Insurance Enterprise. Mr. Easley has been with the
Nationwide Insurance Enterprise for 14 years.
MARK R. THRESHER has been Vice President--Finance and Treasurer of the
Company since February 1997. Mr. Thresher has been Vice President--Controller
of Nationwide Life since August 1996. He was Vice President and Treasurer of
the Company from November 1996 to February 1997. Previously, he was Vice
President and Treasurer of the Nationwide Insurance Enterprise from June 1996
to August 1996. Prior to joining the Nationwide Insurance Enterprise, Mr.
Thresher served as a partner with KPMG Peat Marwick LLP since July 1988.
CHARLES L. FUELLGRAF, JR. has been a director of the Company since November
1996. Mr. Fuellgraf has been Chief Executive Officer of Fuellgraf Electric
Company, an electrical contractor, of Butler, Pennsylvania, and Nashville,
Tennessee, since 1986. He is Chairman of the Board of Nationwide
Communications Inc. and serves on the board of directors of several members of
the Nationwide Insurance Enterprise.
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HENRY S. HOLLOWAY has been a director of the Company since November 1996.
Mr. Holloway has been a farm owner and operator in Darlington, Maryland, since
1959. He is Chairman of the Board of Nationwide Life, Nationwide Life and
Annuity Insurance Company and Nationwide Corp. and serves on the board of
directors of several members of the Nationwide Insurance Enterprise. He is
also a director of the National Cooperative Business Association and the
Forest Hill State Bank.
LYDIA MICHEAUX MARSHALL has been a director of the Company since February
1997. Ms. Marshall has been Executive Vice President, Marketing of the Student
Loan Marketing Association ("Sallie Mae"), in Washington D.C., since November
1993. Previously, she was Senior Vice President, Marketing of Sallie Mae from
January 1991 to November 1993. Prior to that time, Ms. Marshall held several
positions with Sallie Mae. She is Chair of the Board of CARE (Cooperative for
American Relief Everywhere) and a trustee of the Greater Washington Board of
Trade's Greater Washington Initiative.
DONALD L. MCWHORTER has been a director of the Company since February 1997.
Mr. McWhorter retired from Banc One Corporation in April 1995, after serving
as President and Chief Operating officer of Banc One Corporation since April
1992. Previously, he was Chairman and Chief Executive officer of Banc One Ohio
from July 1989 to April 1992. Prior to that time, Mr. McWhorter held several
positions with Banc One Corporation.
DAVID O. MILLER has been a director of the Company since November 1996. Mr.
Miller has been a farm owner and land developer since 1962. He is the
President of Owen Potato Farm Inc., the owner of The Berry Barn and is a
partner of M&M Enterprises in Licking County, Ohio. He is Chairman of the
Board of the Wausau Insurance Companies and serves on the board of directors
of several members of the Nationwide Insurance Enterprise. He is also a
director of the National Cooperative Business Association.
JAMES F. PATTERSON has been a director of the Company since November 1996.
Mr. Patterson has operated the Patterson Fruit Farm in Chesterland, Ohio,
since 1964 and has been the President of Patterson Farms, Inc. since December
1991. He is Chairman of the Board of Nationwide Mutual Fire Insurance Company
and serves on the board of directors of several members of the Nationwide
Insurance Enterprise. He is also a trustee of The Ohio State University and
serves on the board of directors of the University Hospitals Health System in
Cleveland, Ohio, and Geauga Hospital, Inc. in Chardon, Ohio.
GERALD D. PROTHRO has been a director of the Company since February 1997.
Mr. Prothro has been Vice President and IBM Chief Information Officer of
International Business Machines Corporation since April 1994. Previously, he
was IBM Vice President, Information and Telecommunications Systems of
International Business Machines Corporation from June 1992 to April 1994.
Prior to that time, Mr. Prothro held several positions with International
Business Machines Corporation. He is a director of National Technological
University and a member of the Review and Priority Board of Lehigh
University/Iacocca Institute. He is also a trustee of Howard University.
ARDEN L. SHISLER has been a director of the Company since November 1996. Mr.
Shisler has been President and Chief Executive Officer of K & B Transport,
Inc., a trucking firm in Dalton, Ohio, since January 1992. Previously, he was
Chief Operating Officer of K & B Transport, Inc. from April 1986 to January
1992. Prior to that time, Mr. Shisler held several positions with K & B
Transport, Inc. He is Chairman of the Board of Nationwide Mutual Insurance
Company and serves on the board of directors of several members of the
Nationwide Insurance Enterprise. He is also a director of the National
Cooperative Business Association.
The Company's Board of Directors currently consists of ten directors,
divided into three classes. The initial term of the first class will expire at
the annual meeting of stockholders to be held in 1998, the initial term of the
second class will expire at the annual meeting of stockholders in 1999 and the
initial term of the third class will expire at the annual meeting of
stockholders in 2000. Messrs. Holloway, Patterson and Prothro are members of
the first class, Messrs. Fuellgraf, McFerson, McWhorter and Shisler are
members of the second class and Messrs. Gasper and Miller and Ms. Marshall are
members of the third class. At each annual meeting of stockholders, directors
will be elected for a three-year term to succeed the directors whose terms are
then to expire. Officers of the Company are elected annually and serve until
their retirement, resignation or removal.
The Company's Board of Directors has an Audit Committee currently consisting
of three directors, none of whom is an officer or employee of the Company. Ms.
Marshall and Messrs. McWhorter and Prothro are the
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<PAGE>
members of such committee. The Audit Committee recommends to the Board of
Directors the selection of independent certified public accountants to audit
annually the books and records of the Company, reviews the activities and the
reports of the independent certified public accountants and reports the
results of such review to the Board of Directors. The Audit Committee also
considers the adequacy of the Company's internal controls and internal
auditing methods and procedures. The Board of Directors has a Compensation
Committee currently consisting of three directors, none of whom is an officer
or employee of the Company, which, as authorized by the Board of Directors,
makes determinations with respect to non-cash compensation to officers,
directors and employees of the Company, including grants, options and awards
under the Company's 1996 Long-Term Equity Compensation Plan. Messrs.
Fuellgraf, McWhorter and Miller are the members of such committee. The Board
of Directors has an Executive Committee currently consisting of six directors,
which, to the extent authorized by the Board of Directors, exercises all the
powers and authority of the Board of Directors in the management of the
business and affairs of the Company. Messrs. Fuellgraf, Holloway, McFerson,
Miller, Paterson and Shisler are the members of such committee.
DIRECTOR COMPENSATION
Directors of the Company who are not employees of the Company or its
affiliates will receive an annual retainer of $50,000. Pursuant to the
Nationwide Financial Services, Inc. Stock Retainer Plan for Non-Employee
Directors, the annual retainer will be paid (i) $25,000 in cash and (ii) in
shares of Class A Common Stock having an aggregate market value of $25,000 as
of the date of payment. In addition, the Company will reimburse directors for
reasonable travel expenses incurred in attending meetings of the Board of
Directors and committees thereof.
In addition, directors of the Company who are not employees of the Company
or its affiliates also receive compensation for service on the boards of
directors of Nationwide Life and Nationwide Life and Annuity Insurance
Company. For the fiscal year ended December 31, 1996, Messrs. Fuellgraf,
Holloway, Miller, Patterson and Shisler received $8,820, $14,059, $13,783,
$10,949 and $13,621, respectively, for service to such companies.
Directors' Deferred Compensation Program
Nationwide Mutual and certain of its subsidiaries and affiliates, including
Nationwide Life, maintain a deferred compensation program applicable to
nonemployee members of their boards of directors (the "Directors' Deferred
Compensation Program"). Each director who has been elected to the board of
directors at least twice and has served for at least 3 years on the board of
directors of a participating company is entitled to monthly payments,
following termination of his or her service on the board of directors, of a
monthly amount equal to the monthly director's fee being received by that
director at the time of his or her retirement from the board of directors. The
number of monthly payments will equal the number of months the individual
served on the board of directors (other than months in which he or she was
also a salaried officer of the participating company). Messrs. Fuellgraf,
Holloway, Miller, Patterson and Shisler, the nonemployee members of the Board
of Directors of the Company, are also nonemployee members of the board of
directors of Nationwide Life.
Directors' Stock Retainer Plan
The Company has established the Nationwide Financial Services, Inc. Stock
Retainer Plan for Non-Employee Directors. As a means of solidifying the common
interests of the Company and its directors, pursuant to such plan, each
director of the Company will be paid half of the annual retainer fee in cash
and the other half in the form of shares of Class A Common Stock having an
equivalent fair market value as of the date of payment.
EXECUTIVE COMPENSATION
The Company was incorporated in November 1996. Pursuant to a cost sharing
agreement, the salaries and benefits of certain of the officers and employees
of the Company and its subsidiaries, including the Named Executive Officers
(as defined below), will be paid by Nationwide Mutual and reimbursed in
accordance with the terms of such agreement. See "Certain Relations and
Related Transactions--Existing Arrangements with the Nationwide Insurance
Enterprise--Cost Sharing Agreement."
The following summary compensation table sets forth information regarding
the compensation of the Chief Executive Officer and the other five most highly
compensated executive officers of the Company (collectively, the "Named
Executive Officers") for the fiscal year ended December 31, 1996 solely for
services rendered to the Company and its subsidiaries.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------- ------------
OTHER ANNUAL LTIP ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION PAYOUTS COMPENSATION
- --------------------------- -------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Dimon Richard
McFerson(1)............. $324,790 $80,058(2) $ -- (3) $149,803(4) $13,363(5)
Chairman and Chief
Executive
Officer--Nationwide
Insurance Enterprise
Joseph J. Gasper(6)...... 232,959 --(2) -- (3) --(4) 10,650(5)
President and Chief
Operating Officer
Executive Vice
President--
Chief Investment
Officer
Harvey S. Galloway, Jr... 247,520 69,901(2) -- (3) 74,100(4) 11,973(5)
Senior Vice President--
Chief Actuary--Life and
Annuities
Robert J. Woodward, Jr.
(1)..................... 222,784 59,399(2) -- (3) 64,698(4) 10,610(5)
Executive Vice
President--
Chief Investment
Officer
James E. Brock........... 217,520 59,620(2) -- (3) 65,100(4) 10,492(5)
Senior Vice President--
Company Operations
Richard A. Karas ........ 216,905 52,312(2) -- (3) 57,750(4) 10,059(5)
Senior Vice President--
Sales--Financial Serv-
ices
</TABLE>
- --------
(1) Figures in the table represent compensation received by such person solely
for his services rendered to the Company and its subsidiaries as allocated
pursuant to a cost sharing agreement. See "Certain Relationships and
Related Transactions--Existing Arrangements with the Nationwide Insurance
Enterprise--Cost Sharing Agreement."
(2) Represents the amount received by the Named Executive Officer under the
Management Incentive Plan in 1996 for the 1995 award year. See "--
Incentive Plans--Management Incentive Plan." Payout under such plan for
the 1996 award year is not available as of the date of this Prospectus.
(3) Aggregate perquisites and other personal benefits are less than the lower
of $50,000 or 10% of combined salary and bonus.
(4) Represents the amount received by the Named Executive Officer under the
Executive Incentive Plan in 1996 for the award period 1993 to 1995. See
"--Incentive Plans--Executive Incentive Plan." No payouts were made in
1996 under the Sustained Performance Incentive Plan. See "--Incentive
Plans--Sustained Performance Incentive Plan."
(5) Represents contributions made or credited by the Company in 1996 under the
Savings Plan (as defined herein) and the DC Supplemental Plan (as defined
herein). See "--Savings Plans."
(6) Represents compensation received by Mr. Gasper solely for his services
rendered to the Company in 1996 as allocated pursuant to a cost sharing
agreement. Prior to April 1996, Mr. Gasper was the Executive Vice
President--Property/Casualty Operations of Nationwide Mutual and received
compensation from Nationwide Mutual and its property/casualty insurance
subsidiaries for services rendered to such companies. Such compensation is
not reflected in the table.
INCENTIVE PLANS
Sustained Performance Incentive Plan
Prior to 1997, Nationwide Mutual and certain of its subsidiaries and
affiliates, including Nationwide Life, maintained the Sustained Performance
Incentive Plan (the "SPIP"). Under the SPIP, payments were made to
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<PAGE>
the Named Executive Officers and other senior officers of the participating
companies in each odd numbered calendar year based on the achievement of
measures tied to the performance of the Nationwide Insurance Enterprise over
the preceding four years. Performance measures were based on profitability,
growth and strategic objectives for the Nationwide Insurance Enterprise which
were established in advance by the boards of directors of the participating
companies. Under the SPIP, participants were granted target incentive amounts
that represented a percentage (10% to 20% depending on the participant's
position within the participating company) of the sum of the participant's
base salary for the last two years of the performance cycle. The actual amount
received by the participant ranged from zero to twice the target incentive
amount, depending solely on the achievement of the performance measures.
Nationwide Mutual and the participating subsidiaries and affiliates
terminated the SPIP at the close of calendar year 1996. If a payment under the
SPIP is made in 1997, covering performance measured for the period from 1993
to 1996, such payment will be made in cash as provided in the SPIP. To
facilitate the termination of the SPIP, the performance measurement period for
1995 to 1998 was closed at the end of calendar 1996. Payments made in 1997 for
such performance measurement period will be made in shares of restricted stock
of the Company under the Company's 1996 Long-Term Equity Compensation Plan.
Messrs. McFerson, Gasper, Galloway, Woodward, Brock and Karas will receive
23,602, 6,875, 4,282, 2,944 and 3,128 shares of restricted stock,
respectively.
Executive Incentive Plan
Nationwide Mutual and certain of its subsidiaries and affiliates, including
Nationwide Life, maintain the Executive Incentive Plan (the "EIP"). Under the
EIP, annual payments are made to the Named Executive Officers and certain
other officers of the participating companies based on the achievement of
measures tied to the performance of the Nationwide Insurance Enterprise and
the relevant operating company over the preceding three years. Performance
measures are based on profitability and growth objectives which are
established in advance by the Board of Directors of the participating company.
Under the EIP, the participant will be granted a target incentive amount that
represents a percentage (from 5% to 25% depending on the participant's
position within the participating company) of the participant's base salary.
The actual amount received by the participant will range from zero to twice
the target incentive amount, depending solely on the achievement of the
performance measures.
Management Incentive Plan
Nationwide Mutual and certain of its subsidiaries and affiliates, including
Nationwide Life, maintain the Management Incentive Plan (the "MIP"). Under the
MIP, annual payments are made to the Named Executive Officers and certain
other management employees of the participating companies based on the
achievement of measures tied to the performance of the Nationwide Insurance
Enterprise, the relevant operating company, the relevant business unit and the
individual participant over the preceding year. Performance measures are based
on profitability, growth, expense management and key strategic objectives
which are established in advance. Under the MIP, the participant will be
granted a target incentive amount that represents a percentage (from 5% to 15%
depending on the participant's position within the participating company) of
the participant's base salary. The actual amount received by the participant
under the MIP will range from zero to twice the target incentive amount,
depending solely on the achievement of the performance measures.
PENSION PLANS
Retirement Plan
Nationwide Mutual and certain of its subsidiaries and affiliates, including
Nationwide Life, maintain a qualified defined benefit plan, the Nationwide
Insurance Enterprise Retirement Plan (the "Retirement Plan"). In general, a
participant's annual retirement benefit under the Retirement Plan will be
equal to the sum of (i) 1.25% of the participant's Final Average Compensation
times years of service (to a maximum of 35 years) and (ii) 0.50% of the
participant's Final Average Compensation in excess of Social Security Covered
Compensation
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times years of service (to a maximum of 35 years). Final Average Compensation,
for the portion of the participant's benefit which is attributable to service
on or after January 1, 1996, is the average of the highest five consecutive
covered compensation amounts of the participant in the participant's last 10
years of service. For the portion of a participant's benefit attributable to
service prior to January 1, 1996, Final Average Compensation is the average of
the highest 3 consecutive covered compensation amounts of the participant in
the participant's last 10 years of service. Covered compensation, for purposes
of determining Final Average Compensation under either method, is calculated
on a calendar year basis and includes compensation from any member of the
Nationwide Insurance Enterprise. With respect to Messrs. Gasper, Galloway,
Brock and Karas, because each such officer's compensation is allocated solely
to the Company and its subsidiaries, covered compensation includes the
compensation listed under the headings Salary, Bonus and LTIP Payouts and a
portion of the compensation that is included under the heading Other Annual
Compensation shown in the Summary Compensation Table. Covered compensation for
Messrs. McFerson and Woodward includes the amounts set forth under such
headings and additional compensation amounts received for services rendered to
other members of the Nationwide Insurance Enterprise. Social Security Covered
Compensation means the average of the social security wage bases in effect
during the 35 year period ending with the last day of the year the participant
attains social security retirement age. The portion of a participant's benefit
attributable to years of service credited prior to 1996 is also subject to
post-retirement increases following the commencement of benefits or the
participant's attainment of age 65, whichever is later.
A participant becomes fully vested after the completion of five years of
vesting service. The Retirement Plan generally provides for payments to or on
behalf of each vested participant upon such participant's retirement on his or
her normal retirement date or later, although provision is made for payment of
early retirement benefits on a reduced basis commencing at age 55 for those
participants with 15 or more years of vesting service or at age 62 for those
with 5 or more years of vesting service. The normal retirement date under the
Retirement Plan is the later of the date the participant attains age 65 or
completes five years of vesting service. Death benefits are payable to a
participant's spouse or, under certain circumstances, the named beneficiary,
of a participant who dies with a vested benefit under the Retirement Plan or
while an employee. The Retirement Plan also provides for the funding of
retiree medical benefits under Section 401(h) of the IRC.
Excess and Supplemental Plans
Nationwide Mutual and certain of its subsidiaries and affiliates, including
Nationwide Life, maintain an unfunded, nonqualified defined benefit excess
benefit plan, the Nationwide Insurance Enterprise Excess Benefit Plan (the
"Excess Plan") and an unfunded, nonqualified defined benefit supplemental
benefit plan pursuant to which certain participants may receive a supplemental
retirement benefit, the Nationwide Insurance Enterprise Supplemental
Retirement Plan (the "Supplemental Plan"). Any participant whose benefits are
limited under the Retirement Plan by reason of limitations under Section 415
of the IRC on the maximum benefit that may be paid under the Retirement Plan
will receive, under the Excess Plan, that portion of the benefit that he or
she would have been entitled to receive under the Retirement Plan in the
absence of such limitations. Officers who earn in excess of $160,000 annually,
have at least 5 years of vesting service and whose benefits under the
Retirement Plan are limited by reason of other certain limitations under the
IRC, may receive benefits under the Supplemental Plan. Benefits under the
Supplemental Plan will be the sum of (i) 1.25% of the participant's Final
Average Compensation times years of service (up to a maximum of 40 years) and
(ii) 0.75% of the participant's Final Average Compensation in excess of Social
Security Covered Compensation times years of service (up to a maximum of 40
years) reduced by benefits accrued under the Retirement Plan and the Excess
Plan. The benefits under the Excess and Supplemental Plans vest at the same
time as benefits vest under the Retirement Plan.
The chart below indicates the estimated maximum annual retirement benefits
that a hypothetical participant would be entitled to receive under the
Retirement Plan (including payments made under the Excess and Supplemental
Plans as a result of limitations imposed by the IRC) computed on a straight-
life annuity basis, if retirement occurred at age 65 and the number of
credited years of service and Final Average Compensation equaled the amounts
indicated. For purposes of the chart, it is assumed that the Final Average
Compensation is
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the same whether measured over the three-year averaging period that applies to
service accumulated prior to 1996 or the five-year period that applies to
service accumulated after 1995. In actual operation, the total benefit
received under the Retirement Plan (including payments made under the Excess
and Supplemental Plans) would be the total of the benefit determined based on
years of service earned under each method.
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------
FINAL AVERAGE
COMPENSATION 15 20 25 30 35
- -------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000........................... $ 30,744 $ 40,992 $ 51,241 $ 61,489 $ 71,737
150,000........................... 41,898 55,864 69,830 83,795 97,761
175,000........................... 49,398 65,864 82,330 98,795 115,261
200,000........................... 56,898 75,864 94,830 113,795 132,761
225,000........................... 64,398 85,864 107,330 128,795 150,261
250,000........................... 71,898 95,864 119,830 143,795 167,761
300,000........................... 86,898 115,864 144,830 173,795 202,761
400,000........................... 116,898 155,864 194,830 233,795 272,761
450,000........................... 131,898 175,864 219,830 263,795 307,761
500,000........................... 146,898 194,864 244,830 293,795 342,761
</TABLE>
All Named Executive Officers have a portion of their benefit calculated
based on the post-1995 definition of Final Average Compensation. As of
December 31, 1995, the number of credited years of service under the
Retirement Plan for Messrs. McFerson, Gasper, Woodward, Galloway, Brock and
Karas was 23 years, 29.5 years, 32.7 years, 26.5 years, 26.5 years and 31.5
years, respectively. Mr. McFerson's credited years of service include,
pursuant to an agreement with Nationwide Mutual, 8.17 years in excess of those
actually earned through employment by the Nationwide Insurance Enterprise. The
benefit attributable to those additional years will be paid by Nationwide
Mutual (not the Retirement Plan) and is reduced by the benefit payable under
the retirement plan of Mr. McFerson's previous employer. Each of the Named
Executive Officers earned an additional year of service in 1996 and their
benefit for such year and all future years will be calculated under the new
definition of Final Average Compensation. Covered compensation paid by the
Company for the fiscal year ended December 31, 1996 for Messrs. McFerson,
Gasper, Woodward, Galloway, Brock and Karas was $444,217, $349,412, $348,003,
$392,313, $343,167 and $328,513, respectively.
SAVINGS PLANS
Savings Plan
Nationwide Mutual and certain of its subsidiaries and affiliates, including
Nationwide Life, maintain the Nationwide Insurance Enterprise Savings Plan
(the "Savings Plan"), a qualified profit sharing plan including a qualified
cash or deferred arrangement covering eligible employees of participating
companies within the Nationwide Insurance Enterprise. Under the Savings Plan,
participants who are not residents of Puerto Rico may elect to contribute
between 1% and 16% of their compensation to accounts established on their
behalf under the Savings Plan in the form of voluntary salary reductions on a
pre-tax basis and participants who are residents of Puerto Rico may make
contributions on an after-tax basis. The participating companies are obligated
to make matching employer contributions, for the benefit of their
participating employees, at the rate of 70% of the first 2% of compensation
deferred or contributed to the Savings Plan by each employee, and 40% of the
next 4% of compensation deferred or contributed by each employee to the
Savings Plan. All amounts contributed to the Savings Plan are held in a
separate account for each participant and are invested in one or more funds
made available under the Savings Plan and selected by the participant.
Normally, a participant receives the value of his or her account upon
termination of employment, although a participant may withdraw all or a part
of the amounts credited to his or her accounts during employment under certain
circumstances including attainment of age 59 1/2, or receive a loan of a
portion of his or her account balance. Under the Savings Plan, a participant
is immediately vested in all amounts credited to his or her account as a
result of salary deferrals (and earnings on
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those deferrals) or after-tax contributions (and earnings on those
contributions), as applicable. A participant is vested in amounts attributable
to employer matching contributions (and earnings on those contributions) over
a period of five years.
Supplemental Defined Contribution Plan
Nationwide Mutual and certain of its subsidiaries and affiliates, including
Nationwide Life, maintain an unfunded, nonqualified defined contribution
supplemental benefit plan, the Nationwide Insurance Enterprise Supplemental
Defined Contribution Plan (the "DC Supplemental Plan"), which provides
benefits, equal to employer matching contributions that would have been made
under the Savings Plan for the participants, in the absence of the IRC
limitations on compensation that can be considered and amounts that can be
deferred under the Savings Plan less actual matching contributions to the
Savings Plan in the absence of the limitations under IRC Sections 401(a)(17)
and 402(g), reduced by actual employer contributions made to the Savings Plan.
Participants are limited to those officers earning in excess of $160,000
annually. Benefits under the DC Supplemental Plan vest at the same time as
employer matching contributions vest under the Savings Plan.
DEFERRED COMPENSATION PROGRAM
Nationwide Mutual and certain of its subsidiaries and affiliates, including
Nationwide Life, maintain a deferred compensation program (the "Officers'
Deferred Compensation Program") pursuant to which officers of participating
companies may elect to defer payment of amounts otherwise payable to them. In
addition, participants receive credit for employer matching contributions
which were not made under the Savings Plan or DC Supplemental Plan and any
reduction in benefits under the Retirement Plan, Supplemental Plan or Excess
Plan as a result of salary or other deferrals under the Deferred Compensation
Program. An eligible officer is permitted to enter into a deferral agreement
pursuant to which such officer may annually elect to defer a portion of his or
her salary or his or her incentive compensation earned under the Management
Incentive Plan or Executive Incentive Plan during the following year. Any such
election is effective prospectively. Amounts deferred under the Officers'
Deferred Compensation Program plan will generally be payable in annual
installments beginning in January of the calendar year following the calendar
year in which the officer terminates employment. Amounts deferred under the
Officers' Deferred Compensation Program are credited with interest. The
interest rate is based on the fixed rate option in the Savings Plan.
SEVERANCE PAY PLAN
Nationwide Mutual and certain of its subsidiaries and affiliates, including
Nationwide Life, maintain the Nationwide Salaried Employees Severance Pay Plan
(the "Severance Plan"), an unfunded plan which provides severance benefits to
employees whose employment is involuntarily terminated due to unsatisfactory
job performance or job elimination without an offer of replacement employment
within the Nationwide Insurance Enterprise or with a successor employer.
Employees will not be entitled to benefits if their employment is terminated
as a result of theft, absenteeism, insubordination and other similar problems.
The benefit provided is a lump sum payment determined on the basis of years of
service completed (a minimum of 6 months of service is required) and salary,
with a maximum benefit of 8 weeks of salary plus an additional week of salary
for each full or partial year of service in excess of 11.
LONG-TERM EQUITY COMPENSATION PLAN
General
The Board of Directors of the Company has adopted, and Nationwide Corp., as
the sole stockholder of the Company has approved, the Nationwide Financial
Services, Inc. 1996 Long-Term Equity Compensation Plan (the "LTEP"). The
purpose of the LTEP is to benefit the stockholders of the Company by
encouraging high levels of performance by selected officers, directors and
employees of the Company and certain of its affiliates, attracting and
retaining the services of such individuals and aligning the interests of such
individuals with those of the stockholders.
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The LTEP grants the Compensation Committee of the Board of Directors of the
Company, which will administer the LTEP, flexibility in creating the terms and
restrictions deemed appropriate for particular awards as facts and
circumstances warrant. The LTEP is intended to constitute a nonqualified,
unfunded, unsecured plan for incentive and deferred compensation and is not
intended to be subject to any requirements of ERISA. The LTEP is intended to
satisfy the requirements of Section 16b-3 of the Exchange Act, and awards
under the LTEP which are performance-based are intended to qualify as
"performance-based compensation" for purposes of Section 162(m) of the IRC.
Types of Awards
The LTEP provides for the grant of any or all of the following types of
awards: (i) stock options, including incentive stock options and non-qualified
stock options, for shares of Class A Common Stock; (ii) stock appreciation
rights ("SARs"), either in tandem with stock options or freestanding; (iii)
restricted stock; and (iv) performance awards. Any stock option granted in the
form of an incentive stock option must satisfy the applicable requirements of
Section 422 of the IRC. Awards may be made to the same person on more than one
occasion and may be granted singly, in combination or in tandem as determined
by the Compensation Committee.
Term
The LTEP was effective as of December 11, 1996. No awards may be granted
under the LTEP after December 11, 2006, and the LTEP may be terminated by the
Board of Directors of the Company prior to such date. In the event of
expiration or earlier termination of the LTEP, the LTEP will remain in effect
until such time as all awards granted thereunder have been satisfied or have
expired. No new awards may by made under the LTEP after its expiration or
termination.
Administration
The LTEP will be administered by the Compensation Committee of the Board of
Directors of the Company. The Company intends that each member of the
Compensation Committee shall be a "nonemployee director" within the meaning
and for purposes of Rule 16b-3 under the Exchange Act and an "outside
director" within the meaning and for purposes of Section 162(m) of the IRC.
Under the LTEP, the Compensation Committee will have authority (i) to select
the employees, officers and directors of the Company and its affiliates to
receive awards; (ii) to determine the timing, form, amount or value and terms
of grants and awards, and the terms and conditions, if any, subject to which
grants and awards will be made and become payable under the LTEP, (iii) to
construe the LTEP and to prescribe rules and regulations with respect to the
administration of the LTEP and (iv) to make such other determinations
authorized under the LTEP as the Compensation Committee deems necessary or
appropriate.
Eligibility
All employees, officers and directors of the Nationwide Insurance Enterprise
are eligible to participate.
Shares Subject to the LTEP
The number of shares of Class A Common Stock which may be issued under the
LTEP, or as to which SARs or other awards may be granted, may not exceed 2.6
million.
In the event of any increases or decreases in the number of issued and
outstanding shares of Class A Common Stock pursuant to stock splits, mergers,
reorganizations, recapitalizations, stock dividends or other events described
under the terms of the LTEP, the Compensation Committee shall make appropriate
adjustments to the aggregate number of shares available for issuance under the
LTEP and the number of shares subject to outstanding grants or awards, to the
exercise price per share of outstanding stock options and to the number or
kinds of shares which may be distributed under the LTEP. The terms of stock
options, SARs, restricted stock and performance awards may also be subject to
adjustments by the Compensation Committee to reflect changes in the Company's
capitalization.
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Stock Options
The Compensation Committee may grant awards in the form of options to
purchase shares of Class A Common Stock. The Compensation Committee shall,
with regard to each stock option, determine the number of shares subject to
the option and the manner and time of the option's exercise; provided,
however, that the maximum number of shares of Class A Common Stock that may be
subject to stock options granted under the LTEP to an individual optionee
during any calendar year cannot exceed 100,000 shares (subject to appropriate
adjustment in the event of stock dividends, stock splits and certain other
events). The exercise price of a stock option may not be less than the fair
market value of the Class A Common Stock on the date the option is granted.
The Committee will designate each option as a non-qualified or an incentive
stock option. The option price upon exercise may, at the discretion of the
Committee, be paid by a participant in cash, shares of Class A Common Stock, a
"cashless exercise" or a combination thereof.
Prior to the consummation of the Equity Offerings, stock options will be
granted under the LTEP to the following Named Executive Officers at an
exercise price equal to the initial public offering price in the following
amounts:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAMED EXECUTIVE OFFICER SUBJECT TO OPTION
----------------------- -----------------
<S> <C>
Dimon Richard McFerson 40,000
Joseph J. Gasper 30,000
Robert J. Woodward, Jr. 10,000
Richard A. Karas 10,000
Harvey S. Galloway, Jr. 7,500
James E. Brock 7,500
</TABLE>
Additionally, 196,500 and 26,000 stock options will be granted in the
aggregate under the LTEP to other officers and directors, respectively, of the
Company and its subsidiaries.
Stock Appreciation Rights
The LTEP also authorizes the Compensation Committee to grant SARs either
independent of, or in connection with, a stock option. If granted with a stock
option, exercise of the SAR will result in the surrender of the right to
purchase the shares under the option to which the SAR was exercised. Upon
exercising an SAR, the holder receives for each share with respect as to which
the SAR is exercised, an amount equal to the difference between the exercise
price and the fair market value of Class A Common Stock on the date of
exercise. Payment of such amount may be made in shares of Class A Common
Stock, cash, or a combination thereof, as determined by the Compensation
Committee. The maximum number of shares of Class A Common Stock that may be
subject to SARs granted under the LTEP to an individual grantee during any
calendar year cannot exceed 100,000 shares (subject to appropriate adjustment
in the event of stock dividends, stock splits and certain other events).
Restricted Stock
The LTEP provides that shares of Class A Common Stock subject to certain
restrictions including restrictions on transferability may be awarded from
time to time as determined by the Compensation Committee. The Compensation
Committee will determine the nature and extent of the restrictions on such
shares, the duration of such restrictions and any circumstance under which
restricted shares will be forfeited by the participant. Subject to such
restrictions as the Compensation Committee shall determine, participants
holding shares of restricted stock may exercise full voting rights with
respect to such shares and may receive dividends payable to holders of such
shares. The maximum number of shares of Class A Common Stock that may be
granted in the form of restricted shares to an individual grantee during any
calendar year cannot exceed 100,000 shares (subject to appropriate adjustment
in the event of stock dividends, stock splits and certain other events).
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Prior to the consummation of the Equity Offerings, restricted stock will be
granted under the LTEP to the following officers of the Company in the
following amounts:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF RESTRICTED STOCK
NAMED EXECUTIVE OFFICER (3 YEAR RESTRICTION)
----------------------- --------------------
<S> <C>
Dimon Richard McFerson 15,000
Joseph J. Gasper 10,000
Richard A. Karas 4,000
Robert J. Woodward, Jr. 3,500
Harvey S. Galloway, Jr. 3,000
James E. Brock 3,000
</TABLE>
Additionally, 69,750 and 8,000 shares of restricted stock will be granted in
the aggregate under the LTEP to other officers and directors, respectively, of
the Company and its subsidiaries.
Performance Awards
The LTEP provides for the Compensation Committee to grant performance
awards, consisting of performance units and/or performance shares, to eligible
persons under the LTEP from time to time. The beginning value of performance
units is set by the Compensation Committee at the time of grant, while the
beginning value of performance shares is equal to the fair market value of the
shares of the Class A Common Stock at the time of grant. A performance award
will be contingent upon future performance by the Company or any subsidiary,
division or department thereof. The Compensation Committee shall establish at
the time of grant the relevant performance criteria. Performance periods may
overlap and participants may be awarded performance units and performance
shares having different performance criteria. Unless the Compensation
Committee otherwise determines, in the event of a participant's termination as
an employee or director before the end of any relevant performance period
(other than due to death, disability or retirement), the participant will not
be entitled to any performance award related to such period. Subject to the
discretion of the Compensation Committee, participants who have earned shares
of Class A Common Stock in connection with grants of performance awards may
exercise full voting rights with respect to such shares and may receive
dividends payable to holders of such shares. Payment of a performance award
may be made in cash, Class A Common Stock or a combination thereof, as
determined by the Committee. The benefit to the grantee of a performance award
is the difference between its beginning value and its value at the end of the
performance period. The maximum performance award that may be granted to an
individual grantee during any calendar year cannot exceed the value of 100,000
shares of Class A Common Stock (subject to appropriate adjustment in the event
of stock dividends, stock splits and certain other events).
Award Agreements
Each award under the LTEP will be evidenced by an agreement in such form and
containing such provisions consistent with the provisions of the LTEP as the
Compensation Committee from time to time approves. In applicable situations,
such agreements may include provisions to qualify as an incentive stock
option, or providing for the payment of the option price, in whole or in part,
by the delivery of a number of shares of Class A Common Stock (plus cash if
necessary) having a fair market value equal to the option price. Such
agreements may also include provisions relating to (i) vesting, (ii) tax
matters (including provisions covering any applicable employee wage
withholding requirements), and (iii) any other matters not inconsistent with
the terms and provisions of the LTEP that the Compensation Committee in its
sole discretion determines. The terms and conditions of award agreements need
not to be identical.
Amendment
The Board of Directors of the Company may at any time terminate or amend the
LTEP in any respect; provided, however, that no amendment which requires
stockholder approval in order for the LTEP to comply with Rule 16b-3 under the
Exchange Act shall be effective unless such amendment is approved by the
requisite
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number of stockholders of the Company entitled to vote thereon. No amendment
or termination of the LTEP shall, without the consent of the optionee or
participant in the LTEP, alter or impair the rights of such person under any
options or other awards theretofore granted under the LTEP.
Change of Control
Upon the occurrence of a Change in Control (as defined in the LTEP), (i) the
exercisability and vesting of stock appreciation rights and stock options
shall be accelerated, (ii) the restrictions and limitations applicable to any
restricted stock shall lapse, (iii) the target payout opportunities attainable
under all outstanding awards of restricted stock, performance units and
performance shares shall be deemed to have been fully earned for the entire
performance period, (iv) the vesting of restricted stock and performance
awards denominated in shares of Class A Common Stock will be accelerated and
(v) within 30 days following the effective date of the Change in Control, a
pro rata amount of any outstanding performance awards will be paid in cash to
participants, based upon an assumed achievement of all relevant performance
goals and upon the portion of the performance period which has elapsed prior
to the Change in Control.
OWNERSHIP OF CAPITAL STOCK
Prior to the consummation of the Equity Offerings, all of the outstanding
shares of Common Stock of the Company will be owned by Nationwide Corp. After
the Equity Offerings, Nationwide Corp. will own all of the outstanding shares
of the Class B Common Stock and none of the outstanding shares of the Class A
Common Stock. Such shares of the Class B Common Stock will represent 83.6% and
98.1% (81.6% and 97.8% if the Underwriters' over-allotment option is exercised
in full) of the total number of shares of Common Stock outstanding and the
combined voting power of the stockholders of the Company, respectively,
following the Equity Offerings.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EXISTING ARRANGEMENTS WITH THE NATIONWIDE INSURANCE ENTERPRISE
Organization of the Company
The Company was formed in November 1996 as a holding company for Nationwide
Life and the other companies within the Nationwide Insurance Enterprise that
offer or distribute long-term savings and retirement products. On September
24, 1996, Nationwide Life declared a dividend to Nationwide Corp. consisting
of the stock of those subsidiaries of Nationwide Life that do not operate in
the long-term savings and retirement market. On January 27, 1997, Nationwide
Corp. contributed to the Company all of the outstanding capital stock of
Nationwide Life and the other companies within the Nationwide Insurance
Enterprise that offer or distribute long-term savings and retirement products.
On December 31, 1996, Nationwide Life paid a $50.0 million cash dividend to
Nationwide Corp. In addition, prior to the consummation of the Equity
Offerings, Nationwide Life will dividend to the Company, and the Company will
subsequently dividend to Nationwide Corp., securities having an aggregate
market value of $850.0 million.
Effective as of January 1, 1996, Nationwide Life entered into a 100%
modified coinsurance agreement with Employers Life pursuant to which all of
Nationwide Life's nonvariable group and wholesale life insurance business and
group and franchise health insurance business was reinsured by Employers Life.
Nationwide Life also entered into a 100% modified coinsurance agreement with
Nationwide Mutual effective as of January 1, 1996, pursuant to which all of
Nationwide Life's individual accident and health insurance business was
reinsured by Nationwide Mutual. See "--Modified Coinsurance Agreements."
Following the Equity Offerings, Nationwide Corp. will be the controlling
stockholder of the Company. Upon completion of the Equity Offerings,
Nationwide Corp. will own all of the outstanding shares of the Class B Common
Stock representing 83.6% and 98.1% (81.6% and 97.8% if the Underwriters' over-
allotment option is exercised in full) of the total number of shares of Common
Stock outstanding and the combined voting power of the stockholders of the
Company.
Federal Income Taxes
Nationwide Mutual and its U.S. subsidiaries, including the Company and its
subsidiaries, file a consolidated federal income tax return. The members of
the consolidated group currently have a tax sharing arrangement which
provides, in effect, for each member to bear essentially the same federal
income tax liability as if separate tax returns were filed. For the years
ended December 31, 1996 and 1995, the Company made federal income tax payments
under the tax sharing arrangement of $117.3 million and $58.1 million,
respectively.
Legal Services
The attorneys in the Office of General Counsel of Nationwide Mutual also
operate as the law firm of Druen, Rath & Dietrich. Pursuant to a partnership
agreement, the firm limits its representation to the members of the Nationwide
Insurance Enterprise. The partnership was formed to assure compliance with
Ohio law that prohibits corporations from practicing law. Through a retainer
arrangement, an annual retainer fee is paid by each member of the Nationwide
Insurance Enterprise based upon an estimate of time spent by each attorney
working on legal matters related to the respective member during the previous
year. W. Sidney Druen, Senior Vice President and General Counsel of the
Company, is the senior partner in such firm, and all attorneys and other
employees of the firm are salaried employees of Nationwide Mutual. The firm
applies all of its retainer fees toward office overhead under a rental and
office expense agreement with Nationwide Mutual. For the years ended December
31, 1996 and 1995, the Company paid the firm $2.0 million and $1.7 million,
respectively, for legal services rendered to the Company which amounts were
immediately remitted to Nationwide Mutual.
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Lease
Pursuant to an arrangement between Nationwide Mutual and certain of its
subsidiaries, the Company leases approximately 512,000 square feet of office
space at One Nationwide Plaza, Two Nationwide Plaza and Three Nationwide
Plaza, Columbus, Ohio, at a current market rate of $19.53 per square foot,
with limited exceptions. Under the arrangement, the Company determines the
amount of office space necessary to conduct its operations and leases such
space from Nationwide Mutual, subject to availability. For the years ended
December 31, 1996 and 1995, the Company made payments to Nationwide Mutual and
its subsidiaries totaling $10.0 million and $9.9 million, respectively, under
such arrangement.
Modified Coinsurance Agreements
Effective as of January 1, 1996, Nationwide Life entered into a 100%
modified coinsurance agreement with Employers Life. Under the agreement,
Nationwide Life cedes to Employers Life, and Employers Life assumes,
Nationwide Life's nonvariable group and wholesale life insurance business and
group and franchise health insurance business and any ceded or assumed
reinsurance applicable to such group business. For the year ended December 31,
1996, Nationwide Life ceded $224.3 million of premium to Employers Life.
Effective as of January 1, 1996, Nationwide Life also entered into a 100%
modified coinsurance agreement with Nationwide Mutual. Under the agreement,
Nationwide Life cedes to Nationwide Mutual, and Nationwide Mutual assumes,
Nationwide Life's individual accident and health insurance business and any
ceded or assumed reinsurance applicable to such business. For the year ended
December 31, 1996, Nationwide Life ceded $97.3 million of premium to
Nationwide Mutual.
Nationwide Life entered into these reinsurance agreements because the
accident and health and group life insurance business was unrelated to the
Company's long-term savings and retirement products. Under the modified
coinsurance agreements, invested assets are retained by the ceding company and
investment earnings are paid to the reinsurer. Under the terms of such
agreements, the investment risk associated with changes in interest rates is
borne by Employers Life or Nationwide Mutual, as the case may be. Risk of
asset default is retained by the Company, although a fee is paid by Employers
Life or Nationwide Mutual, as the case may be, to the Company for the
Company's retention of such risk. The contracts will remain in force until all
policy obligations are settled. However, with respect to the agreement between
Nationwide Life and Nationwide Mutual, either party may terminate the contract
on January 1 of any year with prior notice. The Company believes that the
terms of such modified coinsurance contracts are consistent in all material
respects with what the Company could have obtained with unaffiliated parties.
Total premiums ceded under the reinsurance agreements were $321.6 million
during 1996. The effect of the reinsurance agreements was an increase in the
Company's income before federal income tax expense of $4.5 million during
1996.
Cost Sharing Agreement
Pursuant to a cost sharing agreement among Nationwide Mutual and certain of
its direct and indirect subsidiaries, including the Company, Nationwide Mutual
provides certain operational and administrative services, such as sales
support, advertising, personnel and general management services, to those
subsidiaries. Expenses covered by such agreement are subject to allocation
among Nationwide Mutual and such subsidiaries. Under such agreement, for the
years ended December 31, 1996 and 1995, the Company made payments to
Nationwide Mutual totaling $101.6 million and $107.1 million, respectively.
Under the cost sharing agreement, expenses are allocated in accordance with
NAIC guidelines and are based on standard allocation techniques and procedures
acceptable under general cost accounting practices. Measures used to allocate
expenses include individual employee estimates of time spent, special cost
studies, salary expense, commissions expense and other measures that are
agreed to by the participating companies and are within regulatory and
industry guidelines and practices. The cost sharing agreement will remain in
effect following the Equity Offerings until terminated upon the consent of
both Nationwide Mutual and the Company.
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Cash Management Agreements
Nationwide Mutual has entered into separate Investment Agency Agreements
with California Cash Management Company ("CCMC") and Nationwide Cash
Management Company ("NCMC"), each an affiliate of the Company. Pursuant to the
terms of such agreements, CCMC and NCMC make, hold and administer short-term
investments (those maturing in one year or less) for Nationwide Mutual and
certain of its affiliates, including Nationwide Life and certain of the
Company's other subsidiaries. Under each agreement, expenses of CCMC or NCMC,
as the case may be, are allocated pro rata among the participants based upon
the participant's ownership percentage of total assets held by CCMC or NCMC.
For the years ended December 31, 1996 and 1995, the Company paid CCMC and NCMC
fees and expenses totaling $0.5 million and $0.5 million, respectively, under
such agreements.
Benefit Plans
The Company participates in the common employee benefit programs with
Nationwide Mutual and its subsidiaries. Included in these programs are
accident and health benefits, disability income benefits and life insurance
benefits. The Company ultimately pays for all benefits provided to its
employees under the benefit program plus an administrative processing fee,
reduced by employee contributions. The administrative processing fee paid by
the Company approximated $1.0 million and $0.7 million for the years ended
December 31, 1996 and 1995, respectively.
The Company also participates, along with Nationwide Mutual and its
subsidiaries and affiliates, in life insurance and health care benefit plans
for qualifying retirees. Such plans are funded in amounts determined at the
discretion of management of the Company based on current and anticipated
future costs. Contributions to the plan by the participating companies are
primarily invested in group annuity contracts of Nationwide Life.
Contributions by the Company approximated $1.6 million and $1.4 million for
the years ended December 31, 1996 and 1995, respectively.
Repurchase Agreement
Nationwide Life and certain of the Company's other subsidiaries are party to
a master repurchase agreement pursuant to which securities or other financial
instruments are transferred between parties against the transfer of funds by
the transferee for a period of time ending on a specific date or upon the
demand of the transferor.
NEW AGREEMENTS WITH THE NATIONWIDE INSURANCE ENTERPRISE
Set forth below are descriptions of certain agreements between the Company
and other members of the Nationwide Insurance Enterprise that will become
effective upon the consummation of the Equity Offerings.
Tax Sharing Agreement
The Company is, and after the Capital Security Offering will continue to be,
included in the consolidated United States federal income tax return for which
Nationwide Mutual is the common parent and the Company's tax liability will be
included in the consolidated federal income tax liability of Nationwide
Mutual. The Company also may be included in certain state and local tax
returns of Nationwide Mutual or its subsidiaries.
The Company will enter into the Tax Sharing Agreement which will become
effective for 1996 and subsequent years, as long as the Company is included in
Nationwide Mutual's consolidated federal income tax return. It will also be
effective for any year in which the Company is included in a consolidated or
combined state or local tax return. Under the Tax Sharing Agreement,
Nationwide Mutual will compute its federal tax on a consolidated basis, and
its state and/or local taxes on a combined basis (in those states or other
jurisdictions in which Nationwide Mutual files a combined return for such
year). Each corporation that is included in the consolidated and/or combined
return shall compute its federal, state, and/or local tax liability on a
separate basis, and the federal, state, and/or local tax liability of each
corporation shall be determined by applying the Percentage Method for
allocating tax liability, all as set forth in Treas. Reg. 1.1502-33(d)(3),
using a fixed percentage of
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100%. Pursuant to that regulation, each corporation's federal income tax
liability will be equal to the consolidated federal income tax liability
(including any amounts determined to be due as a result of a redetermination
of the tax liability of the consolidated group of which Nationwide Mutual is
the common parent, whether arising from any audit or otherwise, but in all
instances without regard to the alternative minimum tax) of Nationwide Mutual
times a fraction, the numerator of which is the federal tax liability of such
corporation determined on a separate basis, and the denominator of which is
the aggregated federal tax liability of all corporations in the consolidated
group, determined on a separate basis. Any corporation that has no federal
income tax liability when computed on a separate basis is ignored for purposes
of allocating the consolidated tax liability. The state and local tax
liability, in those states or other jurisdictions in which a combined return
is filed, shall be determined in a manner consistent with the foregoing
description. The Company will pay its tax liability, as computed above, to
Nationwide Mutual. The Company will be responsible for all taxes, including
assessments, if any, for prior years with respect to all other taxes payable
by the Company or any of its subsidiaries, and for all other federal, state
and local taxes that may be imposed upon the Company and that are not
addressed in the Tax Sharing Agreement.
By virtue of its control of the Company and the terms of the Tax Sharing
Agreement, Nationwide Mutual effectively will control all of the Company's tax
decisions. Under the Tax Sharing Agreement, Nationwide Mutual will have sole
authority to respond to and conduct all tax proceedings (including tax audits)
relating to the Company, to file all returns on behalf of the Company and to
determine the amount of the Company's liability to (or entitlement to payment
from) Nationwide Corp. under the Tax Sharing Agreement. This arrangement may
result in conflicts of interest between the Company and Nationwide Mutual. For
example, under the Tax Sharing Agreement, Nationwide Mutual may choose to
contest, compromise or settle any adjustment or deficiency proposed by the
relevant tax authority in a manner that may be beneficial to Nationwide Mutual
and detrimental to the Company. Under the Tax Sharing Agreement, however,
Nationwide Mutual is obligated to act in good faith with regard to all persons
included in the applicable returns.
The Tax Allocation Agreement may not be amended without the prior written
consent of the Company.
Intercompany Agreement
The Company, Nationwide Mutual and Nationwide Corp. will enter into the
Intercompany Agreement, certain provisions of which are summarized below. As
used herein, "Nationwide Mutual" means Nationwide Mutual collectively with its
subsidiaries and affiliates (other than the Company and its subsidiaries).
Nationwide Mutual Consent to Certain Events. The Intercompany Agreement will
provide that until Nationwide Mutual and its affiliates cease to control at
least 50% of the combined voting power of the outstanding voting stock of the
Company, the prior written consent of Nationwide Mutual will be required for:
(i) any consolidation or merger of the Company or any of its subsidiaries with
any person (other than with a wholly owned subsidiary); (ii) any sale, lease,
exchange or other disposition or acquisition of assets by the Company or any
of its subsidiaries (other than transactions to which the Company and its
subsidiaries are the only parties), or any series of related dispositions or
acquisitions, involving consideration in excess of $250 million; (iii) any
change in the authorized capital stock of the Company or the creation of any
additional class or series of capital stock of the Company; (iv) any issuance
by the Company or any subsidiary of the Company of any equity securities or
rights, warrants or options to purchase such equity securities, except (a) up
to 2.6 million shares of Class A Common Stock pursuant to employee and
director stock option, profit sharing and other benefit plans of the Company
and its subsidiaries and any options exercisable therefor, (b) shares of Class
A Common Stock issued upon the conversion of any Class B Common Stock, (c) the
issuance of shares of capital stock of a wholly owned subsidiary of the
Company to the Company or another wholly owned subsidiary of the Company and
(d) in the Equity Offerings; (v) the dissolution, liquidation or winding up of
the Company; (vi) the amendment of the Certificate and certain provisions of
the Bylaws affecting corporate governance; (vii) the election, removal or
filling of a vacancy in the office of the Chairman or Chief Executive Officer
or President of the Company; (viii) the declaration of dividends on any class
or series of capital stock of the Company, except dividends not in excess of
the most recent regular cash dividend or any dividend per share not in excess
of 15% of the then current per share market price of the Class A Common Stock;
(ix) capital expenditures or series of
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related capital expenditures of the Company or any of its subsidiaries in
excess of $250 million during any period of 12 consecutive months; (x) the
creation, incurrence or guaranty by the Company or any of its subsidiaries of
indebtedness for borrowed money in excess of $100 million, except the Note
Offering and the Capital Securities Offering; and (xi) any change in the
number of directors on the Board of Directors of the Company, the
determination of members of the Board of Directors or any committee thereof
and the filling of newly created memberships and vacancies on the Board of
Directors or any committee thereof.
License to Use Nationwide Name and Service Marks. Pursuant to the
Intercompany Agreement, Nationwide Mutual will grant to the Company and
certain of its subsidiaries a non-exclusive, non-assignable, revocable license
to use the "Nationwide" trade name and certain other service marks
specifically identified in the Intercompany Agreement (collectively, the
"Service Marks") solely for the purpose of identifying and advertising the
Company's long-term savings and retirement business and activities related to
such business. The Intercompany Agreement will provide, among other things,
that, subject to Nationwide Mutual's ability to revoke such license in the
circumstances described below, such license will remain in effect for at least
five years following the Equity Offerings. Thereafter, the Intercompany
Agreement provides that, subject to certain exceptions, Nationwide Mutual will
only have the option to revoke such license on one year's notice if Nationwide
Corp. and its affiliates no longer own at least 50% of the combined voting
power of the outstanding capital stock of the Company. Upon revocation of such
license, the Company and its subsidiaries will be required to discontinue use
of the Service Marks and to change the Company's name to exclude the word
"Nationwide." In addition, the Intercompany Agreement will provide that the
Company and its subsidiaries will not, without the prior written consent of
Nationwide Mutual, take any action with respect to (i) any litigation or
proceeding involving the Service Marks, (ii) any change in the Company's
names, logos and other identifications that might reasonably be expected to
adversely affect the Service Marks or (iii) any advertising campaigns or
strategies that use the Service Marks or that refer to any member of the
Nationwide Insurance Enterprise that are inconsistent with Nationwide Mutual's
guidelines and standards. Nationwide Mutual has the right to revoke the
license under certain circumstances relating to advertising, promotion or use
of the Service Marks in a manner contrary to Nationwide Mutual guidelines and
standards. In addition, Nationwide Mutual can revoke any of the Company's
subsidiaries' use of the Service Marks if there is a change of control of any
such subsidiary of the Company that is licensed to use the Service Marks. A
revocation by Nationwide Mutual of the license to use the Service Marks could
have a material adverse effect on the Company.
Equity Purchase Rights. The Company will agree that, to the extent permitted
by the NYSE and so long as Nationwide Mutual controls at least 50% of the
combined voting power of the outstanding voting stock of the Company,
Nationwide Corp. may purchase its pro rata share (based on its then current
percentage voting interest in the Company) of any voting equity securities to
be issued by the Company (excluding any such securities offered pursuant to
employee stock options or other benefit plans, divided reinvestment plans and
other offerings other than for cash) (the "Equity Purchase Rights").
Registration Rights. The Company will grant to Nationwide Corp. certain
demand and "piggyback" registration rights with respect to shares of Common
Stock owned by it. Nationwide Corp. has the right to request up to two demand
registrations in each calendar year, but not more than four in any five-year
period. Nationwide Corp. will also have the right, which it may exercise at
any time and from time to time, to include the shares of Common Stock held by
it in any registration of common equity securities of the Company initiated by
the Company on its own behalf or on behalf of any other stockholders of the
Company. These rights will be subject to certain "blackout" provisions. Such
registration rights will be transferable by Nationwide Corp. The Company will
agree to pay all costs and expenses in connection with each such registration,
except underwriting discounts and commissions applicable to the shares of
Common Stock sold by Nationwide Corp. The Intercompany Agreement will contain
customary terms and provisions with respect to, among other things,
registration procedures and certain rights to indemnification granted by
parties thereunder in connection with the registration of Common Stock on
behalf of Nationwide Mutual.
Indemnification. The Intercompany Agreement will provide that the Company
will indemnify Nationwide Mutual and its respective officers, directors,
employees and agents (collectively, the "Indemnitees") against
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losses based on, arising out of or resulting from (i) the use of the Service
Marks and (ii) any acts or omissions arising out of performances of the
Intercompany Agreement by the Company and its subsidiaries. In addition, the
Company will agree to indemnify the Indemnitees against certain civil
liabilities, including liabilities under the Securities Act, relating to
misstatements in or omissions from the Registration Statement of which this
Prospectus forms a part and any other registration statement that the Company
files under the Securities Act (other than misstatements or omissions made in
reliance on information relating to and furnished by any member of Nationwide
Mutual for use in the preparation thereof, against which Nationwide Mutual has
agreed to indemnify the Company). Nationwide Mutual also will agree to
indemnify the Company and its subsidiaries and each of their respective
officers, directors, employees and agents against losses based on, arising out
of or resulting from any breach by Nationwide Corp. or Nationwide Mutual of
the Intercompany Agreement and certain other specifically identified matters.
Nationwide Insurance Enterprise Insurance Agents. In the Intercompany
Agreement, Nationwide Mutual will agree to allow the Company to distribute its
variable annuity, fixed annuity and individual universal, variable and
traditional life insurance products through Nationwide Insurance Enterprise
insurance agents. Such right is exclusive to the Company, subject to the
limited right of certain other members of the Nationwide Insurance Enterprise
to sell such products through the agency force, for at least five years
following the Equity Offerings. Thereafter, the Intercompany Agreement
provides that Nationwide Mutual will only have the option to terminate the
Company's right to distribute products through Nationwide Insurance Enterprise
insurance agents on one year's notice if Nationwide Corp. and its affiliates
no longer own at least 50% of the combined voting power of the outstanding
voting stock of the Company. The termination of such right could have an
adverse effect on the Company's ability to distribute certain of its products.
In 1996, 5.8% of the Company's statutory premiums and deposits were
attributable to products sold by Nationwide Insurance Enterprise insurance
agents.
Amendment. The Intercompany Agreement may not be amended without the prior
written consent of the Company and certain material provisions thereof may not
be amended without the approval of a majority of the directors of the Company
who are not officers or directors of members of the Nationwide Insurance
Enterprise other than the Company and its subsidiaries.
Lease Agreement
The Company will enter into a Lease Agreement with Nationwide Mutual which
will provide that Nationwide Mutual will continue to lease to the Company the
premises currently occupied by the Company on terms consistent with prior
allocation practices. See "--Existing Arrangements with the Nationwide
Insurance Enterprise--Lease." The initial term of the Lease Agreement is for
12 months and automatically renews upon the same terms and conditions unless
either Nationwide Mutual or the Company gives 30 days' written notice to the
other party prior to the end of such 12-month period. The Lease Agreement may
not be amended without the prior written consent of the Company.
FUTURE TRANSACTIONS WITH THE NATIONWIDE INSURANCE ENTERPRISE
In the future, the Company may enter into agreements with members of the
Nationwide Insurance Enterprise that will not be the result of arm's-length
negotiations between independent parties. Conflicts of interest could arise in
the future with respect to transactions involving members of the Nationwide
Insurance Enterprise, on the one hand, and the Company, on the other hand. Any
such transactions that are material to the Company will be subject to approval
by a vote of disinterested members of the Company's Board of Directors. In
addition, under the Ohio insurance holding company laws, arrangements and
agreements between the Company's insurance subsidiaries and other members of
the Nationwide Insurance Enterprise must be fair and equitable and may be
subject to the approval of the Superintendent of Insurance of the State of
Ohio. The Credit Facility requires that any transaction between the Company
and any of its affiliates be on an arm's-length basis on terms at least as
favorable to the Company as could have been obtained from a third party which
is not an affiliate. See "Business--Regulation."
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DESCRIPTION OF THE CAPITAL SECURITIES
The following summary of the material terms and provisions of the Capital
Securities does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the Declaration, a copy of the form of which is
filed as an exhibit to the Registration Statement of which this Prospectus is
a part, the Trust Act and the Trust Indenture Act. The Capital Securities will
be issued pursuant to the terms of the Declaration. At the time the
Registration Statement becomes effective, the Declaration will be qualified as
an indenture under the Trust Indenture Act. Wilmington Trust Company will act
as Property Trustee under the Declaration. The Property Trustee will act as
indenture trustee for the Declaration for purposes of compliance with the
Trust Indenture Act. The terms of the Capital Securities will include those
stated in the Declaration, including those required to be made part of the
Declaration by the Trust Indenture Act. Capitalized terms not otherwise
defined herein have the meanings assigned to them in the Declaration.
GENERAL
The Declaration authorizes the Regular Trustees to issue on behalf of the
Trust, the Trust Securities, which represent undivided beneficial interests in
the assets of the Trust. The Capital Securities entitle the holders thereof to
a preference in certain circumstances with respect to distributions and
amounts payable on redemption or liquidation over the Common Securities, as
well as other benefits, as described in the Declaration.
All of the Common Securities will be owned by the Company. The Common
Securities rank pari passu, and payments will be made thereon pro rata, with
the Capital Securities except as described under "--Subordination of Common
Securities." The Junior Subordinated Debentures will be owned by the Property
Trustee and held for the benefit of the holders of the Trust Securities. The
Guarantee does not guarantee payment of distributions or amounts payable on
redemption or liquidation of the Capital Securities when the Trust does not
have funds available to make such payments. The Company, however, has, through
the Guarantee and certain back-up obligations, consisting of obligations of
the Company to provide certain indemnities in respect of, and pay and be
responsible for, certain expenses, costs, liabilities and debts of the Trust
as set forth in the Declaration, the Indenture and the Junior Subordinated
Debentures, taken together, fully and unconditionally guaranteed all of the
Trust's obligations under the Capital Securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these
documents that has the effect of providing a full and unconditional guarantee
of the Trust's obligations under the Capital Securities. See "Description of
the Guarantee" and "Effect of Obligations Under the Junior Subordinated
Debentures, the Guarantee and the Declaration."
DISTRIBUTIONS
Distributions on the Capital Securities will be fixed at a rate per annum of
% of the stated liquidation amount of $1,000 per Capital Security. Deferred
distributions (and interest thereon) will (to the extent permitted by
applicable law) accrue interest (compounded semi-annually) at the same rate.
The term "distributions" as used herein includes any such interest payable
unless otherwise stated. The amount of distributions payable for any period
will be computed on the basis of a 360-day year of twelve 30-day months and,
for any period of less than a full calendar month, the number of days elapsed
in such month.
Distributions on the Capital Securities will be cumulative, will accrue from
the date of initial issuance and will be payable semi-annually in arrears on
and of each year, commencing , 1997, when, as and
if available for payment by the Property Trustee, except as otherwise
described below.
The Company has the right under the Indenture, so long as no Event of
Default (or event which would be an Event of Default with the giving of
required notice or passage of time) has occurred and is continuing, to defer
interest payments from time to time on the Junior Subordinated Debentures for
a Deferral Period not exceeding 10 consecutive semi-annual periods, and, as a
consequence, semi-annual distributions on the Capital Securities would be
deferred by the Trust (although to the extent permitted by law, such
distributions would continue to accrue interest since interest would continue
to accrue on the Junior Subordinated Debentures) during
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any such Deferral Period. In the event that the Company exercises this right,
during such period, the Company (i) shall not declare or pay dividends on,
make distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than
stock dividends paid by the Company which consist of stock of the same class
as that on which the dividend is being paid or purchases or acquisitions of
shares of Common Stock in connection with the satisfaction by the Company of
its obligations under any employee benefit plans), (ii) shall not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by the Company that rank pari passu with or
junior to the Junior Subordinated Debentures, and (iii) shall not make any
guarantee payments with respect to the foregoing (other than pursuant to the
Guarantee). Prior to the termination of any Deferral Period, the Company may
further extend such Deferral Period, so long as no Event of Default (or an
event which would be an Event of Default with the giving of required notice or
the passage of time) has occurred and is continuing; provided, that such
Deferral Period as extended may not exceed 10 consecutive semi-annual periods
and may not extend beyond the maturity date of the Junior Subordinated
Debentures. Upon the termination of any Deferral Period, the Company is
required to pay all amounts then due and, upon such payment, the Company may
select a new Deferral Period, subject to the above requirements. Consequently,
there could be multiple Deferral Periods of varying lengths prior to the
maturity date of the Junior Subordinated Debentures. See "Description of the
Junior Subordinated Debentures-- Interest" and "--Option to Extend Interest
Payment Period." If distributions are deferred, the deferred distributions and
accrued interest thereon shall be paid to holders of record of the Capital
Securities as they appear on the books and records of the Trust on the record
date for distributions due at the end of such Deferral Period.
Distributions on the Capital Securities must be paid semi-annually on the
dates payable to the extent of funds of the Trust available for the payment of
such distributions. Amounts available to the Trust for distribution to the
holders of the Capital Securities will be limited to payments under the Junior
Subordinated Debentures in which the Trust will invest the proceeds from the
issuance and sale of the Trust Securities. See "Description of the Junior
Subordinated Debentures." The payment of distributions on the Capital
Securities is guaranteed by the Company, to the extent of funds held by the
Trust, as set forth under "Description of the Guarantee."
Distributions on the Capital Securities will be payable to the holders
thereof as they appear on the books and records of the Trust on the relevant
record dates, which will be the first day of the month in which the relevant
payment date falls. Subject to any applicable laws and regulations and the
provisions of the Declaration, each such payment will be made as described
under "--Book-Entry-Only Issuance--The Depository Trust Company" below. In the
event that any date on which distributions are payable on the Capital
Securities is not a Business Day, payment of the distribution payable on such
date will be made on the next succeeding day which is a Business Day (without
any distribution or other payment in respect of any such delay) except that,
if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with the
same force and effect as if made on such date. A "Business Day" shall mean any
day other than a day on which banking institutions in New York, New York or
Wilmington, Delaware are authorized or required by law to close.
MANDATORY REDEMPTION
The Junior Subordinated Debentures will mature on , 2037 and are
redeemable by the Company (i) in whole at any time or in part from time to
time at par plus the applicable Make-Whole Premium or (ii) under certain
circumstances, in whole, within 90 days following the occurrence of a Tax
Event, at par, plus, in the case of clause (i) or (ii) above, accrued and
unpaid interest thereon to the date fixed for redemption. Upon the repayment
or payment of the Junior Subordinated Debentures, whether at maturity or upon
redemption or otherwise, the Trust must use the proceeds from such repayment
or redemption to redeem Trust Securities having an aggregate liquidation
amount equal to the aggregate principal amount of Junior Subordinated
Debentures so repaid or redeemed at the Redemption Price (except, in the event
of a redemption following a Tax Event, the Redemption Price shall not include
the Make-Whole Premium); provided that holders of the Trust Securities shall
be given not less than 30 nor more than 60 days' notice of such redemption.
See "--Tax Event Distribution" and "Description of the Junior Subordinated
Debentures--Optional Redemption." In the event that fewer than
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all of the outstanding Trust Securities are to be redeemed, the Trust
Securities will be redeemed pro rata to each holder according to the aggregate
liquidation amount of Trust Securities held by the relevant holder in relation
to the aggregate liquidation amount of all Trust Securities outstanding. See
"--Book-Entry Issuance--The Depository Trust Company" below for a description
of DTC's procedures in the event of redemption.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES UPON LIQUIDATION OF THE TRUST
At any time, the Company will have the right to terminate the Trust and,
after satisfaction of the liabilities of creditors of the Trust as provided by
applicable law, cause the Junior Subordinated Debentures to be distributed to
the holders of the Trust Securities in liquidation of the Trust. The
distribution of Junior Subordinated Debentures upon any dissolution of the
Trust is conditioned upon the receipt by the Regular Trustees of an opinion of
counsel by independent tax counsel experienced in such matters to the effect
that the holders of the Capital Securities will not recognize any gain or loss
for United States federal income tax purposes as a result of the dissolution
of the Trust and such distribution of Junior Subordinated Debentures. A
dissolution of the Trust in which holders of the Capital Securities receive
cash would be a taxable event to such holders. See "--Distribution of Cash
Upon Liquidation of the Trust" and "United States Federal Income Taxation--
Receipt of Junior Subordinated Debentures or Cash Upon Liquidation of the
Trust."
The Trust shall automatically terminate upon the first to occur: (i) certain
events of bankruptcy, dissolution or liquidation of the Company; (ii) the
distribution of Junior Subordinated Debentures with an aggregate principal
amount equal to the aggregate stated liquidation amount of, with an interest
rate identical to the distribution rate of, and accrued and unpaid interest
equal to accrued and unpaid distributions on, the Trust Securities, if the
Company has given direction to the Property Trustee to terminate the Trust
(which direction is optional and, except as described below, wholly within the
discretion of the Company); (iii) redemption of all of the Capital Securities
as described under "--Mandatory Redemption" above; (iv) expiration of the term
of the Trust; and (v) the entry of an order for the dissolution of the Trust
by a court of competent jurisdiction.
If a termination occurs as described in clause (i), (iv), or (v) of the
preceding paragraph, the Trust shall be liquidated by the Regular Trustees as
expeditiously as the Regular Trustees determine to be possible by
distributing, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, to each holder of the Capital Securities, Junior
Subordinated Debentures with an aggregate principal amount equal to the
aggregate stated liquidation amount of, with an interest rate identical to the
distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid distributions on, the Capital Securities.
If the Company either elects not to or is unable to liquidate the Trust and
distribute the Junior Subordinated Debentures to holders of the Trust
Securities, the Trust Securities will remain outstanding until the repayment
of the Junior Subordinated Debentures on their maturity.
After the date fixed for any distribution of Junior Subordinated Debentures
upon liquidation of the Trust (i) the Capital Securities will no longer be
deemed to be outstanding, and (ii) DTC or its nominee, as the record holder of
the Capital Securities, will receive a registered global certificate or
certificates representing the Junior Subordinated Debentures to be delivered
upon such distribution.
There can be no assurance as to the market prices for either the Capital
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Capital Securities. Accordingly, the Capital Securities that an
investor may purchase, or the Junior Subordinated Debentures that the investor
may receive on dissolution and liquidation of the Trust, may trade at a
discount to the price that the investor paid to purchase the Capital
Securities offered hereby.
DISTRIBUTION OF CASH UPON LIQUIDATION OF THE TRUST
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each a "Liquidation"), the then
holders of the Trust Securities will be entitled to receive on a pro rata
basis
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solely out of the assets of the Trust, after satisfaction of liabilities to
creditors of the Trust as provided by applicable law, distributions in an
amount equal to the aggregate of the stated liquidation amount of $1,000 per
Capital Security plus any additional amount payable upon redemption of the
Junior Subordinated Debentures as a result of the Make-Whole Premium and
accrued and unpaid distributions thereon to the date of payment (the
"Liquidation Distribution"), unless, in connection with such Liquidation,
Junior Subordinated Debentures are distributed as provided above in "--
Distribution of Junior Subordinated Debentures Upon Liquidation of the Trust."
If, upon any such Liquidation, the Liquidation Distribution can be paid only
in part because the Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Capital Securities shall be paid on a pro rata basis. The holders
of the Common Securities will be entitled to receive distributions upon any
such dissolution pro rata with the holders of the Capital Securities, except
that if a Declaration Event of Default has occurred and is continuing, the
Capital Securities shall have a preference over the Common Securities with
regard to such distributions.
TAX EVENT DISTRIBUTION
"Tax Event" means that the Regular Trustees shall have obtained an opinion
of nationally recognized independent tax counsel (reasonably acceptable to the
Regular Trustees) experienced in such matters (a "Dissolution Tax Opinion") to
the effect that, as a result of (a) any amendment to, or change (including any
announced prospective change, provided that a Tax Event shall not occur more
than 90 days before the effective date of any such prospective change) in, the
laws or any regulations thereunder of the United States or any political
subdivision or taxing authority thereof or therein or (b) any official
administrative pronouncement or judicial decision interpreting or applying
such laws or regulations by any legislative body, court, governmental agency
or regulatory authority (including the enactment of any legislation and the
publication of any judicial decision or regulatory determination on or after
the date of original issuance of the Capital Securities), which amendment or
change is effective or which pronouncement or decision is announced on or
after the date of original issuance of the Capital Securities, there is more
than an insubstantial risk that (i) the Trust is or will be subject to United
States federal income tax with respect to interest received on the Junior
Subordinated Debentures, (ii) interest payable in cash to the Trust on the
Junior Subordinated Debentures is not, or will not be, deductible, in whole or
in part, by the Company for United States federal income tax purposes or (iii)
the Trust is or will be subject to more than a de minimis amount of other
taxes, duties, assessments or other governmental charges.
If, at any time, a Tax Event shall occur and be continuing, the Trust shall,
except in the limited circumstances described below, be dissolved with the
result that the Junior Subordinated Debentures with an aggregate principal
amount equal to the aggregate stated liquidation amount of, with an interest
rate identical to the distribution rate of, and accrued and unpaid interest
equal to accrued and unpaid distributions on, the Trust Securities, will be
distributed to the holders of the Trust Securities in liquidation of such
holders' interests in the Trust on a pro rata basis within 90 days following
the occurrence of such Tax Event; provided, however, that such dissolution and
distribution shall be conditioned on (i) the Regular Trustees' receipt of an
opinion of nationally recognized independent tax counsel experienced in such
matters (a "No Recognition Opinion"), which opinion may rely on published
revenue rulings of the Internal Revenue Service, to the effect that the
holders of the Trust Securities will not recognize any gain or loss for United
States federal income tax purposes as a result of such dissolution and
distribution of Junior Subordinated Debentures and (ii) the Company being
unable to avoid such Tax Event within such 90 day period by taking some
ministerial action or pursuing some other reasonable measure that will have no
adverse effect on the Trust, the Company or the holders of the Trust
Securities. Furthermore, if after receipt of a Dissolution Tax Opinion by the
Regular Trustees (i) the Company has received an opinion (a "Redemption Tax
Opinion") of nationally recognized independent tax counsel experienced in such
matters that, as a result of a Tax Event, there is more than an insubstantial
risk that the Company would be precluded from deducting the interest on the
Junior Subordinated Debentures for United States federal income tax purposes,
even after the Junior Subordinated Debentures were distributed to the holders
of Trust Securities in liquidation of such holders' interests in the Trust as
described above, or (ii) the Regular
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Trustees shall have been informed by such tax counsel that it cannot deliver a
No Recognition Opinion to the Trust, the Company shall have the right, upon
not less than 30 nor more than 60 days' notice, to redeem the Junior
Subordinated Debentures at par plus accrued and unpaid interest thereon to the
date fixed for redemption, in whole or in part, for cash within 90 days
following the occurrence of such Tax Event, and, following such redemption,
Trust Securities with an aggregate liquidation amount equal to the aggregate
principal amount of the Junior Subordinated Debentures so redeemed shall be
redeemed by the Trust at the Redemption Price on a pro rata basis; provided,
however, that (i) no Make-Whole Premium shall be payable in connection with a
redemption of Junior Subordinated Debentures upon the occurrence of a Tax
Event and (ii) if at the time there is available to the Company or the Trust
the opportunity to eliminate, within such 90 day period, the Tax Event by
taking some ministerial action, such as filing a form or making an election or
pursuing some other similar reasonable measure that has no adverse effect on
the Trust, the Company or the holders of the Trust Securities, the Company or
the Trust will pursue such measure in lieu of redemption.
On February 6, 1997, the Proposal was released. The Proposal would, among
other things, deny deductions for interest on a debt instrument issued by a
corporation with a maximum weighted average maturity of more than 40 years or
which has a maximum term of more than 15 years and is not shown as
indebtedness on the separate balance sheet of the issuer. An instrument would
not be shown as indebtedness on a balance sheet merely because it was
described as indebtedness in footnotes or other narrative disclosures. The
Proposal would apply only to corporations which file annual financial
statements with the Commission, and the relevant balance sheet would be the
balance sheet filed with the Commission. The Proposal would be effective
generally for instruments issued on or after the date of first committee
action. As currently drafted, the Proposal could affect the Junior
Subordinated Debentures unless the Junior Subordinated Debentures were issued
prior to the first date of any committee action. In addition, the Proposal
could be enacted with retroactive effect. If the Proposal is enacted so as to
apply to the Junior Subordinated Debentures, the Company would not be entitled
to an interest deduction with respect to the Junior Subordinated Debentures.
There can be no assurance that current or future legislative proposals or
final legislation will not give rise to a Tax Event, which would permit the
Company to cause a redemption of the Junior Subordinated Debentures or a
distribution of the Junior Subordinated Debentures in a Liquidation.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the date fixed for redemption to each holder of Junior
Subordinated Debentures to be redeemed at its registered address. Unless the
Company defaults in payment of the Redemption Price, on and after the date
fixed for redemption interest ceases to accrue on such Junior Subordinated
Debentures called for prepayment.
If the Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, the Company will pay as
additional amounts on the Junior Subordinated Debentures the Additional Sums.
"Additional Sums" means such additional amounts as may be necessary in order
that the amount of distributions then due and payable by the Trust on the
outstanding Capital Securities and Common Securities shall not be reduced as a
result of any additional taxes, duties or other governmental charges to which
the Trust has become subject as a result of a Tax Event.
REDEMPTION PROCEDURES
The Trust Securities will not be redeemed unless all accrued and unpaid
distributions have been paid on all Trust Securities for all semi-annual
distribution periods terminating on or prior to the date of redemption.
If the Trust gives a notice of redemption in respect of Trust Securities
(which notice will be irrevocable), then, by 12:00 noon, New York time, on the
redemption date, the Trust will irrevocably deposit with DTC funds sufficient
to pay the amount payable on redemption and will give DTC irrevocable
instructions and authority to pay such amount to the beneficial owners of
Capital Securities so redeemed. Notwithstanding the foregoing, distributions
payable on or prior to the redemption date for any Trust Securities called for
redemption shall be payable to the holders of such Trust Securities on the
relevant record dates for the related distribution dates. If notice of
redemption shall have been given and funds are deposited as required, then
upon the date of such deposit, all rights of holders of such Trust Securities
so called for redemption will cease, except the right of the
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holders of such Trust Securities to receive the Redemption Price, but without
interest on such Redemption Price. In the event that any date fixed for
redemption of Trust Securities is not a Business Day, then payment of the
amount payable on such date will be made on the next succeeding day which is a
Business Day (without any interest or other payment in respect of any such
delay), except that, if such Business Day falls in the next calendar year,
such payment will be made on the immediately preceding Business Day. In the
event that payment of the Redemption Price in respect of Trust Securities is
improperly withheld or refused and not paid either by the Trust or by the
Company pursuant to the Guarantee described under "Description of the
Guarantee," distributions on such Trust Securities will continue to accrue at
the then applicable rate, from the original redemption date to the date of
payment, in which case the actual payment date will be considered the date
fixed for redemption for purposes of calculating the amount payable upon
redemption (other than for purposes of calculating any premium).
In the event that fewer than all of the outstanding Capital Securities are
to be redeemed, the Capital Securities will be redeemed as described below
under "--Book-Entry-Only Issuance--The Depository Trust Company."
Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), the Company or its subsidiaries may at
any time and from time to time purchase outstanding Capital Securities by
tender, in the open market or by private agreement.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the amount payable upon redemption of, the
Trust Securities, as applicable, shall be made pro rata based on the
liquidation amount of the Trust Securities; provided, however, that, if on any
distribution date or redemption date a Declaration Event of Default shall have
occurred and be continuing, no payment of any distribution on, or amount
payable upon redemption of, any Common Security, and no other payment on
account of the redemption, liquidation or other acquisition of Common
Securities, shall be made unless payment in full in cash of all accumulated
and unpaid distributions on all outstanding Capital Securities for all
distribution periods terminating on or prior thereto, or in the case of
payment of the amount payable upon redemption of the Capital Securities, the
full amount of such amount in respect of all outstanding Capital Securities
shall have been made or provided for, and all funds available to the Property
Trustee shall first be applied to the payment in full in cash of all
distributions on, or the amount payable upon redemption of, Capital Securities
then due and payable.
In the case of any Declaration Event of Default, the holder of Common
Securities will be deemed to have waived any such Declaration Event of Default
until the effect of all such Declaration Events of Default with respect to the
Capital Securities have been cured, waived or otherwise eliminated. Until any
such Declaration Events of Default with respect to the Capital Securities have
been so cured, waived or otherwise eliminated, the Property Trustee shall act
solely on behalf of the holders of the Capital Securities and not the holders
of the Common Securities, and only the holders of the Capital Securities will
have the right to direct the Property Trustee to act on their behalf.
MERGER, CONSOLIDATION OR AMALGAMATION OF THE TRUST
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other entity or person,
except as described below. The Trust may with the consent of a majority of the
Regular Trustees, and without the consent of, among others, the holders of the
Capital Securities, consolidate, amalgamate, merge with or into, or be
replaced by, a trust organized as such under the laws of any state of the
United States of America or of the District of Columbia; provided that (i) if
the Trust is not the surviving entity, such successor entity either (x)
expressly assumes all of the obligations of the Trust under the Trust
Securities or (y) substitutes for the Trust Securities other securities (the
"Successor Securities") having substantially the same terms as the Capital
Securities or the Common Securities, as the case may be, as long as the
respective Successor Securities rank, with respect to participation in the
profits and distributions or in the assets of the successor entity, at least
as high as the corresponding Trust Securities rank with respect to
participation in the profits and dividends or in the
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assets of the Trust, (ii) the Company expressly acknowledges such successor
entity as the holder of the Junior Subordinated Debentures, (iii) the Capital
Securities or any corresponding Successor Securities are listed, or any
corresponding Successor Securities will be listed upon notification of
issuance, on any national securities exchange or other organization on which
the Capital Securities are then listed, (iv) such merger, consolidation,
amalgamation or replacement does not cause the Capital Securities (including
any corresponding Successor Securities) to be downgraded by any nationally
recognized statistical rating organization, (v) such merger, consolidation,
amalgamation or replacement does not adversely affect the powers, preferences
and other special rights of the holders of the Capital Securities (including
any corresponding Successor Securities) in any material respect, (vi) such
successor entity has a purpose substantially identical to that of the Trust,
(vii) the Company has provided a guarantee to the holders of the corresponding
Successor Securities with respect to such successor entity having substantially
the same terms as the Guarantee and (viii) prior to such merger, consolidation,
amalgamation or replacement, the Company has received an opinion of a
nationally recognized independent counsel (reasonably acceptable to the
Property Trustee) to the Trust experienced in such matters to the effect that
(x) such successor entity will be treated as a grantor trust for United States
federal income tax purposes, (y) following such merger, consolidation,
amalgamation or replacement, neither the Company nor such successor entity will
be required to register as an investment company under the Investment Company
Act of 1940, as amended (the "1940 Act"), and (z) such merger, consolidation,
amalgamation or replacement will not adversely affect the rights, preferences
and privileges of the holders of the Capital Securities (including any
corresponding Successor Securities) in any material respect. Notwithstanding
the foregoing, the Trust shall not, except with the consent of holders of 100%
in liquidation amount of the Common Securities, consolidate, amalgamate, merge
with or into, or be replaced by any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it, if such
consolidation, amalgamation, merger or replacement would cause the Trust or any
successor entity to be classified as other than a grantor trust for United
States federal income tax purposes.
EVENTS OF DEFAULT AND DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Event of Default") or a default
by the Company under the Guarantee constitutes an event of default under the
Declaration with respect to the Capital Securities (a "Declaration Event of
Default"); provided that, pursuant to the Declaration, the holders of the
Common Securities will be deemed to have waived any Declaration Event of
Default with respect to the Common Securities until all Declaration Events of
Default with respect to the Capital Securities have been cured, waived or
otherwise eliminated. Until all such Declaration Events of Default with respect
to the Capital Securities have been so cured, waived or otherwise eliminated,
the Property Trustee will be deemed to be acting solely on behalf of the
holders of the Capital Securities and only the holders of the Capital
Securities will have the right to direct the Property Trustee with respect to
certain matters under the Declaration and, therefore, the Indenture.
As long as the Capital Securities are outstanding, upon the occurrence of an
Event of Default, the Property Trustee, as the sole holder of the Junior
Subordinated Debentures, will have the right under the Indenture to declare the
principal of and interest on the Junior Subordinated Debentures to be
immediately due and payable. The Company and the Trust are each required to
file annually with the Property Trustee an officer's certificate as to its
compliance with all conditions and covenants under the Declaration.
In addition to any other right of the holders of the Capital Securities
provided in the Declaration if the Property Trustee fails to enforce its rights
with respect to the Junior Subordinated Debentures held by the Trust, any
holder of Capital Securities may institute legal proceedings directly against
the Company to enforce the Property Trustee's rights under such Junior
Subordinated Debentures without first instituting any legal proceedings against
such Property Trustee or any other person or entity. Notwithstanding the
foregoing, if a Declaration Event of Default has occurred and is continuing and
such event is attributable to the failure of the Company to pay interest or
principal on the Junior Subordinated Debentures issued to the Trust on the date
such interest or principal is otherwise payable, then a holder of Capital
Securities may institute a proceeding directly against the Company for
enforcement of payment to the holder of the Capital Securities of the principal
of or interest on the Junior Subordinated Debentures on or after the respective
due dates specified in the Junior Subordinated Debentures (taking into account
any Deferral Periods).
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VOTING RIGHTS
Except as described below, under the Trust Act and under "Description of the
Guarantee--Amendments and Assignment," and as otherwise required by law and
the Declaration, the holders of the Capital Securities will have no voting
rights.
Subject to the requirement of the Property Trustee obtaining a tax opinion
in certain circumstances set forth in the last sentence of this paragraph, the
holders of a majority in aggregate liquidation amount of the Capital
Securities have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Property Trustee, or direct the
exercise of any trust or power conferred upon the Property Trustee under the
Declaration, including the right to direct the Property Trustee, as holder of
the Junior Subordinated Debentures, to (i) exercise the remedies available
under the Indenture with respect to the Junior Subordinated Debentures, (ii)
waive any past Event of Default that is waiveable under the Indenture or
otherwise, (iii) exercise any right to rescind or annul a declaration that the
principal of all the Junior Subordinated Debentures shall be due and payable,
or (iv) consent to any amendment, modification or termination of the Indenture
or such Junior Subordinated Debentures, where such consent shall be required;
provided, however, that, where a consent or action under the Indenture would
require the consent or act of the holders of more than a majority of the
aggregate principal amount of Junior Subordinated Debentures affected thereby,
only the holders of the percentage of the aggregate stated liquidation amount
of the Capital Securities which is at least equal to the percentage required
under the Indenture may direct the Property Trustee to give such consent or
take such action. The Property Trustee shall not revoke any action previously
authorized or approved by a vote of the holders of the Capital Securities
except by subsequent vote of the holders of the Capital Securities. A holder
of Capital Securities may also directly institute a proceeding on behalf of
the Trust for enforcement of payment to the Trust of the principal of or
premium, if any, or interest on the Junior Subordinated Debentures on or after
the respective due dates specified in the Indenture. The holders of the
Capital Securities would not be able to exercise directly any other remedies
available to the holder of the Junior Subordinated Debentures unless the
Property Trustee or the Indenture Trustee, acting for the benefit of the
Property Trustee, fails to do so. In such event, the holders of at least 25%
in aggregate liquidation amount of outstanding Capital Securities would have a
right to institute such proceedings. The Property Trustee shall notify all
holders of the Capital Securities of any notice of default received from the
Indenture Trustee with respect to the Junior Subordinated Debentures. Such
notice shall state that such Event of Default also constitutes a Declaration
Event of Default. Except with respect to directing the time, method and place
of conducting a proceeding for a remedy, the Property Trustee shall not take
any of the actions described in clause (i), (ii), (iii) or (iv) above unless
the Property Trustee has obtained an opinion of tax counsel to the effect
that, as a result of such action, the Trust will not fail to be classified as
a grantor trust for United States federal income tax purposes.
In the event the consent of the Property Trustee, as the holder of the
Junior Subordinated Debentures, is required under the Indenture with respect
to any amendment, modification or termination of the Indenture, the Property
Trustee shall request the direction of the holders of the Trust Securities
with respect to such amendment, modification or termination and shall vote
with respect to such amendment, modification or termination as directed by a
majority in liquidation amount of the Trust Securities voting together as a
single class; provided, however, that, where a consent under the Indenture
would require the consent of the holders of more than a majority of the
aggregate principal amount of the Junior Subordinated Debentures, the Property
Trustee may only give such consent at the direction of the holders of at least
the same proportion in aggregate stated liquidation amount of the Trust
Securities. The Property Trustee shall not take any such action in accordance
with the directions of the holders of the Trust Securities unless the Property
Trustee has obtained an opinion of tax counsel to the effect that for United
States federal income tax purposes the Trust will not be classified as other
than a grantor trust.
A waiver of an Event of Default under the Indenture will constitute a waiver
of the corresponding Declaration Event of Default.
Any required approval or direction of holders of Capital Securities may be
given at a separate meeting of holders of Capital Securities convened for such
purpose, at a meeting of all of the holders of Trust Securities or pursuant to
written consent. The Regular Trustees will cause a notice of any meeting at
which holders of Capital
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Securities are entitled to vote, or of any matter upon which action by written
consent of such holders is to be taken, to be mailed to each holder of record
of Capital Securities. Each such notice will include a statement setting forth
the following information: (i) the date of such meeting or the date by which
such action is to be taken; (ii) a description of any resolution proposed for
adoption at such meeting on which such holders are entitled to vote or of such
matter upon which written consent is sought; and (iii) instructions for the
delivery of proxies or consents. No vote or consent of the holders of Capital
Securities will be required for the Trust to redeem and cancel Capital
Securities or distribute Junior Subordinated Debentures in accordance with the
Declaration.
Notwithstanding that holders of Capital Securities are entitled to vote or
consent under any of the circumstances described above, none of the Capital
Securities that are owned at such time by the Company or any entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, the Company, shall be entitled to vote or consent and shall, for
purposes of such vote or consent, be treated as if such Capital Securities were
not outstanding.
The procedures by which holders of Capital Securities may exercise their
voting rights are described below. See "--Book-Entry-Only Issuance--The
Depository Trust Company" below.
Holders of the Capital Securities will have no rights to appoint or remove
the Regular Trustees, who may be appointed, removed or replaced only by the
Company as the indirect or direct holder of all of the Common Securities. If a
Declaration Event of Default has occurred and is continuing, the holders of a
majority in liquidation amount of the Capital Securities voting as a class
shall have the sole right to remove the Property Trustee.
MODIFICATION OF THE DECLARATION
The Declaration may be amended from time to time by the Regular Trustees,
without the consent of the holders of the Trust Securities (i) to cure any
ambiguity, correct or supplement any provisions in the Declaration that may be
defective or inconsistent with any other provision, (ii) to add to the
covenants, restrictions or obligations of the Company, (iii) to conform to any
change in Rule 3a-5 of the 1940 Act or written change in interpretation or
application of Rule 3a-5 of the 1940 Act by any legislative body, court,
government agency or regulatory authority, (iv) to modify, eliminate or add to
any provisions of the Declaration to such extent as shall be necessary to
ensure that the Trust will be classified for United States federal income tax
purposes as a grantor trust at all times that any Capital Securities and Common
Securities are outstanding; provided, however, that in the case of (iii) and
(iv), such amendment shall not adversely affect in any material respect the
interests of any holder of Capital Securities or Common Securities. In
addition, if any proposed amendment to the Declaration provides for (a) any
action that would adversely affect the powers, preferences or special rights of
the holders of the Capital Securities or the Common Securities, whether by way
of amendment to the Declaration or otherwise, or (b) the dissolution, winding-
up or termination of the Trust, other than as described in the Declaration,
then the holders of outstanding Trust Securities as a single class, will be
entitled to vote on such amendment or proposal (but not on any other amendment
or proposal) and such amendment or proposal shall not be effective except (1)
with the approval of the holders of at least 66 2/3% in liquidation amount of
the Trust Securities, voting as a single class and (2) upon receipt by the
Regular Trustees of an opinion of counsel to the effect that such amendment or
the exercise of any power granted to the Regular Trustees in accordance with
such amendment will not affect the Trust's status as a grantor trust for United
States federal income tax purposes or the Trust's exemption from status as an
"investment company" under the 1940 Act; provided, however, if any amendment or
proposal referred to in clause (a) above would adversely affect only the
Capital Securities or only the Common Securities, then only the affected class
will be entitled to vote on such amendment or proposal and such amendment or
proposal shall not be effective except with the approval of 66 2/3% in
liquidation amount of such class.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified as other than a grantor trust for United States federal income
tax purposes, (ii) reduce or otherwise adversely affect the powers of the
Property Trustee in contravention of the Trust Indenture Act of 1939 or (iii)
cause the Trust to be deemed an "investment company" which is required to be
registered under the 1940 Act.
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BOOK-ENTRY-ONLY ISSUANCE--THE DEPOSITORY TRUST COMPANY
DTC will act as securities depository for the Capital Securities. The
Capital Securities will initially be issued only as fully-registered
securities registered in the name of Cede & Co. (DTC's nominee). One or more
fully registered global Capital Security certificates will be issued,
representing in the aggregate the total number of Capital Securities, and will
be deposited with DTC.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in Capital Securities represented
by a global certificate.
DTC has advised the Company and the Trust that DTC is a limited-purpose
trust company organized under the New York Banking Law, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code, and a "clearing agency" registered pursuant to
the provisions of Section 17A of the Exchange Act. DTC holds securities that
its participants ("Participants") deposit with DTC. DTC also facilitates the
settlement of securities transactions among Participants through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the NYSE, the American
Stock Exchange, Inc., and the National Association of Securities Dealers, Inc.
Access to the DTC system is also available to others such as securities
brokers and dealers, banks and trust companies that clear transactions
through, or maintain a custodial relationship with, a Direct Participant,
either directly or indirectly ("Indirect Participants"). The rules applicable
to DTC and its Participants are on file with the Commission.
Purchases of Capital Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Capital
Securities on DTC's records. The ownership interest of each actual purchaser
of each Capital Security (a "Beneficial Owner") is in turn to be recorded on
the records of the Direct Participants and Indirect Participants. Beneficial
Owners will not receive written confirmation from DTC of their purchases, but
Beneficial Owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the Direct Participants or Indirect Participants through which the
Beneficial Owners purchased Capital Securities. Transfers of ownership
interests in the Capital Securities are to be accomplished by entries made on
the books of Participants acting on behalf of Beneficial Owners. Beneficial
Owners will not receive certificates representing their ownership interests in
Capital Securities, except in the event that use of the book-entry system for
the Capital Securities is discontinued.
The deposit of Capital Securities with DTC and their registration in the
name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Capital Securities; DTC's
records reflect only the identity of the Direct Participants to whose accounts
such Capital Securities are credited, which may or may not be the Beneficial
Owners. The Participants are responsible for keeping account of their holdings
on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed
by arrangements among the respective parties, subject to any statutory or
regulatory requirements as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Capital Securities are being redeemed, DTC will reduce pro rata the amount of
the interest of each Direct Participant in such Capital Securities to be
redeemed in accordance with its procedures.
Although voting with respect to the Capital Securities is limited to the
holders of record of the Capital Securities, in those cases where a vote is
required, neither DTC nor Cede & Co. will itself consent or vote with respect
to Capital Securities. Under its usual procedures, DTC would mail an Omnibus
Proxy to the Trust as
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soon as possible after the record date. The Omnibus Proxy assigns the
consenting or voting rights of Cede & Co. to those Direct Participants to
whose accounts the Capital Securities are credited on the record date
(identified in a listing attached to the Omnibus Proxy). The Company and the
Trust believe that the arrangements among DTC, Direct and Indirect
Participants, and Beneficial Owners will enable the Beneficial Owners to
exercise rights equivalent in substance to the rights that can be directly
exercised by a holder of a beneficial interest in the Trust.
Distribution payments on the Capital Securities will be made by the Trust to
DTC. DTC's practice is to credit Direct Participants' accounts on the relevant
payment date in accordance with their respective holdings shown on DTC's
records unless DTC has reason to believe that it will not receive payments on
such payment date. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices and will be the
responsibility of such Participant and not of DTC, the Trust or the Company,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of distributions to DTC is the responsibility of the
Trust, disbursement of such payments to Direct Participants is the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners is the responsibility of Direct Participants and Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Capital Security
certificate will not be entitled to receive physical delivery of Capital
Securities. Accordingly, each Beneficial Owner must rely on the procedures of
DTC to exercise any rights under the Capital Securities.
DTC may discontinue providing its services as securities depository with
respect to the Capital Securities at any time by giving reasonable notice to
the Trust. Under such circumstances, in the event that a successor securities
depository is not obtained, Capital Securities certificates are required to be
printed and delivered. Additionally, the Regular Trustees (with the consent of
the Company) could decide to discontinue use of the system of book-entry
transfers through DTC (or a successor depository) with respect to the Capital
Securities. In that event, certificates for the Capital Securities will be
printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company and the Trust believe to be
reliable, but the Trust and the Company assume no responsibility for the
accuracy thereof. Neither the Trust nor the Company assume any responsibility
for the performance by DTC or its Participants of their respective obligations
as described herein or under the rules and procedures governing their
respective operations.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a Declaration Event of
Default, undertakes to perform only such duties as are specifically set forth
in the Declaration and, after such a default, shall exercise the same degree
of care as a prudent individual would exercise in the conduct of his or her
own affairs. Subject to such provisions, the Property Trustee is under no
obligation to exercise any of the powers vested in it by the Declaration at
the request of any holder of Capital Securities, unless offered reasonable
security and indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby. The holders of Capital Securities
will not be required to offer such security and indemnity in the event such
holders, by exercising their voting rights, direct the Property Trustee to
take action following a Declaration Event of Default. Wilmington Trust
Company, which is acting as the Property Trustee, the Delaware Trustee and the
Guarantee Trustee, is also serving as the trustee in connection with the Note
Offering.
GOVERNING LAW
The Declaration and the Capital Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
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MISCELLANEOUS
The Regular Trustees are authorized and directed to conduct the affairs of
and to operate the Trust in such a way that the Trust will not be deemed to be
an "investment company" required to be registered under the 1940 Act nor
characterized as other than a grantor trust for federal income tax purposes
and so that the Junior Subordinated Debentures will be treated as indebtedness
of the Company for United States federal income tax purposes. In this
connection, the Regular Trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust or the Declaration
that the Regular Trustees determine in their discretion to be necessary or
desirable for such purposes as long as such action does not adversely affect
the interests of the holders of the Trust Securities.
Holders of the Capital Securities have no preemptive rights.
The Trust may not borrow money, issue debt or reinvest profits derived from
investments or pledge any of its assets.
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DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of the material terms and provisions of the
Guarantee which will be executed and delivered by the Company for the benefit
of the holders from time to time of the Capital Securities. The summary does
not purport to be complete and is subject in all respects to the provisions
of, and is qualified in its entirety by reference to, the Guarantee, a copy of
the form of which is filed as an exhibit to the Registration Statement of
which this Prospectus forms a part, and the Trust Indenture Act. At the time
the Registration Statement becomes effective, the Guarantee will be qualified
as an indenture under the Trust Indenture Act. Wilmington Trust Company will
act as the Guarantee Trustee. Wilmington Trust Company, as the Guarantee
Trustee, will hold the Guarantee for the benefit of the holders of the Capital
Securities. The terms of the Guarantee will include those stated in the
Guarantee including those required to be made part of the Declaration by the
Trust Indenture Act.
GENERAL
The Company will irrevocably agree, to the extent set forth herein, to pay
in full on a subordinated basis, to the holders of the Capital Securities, the
Guarantee Payments (as defined herein), as and when due, regardless of any
defense, right of set off or counterclaim that the Trust may have or assert.
The following payments with respect to the Capital Securities, to the extent
not paid by or on behalf of the Trust (the "Guarantee Payments"), will be
subject to the Guarantee (without duplication): (i) any accrued and unpaid
distributions which are
required to be paid on the Capital Securities to the extent of funds held by
the Trust, (ii) the amount payable upon redemption of the Capital Securities,
to the extent of funds held by the Trust, with respect to any Capital
Securities called for redemption by the Trust and (iii) upon a Liquidation
(other than in connection with the distribution of Junior Subordinated
Debentures to the holders of the Capital Securities in exchange for Capital
Securities as provided in the Declaration), the lesser of (a) the aggregate of
the liquidation amount and all accrued and unpaid distributions on the Capital
Securities to the date of payment, to the extent of funds held by the Trust,
and (b) the amount of assets of the Trust remaining available for distribution
to holders of Capital Securities upon the Liquidation. The Company's
obligation to make a Guarantee Payment may be satisfied by direct payment of
the required amounts by the Company to the holders of Capital Securities or by
causing the Trust to pay such amounts to such holders.
Because the Guarantee is a guarantee of payment and not of collection,
holders of the Capital Securities may proceed directly against the Company as
guarantor, rather than having to proceed against the Trust before attempting
to collect from the Company, and the Company waives any right or remedy to
require that any action be brought against the Trust or any other person or
entity before proceeding against the Company. Such obligations will not be
discharged except by payment of the Guarantee Payments in full.
If the Company fails to make interest payments on the Junior Subordinated
Debentures or pay amounts payable upon the redemption, acceleration or
maturity of the Junior Subordinated Debentures, the Trust will have
insufficient funds to pay distributions on or to pay amounts payable upon the
redemption or repayment of the Capital Securities. The Guarantee does not
cover payment of distributions or the amount payable upon redemption or
repayment in respect of the Capital Securities when the Trust does not have
sufficient funds to pay such distributions or such amount. The Company has
through the Guarantee, and certain back-up obligations, consisting of
obligations of the Company to provide certain indemnities in respect of, and
pay and be responsible for, certain expenses, costs, liabilities and debts of
the Trust as set forth in the Declaration, the Indenture and the Junior
Subordinated Debentures, taken together, fully and unconditionally guaranteed
all of the Trust's obligations under the Capital Securities. No single
document standing alone or operating in conjunction with fewer than all of the
other documents constitutes such guarantee. It is only the combined operation
of these documents that has the effect of providing a full and unconditional
guarantee of the Trust's obligations under the Capital Securities. See "Effect
of Obligations Under the Junior Subordinated Debentures and the Guarantee."
CERTAIN COVENANTS OF THE COMPANY
In the Guarantee, the Company will covenant that, so long as any Capital
Securities remain outstanding, if at such time (i) the Company has exercised
its option to defer interest payments on the Junior Subordinated
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Debentures and such deferral is continuing, (ii) the Company shall be in
default with respect to its payment or other obligations under the Guarantee
or (iii) there shall have occurred any event that, with the giving of notice
or the lapse of time or both, would constitute an Event of Default under the
Indenture, then the Company (a) shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than
stock dividends paid by the Company which consist of the stock of the same
class as that on which the dividend is being paid), (b) shall not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by the Company that rank pari passu with or
junior to the Junior Subordinated Debentures, and (c) shall not make any
guarantee payments with respect to the foregoing (other than pursuant to the
Guarantee).
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of Capital Securities (in which case no consent of the holders of
the Capital Securities will be required), the Guarantee may be amended only
with the prior approval of the holders of not less than 66 2/3% in aggregate
stated liquidation amount of the outstanding Capital Securities. The manner of
obtaining any such approval of holders of the Capital Securities will be as
set forth under "Description of the Capital Securities--Book-Entry-Only
Issuance--The Depository Trust Company." All guarantees and agreements
contained in the Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of the Company and shall inure to the benefit of
the holders of the Capital Securities then outstanding. Except in connection
with any permitted merger or consolidation of the Company with or into another
entity or any permitted sale, transfer or lease of the Company's assets to
another entity as described below under "Description of the Junior
Subordinated Debentures--Restrictions," the Company may not assign its rights
or delegate its obligations under the Guarantee without the prior approval of
the holders of at least 66 2/3% of the aggregate stated liquidation amount of
the Capital Securities then outstanding.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon (i)
full payment of the applicable Redemption Price of each Capital Security, (ii)
the distribution of the Junior Subordinated Debentures to all holders of the
Capital Securities, or (iii) full payment of the amounts payable upon a
Liquidation. The Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of Capital
Securities must restore payment of any sums paid under such Capital Securities
or the Guarantee.
STATUS OF THE GUARANTEE; SUBORDINATION
The Guarantee will constitute an unsecured obligation of the Company and
will rank (i) subordinate and junior in right of payment to all liabilities of
the Company, except any liabilities that may be made pari passu expressly by
their terms, (ii) pari passu with the most senior preferred or preference
stock now or hereafter issued by the Company and with any guarantee now or
hereafter entered into by the Company in respect of any preferred or
preference stock or preferred securities of any affiliate of the Company and
(iii) senior to the Common Stock. Upon the bankruptcy, liquidation or winding
up of the Company, its obligations under the Guarantee will rank junior to all
its other liabilities (except as aforesaid) and, therefore, funds may not be
available for payment under the Guarantee.
The Company is a non-operating holding company and almost all of the
operations of the Company are conducted by the Company's subsidiaries. The
Company relies primarily on dividends from such subsidiaries to meet its
obligations for payment of principal and interest on its outstanding debt
obligations and corporate expenses. The Company is a legal entity separate and
distinct from its insurance and non-insurance affiliates. The principal
sources of the Company's income are dividends, interest and fees from its
insurance and non-insurance affiliates. In addition, payment of dividends to
the Company by the subsidiary insurance companies is subject to ongoing review
by insurance regulators and is subject to various statutory limitations and in
certain circumstances requires approval by insurance regulatory authorities.
See "Business--Regulation--Regulation of Dividends and Other Payments from
Insurance Subsidiaries." Accordingly, the Guarantee will be effectively
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subordinated to all existing and future liabilities and obligations of the
Company's subsidiaries, including obligations to policyholders. At December
31, 1996, after giving effect to the Note Offering, the aggregate amount of
liabilities and obligations of the Company's subsidiaries that would
effectively rank senior to the Guarantee was approximately $45.9 billion.
The Declaration provides that each holder of Capital Securities by
acceptance thereof agrees to the subordination provisions and other terms of
the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default under the
Guarantee, undertakes to perform only such duties as are specifically set
forth in the Guarantee and, after such a default, shall exercise the same
degree of care as a prudent individual would exercise in the conduct of his or
her own affairs. Subject to such provision, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee at the
request of any holder of Capital Securities unless it is offered reasonable
security and indemnity against the costs, expenses and liabilities that might
be incurred thereby.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
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DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
Set forth below is a description of the specific terms of the Junior
Subordinated Debentures in which the Trust will invest with the proceeds of
the issuance and sale of (i) the Capital Securities and (ii) the Common
Securities. The following description does not purport to be complete and is
qualified in its entirety by reference to the Indenture dated as of
, 1997 (the "Indenture"), between the Company and Wilmington Trust
Company, as Indenture Trustee, a copy of the form of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part, and
the Trust Indenture Act. The Indenture will be qualified under the Trust
Indenture Act. Whenever particular provisions or defined terms in the
Indenture are referred to herein, such provisions or defined terms are
incorporated by reference herein.
At any time, the Company will have the right to liquidate the Trust and
cause the Junior Subordinated Debentures to be distributed to the holders of
the Trust Securities in liquidation of the Trust. See "Description of the
Capital Securities--Distribution of Junior Subordinated Debentures upon
Liquidation of the Trust."
GENERAL
The Property Trustee will be the initial holder of the Junior Subordinated
Debentures. The Junior Subordinated Debentures will be limited in aggregate
principal amount to approximately % of the aggregate stated
liquidation amount of the Capital Securities, such amount being the sum of the
aggregate stated liquidation amount of the Capital Securities and the Common
Securities.
The entire principal amount of the Junior Subordinated Debentures will
become due and payable, together with any accrued and unpaid interest thereon,
including Additional Sums, if any, on , 2037.
The obligations of the Company under the Junior Subordinated Debentures will
be unsecured and will rank junior and be subordinate in right of payment to
all existing and future Senior Indebtedness of the Company. See "--
Subordination."
The Junior Subordinated Debentures, if distributed to holders of Capital
Securities in a dissolution of the Trust, will initially be issued as a global
security.
Payments on Junior Subordinated Debentures will be made to DTC, as the
depository for the Junior Subordinated Debentures.
The Indenture does not contain any provisions that afford holders of Junior
Subordinated Debentures protection in the event of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction
involving the Company. The Junior Subordinated Debentures are not entitled to
the benefit of any sinking fund.
Because the Company is a holding company, the right of the Company to
participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise, is subject to the
prior claims of creditors of the subsidiary, except to the extent the Company
may itself be recognized as a creditor of that subsidiary. Accordingly, the
Junior Subordinated Debentures will be effectively subordinated to all
existing and future liabilities of the Company's subsidiaries, and holders of
Junior Subordinated Debentures should look only to the assets of the Company
for payments on the Junior Subordinated Debentures. The Indenture does not
limit the incurrence or issuance of other secured or unsecured debt of the
Company including Senior Indebtedness. In addition, the Company relies
primarily on dividends from such subsidiaries to meet its obligations for
payment of principal and interest on its outstanding debt obligations and
corporate expenses, which dividends may be limited in certain circumstances.
See "--Subordination" and "Business-- Regulation--Regulation of Dividends and
Other Payments from Insurance Subsidiaries" above.
INTEREST
Each Junior Subordinated Debenture will bear interest at the rate of % per
annum from the original date of issuance, payable semi-annually in arrears on
and (each, an
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"Interest Payment Date"), commencing , 1997, to the person in whose
name such Junior Subordinated Debenture is registered at the close of business
on the first day of the month in which the Interest Payment Date occurs.
Interest will compound semi-annually and will accrue to the extent permitted
by law at the annual rate of % on any interest installment not paid when
due.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months, and, for any period of less than a
full calendar month, the number of days elapsed in such month. In the event
that any date on which interest is payable on the Junior Subordinated
Debentures is not a Business Day, then payment of the interest payable on such
date will be made on the next succeeding day which is a Business Day (without
any interest or other payment in respect of any such delay), except that, if
such Business Day is in the next succeeding calendar year, such payment shall
be made on the immediately preceding Business Day, in each case with the same
force and effect as if made on such date.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company shall have the right at any time during the term of the Junior
Subordinated Debentures, so long as no Event of Default (or an event which
would be an Event of Default with the giving of required notice or the passage
of time) has occurred and is continuing, to defer interest payments from time
to time for successive periods not exceeding 10 consecutive semi-annual
periods. At the end of each Deferral Period, the Company shall pay all
interest and Additional Payments (consisting of Compounded Interest (defined
as interest on interest payments deferred during the Deferral Period, at the
rate specified for the Junior Subordinated Debentures to the extent permitted
by applicable law) and any Additional Sums) then accrued and unpaid. In no
event shall any Deferral Period extend beyond the maturity of the Junior
Subordinated Debentures. During any Deferral Period, the Company (i) shall not
declare or pay dividends on, make distributions with respect to, or redeem,
purchase or acquire, or make a liquidation payment with respect to, any of its
capital stock (other than stock dividends paid by the Company which consist of
stock of the same class as that on which the dividend is being paid), (ii)
shall not make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities issued by the Company that
rank pari passu with or junior to the Junior Subordinated Debentures, and
(iii) shall not make any guarantee payments with respect to the foregoing
(other than pursuant to the Guarantee). Prior to the termination of any such
Deferral Period, the Company may further extend such Deferral Period, so long
as no Event of Default (or an event which would be an Event of Default with
the giving of required notice or the passage of time) has occurred and is
continuing, provided that such Deferral Period together with all such further
extensions thereof may not exceed 10 consecutive semi-annual periods or extend
beyond the maturity of the Junior Subordinated Debentures. Upon the
termination of any Deferral Period and the payment of all amounts then due,
the Company may commence a new Deferral Period, subject to the above
requirements. Consequently, there could be multiple Deferral Periods of
varying lengths prior to the maturity of the Junior Subordinated Debentures.
No interest during a Deferral Period, except at the end thereof, shall be due
and payable. If the Property Trustee shall be the sole holder of the Junior
Subordinated Debentures, the Company shall give the Property Trustee and the
Indenture Trustee notice of its selection of a Deferral Period at least one
Business Day prior to the earlier of (i) the Interest Payment Date or (ii) the
date the Trust is required to give notice to any applicable self-regulatory
organization or to holders of the Capital Securities on the record date or the
date such distributions are payable, but in any event not less than ten
Business Days prior to such record date. The Company shall cause the trust to
give notice of the Company's selection of such Deferral Period to the holders
of the Capital Securities. If the Property Trustee shall not be the sole
holder of the Junior Subordinated Debentures, the Company shall give the
holders of the Junior Subordinated Debentures and the Indenture Trustee notice
of its selection of such Deferral Period at least ten Business Days prior to
the earlier of (i) the Interest Payment Date or (ii) the date the Trust is
required to give notice to any applicable self-regulatory organization or to
holders of the Junior Subordinated Debentures on the record date or the date
such distributions are payable, but in any event not less than two Business
Days prior to such record date.
OPTIONAL REDEMPTION
The Company shall have the right to redeem the Junior Subordinated
Debentures, in certain circumstances upon the occurrence of a Tax Event as
described under "Description of the Capital Securities--Tax Event
Distribution," upon not less than 30 nor more than 60 days' notice, at a
redemption price equal to 100% of the
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principal amount of the Junior Subordinated Debentures to be redeemed plus any
accrued and unpaid interest to the redemption date. The Company shall also
have the right to redeem the Junior Subordinated Debentures in whole at any
time or in part from time to time, upon not less than 30 nor more than 60
days' notice, at a Redemption Price equal to the sum of (i) 100% of the
principal amount of the Junior Subordinated Debentures to be redeemed and (ii)
the Make-Whole Premium, if any, plus any accrued and unpaid interest thereon
to the date fixed for redemption. As used herein, the Make-Whole Premium shall
mean the excess, if any, of (i) the sum of the present values of the remaining
scheduled payments of principal and interest thereon discounted to the
redemption date on a semiannual basis at the Treasury Rate plus basis
points over (ii) 100% of the principal amount of the Junior Subordinated
Debentures to be redeemed.
"Treasury Rate" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed
as a percentage of its principal amount) equal to the Comparable Treasury
Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable
to the remaining term of the Junior Subordinated Debentures to be redeemed
that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt
securities of comparable maturity to the remaining term of such Junior
Subordinated Debentures.
"Independent Investment Banker" means one of the Reference Treasury Dealers
appointed by the Indenture Trustee after consultation with the Company.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for
U.S. Government Securities" or (ii) if such release (or any successor release)
is not published or does not contain such prices on such business day, (A) the
average of the Reference Treasury Dealer Quotations for such redemption date,
after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (B) if the Indenture Trustee obtains fewer than three such
Reference Treasury Dealer Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Indenture Trustee by such Reference Treasury Dealer at 5:00
p.m. on the third business day preceding such redemption date.
"Reference Treasury Dealer" means each of Credit Suisse First Boston
Corporation, Morgan Stanley & Co. Incorporated and Merrill Lynch, Pierce,
Fenner & Smith Incorporated and their respective successors; provided,
however, that if any of the foregoing shall cease to be a primary U.S.
Government Securities dealer in New York City (a "Primary Treasury Dealer"),
the Company shall substitute therefor another Primary Treasury Dealer.
SUBORDINATION
The Indenture provides that the Junior Subordinated Debentures are
subordinate and junior in right of payment to all existing and future Senior
Indebtedness of the Company. No payment of principal of (including redemption
payments) or premium, if any, or interest on the Junior Subordinated
Debentures may be made (i) if any Senior Indebtedness is not paid when due,
any applicable grace period with respect to such default has ended and such
default has not been cured or waived, or (ii) if the maturity of any Senior
Indebtedness has been accelerated because of a default thereunder. Upon any
payment by the Company or distribution of assets of the Company to creditors
upon any dissolution, winding up, liquidation or reorganization, whether
voluntary or involuntary or in bankruptcy, insolvency, receivership or other
proceedings, all principal of, and premium, if any, and interest due or to
become due on, all Senior Indebtedness must be paid in full before the holders
of the
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Junior Subordinated Debentures are entitled to receive or retain any payment.
In the event that, notwithstanding the foregoing, any payment or distribution
of assets of the Company, whether in cash, property or securities, shall be
received or collected by the Indenture Trustee or the holders of the Junior
Subordinated Debentures in contravention of the foregoing provisions, such
payment or distribution shall be held for the benefit of and shall be paid
over to the holders of Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any indenture under which
any instrument evidencing Senior Indebtedness may have been issued, as their
respective interests may appear, to the extent necessary to pay in full all
Senior Indebtedness then due, after giving effect to any concurrent payment or
distribution to the holders of Senior Indebtedness. Subject to the payment in
full of all Senior Indebtedness, the rights of the holders of the Junior
Subordinated Debentures will be subrogated to the rights of the holders of
Senior Indebtedness to receive payments or distributions applicable to Senior
Indebtedness until all amounts owing on the Junior Subordinated Debentures are
paid in full.
The term "Senior Indebtedness" shall mean in respect of the Company (i) the
principal, premium, if any, and interest in respect of (A) indebtedness of
such obligor for money borrowed and (B) indebtedness evidenced by securities,
debentures, bonds or other similar instruments issued by such obligor, (ii)
all capital lease obligations of such obligor, (iii) all obligations of such
obligor issued or assumed as the deferred purchase price of property, all
conditional sale obligations of such obligor and all obligations of such
obligor under any title retention agreement (but excluding trade accounts
payable arising in the ordinary course of business), (iv) all obligations of
such obligor for the reimbursement of any letter of credit, banker's
acceptance, security purchase facility or similar credit transaction, (v) all
obligations of the type referred to in clauses (i) through (iv) above of other
persons for the payment of which such obligor is responsible or liable as
obligor, guarantor or otherwise, (vi) all obligations of the type referred to
in clauses (i) through (v) above of other persons secured by any lien on any
property or asset of such obligor (whether or not such obligation is assumed
by such obligor), except for (1) any such indebtedness that is by its terms
subordinated to or pari passu with the Junior Subordinated Debentures and (2)
any indebtedness (including all other debt securities initially issued to any
other trust, or a trustee of such trust, partnership or other entity
affiliated with the Company that is, directly or indirectly, a financing
vehicle of the Company (a "Financing Entity") in connection with the issuance
by such Financing Entity of preferred securities or other similar securities
and (vii) interest accruing subsequent to events of bankruptcy of the Company
and its subsidiaries at the rate provided for in the documentation governing
such Senior Indebtedness, whether or not such interest is an allowed claim
enforceable against the debtor in a bankruptcy case under relevant bankruptcy
law. Such Senior Indebtedness shall continue to be Senior Indebtedness and
entitled to the benefits of the subordination provisions irrespective of any
amendment, modification or waiver of any term of such Senior Indebtedness or
extension or renewal of such Senior Indebtedness.
The Indenture does not limit the aggregate amount of Senior Indebtedness the
Company may issue.
The Company is a non-operating holding company and almost all of the
operations of the Company are conducted by the Company's subsidiaries. The
Company relies primarily on dividends from such subsidiaries to meet its
obligations for payment of principal and interest on its outstanding debt
obligations and corporate expenses. The Company is a legal entity separate and
distinct from its insurance and non-insurance affiliates. The principal
sources of the Company's income are dividends, interest and fees from its
insurance and non-insurance affiliates. In addition, payment of dividends to
the Company by the subsidiary insurance companies is subject to ongoing review
by insurance regulators and is subject to various statutory limitations and in
certain circumstances requires approval by insurance regulatory authorities.
See "Business--Regulation--Regulation of Dividends and Other Payments from
Insurance Subsidiaries." Accordingly, the Junior Subordinated Debentures will
be effectively subordinated to all existing and future liabilities and
obligations of the Company's subsidiaries, including obligations to
policyholders. Holders of Junior Subordinated Debentures should look only to
the assets of the Company for payments of interest and principal and premium,
if any.
At December 31, 1996, after giving effect to the Note Offering, the
aggregate amount of Senior Indebtedness and liabilities and obligations of the
Company's subsidiaries that would effectively rank senior to the Junior
Subordinated Debentures was approximately $45.9 billion.
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CERTAIN COVENANTS
If (i) there shall have occurred any event that would constitute an Event of
Default, (ii) the Company shall be in default with respect to its payment of
any obligations under the Guarantee, or (iii) the Company shall have given
notice of its election of a Deferral Period as provided in the Indenture and
such period, or any extension thereof, shall be continuing, then the Company
(a) shall not declare or pay dividends on, make distributions with respect to,
or redeem, purchase or acquire, or make a liquidation payment with respect to,
any of its capital stock (other than stock dividends paid by the Company which
consist of stock of the same class as that on which the dividend is being
paid), (b) shall not make any payment of interest, principal or premium, if
any, on or repay, repurchase or redeem any debt securities issued by the
Company that rank pari passu with or junior to the Junior Subordinated
Debentures, and (c) shall not make any guarantee payments with respect to the
foregoing (other than pursuant to the Guarantee).
The Company will covenant (i) to directly maintain 100% ownership of the
Common Securities of the Trust; provided, however, that any permitted
successor of the Company under the Indenture may succeed to the Company's
ownership of such Common Securities and (ii) to use its reasonable efforts to
cause the Trust (x) to remain a statutory business trust, except in connection
with the distribution of Junior Subordinated Debentures to the holders of
Trust Securities in liquidation of the Trust, the redemption of all of the
Trust Securities or certain mergers, consolidations or amalgamations, each as
permitted by the Declaration, and (y) to otherwise continue to be classified
as a grantor trust for United States federal income tax purposes.
RESTRICTIONS
The Indenture provides that the Company shall not consolidate with or merge
with or into any other entity, or, directly or indirectly, convey, transfer or
lease all or substantially all of the properties and assets of the Company on
a consolidated basis to any entity, unless (i) the surviving entity is a
corporation, partnership or trust organized and validly existing under the
laws of the United States of America, any state thereof or the District of
Columbia and such corporation or entity assumes by supplemental indenture all
the obligations of the Company under the Indenture and the Junior Subordinated
Debentures, (ii) no Event of Default shall exist immediately after the
transaction, (iii) such transaction is permitted under, and does not give rise
to, any breach or violation of the Declaration or the Guarantee and (iv) the
Company has delivered to the Indenture Trustee an officer's certificate and an
opinion of counsel stating that such transaction and, if required, such
supplemental indenture comply with the Indenture, including all conditions
precedent.
EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events, which has occurred and is continuing, constitutes an "Event of
Default" with respect to the Junior Subordinated Debentures: (i) failure for
30 days to pay interest on the Junior Subordinated Debentures, including any
Compounded Interest in respect thereof, when due and payable, provided that a
Deferral Period shall not constitute a default in the payment of interest for
this purpose; (ii) failure to pay principal of or premium, if any, on the
Junior Subordinated Debentures when due whether at maturity, upon redemption,
by declaration or otherwise; (iii) failure to observe or perform any other
covenant or warranty contained in the Indenture for 90 days after proper
notice; (iv) the dissolution, winding up or termination of the Trust, except
in connection with the distribution of Junior Subordinated Debentures to the
holders of Capital Securities permitted by the Declaration; or (v) certain
events in bankruptcy, insolvency or reorganization of the Company or any
Significant Subsidiary. A default under any other indebtedness of the Company
or the Trust would not constitute an Event of Default under the Junior
Subordinated Debentures.
The Indenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Junior Subordinated Debentures may declare
the principal of and any other amounts payable (including any Additional Sums)
on the Junior Subordinated Debentures due and payable immediately if an Event
of Default occurs and is continuing and, if the Property Trustee is the sole
holder of the Junior Subordinated Debentures
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and the Indenture Trustee or such holders of Junior Subordinated Debentures
fail to make such declaration, the holders of at least 25% in aggregate
liquidation amount of outstanding Capital Securities shall have such right.
After such declaration of acceleration, but before a judgment or decree based
on acceleration, the holders of a majority in aggregate principal amount of
outstanding Junior Subordinated Debentures may, under certain circumstances,
rescind and annul such acceleration if all Events of Default, other than the
nonpayment of accelerated principal, have been cured or waived as provided in
the Indenture and a sum sufficient to pay all matured installments of interest
and principal due otherwise than by acceleration and certain fees and expenses
of the Indenture Trustee has been deposited with the Indenture Trustee.
No holder of any Junior Subordinated Debenture will have any right to
institute any proceeding with respect to the Indenture or for any remedy
thereunder, unless such holder shall have previously given to the Indenture
Trustee written notice of a continuing Event of Default and unless the holders
of at least 25% in aggregate principal amount of the Junior Subordinated
Debentures then outstanding shall also have made written request, and offered
reasonable security or indemnity, to the Indenture Trustee to institute such
proceeding as Indenture Trustee, and the Indenture Trustee shall not have
received from the holders of a majority in aggregate principal amount of the
outstanding Junior Subordinated Debentures a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
However, such limitations do not apply to a suit instituted by a holder of a
Junior Subordinated Debenture or a holder of a Capital Security for
enforcement of payment of the principal of or interest on such Junior
Subordinated Debenture on or after the respective due dates specified in such
Junior Subordinated Debenture.
A holder of Capital Securities may directly institute a proceeding on behalf
of the Trust for enforcement of payment to the Trust of the principal of or
premium, if any, or interest on the Junior Subordinated Debentures on or after
the respective due dates specified in the Indenture. The holders of the
Capital Securities would not be able to exercise directly any other remedies
available to the holder of the Junior Subordinated Debentures unless the
Property Trustee or the Indenture Trustee, acting for the benefit of the
Property Trustee, fails to do so. In such event, the holders of at least 25%
in aggregate liquidation preference of outstanding Capital Securities would
have such right to institute proceedings.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee in case an Event of Default shall occur and be continuing,
the Indenture Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any
holders of Junior Subordinated Debentures, unless such holders shall have
offered to the Indenture Trustee reasonable security or indemnity. Subject to
such provisions for the indemnification of the Indenture Trustee, the holders
of a majority in aggregate principal amount of the Junior Subordinated
Debentures then outstanding will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Indenture
Trustee, or exercising any trust or power conferred on the Indenture Trustee
with respect to such series.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures may, on behalf of the holders of all the Junior
Subordinated Debentures, waive any past default, except a default in the
payment of principal, premium, if any, or interest (including any Additional
Payments) on any Junior Subordinated Debenture (unless such default has been
cured and a sum sufficient to make such payments due otherwise than by
acceleration has been deposited with the Indenture Trustee) or a default in
respect of a covenant or provision which under the Indenture cannot be
modified or amended without the consent of the holder of each Junior
Subordinated Debenture affected. The Company is required to file annually with
the Indenture Trustee and the Property Trustee a certificate as to whether or
not the Company is in compliance with all the conditions and covenants under
the Indenture.
MODIFICATION OF THE INDENTURE
From time to time, the Company when authorized by a Board resolution, and
the Indenture Trustee may, without the consent of the holders of the Junior
Subordinated Debentures, enter into one or more supplements to
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the Indenture for specified purposes, including, among other things, curing
ambiguities, defects or inconsistencies (provided that any such action does
not adversely affect the interests of the holders of the Junior Subordinated
Debentures or the holders of outstanding Capital Securities). The Indenture
contains provisions permitting the Company and the Indenture Trustee, with the
consent of the holders of not less than a majority in principal amount of the
Junior Subordinated Debentures, to modify the Indenture or any supplemental
indenture; provided that no such modification may, without the consent of the
holder of each outstanding Junior Subordinated Debenture (i) extend the stated
maturity of principal of or premium, if any, or interest on including any
Additional Payments any Junior Subordinated Debentures, or reduce the
principal amount thereof, or reduce the rate or extend the time of payment of
interest thereon, or reduce any premium payable upon the redemption thereof,
or impair the right to institute suit for the enforcement of any payment
thereon on or after the stated maturity date (or, in the case of redemption,
on or after the redemption date) or modify the subordination provisions of the
Indenture in a manner adverse to the holders, or (ii) reduce the percentage in
principal amount of Junior Subordinated Debentures outstanding, the holders of
which are required to consent to any such supplemental indenture or for any
waiver of compliance with certain provisions of the Indenture and their
consequences provided for in the Indenture. Further, if the Trust is the sole
holder of the Junior Subordinated Debentures, so long as any of the Capital
Securities remains outstanding, no modification of the Indenture or any
supplemental indenture may be made that adversely affects the holders of such
Capital Securities, and no termination of the Indenture or any supplemental
indenture may occur, and no waiver of any Event of Default or compliance with
any covenant under the Indenture or any supplemental indenture shall be
effective, without the prior consent of the holders of the percentage of the
aggregate liquidation amount of the outstanding Capital Securities which is at
least equal to the percentage of aggregate stated liquidation preference of
the outstanding Junior Subordinated Debentures required under the Indenture or
any supplemental indenture to make such modification, termination or waiver.
In addition, the Company and the Indenture Trustee may execute, without the
consent of any holder of Junior Subordinated Debentures, any supplemental
indenture for certain other usual purposes.
SETOFF
Notwithstanding anything to the contrary contained in the Indenture, the
Company shall have the right to set off any payment with respect to the Junior
Subordinated Debentures it is otherwise required to make thereunder with and
to the extent the Company has theretofore made, or is concurrently on the date
of such payment making, a payment under the Guarantee.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by,
and construed in accordance with, the laws of the State of New York.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee, except during the continuance of an Event of Default,
undertakes to perform only such duties as are specifically set forth in the
Indenture and, if an Event of Default has occurred and is continuing, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provision, the Indenture
Trustee is under no obligation to exercise any of the powers vested in it by
the Indenture at the request of any holder of Junior Subordinated Debentures,
unless offered reasonable security or indemnity by such holder against the
costs, expenses and liabilities which might be incurred thereby. The Indenture
Trustee is not required to expend or risk its own funds or otherwise incur any
financial liability in the performance of its duties under the Indenture if
the Indenture Trustee reasonably believes that repayment or adequate security
or indemnity is not reasonably assured to it.
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EFFECT OF OBLIGATIONS UNDER THE
JUNIOR SUBORDINATED DEBENTURES, THE GUARANTEE AND THE DECLARATION
As set forth in the Declaration, the sole purpose of the Trust is to issue
the Trust Securities and use the proceeds thereof to purchase from the Company
the Junior Subordinated Debentures.
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
distributions and payments due on the Capital Securities primarily because (i)
the aggregate principal amount of Junior Subordinated Debentures will be equal
to the sum of the aggregate stated liquidation amount of the Capital
Securities and the Common Securities; (ii) the interest rate and interest and
other payment dates on the Junior Subordinated Debentures will match the
distribution rate and distribution and other payment dates for the Capital
Securities; (iii) the Declaration provides that the Company shall pay for all,
and the Trust shall not be obligated to pay, directly or indirectly, for any,
costs and expenses of the Trust; and (iv) the Declaration further provides
that the holders of Common Securities and the Regular Trustees shall not cause
or permit the Trust to, among other things, engage in any activity that is not
consistent with the purposes of the Trust.
A holder of Capital Securities may, subject to certain limitations, directly
institute a proceeding on behalf of the Trust for enforcement of payment to
the Trust of the principal of or premium, if any, or interest on the Junior
Subordinated Debentures on or after the respective due dates specified in the
Indenture. The holders of the Capital Securities would not be able to exercise
directly any other remedies available to the holder of the Junior Subordinated
Debentures unless the Property Trustee or the Indenture Trustee, acting for
the benefit of the Property Trustee, fails to do so. In such event, the
holders of at least 25% in aggregate liquidation amount of outstanding Capital
Securities would have such right to institute proceedings. In addition, if the
Company fails to make interest or other payments on the Junior Subordinated
Debentures when due, the Declaration provides a mechanism whereby the holders
of the Capital Securities may direct the Property Trustee to enforce its
rights under the Junior Subordinated Debentures.
The Company has, through the Junior Subordinated Debentures, the Indenture,
the Declaration and the Guarantee, taken together, fully and unconditionally
guaranteed all of the Trust's obligations under the Capital Securities. No
single document standing alone or operating in conjunction with fewer than all
of the other documents constitutes such guarantee. It is only the combined
operation of these documents that has the effect of providing a full and
unconditional guarantee of the Trust's obligations under the Capital
Securities. If and to the extent that the Company does not make payments on
the Junior Subordinated Debentures, the Trust will not pay distributions or
other payments due on the Capital Securities.
If the Company fails to make payments under the Guarantee, any holder of a
Capital Security may institute a legal proceeding directly against the Company
to enforce its rights under the Guarantee without first instituting a legal
proceeding against the Trust or any other person or entity.
UNITED STATES FEDERAL INCOME TAXATION
GENERAL
The following is a summary of certain of the material United States federal
income tax consequences of the purchase, ownership and disposition of Capital
Securities. It represents the opinion of LeBoeuf, Lamb, Greene & MacRae,
L.L.P., tax counsel to the Trust. Unless otherwise stated, this summary deals
only with Capital Securities held as capital assets by holders who purchase the
Capital Securities upon original issuance ("Initial Holders"). It does not deal
with special classes of holders such as banks, thrifts, real estate investment
trusts, regulated investment companies, insurance companies, dealers in
securities or currencies, tax-exempt investors, or persons that will hold the
Capital Securities as a position in a "straddle," as part of a "synthetic
security" or "hedge," as part of a "conversion transaction" or other integrated
investment, or as other than a capital asset. This summary also does not address
the tax consequences to persons that have a functional currency
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other than the U.S. dollar or the tax consequences to shareholders, partners
or beneficiaries of a holder of Capital Securities. Further, it does not
include any description of any alternative minimum tax consequences or the tax
laws of any state or local government or of any foreign government that may be
applicable to the Capital Securities. This summary is based on the IRC, U.S.
Treasury regulations thereunder and administrative and judicial
interpretations thereof, as of the date hereof, all of which are subject to
change, possibly on a retroactive basis. Any such changes may be applied
retroactively in a manner that could cause the tax consequences to vary
substantially from the consequences described below, possibly adversely
affecting a beneficial owner of the Capital Securities. See "-- Proposed Tax
Law Changes."
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES AND THE TRUST
In connection with the issuance of the Junior Subordinated Debentures,
LeBoeuf, Lamb, Greene & MacRae, L.L.P., legal counsel for the Company and the
Trust, has rendered its opinion as of the date of this Prospectus generally to
the effect that, under current law in effect as of the date of this Prospectus
and assuming full compliance with the terms of the Indenture (and certain
other documents), the Junior Subordinated Debentures, when issued, would be
classified for United States federal income tax purposes as indebtedness of
the Company.
In connection with the issuance of the Capital Securities, LeBoeuf, Lamb,
Greene & MacRae, L.L.P., has rendered its opinion as of the date of this
Prospectus generally to the effect that, under current law in effect as of the
date of this Prospectus and assuming full compliance with the terms of the
Declaration, the Trust, upon issuance of the Capital Securities, would be
classified for United States federal income tax purposes as a grantor trust
and not as an association taxable as a corporation. Accordingly, for United
States federal income tax purposes, each holder of Capital Securities
generally will be considered the owner of an undivided interest in the Junior
Subordinated Debentures. Each holder will be required to include in its gross
income its allocable share of income accrued on the Subordinated Debentures.
Investors should be aware that these tax opinions do not address any other
issue and are not binding on the Internal Revenue Service or the courts.
ORIGINAL ISSUE DISCOUNT
Under recently issued income tax regulations applicable to all debt
instruments that, like the Junior Subordinated Debentures, are issued on or
after August 13, 1996, remote contingencies that stated interest will not be
timely paid are ignored in determining whether a debt instrument is issued
with OID, which determination depends in part on whether interest is
"unconditionally payable" on the debt instrument. OID must be included in
income by all holders as it accrues economically on a daily basis, without
regard to when it is paid in cash or whether a particular holder generally
uses the cash method of accounting. The Company has concluded that the
likelihood of its exercising its option to defer payments of interest is
remote. This conclusion is based on the Company's analysis, as of the date of
issue of the Junior Subordinated Debentures, of various facts and
circumstances deemed relevant to exercising such deferral option, including,
among other things, the inability of the Company to declare dividends on its
stock while interest on the Junior Subordinated Debentures is being deferred,
and the likely impact of the non-payment of dividends upon the ratings of the
Company's securities if the deferral option is exercised. Based upon this
conclusion by the Company, and in the absence of any specific definition of
"remote" in the applicable income tax regulations, in the opinion of LeBoeuf,
Lamb, Greene & MacRae, L.L.P., although the matter is not entirely free from
doubt, the Subordinated Debentures will not include OID. As a consequence,
holders of the Capital Securities should report interest under their own
methods of accounting (e.g., cash or accrual) instead of under the daily
economic accrual rules for OID instruments.
Under the new regulations, however, if the Company exercises its right to
defer payments of interest, the Junior Subordinated Debentures will become OID
instruments, and all holders of the Capital Securities will be required to
accrue interest on a daily basis and to report that OID as taxable interest
income during any Deferral Period even though the Company will not pay the
interest in cash until the end of the Deferral Period, and even though a
holder may use the cash method of accounting. A holder who disposes of the
Capital Securities during
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such a Deferral Period may suffer a loss because the market value of the Trust
Securities will likely fall if the Company exercises its option to defer
payments of interest on the Junior Subordinated Debentures. Furthermore, the
market value of the Capital Securities may not reflect the accumulated
distribution that will be paid at the end of the Deferral Period, and a holder
who sells the Capital Securities during the Deferral Period will not receive
from the Company any cash related to the interest (OID) income the holder
accrued and included in its taxable income under the OID rules (because that
cash will be paid to the holder of record at the end of the Deferral Period).
If the Junior Subordinated Debentures become OID instruments (i.e., if the
Company exercises its rights to defer payment of interest), the Junior
Subordinated Debentures will be taxed as OID instruments for as long as they
remain outstanding. Thus, even after the end of the Deferral Period, all
holders will be required to continue accruing interest (OID) on the Junior
Subordinated Debentures on a daily basis, regardless of their method of
accounting.
The new regulations have not been addressed in any rulings or other
interpretations by the Internal Revenue Service other than the preamble to the
Treasury Decision that issued the new regulations, which added the concept of
"remote contingencies" to existing definitions used to determine whether
interest payable under a debt instrument is "unconditionally payable." The new
regulations could be viewed as a favorable reversal of the Internal Revenue
Service's previous position, as expressed in a 1995 Revenue Ruling that has
not been withdrawn. It is possible that the IRS could take a position contrary
to the interpretation herein.
MARKET DISCOUNT AND BOND PREMIUM
Holders of Capital Securities other than Initial Holders may be considered
to have acquired their undivided interests in the Junior Subordinated
Debentures with "market discount" or "acquisition premium" as such phrases are
defined for United States federal income tax purposes. Such holders are
advised to consult their tax advisors as to the income tax consequences of the
acquisition, ownership and disposition of the Capital Securities.
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE
TRUST
As described under the caption "Description of the Capital Securities--
Distribution of the Junior Subordinated Debentures upon Liquidation of the
Trust," Junior Subordinated Debentures may be distributed to holders in
exchange for the Capital Securities and in liquidation of the Trust. Under
current law, such a distribution, for United States federal income tax
purposes, would be treated as a non-taxable event to each holder, and each
holder would receive an aggregate tax basis in the Junior Subordinated
Debentures equal to such holder's aggregate tax basis in its Capital
Securities. A holder's holding period in the Junior Subordinated Debentures so
received in liquidation of the Trust would include the period during which the
Capital Securities were held by such holder.
Under certain circumstances described herein (see "Description of the
Capital Securities--Tax Event Distribution" and "Description of the
Subordinated Debentures -- Optional Redemption"), the Junior Subordinated
Debentures may be redeemed for cash and the proceeds of such redemption
distributed to holders in redemption of their Capital Securities. Under
current law, such a redemption would, for United States federal income tax
purposes, constitute a taxable disposition of the redeemed Capital Securities,
and a holder could recognize gain or loss as if it sold such redeemed Capital
Securities for cash. See "-- Sales of Capital Securities."
SALES OF CAPITAL SECURITIES
A holder that sells Capital Securities will recognize gain or loss equal to
the difference between its adjusted tax basis in the Capital Securities and
the amount realized on the sale of such Capital Securities. To the extent of
any accrued but unpaid interest the amount realized on the sale of such
Capital Securities will be treated as
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ordinary income. Assuming the Company does not defer interest on the Junior
Subordinated Debentures by extending the interest payment period, a holder's
adjusted tax basis in the Capital Securities generally will equal its initial
purchase price. Subject to the market discount rules described above and the
discussion below regarding accrued and unpaid interest, such gain or loss
generally will be a capital gain or loss and generally will be a long-term
capital gain or loss if the Capital Securities have been held for more than
one year.
The Capital Securities may trade at a price that does not fully reflect the
value of accrued but unpaid interest with respect to the underlying Junior
Subordinated Debentures. If the Company exercises its right to defer payments
of interest, the Junior Subordinated Debentures will become OID instruments
and a holder who disposes of Capital Securities between record dates for
payments of distributions thereon will be required to include in income as
ordinary income, accrued and unpaid interest on the Junior Subordinated
Debentures through the date of disposition, and to add such amount to such
holder's adjusted tax basis in its pro rata share of the underlying Junior
Subordinated Debentures deemed disposed of. To the extent the selling price is
less than the holder's adjusted tax basis (which will include all accrued but
unpaid interest) a holder will recognize a capital loss. Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States federal income tax purposes. Accrual basis taxpayers would
be subjected to similar treatment without regard to the Company's election to
defer.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, as to the
United States, a foreign corporation, a non-resident alien individual, a
foreign partnership, or a foreign estate or trust.
Under present United States federal income tax law: (i) payments by the
Trust or any of its paying agents to any holder of a Capital Security who or
which is a United States Alien Holder will not be subject to United States
federal withholding tax; provided that, (a) the beneficial owner of the
Capital Security does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled to
vote, (b) the beneficial owner of the Capital Security is not a controlled
foreign corporation that is related to the Company through stock ownership,
and (c) either (A) the beneficial owner of the Capital Security certifies to
the Trust or its agent, under penalties of perjury, that it is not a United
States holder and provides its name and address or (B) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "Financial
Institution"), and holds the Capital Security in such capacity, certifies to
the Trust or its agent, under penalties of perjury, that such statement has
been received from the beneficial owner by it or by a Financial Institution
between it and the beneficial owner and furnishes the Trust or its agent with
a copy thereof; and (ii) a United States Alien Holder of a Capital Security
will not be subject to United States federal withholding tax on any gain
realized upon the sale or other disposition of a Capital Security.
INFORMATION REPORTING TO HOLDERS
Income on the Capital Securities will be reported to holders on Forms 1099,
which forms should be mailed to holders of Capital Securities by January 31
following each calendar year.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Capital Securities may
be subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification requirements. Any withheld amounts will be allowed
as a credit against the holder's federal income tax, provided the required
information is provided to the Internal Revenue Service.
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PROPOSED TAX LAW CHANGES
On February 6, 1997, the Proposal was released. The Proposal would, among
other things, deny deductions for interest on a debt instrument issued by a
corporation with a maximum weighted average maturity of more than 40 years or
which has a maximum term of more than 15 years and is not shown as
indebtedness on the separate balance sheet of the issuer. An instrument would
not be shown as indebtedness on a balance sheet merely because it was
described as indebtedness in footnotes or other narrative disclosures. The
Proposal would apply only to corporations which file annual financial
statements with the Commission, and the relevant balance sheet would be the
balance sheet filed with the Commission. The Proposal would be effective
generally for instruments issued on or after the date of first committee
action. As currently drafted, the Proposal could affect the Junior
Subordinated Debentures unless the Junior Subordinated Debentures were issued
prior to the first date of any committee action. In addition, the Proposal
could be enacted with retroactive effect. If the Proposal is enacted so as to
apply to the Junior Subordinated Debentures, the Company would not be entitled
to an interest deduction with respect to the Junior Subordinated Debentures.
There can be no assurance that current or future legislative proposals or
final legislation will not give rise to a Tax Event, which would permit the
Company to cause a redemption of the Junior Subordinated Debentures or a
distribution of the Junior Subordinated Debentures in liquidation of the Trust
as described more fully under "Description of the Capital Securities--Tax
Event Distribution."
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A
HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS
WITHIN RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE CAPITAL SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES
IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Generally, employee benefit plans that are subject to ERISA, plans and
individual retirement accounts that are subject to Section 4975 of the IRC and
entities whose assets are considered assets of such plans ("Plans"), may
purchase the Capital Securities subject to the investing fiduciary's
determination that the investment in the Capital Securities satisfies ERISA's
fiduciary standards and other requirements applicable to investments by Plans.
Accordingly, among other factors, the fiduciary should consider whether the
investment would satisfy the prudence and diversification requirements of
ERISA and would be consistent with the documents and instruments governing the
Plans.
Under regulations issued by the U.S. Department of Labor (the "DOL"), a Plan
that owns the Capital Securities may be deemed to own a portion of the assets
held in the Trust, including a portion of the Junior Subordinated Debentures
held in the Trust. In addition, the Company and its affiliates may be "parties
in interest" (within the meaning of ERISA) or "disqualified persons" (within
the meaning of Section 4975 of the IRC) with respect to certain Plans
(generally, Plans maintained or sponsored by, or contributed to by, any such
persons or Plans with respect to which any such persons are fiduciaries or
service providers). The acquisition and ownership of the Capital Securities
and a deemed acquisition and ownership of an interest in the Junior
Subordinated Debentures by a Plan with respect to which the Company or any of
its affiliates is considered a party in interest or a disqualified person may
constitute or result in a prohibited transaction under ERISA or Section 4975
of the IRC, unless such securities are acquired and are held pursuant to and
in accordance with an applicable exemption. In this regard, the DOL has issued
PTCEs that may apply to the acquisition and holding of the Capital Securities.
These class exemptions are PTCE 84-14 (respecting transactions determined by
independent qualified professional asset managers), PTCE 90-1 (respecting
insurance company separate accounts), PTCE 91-38 (respecting bank collective
trust funds), PTCE 95-60 (respecting insurance company general accounts) and
PTCE 96-23 (respecting transactions determined by in-house asset managers).
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Any fiduciary proposing to acquire the Capital Securities on behalf of a
Plan should consult with ERISA counsel for the Plan and should not acquire the
Capital Securities unless it is determined that such acquisition and holding
does not and will not constitute a prohibited transaction and will satisfy the
applicable fiduciary requirements imposed under ERISA. Any such acquisition by
a Plan shall be deemed a representation by the Plan and the fiduciary
effecting the investment on behalf of the Plan that such acquisition and
holding satisfies the applicable fiduciary requirements of ERISA, and is
entitled to exemptive relief from the prohibited transaction provisions of
ERISA and the IRC in accordance with one or more of the foregoing PTCEs or
another available prohibited transaction exemption.
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The following statements are subject to and qualified in their entirety by
reference to detailed provisions of the Company's Certificate and Bylaws
(copies of which have been incorporated by reference as exhibits to the
Registration Statement of which this Prospectus forms a part).
The Company is currently authorized to issue 750 million shares of Class A
Common Stock, 750 million shares of Class B Common Stock and 50 million shares
of Preferred Stock. The shares of Class A Common Stock and Class B Common
Stock are identical in all respects except for voting rights and certain
conversion rights and transfer restrictions regarding the shares of Class B
Common Stock as described below.
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
Voting
All outstanding shares of Common Stock are fully paid and nonassessable.
Except for the Equity Purchase Rights, holders of Common Stock do not have any
preemptive rights to subscribe for or purchase any additional securities
issued by the Company. No redemption or sinking fund provisions are associated
with the Common Stock. Cumulative voting is not permitted by holders of Common
Stock.
The holders of Class B Common Stock are entitled to ten votes per share. The
holders of Class A Common Stock are entitled to one vote per share. Proposals
submitted to a vote of stockholders will be voted on by holders of Class A
Common Stock and Class B Common Stock voting together as a single class. At
all meetings of the stockholders of the Company, the holders of record
entitled to exercise at least a majority of the voting power of the Company,
represented in person or by proxy, shall constitute a quorum for the
transaction of business; and the affirmative vote of the holders, represented
in person or by proxy, of a majority of the Common Stock present at a meeting
at which a quorum is in existence shall be the act of the stockholders of the
Company. The superior voting rights of the Class B Common Stock might
discourage unsolicited merger proposals and unfriendly tender offers.
Transfer
The Certificate does not contain any restrictions on the transfer of shares
of Class A Common Stock. Upon any sale or other transfer of shares of Class B
Common Stock to any person or persons other than a member of the Nationwide
Insurance Enterprise, such shares of Class B Common Stock will be converted
into an equal number of shares of Class A Common Stock.
Conversion
Class A Common Stock has no conversion rights. Class B Common Stock is
convertible into Class A Common Stock, in whole or in part, at any time and
from time to time at the option of the holder, on the basis of one share of
Class A Common Stock for each share of Class B Common Stock converted. If at
any time after the initial issuance of shares of Class A Common Stock the
number of outstanding shares of Class B Common Stock falls below 5% of the
aggregate number of issued and outstanding shares of Common Stock, then each
outstanding share of Class B Common Stock shall automatically convert into one
share of Class A Common Stock. In the event of any sale or transfer of shares
of Class B Common Stock to any person or persons other than a member of the
Nationwide Insurance Enterprise shares of Class B Common Stock so transferred
shall be automatically converted into an equal number of shares of Class A
Common Stock.
Dividends
Holders of Common Stock are entitled to receive cash dividends pro rata on a
per share basis if and when such dividends are declared by the Board of
Directors of the Company from funds legally available therefor. In the case of
any dividend paid other than in cash or Common Stock (or securities
convertible into or exchangeable for Common Stock), holders of Class A Common
Stock and Class B Common Stock are entitled to receive such
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dividend pro rata on a per share basis. Dividends paid in Common Stock (or
securities convertible into or exchangeable for Common Stock) may be paid in
shares of Class A Common Stock (or securities convertible into or exchangeable
for Class A Common Stock) on the Class A Common Stock and in shares of Class B
Common Stock (or securities convertible into or exchangeable for Class B
Common Stock) on the Class B Common Stock.
Liquidation, Merger or Consolidation
Holders of Class A Common Stock and Class B Common Stock share with each
other on a ratable basis as a single class in the net assets of the Company
available for distribution in respect of the Common Stock in the event of
liquidation or any payments made on the Common Stock in the event of a merger
or consolidation of the Company.
PREFERRED STOCK
Under the Certificate, the Company has authority to issue 50 million shares
of Preferred Stock. Preferred Stock may be issued from time to time in one or
more classes with such full, special, limited or no voting powers, and such
designations, preferences and relative, participating, optional or other
special rights, and qualifications and limitations or restrictions thereof, as
shall be stated in the Certificate or any amendment thereof or in any
resolution adopted by the Board of Directors of the Company establishing any
class of Preferred Stock. The Board of Directors of the Company has the
authority to issue shares of Preferred Stock without further action of the
stockholders. The ability of the Board of Directors to issue Preferred Stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. No shares of
Preferred Stock have been issued or are outstanding.
CERTAIN CERTIFICATE AND BYLAW PROVISIONS
Certain provisions of the Company's Certificate and Bylaws, summarized in
the following paragraphs, may be considered to have an anti-takeover effect
and may delay, deter or prevent a tender offer, proxy contest or other
takeover attempt that a stockholder might consider to be in such stockholder's
best interest, including such an attempt as might result in payment of a
premium over the market price for shares held by stockholders.
Classified Board of Directors
The Certificate provides for the Board of Directors of the Company to be
divided into three classes of directors, with each class as nearly equal in
number as possible, serving staggered three-year terms. As a result,
approximately one-third of the Board of Directors will be elected each year at
the annual meeting of stockholders. The Board of Directors believes that a
classified board of directors will help to assure the continuity and stability
of the Board of Directors and the business strategies and policies of the
Company as determined by the Board of Directors because continuity and
stability in the composition of the Board of Directors and in the policies
formulated by it will be enhanced by the staggered three-year terms.
The classified board provisions could have the effect of discouraging a
third party from making a tender offer or otherwise attempting to obtain
control of the Company, even though such an attempt might be beneficial to the
Company and its stockholders. In addition, the classified board provisions
could delay stockholders who do not like the policies of the Board of
Directors from removing a majority of the Board of Directors for two years.
Number of Directors; Removal; Filling Vacancies
The Certificate provides that the Board of Directors will consist of one to
fifteen members, the exact number to be fixed from time to time by resolution
adopted by a majority of the entire Board of Directors assuming no vacancies.
The Board of Directors currently consists of ten directors. Further, subject
to the rights of the holders of any series of Preferred Stock then
outstanding, the Certificate authorizes the Board of Directors to fill newly
created directorships. Accordingly, this provision could prevent a stockholder
from obtaining majority
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representation on the Board of Directors by permitting the Board of Directors
to enlarge the Board of Directors and fill the new directorships with its own
nominees. A director so elected by the Board of Directors holds office until
the next election of the class for which such director has been chosen and
until his successor is elected and qualified. Subject to the rights of the
holders of any series of Preferred Stock then outstanding, the Certificate
also provides that directors may be removed only for cause and only by the
affirmative vote of holders of a majority of the outstanding voting power of
the Company. The effect of these provisions is to preclude a stockholder from
removing incumbent directors without cause and simultaneously gaining control
of the Board of Directors by filling the vacancies created by such removal
with its own nominees.
Special Meetings of Stockholders
The Bylaws provide that special meetings of stockholders may be called by
the Chairman of the Board of Directors, the Chairman and Chief Executive
Officer--Nationwide Insurance Enterprise or the President and Chief Operating
Officer and shall be called by the Secretary at the request in writing of a
majority of the Board of Directors. Stockholders are not permitted to call
special meetings of stockholders.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
The Company's Bylaws provide in order to properly submit any business to, or
to nominate any person for election to the Board of Directors at, an annual
meeting of stockholders, a stockholder must provide timely notice thereof in
writing to the Secretary of the Company. To be considered timely, a
stockholder's notice must be delivered to, or mailed and received at, the
principal executive offices of the Company (i) not less than 60 days nor more
than 90 days before the first anniversary date of the Company's proxy
statement in connection with the last annual meeting of stockholders or (ii)
if no annual meeting was held in the previous year or the date of the
applicable annual meeting has been changed by more than 30 days from the date
contemplated at the time of the previous year's proxy statement, not less than
a reasonable time, as determined by the Board of Directors, prior to the date
of the applicable annual meeting. The Bylaws also specify certain requirements
pertaining to the form and substance of a stockholder's notice. These
provisions may preclude some stockholders from making nominations for
directors at an annual or special meeting or from bringing other matters
before the stockholders at a meeting.
Class B Common Stock
The superior voting rights of the Class B Common Stock might discourage
unsolicited merger proposals and unfriendly tender offers.
No Action by Written Consent of the Stockholders
The Certificate does not allow the stockholders of the Company to take
action by written consent in lieu of a meeting.
Delaware Takeover Statute
The Company is subject to the provisions of Section 203 of the DGCL. Section
203 prohibits a Delaware corporation from engaging in any "business
combination" with any "interested stockholder" for a period of three years
following the time that such stockholder became an interested stockholder
unless (i) prior to such time, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder; or (ii) upon the
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder owned at least 85% of the voting stock of the
corporation, as defined in Section 203; or (iii) at or subsequent to such
time, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder. For these purposes,
the term "business combination" includes but is not limited to mergers, asset
or stock sales and other similar transactions with an "interested
stockholder." An "interested stockholder" is a person who, together with
affiliates and associates, owns (or, within the prior three years, did own)
15% or more of the corporation's voting stock.
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Limitation on Liability
The Company's Certificate contains a provision that is designed to limit the
directors' liability to the extent permitted by the DGCL and any amendments
thereto. Specifically, directors will not be held liable to the Company or its
stockholders for an act or omission in such capacity as a director, except for
liability as a result of (i) a breach of the duty of loyalty to the Company or
its stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) payment of an
improper dividend or improper repurchase of the Company's stock under Section
174 of the DGCL, or (iv) actions or omissions pursuant to which the director
received an improper personal benefit. The principal effect of the limitation
on liability provision is that a stockholder is unable to prosecute an action
for monetary damages against a director of the Company unless the stockholder
can demonstrate one of the specified bases for liability. This provision,
however, does not eliminate or limit director liability arising in connection
with causes of action brought under the federal securities laws. The Company's
Certificate does not eliminate its directors' duty of care. The inclusion of
this provision in the Company's Certificate may, however, discourage or deter
stockholders or management from bringing a lawsuit against directors for a
breach of their fiduciary duties, even though such an action, if successful,
might otherwise have benefited the Company and its stockholders. This
provision should not affect the availability of equitable remedies such as
injunction or rescission based upon a director's breach of the duty of care.
Indemnification
The Company's Bylaws also provide that the Company will indemnify its
directors and officers to the fullest extent permitted by Delaware law. The
Company is generally required to indemnify its directors and officers for all
judgments, fines, settlements, legal fees and other expenses incurred in
connection with pending or threatened legal proceedings because of the
director's or officer's position with the Company or another entity that the
director or officer serves at the Company's request, subject to certain
conditions, and to advance funds to its directors and officers to enable them
to defend against such proceedings. To receive indemnification, the director
or officer must have been successful in the legal proceeding or acted in good
faith and in what was reasonably believed to be a lawful manner in the
Company's best interest.
Certificate Provisions Relating to Corporate Opportunities
The Certificate provides that except as Nationwide Mutual (or its successors
or assigns) may otherwise agree in writing and except as set forth in the
Intercompany Agreement:
(i) no member of the Nationwide Insurance Enterprise shall have a duty to
refrain from engaging directly or indirectly in the same or similar
business activities or lines of business as the Company; and
(ii) no member of the Nationwide Insurance Enterprise, nor any director,
officer, employee or agent or any member of Nationwide Mutual (except as
provided below), will be liable to the Company or to its stockholders for
breach of any fiduciary duty by reason of any such activities of such
member's or of such person's participation thereon.
The Certificate also provides that if in the event any member of the
Nationwide Insurance Enterprise (other than the Company) acquires knowledge of
a potential transaction or matter which may be a corporate opportunity both
for a member of the Nationwide Insurance Enterprise and the Company, no member
of the Nationwide Insurance Enterprise shall have any duty to communicate or
offer such corporate opportunity to the Company nor shall any such member be
liable to the Company or its stockholders for breach of any fiduciary duty as
a stockholder of the Company or controlling person of a stockholder by reason
of the fact that any such member of the Nationwide Insurance Enterprise
pursues or acquires such opportunity for itself, directs such corporate
opportunity to another person or entity or does not communicate information
regarding, or offer such corporate opportunity to the Company.
Further, the Certificate provides that in the event that a director,
officer, employee or agent of the Company who is also a director, officer,
employee or agent of any member of the Nationwide Insurance Enterprise
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acquires knowledge of a potential transaction or matter that may be a
corporate opportunity for the Company or any member of the Nationwide
Insurance Enterprise (whether such potential transaction or matter is proposed
by a third party or is conceived of by such director, officer, employee or
agent of the Company), such director, officer, employee or agent shall be
entitled to offer such corporate opportunity to the Company or such member of
the Nationwide Insurance Enterprise as such director, officer, employee or
agent deems appropriate under the circumstances in his or her sole discretion,
and no such director, officer or agent shall be liable to the Company or its
stockholders for breach of any fiduciary duty or duty of loyalty or failure to
act in (or not opposed to) the best interests of the Company or the derivation
of any improper personal benefit by reason of the fact that (i) such director,
officer, employee or agent offered such corporate opportunity to such member
of the Nationwide Insurance Enterprise (rather than the Company) or did not
communicate information regarding such corporate opportunity to the Company or
(ii) such member of the Nationwide Insurance Enterprise pursues or acquires
such corporate opportunity for itself or directs such corporate opportunity to
another person or does not communicate information regarding such corporate
opportunity to the Company. The enforceability of the provisions discussed
above under the DGCL has not been established and counsel to the Company has
not delivered an opinion as to the enforceability of such provisions. These
provisions of the Certificate may eliminate certain rights that might have
been available to stockholders under the DGCL had such provisions not been
included in the Certificate.
The Company's Board of Directors currently consists of ten members, seven of
whom serve concurrently on the boards of directors of other companies within
the Nationwide Insurance Enterprise. In addition, a significant number of
officers of the Company will also be officers of other companies within the
Nationwide Insurance Enterprise.
The foregoing provisions of the Certificate shall expire on the date that
the members of the Nationwide Insurance Enterprise cease to beneficially own
(directly or indirectly) in the aggregate Common Stock representing at least
50% of the voting power of the outstanding shares of Common Stock.
LISTINGS
The Class A Common Stock has been approved for listing on the NYSE under the
symbol "NFS", subject to official notice of issuance.
TRANSFER AGENT AND REGISTRAR
First Chicago Trust Company of New York will serve as transfer agent and
registrar for the Class A Common Stock.
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THE EQUITY OFFERINGS, THE NOTE OFFERING AND THE CAPITAL SECURITIES OFFERING
Prior to the Capital Securities Offering, the Company expects to consummate
the public offering of 16,432,000 shares of Class A Common Stock in the United
States and Canada and 4,108,000 shares of Class A Common Stock outside the
United States and Canada. Concurrently with the Capital Securities Offering,
the Company expects to consummate the public offering of $300 million
aggregate principal amount of Notes. See "Capitalization."
The consummation of the Capital Securities Offering is not conditioned on
the completion of the Note Offering. There can be no assurance that the Note
Offering will be consummated.
The Equity Offerings and the Note Offering are being made pursuant to
separate prospectuses.
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement, dated , 1997 (the "Underwriting Agreement"), the underwriters
named below (the "Underwriters"), for whom Credit Suisse First Boston
Corporation, Morgan Stanley & Co. Incorporated and Merrill Lynch, Pierce,
Fenner & Smith Incorporated are acting as representatives (the
"Representatives"), have severally but not jointly agreed to purchase from the
Trust the following respective liquidation amounts of Capital Securities:
<TABLE>
<CAPTION>
Liquidation
Amount of
Capital
Underwriter Securities
----------- ------------
<S> <C>
Credit Suisse First Boston Corporation.........................
Morgan Stanley & Co. Incorporated..............................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..........................................
------------
Total........................................................ $100,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all the Capital Securities, if any are purchased. The
Underwriting Agreement provides that, in the event of a default by an
Underwriter, in certain circumstances the purchase commitments of non-
defaulting Underwriters may be increased or the Underwriting Agreement may be
terminated.
The Company has been advised by the Representatives that the Underwriters
propose to offer the Capital Securities to the public initially at the public
offering price set forth on the cover page of this Prospectus and, through the
Representatives, to certain dealers at such price less a concession of % of
the principal amount per Note, and the Underwriters and such dealers may allow
a discount of % of such principal amount per Note on sales to certain other
dealers. After the initial public offering, the public offering price and
concession and discount to dealers may be changed by the Representatives.
In view of the fact that the proceeds of the sale of the Capital Securities
will be used to purchase the Junior Subordinated Debentures, the Underwriting
Agreement provides that the Company will agree to pay as compensation
("Underwriters' Compensation") to the Underwriters arranging the investment
therein of such proceeds an amount in same day funds of $ per Capital
Security (or $ in the aggregate).
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Each of the Trust and the Company has agreed that, without the prior written
consent of Credit Suisse First Boston Corporation, it will not offer, sell,
contract to sell or otherwise dispose of, directly or indirectly, or file with
the Commission a registration statement under the Securities Act relating to
any additional units of Capital Securities, or securities convertible into or
exchangeable or exercisable for Capital Securities or the Junior Subordinated
Debentures or any debt securities substantially similar to the Junior
Subordinated Debentures or any equity securities substantially similar to the
Capital Securities (except for the Junior Subordinated Debentures and the
Capital Securities offered hereby), for a period of 90 days after the date of
this Prospectus.
The Capital Securities have been approved for listing on the NYSE, subject
to official notice of issuance.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or to
contribute to payments which the Underwriters may be required to make in
respect thereof.
From time to time, Credit Suisse First Boston Corporation has provided
investment banking services to the Company, Nationwide Life and other members
of the Nationwide Insurance Enterprise, for which it has received customary
compensation. It is expected that Credit Suisse First Boston Corporation will
continue to provide such services in the future. The Representatives also are
acting as representatives of the underwriters of the Equity Offerings and the
Note Offering.
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NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Capital Securities in Canada is being made only on a
private placement basis exempt from the requirement that the Company prepare
and file a prospectus with the securities regulatory authorities in each
province where trades of the Capital Securities are effected. Accordingly, any
resale of Capital Securities in Canada must be made in accordance with
applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of Capital Securities.
REPRESENTATIONS OF PURCHASERS
Each purchaser of the Capital Securities in Canada who receives a purchase
confirmation will be deemed to represent to the Company and the dealer from
whom such purchase confirmation is received that (i) such purchaser is
entitled under applicable provincial securities laws to purchase such Capital
Securities without the benefit of a prospectus qualified under such securities
laws, (ii) where required by law, that such purchaser is purchasing as
principal and not as agent, and (iii) such purchaser has reviewed the text
above under "Resale Restrictions."
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available,
including common law rights of action for damages or rescission or rights of
action under the civil liability provisions of the U.S. federal securities
laws.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Ontario purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the Company and such persons may be located outside of Canada and, as a
result, it may not be possible to satisfy a judgment against the Company or
such persons in Canada or to enforce a judgment obtained in Canadian courts
against such issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of the Capital Securities to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file within
the British Columbia Securities Commission a report within ten days of the
sale of any Capital Securities acquired by such purchaser pursuant to this
offering. Such report must be in the form attached to British Columbia
Securities Commission Blanket Order BOR #95/17, a copy of which may be
obtained from the Company. Only one such report must be filed in respect of
Capital Securities acquired on the same date and under the same prospectus
exemption.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Capital
Securities will be passed upon on behalf of the Trust by Richards, Layton &
Finger, P.A., Wilmington, Delaware, special Delaware counsel to the Trust. The
validity of the Junior Subordinated Debentures, the Guarantee and certain
matters relating thereto, will be passed upon on behalf of the Company and the
Trust by LeBoeuf, Lamb, Greene & MacRae, L.L.P., a limited liability
partnership including professional corporations, New York, New York. LeBoeuf,
Lamb, Greene & MacRae, L.L.P. will also pass upon certain United States
federal income tax matters on behalf of the Company and the Trust. Certain
legal matters will be passed upon for the Underwriters by Dewey Ballantine,
New York, New York.
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EXPERTS
The consolidated financial statements and financial statement schedules of
the Company and its subsidiaries as of December 31, 1996 and 1995, and for
each of the years in the three-year period ended December 31, 1996 included
herein and elsewhere in this Registration Statement have been included herein
and elsewhere in this Registration Statement in reliance on the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
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GLOSSARY OF SELECTED INSURANCE TERMS
ANNUITY.......................... A contract that provides for a fixed or
variable periodic payment made from a
stated or contingent date and continued for
a specific period, such as for a number of
years (certain period) or for life (life
contingent), either immediately or after a
stated accumulation period.
ASSET VALUATION RESERVE; AVR..... The asset valuation reserve adopted by the
NAIC in 1991. AVR appears as a liability on
a life insurer's statutory financial
statements. AVR establishes statutory
reserves for debt securities, common
stocks, preferred stocks, mortgage loans,
equity real estate, joint ventures and
other invested assets. AVR generally
captures all realized and unrealized gains
and losses on such assets, other than those
resulting from changes in interest rates.
AVR has no effect on financial statements
prepared in conformity with GAAP.
The amount of cash that may be realized by
CASH VALUE....................... the owner of a life insurance policy or
annuity contract with a life insurance
company upon lapse or surrender of the
policy or contract prior to its maturity.
CEDE, CEDING COMPANY............. When a company reinsures all or a portion
of its risk with another, it "cedes"
business and is referred to as the "ceding
company."
COINSURANCE...................... A form of indemnity reinsurance under which
the reserves and supporting assets as well
as the risk are transferred to the
reinsurer.
CREDITING RATES.................. Interest rates applied to life insurance
policies and annuity contracts, whether
contractually guaranteed or currently
declared for a specified period.
DEFERRED ANNUITY................. An annuity that (i) can be paid either with
a single premium or a series of
installments and (ii) includes a schedule
of periodic income benefit to commence
after an accumulation period.
DEFERRED POLICY ACQUISITION Commissions and other selling expenses that
COSTS............................ vary with and are directly related to the
production of business. These acquisition
costs are deferred and amortized in
conformity with GAAP.
FIXED OPTION UNDER THE COMPANY'S
VARIABLE ANNUITY CONTRACTS.......
Includes an investment option under the
Company's individual variable annuity
contracts which provides the contractholder
a return at a specified interest rate,
fixed for a prescribed period. Also
included are the Company's fixed group
annuity contracts offered as companion
contracts with variable group annuity
contracts. A fixed group annuity contract
which is
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companioned with a variable group annuity
contract would operate in a manner which is
indistinguishable from the fixed option of
a variable annuity. For example,
companioned fixed group annuity contracts
have the same surrender charge schedules
and deposit commission scales as the
variable contract with which they are
companioned. In addition, monies can be
moved between the fixed group annuity
contract and the variable contract, subject
to certain limitations, without incurring a
surrender charge.
GENERAL ACCOUNT.................. All an insurer's assets other than those
allocated to a separate account. The
insurer bears the investment risk on the
invested assets of the general account.
GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES; GAAP................. United States generally accepted accounting
principles as defined by the American
Institute of Certified Public Accountants
and the Financial Accounting Standards
Board.
IMMEDIATE ANNUITY................ An annuity that begins payment immediately
after issuance.
IN FORCE......................... The total face amount of insurance coverage
under contracts that have not expired.
INSURANCE GUARANTY Associations created in all states, the
ASSOCIATIONS..................... District of Columbia and Puerto Rico by
law, to cover funding shortfalls in paying
claims of insolvent life insurance
companies. These associations obtain funds
by post-insolvency assessments of life
insurance companies operating in a
particular state in proportion to their
business written in that state.
INSURANCE PREMIUM................ The amount paid by a policyholder under the
terms of the contract. The insurance
company assumes the risks of the insured
(length of life, state of health or
liability exposure) in exchange for a
premium payment. Premiums are calculated by
combining expectation of loss and expense
and profit loadings.
Indemnity reinsurance that differs from
MODIFIED COINSURANCE............. coinsurance only in that the reserves and
related assets are held by the ceding
company while the risk remains with the
reinsurer. The ceding company pays interest
to the reinsurer to replace what would have
been earned by the reinsurer if it had held
the assets.
MORBIDITY RATE................... The relative incidence of sickness or
disability due to disease or physical
impairment.
MORTALITY RATE...................
The relative incidence of death of life
insureds or annuitants.
NAIC.............................
The National Association of Insurance
Commissioners, an association of the chief
insurance supervisory officials of each
state, territory and possession of the
United States.
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PERSISTENCY......................
Percentage of life insurance policies or
annuity contracts remaining in force until
completion of the term for which the policy
or contract was written.
POLICY ACQUISITION COSTS......... Agents' and brokers' commissions, premiums,
taxes, marketing, underwriting and other
direct expenses related to the production
of business. Such costs that vary with and
are primarily related to the production of
business are deferred and amortized to
achieve a matching of revenues and expenses
when reported in financial statements
prepared in conformity with GAAP.
POLICY RESERVES; RESERVES........ Liabilities established by insurers to
reflect the present value of claims
payments and the related expenses that the
insurer will ultimately be required to pay
in respect of insurance it has written.
REINSURANCE...................... The practice whereby one party, called the
reinsurer or assuming company, in
consideration of a premium paid to such
party, agrees to indemnify another party,
called the ceding company. Reinsurance
provides a primary insurer with three major
benefits: it reduces net liability on
individual risks; it helps to protect
against catastrophic losses; and it helps
to maintain acceptable surplus and reserve
ratios. Reinsurance provides a primary
insurer with additional underwriting
capacity in that the primary insurer can
accept larger risks and can expand the
volume of business it writes without
increasing its capital base. Reinsurance
may be on an assumption or indemnity basis.
Assumption reinsurance is the permanent
transfer of insurance liabilities from the
ceding to the assuming company. Under
indemnity reinsurance, the ceding company
cedes some or all risks but retains its
liability to and its contractual
relationship with the insured. The two
forms of indemnity reinsurance are
proportional, where the amount ceded is
defined at the time the contract is entered
into, and stop loss, where the reinsurer is
responsible for losses in excess of a
predetermined dollar amount.
RISK-BASED CAPITAL Regulatory and rating agency targeted
REQUIREMENTS..................... surplus based on the relationship of
statutory capital and surplus, with certain
adjustments, to the sum of stated
percentages of each element of a specified
list of Company risk exposures.
SEPARATE ACCOUNTS................ Investment accounts maintained by an
insurer to which funds have been allocated
for certain policies under provisions of
relevant state insurance law. The
investments in each separate account are
maintained separately from those in other
separate accounts and the general account.
The investment results of the separate
account assets are passed through directly
to the separate account policyholders, so
that an insurer derives management and
other fees from, but bears no investment
risk on, these assets, except the risk on a
small number of products that returns on
separate account assets will not meet the
relatively low minimum rate guaranteed on
these products.
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SINGLE PREMIUM DEFERRED
ANNUITIES; SPDA'S................ Annuities that require a one-time lump sum
payment of consideration upon the issuance
of the contract with benefit payments
commencing at some future date following an
accumulation period.
STATUTORY ACCOUNTING PRACTICES... Those accounting practices prescribed or
permitted by an insurer's domiciliary state
insurance regulator for purposes of
financial reporting to regulators.
SURRENDERS AND WITHDRAWALS....... Surrenders of life insurance policies and
annuity contracts for their entire net cash
surrender values and withdrawals of a
portion of such values.
TERM LIFE INSURANCE.............. Life insurance offering protection during a
certain number of years, but expiring
without policy cash value if the insured
survives the stated period. Most term
policies provide for guaranteed
continuation of coverage for life at
increased premium rates.
UNIVERSAL LIFE INSURANCE.........
Life insurance under which (i) premiums are
generally flexible, (ii) the level of death
benefits may be adjusted and (iii)
mortality, expense and other charges may
vary. This policy is sometimes referred to
as unbundled life insurance because its
three basic elements (investment earnings,
cost of protection and expense charges) are
separately identified both in the policy
and in an annual report to the
policyholder.
VARIABLE ANNUITY................. An annuity in which values and benefits may
vary. The value of a unit fluctuates in
accordance with the investment experience
of a separate account; variable annuity
contracts typically include a general
account guaranteed interest investment
option. At the time of the payment of
benefits to the annuitant, the annuitant
can generally elect from a number of
payment options which provide either fixed
or variable benefit payments.
VARIABLE LIFE INSURANCE..........
Life insurance under which the benefits
payable upon death or surrender typically
varies to reflect the investment experience
of the separate account supporting such
policies; variable life insurance policies
typically include a general account
guaranteed interest investment option.
WHOLE LIFE INSURANCE............. Insurance which is guaranteed for the life
of the insured.
140
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995............. F-3
Consolidated Statements of Income for the Years Ended December 31, 1996,
1995 and 1994........................................................... F-4
Consolidated Statements of Shareholder's Equity for the Years Ended
December 31, 1996, 1995 and 1994........................................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994..................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nationwide Financial Services, Inc.:
We have audited the accompanying consolidated balance sheets of Nationwide
Financial Services, Inc. and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of income, shareholder's equity and
cash flows for each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Nationwide
Financial Services, Inc. and subsidiaries as of December 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in note 1 to the consolidated financial statements, the Company
was formed in November 1996 as a holding company for Nationwide Life Insurance
Company and the other companies within the Nationwide Insurance Enterprise
that offer or distribute long-term savings and retirement products. The
consolidated financial statements are presented as if these companies were
consolidated for all periods presented.
In 1994, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
KPMG Peat Marwick LLP
Columbus, Ohio
January 31, 1997
F-2
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
($000'S OMITTED)
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
ASSETS
Investments (notes 6, 9 and 10):
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $11,970,878 in 1996;
$11,872,870 in 1995)................................ $12,304,639 12,495,878
Equity securities (cost $43,890 in 1996; $31,234 in
1995)............................................... 59,131 37,570
Fixed maturity securities held-to-maturity, at
amortized cost (fair value $5,944 in 1996; $5,989 in
1995)................................................. 5,877 5,720
Mortgage loans on real estate, net..................... 5,272,119 4,627,387
Real estate, net....................................... 265,759 229,442
Policy loans........................................... 371,816 336,356
Other long-term investments............................ 28,668 61,989
Short-term investments (note 14)....................... 9,261 42,671
----------- ----------
18,317,270 17,837,013
----------- ----------
Cash..................................................... 43,183 10,055
Accrued investment income................................ 210,182 212,963
Deferred policy acquisition costs........................ 1,366,509 1,020,356
Investment in subsidiaries classified as discontinued
operations (notes 1 and 3).............................. 485,707 506,677
Other assets (note 7).................................... 420,685 327,916
Assets held in Separate Accounts (note 9)................ 26,926,702 18,591,108
----------- ----------
$47,770,238 38,506,088
=========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Future policy benefits and claims (notes 7 and 9)........ $17,179,060 16,358,614
Policyholders' dividend accumulations.................... 361,401 348,027
Other policyholder funds................................. 60,073 65,297
Accrued federal income tax (note 8):
Current................................................ 29,201 36,980
Deferred............................................... 158,896 237,247
----------- ----------
188,097 274,227
----------- ----------
Dividend payable to shareholder (notes 1 and 3).......... 485,707 --
Other liabilities........................................ 437,465 252,085
Liabilities related to Separate Accounts (note 9)........ 26,926,702 18,591,108
----------- ----------
45,638,505 35,889,358
----------- ----------
Commitments and contingencies (notes 10 and 16)
Shareholder's equity (notes 2, 4, 5, 6, 13 and 14):
Class A common shares, $.01 par value. Authorized
750,000,000 shares, no shares issued and outstanding.. -- --
Class B common shares, $.01 par value. Authorized
750,000,000 shares, 104,745,000 shares issued and
outstanding........................................... 1,047 1,047
Additional paid-in capital............................. 551,422 680,690
Retained earnings...................................... 1,405,672 1,550,689
Unrealized gains on securities available-for-sale,
net................................................... 173,592 384,304
----------- ----------
2,131,733 2,616,730
----------- ----------
$47,770,238 38,506,088
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
($000'S OMITTED, EXCEPT PER COMMON SHARE INFORMATION)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues (note 17):
Investment product and universal life
insurance product policy charges........ $ 400,902 286,534 217,245
Traditional life insurance premiums...... 198,642 199,106 176,658
Net investment income (note 6)........... 1,357,759 1,294,033 1,210,811
Realized losses on investments (note 6).. (208) (1,724) (16,527)
Other income............................. 59,505 59,089 45,897
---------- ---------- ----------
2,016,600 1,837,038 1,634,084
---------- ---------- ----------
Benefits and expenses:
Benefits and claims...................... 1,160,580 1,115,493 992,667
Provision for policyholders' dividends
on participating policies (note 13)..... 40,973 39,937 38,754
Amortization of deferred policy
acquisition costs....................... 133,394 82,695 85,568
Other operating expenses (note 14)....... 353,565 317,743 276,632
---------- ---------- ----------
1,688,512 1,555,868 1,393,621
---------- ---------- ----------
Income from continuing operations
before federal income tax expense..... 328,088 281,170 240,463
---------- ---------- ----------
Federal income tax expense (benefit) (note
8):
Current.................................. 116,021 89,400 77,009
Deferred................................. (211) 6,914 5,507
---------- ---------- ----------
115,810 96,314 82,516
---------- ---------- ----------
Income from continuing operations...... 212,278 184,856 157,947
Income from discontinued operations (less
federal income tax expense of $4,453,
$7,446 and $10,915 in 1996, 1995 and 1994,
respectively) (note 3).................... 11,324 24,714 20,459
---------- ---------- ----------
Net income............................. $ 223,602 209,570 178,406
========== ========== ==========
Pro forma results per common share (note
4):
Income from continuing operations........ $ 1.69
Net income............................... $ 1.78
Pro forma weighted average number of common
shares
outstanding for calculation using income
from continuing operations (in thousands)
(note 4).................................. 125,285
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
($000'S OMITTED)
<TABLE>
<CAPTION>
UNREALIZED
GAINS (LOSSES)
CLASS A CLASS B ADDITIONAL ON SECURITIES TOTAL
COMMON COMMON PAID-IN RETAINED AVAILABLE-FOR- SHAREHOLDER'S
SHARES SHARES CAPITAL EARNINGS SALE, NET EQUITY
------- ------- ---------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1994:
Balance, beginning of
year................. $-- 1,047 429,661 1,172,163 6,745 1,609,616
Capital contribution.. -- -- 200,000 -- -- 200,000
Dividends to
shareholder.......... -- -- -- (1,000) -- (1,000)
Net income............ -- -- -- 178,406 -- 178,406
Adjustment for change
in accounting for
certain investments
in debt and equity
securities, net (note
5)................... -- -- -- -- 212,553 212,553
Unrealized losses on
securities available-
for-sale, net........ -- -- -- -- (338,971) (338,971)
---- ----- -------- --------- -------- ---------
Balance, end of year.. $-- 1,047 629,661 1,349,569 (119,673) 1,860,604
==== ===== ======== ========= ======== =========
1995:
Balance, beginning of
year................. -- 1,047 629,661 1,349,569 (119,673) 1,860,604
Capital contribution.. -- -- 51,029 -- (4,111) 46,918
Dividends to
shareholder.......... -- -- -- (8,450) -- (8,450)
Net income............ -- -- -- 209,570 -- 209,570
Unrealized gains on
securities available-
for-sale, net........ -- -- -- -- 508,088 508,088
---- ----- -------- --------- -------- ---------
Balance, end of year.. $-- 1,047 680,690 1,550,689 384,304 2,616,730
==== ===== ======== ========= ======== =========
1996:
Balance, beginning of
year................. -- 1,047 680,690 1,550,689 384,304 2,616,730
Issuance of common
shares............... -- -- 1 -- -- 1
Dividends to
shareholder (notes 1
and 3)............... -- -- (129,269) (368,619) (39,819) (537,707)
Net income............ -- -- -- 223,602 -- 223,602
Unrealized losses on
securities available-
for-sale, net........ -- -- -- -- (170,893) (170,893)
---- ----- -------- --------- -------- ---------
Balance, end of year.. $-- 1,047 551,422 1,405,672 173,592 2,131,733
==== ===== ======== ========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
($000'S OMITTED)
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 223,602 209,570 178,406
Adjustments to reconcile net income to
net cash provided by operating
activities:
Capitalization of deferred policy
acquisition costs.................. (422,572) (321,327) (242,431)
Amortization of deferred policy
acquisition costs.................. 133,394 82,695 85,568
Amortization and depreciation....... 7,307 13,189 5,383
Realized (gains) losses on invested
assets, net........................ (633) 3,250 16,094
Deferred federal income tax
(benefit) expense.................. (173) 5,305 6,190
Decrease (increase) in accrued
investment income.................. 2,781 (16,889) (12,918)
(Increase) decrease in other
assets............................. (93,575) 25,844 (72,268)
Increase in policy liabilities...... 305,755 135,937 118,361
Increase in policyholders' dividend
accumulations...................... 13,374 12,639 15,298
(Decrease) increase in accrued
federal income tax payable......... (7,779) 32,579 (3,927)
Increase in other liabilities....... 185,380 31,966 6,856
Other, net.......................... (5,281) (21,970) (22,760)
----------- ----------- -----------
Net cash provided by operating ac-
tivities......................... 341,580 192,788 77,852
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from maturity of securities
available-for-sale................... 1,162,766 634,553 544,843
Proceeds from sale of securities
available-for-sale................... 299,558 150,453 268,987
Proceeds from maturity of fixed
maturity securities
held-to-maturity..................... -- 564,450 491,862
Proceeds from repayments of mortgage
loans on real estate................. 309,050 207,832 190,574
Proceeds from sale of real estate..... 18,519 48,331 46,713
Proceeds from repayments of policy
loans and sale of other invested
assets............................... 22,795 53,587 120,506
Cost of securities available-for-sale
acquired............................. (1,573,640) (1,998,165) (1,858,036)
Cost of fixed maturity securities
held-to-maturity acquired............ -- (599,356) (410,379)
Cost of mortgage loans on real estate
acquired............................. (972,776) (796,026) (497,349)
Cost of real estate acquired.......... (7,862) (10,928) (6,385)
Policy loans issued and other invested
assets acquired...................... (57,740) (75,910) (65,302)
Short-term investments, net........... 33,410 91,659 (98,541)
Purchase of affiliate (note 14)....... -- -- (155,000)
----------- ----------- -----------
Net cash used in investing activi-
ties............................. (765,920) (1,729,520) (1,427,507)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common
shares............................... 1 -- --
Proceeds from capital contributions... -- -- 200,000
Dividends paid to shareholder......... (52,000) (8,450) (1,000)
Increase in investment product and
universal life insurance product
account balances..................... 2,293,933 2,809,385 3,547,976
Decrease in investment product and
universal life insurance product
account balances..................... (1,784,466) (1,258,758) (2,412,595)
----------- ----------- -----------
Net cash provided by financing ac-
tivities......................... 457,468 1,542,177 1,334,381
----------- ----------- -----------
Net increase (decrease) in cash......... 33,128 5,445 (15,274)
Cash, beginning of year................. 10,055 4,610 19,884
----------- ----------- -----------
Cash, end of year....................... $ 43,183 10,055 4,610
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
($000'S OMITTED)
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
Nationwide Financial Services, Inc. (NFS) was formed in November 1996 as a
holding company for Nationwide Life Insurance Company (NLIC) and the other
companies within the Nationwide Insurance Enterprise that offer or distribute
long-term savings and retirement products. NFS is a wholly owned subsidiary of
Nationwide Corporation (Nationwide Corp.). The consolidated financial
statements represent the results of NLIC and subsidiaries and three marketing
and distribution companies as if they were consolidated with NFS for all
periods presented. This presentation is based on Nationwide Corp.'s
contribution of the common stock of those entities to NFS on January 27, 1997
in anticipation of the initial public offering of common stock of NFS
described more fully in note 2. NFS and the other companies whose results are
included in the consolidated financial statements are collectively referred to
as "the Company."
In anticipation of the restructuring described above, on September 24, 1996,
NLIC's Board of Directors declared a dividend payable to Nationwide Corp.
consisting of the outstanding shares of common stock of certain subsidiaries
that do not offer or distribute long-term savings and retirement products. In
addition, during 1996, NLIC entered into two reinsurance agreements whereby
all of NLIC's accident and health and group life insurance business was ceded
to two affiliates effective January 1, 1996. These subsidiaries and all
accident and health and group life insurance business have been accounted for
as discontinued operations for all periods presented. See notes 3 and 14.
In addition, as part of the restructuring described above, NLIC intends to
make an $850,000 distribution to NFS which will then make an equivalent
distribution to Nationwide Corp.
The three marketing and distribution companies contributed by Nationwide
Corp. to NFS in January, 1997 are: Public Employees Benefit Services
Corporation (PEBSCO), NEA Valuebuilder Investor Services, Inc. (NEAVIS) and
Nationwide Financial Institution Distributors Agency, Inc. (NFIDA).
The Company is a leading provider of long-term savings and retirement
products to retail and institutional customers and is subject to competition
from other financial services providers throughout the United States. The
Company is subject to regulation by the Insurance Departments of states in
which it is licensed, and undergoes periodic examinations by those
departments.
The following is a description of the most significant risks facing life
insurers and how the Company mitigates those risks:
Legal/Regulatory Risk is the risk that changes in the legal or regulatory
environment in which an insurer operates will create additional expenses
not anticipated by the insurer in pricing its products. That is, regulatory
initiatives, new legal theories or insurance company insolvencies through
guaranty fund assessments may create costs for the insurer beyond those
currently recorded in the consolidated financial statements. The Company
mitigates this risk by offering a wide range of products and by operating
throughout the United States, thus reducing its exposure to any single
product or jurisdiction, and also by employing underwriting practices which
identify and minimize the adverse impact of this risk.
Credit Risk is the risk that issuers of securities owned by the Company
or mortgagors on mortgage loans on real estate owned by the Company will
default or that other parties, including reinsurers, which owe the Company
money, will not pay. The Company minimizes this risk by adhering to a
conservative investment strategy, by maintaining reinsurance and credit and
collection policies and by providing for any amounts deemed uncollectible.
F-7
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest Rate Risk is the risk that interest rates will change and cause
a decrease in the value of an insurer's investments. This change in rates
may cause certain interest-sensitive products to become uncompetitive or
may cause disintermediation. The Company mitigates this risk by charging
fees for non-conformance with certain policy provisions, by offering
products that transfer this risk to the purchaser, and/or by attempting to
match the maturity schedule of its assets with the expected payouts of its
liabilities. To the extent that liabilities come due more quickly than
assets mature, an insurer would have to borrow funds or sell assets prior
to maturity and potentially recognize a gain or loss.
(2) INITIAL PUBLIC OFFERING
The Company is currently planning an initial public offering of its Class A
common stock (the Equity Offering) during the first quarter of 1997. After the
Equity Offering, Nationwide Corp. will continue to own all of the shares of
Class B common stock, which will represent approximately 98% of the voting
stock of the Company. Subsequent to December 31, 1996, the Company's Board of
Directors approved a 104,745 for one split of the Company's Class B common
stock, which will become effective February 10, 1997. Share information for
all periods presented has been restated to reflect the split.
Shortly after the Equity Offering, the Company expects to consummate the
public offering of $300,000 of senior notes due 2027. In addition, Nationwide
Financial Services Capital Trust, an affiliate of the Company, expects to
consummate the public offering of $100,000 of capital securities.
See note 13 for information on voting and conversion rights of Class A and
Class B common stock.
(3) DISCONTINUED OPERATIONS
As described in note 1, NFS is a holding company for NLIC and certain other
companies that offer or distribute long-term savings and retirement products.
Prior to the contribution by Nationwide Corp. to NFS of the outstanding common
stock of NLIC and other companies, NLIC effected certain transactions with
respect to certain subsidiaries and lines of business that were unrelated to
long-term savings and retirement products.
On September 24, 1996, NLIC's Board of Directors declared a dividend to
Nationwide Corp. consisting of the outstanding shares of common stock of three
subsidiaries: Employers Life Insurance Company of Wausau (ELICW), National
Casualty Company (NCC) and West Coast Life Insurance Company (WCLIC). ELICW
writes group accident and health and group life insurance business and
maintains its offices in Wausau, Wisconsin. NCC is a property and casualty
company that serves as a fronting company for a property and casualty
subsidiary of Nationwide Mutual Insurance Company (NMIC), an affiliate. NCC
maintains its offices in Scottsdale, Arizona. WCLIC writes high dollar term
life insurance policies and is located in San Francisco, California. ELICW,
NCC and WCLIC have been accounted for as discontinued operations for all
periods presented. The Company did not recognize any gain or loss on the
disposal of these subsidiaries.
A summary of the combined results of operations, including the results of
the accident and health and group life insurance business ELICW assumed from
NLIC in 1996, and assets and liabilities of ELICW, NCC and WCLIC as of and for
the years ended December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Revenues.................................... $ 668,870 422,149 84,226
Net income.................................. 11,324 26,456 11,753
Assets, consisting primarily of
investments................................ 3,029,293 2,967,326 2,537,692
Liabilities, consisting primarily of policy
benefits and claims........................ 2,543,586 2,460,649 2,179,263
</TABLE>
During 1996, NLIC entered into two reinsurance agreements whereby all of
NLIC's accident and health and group life insurance business was ceded to
ELICW and NMIC, effective January 1, 1996. See note 14 for a complete
discussion of the reinsurance agreements. The Company plans to discontinue its
accident and health
F-8
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and group life business and in connection therewith intends to cede all
existing and any future writings to other companies and to cease writing any
new business effective prior to December 31, 1997. NLIC's accident and health
and group life insurance business is accounted for as discontinued operations
for all periods presented. The Company did not recognize any gain or loss on
the disposal of the accident and health and group life insurance business. The
assets, liabilities, results of operations and activities of discontinued
operations are distinguished physically, operationally and for financial
reporting purposes from the remaining assets, liabilities, results of
operations and activities of the Company.
A summary of the results of operations, net of amounts ceded to ELICW and
NMIC in 1996, and assets and liabilities of NLIC's accident and health and
group life insurance business as of and for the years ended December 31, 1996,
1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Revenues......................................... $ -- 354,788 362,476
Net income (loss)................................ -- (1,742) 8,706
Assets, consisting primarily of investments...... 259,185 239,426 234,082
Liabilities, consisting primarily of policy
benefits and claims............................. 259,185 239,426 234,082
</TABLE>
(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Company that materially
affect financial reporting are summarized below. The accompanying consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles (GAAP) which differ from statutory accounting practices
prescribed or permitted by regulatory authorities. Annual Statements for the
Company's insurance subsidiaries, filed with the department of insurance of
each insurance company's state of domicile, are prepared on the basis of
accounting practices prescribed or permitted by each department. Prescribed
statutory accounting practices include a variety of publications of the
National Association of Insurance Commissioners (NAIC), as well as state laws,
regulations and general administrative rules. Permitted statutory accounting
practices encompass all accounting practices not so prescribed. The Company's
insurance subsidiaries have no material permitted statutory accounting
practices.
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosures of contingent assets and liabilities as of
the date of the consolidated financial statements and the reported amounts of
revenues and expenses for the reporting period. Actual results could differ
significantly from those estimates.
The most significant estimates include those used in determining deferred
policy acquisition costs, valuation allowances for mortgage loans on real
estate and real estate investments and the liability for future policy
benefits and claims. Although some variability is inherent in these estimates,
management believes the amounts provided are adequate.
(a) Consolidation Policy
The consolidated financial statements include the accounts of NFS and its
wholly owned subsidiaries. Subsidiaries that are classified and reported as
discontinued operations are not consolidated but rather are reported as
"Investment in Subsidiaries Classified as Discontinued Operations" in the
accompanying consolidated balance sheets and "Income from Discontinued
Operations" in the accompanying consolidated statements of income. All
significant intercompany balances and transactions have been eliminated.
(b) Valuation of Investments and Related Gains and Losses
The Company is required to classify its fixed maturity securities and equity
securities as either held-to-maturity, available-for-sale or trading. Fixed
maturity securities are classified as held-to-maturity when the Company has
the positive intent and ability to hold the securities to maturity and are
stated at amortized cost. Fixed maturity securities not classified as held-to-
maturity and all equity securities are classified as available-for-sale and
are stated at fair value, with the unrealized gains and losses, net of
adjustments to deferred policy
F-9
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
acquisition costs and deferred federal income tax, reported as a separate
component of shareholder's equity. The adjustment to deferred policy
acquisition costs represents the change in amortization of deferred policy
acquisition costs that would have been required as a charge or credit to
operations had such unrealized amounts been realized. The Company has no fixed
maturity securities classified as trading as of December 31, 1996 or 1995.
Mortgage loans on real estate are carried at the unpaid principal balance
less valuation allowances. The Company provides valuation allowances for
impairments of mortgage loans on real estate based on a review by portfolio
managers. The measurement of impaired loans is based on the present value of
expected future cash flows discounted at the loan's effective interest rate
or, as a practical expedient, at the fair value of the collateral, if the loan
is collateral dependent. Loans in foreclosure and loans considered to be
impaired are placed on non-accrual status. Interest received on non-accrual
status mortgage loans on real estate is included in interest income in the
period received.
Real estate is carried at cost less accumulated depreciation and valuation
allowances. Other long-term investments are carried on the equity basis,
adjusted for valuation allowances. Impairment losses are recorded on long-
lived assets used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount.
Realized gains and losses on the sale of investments are determined on the
basis of specific security identification. Estimates for valuation allowances
and other than temporary declines are included in realized gains and losses on
investments.
(c) Revenues and Benefits
Investment Products and Universal Life Insurance Products: Investment
products consist primarily of individual and group variable and fixed
annuities, annuities without life contingencies and guaranteed investment
contracts. Universal life insurance products include universal life insurance,
variable universal life insurance and other interest-sensitive life insurance
policies. Revenues for investment products and universal life insurance
products consist of net investment income, asset fees, cost of insurance,
policy administration and surrender charges that have been earned and assessed
against policy account balances during the period. Policy benefits and claims
that are charged to expense include interest credited to policy account
balances and benefits and claims incurred in the period in excess of related
policy account balances.
Traditional Life Insurance Products: Traditional life insurance products
include those products with fixed and guaranteed premiums and benefits and
consist primarily of whole life insurance, limited-payment life insurance,
term life insurance and certain annuities with life contingencies. Premiums
for traditional life insurance products are recognized as revenue when due.
Benefits and expenses are associated with earned premiums so as to result in
recognition of profits over the life of the contract. This association is
accomplished by the provision for future policy benefits and the deferral and
amortization of policy acquisition costs.
Accident and Health Insurance Products: Accident and health insurance
premiums are recognized as revenue over the terms of the policies. Policy
claims are charged to expense in the period that claims are incurred. All
accident and health insurance business is accounted for as discontinued
operations. See note 3.
(d) Deferred Policy Acquisition Costs
The costs of acquiring new business, principally commissions, certain
expenses of the policy issue and underwriting department and certain variable
agency expenses have been deferred. For investment products and universal life
insurance products, deferred policy acquisition costs are being amortized with
interest over the lives of the policies in relation to the present value of
estimated future gross profits from projected interest margins,
F-10
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
asset fees, cost of insurance, policy administration and surrender charges.
For years in which gross profits are negative, deferred policy acquisition
costs are amortized based on the present value of gross revenues. For
traditional life insurance products, these deferred policy acquisition costs
are predominantly being amortized with interest over the premium paying period
of the related policies in proportion to the ratio of actual annual premium
revenue to the anticipated total premium revenue. Such anticipated premium
revenue was estimated using the same assumptions as were used for computing
liabilities for future policy benefits. Deferred policy acquisition costs are
adjusted to reflect the impact of unrealized gains and losses on fixed
maturity securities available-for-sale as described in note 4(b).
(e) Separate Accounts
Separate Account assets and liabilities represent contractholders' funds
which have been segregated into accounts with specific investment objectives.
The investment income and gains or losses of these accounts accrue directly to
the contractholders. The activity of the Separate Accounts is not reflected in
the consolidated statements of income and cash flows except for the fees the
Company receives.
(f) Future Policy Benefits
Future policy benefits for investment products in the accumulation phase,
universal life insurance and variable universal life insurance policies have
been calculated based on participants' contributions plus interest credited
less applicable contract charges.
Future policy benefits for traditional life insurance policies have been
calculated using a net level premium method based on estimates of mortality,
morbidity, investment yields and withdrawals which were used or which were
being experienced at the time the policies were issued, rather than the
assumptions prescribed by state regulatory authorities. See note 7.
Future policy benefits and claims for collectively renewable long-term
disability policies and group long-term disability policies are the present
value of amounts not yet due on reported claims and an estimate of amounts to
be paid on incurred but unreported claims. The impact of reserve discounting
is not material. Future policy benefits and claims on other group health
insurance policies are not discounted. All health insurance business is
accounted for as discontinued operations. See note 3.
(g) Participating Business
Participating business represents approximately 52% in 1996 (54% in 1995 and
55% in 1994) of the Company's life insurance in force, 78% in 1996 (79% in
1995 and 79% in 1994) of the number of life insurance policies in force, and
40% in 1996 (47% in 1995 and 51% in 1994) of life insurance premiums. The
provision for policyholder dividends is based on current dividend scales.
Future dividends are provided for ratably in future policy benefits based on
dividend scales in effect at the time the policies were issued.
(h) Federal Income Tax
The Company files a consolidated federal income tax return with NMIC, the
majority shareholder of Nationwide Corp. The members of the consolidated tax
return group have a tax sharing arrangement which provides, in effect, for
each member to bear essentially the same federal income tax liability as if
separate tax returns were filed.
The Company utilizes the asset and liability method of accounting for income
tax. Under this method, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
F-11
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under this
method, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce the deferred tax
assets to the amounts expected to be realized.
(i) Reinsurance Ceded
Reinsurance premiums ceded and reinsurance recoveries on benefits and claims
incurred are deducted from the respective income and expense accounts. Assets
and liabilities related to reinsurance ceded are reported on a gross basis.
All of the Company's accident and health and group life insurance business is
ceded to affiliates and is accounted for as discontinued operations. See notes
3 and 14.
(j) Earnings per Common Share
Pro forma earnings per common share information is based on the weighted
average actual number of Class B common shares outstanding during the periods
presented, adjusted for the stock split described in note 2, plus the number
of Class A common shares expected to be issued for the Equity Offering.
(5) CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1994, the Company changed its method of accounting for
certain investments in debt and equity securities in connection with the
issuance of Statement of Financial Accounting Standards (SFAS) No. 115--
Accounting for Certain Investments in Debt and Equity Securities. As of
January 1, 1994, the Company classified fixed maturity securities with
amortized cost and fair value of $6,299,665 and $6,721,714, respectively, as
available-for-sale and recorded the securities at fair value. Previously,
these securities were
F-12
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
recorded at amortized cost. The effect as of January 1, 1994 has been recorded
as a direct credit to shareholder's equity as follows:
<TABLE>
<S> <C>
Excess of fair value over amortized cost of fixed maturity
securities
available-for-sale............................................. $422,049
Adjustment to deferred policy acquisition costs................. (95,044)
Deferred federal income tax..................................... (114,452)
--------
$212,553
========
</TABLE>
(6) INVESTMENTS
The amortized cost and estimated fair value of securities available-for-sale
were as follows as of December 31, 1996:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fixed maturity securities:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies...... $ 275,696 4,795 (1,340) 279,151
Obligations of states and
political subdivisions......... 6,242 450 (2) 6,690
Debt securities issued by
foreign governments............ 100,656 2,141 (857) 101,940
Corporate securities............ 7,999,310 285,946 (33,686) 8,251,570
Mortgage-backed securities...... 3,588,974 91,438 (15,124) 3,665,288
----------- ------- ------- ----------
Total fixed maturity
securities................... 11,970,878 384,770 (51,009) 12,304,639
Equity securities................. 43,890 15,571 (330) 59,131
----------- ------- ------- ----------
$12,014,768 400,341 (51,339) 12,363,770
=========== ======= ======= ==========
</TABLE>
The amortized cost and estimated fair value of the U.S. Treasury security
classified as held-to-maturity as of December 31, 1996 were $5,877 and $5,944,
respectively. Gross gains of $67 were unrealized on the security. The security
had a contractual maturity date of March 31, 1998.
The amortized cost and estimated fair value of securities available-for-sale
were as follows as of December 31, 1995:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fixed maturity securities:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies...... $ 320,500 12,764 (1) 333,263
Obligations of states and
political subdivisions......... 8,655 1,205 (1) 9,859
Debt securities issued by
foreign governments............ 101,414 4,387 (66) 105,735
Corporate securities............ 7,888,440 473,681 (25,742) 8,336,379
Mortgage-backed securities...... 3,553,861 165,169 (8,388) 3,710,642
----------- ------- ------- ----------
Total fixed maturity
securities................... 11,872,870 657,206 (34,198) 12,495,878
Equity securities................. 31,234 6,382 (46) 37,570
----------- ------- ------- ----------
$11,904,104 663,588 (34,244) 12,533,448
=========== ======= ======= ==========
</TABLE>
F-13
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The amortized cost and estimated fair value of the U.S. Treasury security
classified as held-to-maturity as of December 31, 1995 were $5,720 and $5,989,
respectively. Gross gains of $269 were unrealized on the security.
The amortized cost and estimated fair value of fixed maturity securities
available-for-sale as of December 31, 1996, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
----------- ----------
<S> <C> <C>
Fixed maturity securities available-for-sale
Due in one year or less................................ $ 440,235 444,214
Due after one year through five years.................. 3,937,010 4,053,152
Due after five years through ten years................. 2,809,813 2,871,806
Due after ten years.................................... 1,194,846 1,270,179
----------- ----------
8,381,904 8,639,351
Mortgage-backed securities............................... 3,588,974 3,665,288
----------- ----------
$11,970,878 12,304,639
=========== ==========
</TABLE>
The components of unrealized gains on securities available-for-sale, net,
were as follows as of December 31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Gross unrealized gains................................... $349,002 629,344
Adjustment to deferred policy acquisition costs.......... (81,939) (138,914)
Deferred federal income tax.............................. (93,471) (171,649)
-------- --------
173,592 318,781
Unrealized gains on securities available-for-sale, net,
of subsidiaries classified as discontinued operations
(note 3)................................................ -- 65,523
-------- --------
$173,592 384,304
======== ========
</TABLE>
An analysis of the change in gross unrealized gains/(losses) on securities
available-for-sale and fixed maturity securities held-to-maturity follows for
the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------- ------- ----------
<S> <C> <C> <C>
Securities available-for-
sale:
Fixed maturity
securities............. $(289,247) 876,332 (675,373)
Equity securities....... 8,905 (26) (1,927)
Fixed maturity securities
held-to-maturity......... (202) 75,895 (398,183)
--------- ------- ----------
$(280,544) 952,201 (1,075,483)
========= ======= ==========
</TABLE>
Proceeds from the sale of securities available-for-sale during 1996, 1995
and 1994 were $299,558, $150,453 and $268,987, respectively. During 1996,
gross gains of $6,368 ($4,838 and $3,045 in 1995 and 1994, respectively) and
gross losses of $13,659 ($2,147 and $21,280 in 1995 and 1994, respectively)
were realized on those sales.
During 1995, the Company transferred fixed maturity securities classified as
held-to-maturity with amortized cost of $25,429 to available-for-sale
securities due to evidence of a significant deterioration in the issuer's
creditworthiness. The transfer of those fixed maturity securities resulted in
a gross unrealized loss of $3,535.
F-14
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As permitted by the Financial Accounting Standards Board's Special Report, A
Guide to Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities, issued in November 1995, the Company
transferred nearly all of its fixed maturity securities previously classified
as held-to-maturity to available-for-sale. As of December 14, 1995, the date
of transfer, the fixed maturity securities had amortized cost of $3,320,093,
resulting in a gross unrealized gain of $155,940.
Investments that were non-income producing for the twelve month period
preceding December 31, 1996 amounted to $26,805 ($27,712 in 1995) and
consisted of $248 ($6,982 in 1995) in fixed maturity securities, $20,633
($14,740 in 1995) in real estate and $5,924 ($5,990 in 1995) in other long-
term investments.
Real estate is presented at cost less accumulated depreciation of $30,338 as
of December 31, 1996 ($30,482 as of December 31, 1995) and valuation
allowances of $15,219 as of December 31, 1996 ($25,819 as of December 31,
1995).
The recorded investment of mortgage loans on real estate considered to be
impaired (under SFAS No. 114--Accounting by Creditors for Impairment of a Loan
as amended by SFAS No. 118--Accounting by Creditors for Impairment of a Loan--
Income Recognition and Disclosure) as of December 31, 1996 was $51,765
($44,409 as of December 31, 1995), which includes $41,663 ($23,975 as of
December 31, 1995) of impaired mortgage loans on real estate for which the
related valuation allowance was $8,485 ($5,276 as of December 31, 1995) and
$10,102 ($20,434 as of December 31, 1995) of impaired mortgage loans on real
estate for which there was no valuation allowance. During 1996, the average
recorded investment in impaired mortgage loans on real estate was
approximately $39,674 ($22,181 in 1995) and interest income recognized on
those loans was $2,103 ($387 in 1995), which is equal to interest income
recognized using a cash-basis method of income recognition.
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Allowance, beginning of year............................. $49,128 $46,381
Additions charged to operations........................ 4,497 7,433
Direct write-downs charged against the allowance....... (2,587) (4,686)
------- -------
Allowance, end of year................................... $51,038 $49,128
======= =======
</TABLE>
An analysis of investment income by investment type follows for the years
ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-
sale:
Fixed maturity
securities............... $ 917,135 685,787 647,927
Equity securities......... 1,291 1,330 509
Fixed maturity securities
held-to-maturity.......... -- 201,808 185,938
Mortgage loans on real
estate.................... 432,815 395,478 372,734
Real estate................ 44,332 38,344 40,170
Short-term investments..... 4,155 10,576 6,141
Other...................... 3,998 7,239 2,121
---------- --------- ---------
Total investment
income................. 1,403,726 1,340,562 1,255,540
Less investment expenses.... 45,967 46,529 44,729
---------- --------- ---------
Net investment income... $1,357,759 1,294,033 1,210,811
========== ========= =========
</TABLE>
F-15
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
An analysis of realized gains/(losses) on investments, net of valuation
allowances, by investment type follows for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------ -------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities....................... $ (3,462) 4,213 (7,296)
Equity securities............................... 3,143 3,386 1,422
Mortgage loans on real estate..................... (4,115) (7,091) (20,446)
Real estate and other............................. 4,226 (2,232) 9,793
-------- ------ -------
$ (208) (1,724) (16,527)
======== ====== =======
</TABLE>
Fixed maturity securities with an amortized cost of $6,161 and $5,592 as of
December 31, 1996 and 1995, respectively, were on deposit with various
regulatory agencies as required by law.
(7) FUTURE POLICY BENEFITS AND CLAIMS
The liability for future policy benefits for investment contracts represents
approximately 87% and 87% of the total liability for future policy benefits as
of December 31, 1996 and 1995, respectively. The average interest rate
credited on investment product policies was approximately 6.3%, 6.6% and 6.5%
for the years ended December 31, 1996, 1995 and 1994, respectively.
The liability for future policy benefits for traditional life insurance
policies has been established based upon the following assumptions:
Interest rates: Interest rates vary as follows:
<TABLE>
<CAPTION>
YEAR OF ISSUE INTEREST RATES
------------- --------------
<S> <C>
1996................. 6.6%, not graded
1984-1995............ 6.0% to 10.5%, not graded
1966-1983............ 6.0% to 8.1%, graded over 20 years to 4.0% to 6.6%
1965 and prior....... generally lower than post 1965 issues
</TABLE>
Withdrawals: Rates, which vary by issue age, type of coverage and policy
duration, are based on Company experience.
Mortality: Mortality and morbidity rates are based on published tables,
modified for the Company's actual experience.
The Company has entered into a reinsurance contract to cede a portion of its
general account individual annuity business to The Franklin Life Insurance
Company (Franklin). Total recoveries due from Franklin were $240,451 and
$245,255 as of December 31, 1996 and 1995, respectively. The contract is
immaterial to the Company's results of operations. The ceding of risk does not
discharge the original insurer from its primary obligation to the
policyholder. Under the terms of the contract, Franklin has established a
trust as collateral for the recoveries. The trust assets are invested in
investment grade securities, the market value of which must at all times be
greater than or equal to 102% of the reinsured reserves.
The Company has reinsurance agreements with certain affiliates as described
in note 14. All other reinsurance agreements are not material to either
premiums or reinsurance recoverables.
F-16
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) FEDERAL INCOME TAX
The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability as of December 31, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Deferred tax assets:
Future policy benefits.................................. $175,571 149,192
Liabilities in Separate Accounts........................ 188,426 129,120
Mortgage loans on real estate and real estate........... 23,366 25,165
Other policyholder funds................................ 7,407 7,424
Other assets and other liabilities...................... 57,849 52,003
-------- -------
Total gross deferred tax assets....................... 452,619 362,904
Less valuation allowance.............................. (7,776) (7,776)
-------- -------
Net deferred tax assets............................... 444,843 355,128
-------- -------
Deferred tax liabilities:
Deferred policy acquisition costs....................... 399,345 299,579
Fixed maturity securities............................... 133,210 227,345
Deferred tax on realized investment gains............... 37,597 40,634
Equity securities and other long-term investments....... 8,210 3,780
Other................................................... 25,377 21,037
-------- -------
Total gross deferred tax liabilities.................. 603,739 592,375
-------- -------
$158,896 237,247
======== =======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion of the total gross
deferred tax assets will not be realized. Nearly all future deductible amounts
can be offset by future taxable amounts or recovery of federal income tax paid
within the statutory carryback period. There has been no change in the
valuation allowance for the year ended December 31, 1996 (decrease of $756
during 1995 and no change during 1994).
Total federal income tax expense for the years ended December 31, 1996, 1995
and 1994 differs from the amount computed by applying the U.S. federal income
tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- ------------- -------------
AMOUNT % AMOUNT % AMOUNT %
-------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax ex-
pense.......................... $114,831 35.0 $98,410 35.0 $84,162 35.0
Tax exempt interest and divi-
dends received deduction....... (212) (0.1) (18) 0.0 (130) (0.1)
Other, net...................... 1,191 0.4 (2,078) (0.7) (1,516) (0.6)
-------- ---- ------- ---- ------- ----
Total (effective rate of each
year)........................ $115,810 35.3 $96,314 34.3 $82,516 34.3
======== ==== ======= ==== ======= ====
</TABLE>
Total federal income tax paid was $117,327, $58,112 and $84,903 during the
years ended December 31, 1996, 1995 and 1994, respectively.
(9) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107--Disclosures about Fair Value of Financial Instruments (SFAS
107) requires disclosure of fair value information about existing on and off-
balance sheet financial instruments. SFAS 107 defines the fair
F-17
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
value of a financial instrument as the amount at which the financial
instrument could be exchanged in a current transaction between willing
parties. In cases where quoted market prices are not available, fair value is
based on estimates using present value or other valuation techniques.
These techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. Although fair
value estimates are calculated using assumptions that management believes are
appropriate, changes in assumptions could cause these estimates to vary
materially. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could
not be realized in the immediate settlement of the instruments. SFAS 107
excludes certain assets and liabilities from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
Although insurance contracts, other than policies such as annuities that are
classified as investment contracts, are specifically exempted from SFAS 107
disclosures, estimated fair value of policy reserves on life insurance
contracts is provided to make the fair value disclosures more meaningful.
The tax ramifications of the related unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in the
estimates.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures:
Cash, short-term investments and policy loans: The carrying amount
reported in the consolidated balance sheets for these instruments
approximates their fair value.
Fixed maturity and equity securities: Fair value for fixed maturity
securities is based on quoted market prices, where available. For fixed
maturity securities not actively traded, fair value is estimated using
values obtained from independent pricing services or, in the case of
private placements, is estimated by discounting expected future cash flows
using a current market rate applicable to the yield, credit quality and
maturity of the investments. The fair value for equity securities is based
on quoted market prices.
Separate Account assets and liabilities: The fair value of assets held in
Separate Accounts is based on quoted market prices. The fair value of
liabilities related to Separate Accounts is the amount payable on demand,
which includes certain surrender charges.
Mortgage loans on real estate: The fair value for mortgage loans on real
estate is estimated using discounted cash flow analyses, using interest
rates currently being offered for similar loans to borrowers with similar
credit ratings. Loans with similar characteristics are aggregated for
purposes of the calculations. Fair value for mortgages in default is the
estimated fair value of the underlying collateral.
Investment contracts: Fair value for the Company's liabilities under
investment type contracts is disclosed using two methods. For investment
contracts without defined maturities, fair value is the amount payable on
demand. For investment contracts with known or determined maturities, fair
value is estimated using discounted cash flow analysis. Interest rates used
are similar to currently offered contracts with maturities consistent with
those remaining for the contracts being valued.
Policy reserves on life insurance contracts: Included are disclosures for
individual life insurance, universal life insurance and supplementary
contracts with life contingencies for which the estimated fair value is the
amount payable on demand. Also included are disclosures for the Company's
limited payment policies, which the Company has used discounted cash flow
analyses similar to those used for investment contracts with known
maturities to estimate fair value.
Policyholders' dividend accumulations and other policyholder funds: The
carrying amount reported in the consolidated balance sheets for these
instruments approximates their fair value.
F-18
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Commitments to extend credit: Commitments to extend credit have nominal
fair value because of the short-term nature of such commitments. See note
10.
Carrying amount and estimated fair value of financial instruments subject to
SFAS 107 and policy reserves on life insurance contracts were as follows as of
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Assets
Investments:
Securities available-for-sale:
Fixed maturity securities...... $12,304,639 12,304,639 12,495,878 12,495,878
Equity securities.............. 59,131 59,131 37,570 37,570
Fixed maturity securities held-
to-maturity.................... 5,877 5,944 5,720 5,989
Mortgage loans on real estate,
net............................ 5,272,119 5,397,865 4,627,387 4,987,569
Policy loans.................... 371,816 371,816 336,356 336,356
Short-term investments.......... 9,261 9,261 42,671 42,671
Cash............................. 43,183 43,183 10,055 10,055
Assets held in Separate
Accounts........................ 26,926,702 26,926,702 18,591,108 18,591,108
Liabilities
Investment contracts............. 13,914,441 13,484,526 13,229,360 12,876,798
Policy reserves on life insurance
contracts....................... 2,971,337 2,775,991 2,836,323 2,733,486
Policyholders' dividend
accumulations................... 361,401 361,401 348,027 348,027
Other policyholder funds......... 60,073 60,073 65,297 65,297
Liabilities related to Separate
Accounts........................ 26,926,702 26,164,213 18,591,108 18,052,362
</TABLE>
(10) ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURES
Financial Instruments with Off-Balance-Sheet Risk: The Company is a party to
financial instruments with off-balance-sheet risk in the normal course of
business through management of its investment portfolio. These financial
instruments include commitments to extend credit in the form of loans. These
instruments involve, to varying degrees, elements of credit risk in excess of
amounts recognized on the consolidated balance sheets.
Commitments to fund fixed rate mortgage loans on real estate are agreements
to lend to a borrower, and are subject to conditions established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a deposit. Commitments extended
by the Company are based on management's case-by-case credit evaluation of the
borrower and the borrower's loan collateral. The underlying mortgage property
represents the collateral if the commitment is funded. The Company's policy
for new mortgage loans on real estate is to lend no more than 75% of
collateral value. Should the commitment be funded, the Company's exposure to
credit loss in the event of nonperformance by the borrower is represented by
the contractual amounts of these commitments less the net realizable value of
the collateral. The contractual amounts also represent the cash requirements
for all unfunded commitments. Commitments on mortgage loans on real estate of
$327,456 extending into 1997 were outstanding as of December 31, 1996.
Significant Concentrations of Credit Risk: The Company grants mainly
commercial mortgage loans on real estate to customers throughout the United
States. The Company has a diversified portfolio with no more than 21% (20% in
1995) in any geographic area and no more than 2% (2% in 1995) with any one
borrower as of December 31, 1996.
The Company had a significant reinsurance recoverable balance from one
reinsurer as of December 31, 1996 and 1995. See note 7.
F-19
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The summary below depicts loans by remaining principal balance as of
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
APARTMENT
OFFICE WAREHOUSE RETAIL & OTHER TOTAL
-------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
1996:
East North Central......... $139,518 119,069 549,064 215,038 1,022,689
East South Central......... 33,267 22,252 172,968 90,623 319,110
Mountain................... 17,972 43,027 113,292 73,390 247,681
Middle Atlantic............ 129,077 54,046 160,833 18,498 362,454
New England................ 33,348 43,581 161,960 -- 238,889
Pacific.................... 202,562 325,046 424,295 110,108 1,062,011
South Atlantic............. 103,889 134,492 482,934 385,185 1,106,500
West North Central......... 126,467 2,441 75,180 40,529 244,617
West South Central......... 104,877 120,314 197,090 304,256 726,537
-------- ------- --------- --------- ----------
$890,977 864,268 2,337,616 1,237,627 5,330,488
======== ======= ========= =========
Less valuation allowances
and unamortized discount.. 58,369
----------
Total mortgage loans on
real estate, net........ $5,272,119
==========
</TABLE>
<TABLE>
<CAPTION>
APARTMENT
OFFICE WAREHOUSE RETAIL & OTHER TOTAL
-------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
1995:
East North Central......... $138,965 101,925 514,995 175,213 931,098
East South Central......... 28,642 15,266 180,858 82,383 307,149
Mountain................... -- 17,219 141,537 45,274 204,030
Middle Atlantic............ 116,187 64,813 158,252 10,793 350,045
New England................ 9,559 39,525 148,449 1 197,534
Pacific.................... 183,206 241,857 378,024 105,419 908,506
South Atlantic............. 106,246 73,541 446,800 278,265 904,852
West North Central......... 133,899 14,205 78,065 36,651 262,820
West South Central......... 69,140 92,594 190,299 267,268 619,301
-------- ------- --------- --------- ----------
$785,844 660,945 2,237,279 1,001,267 4,685,335
======== ======= ========= =========
Less valuation allowances
and unamortized discount.. 57,948
----------
Total mortgage loans on
real estate, net........ $4,627,387
==========
</TABLE>
(11) PENSION PLAN
The Company is a participant, together with other affiliated companies, in a
pension plan covering all employees who have completed at least one thousand
hours of service within a twelve-month period and who have met certain age
requirements. Benefits are based upon the highest average annual salary of a
specified number of consecutive years of the last ten years of service. The
Company funds pension costs accrued for direct employees plus an allocation of
pension costs accrued for employees of affiliates whose work efforts benefit
the Company.
Effective January 1, 1995, the plan was amended to provide enhanced benefits
for participants who met certain eligibility requirements and elected early
retirement no later than March 15, 1995. The entire cost of the enhanced
benefit was borne by NMIC and certain of its property and casualty insurance
company affiliates.
F-20
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effective December 31, 1995, the Nationwide Insurance Companies and
Affiliates Retirement Plan was merged with the Farmland Mutual Insurance
Company Employees' Retirement Plan and the Wausau Insurance Companies Pension
Plan to form the Nationwide Insurance Enterprise Retirement Plan. Immediately
prior to the merger, the plans were amended to provide consistent benefits for
service after January 1, 1996. These amendments had no significant impact on
the accumulated benefit obligation or projected benefit obligation as of
December 31, 1995.
Pension costs charged to operations by the Company during the years ended
December 31, 1996, 1995 and 1994 were $8,167, $11,383 and $11,113,
respectively.
The Company's net accrued pension expense as of December 31, 1996 and 1995
was $1,236 and $1,553, respectively.
The net periodic pension cost for the Nationwide Insurance Enterprise
Retirement Plan as a whole for the year ended December 31, 1996 and for the
Nationwide Insurance Companies and Affiliates Retirement Plan as a whole for
the years ended December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Service cost (benefits earned during the
period)..................................... $ 75,466 64,524 64,740
Interest cost on projected benefit
obligation.................................. 105,511 95,283 73,951
Actual return on plan assets................. (210,583) (249,294) (21,495)
Net amortization and deferral................ 101,795 143,353 (62,150)
-------- -------- -------
$ 72,189 53,866 55,046
======== ======== =======
Basis for measurements, net periodic pension cost:
<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Weighted average discount rate............... 6.00% 7.50% 5.75%
Rate of increase in future compensation
levels...................................... 4.25% 6.25% 4.50%
Expected long-term rate of return on plan
assets...................................... 6.75% 8.75% 7.00%
</TABLE>
Information regarding the funded status of the Nationwide Insurance
Enterprise Retirement Plan as a whole as of December 31, 1996 and 1995
follows:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Accumulated benefit obligation:
Vested............................................ $1,338,554 1,236,730
Nonvested......................................... 11,149 26,503
---------- ---------
$1,349,703 1,263,233
========== =========
Net accrued pension expense:
Projected benefit obligation for services rendered
to date.......................................... $1,847,828 1,780,616
Plan assets at fair value......................... 1,947,933 1,738,004
---------- ---------
Plan assets in excess of (less than) projected
benefit obligation............................... 100,105 (42,612)
Unrecognized prior service cost................... 37,870 42,845
Unrecognized net gains............................ (201,952) (63,130)
Unrecognized net asset at transition.............. 37,158 41,305
---------- ---------
$ (26,819) (21,592)
========== =========
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Basis for measurements, funded status of plan:
Weighted average discount rate.................... 6.50% 6.00%
Rate of increase in future compensation levels.... 4.75% 4.25%
</TABLE>
F-21
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Assets of the Nationwide Insurance Enterprise Retirement Plan are invested
in group annuity contracts of NLIC and ELICW.
(12) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to the defined benefit pension plan, the Company, together with
other affiliated companies, participates in life and health care defined
benefit plans for qualifying retirees. Postretirement life and health care
benefits are contributory and generally available to full time employees who
have attained age 55 and have accumulated 15 years of service with the Company
after reaching age 40. Postretirement health care benefit contributions are
adjusted annually and contain cost-sharing features such as deductibles and
coinsurance. In addition, there are caps on the Company's portion of the per-
participant cost of the postretirement health care benefits. These caps can
increase annually, but not more than three percent. The Company's policy is to
fund the cost of health care benefits in amounts determined at the discretion
of management. Plan assets are invested primarily in group annuity contracts
of NLIC.
The Company elected to immediately recognize its estimated accumulated
postretirement benefit obligation; however, certain affiliated companies
elected to amortize their initial transition obligation over periods ranging
from 10 to 20 years.
The Company's accrued postretirement benefit expense as of December 31, 1996
and 1995 was $34,884 and $33,539, respectively, and the net periodic
postretirement benefit cost (NPPBC) for 1996, 1995 and 1994 was $3,394, $3,221
and $4,524, respectively.
The amount of NPPBC for the plan as a whole for the years ended December 31,
1996, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Service cost (benefits attributed to employee
service during the year)........................ $ 6,541 6,235 8,586
Interest cost on accumulated postretirement
benefit obligation.............................. 13,679 14,151 14,011
Actual return on plan assets..................... (4,348) (2,657) (1,622)
Amortization of unrecognized transition
obligation of affiliates........................ 173 2,966 568
Net amortization and deferral.................... 1,830 (1,619) 1,622
------- ------ ------
$17,875 19,076 23,165
======= ====== ======
</TABLE>
Information regarding the funded status of the plan as a whole as of
December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Accrued postretirement benefit expense:
Retirees............................................. $ 92,954 88,680
Fully eligible, active plan participants............. 23,749 28,793
Other active plan participants....................... 83,986 90,375
--------- --------
Accumulated postretirement benefit obligation
(APBO)............................................ 200,689 207,848
Plan assets at fair value............................ 63,044 54,325
--------- --------
Plan assets less than accumulated postretirement
benefit obligation................................ (137,645) (153,523)
Unrecognized transition obligation of affiliates..... 1,654 1,827
Unrecognized net gains............................... (23,225) (1,038)
--------- --------
$(159,216) (152,734)
========= ========
</TABLE>
F-22
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Actuarial assumptions used for the measurement of the APBO as of December
31, 1996 and 1995 and the NPPBC for 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1996 1995 1995 1994
APBO NPPBC APBO NPPBC NPPBC
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Discount rate............... 7.25% 6.65% 6.75% 8.00% 7.00%
Long term rate of return on
plan assets, net of tax.... -- 4.80% -- 8.00% N/A
Assumed health care cost
trend rate:
Initial rate.............. 11.00% 11.00% 11.00% 10.00% 12.00%
Ultimate rate............. 6.00% 6.00% 6.00% 6.00% 6.00%
Uniform declining period.. 12 Years 12 Years 12 Years 12 Years 12 Years
</TABLE>
The health care cost trend rate assumption has an effect on the amounts
reported. For the plan as a whole, a one percentage point increase in the
assumed health care cost trend rate would increase the APBO as of December 31,
1996 by $701 and the NPPBC for the year ended December 31, 1996 by $83.
(13) SHAREHOLDER'S EQUITY, REGULATORY RISK-BASED CAPITAL, RETAINED EARNINGS
AND DIVIDEND RESTRICTIONS
The holders of Class A common stock are entitled to one vote per share. The
holders of Class B common stock are entitled to ten votes per share. Class A
common stock has no conversion rights. Class B common stock is convertible
into Class A common stock, in whole or in part, at any time and from time to
time at the option of the holder, on the basis of one share of Class A common
stock for each share of Class B common stock converted. If at any time after
the initial issuance of shares of Class A common stock the number of
outstanding shares of Class B common stock falls below 5% of the aggregate
number of issued and outstanding shares of common stock, then each outstanding
share of Class B common stock shall automatically convert into one share of
Class A common stock. In the event of any sale or transfer of shares of Class
B common stock to any person or persons other than NMIC or its affiliates,
such shares of Class B common stock so transferred shall be automatically
converted into an equal number of shares of Class A common stock.
Each insurance company's state of domicile imposes minimum risk-based
capital requirements that were developed by the NAIC. The formulas for
determining the amount of risk-based capital specify various weighting factors
that are applied to financial balances or various levels of activity based on
the perceived degree of risk. Regulatory compliance is determined by a ratio
of the company's regulatory total adjusted capital, as defined by the NAIC, to
its authorized control level risk-based capital, as defined by the NAIC.
Companies below specific trigger points or ratios are classified within
certain levels, each of which requires specified corrective action. NLIC and
each of its insurance company subsidiaries exceed the minimum risk-based
capital requirements.
The combined statutory capital and surplus of NLIC as of December 31, 1996,
1995 and 1994 was $1,000,647, $1,363,031 and $1,262,861, respectively. The
statutory net income of NLIC for the years ended December 31, 1996, 1995 and
1994 was $73,218, $86,529 and $76,532, respectively.
NLIC is limited in the amount of shareholder dividends it may pay without
prior approval by the Department of Insurance of the State of Ohio (the
Department). NLIC's dividend of the outstanding shares of common stock of
certain companies which was declared on September 24, 1996 and the anticipated
$850,000 dividend (as discussed in note 1) are deemed extraordinary under Ohio
insurance laws. As a result of such
F-23
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
dividends, any dividend paid by NLIC during the 12-month period immediately
following the $850,000 dividend would also be an extraordinary dividend under
Ohio insurance laws. Accordingly, no such dividend could be paid without prior
regulatory approval.
In addition, the payment of dividends by NLIC may also be subject to
restrictions set forth in the insurance laws of New York that limit the amount
of statutory profits on NLIC's participating policies (measured before
dividends to policyholders) that can inure to the benefit of the Company and
its stockholders.
The Company currently does not expect such regulatory requirements to impair
its ability to pay operating expenses and stockholder dividends in the future.
(14) TRANSACTIONS WITH AFFILIATES
The Company leases office space from NMIC and certain of its subsidiaries.
For the years ended December 31, 1996, 1995 and 1994, the Company made lease
payments to NMIC and its subsidiaries of $9,985, $9,880 and $8,987,
respectively.
Pursuant to a cost sharing agreement among NMIC and certain of its direct
and indirect subsidiaries, including the Company, NMIC provides certain
operational and administrative services, such as sales support, advertising,
personnel and general management services, to those subsidiaries. Expenses
covered by this agreement are subject to allocation among NMIC and such
subsidiaries. Amounts allocated to the Company were $101,584, $107,112 and
$100,601 in 1996, 1995 and 1994, respectively. Under the cost sharing
agreement, expenses are allocated in accordance with NAIC guidelines and are
based on standard allocation techniques and procedures acceptable under
general cost accounting practices. Measures used to allocate expenses include
individual employee estimates of time spent, special cost studies, salary
expense, commissions expense and other measures that are agreed to by the
participating companies and are within regulatory and industry guidelines and
practices. The Company believes these allocation measures are reasonable. In
addition, the Company does not believe that expenses recognized under the
inter-company agreements are materially different than expenses that would
have been recognized had the Company operated on a stand alone basis. Amounts
payable to NMIC from the Company under the cost sharing agreement were $15,111
and $1,186 as of December 31, 1996 and 1995, respectively.
The Company also participates in intercompany repurchase agreements with
affiliates whereby the seller will transfer securities to the buyer at a
stated value. Upon demand or a stated period, the securities will be
repurchased by the seller at the original sales price plus a price
differential. Transactions under the agreements during 1996 and 1995 were not
material. The Company believes that the terms of the repurchase agreements are
materially consistent with what the Company could have obtained with
unaffiliated parties.
Intercompany reinsurance agreements exist between NLIC and, respectively,
NMIC and ELICW whereby all of NLIC's accident and health and group life
insurance business is ceded on a modified coinsurance basis. NLIC entered into
the reinsurance agreements during 1996 because the accident and health and
group life insurance business was unrelated to the Company's long-term savings
and retirement products. Accordingly, the accident and health and group life
insurance business has been accounted for as discontinued operations for all
periods presented. Under modified coinsurance agreements, invested assets are
retained by the ceding company and investment earnings are paid to the
reinsurer. Under the terms of the Company's agreements, the investment risk
associated with changes in interest rates is borne by ELICW or NMIC, as the
case may be. Risk of asset default is retained by the Company, although a fee
is paid by ELICW or NMIC, as the case may be, to the Company for the Company's
retention of such risk. The agreements will remain in force until all policy
obligations are settled. However, with respect to the agreement between NLIC
and NMIC, either party may
F-24
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
terminate the contract on January 1 of any year with prior notice. The ceding
of risk does not discharge the original insurer from its primary obligation to
the policyholder. The Company believes that the terms of the modified
coinsurance agreements are consistent in all material respects with what the
Company could have obtained with unaffiliated parties.
Amounts ceded to ELICW in 1996 are included in ELICW's results of operations
for 1996 which, combined with the results of WCLIC and NCC, are summarized in
note 3. Amounts ceded to ELICW in 1996 include premiums of $224,224, net
investment income and other revenue of $14,833, and benefits, claims and other
expenses of $246,641. Amounts ceded to NMIC in 1996 include premiums of
$97,331, net investment income of $10,890, and benefits, claims and other
expenses of $100,476.
The Company and various affiliates entered into agreements with Nationwide
Cash Management Company (NCMC) and California Cash Management Company (CCMC),
both affiliates, under which NCMC and CCMC act as common agents in handling
the purchase and sale of short-term securities for the respective accounts of
the participants. Amounts on deposit with NCMC and CCMC were $9,261 and
$18,602 as of December 31, 1996 and 1995, respectively, and are included in
short-term investments on the accompanying consolidated balance sheets.
On March 1, 1995, Nationwide Corp. contributed all of the outstanding shares
of common stock of Farmland Life Insurance Company (Farmland) to NLIC.
Farmland merged into WCLIC effective June 30, 1995. The contribution resulted
in a direct increase to consolidated shareholder's equity of $46,918. As
discussed in note 3, WCLIC is accounted for as discontinued operations.
Effective December 31, 1994, NLIC purchased all of the outstanding shares of
common stock of ELICW from Wausau Service Corporation (WSC) for $155,000. NLIC
transferred fixed maturity securities and cash with a fair value of $155,000
to WSC on December 28, 1994, which resulted in a realized loss of $19,239 on
the disposition of the securities. The purchase price approximated both the
historical cost basis and fair value of net assets of ELICW. ELICW has and
will continue to share home office, other facilities, equipment and common
management and administrative services with WSC. As discussed in note 3, ELICW
is accounted for as discontinued operations.
(15) BANK LINES OF CREDIT
In August 1996, NLIC, along with NMIC, entered into a $600,000 revolving
credit facility which provides for a $600,000 loan over a five year term on a
fully revolving basis with a group of national financial institutions. The
credit facility provides for several and not joint liability with respect to
any amount drawn by either NLIC or NMIC. NLIC and NMIC pay facility and usage
fees to the financial institutions to maintain the revolving credit facility.
All previously existing line of credit agreements were canceled.
(16) CONTINGENCIES
The Company is a defendant in various lawsuits. In the opinion of
management, the effects, if any, of such lawsuits are not expected to be
material to the Company's financial position or results of operations.
(17) SEGMENT INFORMATION
The Company has three primary segments: Variable Annuities, Fixed Annuities
and Life Insurance. The Variable Annuities segment consists of annuity
contracts that provide the customer with the opportunity to invest in mutual
funds managed by the Company and independent investment managers, with the
investment returns accumulating on a tax-deferred basis. The Fixed Annuities
segment consists of annuity contracts that generate a return for the customer
at a specified interest rate, fixed for a prescribed period, with returns
accumulating on a tax-deferred basis. The Life Insurance segment consists of
insurance products that provide a death benefit and may also allow the
customer to build cash value on a tax-deferred basis. In addition, the Company
reports
F-25
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
corporate expenses and investments, and the related investment income
supporting capital not specifically allocated to its product segments in a
Corporate and Other segment. In addition, all realized gains and losses,
investment management fees and other revenue earned from mutual funds other
than the portion allocated to the variable annuities and life insurance
segments, and commissions and other income earned by the marketing and
distribution companies are reported in the Corporate and Other segment.
The following table summarizes revenues and income from continuing
operations before federal income tax expense for the years ended December 31,
1996, 1995 and 1994 and assets as of December 31, 1996, 1995 and 1994, by
business segment.
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Variable Annuities......................... $ 284,638 189,071 132,687
Fixed Annuities............................ 1,092,566 1,051,970 939,868
Life Insurance............................. 435,657 409,135 383,150
Corporate and Other........................ 203,739 186,862 178,379
----------- ---------- ----------
$ 2,016,600 1,837,038 1,634,084
=========== ========== ==========
Income from continuing operations before
federal income tax expense:
Variable Annuities......................... 90,244 50,837 24,574
Fixed Annuities............................ 135,405 137,000 138,950
Life Insurance............................. 67,242 67,590 53,046
Corporate and Other........................ 35,197 25,743 23,893
----------- ---------- ----------
$ 328,088 281,170 240,463
=========== ========== ==========
Assets:
Variable Annuities......................... 25,069,725 17,333,039 11,146,465
Fixed Annuities............................ 13,994,715 13,250,359 11,668,973
Life Insurance............................. 3,353,286 3,027,420 2,752,283
Corporate and Other, including discontinued
operations................................ 5,352,512 4,895,270 3,675,592
----------- ---------- ----------
$47,770,238 38,506,088 29,243,313
=========== ========== ==========
</TABLE>
F-26
<PAGE>
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSE-
QUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE SUCH DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... 4
Prospectus Summary....................................................... 5
Risk Factors............................................................. 17
Nationwide Financial Services Capital Trust.............................. 27
Use of Proceeds.......................................................... 28
Recent History........................................................... 29
Capitalization........................................................... 30
Selected Consolidated Financial Data..................................... 31
Pro Forma Consolidated Financial Data.................................... 33
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 38
Business................................................................. 49
Management............................................................... 80
Ownership of Capital Stock............................................... 93
Certain Relationships and Related Transactions........................... 94
Description of the Capital Securities.................................... 100
Description of the Guarantee............................................. 112
Description of the Junior Subordinated Debentures........................ 115
Effect of Obligations under the Junior Subordinated Debentures, the
Guarantee and the Declaration........................................... 122
United States Federal Income Taxation.................................... 122
ERISA Considerations..................................................... 126
Description of Capital Stock............................................. 128
The Equity Offerings, the Note Offering and the Capital Securities Offer-
ing..................................................................... 133
Underwriting............................................................. 133
Notice to Canadian Residents............................................. 135
Legal Matters............................................................ 135
Experts.................................................................. 136
Glossary of Selected Insurance Terms..................................... 137
Index to Financial Statements............................................ F-1
</TABLE>
------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO]
Nationwide Financial
Services Capital Trust
$100,000,000
% Capital Securities
(Liquidation Amount $1,000 per Capital Security)
fully and unconditionally guaranteed, as described herein, by
Nationwide Financial Services, Inc.
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
MORGAN STANLEY & CO.
Incorporated
MERRILL LYNCH & CO.
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
offering of the Capital Securities pursuant to this Registration Statement
that will be paid fully by the Company. All amounts shown are estimates,
except the Securities and Exchange Commission registration fee, the NASD
filing fee and the NYSE listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $151,515.15
NASD filing fee................................................. 30,500.00
NYSE listing fee................................................ --
Blue Sky fees and expenses...................................... 2,000.00
Legal fees and expenses......................................... 350,000.00
Accounting fees and expenses.................................... 50,000.00
Trustee fees and expenses....................................... 18,500.00
Printing, engraving and postage expenses........................ 225,000.00
Miscellaneous................................................... 10,000.00
-----------
Total......................................................... $837,515.15
===========
</TABLE>
- --------
* To be completed by Amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Subsection (a) of DGCL Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he 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 expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Subsection (b) of DGCL Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation, except that no indemnification may
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
Other subsections of DGCL Section 145 further provide that to the extent a
director, officer, employee or agent of a corporation has been successful on
the merits or otherwise in the defense of any action, suit or proceeding
referred to in subsections (a) and (b) of Section 145, or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith; that indemnification provided for by Section 145 shall,
unless otherwise provided when authorized or ratified, continue as to a person
who has ceased to be a director, officer, employee or agent
II-1
<PAGE>
and shall inure to the benefit of such person's heirs, executors and
administrators; and that expenses incurred by an officer or director in
defending any civil, criminal, administrative or investigative action, suit or
proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the corporation.
Section 1 of Article VI of the Company's Bylaws provides that the Company
shall indemnify its directors, officers, employees and agents to the fullest
extent permitted by the DGCL. This Section further provides that the Company
may advance expenses incurred by any director or officer in defending a civil
or criminal action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that such person is not entitled to the indemnification by the
Company.
DGCL Section 145 also provides that any indemnification provided for therein
may only be made upon a determination by (i) a majority vote of the directors
who are not parties to such action, suit or proceeding, even though less than
a quorum, or (ii) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or (iii) by the
stockholders that the indemnitee has met the standard of conduct required by
Section 145 entitling him to such indemnification.
DGCL Section 145 empowers the corporation to purchase and maintain insurance
on behalf of a director, officer, employee or agent of the corporation 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 liabilities under Section 145.
Section 3 of Article VI of the Company's Bylaws provides that the Company may
purchase and maintain insurance on behalf of any director or officer against
any liability asserted against and incurred by such person arising out of the
person's status as such, whether or not the Company would have the power to
indemnify such person against such liability under the DGCL.
The Company has in force and effect a policy insuring the directors and
officers of the Company against losses which they or any of them shall become
legally obligated to pay for by reason of any actual or alleged error or
misstatement or misleading statement or act or omission or neglect or breach
of duty by the directors and officers in the discharge of their duties,
individually or collectively, or any matter claimed against them solely by
reason of their being directors or officers, such coverage being limited by
the specific terms and provisions of the insurance policy.
Pursuant to the Underwriting Agreement, in the form filed as an exhibit to
the Registration Statement, any Underwriters under the Underwriting Agreement
will agree to indemnify the registrant's directors and officers and persons
controlling the registrant within the meaning of the Securities Act against
certain liabilities that might arise out of or based upon certain information
furnished to the registrant by any such indemnifying party.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director provided that such provisions shall not
eliminate or limit the liability of a director (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 DGCL or (iv) for
any transaction from which the director derived an improper personal benefit.
Article TWELFTH of the Company's Certificate limits the liability of directors
to the fullest extent permitted by Section 102(b)(7).
Section 3817 of the Delaware Code governing business trusts provides that a
business trust shall have the power to indemnify and hold harmless any trustee
or beneficial owner or other person from and against any and all claims and
demands whatsoever.
The Declaration provides that no Trustee or any of its Affiliates (as
defined therein), officers, directors, shareholders, members, partners,
employees, representatives or agents, nor any employee or agent of the Trust
II-2
<PAGE>
or its Affiliates (each an "Indemnified Person"), shall be liable, responsible
or accountable in damages or otherwise to the Trust, any officer, director,
shareholder, partner, member, representative, employee or agent of the Trust
or its Affiliates, or any holder of the Trust Securities for any loss, damage
or claim incurred by reason of any act or omission performed or omitted by
such Indemnified Person in good faith on behalf of the Trust and in a manner
such Indemnified Person reasonably believed to be within the scope of the
authority conferred on such Indemnified Person by the Declaration or by law,
except that an Indemnified Person shall be liable for any such loss, damage or
claim incurred by reason of such Indemnified Person's negligence or willful
misconduct with respect to such acts or omissions.
The Declaration provides further that to the full extent permitted by law
the Company, as sponsor of the Trust, shall indemnify each Indemnified Person
against any loss, damage, liability, tax, penalty, expense or claim of any
kind or nature whatsoever incurred by such Indemnified Person by reason of the
creation, operation or termination of the Trust or any act or omission
performed or omitted by such Indemnified Person in good faith on behalf of the
Trust and in a manner such Indemnified Person reasonably believed to be within
the scope of authority conferred on such Indemnified Person by this
Declaration, except that no Indemnified Person shall be entitled to be
indemnified in respect of any loss, damage or claim incurred by such
Indemnified Person by reason of negligence or willful misconduct with respect
to such acts or omissions. The Declaration further provides that the Company,
as sponsor of the Trust, shall indemnify each Indemnified Person in advance
for expenses (including legal fees and expenses) incurred by an Indemnified
Person in defending any claim, demand, action, suit or proceeding upon receipt
by the Company, as sponsor of the Trust, of an undertaking by or on behalf of
the Indemnified Person to repay such amount if it shall be determined that
such Indemnified Person is not entitled to be indemnified by the Company, as
sponsor of the Trust.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On December 11, 1996, the Registrant issued 1,000 shares of common stock to
Nationwide Corp. in exchange for $1,000. This exchange is exempt from
registration under the Securities Act pursuant to Section 4(2) thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)Exhibits
<TABLE>
<C> <S>
1.1 --Form of Underwriting Agreement
**3.1 --Form of Restated Certificate of Incorporation of Nationwide
Financial Services, Inc.
**3.2 --Form of Restated Bylaws of Nationwide Financial Services, Inc.
3.3 --Certificate of Trust of Nationwide Financial Services Capital Trust
3.4 --Form of Amended and Restated Declaration of Trust of Nationwide
Financial Services Capital Trust
4.1 --Form of Indenture relating to the Junior Subordinated Deferrable
Interest Debentures due 2037 of Nationwide Financial Services, Inc.
4.2 --Form of Certificate for Capital Securities of Nationwide Financial
Services Capital Trust (contained in Exhibit 3.4)
4.3 --Form of Certificate for Junior Subordinated Deferrable Interest
Debentures due 2037 of Nationwide Financial Services, Inc.
(contained in Exhibit 4.1)
4.4 --Form of Capital Securities Guarantee Agreement by Nationwide
Financial Services, Inc.
5.1 --Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
5.2 --Opinion of Richards, Layton & Finger, P.A.
8.1 --Tax Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.1 --Form of Intercompany Agreement among Nationwide Mutual Insurance
Company, Nationwide Corporation and Nationwide Financial Services,
Inc.
**10.2 --Form of Tax Sharing Agreement among Nationwide Mutual Insurance
Company, Nationwide Corporation and any corporation that may
hereafter be a subsidiary of Nationwide Corporation
**10.3 --Form of First Amendment to Cost Sharing Agreement among the
parties named therein
**10.4 --Modified Coinsurance Agreement between Nationwide Life Insurance
Company and Nationwide Mutual Insurance Company
**10.5 --Modified Coinsurance Agreement between Employers Life Insurance
Company of Wausau and Nationwide Life Insurance Company
**10.6 --Credit Facility, dated August 12, 1996, among Nationwide Life
Insurance Company, Nationwide Mutual Insurance Company, the banks
named therein and Morgan Guaranty Trust Company of New York, the
administrative agent
**10.7 --Form of Lease Agreement between Nationwide Mutual Insurance
Company, Nationwide Life Insurance Company, Nationwide Life and
Annuity Insurance Company and Nationwide Financial Services, Inc.
**10.8 --Form of Nationwide Financial Services, Inc. 1996 Long-Term Equity
Compensation Plan
**10.9 --General Description of Nationwide Insurance Enterprise Executive
Incentive Plan
**10.10 --General Description of Nationwide Insurance Enterprise Management
Incentive Plan
**10.11 --Nationwide Insurance Enterprise Excess Benefit Plan effective as
of December 31, 1996
**10.12 --Nationwide Insurance Enterprise Supplemental Retirement Plan
effective as of December 31, 1996
**10.13 --Nationwide Salaried Employees Severance Pay Plan
**10.14 --Nationwide Insurance Enterprise Supplemental Defined Contribution
Plan effective as of January 1, 1996
**10.15 --General Description of Nationwide Insurance Enterprise Individual
Deferred Compensation Program
**10.16 --General Description of Nationwide Mutual Insurance Company
Directors Deferred Compensation Program
**10.17 --Deferred Compensation Agreement, dated as of September 3, 1979,
between Nationwide Mutual Insurance Company and D. Richard
McFerson
**10.18 --Nationwide Financial Services, Inc. Stock Retainer Plan for Non-
Employee Directors
11.1 --Statement Regarding Computation of Per Share Earnings
12.1 --Statements Regarding Computation of Ratios
**21.1 --List of Subsidiaries
23.1 --Consent of KPMG Peat Marwick LLP
23.2 --Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (contained in
Exhibit 5.1)
23.3 --Consent of Richards, Layton & Finger, P.A. (contained in Exhibit
5.2)
23.4 --Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (contained in
Exhibit 8.1)
**24.1 --Power of Attorney (for Messrs. McFerson, Gasper, Oakley, Shisler,
Holloway, Patterson, Miller and Fuellgraf)
**24.2 --Power of Attorney for Lydia Micheaux Marshall
**24.3 --Power of Attorney for Donald L. McWhorter
**24.4 --Power of Attorney for Gerald D. Prothro
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
25.1 --Statement of Eligibility of Trustee under the Indenture relating to
the Junior Subordinated Deferrable Interest Debentures due 2037 of
Nationwide Financial Services, Inc.
25.2 --Statement of Eligibility of Trustee under the Amended and Restated
Declaration of Trust of Nationwide Financial Services Capital Trust
25.3 --Statement of Eligibility of Trustee under the Capital Securities
Guarantee Agreement
27.1 --Financial Data Schedule
(b)Financial Statement Schedules
Schedule I --Consolidated Summary of Investments--Other than Investments in Related
Parties
Schedule III --Supplementary Insurance Information
Schedule IV --Reinsurance
Schedule V --Valuation and Qualifying Accounts
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(b) The undersigned registrants hereby undertake that:
(i) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and
(ii) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrants undertake to provide to the underwriters at
the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, NATIONWIDE
FINANCIAL SERVICES, INC. HAS DULY CAUSED THIS AMENDMENT NO. 2 TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF COLUMBUS, STATE OF OHIO, ON MARCH 5,
1997.
Nationwide Financial Services, Inc.
*
By: _________________________________
DIMON RICHARD MCFERSON
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER--
NATIONWIDE INSURANCE ENTERPRISE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 2 TO REGISTRATION STATEMENT HAS BEEN SIGNED BELOW ON MARCH 5,
1997 BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
SIGNATURE TITLE
* Chairman and Chief Executive
- ------------------------------------- Officer--Nationwide Insurance
DIMON RICHARD MCFERSON Enterprise and Director (Principal
Executive Officer)
* President and Chief Operating
- ------------------------------------- Officer and Director
JOSEPH J. GASPER
* Executive Vice President--Chief
- ------------------------------------- Financial Officer (Principal
ROBERT A. OAKLEY Financial Officer and Principal
Accounting Officer)
* Director
- -------------------------------------
ARDEN L. SHISLER
* Director
- -------------------------------------
HENRY S. HOLLOWAY
* Director
- -------------------------------------
JAMES F. PATTERSON
* Director
- -------------------------------------
DAVID O. MILLER
* Director
- -------------------------------------
CHARLES L. FUELLGRAF, JR.
II-6
<PAGE>
SIGNATURE TITLE
* Director
- ------------------------------------
LYDIA MICHEAUX MARSHALL
* Director
- ------------------------------------
DONALD L. MCWHORTER
* Director
- ------------------------------------
GERALD D. PROTHRO
(*) By: /s/ Mark B. Koogler
-------------------------------
MARK B. KOOGLER
ATTORNEY-IN-FACT
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, NATIONWIDE
FINANCIAL SERVICES CAPITAL TRUST HAS DULY CAUSED THIS AMENDMENT NO. 2 TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF COLUMBUS, STATE OF OHIO, ON MARCH 5,
1997.
Nationwide Financial Services Capital Trust
/s/ David A. Diamond
By: _______________________________________
David A. Diamond, as trustee
II-8
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Independent Auditors' Report on Financial Statement Schedules............ S-2
Schedule I Consolidated Summary of Investments--Other Than Investments
In Related Parties as of December 31, 1996................. S-3
Schedule III Supplementary Insurance Information as of December 31,
1996, 1995 and 1994 and for each of the years then ended... S-4
Schedule IV Reinsurance as of December 31, 1996, 1995 and 1994 and for
each of the years then ended............................... S-5
Schedule V Valuation and Qualifying Accounts for the years ended
December 31, 1996, 1995
and 1994................................................... S-6
</TABLE>
All other schedules are omitted because they are not applicable, or not
required, or because the required information has been included in the
consolidated financial statements or notes thereto.
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors
Nationwide Financial Services, Inc. :
Under date of January 31, 1997, we reported on the consolidated balance
sheets of Nationwide Financial Services, Inc. and subsidiaries as of December
31, 1996 and 1995, and the related consolidated statements of income,
shareholder's equity and cash flows for each of the years in the three-year
period ended December 31, 1996, which are included in the prospectus.
As discussed in note 1 to the consolidated financial statements, the Company
was formed in November 1996 as a holding company for Nationwide Life Insurance
Company and the other companies within the Nationwide Insurance Enterprise
that offer or distribute long-term savings and retirement products. The
consolidated financial statements are presented as if these companies were
consolidated for all periods presented.
In 1994, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedules included in the registration statement. These consolidated financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statement schedules based on our audits.
In our opinion, such consolidated financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as
a whole, present fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
Columbus, Ohio
January 31, 1997
S-2
<PAGE>
SCHEDULE I
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF INVESTMENTS--
OTHER THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 1996
($000'S OMITTED)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
-------- ----------- ---------- ---------------
AMOUNT AT WHICH
SHOWN IN THE
MARKET CONSOLIDATED
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
------------------ ----------- ---------- ---------------
<S> <C> <C> <C>
Fixed maturity securities available-for-
sale:
Bonds:
United States government and
government agencies and
authorities........................ $ 3,757,887 3,834,762 3,834,762
States, municipalities and political
subdivisions....................... 6,241 6,690 6,690
Foreign governments................. 100,656 101,940 101,940
Public utilities.................... 1,798,736 1,843,938 1,843,938
All other corporate ................ 6,307,358 6,517,309 6,517,309
----------- ---------- ----------
Total fixed maturity securities
available-for-sale............... 11,970,878 12,304,639 12,304,639
----------- ---------- ----------
Equity securities available-for-sale:
Common stocks:
Industrial, miscellaneous and all
other.............................. 43,501 50,405 50,405
Nonredeemable preferred stock......... 389 8,726 8,726
----------- ---------- ----------
Total equity securities available-
for-sale......................... 43,890 59,131 59,131
----------- ---------- ----------
Fixed maturity securities held-to-matu-
rity:
Bonds:
United States government and govern-
ment agencies and authorities...... 5,877 5,944 5,877
----------- ---------- ----------
Total fixed maturity securities
held-to-maturity................. 5,877 5,944 5,877
----------- ---------- ----------
Mortgage loans on real estate, net...... 5,327,317 5,272,119(1)
Real estate, net:
Investment properties................. 253,384 217,611(1)
Acquired in satisfaction of debt...... 57,933 48,148(1)
Policy loans............................ 371,816 371,816
Other long-term investments............. 27,370 28,668(2)
Short-term investments.................. 9,261 9,261
----------- ----------
Total investments................. $18,067,726 18,317,270
=========== ==========
</TABLE>
- --------
See accompanying independent auditors' report.
(1) Difference from Column B is primarily due to accumulated depreciation and
valuation allowances due to impairments on real estate and valuation
allowances due to impairments on mortgage loans on real estate. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and note 6 to the consolidated financial statements.
(2) Difference from Column B is primarily due to operating gains of
investments in limited partnerships.
S-3
<PAGE>
SCHEDULE III
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
AS OF DECEMBER 31, 1996, 1995 AND 1994 AND FOR EACH OF THE YEARS THEN ENDED
($000'S OMITTED)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I COLUMN J
-------- ----------- ---------------- -------- ---------- -------- ---------- ---------- ------------ ---------
FUTURE OTHER
POLICY BENEFITS, POLICY BENEFITS, AMORTIZATION
DEFERRED LOSSES, CLAIMS AND NET CLAIMS OF DEFERRED OTHER
POLICY CLAIMS AND UNEARNED BENEFITS INVESTMENT LOSSES AND POLICY OPERATING
ACQUISITION LOSS PREMIUMS PAYABLE PREMIUM INCOME SETTLEMENT ACQUISITION EXPENSES
SEGMENT COSTS EXPENSES (1) (2) REVENUE (3) EXPENSES COSTS (3)
------- ----------- ---------------- -------- ---------- -------- ---------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996:
Variable
Annuities........ $ 791,611 -- -- -- (21,449) 4,624 57,412 132,357
Fixed Annuities.. 242,421 14,952,877 687 24,030 1,050,557 838,533 38,635 79,737
Life Insurance... 414,417 1,995,802 395,739 174,612 174,002 211,386 37,347 78,965
Corporate and
Other ........... (81,940) 230,381 25,048 -- 154,649 106,037 -- 62,506
---------- ---------- ------- ------- --------- --------- ------- -------
Total........... $1,366,509 17,179,060 421,474 198,642 1,357,759 1,160,580 133,394 353,565
========== ========== ======= ======= ========= ========= ======= =======
1995:
Variable
Annuities........ 571,283 -- -- -- (17,640) 2,881 26,264 109,089
Fixed Annuities.. 221,111 14,221,622 455 32,774 1,002,718 804,980 29,499 80,260
Life Insurance... 366,876 1,898,641 383,983 166,332 171,255 201,986 31,021 68,832
Corporate and
Other............ (138,914) 238,351 28,886 -- 137,700 105,646 (4,089) 59,562
---------- ---------- ------- ------- --------- --------- ------- -------
Total........... $1,020,356 16,358,614 413,324 199,106 1,294,033 1,115,493 82,695 317,743
========== ========== ======= ======= ========= ========= ======= =======
1994:
Variable
Annuities........ 395,397 -- -- -- (13,415) 2,277 22,135 83,701
Fixed Annuities.. 198,639 12,633,253 240 20,134 903,572 702,082 29,849 69,975
Life Insurance... 327,079 1,806,762 371,984 156,524 166,329 191,006 29,495 69,861
Corporate and
Other............ 74,445 233,569 26,927 -- 154,325 97,302 4,089 53,095
---------- ---------- ------- ------- --------- --------- ------- -------
Total........... $ 995,560 14,673,584 399,151 176,658 1,210,811 992,667 85,568 276,632
========== ========== ======= ======= ========= ========= ======= =======
<CAPTION>
COLUMN A COLUMN K
-------- --------
PREMIUMS
SEGMENT WRITTEN
------- --------
<S> <C>
1996:
Variable
Annuities........
Fixed Annuities..
Life Insurance...
Corporate and
Other ...........
Total...........
1995:
Variable
Annuities........
Fixed Annuities..
Life Insurance...
Corporate and
Other............
Total...........
1994:
Variable
Annuities........
Fixed Annuities..
Life Insurance...
Corporate and
Other............
Total...........
</TABLE>
- ----
See accompanying independent auditors' report.
(1) Unearned premiums are included in Column C amounts.
(2) Column E agrees to the sum of Balance Sheet captions, "Policyholders'
dividend accumulations" and "Other policyholder funds."
(3) Allocations of net investment income and certain general expenses are
based on a number of assumptions and estimates, and reported operating
results would change by segment if different methods were applied.
S-4
<PAGE>
SCHEDULE IV
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
REINSURANCE
AS OF DECEMBER 31, 1996, 1995 AND 1994
AND FOR EACH OF THE YEARS THEN ENDED
($000'S OMITTED)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- ------------ --------- ---------- ---------- -------------
PERCENTAGE OF
CEDED TO ASSUMED AMOUNT
OTHER FROM OTHER ASSUMED
GROSS AMOUNT COMPANIES COMPANIES NET AMOUNT TO NET
------------ --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
As of December 31, 1996
Life insurance in
force................ $47,071,264 6,633,567 288,593 40,726,290 0.7%
=========== ========= ======= ========== =====
Year ended December 31,
1996
Insurance premiums
Life insurance........ 225,615 29,282 2,309 198,642 1.2%
Accident and health
insurance............ 291,871 305,789 13,918 -- N/A
----------- --------- ------- ---------- -----
Total insurance
premiums........... $ 517,486 335,071 16,227 198,642 8.2%
=========== ========= ======= ========== =====
As of December 31, 1995
Life insurance in
force................ $41,087,025 8,935,743 391,174 32,542,456 1.2%
=========== ========= ======= ========== =====
Year ended December 31,
1995
Insurance Premiums
Life insurance........ 221,257 24,360 2,209 199,106 1.1%
Accident and health
insurance............ 298,058 313,036 14,978 -- N/A
----------- --------- ------- ---------- -----
Total insurance
premiums........... $ 519,315 337,396 17,187 199,106 8.6%
=========== ========= ======= ========== =====
As of December 31, 1994
Life insurance in
force................ $35,926,633 7,550,623 829,742 29,205,752 2.8%
=========== ========= ======= ========== =====
Year ended December 31,
1994
Insurance premiums
Life insurance........ 198,705 21,912 2,865 176,658 1.6%
Accident and health
insurance............ 303,435 321,696 18,261 -- N/A
----------- --------- ------- ---------- -----
Total insurance
premiums........... $ 502,140 343,608 21,126 176,658 12.0%
=========== ========= ======= ========== =====
</TABLE>
- --------
See accompanying independent auditors' report.
Note: The life insurance caption represents principally premiums for
traditional life and life-contingent immediate annuities and excludes
deposits on investment products and universal life insurance products.
S-5
<PAGE>
SCHEDULE V
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
($000'S OMITTED)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- ------------------- ------------- -------------
BALANCE AT CHARGED TO CHARGED
BEGINNING COSTS AND TO OTHER BALANCE AT
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) END OF PERIOD
----------- ---------- ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1996:
Valuation allowances--
mortgage loans on real
estate................. $49,128 4,497 -- 2,587 51,038
Valuation allowances--
real estate............ 25,819 (10,600) -- -- 15,219
------- ------- ------ ------ ------
Total.................. $74,947 (6,103) -- 2,587 66,257
======= ======= ====== ====== ======
1995:
Valuation allowances--
fixed maturity
securities............. -- 8,908 -- 8,908 --
Valuation allowances--
mortgage loans on real
estate................. 46,381 7,433 -- 4,686 49,128
Valuation allowances--
real estate............ 27,330 (1,511) -- -- 25,819
------- ------- ------ ------ ------
Total.................. $73,711 14,830 -- 13,594 74,947
======= ======= ====== ====== ======
1994:
Valuation allowances--
fixed maturity
securities............. 4,800 (4,800) -- -- --
Valuation allowances--
mortgage loans on real
estate................. 42,150 20,445 -- 16,214 46,381
Valuation allowances--
real estate............ 31,357 (4,027) -- -- 27,330
------- ------- ------ ------ ------
Total.................. $78,307 11,618 -- 16,214 73,711
======= ======= ====== ====== ======
</TABLE>
- --------
See accompanying independent auditors' report.
(1) Amounts represent direct write-downs charged against the valuation
allowance.
S-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
1.1 --Form of Underwriting Agreement
**3.1 --Form of Restated Certificate of Incorporation of Nationwide
Financial Services, Inc.
**3.2 --Form of Restated Bylaws of Nationwide Financial Services, Inc.
3.3 --Certificate of Trust of Nationwide Financial Services Capital Trust
3.4 --Form of Amended and Restated Declaration of Trust of Nationwide
Financial Services Capital Trust
4.1 --Form of Indenture relating to the Junior Subordinated Deferrable
Interest Debentures due 2037 of Nationwide Financial Services, Inc.
4.2 --Form of Certificate for Capital Securities of Nationwide Financial
Services Capital Trust (contained in Exhibit 4.1)
4.3 --Form of Certificate for Junior Subordinated Deferrable Interest
Debentures due 2037 of Nationwide Financial Services, Inc.
(contained in Exhibit 4.1)
4.4 --Form of Capital Securities Guarantee Agreement by Nationwide
Financial Services, Inc.
5.1 --Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
5.2 --Opinion of Richards, Layton & Finger, P.A.
8.1 --Tax Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
10.1 --Form of Intercompany Agreement among Nationwide Mutual Insurance
Company, Nationwide Corporation and Nationwide Financial Services,
Inc.
**10.2 --Form of Tax Sharing Agreement among Nationwide Mutual Insurance
Company, Nationwide Corporation and any corporation that may
hereafter be a subsidiary of Nationwide Corporation
**10.3 --Form of First Amendment to Cost Sharing Agreement among the parties
named therein
**10.4 --Modified Coinsurance Agreement between Nationwide Life Insurance
Company and Nationwide Mutual Insurance Company
**10.5 --Modified Coinsurance Agreement between Employers Life Insurance
Company of Wausau and Nationwide Life Insurance Company
**10.6 --Credit Facility, dated August 12, 1996, among Nationwide Life
Insurance Company, Nationwide Mutual Insurance Company, the banks
named therein and Morgan Guaranty Trust Company of New York, the
administrative agent
**10.7 --Form of Lease Agreement between Nationwide Mutual Insurance
Company, Nationwide Life Insurance Company, Nationwide Life and
Annuity Insurance Company and Nationwide Financial Services, Inc.
**10.8 --Form of Nationwide Financial Services, Inc. 1996 Long-Term Equity
Compensation Plan
**10.9 --General Description of Nationwide Insurance Enterprise Executive
Incentive Plan
**10.10 --General Description of Nationwide Insurance Enterprise Management
Incentive Plan
**10.11 --Nationwide Insurance Enterprise Excess Benefit Plan effective as of
December 31, 1996
**10.12 --Nationwide Insurance Enterprise Supplemental Retirement Plan
effective as of December 31, 1996
**10.13 --Nationwide Salaried Employees Severance Pay Plan
**10.14 --Nationwide Insurance Enterprise Supplemental Defined Contribution
Plan effective as of January 1, 1996
**10.15 --General Description of Nationwide Insurance Enterprise Individual
Deferred Compensation Program
**10.16 --General Description of Nationwide Mutual Insurance Company
Directors Deferred Compensation Program
**10.17 --Deferred Compensation Agreement, dated as of September 3, 1979,
between Nationwide Mutual Insurance Company and D. Richard McFerson.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
**10.18 --Nationwide Financial Services, Inc. Stock Retainer for Non-Employee
Directors
11.1 --Statement Regarding Computation of Per Share Earnings
12.1 --Statements Regarding Computation of Ratios
**21.1 --List of Subsidiaries
23.1 --Consent of KPMG Peat Marwick LLP
23.2 --Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (contained in
Exhibit 5.1)
23.3 --Consent of Richards, Layton & Finger, P.A. (contained in Exhibit
5.2)
23.4 --Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (contained in
Exhibit 8.1)
**24.1 --Power of Attorney (for Messrs. McFerson, Gasper, Oakley, Shisler,
Holloway, Patterson, Miller and Fuellgraf)
**24.2 --Power of Attorney for Lydia Micheaux Marshall
**24.3 --Power of Attorney for Donald L. McWhorter
**24.4 --Power of Attorney for Gerald D. Prothro
25.1 --Statement of Eligibility of Trustee under the Indenture relating to
the Junior Subordinated Deferrable Interest Debentures due 2037 of
Nationwide Financial Services, Inc.
25.2 --Statement of Eligibility of Trustee under the Amended and Restated
Declaration of Trust of Nationwide Financial Services Capital Trust
25.3 --Statement of Eligibility of Trustee under the Capital Securities
Guarantee Agreement
27.1 --Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
**Previously filed.
<PAGE>
EXHIBIT 1.1
[FORM OF UNDERWRITING AGREEMENT]
$100,000,000
NATIONWIDE FINANCIAL SERVICES, INC.
NATIONWIDE FINANCIAL SERVICES CAPITAL TRUST
___ % CAPITAL SECURITIES
(LIQUID AMOUNT $1,000 PER CAPITAL SECURITY)
UNDERWRITING AGREEMENT
----------------------
March __, 1997
Credit Suisse First Boston Corporation
Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
As Representatives of the Several Underwriters
c/o Credit Suisse First Boston Corporation,
Park Avenue Plaza,
New York, N.Y. 10055
Dear Sirs:
1. Introductory. Nationwide Financial Services Capital Trust, a
statutory business trust organized under the laws of Delaware ("Trust"), and
Nationwide Financial Services, Inc., a Delaware corporation, as depositor of the
Trust ("Depositor of the Trust") and as Guarantor ("Guarantor"), propose that
the Trust issue and sell $100,000,000 aggregate liquidation amount of the
Trust's ___% Capital Securities (Liquidation Amount, $1,000 per capital
Security) ("Offered Securities") as set forth below, guaranteed on a
subordinated basis by the Guarantor as to the payment of distributions, and as
to payments on liquidation or redemption, to the extent set forth in a guarantee
agreement ("Guarantee") between Guarantor and Wilmington Trust Company, as
trustee ("Guarantee Trustee"). The Trust is to purchase ___% Junior
Subordinated Deferrable Interest Debentures Due 2037 ("Subordinated Debentures")
of the Guarantor to be issued pursuant to an Indenture ("Indenture") between the
Guarantor and Wilmington Trust Company, as trustee ("Debenture Trustee"). The
Trust will purchase these Subordinated Debentures using the proceeds from the
Offered Securities and with an aggregate of up to $______________ from the
proceeds of the issuance and sale of its common securities to the Depositor of
the Trust ("Common Securities"). This Underwriting Agreement, as amended,
supplemented or modified from time to time is referred to herein as "this
Agreement." Credit Suisse First Boston Corporation, Morgan Stanley & Co.
<PAGE>
Incorporated and Merrill Lynch, Pierce, Fenner & Smith Incorporated are
collectively referred to in this Agreement as the "Representatives."
Each of the Trust and the Guarantor jointly and severally hereby
agrees with the several underwriters named in Schedule A hereto (the
"Underwriters") that:
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement on Form S-1 (No. 333-18533) relating to
the Offered Securities, including a form of prospectus, has been filed with the
Securities and Exchange Commission ("Commission") and either (i) has been
declared effective under the Securities Act of 1933, as amended ("Act"), and is
not proposed to be amended or (ii) is proposed to be amended by amendment or
post-effective amendment. If such registration statement ("initial registration
statement") has been declared effective, either (i) an additional registration
statement ("additional registration statement") relating to the Offered
Securities may have been filed with the Commission pursuant to Rule 462(b)
("Rule 462(b)") under the Act and, if so filed, has become effective upon filing
pursuant to such Rule and the Offered Securities all have been duly registered
under the Act pursuant to the initial registration statement and, if applicable,
the additional registration statement or (ii) such an additional registration
statement is proposed to be filed with the Commission pursuant to Rule 462(b)
and will become effective upon filing pursuant to such Rule and upon such filing
the Offered Securities will all have been duly registered under the Act pursuant
to the initial registration statement and such additional registration
statement. If neither the Trust nor the Guarantor proposes to amend the initial
registration statement or if an additional registration statement has been filed
and neither the Trust nor the Guarantor proposes to amend it, and if any post-
effective amendment to either such registration statement has been filed with
the Commission prior to the execution and delivery of this Agreement, the most
recent amendment (if any) to each such registration statement has been declared
effective by the Commission or has become effective upon filing pursuant to Rule
462(c) ("Rule 462(c)") under the Act or, in the case of the additional
registration statement, Rule 462(b). For purposes of this Agreement, "Effective
Time" with respect to the initial registration statement or, if filed prior to
the execution and delivery of this Agreement, the additional registration
statement means (i) if each of the Trust and the Guarantor have each advised the
Representatives that it does not propose to amend such registration statement,
the date and time as of which such registration statement, or the most recent
post-effective amendment thereto (if any) filed prior to the execution and
delivery of this Agreement, was declared effective by the Commission or has
become effective upon filing pursuant to Rule 462(c), or (ii) if either the
Trust or the Guarantor has advised the Representatives that it proposes to file
an amendment or post-effective amendment to such registration statement, the
date and time as of which such registration statement, as amended by such
amendment or post-effective amendment, as the case may be, is declared effective
by the Commission. If an additional registration
2
<PAGE>
statement has not been filed prior to the execution and delivery of this
Agreement but the Trust or the Guarantor has advised the Representatives that it
proposes to file one, "Effective Time" with respect to such additional
registration statement means the date and time as of which such registration
statement is filed and becomes effective pursuant to Rule 462(b). "Effective
Date" with respect to the initial registration statement or the additional
registration statement (if any) means the date of the Effective Time thereof.
The initial registration statement, as amended at its Effective Time, including
all information contained in the additional registration statement (if any) and
deemed to be part of the initial registration statement as of the Effective Time
of the additional registration statement pursuant to the General Instructions of
the Form on which it is filed and including all information (if any) deemed to
be a part of the initial registration statement as of its Effective Time
pursuant to Rule 430A(b) ("Rule 430A(b)") under the Act, is hereinafter referred
to as the "Initial Registration Statement." The additional registration
statement, as amended at its Effective Time, including the contents of the
initial registration statement incorporated by reference therein and including
all information (if any) deemed to be part of the additional registration
statement as of its Effective Time pursuant to Rule 430A(b), is hereinafter
referred to as the "Additional Registration Statement." The Initial
Registration Statement and the Additional Registration Statement are hereinafter
referred to collectively as the "Registration Statements" and individually as a
"Registration Statement." The form of prospectus relating to the Offered
Securities, as first filed with the Commission pursuant to and in accordance
with Rule 424(b) ("Rule 424(b)") under
the Act or (if no such filing is required) as included in a Registration
Statement is hereinafter referred to as the "Prospectus." No document has been
or will be prepared or distributed in reliance on Rule 434 under the Act.
(b) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (i) on the Effective Date
of the Initial Registration Statement, the Initial Registration Statement
conformed in all material respects to the requirements of the Act and the rules
and regulations of the Commission ("Rules and Regulations") and did not include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, (ii) on the Effective Date of the Additional Registration Statement
(if any), each Registration Statement conformed, or will conform, in all
material respects to the requirements of the Act and the Rules and Regulations
and did not include, or will not include, any untrue statement of a material
fact and did not omit, or will not omit, to state any material fact required to
be stated therein or necessary to make the statements therein not misleading and
(iii) on the date of this Agreement, the Initial Registration Statement and, if
the Effective Time of the Additional Registration Statement is prior to the
execution and delivery of this Agreement, the Additional Registration Statement
each conforms, and at the time of filing of the Prospectus pursuant to Rule
424(b) or (if no such filing is required) at the Effective Date of the
Additional Registration Statement in which the Prospectus is included, each
Registration Statement and the Prospectus will conform, in all material respects
to the requirements of the Act and the Rules and Regulations,
3
<PAGE>
and none of such documents includes, or will include, any untrue statement of a
material fact or omits, or will omit, to state any material fact required to be
stated therein or necessary to make the statements therein not misleading. If
the Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement: on the Effective Date of the Initial
Registration Statement, the Initial Registration Statement and the Prospectus
will conform in all material respects to the requirements of the Act and the
Rules and Regulations, neither of such documents will include any untrue
statement of a material fact or will omit to state any material fact required to
be stated therein or necessary to make the statements therein not misleading,
and no Additional Registration Statement has been or will be filed. The two
preceding sentences do not apply to statements in or omissions from a
Registration Statement or the Prospectus based upon written information
furnished to the Trust or the Guarantor by any Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information is that described as such in Section 7(b) hereof.
(c) The Guarantor has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own its properties and conduct its business as
described in the Prospectus; and the Guarantor is duly qualified to do business
as a foreign corporation in good standing in all other jurisdictions in which
its ownership or lease of property or the conduct of its business requires such
qualification except to the extent that the failure to so qualify or be in good
standing would not have a material adverse effect (i) on the condition,
financial or otherwise, business, properties or results of operations of the
Company and its subsidiaries taken as a whole, (ii) which affects the issuance
or validity of the Offered Securities or, (iii) which affects the consummation
of any of the transactions contemplated by this Agreement or (iv) is otherwise
material in the context of the sale of the Offered Securities (a "Material
Adverse Effect").
(d) Each subsidiary of the Guarantor has been duly incorporated and
is an existing corporation in good standing under the laws of the jurisdiction
of its incorporation, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus; and each
subsidiary of the Guarantor is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions in which its ownership
or lease of property or the conduct of its business requires such qualification,
except to the extent that the failure to so qualify would not have a Material
Adverse Effect; all of the issued and outstanding capital stock of each
subsidiary of the Guarantor has been duly authorized and validly issued and is
fully paid and nonassessable and is owned (directly or through subsidiaries) by
the Guarantor; and the capital stock of each subsidiary owned (directly or
through subsidiaries) by the Guarantor is owned free from liens, claims,
encumbrances and defects.
4
<PAGE>
(e) The Offered Securities have been duly authorized by the Depositor
of the Trust on behalf of the Trust and, when the Offered Securities have been
delivered and paid for in accordance with this Agreement on the Closing Date (as
defined below), such Offered Securities will have been validly issued, fully
paid and nonassessable beneficial interests in the Trust and will conform to the
description thereof contained in the Prospectus; and, except as set forth in the
Intercompany Agreement (as defined in the Prospectus) the holders of the Offered
Securities of the Trust (the "Securityholders") have no preemptive rights with
respect to the Offered Securities; the Offered Securities will have the rights
set forth in the Trust Agreement (as defined below), and the terms of the
Offered Securities are valid and binding on the Trust; the Securityholders will
be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit under the General Corporation
Law of the State of Delaware.
(f) The Common Securities have been duly authorized by the Depositor
of the Trust and, when the Common Securities have been delivered by the Trust
and paid for by the Guarantor as described in the Prospectus, such Common
Securities will have been validly issued, fully paid and nonassessable and will
conform to the description thereof contained in the Prospectus; and the holders
of the Common Securities of the Trust ("Common Securityholders") have no
preemptive rights with the respect to the Common Securities; and at the Closing
Date, all of the issued and outstanding Common Securities of the Trust will be
directly owned by the Guarantor free and clear of any security interest,
mortgage, pledge or lien, encumbrance, claim or equity.
(g) The Guarantee, the Subordinated Debentures, the Trust Agreement
and the Indenture (the Guarantee, the Subordinated Debentures, the Trust
Agreement and the Indenture being collectively referred to as the "Guarantor
Agreements") have each been duly authorized by the Guarantor and, in the case of
the Guarantee, by the Guarantee Trustee and, in the case of the Trust Agreement,
by the Trustees (as defined below) and, in the case of the Indenture, by the
Debenture Trustee, and, in the case of the Subordinated Debentures, when validly
issued by the Guarantor and validly authenticated and delivered by the Debenture
Trustee such Subordinated Debentures, will be valid and legally binding
obligations of the Guarantor, enforceable in accordance with their respective
terms (except as may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization or similar laws affecting creditors' rights
generally, except that the remedies of specific performance and injunctive and
other forms of equitable relief are subject to the discretion of the court
before which any proceeding therefor may be brought); the Trust Agreement, the
Indenture and the Guarantee have been duly qualified under the Trust Indenture
Act of 1939, as amended (the "TIA"); the Subordinated Debentures are entitled to
the benefits of the Indenture; and the Guarantor Agreements will conform to the
descriptions thereof in the Prospectus.
5
<PAGE>
(h) The Trust has been duly created and is validly existing as a
statutory business trust in good standing under the Business Trust Act of the
State of Delaware ("Delaware Business Trust Act") with the power and authority
to own its property and conduct its business as described in the Prospectus, and
has conducted and will conduct no business other than the transactions
contemplated by this Agreement and as described in the Prospectus; the Trust is
not a party to or bound by any agreement or instrument other than this
Agreement, the trust agreement ("Trust Agreement") between the Guarantor and the
trustees named therein ("Trustees") and the agreements and instruments
contemplated by the Trust Agreement and the Prospectus; the Trust has no
liabilities or obligations other than those arising out of the transactions
contemplated by the Trust Agreement, this Agreement and described in the
Prospectus; and the Trust is not a party to or subject to any action, suit or
proceeding of any nature.
(i) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Trust or the Guarantor and any person
that would give rise to a valid claim against the Trust or the Guarantor or any
Underwriter for a brokerage commission, finder's fee or other like payment in
connection with this offering.
(j) Except as set forth in the Intercompany Agreement, there are no
contracts, agreements or understandings between the Trust or the Guarantor and
any person granting such person the right to require the Trust or the Guarantor
to file a registration statement under the Act with respect to any securities of
the Trust or the Guarantor owned or to be owned by such person or to require the
Trust or the Guarantor to include such securities in the securities registered
pursuant to a Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the Trust or the Guarantor
under the Act.
(k) No consent, approval, or order of, or filing with, any
governmental agency or body or any court is required for the consummation of the
transactions contemplated by this Agreement (which shall include, for all
purposes of this Agreement, the Special Dividend (as defined in the Prospectus)
and the other transactions described in the "Recent History" section of the
Prospectus (collectively, the "Restructuring")) in connection with the issuance
and sale of the Offered Securities by the Guarantor and the Trust, except such
as have been obtained under the insurance laws of the State of Ohio (the "Ohio
Insurance Laws"), the insurance laws of the States of California and Michigan,
the Act, the Rules and Regulations, and the by-laws of the National Association
of Securities Dealers, Inc. ("NASD") and such as may be required under foreign
or state securities laws (including insurance securities laws).
(l) This Agreement has been duly authorized, executed and delivered
by each of the Trust and the Guarantor and constitutes the valid and binding
obligation of each of the Trust and the Guarantor enforceable in accordance with
its
6
<PAGE>
terms (except as may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization or similar laws affecting creditors' rights generally
and by general principles of equity, except that the remedies of specific
performance and injunctive and other forms of equitable relief are subject to
the discretion of the court before which any proceeding therefor may be brought
and except with respect to the obligations of the Trust and the Guarantor
regarding indemnification and contribution as provided in Section 7 below).
(m) The execution, delivery and performance of this Agreement, and
the issuance and sale of the Offered Securities and the Common Securities by the
Trust, the purchase of the Subordinated Debentures by the Trust and the
compliance by the Trust with all of the terms and provisions of this Agreement,
will not result in a breach or violation of any of the terms and provisions of,
or constitute a default under, any statute, rule, regulation or order of any
governmental agency or body or any court, domestic or foreign, having
jurisdiction over the Trust or any of its properties, or any agreement or
instrument to which the Trust is a party or by which the Trust is bound or to
which any of the properties of the Trust is subject, or the organizational
documents of the Trust, in each case, except for such breaches, violations or
defaults as would not have a Material Adverse Effect; and the Trust has full
power and authority to authorize, issue and sell the Offered Securities and the
Common Securities, to purchase the Subordinated Debentures and to consummate the
transactions contemplated by this Agreement and the Trust Agreement.
(n) The execution, delivery and performance of this Agreement and the
Guarantor Agreements, the issuance by the Guarantor of the Guarantee and the
Subordinated Debentures, and compliance by the Guarantor with all of the terms
and provisions of this Agreement and the Guarantor Agreements, will not result
in a breach or violation of any of the terms and provisions of, or constitute a
default under, any statute, any rule, regulation or order of any governmental
agency or body or any court, domestic or foreign, having jurisdiction over the
Guarantor or any of its subsidiaries or any of their properties, or any
agreement or instrument to which the Guarantor or any such subsidiary is a party
or by which the Guarantor or any such subsidiary is bound or to which any of the
properties of the Guarantor or any such subsidiary is subject, or the amended
and restated articles of incorporation or the bylaws of the Guarantor or the
articles or amended articles of incorporation and code of regulations or bylaws,
as the case may be, of any such subsidiary, in each case, except for such
breaches, violations or defaults as would not have a Material Adverse Effect;
and the Guarantor has full power and authority to authorize and issue the
Guarantee and the Subordinated Debentures and to consummate the transactions
contemplated by this Agreement and the Guarantor Agreements.
(o) Except as disclosed in the Prospectus, the Trust, the Guarantor
and each of the subsidiaries of the Guarantor have good and marketable title to
all real properties and all other properties and assets owned by them, in each
case free from liens, encumbrances, claims and defects, except where the failure
to possess such title
7
<PAGE>
would not have a Material Adverse Effect; and except as disclosed in the
Prospectus, the Trust, the Guarantor and each of the subsidiaries of the
Guarantor hold any leased real or personal property under valid and enforceable
leases, except where the failure to hold such property under such leases would
not have a Material Adverse Effect.
(p) The Guarantor and its subsidiaries own, possess or can acquire on
reasonable terms, adequate trademarks, service marks, trade names and other
rights to inventions, know-how, patents, copyrights, confidential information
and other intellectual property (collectively, "intellectual property rights")
necessary to conduct the business now operated by them, or presently employed by
them, except where the failure to own or possess such intellectual property
rights or the inability to acquire such intellectual property rights on
reasonable terms would not have a Material Adverse Effect, and have not received
any notice of infringement of or conflict with asserted rights of others with
respect to any intellectual property rights (including, without limitation, "The
Best of America(R)" service mark) that, if determined adversely to the Guarantor
or any of its subsidiaries, would individually or in the aggregate have a
Material Adverse Effect. Nationwide Life Insurance Company is the owner, free
and clear of any lien, claim or encumbrance of any kind, of the service mark
"The Best of America(R)," which is a registered federal service mark.
(q) The Trust, Guarantor and each of the subsidiaries of the
Guarantor hold all licenses, certificates and permits from governmental
authorities (including, without limitation, insurance licenses from the
Insurance Departments of the various states in which the subsidiaries write
insurance business (the "Insurance Licenses")) which are necessary to the
conduct of their businesses, except where the failure to hold such licenses,
certificates or permits would not have a Material Adverse Effect; the
Guarantor's insurance subsidiaries have fulfilled and performed all obligations
necessary to maintain their respective Insurance Licenses, except where the
failure to perform such obligations would not have a Material Adverse Effect,
and no event or events have occurred which may be reasonably expected to result
in any impairment, modification, termination or revocation of such Insurance
Licenses which individually or in the aggregate would have a Material Adverse
Effect.
(r) Except as disclosed in the Prospectus, neither the Trust, the
Guarantor nor any of the subsidiaries of the Guarantor is in violation of any
statute, rule, regulation, decision or order of any governmental agency or body
or any court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or restoration of
the environment or human exposure to hazardous or toxic substances
(collectively, "environmental laws"), owns or operates any real property
contaminated with any substance that is subject to any environmental laws, is
liable for any off-site disposal or contamination pursuant to any environmental
laws, or is subject to any claim relating to any environmental laws, which
violation, contamination, liability or claim would individually or in the
aggregate have a Material Adverse Effect on the Trust, the Guarantor and the
8
<PAGE>
subsidiaries of the Guarantor taken as a whole; and to the Trust's or the
Guarantor's knowledge, there is pending investigation which might lead to such a
claim.
(s) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings (including, without limitation, any proceeding to
revoke or deny renewal of any Insurance License) against or affecting the Trust,
the Guarantor, any of the subsidiaries of the Guarantor or any of their
respective properties that, if determined adversely to the Trust or Guarantor or
any of the subsidiaries of the Guarantor, would individually or in the aggregate
have a Material Adverse Effect; and no such actions, suits or proceedings
(including, without limitation, any proceeding to revoke or deny renewal of any
Insurance License) are, to the Trust's or the Guarantor's knowledge, threatened
or contemplated.
(t) The financial statements (other than the notes to the financial
statements) included in each Registration Statement and the Prospectus present
fairly, and the notes to the financial statements included in each Registration
Statement and the Prospectus present fairly in all material respects, the
financial position of the Guarantor and its consolidated subsidiaries as of the
dates shown and their results of operations and cash flows for the periods
shown, and, except as otherwise disclosed in the Prospectus as being prepared in
accordance with the Statutory Accounting Practices (as hereinafter defined),
such financial statements have been prepared in conformity with the generally
accepted accounting principles in the United States applied on a consistent
basis; and the schedules included in each Registration Statement present fairly
in all material respects the information required to be stated therein; and the
assumptions used in preparing the pro forma financial statements included in
each Registration Statement and the Prospectus provide a reasonable basis for
presenting the significant effects directly attributable to the transactions or
events described therein, the related pro forma adjustments give appropriate
effect to those assumptions, and the pro forma columns therein reflect the
proper application of those adjustments in the corresponding historical
financial statement amounts.
(u) Except as disclosed in the Prospectus, since the date of the
latest audited financial statements included in the Prospectus there has been no
change, nor any development or event involving a prospective change, which has
had, or would be reasonably be expected to have, a Material Adverse Effect, and,
except as disclosed in or contemplated by the Prospectus, there has been no
dividend or distribution of any kind declared, paid or made by the Trust or the
Guarantor on any class of its capital stock.
(v) Neither the Trust nor the Guarantor is, and after giving effect
to the sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectus, will not be, an "investment company" or
an entity "controlled" by an "investment company" required to be registered
under the Investment Company Act of 1940, as amended (the "1940 Act").
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(w) Neither the Trust, the Guarantor nor any of their respective
affiliates does business with the government of Cuba or with any person or
affiliate located in Cuba within the meaning of Section 517.075, Florida
Statutes.
(x) The statutory financial statements of each of the Guarantor's
insurance subsidiaries, from which certain ratios and other statistical data
contained in the Registration Statement have been derived, have for each
relevant period been prepared in accordance with accounting practices and
procedures of the National Association of Insurance Commissioners ("NAIC"), as
prescribed or permitted by the Department of Insurance of the State of Ohio (the
"Statutory Accounting Practices"); and such accounting practices have been
applied on a consistent basis throughout the periods involved, except as
disclosed therein.
(y) The Company has filed an application to list the Offered
Securities on the New York Stock Exchange ("NYSE") and has received notification
that such listing has been approved subject to notice of issuance. The Offered
Securities will be registered under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), prior to or concurrently with the effectiveness of
the Registration Statement.
(z) All reserves and other liabilities reflected in lines 1, 2, 3,
4.1, 4.2, 5 and 7.1 of page 3 of the statutory annual statements of each of the
Guarantor's insurance subsidiaries, filed with or submitted to the Department of
Insurance of the State of Ohio, and any other state department of insurance or
similar regulatory authority for the year ended December 31, 1996 (the "Reserve
Liabilities");
(i) Are computed in all material respects in accordance with
actuarial standards which have been adopted by the Actuarial
Standards Board, consistently applied and are fairly stated,
in accordance with sound actuarial principles;
(ii) Are based in all material respects on actuarial assumptions
which produce reserves at least as great as those called for
in any contract provision as to reserve basis and method,
and are in accordance with all other contract provisions;
(iii) Meet all material requirements of the insurance laws and
duly adopted regulations, in effect at the valuation date,
of the State of Ohio and are at least as great as the
minimum aggregate amounts required by the insurance laws and
duly adopted regulations, in effect at the valuation date,
of the state of Ohio and any other states in which the
Guarantor's insurance subsidiaries file an actuarial
opinion;
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(iv) Are computed on the basis of assumptions consistent with
those used in computing the corresponding items in the
annual statement of the preceding year end (except as noted
in the supporting memorandum); and
(v) Include provisions for all actuarial reserves and related
annual statement items which are required under Ohio
Insurance Laws to be established.
Adequate provision for all such Reserve Liabilities has been made in accordance
with Ohio Insurance Laws to cover the total amount of all reasonably anticipated
matured and unmatured benefits, claims and other liabilities of the Guarantor's
insurance subsidiaries under all insurance policies and annuity contracts under
which the Guarantor's insurance subsidiaries had any liability (including,
without limitation, any liability arising under or as a result of any
reinsurance, coinsurance or other similar agreement) on the Closing Date.
(aa) Each of the Guarantor's insurance subsidiaries has duly and
validly filed or caused to be filed all material reports, statements, documents,
registrations, filings or submissions that were required by applicable Laws (as
defined below) to be filed; all such filings complied with all applicable Laws
in all material respects when filed, and no material deficiencies have been
asserted with respect to any such filings which have not been satisfied. All
outstanding insurance policies, annuity contracts and assumption certificates
issued by any of the Guarantor's insurance subsidiaries and now in force are, to
the extent required under applicable Laws, on forms approved by the insurance
regulatory authority of the jurisdiction where issued and utilize premium rates
which if required to be filed with or approved by insurance regulatory
authorities have been so filed or approved, except where the failure to use
approved forms or to file or have approved such premium rates would not have a
Material Adverse Effect, and the premiums charged conform thereto, except where
the failure to conform would not have a Material Adverse Effect.
(ab) Each of the Guarantor's broker/dealer subsidiaries, where
applicable, is registered with the Commission and with each other governmental
authority with which it is required to register in order to conduct its business
as now conducted, and is in compliance in all material respects with all
applicable United States federal, state, local or foreign statutes, laws,
ordinances, regulations, rules, codes, orders, permits, other requirements or
rules of law (collectively, the "Laws"), except where the failure to comply
would not have a Material Adverse Effect. The Guarantor's insurance and
broker/dealer subsidiaries have filed all forms, reports, statements and other
documents required by Law to be filed by them with the Commission, all other
reports (periodic or otherwise) and registration statements, including, without
limitation, in connection with sales of variable annuity or variable life
contracts, and all amendments and supplements to all such reports and
registration statements, and all such forms, reports, statements and other
documents, did not at
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the time they were filed (at the time they became effective and so long as they
remain effective in the case of registration statements and amendments thereto)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(ac) Each of the separate accounts of the Guarantor's insurance
subsidiaries that is required to be registered as an investment company under
the 1940 Act is so registered. All forms, reports, statements and other
documents required by Law to be filed with the Commission by or on behalf of
each of the separate accounts of the Guarantor's insurance subsidiaries,
including, without limitation, all registration statements and all amendments
and supplements to all such registration statements, in connection with sales of
variable life insurance policies and variable annuity contracts, have been so
filed by or on behalf of such separate accounts, and all such forms, reports,
statements and other documents, including, without limitation, those to be filed
after the date hereof, did not at the time they were filed (at the time they
become effective and so long as they remain effective in the case of
registration statements and amendments thereto), or will not at the time they
are filed (at the time they become effective and so long as they remain
effective in the case of registration statements and amendments thereto),
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statement
therein, in the light of the circumstances under which they were made, not
misleading.
(ad) Except as set forth in the Prospectus, neither the Guarantor nor
any of the Guarantor's insurance subsidiaries is a party to any contract with or
other undertaking to, or is subject to any governmental order by, or is a
recipient of any presently applicable supervisory letter or other written
communication of any kind from, any governmental authority which (i) has had a
Material Adverse Effect, (ii) relates materially and adversely to its reserve
adequacy, or its investment or underwriting practices or policies or its sales
practices or policies, or (iii) would reasonably be expected to have a Material
Adverse Effect, nor has the Guarantor or any of the Guarantor's insurance
subsidiaries been notified by any governmental authority that it is
contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such governmental order, contract, undertaking,
letter or other written communication.
(ae) Except as set forth in the Prospectus, and with respect to all
insurance issued:
(i) No outstanding insurance policy or annuity contract issued or
assumed by any of the Guarantor's insurance subsidiaries entitles the
holder thereof or any other Person (as defined below) to receive dividends,
distributions or other benefits based on the revenues or earnings of the
Guarantor or the Guarantor's insurance subsidiaries or any other
individual,
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partnership, firm, corporation, association, trust, unincorporated
organization, governmental authority or other entity, as well as any
syndicate or group that would be deemed to be a person under Section
13(d)(3) of the Exchange Act (each, a "Person").
(ii) To the Guarantor's knowledge and the Guarantor's insurance
subsidiaries knowledge, no other party to any reinsurance, coinsurance or
other similar agreement with any of the Guarantor's insurance subsidiaries
is in default thereunder, except for such defaults that would not
reasonably be expected to have a Material Adverse Effect.
(iii) Except as set forth in the Prospectus, all advertising,
promotional and sales materials and other marketing practices used by the
Guarantor and/or the Guarantor's insurance subsidiaries, or, to the
Guarantor's knowledge, any agent of the Guarantor or the Guarantor's
insurance subsidiaries, have complied and are currently in compliance
with applicable Laws, except where the failure to comply or be in
compliance would not have a Material Adverse Effect.
(iv) Each annuity contract issued by any of the Guarantor's
insurance subsidiaries qualifies as an annuity contract under Section 72 of
the Internal Revenue Code of 1986, as amended through the date hereof,
except where the failure to so qualify would not have a Material Adverse
Effect.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Trust and the Guarantor agree that
the Trust shall sell to the Underwriters, and the Underwriters agree, severally
and not jointly, to purchase from the Trust, at a purchase price of $_____ per
share plus accumulated distributions from ____________, if any, on the Closing
Date (as hereinafter defined), the respective number of shares of Offered
Securities set forth opposite the names of the Underwriters in Schedule A
hereto.
The Trust will deliver the Offered Securities to the Representatives for
the accounts of the Underwriters, against payment of the purchase price in funds
available on the same day by wire transfer to the account of the Guarantor at a
bank acceptable to Credit Suisse First Boston Corporation ("CSFBC") or by
official Federal Reserve Bank check or checks drawn to the order of the Trust at
the office of Dewey Ballantine, 1301 Avenue of the Americas, at 10 A.M., New
York time, on _________, 1997 or at such other time not later than seven full
business days thereafter as CSFBC and the Trust and the Guarantor determine,
such time being herein referred to as the "Closing Date." For purposes of Rule
15c6-1 under the Exchange Act, the Closing Date (if later than the otherwise
applicable settlement date) shall be the settlement date for payment of funds
and delivery of securities for all the Offered Securities sold pursuant to the
offering. The certificates for the Offered Securities so to be delivered will
be in definitive form, in such denominations and
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<PAGE>
registered in such names as CSFBC requests and will be made available for
checking and packaging at the office of CSFBC at least 24 hours prior to the
Closing Date.
As compensation for the Underwriters' commitments, and in view of the
fact that the proceeds of the sale of the Offered Securities will be used by the
Trust to purchase the Subordinated Debentures of the Guarantor, the Guarantor
will pay CSFBC for the Underwriters' proportionate accounts the sum of
$_________ per security times the total number of Offered Securities purchased
by the Underwriters on the Closing Date. Such payment will be made on the
Closing Date with respect to the Offered Securities purchased on such Closing
Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. Certain Agreements of the Trust and the Guarantor. Each of the Trust
and the Guarantor agrees with the several Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Trust and the
Guarantor will file the Prospectus with the Commission pursuant to and in
accordance with subparagraph (1) (or, if applicable and if consented to by CSFBC
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the second
business day following the execution and delivery of this Agreement or (B) the
fifteenth business day after the Effective Date of the Initial Registration
Statement.
The Trust and the Guarantor will advise CSFBC promptly of any such filing
pursuant to Rule 424(b). If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement and an
additional registration statement is necessary to register a portion of the
Offered Securities under the Act but the Effective Time thereof has not occurred
as of such execution and delivery, the Trust and the Guarantor will file the
additional registration statement or, if filed, will file a post-effective
amendment thereto with the Commission pursuant to and in accordance with Rule
462(b) on or prior to 10:00 P.M., New York time, on the date of this Agreement
or, if earlier, on or prior to the time the Prospectus is printed and
distributed to any Underwriter, or will make such filing at such later date as
shall have been consented to by CSFBC.
(b) Each of the Trust and the Guarantor will advise CSFBC promptly of
any proposal to amend or supplement the initial or any additional registration
statement as filed or the related prospectus or the Initial Registration
Statement, the Additional Registration Statement (if any) or the Prospectus and
will not effect such amendment or supplementation without CSFBC's consent; and
each of the Trust and the Guarantor will also advise CSFBC promptly of the
effectiveness of each Registration Statement (if its Effective Time is
subsequent to the execution and
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<PAGE>
delivery of this Agreement) and of any amendment or supplementation of a
Registration Statement or the Prospectus and of the institution by the
Commission of any stop order proceedings in respect of a Registration Statement
and will use its best efforts to prevent the issuance of any such stop order and
to obtain as soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with the
sales by any Underwriter or dealer, any event occurs as a result of which the
Prospectus as then amended or supplemented would include an untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Trust and the Guarantor will promptly notify CSFBC
of such event and will promptly prepare and file with the Commission, at its own
expense, an amendment or supplement which will correct such statement or
omission or an amendment which will effect such compliance with the Act.
Neither CSFBC's consent to, nor the Underwriters' delivery of, any such
amendment or supplement shall constitute a waiver of any of the conditions set
forth in Section 6.
(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Guarantor will make generally available to its
securityholders an earnings statement covering a period of at least 12 months
beginning after the Effective Date of the Initial Registration Statement (or, if
later, the Effective Date of the Additional Registration Statement) which will
satisfy the provisions of Section 11(a) of the Act. For the purpose of the
preceding sentence, "Availability Date" means the 45th day after the end of the
fourth fiscal quarter following the fiscal quarter that includes such Effective
Date, except that, if such fourth fiscal quarter is the last quarter of the
Company's fiscal year, "Availability Date" means the 90th day after the end of
such fourth fiscal quarter.
(e) The Trust and the Guarantor will furnish to the Representatives
hard copies of each Registration Statement (four of which will be signed and
will include all exhibits), copies of each EDGAR filing of each Registration
Statement (and confirmations for each EDGAR filing of each Registration
Statement), each preliminary prospectus relating to the Offered Securities, and,
so long as delivery of a prospectus relating to the Offered Securities is
required to be delivered under the Act in connection with sales by any
Underwriter or dealer, the Prospectus and all amendments and supplements to such
documents in each case in such quantities as CSFBC requests. The Prospectus
shall be so furnished on or prior to 3:00 p.m., New York time, the business day
following the later of the execution and delivery of this Agreement or the
Effective Time of the Initial Registration Statement. All other documents shall
be so furnished as soon as available. The Guarantor will pay the expenses of
printing and distributing to the Underwriters all such documents.
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<PAGE>
(f) The Trust will use its best efforts, in cooperation with the
Underwriters, to arrange for the qualification of the Offered Securities for
sale and the determination of their eligibility for investment under the laws of
such jurisdiction as CSFBC designates and will continue such qualifications in
effect so long as required for the distribution; provided, however, that the
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Trust shall not be obligated to file any general consent to service of process
or to qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to taxation in
respect of doing business in any jurisdiction in which it is not otherwise so
subject.
(g) During the period of three years hereafter, the Guarantor will
furnish to the Representatives, and, upon request, to each of the other
Underwriters, (i) as soon as practicable after the end of each fiscal year, a
copy of its annual report to stockholders for such year, (ii) as soon as
available, a copy of each report and any definitive proxy statement of the
Guarantor filed with the Commission under the Exchange Act or mailed to
stockholders, and (iii) from time to time, such other information as shall be
furnished by the Guarantor to its stockholders generally and as shall be
reasonably requested by CSFBC.
(h) The Guarantor will pay all expenses incident to the performance
of its and the Trust's obligations under this Agreement for any filing fees and
other reasonable expenses (including reasonable fees and disbursements of
counsel) incurred by them in connection with qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC designates and
the printing of memoranda relating thereto, for the filing fee incident to, and
the reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the NASD of the Offered Securities and approval
of the transactions contemplated hereby by the NASD, for all reasonable costs
and expenses of the Underwriters for any travel expenses of the Trust's Trustees
and the Guarantor's officers and employees and any other expenses of the Trust
or the Guarantor in connection with attending or hosting meetings with
prospective purchasers of the Offered Securities and for expenses incurred in
distributing preliminary prospectuses and the Prospectus (including any
amendments and supplements thereto) to the Underwriters.
(i) The Trust and the Guarantor will notify CSFBC of any material
adverse change affecting any of its representations, warranties, agreements and
indemnities herein at any time prior to payment to the Trust on the Closing
Date.
(j) The Guarantor will issue the Guarantee concurrently with the
issue and sale of the Offered Securities as contemplated herein.
(k) The Trust will use the proceeds received by it from the sale of
the Offered Securities, and the Guarantor will use the net proceeds received by
it from the sale of the Subordinated Debentures in the manner specified in the
Prospectus under the caption "Use of Proceeds."
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(l) The Trust and the Guarantor will use their best efforts to list
the Offered Securities on the NYSE subject to notice of issuance and to register
the Offered Securities under the Exchange Act in accordance with the Rules and
Regulations.
(m) For a period of 90 days after the date of the initial public
offering of the Offered Securities, neither the Trust nor the Guarantor will
offer, sell, contract to sell, pledge or otherwise dispose of directly or
indirectly, or file with the Commission a registration statement under the Act
relating to, any additional units of Offered Securities or securities
convertible into or exchangeable or exercisable for Offered Securities or the
Subordinated Debentures or any debt securities substantially similar to the
Subordinated Debentures or any equity securities substantially similar to the
Offered Securities (except for the Subordinated Debentures and the Offered
Securities offered thereby), other than grants of options or shares pursuant to
the Company's 1996 Long-Term Equity Compensation Plan.
(n) The Guarantor will cause each of its directors and certain
executive officers listed on Schedule B hereto to agree that after the date of
----------
the initial public offering of the Offered Securities for a period of 90 days,
such directors and executive officers will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, or file with the
Commission a registration statement under the Act relating to, any additional
units of Offered Securities or securities convertible into or exchangeable or
exercisable for Offered Securities or the Subordinated Debentures or any equity
securities substantially similar to the Offered Securities (except for the
Subordinated Debentures and the Offered Securities offered thereby), or publicly
disclose of its intention to make any such offer, sale, pledge, disposal or
filing, without CSFBC's written permission, except that such officers and
directors may sell or otherwise dispose of Securities to members of their
respective families; provided, however, that such member(s) shall first agree to
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be bound by the terms of this paragraph (n).
(o) The Trust shall comply with Section 517.075, Florida Statutes, if
prior to the completion of the Offered Securities it or any of its affiliates
commences doing business with the government of Cuba with any person or
affiliate located in Cuba within the meaning of such Section 517.075, Florida
Statutes.
6. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Offered Securities on the
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Trust and the Guarantor herein, to the accuracy of
the statements of the Trust's Trustees and the Guarantor's officers made
pursuant to the provisions hereof, to the performance by the Trust or the
Guarantor of its obligations hereunder and to the following additional
conditions precedent:
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(a) The Representatives shall have received a letter, dated the date
of delivery thereof (which, if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, shall be on
or prior to the date of this Agreement or, if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, shall be prior to the filing of the amendment or post-effective
amendment to the registration statement to be filed shortly prior to such
Effective Time), of KPMG Peat Marwick LLP confirming that they are independent
public accountants within the meaning of the Act and the applicable published
Rules and Regulations thereunder and stating to the effect that:
(i) in their opinion the financial statements and schedules
audited by them and included in the Registration Statements comply as
to form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations;
(ii) on the basis of a reading of the latest available
interim financial statements of the Trust and the Guarantor, inquiries
of officials of the Trust and the Guarantor who have responsibility
for financial and accounting matters and other specified procedures,
nothing came to their attention that caused them to believe that:
(A) at the date of the latest available balance sheet read
by such accountants, or at a subsequent specified date not more
than three business days prior to the date of this Agreement,
there was any change in the capital stock or, at the date of the
latest available balance sheet read by such accountants, there
was any increase in short-term indebtedness or long-term debt of
the Trust or the Guarantor and its consolidated subsidiaries, or,
at the date of the latest available balance sheet read by such
accountants, there was any decrease in total assets or
stockholders' equity as compared with amounts shown on the latest
balance sheet included in the Prospectus; or
(B) for the period from the closing date of the latest
income statement included in the Prospectus to the closing date
of the latest available income statement read by such accountants
there were any decreases, as compared with the corresponding
period for the previous year and with the period of corresponding
length ended the date of the latest income statement included in
the Prospectus, in the total or per share amounts of total
revenues or net income;
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except in all cases set forth in clauses (A) and (B) above for
changes, increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter; and
(iii) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information contained in the Registration Statements (in each case to
the extent that such dollar amounts, percentages and other financial
information are derived from the general accounting records of the
Guarantor and its subsidiaries subject to the internal controls of the
Guarantor's accounting system or are derived directly from such
records by analysis or computation) with the results obtained from
inquiries, a reading of such general accounting records and other
procedures specified in such letter and have found such dollar
amounts, percentages and other financial information to be in
agreement with such results, except as otherwise specified in such
letter; and
(iv) they have examined the statutory financial statements
of the Guarantor's insurance subsidiaries, from which certain ratios
and other statistical data contained in the Registration Statement
have been derived, and in their opinion such statements, with respect
to each such insurance subsidiary, have for each relevant period been
prepared in accordance with accounting practices prescribed or
permitted by the appropriate Insurance Department of the state of
domicile of such subsidiary, except as disclosed therein;
(vi) with respect to the pro forma financial information
included in the Registration Statement, they have performed the
procedures specified by the American Institute of Certified Public
Accountants Statement on Standards for Attestation Engagements No. 1,
"Reporting on Pro Forma Financial Statements"; and
(vii) on the basis of the procedures referred to in clause
(vi) above, inquiries of officials of the Trust and the Guarantor who
have responsibility for financial and accounting matters and other
specified procedures, nothing came to their attention that caused them
to believe that the pro forma financial information and statements
included in the Registration Statements do not comply as to form in
all material respects with the applicable accounting requirements of
the Act and the related published Rules and Regulations or any
material modifications should be made to such pro forma financial
information and statements for them to be in accordance with such
requirements and generally accepted accounting principles.
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For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statement is subsequent to the execution and delivery of
this Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective amendment
to be filed shortly prior to its Effective Time, (ii) if the Effective Time of
the Initial Registration Statement is prior to the execution and delivery of
this Agreement but the Effective Time of the Additional Registration Statement
is subsequent to such execution and delivery, "Registration Statements" shall
mean the Initial Registration Statement and the additional registration
statement as proposed to be filed or as proposed to be amended by the post-
effective amendment to be filed shortly prior to its Effective Time, and (iii)
"Prospectus" shall mean the prospectus included in the Registration Statements.
(b) If the Effective Time of the Initial Registration Statement is
not prior to the execution and delivery of this Agreement, such Effective Time
shall have occurred not later than 10:00 P.M., New York time, on the date of
this Agreement or such later date as shall have been consented to by CSFBC. If
the Effective Time of the Additional Registration Statement (if any) is not
prior to the execution and delivery of this Agreement, such Effective Time shall
have occurred not later than 10:00 P.M., New York time, on the date of this
Agreement or, if earlier, at the time the Prospectus is printed and distributed
to any Underwriter, or shall have occurred at such later date as shall have been
consented to by CSFBC. If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the
Prospectus shall have been filed with the Commission in accordance with the
Rules and Regulations and Section 5(a) of this Agreement. Prior to such Closing
Date, no stop order suspending the effectiveness of a Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of the Company or the Representatives, shall be
contemplated by the Commission.
(c) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development or event involving a
prospective change, in the conditions (financial or other), business, properties
or results of operations of the Trust or the Guarantor or the subsidiaries of
the Guarantor which, in the reasonable judgment of a majority in interest of the
Underwriters including the Representatives, is material and adverse and makes it
impractical or inadvisable to proceed with the completion of the public offering
or sale of and payment for the Offered Securities; (ii) any downgrading in the
rating of any debt securities or preferred securities (including preferred trust
securities of any trust affiliated with the Guarantor) of the Trust or the
Guarantor by any "nationally recognized statistical rating organization" (as
defined for purposes of Rule 436(g) under the Act), or any public announcement
that any such organization has under surveillance or review its rating of any
debt securities or preferred securities (including preferred trust securities of
any trust affiliated with the Guarantor) of the Trust or the Guarantor (other
than an announcement with positive implications of a possible upgrading, and no
implication of a possible downgrading, of such rating) or
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<PAGE>
any downgrading of the financial and operating performance of the Guarantor's
insurance subsidiaries by A.M. Best Company that results in the Guarantor's
insurance subsidiaries being rated lower than A- (Excellent); (iii) any
suspension or limitation of trading in securities generally on the NYSE, or any
setting of minimum prices for trading on such exchange or system, or any
suspension of trading of any securities of the Trust or the Guarantor on any
exchange or in the over-the-counter market; (iv) any banking moratorium declared
by U.S. Federal or New York authorities; or (v) any outbreak or escalation of
major hostilities in which the United States is involved, any declaration of war
by Congress or any other substantial national or international calamity or
emergency if, in the judgment of a majority in interest of the Underwriters
including the Representatives, the effect of any such outbreak, escalation,
declaration, calamity or emergency makes it impractical or inadvisable to
proceed with completion of the public offering or the sale of and payment for
the Offered Securities.
(d) The Representatives shall have received an opinion, dated such
Closing Date, of LeBoeuf, Lamb, Greene & MacRae, L.L.P., special counsel for the
Trust and the Guarantor to the effect that:
(i) Each of the Guarantor is an existing corporation in good
standing under the laws of the state of its incorporation, with power
and authority (corporate and otherwise) to own its properties and
conduct its business as described in the Prospectus; the Guarantor is
duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions in which its ownership or lease of
property or the conduct of its business requires such qualification,
except to the extent that the failure to so qualify would not have a
Material Adverse Effect;
(ii) The Offered Securities delivered on such Closing Date
have been duly authorized by the Depositor of the Trust on behalf of
the Trust, and, with respect to the Offered Securities, when issued
and delivered to, and paid for by the Underwriters in accordance with
the terms of this Agreement, will be validly issued, fully paid and
nonassessable beneficial interests in the Trust; the description of
the Offered Securities contained in the Prospectus fairly and
accurately sets forth the material terms of such stock; the Offered
Securities are entitled to the benefits provided by the Trust
Agreement; and the securityholders of the Guarantor have no preemptive
rights with respect to the Offered Securities except as provided in
the Intercompany Agreements;
(iii) No consent, approval, authorization or order of, or
filing with, any governmental agency or body, or any court is required
for the consummation by the Guarantor of the transactions contemplated
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by this Agreement in connection with the issuance or sale of the
Offered Securities by the Trust, except such as have been obtained and
made under the General Corporation Law of the State of Delaware, the
Ohio Insurance Laws, the insurance laws of the States of California
and Michigan, the Act, the Rule and Regulations, the bylaws of the
NASD, the TIA and such as may be required under foreign securities
laws or state securities laws (including insurance securities laws);
(iv) The execution, delivery and performance of this
Agreement and the issuance and sale Offered Securities and the Common
Securities by the Trust, and the purchase of the Subordinated
Debentures by the Trust and the compliance by the Trust with all of
the terms and provisions of this Agreement, will not result in a
breach or violation of any of the terms or provisions of, or
constitute a default under the organizational documents of the Trust;
and the Trust has full power and authority (corporate and otherwise)
to authorize, issue and sell the Offered Securities and the Common
Securities, to purchase the Subordinated Debentures and to consummate
the transactions contemplated by this Agreement and the Trust
Agreement;
(v) The Initial Registration Statement was declared
effective under the Act as of the date and time specified in such
opinion, the Additional Registration Statement (if any) was filed and
became effective under the Act as of the date and time (if
determinable) specified in such opinion, the Prospectus was filed with
the Commission pursuant to the subparagraph of Rule 424(b) specified
in such opinion on the date specified therein or was included in the
Initial Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best knowledge of such
counsel, no stop order suspending the effectiveness of the
Registration Statement or any other part thereof has been issued and
no proceedings for that purpose have been instituted or are pending or
contemplated under the Act, and each Registration Statement and the
Prospectus, and each amendment or supplement thereto, as of their
respective effective or issue dates, complied as to form in all
material respects with the requirements of the Act and the Rules and
Regulations; the descriptions in the "Business--Regulation,"
"Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources" and "Business--
Legal Proceedings" in the Registration Statement and Prospectus of
statutes, legal and governmental proceedings and contracts and other
documents are accurate and fairly present the information required to
be shown; and such counsel does not know of any legal or governmental
proceedings required to be described in a Registration Statement or
the Prospectus which are not described as required or any contracts or
documents of a character
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required to be described in a Registration Statement or the Prospectus
or to be filed as exhibits to a Registration Statement which are not
described and filed as required; it being understood that such counsel
need express no opinion as to the financial statements or schedules or
other financial and statistical data contained in the Registration
Statement or the Prospectus;]
(vi) This Agreement and the Guarantor Agreements have been
duly authorized, executed and delivered by the Guarantor and
constitute the valid and binding obligations of the Guarantor
enforceable in accordance with their respective terms (except as may
be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting creditors' rights generally,
except that the remedies of specific performance and injunctive and
other forms of equitable relief are subject to certain equitable
defenses and the discretion of the court before which any proceeding
therefor may be brought, and except that no opinion need be expressed
with respect to the obligations of the Guarantor regarding
indemnification and contribution as provided in Section 7 below); the
Trust Agreement, the Indenture and the Guarantee have been duly
qualified under the TIA; the Subordinated Debentures are entitled to
the benefits under the Indenture, and the Guarantor Agreements conform
to the description in the Prospectus;
(vii) The execution, delivery and performance by the
Guarantor of this Agreement and the Guarantor Agreements, the issuance
by the Guarantor of the Guarantee and the Subordinated Debentures and
the compliance by the Guarantor with all of the provisions of this
Agreement and the Guarantor Agreements will not result in a breach or
violation of any of any of the terms and provisions of, or constitute
a default under the amended and restated articles of incorporation or
bylaws of the Guarantor or any such subsidiary; and the Guarantor has
full power and authority to issue the Guarantee and the Subordinated
Debentures and to consummate the transactions contemplated by this
Agreement and the Guarantor Agreements;
(viii) The issue and sale by the Trust of the Securities
being delivered on the Closing Date, the compliance by the Trust with
all the provisions of this Agreement, the purchase by the Trust of the
Subordinated Debentures and the consummation of the transactions
contemplated by this Agreement and in the Trust Agreement will not
conflict with or result in the breach of any of the terms or
provisions of, or constitute a default under, any agreement or
instrument known to such counsel to which the Trust is a party or by
which the Trust is bound or to which any of the property or assets of
the Trust is subject;
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(ix) The statements in the Prospectus under the captions "Description
of Capital Securities," "Description of the Guarantee," "Description
of the Junior Subordinated Debentures" and "Effect of Obligations
under the Junior Subordinated Debentures and the Guarantee" insofar as
they purport to constitute a summary of the terms of the securities
therein described, and under the caption "Underwriting" (other than
statements based on information furnished by an Underwriter expressly
for use or incorporation by reference therein); insofar as they
purport to constitute summaries of the terms of the documents referred
to therein, and the statements in the Prospectus under "Business--
Regulation," "Management's Discussion and Analysis of Financial
Conditions and Results of Financial Information--Liquidity and Capital
Resources," and "Business--Legal Proceedings" insofar as they purport
to constitute descriptions of laws, rules, regulations or NAIC model
laws, fairly summarize the terms of such documents or fairly and
accurately present the information disclosed therein in all material
respects;
(x) All statements contained in the Registration Statement
under the heading "Certain Federal Income Tax Consequences" are true
and correct in all material respects;
(xi) Neither the Trust nor the Guarantor is, and after
giving effect to the offering and sale of the Offered Securities and
the application of the proceeds thereof as described in the
Prospectus, will not be an "investment company" or an entity
"controlled" by an "investment company" as defined under the
Investment Company Act of 1940; and
(xii) The Guarantor has filed an application to list the
Offered Securities on the NYSE, and has received notification that
such listing has been approved subject to notice of issuance and the
Offered Securities have been registered under the Exchange Act.
Such counsel also shall state that no facts have come to the attention
of such counsel that have caused it to believe that (except for financial
statements and schedules and other financial and statistical data, as aforesaid)
the Registration Statement and the Prospectus, at the time the Registration
Statement became effective, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus, as amended
or supplemented, if applicable (except for financial statements and schedules
and other financial and statistical data, as aforesaid), contain, at the time
distributed, any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
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In making the statement referred to in the preceding paragraph, such
counsel shall state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and the
Prospectus and any amendments or supplements thereto and review and discussion
of the contents thereof, but are without independent check or verification
except as specified.
In rendering the foregoing opinions, such counsel may rely as to matters of
fact upon certificates of the Trust's Trustees and officers of the Guarantor and
its subsidiaries, as to matters involving good standing, authorization to do
business and other matters within their knowledge, upon certificates of public
officials, and, as to matters involving the application of laws of any
jurisdiction other than the State of New York or the United States, upon
opinions of local counsel which opinions shall state that they believe both you
and they are justified in relying upon such certificates and opinions.
(e) The Representatives shall have received an opinion, dated such
Closing Date, from W. Sidney Druen, general counsel to the Guarantor and the
Trust to the effect that:
(i) Each of the Guarantor's subsidiaries is an existing
corporation in good standing under the laws of the state of its
incorporation, with power and authority (corporate and otherwise) to
own its properties and conducts its business as described in the
Prospectus; each of the Guarantor and it's subsidiaries has been duly
incorporated and each of the Guarantor's subsidiaries is an existing
corporation in good standing under the laws of the state of its
incorporation, with power and authority (corporate and otherwise) to
own its properties and conduct its business as described in the
Prospectus; and each of the Guarantor's subsidiaries is duly qualified
to do business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification, except to the
extent that the failure to so qualify would not have a Material
Adverse Effect; all of the issued and outstanding capital stock of
each subsidiary of the Guarantor has been duly authorized and validly
issued, and is fully paid and nonassessable and is owned (directly or
through subsidiaries) by the Guarantor; and all of the capital stock
of the subsidiaries is owned (directly or through subsidiaries) by the
Guarantor; and the capital stock of each subsidiary owned (directly or
through subsidiaries) by the Guarantor is owned free from liens,
claims, encumbrances and defects;
(ii) Except for the Intercompany Agreement, there are no
contracts, agreements or understandings between the Trust or the
Guarantor and any person granting such person the right to require the
Trust or the Guarantor to file a registration statement under the Act
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with respect to any securities of the Trust or the Guarantor owned or
to be owned by such person or to require the Trust or the Guarantor to
include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant
to any other registration statement filed by the Trust or the
Guarantor under the Act;
(iii) No consent, approval, authorization or order of, or
filing with, any governmental agency or body or any court is required
for the consummation by the Guarantor of the transactions contemplated
by this Agreement in connection with the issuance or sale of the
Offered Securities by the Trust, except such as have been obtained and
made under the General Corporation Law of Delaware, the Ohio Insurance
Laws, the insurance laws of the States of California and Michigan, the
Act, the Rules and Regulations, the bylaws of the NASD and such as may
be required under foreign securities laws or state securities laws
(including insurance securities laws);
(iv) The execution, delivery and performance of this
Agreement and the issuance and sale of the Offered Securities and the
Common Securities by the Trust, and the purchase of the Subordinated
Debentures by the Trust and the compliance by the Trust with all of
the terms and provisions of this Agreement, will not result in a
breach or violation of any of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order
of any governmental agency or body or any court having jurisdiction
over the Trust or any of its properties, or any agreement or
instrument to which the Trust is a party or by which the Trust is
bound or to which any of the properties of the Trust is subject;
(v) The execution, delivery and performance by the Guarantor
of this Agreement and the Guarantor Agreements, the issuance by the
Guarantor of the Guarantee and the Subordinated Debentures and the
compliance by the Guarantor with all of the provisions of this
Agreement and the Guarantor Agreements will not result in a breach or
violation of any of the terms and provisions of, or constitute a
default under, any statute, any rule, regulation or order of any
governmental agency or body or any court having jurisdiction over the
Guarantor or any subsidiary of the Guarantor or any of their
properties, or of any agreement or instrument to which the Guarantor
or any such subsidiary is a party or by which the Guarantor or any
such subsidiary is bound or to which any of the properties of the
Guarantor or any such subsidiary is subject; and
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(vi) The Guarantor and each of its subsidiaries hold all
licenses, certificates and permits from all governmental authorities
(including, without limitation, Insurance Licenses) which are
necessary to the conduct of their respective businesses, except where
the failure to hold such licenses, certificates or permits would not
have a Material Adverse Effect; the insurance subsidiaries of the
Guarantor have fulfilled and performed all obligations necessary to
maintain their respective Insurance Licenses, except where the failure
to perform such obligations would not have a Material Adverse Effect,
and no event or events have occurred which may be reasonably expected
to result in any impairment, modification, termination or revocation
of such Insurance Licenses which individually or the aggregate would
have a Material Adverse Effect.
(f) The Underwriters shall have received an opinion, dated such
Closing Date, of Richards, Layton & Finger, P.A., special Delaware counsel to
the Trust and the Guarantor, to the effect that:
(i) The Trust has been duly created and is validly existing in
good standing as a business trust under the Delaware Business Trust
Act, and all filings required under the laws of the State of Delaware
with respect to the creation and valid existence of the Trust as a
business trust have been made;
(ii) Under the Delaware Business Trust Act and the Trust
Agreement, the Trust has the power and authority to own property and
conduct its business, all as described in the Prospectus;
(iii) The Trust Agreement constitutes a valid and legally
binding obligation of the Guarantor and the Trust, enforceable against
the Guarantor and the Trust, in accordance with its terms (except as
may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting creditors' rights generally,
except that the remedies of specific performance and injunctive and
other forms of equitable relief are subject to certain equitable
defenses and the discretion of the court before which any proceeding
therefor may be brought);
(iv) Under the Delaware Business Trust Act and the Trust
Agreement, the Trust has the power and authority to (a) execute and
deliver, and to perform its obligations under, this Agreement and
(b) issue and perform its obligations under the Offered Securities and
the Common Securities;
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(v) Under the Delaware Business Trust Act and the Trust
Agreement, the execution, delivery and performance by the Trust of
this Agreement constitutes the valid and binding obligation of the
Trust enforceable in accordance with its terms (except as may be
limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting creditors' rights generally,
except that the remedies of specific performance and injunctive and
other forms of equitable relief are subject to the discretion of the
court before which any proceeding therefor may be brought and except
with respect to the obligations of the Trust regarding indemnification
and contribution as provided in Section 7 below);
(vi) The Offered Securities have been duly authorized by the
Trust Agreement and are duly and validly issued and, subject to the
qualifications set forth herein, fully paid and nonassessable
beneficial interests in the Trust and are entitled to the benefits
provided by the Trust Agreement; the Securityholders, as beneficial
owners of the Trust, will be entitled to the same limitation of
personal liability extended to stockholders of private corporations
for profit organized under the General Corporation Law of the State of
Delaware; provided that such counsel may note that the Securityholders
may be obligated, pursuant to the Trust Agreement, to (a) provide
indemnity and/or security in connection with and pay taxes or
governmental charges arising from transfers or exchanges of
certificates representing the shares of the Offered Securities
("Securities Certificates") and the issuance of replacement Securities
Certificates and (b) provide security and indemnity in connection with
requests of or directions to the Property Trustee (as defined in the
Trust Agreement) to exercise its rights and remedies under the Trust
Agreement;
(vii) The Common Securities have been duly authorized by the
Trust Agreement and are validly issued and represent beneficial
interests in the Trust;
(viii) Under the Delaware Business Trust Act and the Trust
Agreement, the issuance of the Offered Securities and the Common
Securities is not subject to preemptive rights;
(ix) The issuance and sale by the Trust of Offered Securities
and the Common Securities, the execution, delivery and performance by
the Trust of this Agreement, the consummation by the Trust of the
transactions contemplated thereby and compliance by the Trust with its
obligations thereunder will not violate (a) any of the provisions of
the Certificate of Trust of the Trust or the Trust Agreement or (b)
any applicable Delaware law or administrative regulation;
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(x) Assuming that the Trust derives no income from or in connection with
services provided within the State of Delaware and has no assets,
activities (other than maintaining the Delaware Trustee (as defined in
the Trust Agreement) and the filing of documents with the Secretary of
State of the State of Delaware) or employees in the State of Delaware,
no authorization, approval, consent or order of any Delaware court or
governmental authority or agency is required to be obtained by the
Trust solely in connection with the issuance and sale of the Offered
Securities and the Common Securities; and
(xi) Assuming that the Trust derives no income from or in
connection with services provided within the State of Delaware and has
no assets, activities (other than maintaining the Delaware Trustee and
the filing of documents with the Secretary of State of the State of
Delaware) or employees in the State of Delaware, the Securityholders
(other than those holders of the Securities who reside or are
domiciled in the State of Delaware) will have no liability for income
taxes imposed by the State of Delaware solely as a result of their
participation in the Trust, and the Trust will not be liable for any
income tax imposed by the State of Delaware.
(g) The Representatives shall have received on the Closing Date an
opinion (in form and substance reasonably satisfactory to the Representatives
and their counsel), dated as of the Closing Date, of ________________, special
counsel to the Wilmington Trust Company ("WTC"), as Property Trustee and
Delaware Trustee under the Amended and Restated Declaration of Trust, dated as
of ____________, 1997 (the "Declaration"), by and between the Company, as
"Sponsor" and WTC, as "Property Trustee" and as "Delaware Trustee," Trustee
under the Indenture, dated as of ____________, 1997 (the "Indenture"), by and
between the Company and WTC, as "Trustee," and Guarantee Trustee under the
Capital Securities Guarantee, dated as of ____________, 1997 (the "Guarantee"),
by and between the Company and WTC, as "Capital Securities Guarantee Trustee" to
the effect that:
(i) WTC has been duly incorporated and is validly existing as a
banking corporation in good standing under the laws of the State of
Delaware;
(ii) WTC has full corporate trust power and authority to enter
into and perform its obligations under the Declaration, the Indenture
and the Guarantee; and
(iii) Each of the Declaration, the Indenture and the Guarantee
has been duly authorized, executed and delivered by WTC and
constitutes a valid and legally binding agreement of WTC enforceable
against WTC, in accordance with its terms, subject, as to enforcement
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of remedies, (a) to applicable bankruptcy, insolvency, reorganization,
and other similar laws affecting the rights of creditors generally,
and (b) to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(h) The execution and delivery by WTC of the Declaration, the
Indenture and the Guarantee and the performance by WTC of its obligations
thereunder have been duly authorized by all necessary corporate action of WTC
and do not conflict with or result in a violation of the charter documents or
bylaws of WTC.
(i) No consent, approval or authorization of, or registration,
declaration or filing with, any court or governmental agency or body of the
United States of America or the State of Delaware having jurisdiction over the
trust powers of WTC is required for the consummation on the part of WTC of any
of the transactions contemplated in the Declaration, Indenture or the Guarantee,
except such as have been obtained.
(j) The Representatives shall have received from Dewey Ballantine,
counsel for the Underwriters, such opinion or opinions, dated such Closing Date,
with respect to the organization of the Trust and the incorporation of the
Guarantor, the validity of the Offered Securities delivered on such Closing
Date, the Registration Statements, the Prospectus and other related matters as
the Representatives may require, and the Trust and the Guarantor shall have each
furnished to such counsel such documents as they request for the purpose of
enabling them to pass upon such matters. In rendering such opinion, Dewey
Ballantine may rely as matters governed the laws of the states in which such
counsel is not licensed to practice, upon the opinions of local counsel.
(k) The Representatives shall have received a certificate, dated such
Closing Date, of a Trustee of the Trust and the President or any Vice-President
and a principal financial or accounting officer of the Guarantor in which such
Trustee or officers, to the best of their knowledge after reasonable
investigation, shall state that: the representations and warranties of the
Trust and the Guarantor in this Agreement are true and correct; the Trust and
the Guarantor have complied with all agreements and satisfied all conditions on
its part to be performed or satisfied hereunder at or prior to such Closing
Date; no stop order suspending the effectiveness of any Registration Statement
has been issued and no proceedings for that purpose have been instituted or are
contemplated by the Commission; the Additional Registration Statement (if any)
satisfying the requirements of subparagraphs (1) and (3) of Rule 462(b) was
filed pursuant to Rule 462(b), including payment of the applicable filing fee in
accordance with Rule 111(a) or (b) under the Act, prior to the time the
Prospectus was printed and distributed to any Underwriter; and, subsequent to
the date of the most recent financial statements in the Prospectus, there has
been no change, nor any development or event involving a prospective change, in
the
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condition (financial or other), business, properties or results of operations of
the Trust, or the Guarantor and the subsidiaries of the Guarantor which has or
could reasonably be expected to have a Material Adverse Effect except as set
forth in or contemplated by the Prospectus or as described in such certificate.
(l) The Representatives shall have received a letter, dated such
Closing Date, from KPMG Peat Marwick LLP which meets the requirements of
subsection (a) of this Section, except that the specified date referred to in
such subsection will be a date not more than three days prior to such Closing
Date for the purposes of this subsection.
(m) The Trust Agreement, the Guarantee and the Indenture shall have
been executed and delivered, in each case in a form reasonably satisfactory to
CSFBC.
(n) The Offered Securities to be sold by the Trust at the Closing
Date shall have been duly listed on the NYSE subject to notice of issuance and
shall have been registered under the Exchange Act.
(o) The Representatives shall have received lockup letters of the
Guarantor and the directors and executive officers as contemplated by Sections
5(m) and 5(n).
(p) On the Closing Date, the Guarantor shall have received from the
Ohio Insurance Department its consent and approval of those transactions
contemplated by the Restructuring requiring Ohio Insurance Department approval,
and such consents and approvals shall be in full force and effect.
(q) On or before the Closing Date, the Guarantor shall have received
from the Staff of the Commission an exemptive order (or, with the approval of
the Representatives, which shall not be unreasonably withheld, a no-action
letter) in form and substance reasonably satisfactory to the Representatives
with respect to the non-applicability of Section 17 of the 1940 Act and the
rules and regulations promulgated thereunder to the offering, sale and resale of
the Offered Securities contemplated by this Agreement and the Guarantor
Agreements to affiliates of the Guarantor or to affiliates of affiliates of the
Guarantor that are registered investment companies. Such exemptive order (or,
if applicable, no-action letter) shall not have been withdrawn or amended in any
manner by the Staff of the Commission and shall be in full force and effect as
of the Closing Date.
(r) Each of the agreements described in the Prospectus under the
caption "Certain Relationships and Related Transactions - New Arrangements with
the Nationwide Insurance Enterprise" shall have been entered into by the
Guarantor (and, if applicable, any and all affiliates of the Guarantor) and the
Cost Sharing Agreement described in the Prospectus under the caption "Certain
Relationships and
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Related Transactions - Existing Arrangements with the Nationwide Insurance
Enterprise" shall have been amended, in each case in a form reasonably
satisfactory to CSFBC, and such agreements shall be in full force and effect,
and represent the valid, legal and binding obligations of each of the parties
thereto.
The Trust and the Guarantor will furnish the Representatives with such
conformed copies of such opinions, certificates, letters and documents as the
Representatives may reasonably request. CSFBC may in its sole discretion waive
on behalf of the Underwriters compliance with any conditions to the obligations
of the Underwriters hereunder.
7. Indemnification and Contribution. (a) The Trust and the Guarantor will
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
-------- -------
that neither the Trust nor the Guarantor will be liable in any such case (A) to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement in or omission or
alleged omission from any of such documents in reliance upon and in conformity
with written information furnished to the Guarantor by any Underwriter through
the Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter consists of the
information described as such in subsection (b) below or (B) with respect to any
preliminary prospectus to the extent that any such loss, claim, damage or
liability of such Underwriter results from the fact that such Underwriter sold
Offered Securities to a person who was not sent, at or prior to the written
confirmation of such sale, a copy of the Prospectus and the loss, claim, damage
or liability of such Underwriter results from an untrue statement or omission of
a material fact contained in the preliminary prospectus that was corrected in
the Prospectus.
(b) Each Underwriter will severally and not jointly indemnify and
hold harmless the Trust and the Guarantor against any losses, claims, damages or
liabilities to which the Trust and the Guarantor may become subject, under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue upon any
true statement or alleged untrue statement of any material fact contained in any
Registration Statement, the Prospectus, or any amendment or supplement thereto,
or any related preliminary
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prospectus, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Guarantor by such
Underwriter through the Representatives specifically for use therein, and will
reimburse any legal or other expenses reasonably incurred by the Trust or the
Guarantor in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred, it being understood
and agreed that the only such information furnished by any Underwriter consists
of the following information in the Prospectus furnished on behalf of each
Underwriter: the last paragraph at the bottom of the cover page concerning the
terms of the offering by the Underwriters, the legend concerning stabilizing on
the inside front cover page, and first and third paragraphs under the caption
"Underwriting."
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election to or assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened action in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement includes an unconditional release of
such indemnified party from all liability on any claims that are the subject
matter of such action.
(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Trust and the Guarantor on the one hand and the Underwriters on the other
from the offering of the Offered Securities or (ii) if the
33
<PAGE>
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Trust and the
Guarantor on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The
relative benefits received by the Trust and the Guarantor on the one hand and
the Underwriters on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering of the Offered Securities (before
deducting expenses) received by the Trust and the Guarantor and the total
compensation received by the Underwriters bear to the total price to the public
of the Offered Securities. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Trust, the Guarantor or the Underwriters
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The amount
paid by an indemnified party as a result of the losses, claims, damages or
liabilities referred to in the first sentence of this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any action or
claim which is the subject of this subsection (d). Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Offered Securities underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Trust and the Guarantor under this Section
shall be in addition to any liability which the Trust and the Guarantor may
otherwise have and shall extend, upon the same terms and conditions to each
Trustee of the Trust, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each director of the Company, to each Trustee of the Trust, to
each director of the Guarantor, to each officer of the Guarantor who has signed
a Registration Statement and to each person, if any, who controls the Trust or
the Guarantor within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default
in their obligations to purchase Offered Securities hereunder on the Closing
Date and the aggregate number of shares of Offered Securities that such
defaulting Underwriter or
34
<PAGE>
Underwriters agreed, but failed, to purchase does not exceed 10% of the total
number of Offered Securities that the Underwriters are obligated to purchase on
such Closing Date, CSFBC may make arrangements satisfactory to the Trust and the
Guarantor for the purchase of such Offered Securities by other persons,
including any of the Underwriters, but if no such arrangements are made by such
Closing Date, the non-defaulting Underwriters shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the Offered
Securities that such defaulting Underwriters agreed but failed to purchase on
such Closing Date. If any Underwriter or Underwriters so default and the
aggregate number of shares of Offered Securities with respect to which such
default or defaults occur exceeds 10% of the total number of shares of Offered
Securities that the Underwriters are obligated to purchase on such Closing Date
and arrangements satisfactory to CSFBC, the Trust and the Guarantor for the
purchase of such Offered Securities by other persons are not made within 36
hours after such default, this Agreement will terminate without liability on the
part of any non-defaulting Underwriter, the Trust or the Guarantor, except as
provided in Section 9. As used in this Agreement, the term "Underwriter"
includes any person substituted for an Underwriter under this Section. Nothing
herein will relieve a defaulting Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Trust and its Trustees and the Guarantor and its officers and of the several
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation, or statement as to the
results thereof, made by or on behalf of any Underwriter, the Trust, the
Guarantor or any of their respective representatives, trustees, officers or
directors or any controlling person, and will survive delivery of and payment
for the Offered Securities. If this Agreement is terminated pursuant to Section
8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Guarantor shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Trust, the Guarantor and the Underwriters pursuant to Section
7 shall remain in effect, and if any Offered Securities have been purchased
hereunder, the representations and warranties in Section 2 and all obligations
under Section 5 shall also remain in effect. If the purchase of the Offered
Securities by the Underwriters is not consummated for any reason other than
solely because of the termination of this Agreement pursuant to Section 8 or the
occurrence of any event specified in clause (iii), (iv) or (v) of Section 6(c),
the Guarantor will reimburse the Underwriters for all out-of-pocket expenses
(including fees and disbursements of counsel) reasonably incurred by them in
connection with the offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if sent
to the Underwriters, will be mailed, delivered or telegraphed and confirmed to
the Representatives, c/o Credit Suisse First Boston Corporation, 11 Madison
Avenue, New York, N.Y. 10010-3929, Attention: Investment Banking Department--
Trans-
35
<PAGE>
actions Advisory Group, or, if sent to the Trust or the Guarantor will be
mailed, delivered or telegraphed and confirmed to it at Nationwide Financial
Services, Inc., One Nationwide Plaza, Columbus, Ohio 43215, Attention:
President (with a copy to General Counsel); provided, however, that any notice
-------- -------
to an Underwriter pursuant to Section 7 will be mailed, delivered or telegraphed
and confirmed to such Underwriter.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the
trustees, officers and directors and controlling persons referred to in Section
7, and no other person will have any right or obligation hereunder.
12. Representation of Underwriters. The Representatives will act for the
several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to principles
of conflicts of laws.
Each of the Trust and the Guarantor hereby submits to the non-exclusive
jurisdiction of the Federal and state courts in the Borough of Manhattan in The
City of New York in any suit or proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby.
36
<PAGE>
If the foregoing is in accordance with the Representatives' understanding
of our agreement, kindly sign and return to the Trust one of the counterparts
hereof, whereupon it will become a binding agreement among the Trust, the
Guarantor and the several Underwriters in accordance with its terms.
Very truly yours,
NATIONWIDE FINANCIAL SERVICES CAPITAL TRUST
By: NATIONWIDE FINANCIAL SERVICES, INC., as Depositor
By:_____________________________________________
Name:
Title:
NATIONWIDE FINANCIAL SERVICES, INC.
By
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
the date first above written.
Credit Suisse First Boston Corporation
Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
By Credit Suisse First Boston Corporation
By
Name:
Title:
37
<PAGE>
SCHEDULE A
UNDERWRITER PRINCIPAL
- ----------- AMOUNT OF
OFFERED SECURITIES
------------------
[$]_________________
38
<PAGE>
SCHEDULE B
DIRECTORS AND EXECUTIVE OFFICERS TO SIGN LOCK-UPS
Dimon Richard McFerson
Joseph J. Gasper
Galen R. Barnes
Richard D. Crabtree
Gordon E. McCutchan
Robert A. Oakley
Robert J. Woodward, Jr.
James E. Brock
W. Sidney Druen
Harvey S. Galloway, Jr.
Richard A. Karas
Bruce C. Barnes
Dennis W. Click
David A. Diamond
Matthew S. Easley
Mark R. Thresher
Charles L. Fuellgraf, Jr.
Henry S. Holloway
Lydia Mecheaux Marshall
Donald L. McWhorter
David O. Miller
James F. Patterson
Arden L. Shisler
39
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF TRUST
OF
NATIONWIDE FINANCIAL SERVICES CAPITAL TRUST
THIS CERTIFICATE OF TRUST of Nationwide Financial Services Captial Trust
(the "Trust"), dated December 18, 1996, is being duly executed and filed by the
undersigned, as trustee, to form a business trust under the Delaware Business
Trust Act (12 Del. Code Section 3801, et seq.).
1. Name. The name of the business trust being formed hereby is
----
Nationwide Financial Services Capital Trust.
2. Delaware Trustee. The name and business address of the Trustee
----------------
of the Trust with a principal place of business in the State of Delaware is the
Wilmington Trust Company, 1100 North Market Street, Wilmington, DE 19890-0001,
Attn: Corporate Trust Administration.
3. Effective Date. This Certificate of Trust shall be effective as of
--------------
its filing.
IN WITNESS WHEREOF, the undersigned, being the trustees of the Trust,
have executed this Certificate of Trust as of the date first above written.
WILMINGTON TRUST COMPANY
as Trustee
By: /s/ Chris L. Kaiser
----------------------------
Name: Chris L. Kaiser
Title: Vice President
/s/ David A. Diamond
----------------------------
David A. Diamond, as
Trustee
<PAGE>
EXHIBIT 3.4
- --------------------------------------------------------------------------------
Form of
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
NATIONWIDE FINANCIAL SERVICES CAPITAL TRUST
Dated as of ____________ __, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
Interpretation and Definitions
SECTION 1.01. Definitions..................................... 2
ARTICLE II
Trust Indenture Act
SECTION 2.01. Trust Indenture Acts; Application............... 8
SECTION 2.02. Lists of Holders of Securities.................. 8
SECTION 2.03. Reports by the Property Trustee................. 9
SECTION 2.04. Periodic Reports to Property Trustee............ 9
SECTION 2.05. Evidence of Compliance with Conditions Precedent 9
SECTION 2.06. Events of Default; Waiver....................... 9
SECTION 2.07. Event of Default; Notice........................ 11
ARTICLE III
Organization
SECTION 3.01. Name............................................ 12
SECTION 3.02. Office.......................................... 12
SECTION 3.03. Purpose......................................... 12
SECTION 3.04. Authority....................................... 12
SECTION 3.05. Title to Property of the Trust. ................ 13
SECTION 3.06. Powers and Duties of the Regular Trustees...... 13
SECTION 3.07. Prohibition of Actions by the Trust and
the Trustees.................................. 16
SECTION 3.08. Powers and Duties of the Property Trustee....... 17
SECTION 3.09. Certain Duties and Responsibilities
of the Property Trustee....................... 19
SECTION 3.10. Certain Rights of Property Trustee.............. 21
SECTION 3.11. Delaware Trustee................................ 24
SECTION 3.12. Execution of Documents.......................... 24
SECTION 3.13. Not Responsible for Recitals or Issuance
of Securities................................. 24
SECTION 3.14. Duration of Trust............................... 24
SECTION 3.15. Mergers......................................... 24
B-i
<PAGE>
Page
----
ARTICLE IV
Sponsor
SECTION 4.01. Sponsor's Purchase of Common Securities......... 26
SECTION 4.02. Responsibilities of the Sponsor................. 26
SECTION 4.03. Guarantee of Payment of Trust Obligations....... 27
ARTICLE V
Trustees
SECTION 5.01. Number of Trustees.............................. 28
SECTION 5.02. Delaware Trustee................................ 28
SECTION 5.03. Property Trustee; Eligibility................... 28
SECTION 5.04. Qualifications of Regular Trustees and
Delaware Trustee Generally.................... 29
SECTION 5.05. Initial Trustees................................ 29
SECTION 5.06. Appointment, Removal and Resignation of Trustees 30
SECTION 5.07. Vacancies among Trustees........................ 32
SECTION 5.08. Effect of Vacancies............................. 32
SECTION 5.09. Meetings........................................ 32
SECTION 5.10 Delegation of Power............................. 33
SECTION 5.11. Merger, Conversion, Consolidation or
Succession to Business........................ 33
ARTICLE VI
Distributions
SECTION 6.01. Distributions................................... 33
ARTICLE VII
Issuance of Securities
SECTION 7.01. General Provisions Regarding Securities......... 34
SECTION 7.02. Execution and Authentication.................... 34
SECTION 7.03. Book-Entry Capital Securities Certificates;
Definitive Capital Securities Certificates;
Common Securities Certificate................. 35
SECTION 7.04. Registrar and Paying Agent...................... 37
SECTION 7.05. Paying Agent to Hold Money in Trust............. 38
SECTION 7.06. Replacement Securities.......................... 38
SECTION 7.07. Outstanding Capital Securities.................. 39
B-ii
<PAGE>
Page
----
SECTION 7.08. Capital Securities in Treasury.................. 39
SECTION 7.09. Temporary Securities............................ 39
SECTION 7.10 Cancellation.................................... 40
ARTICLE VIII
Termination of Trust
SECTION 8.01. Termination of Trust............................ 41
ARTICLE IX
Exchange
SECTION 9.01. General......................................... 42
SECTION 9.02. Deemed Security Holders......................... 42
ARTICLE X
Limitation of Liability of
Holders of Securities, Trustees or Others
SECTION 10.01. Liability...................................... 43
SECTION 10.02. Exculpation.................................... 43
SECTION 10.03. Fiduciary Duty................................. 44
SECTION 10.04. Indemnification................................ 45
SECTION 10.05. Outside Businesses............................. 45
ARTICLE XI
Accounting
SECTION 11.01. Fiscal Year.................................... 46
SECTION 11.02. Certain Accounting Matters..................... 46
SECTION 11.03. Banking........................................ 47
SECTION 11.04. Withholding.................................... 47
ARTICLE XII
Amendments and Meetings
SECTION 12.01. Amendments..................................... 48
SECTION 12.02. Meetings of the Holders of Securities;
Action by Written Consent.................... 50
B-iii
<PAGE>
Page
----
ARTICLE XIII
Representations of Delaware Trustee
SECTION 13.01. Representations and Warranties of Delaware Trustee 52
ARTICLE XIV
Miscellaneous
SECTION 14.01. Notices........................................ 53
SECTION 14.02. Governing Law.................................. 54
SECTION 14.03. Intention of the Parties....................... 54
SECTION 14.04. Headings....................................... 54
SECTION 14.05. Successors and Assigns......................... 54
SECTION 14.06. Partial Enforceability......................... 54
SECTION 14.07. Counterparts................................... 54
ANNEX I Terms of __% Capital Securities and __% Common
Securities
Exhibit A Form of Capital Security
Exhibit B Form of Common Security
B-iv
<PAGE>
CROSS-REFERENCE TABLE*
Section of
Trust Indenture Act Section of
of 1939, as amended Declaration
310(a)................................................ 5.3(a)
310(c)................................................ Inapplicable
311(c)................................................ Inapplicable
312(a)................................................ 2.2(a)
312(b)................................................ 2.2(b)
313................................................... 2.3
314(a)................................................ 2.4
314(b)................................................ Inapplicable
314(c)................................................ 2.5
314(d)................................................ Inapplicable
314(f)................................................ Inapplicable
315(a)................................................ 3.9(b)
315(c)................................................ 3.9(a)
315(d)................................................ 3.9(a)
316(a)................................................ Annex I
316(c)................................................ 3.6(e)
________________
* This Cross-Reference Table does not constitute part of the Declaration
and shall not affect the interpretation of any of its terms or
provisions.
<PAGE>
DECLARATION OF TRUST
OF
NATIONWIDE FINANCIAL SERVICES CAPITAL TRUST
_____________ __, 1997
AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") dated and
effective as of __________ __, 1997, by the undersigned trustees (together with
all other persons from time to time duly appointed and serving as trustees in
accordance with the provisions of this Declaration, the "Trustees"), Nationwide
Financial Services, Inc., a Delaware corporation, as trust sponsor (the
"Sponsor"), and by the holders, from time to time, of undivided beneficial
interests in the Trust issued pursuant to the Declaration;
WHEREAS, the Trustees and the Sponsor established a trust (the
"Trust") under the Delaware Business Trust Act (as hereinafter defined) pursuant
to a Declaration of Trust dated as of December 18, 1996 (the "Original
Declaration"), and a Certificate of Trust filed with the Secretary of State of
the State of Delaware on December 19, 1996, for the sole purpose of issuing and
selling certain securities representing undivided beneficial interests in the
assets of the Trust and investing the proceeds thereof in certain Debentures of
the Debenture Issuer (as hereinafter defined); and
WHEREAS, as of the date hereof, no interests in the Trust have been
issued;
WHEREAS, all of the Trustees and the Sponsor, by this Declaration,
amend and restate each and every term and provision of the Original Declaration;
and
NOW, THEREFORE, it being the intention of the parties hereto to
continue the Trust as a business trust under the Business Trust Act and that
this Declaration constitute the governing instrument of such business trust, the
Trustees declare that all assets contributed to the Trust will be held in trust
for the benefit of the holders, from time to time, of the securities
representing undivided beneficial interests in the assets of the Trust issued
hereunder, subject to the provisions of this Declaration.
<PAGE>
ARTICLE I
Interpretation and Definitions
------------------------------
SECTION 1.01. Definitions. Unless the context otherwise requires:
-----------
(a) Capitalized terms used in this Declaration but not defined in the
preamble above have the respective meanings assigned to them in this Section
1.01;
(b) a term defined anywhere in this Declaration has the same meaning
throughout;
(c) all references to "the Declaration" or "this Declaration" are to
this Declaration as modified, supplemented or amended from time to time;
(d) all references in this Declaration to Articles and Sections and
Exhibits are to Articles and Sections of and Exhibits to this Declaration unless
otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning as
when used in this Declaration unless otherwise defined in this Declaration or
unless the context otherwise requires; and
(f) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule 405 of
---------
the Securities Act or any successor rule thereunder.
"Agent" means any registrar, Paying Agent or co-registrar.
-----
"Authorized Officer" of a Person means any Person that is authorized
------------------
to bind such Person.
"Beneficiaries" has the meaning set forth in Section 4.03(a).
-------------
"Book Entry Interest" means a beneficial interest in a Global
-------------------
Certificate, ownership and transfers of which all be maintained and made through
book entries by a Depositary as described in Section 7.03.
"Business Day" means any day other than a day on which banking
------------
institutions in New York, New York or Wilmington, Delaware are authorized or
required by law to close.
2
<PAGE>
"Business Trust Act" means Chapter 38 of Title 12 of the Delaware
------------------
Code, 12 Del. Code (S) 3801 et seq., as it may be amended from time to time.
------------ -- ---
"Capital Securities" has the meaning specified in Section 7.01(a).
------------------
"Capital Securities Guarantee" means the guarantee agreement to be
----------------------------
dated as of __________ __, 1997, of the Sponsor in respect to the Capital
Securities.
"Capital Security Beneficial Owner" means, with respect to a Book
---------------------------------
Entry interest, a Person who is the beneficial owner of such Book Entry
Interest, as reflected on the books of the Depositary, or on the books of a
Person maintaining an account with such Depositary (directly as a Participant or
as an indirect participant, in each case in accordance with the rules of such
Depositary).
"Certificate" means a certificate in global or definitive form
-----------
representing a Common Security or a Capital Security.
"Certificate Depositary Agreement" means the Agreement among the
--------------------------------
Trust, the Depositary and the Sponsor as the same may be amended from time to
time.
"Closing Date" means the First Closing Date as defined in the
------------
Underwriting Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Commission" means the Securities and Exchange Commission.
----------
"Covered Person" means: (a) any officer, director, shareholder,
--------------
partner, member, representative, employee or agent of (i) the Trust or (ii) the
Trust's Affiliates; and (b) any Holder of Securities.
"Debenture Issuer" means Nationwide Financial Services, Inc., as
----------------
issuer of the Debentures.
"Debenture Trustee" means Wilmington Trust Company, a Delaware banking
-----------------
corporation, as trustee under the Indenture until a successor is appointed
thereunder, and thereafter means such successor trustee.
"Debentures" means the series of Junior Subordinated Deferrable
----------
Interest Debentures due 2037 to be issued by the Debenture Issuer under the
Indenture to be held by the Property Trustee.
3
<PAGE>
"Delaware Trustee" has the meaning set forth in Section 5.02.
----------------
"Definitive Capital Securities" means the Capital Securities in
-----------------------------
definitive form issued by the Trust, a specimen certificate for such preferred
securities being attached hereto as Exhibit A.
---------
"Depositary" means The Depository Trust Company, the initial clearing
----------
agency.
"Distribution" means a distribution payable to Holders of Securities
------------
in accordance with Section 6.01.
"Event of Default" in respect of the Securities means an Event of
----------------
Default (as defined in the Indenture) in respect of the Debentures or a default
by the Sponsor under the Capital Securities Guarantee has occurred and is
continuing.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
------------
from time to time, or any successor legislation.
"Global Certificate" has the meaning set forth in Section 7.03(a).
------------------
"Holder" means a Person in whose name a Certificate representing a
------
Security is registered, such Person being a beneficial owner within the meaning
of the Business Trust Act.
"Indemnified Person" means (a) any Trustee; (b) any Affiliate of any
------------------
Trustee; (c) any officers, directors, shareholders, members, partners,
employees, representatives or agents of any Trustee or (d) any employee or agent
of the Trust or its Affiliates.
"Indenture" means the Indenture dated as of _______ __, 1997, between
---------
the Debenture Issuer and Wilmington Trust Company, as trustee, and any indenture
supplemental thereto pursuant to which the Debentures are to be issued.
"Investment Company" means an investment company as defined in the
------------------
Investment Company Act.
"Investment Company Act" means the Investment Company Act of 1940, as
----------------------
amended from time to time, or any successor legislation.
"Legal Action" has the meaning set forth in Section 3.06(g).
------------
4
<PAGE>
"List of Holders" has the meaning set forth in Section 2.02(a).
---------------
"Majority in liquidation amount of the Securities" means, except as
------------------------------------------------
provided in the terms of the Capital Securities and by the Trust Indenture Act,
Holder(s) of outstanding Securities voting together as a single class or, as the
context may require, Holders of outstanding Capital Securities or Holders of
outstanding Common Securities voting separately as a class, who are the record
owners of more than 50% of the aggregate liquidation amount (including the
stated amount that would be paid on redemption, liquidation or otherwise, plus
accrued and unpaid Distributions to the date upon which the voting percentages
are determined) of all outstanding Securities of the relevant class.
"Obligations" means any costs, expenses or liabilities of the Trust,
-----------
other than obligations of the Trust to pay to Holders of any Securities or other
similar interests in the Trust the amounts due such Holders pursuant to the
terms of the Securities or such other similar interests, as the case may be.
"Officers' Certificate" means, with respect to any Person, a
---------------------
certificate signed by two Authorized Officers of such Person. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Declaration shall include:
(a) a statement that each officer signing the Certificate has read
the covenant or condition and the definition relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the
Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to
enable such officer to express an informed opinion as to whether
or not such covenant or condition has been complied with; and
(d) a statement an to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Participant" means a member of, or participant in, the Depositary.
-----------
5
<PAGE>
"Paying Agent" has the meaning specified section 3.08(h).
------------
"Person" means a legal person, including any individual, corporation,
------
estate, partnership, joint venture, association, joint stock, limited liability
company, trust, unincorporated association, or government or any agency or
political subdivision thereof, or any other entity of whatever nature.
"Property Trustee" means the Trustee meeting the eligibility
----------------
requirements set forth in Section 5.03.
"Property Trustee Account" has the meaning set forth in Section
------------------------
3.08(c).
"Prospectus" has the meaning set forth in Section 3.06(b)(i).
----------
"Quorum" means a majority of the Regular Trustees or, if there are
------
only two Regular Trustees, both of them.
"Registrar" has the meaning set forth in Section 7.04.
---------
"Registration Statement" has the meaning set forth in Section
----------------------
3.06(b)(i).
"Regular Trustee" means any Trustee other than the Property Trustee
---------------
and the Delaware Trustee.
"Responsible Officer means, with respect to the Property Trustee, any
-------------------
vice-president, any assistant vice-president, the treasurer, any assistant
treasurer, any trust officer or assistant trust officer or any other officer in
Corporate Trust Administration of the Property Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of that officer's knowledge of
and familiarity with the particular subject.
"Securities" means the Common Securities and the Capital Securities.
----------
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"66-2/3% in liquidation amount of the Securities" means, except as
-----------------------------------------------
provided in the term of the Capital Securities and by the Trust Indenture Act,
Holders of outstanding Securities voting as a single class or, as the
6
<PAGE>
context may require, Holders of outstanding Capital Securities or Holder(s) of
outstanding Common Securities voting separately as a class, representing at
least 66-2/3% of the aggregate liquidation amount (including the stated amount
that would be paid on redemption, liquidation or otherwise, plus accrued and
unpaid Distributions, to the date upon which the voting percentage are
determined) of all outstanding Securities of the relevant class.
"Sponsor" means Nationwide Financial Services, Inc., a Delaware
-------
corporation, or any successor entity in a merger, consolidation or amalgamation,
in its capacity as sponsor of the Trust.
"Super Majority" has the meaning set forth in Section 2.06(a)(ii).
--------------
"10% in liquidation amount of the Securities" means, except as
-------------------------------------------
provided in the terms to the Capital Securities or by the Trust Indenture Act,
Holders of outstanding Securities voting together as a single class or, as the
context any require, Holders of outstanding Capital Securities or Holders of
outstanding Common Securities, voting separately as a class, representing 10% of
the aggregate liquidation amount (including the stated amount that would be paid
on redemption, liquidation or otherwise, plus accrued and unpaid Distributions
to the date upon which the voting percentages are determined) of all outstanding
Securities of the relevant class.
"Treasury Regulation" means the income tax regulation, including
-------------------
temporary and proposed regulations, promulgated under the Code by the United
States Treasury, as such regulations may be amended from time to time (including
corresponding provisions to succeeding regulations).
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
-------------------
amended from time to time.
"Trustee" or "Trustees" means each Person who has signed this
------- --------
Declaration as a trustee, so long as such Person shall continue in office in
accordance with the terms hereof, and all other Persons who may from time to
time be duly appointed, qualified and serving an Trustees in accordance with the
provisions hereof, and references herein to a Trustee or the Trustees shall
refer to such Person or Persons solely in their capacity as trustees hereunder.
"Underwriting Agreement" means the Underwriting Agreement, dated
----------------------
_______, 1997, among the Sponsor, the Trust and Credit Suisse First Boston
Corporation, Morgan Stanley & Co. Incorporated and Merrill Lynch, Pierce, Fenner
and Smith
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Incorporated, as representatives of the several underwriters named in Schedule A
attached thereto.
ARTICLE II
Trust Indenture Act
-------------------
SECTION 2.01. Trust Indenture Acts; Application. (a) This
---------------------------------
Declaration is subject to the provisions of the Trust Indenture Act that are
required to be part of this Declaration, which are incorporated by reference in
and made part of this Declaration and shall, to the extent applicable, be
governed by such provisions.
(b) The Property Trustee shall be the only Trustee which is a Trustee
for the purpose of the Trust Indenture Act.
(c) If and to the extent that any provision of this Declaration
limits, qualifies or conflicts with the duties imposed by (S)(S) 310 to 377,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
(d) The application of the Trust Indenture Act to this Declaration
shall not affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
SECTION 2.02. Lists of Holders of Securities. (a) Each of the
------------------------------
Sponsor and the Regular Trustees on behalf of the Trust shall provide the
Property Trustee (i) within 14 days after each record date for payment of
Distributions, a list, in such form as the Property Trustee may reasonably
require, of the names and addresses of the Holders of the Securities ("List of
Holders") as of such record date; provided that neither the Sponsor nor the
-------- ----
Regular Trustees on behalf of the Trust shall be obligated to provide such List
of Holders at any time the List of Holders does not differ from the most recent
List of Holders given to the Property Trustee by the Sponsor and the Regular
Trustees on behalf of the Trust, and (ii) a List of Holders at any other time,
within 30 days of receipt by the Trust of a written request for a List of
Holders as of a date no more than 14 days before such List of Holders is given
to the Property Trustee. The Property Trustee shall preserve, in as current a
form as is reasonably practicable, all information contained in Lists of Holders
given to it or which it receives in its capacity as Paying Agent (if acting in
such capacity); provided that the Property Trustee may destroy any List of
-------- ----
Holders previously given to it on receipt of a new List of Holders.
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(b) The Property Trustee shall comply with its obligations under
(S)(S) 311(a), 312(b) and 312(b) of the Trust Indenture Act.
SECTION 2.03. Reports by the Property Trustee. Within 60 days after
-------------------------------
May 15 of each year, the Property Trustee shall provide to the Holders of the
Capital Securities such reports as are required by (S) 313 of the Trust
Indenture Act, if any, in the form and in the manner provided by (S) 313 of the
Trust Indenture Act. The Property Trustee shall also comply with the
requirements of (S) 313(d) of the Trust Indenture Act.
SECTION 2.04. Periodic Reports to Property Trustee. Each of the
------------------------------------
Sponsor and the Regular Trustees on behalf of the Trust shall provide to the
Property Trustee such documents, reports and information as required by (S) 314
of the Trust Indenture Act (if any) and the compliance certificate required by
(S) 314 of the Trust Indenture Act in the form, in the manner and at the times
required by (S) 314 of the Trust Indenture Act.
SECTION 2.05. Evidence of Compliance with Conditions Precedent. Each
------------------------------------------------
of the Sponsor and the Regular Trustees on behalf of the Trust shall provide to
the Property Trustee such evidence of compliance with any conditions precedent,
if any, provided for in this Declaration that relate to any of the matters set
forth in (S) 314(c) of the Trust Indenture Act. Any certificate or opinion
required to be given by an officer pursuant to (S) 314(c)(1) may be given in the
form of an Officers' Certificate.
SECTION 2.06. Events of Default; Waiver. (a) The Holders of a
-------------------------
Majority in liquidation preference of Capital Securities may, by vote, on behalf
of the Holders of all of the Capital Securities, waive any past Event of Default
in respect of the Capital Securities and its consequences; provided that, if the
-------- ----
underlying Event of Default under the Indenture:
(i) is not waivable under the Indenture, the Event of Default under
the Declaration shall also not be waivable; or
(ii) requires the consent or vote of greater than a majority in
principal amount of the holders of the Debentures (a "Super Majority") to
be waived under the Indenture, the Event of Default under the Declaration
may only be waived by the vote of the Holders of at least the proportion in
liquidation amount of the Capital Securities that the relevant Super
Majority
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represents of the aggregate principal amount of the Debentures outstanding.
Upon such waiver, any such default shall cease to exist, and any Event
of Default with respect to the Capital Securities arising therefrom shall be
deemed to have been cured, for every purpose of this Declaration, but no such
waiver shall extend to any subsequent or other default or an Event of Default
with respect to the Capital Securities or impair any right consequent thereon.
Any waiver by the Holders of the Capital Securities of an Event of Default with
respect to the Capital Securities shall also be deemed to constitute a waiver by
the Holders of the Common Securities of any such Event of Default with respect
to the Common Securities for all purpose of this Declaration without any further
act, vote, or consent of the Holders of the Securities.
(b) The Holders of a Majority in liquidation amount of the Common
Securities may, by vote, on behalf of the Holders of all of the Common
Securities, waive any past Event of Default with respect to the Common
Securities and its consequences; provided that, if the underlying Event of
-------- ----
Default under the Indenture:
(i) is not waivable under the Indenture, except where the Holders of
the Common Securities are deemed to have waived such Event of Default under
the Declaration as provided below in this Section 2.06(b), the Event of
Default under the Declaration shall also not be waivable; or
(ii) requires the consent or vote of a Super Majority to be waived,
except where the Holders of the Common Securities are deemed to have waived
such Event of Default under the Declaration as provided below in this
Section 2.06(b), the Event of Default under the Declaration may only be
waived by the vote of the Holders of at least the proportion in liquidation
preference of the Common Securities that the relevant Super Majority
represents of the aggregate principal amount of the Debentures outstanding;
provided, further, each Holder of Common Securities will be deemed to have
- -------- -------
waived any such Event of Default and all Events of Default with respect to the
Common Securities and its consequences until the effects of all Events of
Default with respect to the Capital Securities have been cured, waived or
otherwise eliminated, and until such Events of Default have been so cured,
waived or otherwise eliminated, the Property Trustee will be deemed to be acting
solely on behalf of the Holders of the Capital Securities and only the Holders
of the Capital Securities will have the right to
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direct the Property Trustee in accordance with the terms of the Securities.
Subject to the foregoing provisions of this Section 2.06(b), upon such waiver,
any such default shall cease to exist and any Event of Default with respect to
the Common Securities arising therefrom shall be deemed to have been cured for
every purpose of this Declaration, but no such waiver shall extend to any
subsequent or other default or Event of Default with respect to the Common
Securities or impair any right consequent thereon.
(c) A waiver of an Event of Default under the Indenture by the
Property Trustee at the direction of the Holders of the Capital Securities,
constitutes a waiver of the corresponding Event of Default under this
Declaration. The foregoing provisions of this Section 2.06(c) shall be in lieu
of (S) 316(a)(1)(B) of the Trust Indenture Act and such (S) 316(a)(1)(B) of the
Trust Indenture Act is hereby expressly excluded from this Declaration and the
Securities, as permitted by the Trust Indenture Act.
SECTION 2.07. Event of Default; Notice. (a) The Property Trustee
-------------------------
shall, within 90 days after the occurrence of an Event of Default, transmit by
mail, first class postage prepaid, to the Holders of the Securities, notices of
all defaults with respect to the Securities actually known to the Property
Trustee, unless such defaults have been cured before the giving of such notice
(the term "defaults" for the purposes of this Section 2.07(a) being hereby
defined to be an Event of Default as defined in the Indenture not including any
periods of grace provided for therein and irrespective of the giving of any
notice provided therein); provided that, except for a default in the payment of
-------- ----
principal of (or premium, if any) or interest on any of the Debentures or in the
payment of any sinking fund installment established for the Debentures, the
Property Trustee shall be protected in withholding such notice if and so long as
the board of directors, the executive committee, or a trust committee of
directors and/or Responsible Officers of the Property Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders of the Securities.
(b) The Property Trustee shall not be deemed to have knowledge of any
default unless a Responsible Officer has actual knowledge of or has received
written notice of such default.
11
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ARTICLE III
Organization
------------
SECTION 3.01. Name. The Trust is named Nationwide Financial Services
----
Capital Trust, as such name may be modified from time to time by the Regular
Trustees following written notice to the Holders of Securities. The Trust's
activities may be conducted under the name of the Trust or any other name deemed
advisable by the Regular Trustees.
SECTION 3.02. Office. The address of the principal office of the
------
Trust is c/o Nationwide Financial Services, Inc., One Nationwide Plaza,
Columbus, Ohio 43215, Attention: Chief Financial Officer. On ten Business Days
written notice to the Holders of Securities, the Regular Trustees may designate
another principal office.
SECTION 3.03. Purpose. The exclusive purposes and functions of the
-------
Trust are (a) to issue and sell Securities and use the proceeds from such sale
to acquire the Debentures, and (b) except as otherwise limited herein, to engage
in only those other activities necessary or incidental thereto. The Trust shall
not borrow money, issue debt or reinvest profits derived from investments,
pledge any of its assets, or otherwise undertake (or permit to be undertaken)
any activity that would cause the Trust not to be classified for United States
Federal income tax purposes as a grantor trust.
SECTION 3.04. Authority. Subject to the limitations provided in this
---------
Declaration and to the specific duties of the Property Trustee, the Regular
Trustees shall have exclusive and complete authority to carry out the purposes
of the Trust. An action taken by the Regular Trustees in accordance with their
powers shall constitute the act of and serve to bind the Trust and an action
taken by the Property Trustee in accordance with its powers shall constitute the
act of and serve to bind the Trust. In dealing with the Trustees acting on
behalf of the Trust, no person shall be required to inquire into the authority
of the Trustees to bind the Trust. Persons dealing with the Trust are entitled
to rely conclusively on the power and authority of the Trustees as set forth in
this Declaration.
SECTION 3.05. Title to Property of the Trust. Except as provided
------------------------------
in Section 3.08 with respect to the Debentures and the Property Trustee Account
or as otherwise provided in this Declaration, legal title to all assets of the
Trust shall be vested in the Trust. The Holders shall not have legal title to
any part of the assets of the Trust,
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but shall have an undivided beneficial interest in the assets of the Trust.
SECTION 3.06. Powers and Duties of the Regular Trustees. The
------------------------------------------
Regular Trustees shall have the exclusive power, duty and authority to cause the
Trust to engage in the following activities:
(a) to issue and sell the Capital Securities and Common Securities in
accordance with this Declaration; provided, however, that the Trust may issue no
-------- -------
more than one series of Capital Securities and no more than one series of Common
Securities; and provided, further, that there shall be no interests in the Trust
-------- -------
other than the Securities, and the issuance of Securities shall be limited to
simultaneous issuances of both Capital Securities and Common Securities on the
Closing Date;
(b) in connection with the issue and sale of the Capital Securities,
at the direction of the Sponsor, to:
(i) assist in the preparation of a prospectus (the "Prospectus")
in preliminary and final form prepared by the Sponsor, in relation to the
offering and sale of Capital Securities and to execute and file with the
Commission, a registration statement filed on Form S-1 prepared by the
Sponsor, including any amendments thereto in relation to the Capital
Securities (including any registration statement filed pursuant to Rule
462) (the "Registration Statement");
(ii) execute and file any documents prepared by the Sponsor, or
take any acts as determined by the Sponsor to be necessary in order to
qualify or register all or part of the Capital Securities in any State or
foreign jurisdiction in which the Sponsor has determined to qualify or
register such Capital Securities for sale;
(iii) execute and file an application, prepared by the Sponsor,
to the New York Stock Exchange or any other national stock exchange for
listing or quotation of the Capital Securities;
(iv) to execute and deliver letters, documents, or instruments
with the Depositary relating to the Capital Securities;
(v) execute and file with the Commission, at such time as
determined by the Sponsor, a registration statement on Form 8-A, including
any amendments thereto, prepared by the Sponsor relating to the
13
<PAGE>
registration of the Capital Securities under Section 12 of the Exchange
Act; and
(vi) execute and enter into the Underwriting Agreement and other
related agreements providing for the sale of the Capital Securities and
consummate the transactions contemplated thereby;
(c) to acquire the Debentures with the proceeds of the sale of the
Capital Securities and the Common Securities; provided, however, that the
-------- -------
Regular Trustees shall cause title to the Debentures to be held of record in the
name of the Property Trustee for the benefit of the Holders of the Capital
Securities and the Holders of the Common Securities;
(d) to give the Sponsor and the Property Trustee prompt written notice
of the occurrence of a Tax Event; provided, that the Regular Trustees shall
-------- ----
consult with the Sponsor and the Property Trustee before taking or refraining
from taking any Ministerial Action in relation to a Tax Event;
(e) to establish a record date with respect to all actions to be taken
hereunder that require a record date be established, including and with respect
to, for the purposes of (S) 316(c) of the Trust Indenture Act, Distributions,
voting rights, redemptions and exchanges, and to issue relevant notices to the
Holders of Capital Securities and Holders of Common Securities as to such
actions and applicable record dates;
(f) to take all action, and perform such duties as may be required of
the Regular Trustees pursuant to the terms of the Securities (set forth in Annex
I hereto and made a part hereof);
(g) to bring or defend, pay, collect, compromise, arbitrate, resort to
legal action, or otherwise adjust claims or demands of or against the Trust
("Legal Action"), unless pursuant to Section 3.08(e), the Property Trustee has
the exclusive power to bring such Legal Action;
(h) to employ or otherwise engage employees and agents (as may be
designated as officers with titles) and managers, contractors, advisors, and
consultants and pay reasonable compensation for such services;
(i) to cause the Trust to comply with the Trust's obligations under
the Trust Indenture Act;
(j) to give the certificate required by (S) 314(a)(4) of the Trust
Indenture Act to the Property
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<PAGE>
Trustee, which certificate may be executed by any Regular Trustee;
(k) to incur expenses that are necessary or incidental to carry out
any of the purposes of the Trust;
(l) to act as, or appoint another Person to act as, Registrar and
transfer agent for the Securities;
(m) to give prompt written notice to the Holders of the Securities of
any notice received from the Sponsor of its election to defer payments of
interest on the Debentures by extending the interest payment period under the
Indenture;
(n) to execute all documents or instruments, perform all duties and
powers, and do all things for and on behalf of the Trust in all matters
necessary or incidental to the foregoing;
(o) to take all action that may be necessary or appropriate for the
preservation and the confirmation of the Trust's valid existence, rights,
franchises and privileges as a statutory business trust under the laws of the
State of Delaware and of each other jurisdiction in which such existence is
necessary to protect the limited liability of the Holders of the Capital
Securities or to enable the trust to effect the purposes for which the Trust was
created;
(p) to take any action, not inconsistent with this Declaration or with
applicable law, that the Regular Trustees determine in their discretion to be
necessary or desirable in carrying out the activities of the Trust as set out in
this Section 3.06, including, but not limited to:
(i) causing the Trust not to be deemed to be an Investment
Company required to be registered under the Investment Company Act;
(ii) causing the Trust to be classified for United States
federal income tax purposes as a grantor trust; and
(iii) cooperating with the Sponsor to ensure that the
Debentures will be treated as indebted ness of the Sponsor for United
States federal income tax purposes;
provided that such action does not adversely affect the interests of Holders;
- -------- ----
and
(q) to take all action necessary to cause all applicable tax returns
and tax information reports that are
15
<PAGE>
required to be filed with respect to the Trust to be duly prepared and filed by
the Regular Trustees, on behalf of the Trust.
The Regular Trustees must exercise the powers set forth in this
Section 3.06 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.03, and the Regular Trustees shall not take any
action that is inconsistent with the purposes and functions of the Trust set
forth in Section 3.03.
Subject to this Section 3.06, the Regular Trustees shall have none of
the powers or the authority of the Property Trustee set forth in Section 3.08.
SECTION 3.07. Prohibition of Actions by the Trust and the Trustees.
----------------------------------------------------
(a) The Trust shall not, and the Trustees (including the Property Trustee)
shall not, engage in any activity other than as required or authorized by this
Declaration. In particular, the Trust shall not and the Trustees (including the
Property Trustee) shall cause the Trust not to:
(i) invest any proceeds received by the Trust from holding
the Debentures, but shall distribute all such to Holders of Securities
pursuant to the terms of this Declaration and of the Securities;
(ii) acquire any assets other than as expressly provided
herein;
(iii) possess Trust property for other than a Trust purpose;
(iv) make any loans or incur any indebtedness other than
loans represented by the Debentures;
(v) possess any power or otherwise act in such a way as to
vary the Trust assets or the terms of the Securities in any way
whatsoever;
(vi) issue any securities or other evidences of beneficial
ownership of, or beneficial interest in, the Trust other than the
Securities; or
(vii) other than as provided in this Declaration or Annex I
hereto, (A) direct the time, method and place of exercising any trust
or power conferred upon the Debenture Trustee with respect to the
Debentures, (B) waive any past
16
<PAGE>
default that is not waivable under Section 5.13 of the Indenture, (C)
exercise any right to rescind or annul any declaration that the
principal of all the Debentures shall be due and payable, or (D)
consent to any amendment, modification or termination of the Indenture
or the Debentures where such consent shall be required unless the
Trust shall have received an opinion of counsel to the effect that
such modification will not cause more than an insubstantial risk that
for United States federal income tax purposes the Trust will not be
classified as a grantor trust.
SECTION 3.08. Powers and Duties of the Property Trustee. (a) The
-----------------------------------------
legal title to the Debentures shall be owned by and held of record in the name
of the Property Trustee in trust for the benefit of the Holders of the
Securities. The right, title and interest of the Property Trustee to the
Debentures shall vest automatically in each Person who may hereafter be
appointed as Property Trustee in accordance with Section 5.06. Such vesting and
cessation of title shall be effective whether or not conveyancing documents with
regard to the Debentures have been executed and delivered.
(b) The Property Trustee shall not transfer its right, title and
interest in the Debentures to the Regular Trustees or to the Delaware Trustee
(if the Property Trustee does not also act an Delaware Trustee).
(c) The Property Trustee shall:
(i) establish and maintain a segregated non-interest bearing
trust account (the "Property Trustee Account") in the name of and
under the exclusive control of the Property Trustee on behalf of the
Holders of the Securities and, upon the receipt of payments of funds
made in respect of the Debentures held by the Property Trustee,
deposit such funds into the Property Trust Account and make payments
to the Holders of the Capital Securities and Holders of the Common
Securities from the Property Trustee Account in accordance with
Section 6.01. Funds in the Property Trustee Account shall be held
uninvested until disbursed in accordance with this Declaration.
(ii) engage in such unilateral activities as so directed and as
shall be necessary or appropriate to effect the redemption of the
Capital Securities and the Common Securities to the extent the
Debentures are redeemed or mature; and
17
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(iii) upon written notice of distribution issued by the Regular
Trustees in accordance with the terms of the Securities, engage in
such ministerial activities as so directed as shall be necessary or
appropriate to effect the distribution of the Debentures to Holders of
Securities pursuant to the terms of the Securities.
(d) The Property Trustee shall take all actions and perform such
duties as may be specifically required of the Property Trustee pursuant to the
terms of the Securities (set forth in Annex I hereto and made a part hereof).
(e) The Property Trustee shall take any Legal Action which arises out
of or in connection with an Event of Default or the Property Trustee's duties
and obligations under this Declaration or the Trust Indenture Act.
(f) The Property Trustee shall not resign as a Trustee unless either:
(i) the Trust has been completely liquidated and the proceeds of
the liquidation distributed to the Holders of Securities pursuant to
the terms of the Securities; or
(ii) a Successor Property Trustee has been appointed and has
accepted that appointment in accordance with Section 5.06.
(g) The Property Trustee shall have the legal power to exercise all of
the rights, powers and privileges of a holder of Debentures under the Indenture
and, if an Event of Default occurs and is continuing, the Property Trustee
shall, for the benefit of Holders of the Securities, enforce its rights as
holder of the Debentures subject to the rights of the Holders pursuant to the
terms of such Securities.
(h) The Property Trustee will act as paying agent and registrar (the
"Paying Agent") to pay Distributions, redemption payments or liquidation
payments on behalf of the Trust with respect to all securities and any such
Paying Agent shall comply with (S) 317(b) of the Trust Indenture Act. Any
Paying Agent may be removed by the Property Trustee at any time and a successor
Paying Agent or additional Paying Agents may be appointed at any time by the
Property Trustee.
(i) Subject to this Section 3.08, the Property Trustee shall have none
of the duties, liabilities, powers or the authority of the Regular Trustees set
forth in Section 3.06.
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The Property Trustee must exercise the powers set forth in this
Section 3.08 in a manner that is consistent with the purpose and functions of
the Trust set out in Section 3.03, and the Property Trustee shall not take any
action that is inconsistent with the purposes and functions of the Trust set out
in Section 3.03.
SECTION 3.09. Certain Duties and Responsibilities of the Property
---------------------------------------------------
Trustee. (a) The Property Trustee, before the occurrence of any Event of
- -------
Default and after the curing of all Events of Default that any have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Declaration and no implied covenants shall be read into this Declaration
against the Property Trustee. In case an Event of Default has occurred (that
has not been cured or waived pursuant to Section 2.06), the Property Trustee
shall exercise such of the rights and powers vested in it by this Declaration,
and use the same degree of care and skill in their exercise, as a prudent person
would exercise or use under the circumstances in the conduct of his or her own
affairs.
(b) No provision of this Declaration shall be construed to relieve the
Property Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after the
curing or waiving of all such Events of Default that may have
occurred:
(A) the duties and obligations of the Property Trustee shall
be determined solely by the express provisions of this
Declaration and the Property Trustee shall not be liable except
for the performance of such duties and obligations as are
specifically set forth in this Declaration, and no implied
covenants or obligations shall be read into this Declaration
against the Property Trustee; and
(B) in the absence of bad faith on the part of the Property
Trustee, the Property Trustee may conclusively rely, as to the
truth of the statements and the correctness of the opinions
expressed therein, upon any certificates or opinions furnished to
the Property Trustee and conforming to the requirements of this
Declaration; but in the case of any such certificates or opinions
that by any provision hereof are specifically required to be
furnished to the Property Trustee, the Property Trustee shall be
under
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a duty to examine the same to determine whether or not they
conform to the requirements of this Declaration;
(ii) the Property Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Property
Trustee, unless it shall be proved that the Property Trustee was
negligent in ascertaining the pertinent facts;
(iii) the Property Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of not less than a
Majority in liquidation amount of the Securities relating to the time,
method and place of conducting any proceeding for any remedy available
to the Property Trustee, or exercising any trust or power conferred
upon the Property Trustee under this Declaration;
(iv) no provision of this Declaration shall require the Property
Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that the repayment of such funds or liability is
not reasonably assured to it under the terms of this Declaration or
adequate indemnity against such risk or liability is not reasonably
assured to it;
(v) the Property Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the Debentures and
the Property Trustee Account shall be to deal with such property in a
similar manner as the Property Trustee deals with similar property for
its own account, subject to the protections and limitations on
liability afforded to the Property Trustee under this Declaration and
the Trust Indenture Act;
(vi) the Property Trustee shall have no duty or liability for or
with respect to the value, genuineness, existence or sufficiency of
the Debentures or the payment of any taxes or assessments levied
thereon or in connection therewith;
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<PAGE>
(vii) the Property Trustee shall not be liable for any interest
on any money received by it except as it may otherwise agree with the
Sponsor. Money held by the Property Trustee need not be segregated
from other funds held by it except in relation to the Property Trustee
Account maintained by the Property Trustee pursuant to Section
3.06(c)(i) and except to the extent otherwise required by law; and
(vii) the Property Trustee shall not be responsible for
monitoring the compliance by the Regular Trustees or the Sponsor with
their respective duties under this Declaration, nor shall the Property
Trustee be liable for the default or misconduct of the Regular
Trustees or the Sponsor.
SECTION 3.10. Certain Rights of Property Trustee. (a) Subject to
----------------------------------
the provisions of Section 3.09:
(i) the Property Trustee may rely and shall be fully protected
in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document believed by it to be genuine and to have
been signed, sent or presented by the proper party or parties;
(ii) any direction or act of the Sponsor or the Regular Trustees
contemplated by this Declaration shall be sufficiently evidenced by an
Officers' Certificate;
(iii) whenever in the administration of this Declaration, the
Property Trustee shall deem it desirable that a matter be proved or
established before taking, suffering or omitting any action hereunder,
the Property Trustee (unless other evidence is herein specifically
prescribed) may, in the absence of bad faith on its part, request and
rely upon an Officers' Certificate which, upon receipt of such
request, shall be promptly delivered by the Sponsor or the Regular
Trustees;
(iv) the Property Trustee shall have no duty to see to any
recording, filing or registration of any instrument (including any
financing or continuation statement or any filing under tax or
securities laws) or any rerecording, refiling or registration thereof;
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(v) the Property Trustee may consult with counsel of its choice
or other experts and the advice or opinion of such counsel and experts
with respect to legal matters or advice within the scope of such
experts' area of expertise shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by
it hereunder in good faith and in accordance with such advice or
opinion. Such counsel may be counsel to the Sponsor or any of its
Affiliates, and may include any of its employees. The Property
Trustee shall have the right at any time to seek instructions
concerning the administration of this Declaration from any court of
competent jurisdiction;
(vi) the Property Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Declaration
at the request or direction of any Holder, unless such Holder shall
have provided to the Property Trustee adequate security and indemnity,
which would satisfy a reasonable person in the position of the
Property Trustee, against the costs, expenses (including its
attorneys' fees and expenses) and liabilities that might be incurred
by it in complying with such request or direction, including such
reasonable advances as may be requested in writing by the Property
Trustee provided, that, nothing contained in this Section 3.10(a)(vi)
shall be taken to relieve the Property Trustee, upon the occurrence of
an Event of Default, of its obligation to exercise the rights and
powers vested in it by this Declaration;
(vii) the Property Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, security, bond, debenture, note, other
evidence of indebtedness or other paper or document, but the Property
Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit;
(viii) the Property Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by
or through agents or attorneys and the Property Trustee shall not be
responsible for any misconduct or negligence on the part of any agent
or attorney appointed with due care by it hereunder;
22
<PAGE>
(ix) any action taken by the Property Trustee or its agents
hereunder shall bind the Trust and the Holders of the Securities, and
the signature of the Property Trustee or its agents alone shall be
sufficient and effective to perform any such action and no third party
shall be required to inquire as to the authority of the Property
Trustee to so act or as to its compliance with any of the terms and
provisions of this Declaration, both of which shall be conclusively
evidenced by the Property Trustee's or its agent's taking such action;
(x) whenever in the administration of this Declaration the
Property Trustee shall deem it desirable to receive instructions with
respect to enforcing any remedy or right or taking any other action
hereunder the Property Trustee (i) may request instructions from the
Holders of the Securities which instructions may only be given by the
Holders of the same proportion in liquidation amount of the Securities
as would be entitled to direct the Property Trustee under the terms of
the Securities in respect of such remedy, right or action, (ii) may
refrain from enforcing such remedy, right or taking such other action
until such instructions are received, and (iii) shall be protected in
acting in accordance with such instructions;
(xi) except as otherwise expressly provided by this Declaration,
the Property Trustee shall not be under any obligation to take any
action that is discretionary under the provisions of this Declaration;
and
(xii) the Property Trustee shall not be liable for any action
taken, suffered, or omitted to be taken by it in good faith and
reasonably believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Declaration.
(b) No provision of this Declaration shall be deemed to impose any
duty or obligation on the Property Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Property Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, or to exercise any right, power, duty or
obligation. No permissive power or authority available to the Property Trustee
shall be construed to be a duty.
23
<PAGE>
SECTION 3.11. Delaware Trustee. Notwithstanding any other provision
----------------
of this Declaration other than Section 5.02, the Delaware Trustee shall not be
entitled to exercise any powers, nor shall the Delaware Trustee have any of the
duties and responsibilities of the Regular Trustees or the Property Trustee
described in this Declaration. Except as set forth in Section 5.02, the
Delaware Trustee shall be a Trustee for the sole and limited purpose of
fulfilling the requirements to (S) 3807 of the Business Trust Act.
SECTION 3.12. Execution of Documents. Unless otherwise determined by
----------------------
the Regular Trustees, and except as otherwise required by the Business Trust
Act, any Regular Trustee is authorized to execute on behalf of the Trust any
documents that the Regular Trustees have the power and authority to execute
pursuant to Section 3.06; provided that, the Registration Statement referred to
-------- ----
in Section 3.06(b)(i), including any amendments thereto, shall be signed by all
of the Regular Trustees.
SECTION 3.13. Not Responsible for Recitals or Issuance of Securities.
------------------------------------------------------
The recitals contained in this Declaration and the Securities shall be taken as
the statements of the Sponsor, and the Trustees do not assume any responsibility
for their correctness. The Trustees make no representations as to the value or
condition of the property of the Trust or any part thereof. The Trustees make
no representations as to the validity or sufficiency of this Declaration or the
Securities.
SECTION 3.14. Duration of Trust. The Trust, unless terminated
-----------------
pursuant to the provisions of Article VIII hereof, shall exist until
___________, 2052.
SECTION 3.15. Mergers. (a) The Trust may not consolidate,
-------
amalgamate, merge with or into, or be replaced by, or convey, transfer or lease
its properties and assets substantially as an entirety to any corporation or
other entity or person, except as described in Section 3.15(b) and (c).
(b) The Trust may, with the consent of a majority of the Regular
Trustees and without the consent of the Holders of Securities or the Delaware
Trustee or the Property Trustee, consolidate, amalgamate, merge with or into or
be replaced by a trust organized as such under the laws of any State or the
District of Columbia; provided that:
-------- ----
(i) if the Trust in not the surviving entity, the entity (the
"Successor Entity") either:
24
<PAGE>
(A) expressly assumes all of the obligations of the Trust
under the Securities; or
(B) substitutes for the Securities other securities
having substantially the same terms as the [Capital]
Securities (the "Successor Securities") as long as the
Successor Securities rank, with respect to participation in
the profits and distributions or in the assets of the
Successor Entity at least as high as the [Capital] Securities
rank with respect to participation in the profits and
dividends or in the assets of the Trust;
(ii) the Sponsor expressly acknowledges such Successor Entity
as the Holder of the Debentures;
(iii) the Capital Securities or any Successor Securities are
listed, or any Successor Securities will be listed upon notification
of issuance, on any national securities exchange or with any other
organization on which the Capital Securities are then listed or
quoted;
(iv) such merger, consolidation, amalgama tion or replacement
does not cause the Capital Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical
rating organization;
(v) such merger, consolidation, amalgamation or replacement
does not adversely affect the powers, preferences and other special
rights of the Holders of the Capital Securities (including any
Successor Securities) in any material respect;
(vi) such Successor Entity has a purpose substantially
identical to that of the Trust;
(vii) prior to such merger, consolidation, amalgamation or
replacement, the Sponsor has received an opinion of a nationally
recognized independent counsel (reasonably acceptable to the Property
Trustee) to the Trust experienced in such matters to the effect that:
(A) the Successor Entity will be treated as a grantor
trust for United States federal income tax purposes;
25
<PAGE>
(B) following such merger, consolida tion, amalgamation
or replacement, neither the Sponsor nor the Successor Entity
will be required to register as an Investment Company; and
(C) such merger, consolidation, amalgamation or
replacement will not adversely affect the rights, preferences
and privileges of the Holders of the Securities (including
any Successor Securities) in any material respect; and
(viii) the Sponsor provides a guarantee to the Holders of
the Successor Securities with respect to the Successor Entity having
substantially the same terms as the Capital Securities Guarantee.
(c) Notwithstanding Section 3.15(b), the Trust shall not, except with
the consent of Holders of 100% in liquidation amount of the Common Securities,
consolidate, amalgamate, merge with or into, or be replaced by any other entity
or permit any other entity to consolidate, amalgamate, merge with or into, or
replace it if such consolidation, amalgamation, merger or replacement would
cause the Trust or Successor Entity to be classified as other than a grantor
trust for United States federal income tax purposes.
ARTICLE IV
Sponsor
-------
SECTION 4.01. Sponsor's Purchase of Common Securities. On the
---------------------------------------
Closing Date the Sponsor will purchase an amount of Common Securities issued by
the Trust such that the aggregate liquidation amount of such Common Securities
purchased by the Sponsor shall at such date equal 3% of the total capital of the
Trust.
SECTION 4.02. Responsibilities of the Sponsor. In connection with
-------------------------------
the issuance and sale of the Capital Securities, the Sponsor shall have the
exclusive right and responsibility to engage in the following activities:
(a) to prepare the Prospectus and to prepare for filing by the Trust
with the Commission the Registration Statement, including any amendments
thereto;
(b) to determine the states and foreign jurisdictions in which to take
appropriate action to qualify
26
<PAGE>
or register for sale all or part of the Capital Securities and to do any and all
such acts, other than actions which must be taken by the Trust, and advise the
Trust of actions it must take, and prepare for execution and filing any
documents to be executed and filed by the Trust, as the Sponsor deems necessary
or advisable in order to comply with the applicable law of any such States and
foreign jurisdictions;
(c) to prepare for filing by the Trust an application to the New York
Stock Exchange or any other national stock exchange for listing or quotation of
the Capital Securities;
(d) to prepare for filing by the Trust with the Commission a
registration statement on Form 8-A relating to the registration of the Capital
Securities under Section 12 of the Exchange Act, including any amendments
thereto; and
(e) to negotiate the terms of and to execute and deliver an
Underwriting Agreement and other related agreements providing for the sale of
the Capital Securities.
SECTION 4.03. Guarantee of Payment of Trust Obligations. (a)
-----------------------------------------
Subject to the terms and conditions of this Section 4.03, the Holder of Common
Securities hereby irrevocably and unconditionally guarantees to each Person to
whom the Trust is now or hereafter becomes indebted or liable (the
"Beneficiaries") the full payment, when and as due, of any and all Obligations
to such Beneficiaries.
(b) The agreement of the Sponsor in Section 4.03(a) is intended to be
for the benefit of, and to be enforceable by, all such Beneficiaries, whether or
not such Beneficiaries have received notice hereof.
(c) The agreement of the Sponsor set forth in Section 4.03(a) shall
terminate and be of no further force and effect upon the later of (a) the date
on which full payment has been made of all amounts payable to all Holders of all
the Capital Securities (whether upon redemption, liquidation, exchange or
otherwise) and (b) the date on which there are no Beneficiaries remaining;
provided, however, that such agreement shall continue to be effective or shall
- -------- -------
be reinstated, as the case may be, if at any time any Holder of Capital
Securities or any Beneficiary must restore payment of any sums paid under the
Capital Securities, under any Obligation, under the Capital Securities Guarantee
or under this Agreement for any reason whatsoever. Such agreement in
continuing, irrevocable, unconditional and absolute.
27
<PAGE>
ARTICLE V
Trustees
--------
SECTION 5.01. Number of Trustees. The number of Trustees shall
------------------
initially be four (4), and:
(a) at any time before the issuance of any Securities, the Sponsor
may, by written instrument, increase or decrease the number of Trustees; and
(b) after the issuance of any Securities, the number of Trustees may
be increased or decreased by vote of the Holders of a Majority in liquidation
amount of the Common Securities voting as a class at a meeting of the Holders of
the Common Securities;
provided that, if the Property Trustee does not also act as Delaware Trustee,
- -------- ----
the number of Trustees shall be at least five (5).
SECTION 5.02. Delaware Trustee. If required by the Business Trust
----------------
Act, one Trustee (the "Delaware Trustee") shall be an entity which has its
principal place of business in the State of Delaware, and otherwise meets the
require ments of applicable law; provided that, if the Property Trustee has its
-------- ----
principal place of business in the State of Delaware and otherwise meets the
requirements of applicable law, then the Property Trustee shall also be the
Delaware Trustee and Section 3.11 shall have no application.
SECTION 5.03. Property Trustee; Eligibility. (a) There shall at
-----------------------------
all times be one Trustee which shall act as Property Trustee which shall:
(i) not be an Affiliate of the Sponsor; and
(ii) be a corporation organized and doing business under the
laws of the Unites States of America or any State or Territory thereof
or of the District of Columbia, or a corporation or Person permitted
by the Commission to act as an institutional trustee under the Trust
Indenture Act, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least 50 million
U.S. dollars ($50,000,000), and subject to supervision or examination
by Federal, State, Territorial or District of Columbia authority. If
such corporation publishes reports of conditions at least annually,
pursuant to law or to the requirements of the supervising or examining
authority referred to above, then for the purposes
28
<PAGE>
of this Section 5.03(a)(ii), the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published.
(b) If at any time the Property Trustee shall cease to be eligible to
so act under Section 5.03(a), the Property Trustee shall immediately resign in
the manner and with the effect as set forth in Section 5.06(c).
(c) If the Property Trustee has or shall acquire any "conflicting
interests" within the meaning of (S) 310(b) of the Trust Indenture Act, the
Property Trustee and the Holder of the Common Securities (as if it were the
obliger referred to in (S) 310(b) of the Trust Indenture Act) shall in all
respects comply with the provisions of (S) 320(b) of the Trust Indenture Act.
(d) The Capital Securities Guarantee shall be deemed to be
specifically described in this Declaration for purposes of clause (i) of the
first provision contained in Section 310(b) of the Trust Indenture Act.
SECTION 5.04. Qualifications of Regular Trustees and Delaware Trustee
-------------------------------------------------------
Generally. Each Regular Trustee and the Delaware Trustee (unless the Property
- ---------
Trustee also acts as Delaware Trustee) shall be either a natural person who is
at least 21 years of age or a legal entity that shall act through one or more
Authorized Officers.
SECTION 5.05. Initial Trustees. The initial Regular Trustees shall
----------------
be:
[NAME]
c/o Nationwide Financial Services, Inc.
One Nationwide Plaza
Columbus, Ohio 43215
[NAME]
c/o Nationwide Financial Services, Inc.
One Nationwide Plaza
Columbus, Ohio 43215
[NAME]
c/o Nationwide Financial Services, Inc.
One Nationwide Plaza
Columbus, Ohio 43215
29
<PAGE>
The initial Delaware Trustee shall be:
WILMINGTON TRUST COMPANY
Rodney Square North, 1100 N. Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust
Administration
The initial Property Trustee shall be:
WILMINGTON TRUST COMPANY
Rodney Square North, 1100 N. Market Street
Wilmington, Delaware
Attention: Corporate Trust Administration
SECTION 5.06. Appointment, Removal and Resignation of Trustees. (a)
------------------------------------------------
Subject to Section 5.06(b), Trustees may be appointed or removed without cause
at any time:
(i) until the issuance of any Securities, by written instrument
executed by the Sponsor; and
(ii) after the issuance of any Securities, by vote of the
Holders of a Majority in liquidation amount of the Securities voting
as a class at a meeting of the Holders of the Common Securities;
provided, however, that if an Event of Default shall have occurred and
------------------
be continuing, the Property Trustee may be removed only by the vote of
Holders of a majority in liquidation amount of the Capital Securities
voting as a class at a meeting of Holders of Capital Securities.
(b) The Trustee that acts as Property Trustee shall not be removed in
accordance with Section 5.06(a) until a successor Property Trustee (the
"Successor Property Trustee") has been appointed and has accepted such
appointment by written instrument executed by such Successor Property Trustee
and delivered to the Regular Trustees and the Sponsor.
(c) The Trustee that acts as Delaware Trustee shall not be removed in
accordance with Section 5.06(a) until a successor Trustee possessing the
qualifications to act as Delaware Trustee under Sections 5.02 and 5.04 (a
"Successor Delaware Trustee") has been appointed and has accepted such
appointment by written instrument executed by such Successor Delaware Trustees
and delivered to the Regular Trustees and the Sponsor.
30
<PAGE>
(d) A Trustee appointed to office shall hold office until his
successor shall have been appointed or until his death, removal or resignation.
Any Trustee may resign from office (without need for prior or subsequent
accounting) by an instrument in writing signed by the Trustee and delivered to
the Sponsor and the Trust, which resignation shall take effect upon such
delivery or upon such later date as is specified therein; provided, however,
-------- -------
that:
(i) No such resignation of the Trustee that acts as the
Property Trustee shall be effective:
(A) until a Successor Property Trustee has been appointed
and has accepted such appointment by instrument executed by
such Successor Property Trustee and delivered to the Trust,
the Sponsor and the resigning Property Trustee; or
(B) until the assets of the Trust have been completely
liquidated and the proceeds thereof distributed to the
holders of the Securities; and
(ii) no such resignation of the Trustee that acts as the
Delaware Trustee shall be effective until a Successor Delaware Trustee
has been appointed and has accepted such appointment by instrument
executed by such Successor Delaware Trustee and delivered to the
Trust, the Sponsor and the resigning Delaware Trustee.
(e) The Holders of the Common Securities shall use their best efforts
to promptly appoint a Successor Property Trustee or Successor Delaware Trustee,
as the case may be, if the Property Trustee or the Delaware Trustee delivers an
instrument of resignation in accordance with this Section 5.06.
(f) If no Successor Property Trustee or Successor Delaware Trustee
shall have been appointed and accepted appointment as provided in this Section
5.06 within 60 days after delivery to the Sponsor and the Trust of an instrument
of resignation or removal, the Property Trustee or Delaware Trustee resigning or
being removed, as applicable, may petition any court of competent jurisdiction
for appointment of a Successor Property Trustee or Successor Delaware Trustee.
Such court may thereupon, after prescribing such notice, if any, as it may deem
proper and prescribe, appoint
31
<PAGE>
a Successor Property Trustee or Successor Delaware Trustee, an the case may be.
(g) No Property Trustee or Delaware Trustee shall be liable for the
acts or omissions to act of any Successor Property Trustee or Successor Delaware
Trustee, as the case may be.
SECTION 5.07. Vacancies among Trustees. If a Trustee ceases to hold
------------------------
office for any reason and the number of Trustees is not reduced pursuant to
Section 5.01, or if the number of Trustees is increased pursuant to Section
5.01, a vacancy shall occur. A resolution certifying the existence of such
vacancy by a majority of the Regular Trustees shall be conclusive evidence of
the existence of such vacancy. The vacancy shall be filled with a Trustee
appointed in accordance with Section 5.06.
SECTION 5.08. Effect of Vacancies. The death, resignation,
-------------------
retirement, removal, bankruptcy, dissolution, liquidation, incompetence or
incapacity to perform the duties of a Trustee shall not operate to annul the
Trust. Whenever a vacancy in the number of Regular Trustees shall occur, until
such vacancy in filled by the appointment of a Regular Trustee in accordance
with Section 5.06, the Regular Trustees in office, regardless of their number,
shall have all the powers granted to the Regular Trustees and shall discharge
all the duties imposed upon the Regular Trustees by this Declaration.
SECTION 5.09. Meetings. Meetings of the Regular Trustees shall be
--------
held from time to time upon the call of any Regular Trustee. Regular meetings
of the Regular Trustees may be held at a time and place fixed by resolution of
the Regular Trustees. Notice of any in-person meetings of the Regular Trustees
shall be hand delivered or otherwise delivered in writing (including by
facsimile, with a hard copy by overnight courier) not less than 48 hours before
such meeting. Notice of any telephonic meetings of the Regular Trustees or any
committee thereof shall be hand delivered or otherwise delivered in writing
(including by facsimile, with a hard copy by overnight courier) not less than 24
hours before a meeting. Notices shall contain a brief statement of the time,
place and anticipated purposes of the meeting. The presence (whether in person
or by telephone) of a Regular Trustee at a meeting shall constitute a waiver of
notice of such meeting except where a Regular Trustee attends a meeting for the
express purpose of objecting to the transaction of any activity on the ground
that the meeting has not been lawfully called or convened. Unless provided
otherwise in this Declaration, any action of the Regular Trustees may be taken
at a meeting by vote of a majority of the Regular Trustees present (whether in
person
32
<PAGE>
or by telephone) and eligible to vote with respect to such matter, provided that
a Quorum is present, or without a meeting by the unanimous written consent of
the Regular Trustees.
SECTION 5.10 Delegation of Power. (a) Any Regular Trustee may, by
-------------------
power of attorney consistent with applicable law, delegate to any other natural
person over the age of 21 his or her power for the purpose of executing any
documents contemplated in Section 3.06, including any registration statement or
amendment thereto filed with the Commission, or making any other governmental
filing; and
(b) the Regular Trustees shall have power to delegate from time to
time to such of their number or to officers of the Trust the doing of such
things and the execution of such instruments either in the name of the Trust or
the names of the Regular Trustees or otherwise as the Regular Trustees may deem
expedient, to the extent such delegation is not prohibited by applicable law or
contrary to the provisions of the Trust, as set forth herein.
SECTION 5.11. Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business. Any corporation into which the Property Trustee or the Delaware
- --------
Trustee, as the case may be, may be merged or converted or with which either may
be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Property Trustee or the Delaware Trustee, as the case
may be, shall be a party, or any corporation succeeding to all or substantially
all the corporate trust business of the Property Trustee or the Delaware
Trustee, as the case may be, shall be the successor of the Property Trustee or
the Delaware Trustee, as the case may be, hereunder provided such corporation
shall be otherwise qualified and eligible under this Article, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto.
ARTICLE VI
Distributions
-------------
SECTION 6.01. Distributions. Holders shall receive Distributions (as
-------------
defined below) in accordance with the applicable terms of the relevant Holder's
Securities (set forth in Annex I and Exhibits A and B hereto and incorporated
herein by reference). Distributions shall be made on the Capital Securities and
the Common Securities in accordance with the preferences set forth in their
respective terms. If and to the extent that the Sponsor makes a payment of
interest (including Compounded Interest (an defined in the Indenture)) and
Additional Sums (as
33
<PAGE>
defined in the Indenture)), premium and principal on the Debentures held by the
Property Trustee (the amount of any such payment being a "Payment Amount"), the
Property Trustee shall and is directed, to the extent funds are available for
that purpose, to make a distribution (a "Distribution") of the Payment Amount to
Holders.
ARTICLE VII
Issuance of Securities
----------------------
SECTION 7.01. General Provisions Regarding Securities. (a) The
---------------------------------------
Regular Trustees shall on behalf of the Trust issue one class of preferred
securities, representing undivided beneficial interests in the assets of the
Trust (the "Capital Securities"), having such terms (the "Terms") as are set
forth in Annex I and one class of common securities, representing undivided
beneficial interests in the assets of the Trust (the "Common Securities"),
having such terms as are set forth in Annex I. The Trust shall have no
securities or other interests in the assets of the Trust other than the Capital
Securities and the Common Securities. The Trust shall issue no Securities in
bearer form.
(b) The consideration received by the Trust for the issuance of the
Securities shall constitute a contribution to the capital of the Trust and shall
not constitute a loan to the Trust.
(c) Upon issuance of the Securities as provided in this Declaration,
the Securities so issued shall be deemed to be validly issued, fully paid and
non-assessable, subject to Section 10.01 with respect to the Common Securities.
(d) Every Person, by virtue of having become a Holder or a Capital
Security Beneficial Owner in accordance with the terms of this Declaration,
shall be deemed to have expressly assented and agreed to the terms of, and shall
be bound by, this Declaration.
SECTION 7.02. Execution and Authentication. (a) The Securities shall
----------------------------
be signed on behalf of the Trust by one Regular Trustee. In case any Regular
Trustee of the Trust who shall have signed any of the Securities shall cease to
be such Regular Trustee before the Securities so signed shall be delivered by
the Trust, such Securities nevertheless may be delivered as though the person
who signed such Securities had not ceased to be such Regular Trustee; and any
Securities may be signed on behalf of the Trust by such persons who, at the
actual date of execution
34
<PAGE>
of such Security, shall be the Regular Trustees of the Trust, although at the
date of the execution and delivery of the Declaration any such person was not
such a Regular Trustee.
(b) One Regular Trustee shall sign the Capital Securities for the
Trust by manual or facsimile signature. Unless otherwise determined by the
Trust, such signature shall, in the case of Common Securities, be a manual
signature.
A Capital Security shall not be valid until authenticated by the
manual signature of an authorized officer of the Property Trustee. The
signature shall be conclusive evidence that the Capital Security has been
authenticated under this Declaration.
Upon a written order of the Trust signed by one Regular Trustee, the
Property Trustee shall authenticate the Capital Securities for original
issuance. The aggregate number of Capital Securities outstanding at any time
shall not exceed the number set forth in the Terms in Annex I hereto except as
provided in Section 7.06.
The Property Trustee may appoint an authenticating agent acceptable to
the Trust to authenticate Capital Securities. An authenticating agent may
authenticate Capital Securities whenever the Property Trustee may do so. Each
reference in this Declaration to authentication by the Property Trustee includes
authentication by such agent. An authenticating agent has the same rights as
the Property Trustee to deal with the Company or an Affiliate.
SECTION 7.03. Book-Entry Capital Securities Certificates; Definitive
------------------------------------------------------
Capital Securities Certificates; Common Securities Certificate. (a) The
- --------------------------------------------------------------
Capital Securities, upon original issuance, will be issued in the form of a
typewritten Capital Securities Certificate or Certificates representing Book-
Entry Capital Securities Certificates ("Global Certificate"), to be delivered to
the Depositary by, or on behalf of, the Trust. Such Global Certificate or
Certificates shall initially be registered on the Securities Register in the
name of Cede & Co., the nominee of the initial Clearing Agency, and no Holder
will receive a definitive Capital Securities Certificate representing such
Holder's interest in such Capital Securities, except as provided in Section
7.03(b) below. Unless and until Definitive Capital Securities Certificates have
been issued to Holders pursuant to Section 7.03(b):
i) the provisions of this Section 7.03(a) shall be in full
force and effect;
35
<PAGE>
ii) the Securities Registrar, the Paying Agent and the Trustees
shall be entitled to deal with the Depositary for all purposes of this
Trust Agreement relating to the Book-Entry Capital Securities
Certificates (including the payment of principal of and Distributions
on the Book-Entry Capital Securities and the giving of instructions or
directions to Holders of Book-Entry Capital Securities) and shall have
no obligations to the Holders thereof;
iii) to the extent that the provisions of this Section 7.03(a)
conflict with any other provisions of this Trust Agreement, the
provisions of this Section 7.03(a) shall control;
iv) the rights of the Holders of the Book-Entry Capital
Securities Certificates shall be exercised only through the Depositary
and shall be limited to those established by law and agreements
between such Holders and the Depositary and/or the Depositary
Participants. Pursuant to the Certificate Depository Agreement,
unless and until Definitive Capital Securities Certificates are issued
pursuant to Section 7.03(b), the initial Depositary will make book-
entry transfers among the Depositary Participants and receive and
transmit payments on the Capital Securities to such Depositary
Participants; and
v) whenever this Declaration requires or permits actions to be
taken based upon instructions or directions of Holders of Capital
Securities Certificates evidencing a specified percentage of the
aggregate liquidation amount of the Securities, the Depositary shall
be deemed to represent such percentage only to the extent that it has
received instructions to such effect from Holders and/or Participants
owning or representing, respectively, such required percentage of the
beneficial interest in the applicable class of Capital Securities
Certificates and has delivered such instructions to the Regular
Trustees.
(b) If (i) the Sponsor advises the Trustees in writing that the
Depositary is no longer willing or able to properly discharge its
responsibilities with respect to the Capital Securities Certificates, and the
Sponsor is unable to locate a qualified successor, (ii) the Sponsor at its
option advises the Trustees in writing that it elects to terminate the book-
entry system through the Depositary or (iii) after the occurrence of an Event of
Default, Holders
36
<PAGE>
of Capital Securities Certificates representing beneficial interests aggregating
at least a Majority in liquidation amount of the Securities advise the
Depositary in writing that the continuation of a book-entry system through the
Depositary is no longer in the best interest of the Holders of Capital
Securities Certificates, then the Depositary shall notify all Holders of Capital
Securities Certificates and the Trustees of the occurrence of any such event and
of the availability of the Definitive Capital Securities Certificates to Holders
requesting the same. If the Depositary elects to discontinue its services as
securities depositary with respect to the Capital Securities, the Regular
Trustees may, in their sole discretion, appoint a successor Depositary with
respect to such Capital Securities. Upon surrender to the Regular Trustees of
the typewritten Global Certificate or Certificates by the Depositary,
accompanied by registration instructions, the Regular Trustees, or any one of
them, shall execute the Definitive Capital Securities Certificates in accordance
with the instructions of the Depositary. Neither the Securities Registrar or
the Trustees shall be liable for any delay in delivery of such instructions and
may conclusively rely on, and shall be protected in relying on, such
instructions. Upon the issuance of Definitive Capital Securities Certificates,
the Trustees shall recognize the Holders of the Definitive Capital Securities
Certificates as Security Holders. The Definitive Capital Securities
Certificates shall be printed, lithographed or engraved or may be produced in
any other manner as is reasonably acceptable to the Regular Trustees, as
evidenced by the execution thereof by the Regular Trustees or any one of them.
(c) Common Securities Certificate. A single Common Securities
-----------------------------
Certificate representing the Common Securities shall be issued to the Sponsor, a
specimen certificate being attached hereto as Exhibit B.
---------
SECTION 7.04. Registrar and Paying Agent. The Trust shall maintain
--------------------------
in Wilmington, Delaware (i) an office or agency where Capital Securities may be
presented for registration of transfer or for exchange ("Registrar"), and (ii)
an office or agency where Capital Securities may be presented for payment
("Paying Agent"). The Registrar shall keep a register of the Capital Securities
and of their transfer and exchange. The Trust may appoint the Registrar and the
Paying Agent and may appoint one or more co-registrars and one or more
additional paying agents in such other locations as it shall determine. The
term "Paying Agent" includes any additional paying agent. The Trust may change
any Paying Agent, Registrar or co-registrar without prior notice to any Holder.
The Trust shall notify the Property Trustee of the name and address of any Agent
not a
37
<PAGE>
party to this Declaration. If the Trust fails to appoint or maintain another
entity as Registrar or Paying Agent, the Property Trustee shall act as such.
The Trust or any of its Affiliates may act as Paying Agent or Registrar. The
Trust shall act as Paying Agent, Registrar and co-registrar for the Common
Securities.
The Trust initially appoints the Property Trustee as Registrar and
Paying Agent for the Capital Securities.
SECTION 7.05. Paying Agent to Hold Money in Trust. The Trust shall
-----------------------------------
require each Paying Agent other than the Property Trustee to agree in writing
that the Paying Agent will hold in trust for the benefit of Holders or the
Property Trustee all money held by the Paying Agent for the payment of principal
or Distributions on Securities, and will notify the Property Trustee if there
are insufficient funds. While any such insufficiency continues, the Property
Trustee may require a Paying Agent to pay all money held by it to the Property
Trustee. The Trust at any time may require a Paying Agent to pay all money held
by it to the Property Trustee and to account for any money disbursed by it.
Upon payment over to the Property Trustee, the Paying Agent (if other than the
Trust or an Affiliate of the Trust) shall have no further liability for the
money. If the Trust or the Sponsor or an Affiliate of the Trust or the Sponsor
acts as Paying Agent, it shall segregate and hold in a separate trust fund for
the benefit of the Holders all money held by it as Paying Agent.
SECTION 7.06. Replacement Securities. If the Holder of a Security
----------------------
claims that the Security has been mutilated, lost, destroyed or wrongfully taken
or if such Security is mutilated and is surrendered to the Trust or in the case
of the Capital Securities to the Property Trustee, the Trust shall issue and the
Property Trustee shall authenticate a replacement Security if the Property
Trustee's and the Trust's reasonable requirements, as the case may be, are met.
If required by the Property Trustee or the Trust, such Holder shall provide an
indemnity bond sufficient in the judgment of the Property Trustee and the Trust
to protect the Trustees, the Property Trustee, the Sponsor or any authenticating
agent from any loss which any of them may suffer if a Security is replaced. The
Company may charge for its expenses in replacing a Security.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Sponsor in its discretion may,
instead of issuing a new Security, pay such Security.
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SECTION 7.07. Outstanding Capital Securities. The Capital Securities
------------------------------
outstanding at any time are all the Capital Securities authenticated by the
Property Trustee except for those canceled by it, those delivered to it for
cancellation, and those described in this Section as not outstanding.
If a Capital Security is replaced, paid or purchased pursuant to
Section 7.06 hereof, it ceases to be outstanding unless the Property Trustee
receives proof satisfactory to it that the replaced, paid or purchased Capital
Security is held by a bona fide purchaser.
If Capital Securities are considered paid in accordance with the terms
of this Declaration, they cease to be outstanding and interest on them ceases to
accrue.
A Capital Security does not cease to be outstanding because one of the
Trust, the Sponsor or an Affiliate of the Sponsor holds the Security.
SECTION 7.08. Capital Securities in Treasury. In determining whether
------------------------------
the Holders of the required amount of Securities have concurred in any
direction, waiver or consent, Capital Securities owned by the Trust, the Sponsor
or an Affiliate of the Sponsor, as the case may be, shall be disregarded and
deemed not to be outstanding, except that for the purposes of determining
whether the Property Trustee shall be fully protected in relying on any such
direction, waiver or consent, only Securities which the Property Trustee knows
are so owned shall be so disregarded.
SECTION 7.09. Temporary Securities. (a) Until definitive Securities
--------------------
are ready for delivery, the Trust may prepare and, in the case of the Capital
Securities, the Property Trustee shall authenticate temporary Securities.
Temporary Securities shall be substantially in the form of definitive Securities
but may have variations that the Trust considers appropriate for temporary
Securities. Without unreasonable delay, the Trust shall prepare and, in the
case of the Capital Securities, the Property Trustee shall authenticate
definitive Securities in exchange for temporary Securities.
(b) A Global Certificate deposited with the Depositary or with the
Property Trustee as custodian for the Depositary pursuant to Section 7.03 shall
be transferred to the beneficial owners thereof in the form of certificated
Capital Securities only if (i) the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary for such Global Certificate or if
at any time such Depositary ceases to be a "clearing agency" registered under
the Exchange Act and a successor depositary is not
39
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appointed by the Sponsor within 90 days of such notice, (ii) an Event of Default
has occurred and is continuing, or (iii) any of the events set forth in Section
7.03(b) occurs and is continuing.
(c) Any Global Certificate that is transferable to the beneficial
owners thereof in the form of certificated Capital Securities pursuant to this
Section 7.09 shall be surrendered by the Depositary to the Property Trustee
located in the Borough of Manhattan, City of New York, to be so transferred, in
whole or from time to time in part, without charge, and the Property Trustee
shall authenticate and deliver, upon such transfer of each portion of such
Global Certificate, an equal aggregate liquidation amount of Securities of
authorized denominations in the form of certificated Securities. Any portion of
a Global Certificate transferred pursuant to this Section shall be any
registered in such names as the Depositary shall direct.
(d) Subject to the provisions of Section 7.09(c) and 12.02(b)(ii), the
registered holder of a Global Certificate may grant proxies and otherwise
authorize any person, including Participants and persons that may hold interests
through Participants, to take any action which a holder is entitled to take
under this Declaration or the Securities.
(e) In the event of the occurrence of any of the events specified in
Section 7.09(b), the Trust will promptly make available to the Property Trustee
a reasonable supply of certificated Securities in definitive, fully registered
form without interest coupons.
SECTION 7.10 Cancellation. The Trust at any time may deliver Capital
------------
Securities to the Property Trustee for cancellation. The Registrar and Paying
Agent shall forward to the Property Trustee any Capital Securities surrendered
to them for registration of transfer, redemption, exchange or payment. The
Property Trustee shall promptly cancel all Capital Securities, surrendered for
registration of transfer, redemption, exchange, payment, replacement or
cancellation and shall dispose of cancelled Capital Securities as the Trust
directs. The Trust may not issue new Capital Securities to replace Capital
Securities that it has paid or that have been delivered to the Property Trustee
for cancellation or that any holder has converted.
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ARTICLE VIII
Termination of Trust
--------------------
SECTION 8.01. Termination of Trust.
--------------------
(a) The Trust shall terminate upon the earliest to occur of the
following:
(i) the bankruptcy of the Holder of the Common Securities or the
Sponsor;
(ii) the filing of a certificate of dissolution or its equivalent
with respect to the Holder of the Common Securities or the Sponsor; the
filing of a certificate of cancellation with respect to the Trust or the
revocation of the charter of the Holder of the Common Securities or the
Sponsor and the expiration of 90 days after the date of revocation without
a reinstatement thereof;
(iii) the entry of a decree of judicial dissolution of the
Holder of the Common Securities or the Sponsor;
(iv) the distribution, upon the terms and subject to the
conditions set forth in Annex I, of an aggregate principal amount of
Debentures with an aggregate principal amount equal to the aggregate stated
liquidation amount of, with an interest rate identical to the Distribution
rate of, and accrued and unpaid interest equal to accrued and unpaid
Distributions on, the Securities; provided, however, that such distribution
------------------
is conditioned on the receipt of an opinion of independent tax counsel
experienced in such matters to the effect that the Holders of the
Securities will not recognize any gain or loss for United States federal
income tax purposes as a result of the dissolution of the Trust and such
distribution of Debentures;
(v) the redemption of the Securities upon the final maturity of
the Debentures and the amounts necessary for redemption thereof having been
paid to the Holders in accordance with the terms of the Securities;
(vi) the expiration of the term of the Trust as provided in
Section 3.14; and
(vii) the entry of an order for the dissolution of the Trust by
a court of competent jurisdiction.
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(b) In addition to the termination events set forth in Section
8.01(a), the Trust may be voluntarily terminated by the Sponsor at any time,
upon payment of the amount of cash, or distribution of the Debentures, as set
forth in Annex I.
(c) As soon as is practicable after the occurrence of an event
referred to in Section 8.01(a), the Trustees shall file a certificate of
cancellation with the Secretary of State of the State of Delaware.
(d) The provisions of Section 3.09 and Article X shall survive the
termination of the Trust.
ARTICLE IX
Exchange
--------
SECTION 9.01. General. (a) Where Capital Securities are presented
-------
to the Registrar or a co-registrar with a request to register a transfer or to
exchange them for an equal number of Capital Securities represented by different
certificates, the Registrar shall register the transfer or make the exchange if
its reasonable requirements for such transactions are met. To permit
registrations of transfers and exchanges, the Trust shall issue and the Property
Trustee shall authenticate Capital Securities at the Registrar's request.
(b) Securities may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this Declaration and in
the terms of the Securities. Any transfer or purported transfer of any Security
not made in accordance with this Declaration shall be null and void.
(c) The Sponsor may not transfer Common Securities to any other party.
SECTION 9.02. Deemed Security Holders. The Trustees may treat the
-----------------------
Person in whose name any Certificate shall be registered on the books and
records of the Trust as the sole holder of such Certificate and of the
Securities represented by such Certificate for purposes of receiving
Distributions and for all other purposes whatsoever and, accordingly, shall not
be bound to recognize any equitable or other claim to or interest in such
Certificate or in the Securities represented by such Certificate on the part of
any Person, whether or not the Trust, the Property Trustee, the Registrar or a
co-Registrar shall have actual or other notice thereof.
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ARTICLE X
Limitation of Liability of
Holders of Securities, Trustees or Others
-----------------------------------------
SECTION 10.01. Liability. (a) Except as expressly set forth in this
---------
Declaration, the Capital Securities Guarantee and the terms of the Securities
the Sponsor shall not be:
(i) personally liable for the return of any portion of the
capital contributions (or any return thereon) of the Holders of the
Securities which shall be made solely from assets of the Trust; and
(ii) be required to pay to the Trust or to any Holder of
Securities any deficit upon dissolution of the Trust or otherwise.
(b) The Holder of the Common Securities shall be liable for all of the
debts and obligations of the Trust (other than with respect to the Securities)
to the extent not satisfied out of the Trust's assets.
(c) Pursuant to (S) 3803(a) of the Business Trust Act, the Holders of
the Capital Securities shall be entitled to the same limitation of personal
liability extended to stockholders of private corporations for profit organized
under the General Corporation Law of the State of Delaware.
SECTION 10.02. Exculpation. (a) No Indemnified Person shall be
-----------
liable, responsible or accountable in damages or otherwise to the Trust or any
Covered Person for any loss, damage or claim incurred by reason of any act or
omission performed or omitted by such Indemnified Person in good faith on behalf
of the Trust and in a manner such Indemnified Person reasonably believed to be
within the scope of the authority conferred on such Indemnified Person by the
Declaration or by law, except that an Indemnified Person shall be liable for any
such loss, damage or claim incurred by reason of such Indemnified Person's
negligence or willful misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Trust and upon such information, opinions, reports
or statements presented to the Trust by any Person as to matters the Indemnified
Person reasonably believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Trust, including information, opinions, reports or statements as to the value
and amount of the
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assets, liabilities, profits, losses, or any other facts pertinent to the
existence and amount of assets from which Distributions to Holders of Securities
might properly be paid.
SECTION 10.03. Fiduciary Duty. (a) To the extent that, at law or in
--------------
equity, an Indemnified Person has duties (including fiduciary duties) and
liabilities relating thereto to the Trust or to any other Covered Person, an
Indemnified Person acting under this Declaration shall not be liable to the
Trust or to any other Covered Person for its good faith reliance on the
provisions of this Declaration. The provisions of this Declaration, to the
extent that they restrict the duties and liabilities of an Indemnified Person
otherwise existing at law or in equity (other than the duties imposed on the
Property Trustee under the Trust Indenture Act), are agreed by the parties
hereto to replace such other duties and liabilities of such Indemnified Person.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises between an
Indemnified Person and any Covered Person; or
(ii) whenever this Declaration or any other agreement
contemplated herein or therein provides that an Indemnified Person shall
act in a manner that is, or provides terms that are, fair and reasonable to
the Trust or any Holder of Securities,
the Indemnified Person shall resolve such conflict of interest, take such action
or provide such terms, considering in each case the relative interest of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices, and any applicable generally accepted accounting
practices or principles. In the absence of bad faith by the Indemnified Person,
the resolution, action or term so made, taken or provided by the Indemnified
Person shall not constitute a breach of this Declaration or any other agreement
contemplated herein or of any duty or obligation of the Indemnified Person at
law or in equity or otherwise.
(c) Whenever in this Declaration an Indemnified Person is permitted or
required to make a decision
(i) in its "discretion" or under a grant of similar authority,
the Indemnified Person shall be entitled to consider such interests and
factors as it
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desires, including its own interests, and shall have no duty or obligation
to give any consideration to any interest of or factors affecting the Trust
or any other Person; or
(ii) in its "good faith" or under another express standard, the
Indemnified Person shall act under such express standard and shall not be
subject to any other or different standard imposed by this Declaration or
by applicable law.
SECTION 10.04. Indemnification. (a) To the fullest extent permitted
---------------
by applicable law, the Sponsor shall indemnify and hold harmless each
Indemnified Person from and against any loss, damage, liability, tax, penalty,
expense or claim of any kind or nature whatsoever incurred by such Indemnified
Person by reason of the creation, operation or termination of the Trust or any
act or omission performed or omitted by such Indemnified Person in good faith on
behalf of the Trust and in a manner such Indemnified Person reasonably believed
to be within the scope of authority conferred on such Indemnified Person by this
Declaration, except that no Indemnified Person shall be entitled to be
indemnified in respect of any loss, damage or claim incurred by such Indemnified
Person by reason of negligence or willful misconduct with respect to such acts
or omissions.
(b) To the fullest extent permitted by applicable law, expenses
(including legal fees and expenses) incurred by an Indemnified Person in
defending any claim, demand, action, suit or proceeding shall, from time to
time, be advanced by the Sponsor prior to the final disposition of such claim,
demand, action, suit or proceeding upon receipt by the Sponsor of an undertaking
by or on behalf of the Indemnified Person to repay such amount if it shall be
determined that the Indemnified Person is not entitled to be indemnified as
authorized in Section 10.04(a). The indemnification shall survive the
termination of this Declaration.
SECTION 10.05. Outside Businesses. Any Covered Person, the Sponsor,
------------------
the Delaware Trustee and the Property Trustee may engage in or possess an
interest in other business ventures of any nature or description, independently
or with others, similar or dissimilar to the business of the Trust, and the
Trust and the Holders of Securities shall have no rights by virtue of this
Declaration in and to such independent ventures or the income or profits derived
therefrom and the pursuit of any such venture, even if competitive with the
business of the Trust, shall not be deemed wrongful or improper. No Covered
Person, the Sponsor, the Delaware Trustee, or the Property
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Trustee shall be obligated to present any particular investment or other
opportunity to the Trust even if such opportunity is of a character that, if
presented to the Trust, could be taken by the Trust, and any Covered Person, the
Sponsor, the Delaware Trustee and the Property Trustee shall have the right to
take for its own account (individually or as a partner or fiduciary) or to
recommend to others any such particular investment or other opportunity. Any
Covered Person, the Delaware Trustee and the Property Trustee may engage or be
interested in any financial or other transaction with the Sponsor or any
Affiliate of the Sponsor, or may act as depositary for, trustee or agent for, or
act on any committee or body of holders of, securities or other obligations of
the Sponsor or its Affiliates.
ARTICLE XI
Accounting
----------
SECTION 11.01. Fiscal Year. The fiscal year ("Fiscal Year") of the
-----------
Trust shall be the calendar year, or such other year as is required by the Code.
SECTION 11.02. Certain Accounting Matters. (a) At all times during
--------------------------
the existence of the Trust, the Regular Trustees shall keep, or cause to be
kept, full books of account, records and supporting documents, which shall
reflect in reasonable detail, each transaction of the Trust. The books of
account shall be maintained on the accrual method of accounting, in accordance
with generally accepted accounting principles, consistently applied. The Trust
shall use the accrual method of accounting for United States federal income tax
purposes. The books of account and the records of the Trust shall be examined
by and reported upon as of the end of each Fiscal Year by a firm of independent
certified public accountants selected by the Regular Trustees.
(b) The Regular Trustees shall cause to be prepared and delivered to
each of the Holders of Securities, within 90 days after the end of each Fiscal
Year of the Trust, annual financial statements of the Trust, including a balance
sheet of the Trust as of the end of such Fiscal Year, and the related statements
of income or loss;
(c) The Regular Trustees shall cause to be duly prepared and delivered
to each of the Holders of Securities, any annual United States federal income
tax information statement, required by the Code, containing such information
with regard to the Securities held by each Holder as is required by the Code and
the Treasury Regulations.
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Notwithstanding any right under the Code to deliver any such statement at a
later date, the Regular Trustees shall endeavor to deliver all such statements
within 30 days after the end of each Fiscal Year of the Trust.
(d) The Regular Trustees shall cause to be duly prepared and filed
with the appropriate taxing authority, an annual United States federal income
tax return, on a Form 1041 or such other form required by United States federal
income tax law, and any other annual income tax returns required to be filed by
the Regular Trustees on behalf of the Trust with any state or local taxing
authority.
SECTION 11.03. Banking. The Trust shall maintain one or more bank
-------
accounts in the name and for the sole benefit of the Trust; provided, however,
-------- -------
that all payments of funds in respect of the Debentures held by the Property
Trustee shall be made directly to the Property Trustee Account and no other
funds of the Trust shall be deposited in the Property Trustee Account. The sole
signatories for such accounts shall be designated by the Regular Trustees;
provided, however, that the Property Trustee shall designate the signatories for
- -------- -------
the Property Trustee Account.
SECTION 11.04. Withholding. The Trust and the Regular Trustees shall
-----------
comply with all withholding requirements under United States federal, state and
local law. The Trust shall request, and the Holders shall provide to the Trust,
such forms or certificates as are necessary to establish an exemption from
withholding with respect to each Holder, and any representations and forms as
shall reasonably be requested by the Trust to assist it in determining the
extent of, and in fulfilling, its withholding obligations. The Regular Trustees
shall file required forms with the applicable jurisdictions and, unless an
exemption from withholding is properly established by a Holder, shall remit
amounts withheld with respect to the Holder to applicable jurisdictions. To the
extent that the Trust is required to withhold and pay over any amounts to any
authority with respect to distributions or allocations to any Holder, the amount
withheld shall be deemed to be a distribution in the amount of the withholding
to the Holder. In the event of any claimed over-withholding, Holders shall be
limited to an action against the applicable jurisdiction. If the amount
required to be withheld was not withheld from actual Distributions made, the
Trust may reduce subsequent Distributions by the amount of such withholding.
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ARTICLE XII
Amendments and Meetings
-----------------------
SECTION 12.01. Amendments. (a) Except as otherwise provided in this
----------
Declaration or by any applicable terms of the Securities, this Declaration may
only be amended by a written instrument approved and executed by:
(i) the Regular Trustees (or, if there are more than two Regular
Trustees a majority of the Regular Trustees);
(ii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Property Trustee, the Property Trustee;
and
(iii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Delaware Trustee, the Delaware Trustee;
(b) no amendment shall be made, and any such purported amendment shall
be void and ineffective:
(i) unless, in the case of any proposed amendment, the Property
Trustee shall have first received an Officers' Certificate from each of the
Trust and the Sponsor that such amendment is permitted by, and conforms to,
the terms of this Declaration (including the terms of the Securities);
(ii) unless, in the case of any proposed amendment which affects
the rights, powers, duties, obligations or immunities of the Property
Trustee, the Property Trustee shall have first received:
(A) an Officers' Certificate from each of the Trust and the
Sponsor that such amendment is permitted by, and conforms to, the
terms of this Declaration (including the terms of the Securities); and
(B) an opinion of counsel (who may be counsel to the Sponsor or
the Trust) that such amendment is permitted by, and conforms to, the
terms of this Declaration (including the terms of the Securities); and
(iii) to the extent the result of such amendment would be to:
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(A) cause the Trust to fail to continue to be classified for
purposes of United States federal income taxation as a grantor trust;
(B) reduce or otherwise adversely affect the powers of the
Property Trustee in contravention of the Trust Indenture Act; or
(C) cause the Trust to be deemed to be an Investment Company
required to be registered under the Investment Company Act;
(c) at such time after the Trust has issued any Securities that remain
outstanding, any amendment that would adversely affect the rights, privileges or
preferences of any Holder of Securities may be effected only with such
additional requirements as may be set forth in the terms of such Securities;
(d) This Section 12.01 shall not be amended without the consent of all
of the Holders of the Securities;
(e) Article IV shall not be amended without the consent of the Holders
of a Majority in liquidation amount of the Common Securities;
(f) the rights of the holders of the Common Securities under Article V
to increase or decrease the number of, and appoint and remove Trustees shall not
be amended without the consent of the Holders of a Majority in liquidation
amount of the Common Securities; and
(g) notwithstanding Section 12.01(c), this Declaration may be amended
without the consent of the Holders of the Securities to:
(i) cure any ambiguity;
(ii) correct or supplement any provision in this Declaration that
may be defective or inconsistent with any other provision of this
Declaration;
(iii) add to the covenants, restrictions or obligations of the
Sponsor;
(iv) conform to any change in Rule 3a-5 under the Investment
Company Act or written change in interpretation or application of Rule 3a-5
under the Investment Company Act by any legislative body, court, government
agency or regulatory authority which amendment does not have a material
adverse effect on the rights, preferences or privileges of the Holders; and
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(v) to modify, eliminate or add to any provisions to such extent as
shall be necessary to ensure that the Trust will be classified for Federal
income tax purposes as a grantor trust at all times that any Securities are
outstanding which amendment does not have an adverse effect on the rights,
preferences or privileges of the Holders.
SECTION 12.02. Meetings of the Holders of Securities; Action by
------------------------------------------------
Written Consent. (a) Meetings of the Holders of any class of Securities may be
- ---------------
called at any time by the Regular Trustees (or as provided in the terms of the
Securities) to consider and act on any matter on which Holders of such class of
Securities are entitled to act under the terms of this Declaration, the terms of
the Securities or the rules of any stock exchange on which the Capital
Securities are listed or admitted for trading. The Regular Trustees shall call
a meeting of the Holders of such class if directed to do so by the Holders of at
least 10% in liquidation amount of such class of Securities. Such direction
shall be given by delivering to the Regular Trustees one or more requests in a
writing stating that the signing Holders of Securities wish to call a meeting
and indicating the general or specific purpose for which the meeting is to be
called. Any Holders of Securities calling a meeting shall specify in writing
the Certificates held by the Holders of Securities exercising the right to call
a meeting and only those Securities represented by the Certificates so specified
shall be counted for purposes of determining whether the required percentage set
forth in the second sentence of this paragraph has been met.
(b) Except to the extent otherwise provided in the terms of the
Securities, the following provisions shall apply to meetings of Holders of
Securities:
(i) notice of any such meeting shall be given to all the Holders of
Securities having a right to vote thereat at least 7 days and not more than
60 days before the date of such meeting. Whenever a vote, consent or
approval of the Holders of Securities is permitted or required under this
Declaration or the rules of any stock exchange on which the Capital
Securities are listed or admitted for trading, such vote, consent or
approval may be given at a meeting of the Holders of Securities. Any
action that may be taken at a meeting of the Holders of Securities may be
taken without a meeting if a consent in writing setting forth the action so
taken is signed by the Holders of Securities owning not less than the
minimum aggregate liquidation amount of Securities that would be necessary
to authorize or take such action at a meeting at which all Holders of
Securities having a right to
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vote thereon were present and voting. Prompt notice of the taking of
action without a meeting shall be given to the Holders of Securities
entitled to vote who have not consented in writing. The Regular Trustees
may specify that any written ballot submitted to the Security Holders for
the purpose of taking any action without a meeting shall be returned to the
Trust within the time specified by the Regular Trustees;
(ii) each Holder of a Security may authorize any Person to act for it
by proxy on all matters in which a Holder of Securities is entitled to
participate, including waiving notice of any meeting, or voting or
participating at a meeting. No proxy shall be valid after the expiration
of 11 months from the date thereof unless otherwise provided in the proxy.
Every proxy shall be revocable at the pleasure of the Holder of Securities
executing it. Except as otherwise provided herein, all matters relating to
the giving, voting or validity of proxies shall be governed by the General
Corporation Law of the State of Delaware relating to proxies, and judicial
interpretations thereunder, as if the Trust were a Delaware corporation and
the Holders of the Securities were stockholders of a Delaware corporation;
(iii) each meeting of the Holders of the Securities shall be
conducted by the Regular Trustees or by such other Person that the Regular
Trustees may designate; and
(iv) unless the Business Trust Act, this Declaration, the terms of the
Securities, the Trust Indenture Act or the listing rules of any stock
exchange on which the Capital Securities are then listed or trading,
provide otherwise, the Regular Trustees, in their sole discretion, shall
establish all other provisions relating to meetings of Holders of
Securities, including notice of the time, place or purpose of any meeting
at which any matter is to be voted on by any Holders of Securities, waiver
of any such notice, action by consent without a meeting, the establishment
of a record date, quorum requirements, voting in person or by proxy or any
other matter with respect to the exercise of any such right to vote.
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ARTICLE XIII
Representations of
------------------
Delaware Trustee
----------------
SECTION 13.01. Representations and Warranties of Delaware Trustee.
--------------------------------------------------
The Trustee that acts as initial Delaware Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration and at
the Closing Date, and each Successor Delaware Trustee represents and warrants to
the Trust and the Sponsor at the time of the Successor Property Trustee's
acceptance of its appointment as Delaware Trustee that:
(a) The Delaware Trustee is a banking corporation with trust powers,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, with corporate power and authority to execute
and deliver, and to carry out and perform its obligations under the terms of,
the Declaration.
(b) The execution, delivery and performance by the Delaware Trustee of
this Declaration has been duly authorized by all necessary corporate action on
the part of the Delaware Trustee. This Declaration has been duly executed and
delivered by the Delaware Trustee, and constitutes a legal, valid and binding
obligation of the Delaware Trustee, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, reorganization, moratorium,
insolvency, and other similar laws affecting creditors' rights generally and to
general principles of equity and the discretion of the court (regardless of
whether the enforcement of such remedies is considered in a proceeding in equity
or at law).
(c) The execution, delivery and performance of this Declaration by the
Delaware Trustee does not conflict with or constitute a breach of the
certificate of incorpora tion or By-laws of the Delaware Trustee.
(d) No consent, approval or authorization of, or registration with or
notice to, any state or Federal banking authority is required for the execution,
delivery or performance by the Delaware Trustee, of this Declaration.
(e) The Delaware Trustee is an entity which has its principal place of
business in the State of Delaware.
(f) The Delaware Trustee has been authorized to perform its
obligations under the Certificate of Trust and this Declaration.
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ARTICLE XIV
Miscellaneous
-------------
SECTION 14.01. Notices. All notices provided for in this Declaration
-------
shall be in writing, duly signed by the party giving such notice, and shall be
delivered, telecopied or mailed by registered or certified mail, as follows:
(a) if given to the Trust, in care of the Regular Trustees at the
Trust's mailing address set forth below (or such other address as the Trust may
give notice of to the Holders of the Securities):
c/o Nationwide Financial Services, Inc.
One Nationwide Plaza
Columbus, Ohio 43215
Attention: Chief Financial Officer
(b) if given to the Property Trustee, at the mailing address set forth
below (or such other address as the Property Trustee may give notice of to the
Holders of the Securities):
WILMINGTON TRUST COMPANY
Rodney Square North, 1100 N. Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
(c) if given to the Holder of the Common Securities, at the mailing
address of the Sponsor set forth below (or such other address as the Holder of
the Common Securities may give notice to the Trust):
c/o Nationwide Financial Services, Inc.
One Nationwide Plaza
Columbus, Ohio 43215
Attention: Chief Financial Officer
(d) If given to the Delaware Trustee, at the mailing address set forth
below (or such other address as the Delaware Trustee may give notice to the
Trust):
WILMINGTON TRUST COMPANY
Rodney Square North, 1100 N. Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
53
<PAGE>
(e) if given to any other Holder, at the address set forth on the
books and records of the Trust or the Registrar, as applicable.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
SECTION 14.02. Governing Law. This Declaration and the rights of the
-------------
parties hereunder shall be governed by and interpreted in accordance with the
laws of the State of Delaware and all rights and remedies shall be governed by
such laws without regard to principles of conflict of laws.
SECTION 14.03. Intention of the Parties. It is the intention of the
------------------------
parties hereto that the Trust be classified for United States federal income tax
purposes as a grantor trust. The provisions of this Declaration shall be
interpreted to further this intention of the parties.
SECTION 14.04. Headings. Headings contained in this Declaration are
--------
inserted for convenience of reference only and do not affect the interpretation
of this Declara tion or any provision hereof.
SECTION 14.05. Successors and Assigns. Whenever in this Declaration
----------------------
any of the parties hereto is named or referred to, the successors and assigns of
such party shall be deemed to be included, and all covenants and agreements in
this Declaration by the Sponsor and the Trustee shall bind and inure to the
benefit of their respective successors and assigns, whether so expressed.
SECTION 14.06. Partial Enforceability. If any provision of this
----------------------
Declaration, or the application of such provision to any Person or circumstance,
shall be held invalid, the remainder of this Declaration, or the application of
such provision to persons or circumstances other than those to which it is
held invalid, shall not be affected thereby.
SECTION 14.07. Counterparts.
------------
This Declaration may contain more than one counterpart of the
signature page and this Declaration may be executed by the affixing of the
signature of each of the Trustees to one of such counterpart signature pages.
All of such counterpart signature pages shall be read as though
54
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one, and they shall have the same force and effect as though all of the signers
had signed a single signature page.
55
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused these presents to be
executed as of the day and year first above written.
, as Trustee
--------------------
--------------------------------
, as Trustee
--------------------
--------------------------------
, as Trustee
--------------------
--------------------------------
WILMINGTON TRUST COMPANY
not in its individual capacity but
solely as Delaware Trustee and
Property Trustee
By:
------------------------------
Name:
Title:
NATIONWIDE FINANCIAL SERVICES,
INC.
as Sponsor
By:
------------------------------
Name:
Title:
56
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ANNEX I
TERMS OF
__% CAPITAL SECURITIES
__% COMMON SECURITIES
Pursuant to Section 7.01 of the Amended and Restated Declaration of
Trust, dated as of ________ __, 1997 (as amended from time to time, the
"Declaration"), the designation, rights, privileges, restrictions, preferences
and other terms and provisions of the Capital Securities and the Common
Securities are set out below (each capitalized term used but not defined herein
has the meaning set forth in the Declaration or, if not defined in such
Declaration, as defined in the Prospectus (as defined in the Declaration):
1. Designation and Number.
----------------------
(a) "Capital Securities." 100,000 Capital Securities of the Trust with an
aggregate liquidation amount with respect to the assets of the Trust
of $100 million Dollars ($100,000,000), and a liquidation amount with
respect to the assets of the Trust of $1,000 per Capital Security, are
hereby designated for the purposes of identification only as "__%
Capital Securities (liquidation amount $1,000 per Capital Security)"
(the "Capital Securities"). The Capital Security Certificates
evidencing the Capital Securities shall be substantially in the form
attached hereto as Exhibit A, with such changes and additions thereto
---------
or deletions therefrom as may be required by ordinary usage, custom or
practice or to conform to the rules of any stock exchange or other
organization on which the Capital Securities are listed.
(b) "Common Securities." [number representing 3% assets] Common Securities
of the Trust with an aggregate liquidation amount with respect to the
assets of the Trust of _____________________ Dollars ($_____________),
and a liquidation amount with respect to the assets of Trust of $1,000
per Common Security, are hereby designated for the purposes of
identification only as "___% Common Securities (liquidation amount
$1,000 per Common Security)" (the "Common Securities"). The Common
Securities Certificates evidencing the Common Securities shall be
substantially in the form attached hereto as Exhibit B, with such
---------
changes and additional thereto or deletions therefrom as
<PAGE>
may be required by ordinary usage, custom or practice.
2. Distributions.
-------------
(a) Distributions payable on each Security will be fixed at a rate per
annum of __% (the "Coupon Rate") of the stated liquidation amount of
$1,000 per Security, such rate being the rate of interest payable on
the Debentures to be held by the Property Trustee. Distributions in
arrears will bear interest thereon compounded semi-annually at the
Coupon Rate (to the extent permitted by applicable law). The term
"Distributions" as used herein includes such cash distributions and
any such interest payable unless otherwise stated. A Distribution is
payable only to the extent that payments are made in respect of the
Debentures held by the Property Trustee and to the extent the Property
Trustee has funds available therefor. The amount of Distributions
payable for any period will be computed for any full semi-annual
Distribution period on the basis of a 360-day year of twelve 30-day
months, and for any period of less than a full calendar month the
number of days elapsed in such month.
(b) Distributions on the Securities will be cumulative, will accrue from
the date of original issuance and will be payable semi-annually in
arrears, on the following dates, which dates correspond to the
interest payment dates on the Debentures: __________________ and
________________ of each year, commencing on ___________, 1997, except
as otherwise described below. So long as no Event of Default (or an
event which would be an Event of Default with the giving of required
notice or the passage of time) has occurred and is continuing, the
Sponsor has the right under the Indenture to defer payments of
interest by extending the interest payment period from time to time on
the Debentures for a period not exceeding 10 consecutive semi-annual
periods (each an "Extension Period") and, as a consequence of such
deferral, Distributions will also be deferred. Despite such deferral,
semi-annual Distributions will continue to accrue with interest
thereon (to the extent permitted by applicable law) at the Coupon Rate
compounded semi-annually during any such Extension Period. Prior to
the termination of any such Extension Period, the Sponsor may further
extend such Extension Period so long as no Event of Default
2
<PAGE>
(or an event which would be an Event of Default with the giving of
required notice or the passage of time) has occurred and is
continuing; provided that such Extension Period together with all such
-------- ----
previous and further extensions thereof may not exceed 10 consecutive
semi-annual periods or extend beyond the maturity (whether at the
stated maturity or by declaration of acceleration, call for redemption
or otherwise) of the Debentures under the Indenture. Payments of
accrued Distributions will be payable to Holders as they appear on the
books and records of the Trust on the first record date after the end
of the Extension Period. Upon the termination of any Extension Period
and the payment of all amounts then due, the Sponsor may commence a
new Extension Period, subject to the above requirements.
(c) Distributions on the Securities will be payable to the Holders thereof
as they appear on the books and records of the Trust on the relevant
record dates. The relevant record dates shall be the first day of the
month in which the relevant payment date falls, except as otherwise
described in this Annex I to the Declaration. Subject to any
applicable laws and regulations and the provisions of the Declaration,
each such payment in respect to Capital Securities being held in book-
entry form through The Depository Trust Company (the "Depositary")
will be made as described under the heading "Description of the
Capital Securities -- Book-Entry-Only Issuance --The Depository Trust
Company" in the Prospectus. The relevant record dates for the Common
Securities shall be the same record dates as for the Capital
Securities. Distributions payable on any Securities that are not
punctually paid on any Distribution payment date, as a result of the
Sponsor having failed to make payment under the Debentures, will cease
to be payable to the Person in whose name such Securities are
registered on the relevant record date, and such distributions on
Securities will instead be payable to the Persons in whose name such
Securities are registered on the special record date or other
specified date determined in accordance with the Indenture. If any
date on which Distributions are payable on the Securities is not a
Business Day, then payment of the Distribution payable on such date
will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay)
except that, if such Business Day is in the next
3
<PAGE>
succeeding calendar year, such payment shall be made on the
immediately preceding Business Day in each case with the same force
and effect as if made on such date.
(d) In the event that there is any money or other property held by or for
the Trust that is not accounted for hereunder, such property shall be
distributed Pro Rata (as defined herein) among the Holders of the
Securities.
3. Liquidation Distribution Upon Dissolution.
-----------------------------------------
In the event of any voluntary or involuntary dissolution, winding-up
or termination of the Trust (including without limitation pursuant to Section
8.01(b) of the Declaration), the Holders of the Securities on the date of the
dissolution, winding-up or termination, as the case may be, will be entitled to
receive out of the assets of the Trust available for distribution to Holders of
Securities after satisfaction of liabilities of creditors of the Trust as
provided by applicable law an amount equal to the aggregate of the stated
liquidation amount of $1,000 per Security plus any additional amount payable
upon redemption of the Debentures as a result of the Make-Whole Premium (defined
in the Indenture) and accrued and unpaid Distributions thereon to the date of
payment (such amount being the "Liquidation Distribution"), unless, in
connection with such dissolution, winding-up or termination, Debentures, shall
be distributed on a Pro Rata basis to the Holders of the Securities in exchange
for such Securities as provided in this Paragraph 3.
If, upon any such dissolution, the Liquidation Distribution can be
paid only in part because the Trust has insufficient assets available to pay in
full the aggregate Liquidation Distribution, then the amounts payable directly
by the Trust on the Securities shall be paid on a Pro Rata basis in accordance
with paragraph 8.
If a termination of the Trust occurs as described in clause (i), (ii),
(iii), (vi) or (vii) of Section 8.01(a) of the Declaration, the Trust shall be
liquidated by the Regular Trustees as expeditiously as the Regular Trustees
determine to be possible by distributing, after satisfaction of liabilities to
creditors of the Trust as provided by applicable law, to each holder of the
Capital Securities, Debentures with an aggregate principal amount equal to the
aggregate stated liquidation amount of, with an interest rate identical to the
Coupon Rate of, and accrued and unpaid interest equal to accrued and unpaid
Distributions on, the Capital Securities.
4
<PAGE>
In addition to the paragraph above, at any time the Sponsor has the
right to terminate the Trust and, after satisfaction of the liabilities of
creditors of the Trust as provided by applicable law, cause Debentures with an
aggregate principal amount of, with an interest rate identical to the Coupon
Rate of, and accrued and unpaid interest equal to accrued and unpaid
Distributions on, the outstanding Securities, to be distributed to the Holders
of the Securities in liquidation of the Trust.
The distribution of Debentures upon any dissolution of the Trust is
conditioned upon the receipt by the Regular Trustees of an opinion of nationally
recognized independent tax counsel experienced in such matters to the effect
that the holders of the securities will not recognize any gain or loss for
United States federal income tax purposes as a result of such dissolution of the
Trust and distribution of Debentures.
After the date fixed for any distribution of Debentures (including
pursuant to a Tax Event as set forth in paragraph 4(c) below: (i) the Securities
will no longer be deemed to be outstanding, (ii) the Depositary or its nominee
(or any successor Depositary or its nominee), as record Holder of Capital
Securities represented by global certificates, will receive a registered global
certificate or certificates representing the Debentures to be delivered upon
such distribution and (iii) any certificates representing Securities, except for
certificates representing Capital Securities held by the Depositary or its
nominee (or any successor Depositary or its nominee), will be deemed to
represent Debentures with an aggregate principal amount equal to the aggregate
stated liquidation amount of, with an interest rate identical to the Coupon Rate
of, and accrued and unpaid interest equal to accrued and unpaid Distributions
on, such Securities until such certificates are presented to the Sponsor or its
agent for transfer or reissuance.
If, in connection with any dissolution, winding-up or termination of
the Trust, Debentures are distributed to Holders of the Securities as provided
in this paragraph 3, the procedures set forth in paragraph 4(e) will be
applicable thereto.
4. Redemption and Distribution.
---------------------------
(a) Upon the repayment or payment of the Debentures in whole or in part,
whether at maturity or upon redemption or otherwise, the proceeds from
such repayment or redemption shall be simultaneously applied to redeem
Securities having an aggregate liquidation amount equal to the
aggregate
5
<PAGE>
principal amount of the Debentures so repaid or redeemed at the
Redemption Price per Security of 100% of the liquidation amount of the
Security to be redeemed, plus the Make-Whole Premium (as defined in
the Indenture), if any, together with accrued and unpaid Distributions
thereon through the date of the redemption, payable in cash. Holders
will be given not less than 30 nor more than 60 days' notice of such
redemption.
(b) If fewer than all the outstanding Securities are to be so redeemed,
the Common Securities and the Capital Securities will be redeemed Pro
Rata and the Capital Securities to be redeemed will be as described in
Paragraph 4(e)(ii) below.
(c) If, at any time, a Tax Event shall occur and be continuing, the Trust
shall, except as set forth below, be dissolved and Debentures with an
aggregate principal amount equal to the aggregate stated liquidation
amount of, with an interest rate identical to the Coupon Rate of, and
accrued and unpaid interest equal to accrued and unpaid distributions
on, the Securities, will be distributed to the Holders of the
Securities in liquidation of such Holders' interests in the Trust Pro
Rata within 90 days following the occurrence of such Tax Event (the
"90 Day Period"); provided, however, that such dissolution and
-------- -------
distribution shall be conditioned on (i) the Regular Trustees' receipt
of an opinion of nationally recognized independent tax counsel
experienced in such matters (a "No Recognition Opinion"), which
opinion may rely on published revenue rulings of the Internal Revenue
Service, to the effect that the Holders of the Securities will not
recognize any gain or loss for United States federal income tax
purposes as a result of such dissolution and distribution of
Debentures and (ii) the Company being unable to avoid such Tax Event
within the 90 Day Period by taking some ministerial action or pursuing
some other reasonable measure that will have no adverse effect on the
Trust, the Company or the Holders of the Trust Securities
("Ministerial Action").
If after receipt of a Dissolution Tax Opinion (as defined below) by
the Regular Trustees (i) the Company has received an opinion (a
"Redemption Tax Opinion") of nationally recognized independent tax
counsel experienced in such matters that, as a result of a Tax Event,
there is more than an insubstantial risk that the Company would be
6
<PAGE>
precluded from deducting the interest on the Debentures for United
States federal income tax purposes, even after the Debentures were
distributed to the Holders of Securities in liquidation of such
Holders' interests in the Trust or (ii) the Regular Trustees shall
have been informed by such tax counsel that it cannot deliver a No
Recognition Opinion to the Trust, the Company shall have the right,
upon not less than 30 nor more than 60 days' notice, to redeem the
Debentures at 100% of the liquidation amount plus accrued and unpaid
interest thereon to the date fixed for redemption, in whole or in
part, for cash within 90 days following the occurrence of such Tax
Event, and, following such redemption, Securities with an aggregate
liquidation amount equal to the aggregate principal amount of the
Debentures so redeemed shall be redeemed Pro Rata by the Trust at the
Tax Event Redemption Price (as defined in the Indenture); provided,
--------
however, that (i) no Make-Whole Premium (as defined in the Indenture)
-------
shall be payable in connection with a redemption of Debentures upon
the occurrence of a Tax Event and (ii) if at the time there is
available to the Company or the Trust the opportunity to eliminate,
within the 90 Day Period, the Tax Event by taking some Ministerial
Action, the Company or the Trust will pursue such measure in lieu of
redemption.
"Tax Event" means that the Regular Trustees shall have obtained
an opinion of nationally recognized independent tax counsel
(reasonably acceptable to the Regular Trustees) experienced in such
matters (a "Dissolution Tax Opinion") to the effect that, as a result
of (a) any amendment to, or change (including any announced
prospective change; provided that a Tax Event shall not occur more
--------
than 90 days before the effective date of any such prospective change)
in, the laws (or any regulations thereunder) of the United States or
any political subdivision or taxing authority thereof or therein or
(b) any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations by any legislative
body, court, governmental agency or regulatory authority (including
the enactment of any legislation and the publication of any judicial
decision or regulatory determination on or after the date of original
issuance of the Capital Securities), which amendment or change is
effective or which pronouncement or decision is announced on or after
7
<PAGE>
the date of original issuance of the Capital Securities, there is more
than an insubstantial risk that (i) the Trust is or will be subject to
United States Federal income tax with respect to interest received on
the Debentures, (ii) interest payable in cash to the Trust on the
Debentures is not, or will not be, deductible,in whole or in part, by
the Company for United States Federal income tax purposes or (iii)
the Trust is or will be subject to more than a de minimis amount of
other taxes, duties, assessments or other governmental charges.
(d) The Securities will not be redeemed unless all accrued and unpaid
Distributions have been paid on all Securities for all semi-annual
Distribution periods terminating on or before the date of
redemption.
(e) (i) Notice of any redemption of, or notice of distribution of
Debentures in exchange for the Securities (a
"Redemption/Distribution Notice") will be given by the Trust by
mail to each Holder of Securities to be redeemed or exchanged not
fewer than 30 nor more than 60 days before the date fixed for
redemption or exchange thereof which, in the case of a
redemption, will be the date fixed for redemption of the
Debentures. For purposes of the calculation of the date of
redemption or exchange and the dates on which notices are given
pursuant to this paragraph 4(e)(i), a Redemption/Distribution
Notice shall be deemed to be given on the day such notice is
first mailed by first-class mail, postage prepaid, to Holders of
Securities. Each Redemption/Distribution Notice shall be
addressed to the Holders of Securities at the address of each
such Holder appearing in the books and records of the Trust. No
defect in the Redemption/Distribution Notice or in the mailing of
either thereof with respect to any Holder shall affect the
validity of the redemption or exchange proceedings with respect
to any other Holder.
(ii) In the event that fewer than all the outstanding Securities are
to be redeemed, the Securities to be redeemed shall be redeemed
Pro Rata from each Holder of Capital Securities, it being
understood that, in respect of Capital Securities registered in
the name of and held of record by the
8
<PAGE>
Depositary (or any successor Depositary) or any nominee, the
distribution of the proceeds of such redemption will be made to
each Depositary Participant (or Person on whose behalf such
nominee holds such securities) in accordance with the procedures
applied by such agency or nominee.
(iii) If Securities are to be redeemed and the Trust gives a
Redemption/Distribution Notice, which notice may only be issued
if the Debentures are redeemed as set out in this paragraph 4
(which notice will be irrevocable), then (A) with respect to
Capital Securities held in book-entry form, by 12:00 noon, New
York City time, on the redemption date, provided that the Sponsor
has paid the Property Trustee a sufficient amount of cash in
connection with the related redemption or maturity of the
Debentures, the Property Trustee will deposit irrevocably with
the Depositary (or successor Depositary) funds sufficient to pay
the amount payable on redemption with respect to such Capital
Securities and will give the Depositary irrevocable instructions
and authority to pay the amount payable on redemption to the
Holders of such Capital Securities, and (B) with respect to
Capital Securities issued in certificated form and Common
Securities, provided that the Sponsor has paid the Property
Trustee a sufficient amount of cash in connection with the
related redemption or maturity of the Debentures, the Property
Trustee will irrevocably deposit with the Paying Agent funds
sufficient to pay the amount payable on redemption to the Holders
of such Securities upon surrender of their certificates. If a
Redemption/ Distribution Notice shall have been given and funds
deposited as required, then on the date of such deposit, all
rights of Holders of such Securities so called for redemption
will cease, except the right of the Holders of such Securities to
receive the redemption price, but without interest on such
redemption price. Neither the Regular Trustees nor the Trust
shall be required to register or cause to be registered the
transfer of any Securities that have been so called for
redemption. If any date fixed for redemption of Securities is
not a Business Day, then payment of the amount payable on
9
<PAGE>
such date will be made on the next succeeding day that is a
Business Day (without any interest or other payment in respect of
any such delay) except that, if such Business Day falls in the
next calendar year, such payment will be made on the immediately
preceding Business Day, in each case with the same force and
effect as if made on such date fixed for redemption. If payment
of the redemption price in respect of any Securities is
improperly withheld or refused and not paid either by the Trust
or by the Sponsor as guarantor pursuant to the Capital Securities
Guarantee, Distributions on such Securities will continue to
accrue at the then applic able rate, from the original redemption
date to the date of payment, in which case the actual payment
date will be considered the date fixed for redemption for
purposes of calculating the amount payable upon redemp tion
(other than for purposes of calculating any premium).
(iv) Redemption/Distribution Notices shall be sent by the Regular
Trustees on behalf of the Trust to (A) in the case of Capital
Securities held in book-entry form, the Depositary and, in the
case of Securities held in certificated form, the Holders of such
certificates and (B) in respect of the Common Securities, the
Holder thereof.
(v) Subject to the foregoing and applicable law (including, without
limitation, United States federal securities laws), the Sponsor
or any of its subsidiaries may at any time and from time to time
purchase outstanding Capital Securities by tender, in the open
market or by private agreement.
5. Voting Rights - Capital Securities.
----------------------------------
(a) Except as provided in this Annex I, in the Business Trust Act and as
otherwise required by law, the Declaration and the Indenture, the
Holders of the Capital Securities will have no voting rights.
(b) The Holders of the Capital Securities shall have the rights with
respect to the enforcement of payment of principal, premium, if any,
and interest on the Debentures as are set forth herein, in the
Declaration or in the Indenture.
10
<PAGE>
Subject to the requirements set forth in this paragraph, the Holders
of a majority in liquida tion amount of the Capital Securities, voting
separately as a class may direct the time, method, and place of
conducting any proceeding for any remedy available to the Property
Trustee, or direct the exercise of any trust or power con ferred upon
the Property Trustee under the Declaration, including the right to
direct the Property Trustee, as holder of the Debentures, to (i)
direct the time, method, place of conducting any proceeding for any
remedy available to the Debenture Trustee, or exercising any trust or
power conferred on the Debenture Trustee with respect to the
Debentures, (ii) waive any past default and its consequences that is
waivable under Section 5.13 of the Indenture or otherwise, (iii)
exercising any right to rescind or annul a declaration that the
principal of all the Debentures shall be due and payable or (iv)
consent to any amendment, modification or termi nation of the
Indenture or the Debentures, where such consent shall be required;
provided, however, that, where a consent under the Indenture would
-------- -------
require the consent or act of the Holders of greater than a majority
of the Holders in prin cipal amount of Debentures affected thereby (a
"Super Majority"), the Property Trustee may only give such consent or
take such action at the direction of the Holders of at least the
propor tion in liquidation amount of the Capital Securities which the
relevant Super Majority represents of the aggregate principal amount
of the Debentures outstanding. The Property Trustee shall not, and
none of the other Trustees shall in any event, revoke any action
previously authorized or approved by a vote of the Holders of the
Capital Securities, except by a subsequent vote of the Holders of the
Capital Securities. Other than with respect to directing the time,
method and place of conducting any remedy available to the Property
Trustee as set forth above, the Property Trustee shall not take any
action in accordance with the directions of the Holders of the Capital
Securities under this paragraph unless the Property Trustee has
obtained an opinion of tax counsel to the effect that, as a result of
such action, the Trust will not fail to be classified as a grantor
trust for United States federal income tax purposes.
If the Property Trustee is the sole holder of the Debentures, any
Holder of the Capital Securities
11
<PAGE>
shall have the right, to the fullest extent permitted by applicable
law, to institute suit on behalf of the Trust for the enforcement of
the right to receive payment of the principal of and interest, and
premium, if any, on the Debentures on or after the Stated Maturity (as
defined in the Indenture) of such Debentures or, in the case of
redemption, on the Redemption Date (as defined in the Indenture). In
addition, the Holders of at least 25% in aggregate liquidation amount
of Cap ital Securities outstanding shall be entitled, to the fullest
extent permitted by applicable law, to institute any other proceeding
in the event the Debenture Trustee or the Property Trustee fails to do
so in accordance with the terms of the Indenture.
If an Event of Default shall have occurred and be continuing, the
Holders of a majority in liquidation amount of the Capital Securities,
voting as a class at a meeting of Holders of Capital Securities, shall
have the exclusive right to remove the Property Trustee.
In addition to any other rights of the Holders provided herein or in
the Declaration, if the Property Trustee fails to enforce its rights,
as holder of the Debentures, under the Indenture, any Holder of
Capital Securities may, to the fullest extent permitted by applicable
law, institute a legal proceeding directly against the Sponsor, to
enforce the rights of the Property Trustee, as holder of the
Debentures, under the Indenture, without first instituting any legal
proceeding against the Property Trustee or any other Person.
Any approval or direction of Holders of Capital Securities may be
given at a separate meeting of Holders of Capital Securities convened
for such purpose, at a meeting of all of the Holders of Securities in
the Trust or pursuant to written consent. The Regular Trustees will
cause a notice of any meeting at which Holders of Capital Securities
are entitled to vote, or of any matter upon which action by written
consent of such Holders is to be taken, to be mailed to each Holder of
record of Capital Securities. Each such notice will include a
statement setting forth the following information: (i) the date of
such meeting or the date by which such action is to be
12
<PAGE>
taken, (ii) a description of any resolution proposed for adoption at
such meeting on which such Holders are entitled to vote or of such
matter upon which written consent is sought and (iii) instructions for
the delivery of proxies or consents.
No vote or consent of the Holders of the Capital Securities will be
required for the Trust to redeem and cancel Capital Securities or to
distribute the Debentures in accordance with the Declaration and the
terms of the Securities.
Notwithstanding that Holders of Capital Securities are entitled to
vote or consent under any of the circumstances described above, any of
the Capital Securities that are owned by the Sponsor or any Affiliate
of the Sponsor shall not be entitled to vote or consent and shall, for
purposes of such vote or consent, be treated as if they were not
outstanding.
6. Voting Rights - Common Securities.
---------------------------------
(a) Except as provided in this Annex I, in the Business Trust Act and as
otherwise required by law and the Declaration, the Holders of the
Common Securities will have no voting rights.
(b) The Holders of the Common Securities are entitled, in accordance with
Article V of the Declaration, to vote to appoint, remove or replace
any Trustee.
(c) Subject to Section 2.06 of the Declaration and only after the Event of
Default with respect to the Capital Securities has been cured, waived,
or otherwise eliminated and subject to the requirements of the second
to last sentence of this paragraph, the Holders of the Majority in
liquidation amount of the Common Securities, voting separately as a
class, may direct the time, method, and place of conducting any
proceeding for any remedy available to the Property Trustee, or
exercising any trust or power conferred upon the Property Trustee
under the Declaration, including (i) directing the time, method, place
of conduct ing any proceeding for any remedy available to the
Debenture Trustee, or exercising any trust or power conferred on the
Debenture Trustee with respect to the Debentures, (ii) waiving any
past default and its consequences that is waivable under Section 5.13
of the Indenture, (iii) exercising any right to rescind or annul a
13
<PAGE>
declaration that the principal of all the Debentures shall be due and
payable; or (iv) consenting to any amendment, modification or
termination of the Indenture or the Debentures, where such consent
shall be required; provided that, where a consent or action under the
-------- ----
Indenture would require the consent or act of the Holders of greater
than a majority in principal amount of Debentures affected thereby (a
"Super Majority"), the Property Trustee may only give such consent or
take such action at the direction of the Holders of at least the
proportion in liquidation amount of the Common Securities which the
relevant Super Majority represents of the aggregate principal amount
of the Debentures outstanding. The Property Trustee shall not revoke
any action previously authorized or approved by a vote of the Holders
of the Capital Securities, except by a subsequent vote of the Holders
of the Capital Securities. Other than with respect to directing the
time, method and place of conducting any remedy available to the
Property Trustee or the Debenture Trustee as set forth above, the
Property Trustee shall not take any action in accordance with the
directions of the Holders of the Common Securities under this
paragraph unless the Property Trustee has obtained an opinion of tax
counsel to the effect that, as a result of such action the Trust will
not fail to be classified as a grantor trust for United States federal
income tax purposes. If the Property Trustee fails to enforce its
rights, as holder of the Debentures, under the Indenture, any Holder
of Common Securities may, institute a legal proceeding directly
against the Sponsor, to enforce the Property Trustee's rights, as
holder of the Debentures, under the Indenture, without first
instituting any legal proceeding against the Property Trustee or any
other Person.
Any approval or direction of Holders of Common Securities may be given
at a separate meeting of Holders of Common Securities convened for
such purpose, at a meeting of all of the Holders of Securities in the
Trust or pursuant to written consent. The Regular Trustees will cause
a notice of any meeting at which Holders of Common Securi ties are
entitled to vote, or of any matter upon which action by written
consent of such Holders is to be taken, to be mailed to each Holder of
record of Common Securities. Each such notice will
14
<PAGE>
include a statement setting forth (i) the date of such meeting or the
date by which such action is to be taken, (ii) a description of any
resolution proposed for adoption at such meeting on which such Holders
are entitled to vote or of such matter upon which written consent is
sought and (iii) instructions for the delivery of proxies or consents.
No vote or consent of the Holders of the Common Securities will be
required for the Trust to redeem and cancel Common Securities or to
distribute the Debentures in accordance with the Declaration and the
terms of the Securities.
7. Amendments to Declaration and Indenture.
---------------------------------------
(a) In addition to any requirements under Section 12.01 of the
Declaration, if any proposed amendment to the Declaration provides
for, or the Regular Trustees otherwise propose to effect, (i) any
action that would adversely affect the powers, preferences or special
rights of the Securities, whether by way of amendment to the
Declaration or otherwise, or (ii) the dissolution, winding-up or
termination of the Trust, other than as described in Section 8.01 of
the Declaration, then the Holders of outstanding Securities as a
class, will be entitled to vote on such amendment or proposal (but not
on any other amendment or proposal) and such amendment or proposal
shall not be effective except (a) with the approval of the Holders of
at least 66-2/3% in liquidation amount of the Securities, voting
together as a single class and (ii) upon receipt by the Regular
Trustees of an opinion of counsel to the effect that such amendment or
the exercise of any power granted to the Regular Trustees in
accordance with such amendment will not affect the Trust's status as a
grantor trust for United States federal income tax purposes or the
Trust's exemption from the status of an "investment company" under the
Investment Company Act; provided, however, if any amendment or
-------- -------
proposal referred to in clause (i) above would adversely affect only
the Capital Securities or only the Common Securities, then only the
affected class will be entitled to vote on such amendment or proposal
and such amendment or proposal shall not be effective except with the
approval of 66-2/3% in liquidation amount of such class of Securities.
15
<PAGE>
(b) In the event the consent of the Property Trustee as the holder of the
Debentures is required under the Indenture with respect to any
amendment, modification or termination of the Indenture or the
Debentures, the Property Trustee shall request the direction of the
Holders of the Securities with respect to such amendment, modification
or termination and shall vote with respect to such amendment,
modification or termination as directed by a Majority in liquidation
amount of the Securities voting together as a single class; provided,
--------
however, that where a consent under the Indenture would require the
-------
consent of the holders of more than a majority of the aggregate
principal amount of the Debentures, the Property Trustee may only give
such consent at the direction of the Holders of at least the same
proportion in aggregate stated liquidation preference of the
Securities; provided, however, that the Property Trustee shall not
-------- -------
take any action in accordance with the directions of the Holders of
the Securities under this paragraph unless the Property Trustee has
obtained an opinion of tax counsel to the effect that for the purposes
of United States federal income tax the Trust will not be classified
as other than a grantor trust on account of such action.
8. Pro Rata.
--------
A reference in these terms of the Securities to any payment,
distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder
of Securities according to the aggregate liquidation amount of the Securities
held by the relevant Holder in relation to the aggregate liqui dation amount of
all Securities outstanding unless, on any distribution date or redemption date
an Event of Default under the Declaration has occurred and is continuing, in
which case no payment of any distribution on, or amount payable upon redemption
of, any Common Security, and no other payment on account of the redemption,
liquidation or other acquisition of Common Securities, shall be made unless
payment in full in cash of all accumulated and unpaid Distributions on all
outstanding Capital Securities for all Distribution periods terminating on or
prior thereto, or in the case of payment of the amount payable upon redemption
of the Capital Securities, the full amount of such amount in respect of all
outstanding Capital Securities shall have been made or provided for, and all
funds available to the Property Trustee shall first be applied to the payment in
full in cash of all Distributions on, or the amount payable upon redemption of
Capital Securities then due and payable.
16
<PAGE>
9. Ranking.
-------
The Capital Securities rank pari passu with, and payment thereon shall
---- -----
be made Pro Rata with, the Common Securities except that, where an Event of
Default occurs and is continuing under the Indenture, the rights of Holders of
the Common Securities to payment in respect of Distributions and payments upon
liquidation, redemption and otherwise are subordinated to the rights to payment
of the Holders of the Capital Securities.
10. Acceptance of Capital Securities Guarantee and Indenture.
--------------------------------------------------------
Each Holder of Capital Securities and Common Securities, by the
acceptance thereof, agrees to the provisions of the Capital Securities
Guarantee, respectively, including the subordination provisions therein and to
the provisions of the Indenture, including the subordination provisions therein,
and which includes, among other things, provisions relating to certain rights of
the Holders of the Capital Securities all as set forth therein.
11. No Preemptive Rights.
--------------------
The Holders of the Securities shall have no preemptive rights to
subscribe for any additional securities.
12. Miscellaneous.
-------------
These terms constitute a part of the Declaration.
The Sponsor will provide a copy of the Declara tion, the Capital
Securities Guarantee, and the Indenture to a Holder without charge on written
request to the Sponsor at its principal place of business.
17
<PAGE>
EXHIBIT A
FORM OF CAPITAL SECURITY CERTIFICATE
[IF THE CAPITAL SECURITY IS TO BE A GLOBAL CERTIFICATE INSERT - This
Capital Security is a Global Certificate within the meaning the Declaration
hereinafter referred to and is registered in the name of the Depository Trust
Company (the "Depository") or a nominee of the Depository. This Capital
Security is exchangeable for Capital Securities registered in the name of a
person other than the Depository or its nominee only in the limited
circumstances described in the Declaration and no transfer of this Capital
Security (other than a transfer of this Capital Security as a whole by the
Depository to a nominee of the Depository or by a nominee of the Depository to
the Depository or another nominee of the Depository) may be registered except in
limited circumstances.
Unless this Capital Security Certificate is presented by an authorized
representative of the Depository to the Trust or its agent for registration of
transfer, exchange or payment, and any Capital Security Certificate issued is
registered in the name of Cede & Co. or such other name as requested by an
authorized representative of the Depository (and any payment hereon is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of the Depository), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner
hereof, Cede & Co., has an interest herein].
Certificate number Number of Capital Securities
CUSIP NO.
Certificate Evidencing Capital Securities
of
NATIONWIDE FINANCIAL SERVICES CAPITAL TRUST
___% Capital Securities
(liquidation amount $1,000 per Capital Security)
NATIONWIDE FINANCIAL SERVICES CAPITAL TRUST, a statutory business
trust formed under the laws of the State of Delaware (the "Trust"), hereby
certifies that _______________ (the "Holder") is the registered owner of
preferred securities of the Trust representing preferred undivided beneficial
interests in the assets of the Trust designated the ___% Capital Securities
(liquidation amount $1,000 per Security) (the "Capital Securities"). The
Capital Securities are transferable on the books and records of the Trust, in
person or by a duly authorized attorney, upon surrender of this certificate duly
endorsed and in
A-1
<PAGE>
proper form for transfer. The designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Capital Securities represented
hereby are in all respects subject to the provisions of the Amended and Rested
Declaration of Trust of the Trust dated as of ___________, 1997, as the same may
be amended from time to time (the "Declaration"), including the designation of
the terms of the Capital Securities as set forth in Annex I to the Declaration.
Capitalized terms used herein but not defined shall have the meaning given them
in the Declaration. The Holder is entitled to the benefits of the Capital
Securities Guarantee to the extent provided therein. The Sponsor will provide a
copy of the Declaration, the Capital Security Guarantee and the Indenture to a
Holder without charge upon written request to the Sponsor at its principal place
of business.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal
income tax purposes, the Debentures as indebtedness and the Capital Securities
as evidence of indirect beneficial ownership in the Debentures.
IN WITNESS WHEREOF, the Trust has executed this certificate this ____
day of _________, 199_.
NATIONWIDE FINANCIAL SERVICES CAPITAL TRUST
By: ___________________________________
Name: ___________________________________
Title: Regular Trustee
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Capital Securities referred to in the within-
mentioned Declaration.
WILMINGTON TRUST COMPANY, as Property Trustee
By: ___________________________________
Authorized Signatory
A-2
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Capital Security will be fixed at a rate
per annum of __% (the "Coupon Rate") of the stated liquidation amount of $1,000
per Capital Security, such rate being the rate of interest payable on the
Debentures to be held by the Property Trustee. Distributions in arrears will
bear interest thereon compounded semi-annually at the Coupon Rate (to the extent
permitted by applicable law). The term "Distributions" as used herein includes
such cash distributions and any such interest payable unless otherwise stated.
A Distribution is payable only to the extent that payments are made in respect
of the Debentures held by the Property Trustee and to the extent the Property
Trustee has funds available therefor. The amount of Distributions payable for
any period will be computed for any full semi-annual Distribution period on the
basis of a 360-day year of twelve 30-day months, and for any period of less than
a full calendar month the number of days elapsed in such month.
Distributions on the Capital Securities will be cumulative, will
accrue from the date of original issuance and will be payable semi-annually in
arrears, on the following dates, which dates correspond to the interest payment
dates on the Debentures: __________________ and ________________ of each year,
commencing on ___________, 1997, except as otherwise described below. So long
as no Event of Default (or an event which would be an Event of Default with the
giving of required notice or the passage of time) has occurred and is
continuing, the Debenture Issuer has the right under the Indenture to defer
payments of interest by extending the interest payment period from time to time
on the Debentures for a period not exceeding 10 consecutive semi-annual periods
(each an "Extension Period") and, as a consequence of such deferral,
Distributions will also be deferred. Despite such deferral, semi-annual
Distributions will continue to accrue with interest thereon (to the extent
permitted by applicable law) at the Coupon Rate compounded semi-annually during
any such Extension Period. Prior to the termination of any such Extension
Period, the Debenture Issuer may further extend such Extension Period so long as
no Event of Default (or an event which would be an Event of Default with the
giving of required notice or the passage of time) has occurred and is
continuing; provided that such Extension Period together with all such previous
-------- ----
and further extensions thereof may not exceed 10 consecutive semi-annual periods
or extend beyond the maturity (whether at the stated maturity or by declaration
of acceleration, call for redemption or otherwise) of the Debentures under the
Indenture. Payments of accrued Distributions will be payable to Holders as they
A-3
<PAGE>
appear on the books and records of the Trust on the first record date after the
end of the Extension Period. Upon the termination of any Extension Period and
the payment of all amounts then due, the Debenture Issuer may commence a new
Extension Period, subject to the above requirements.
The Capital Securities shall be redeemable as provided in the
Declaration.
A-4
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undesigned assigns and transfers this Capital Security
Certificate to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
________________________________ agent to transfer this Capital
--------------------------------
Security Certificate on the books of the Trust. The agent may substitute
another to act for him or her.
Date: __________________
Signature: _________________________
(Sign exactly as your name appears on the other side of this Capital Security
Certificate)
A-5
<PAGE>
EXHIBIT B
FORM OF COMMON SECURITY CERTIFICATE
Certificate Number Number of Common Securities
Certificate Evidencing Common Securities
of
NATIONWIDE FINANCIAL SERVICES CAPITAL TRUST
___% Common Securities
(liquidation amount $1,000 per Common Security)
NATIONWIDE FINANCIAL SERVICES CAPITAL TRUST, a statutory business
trust formed under the laws of the State of Delaware (the "Trust") hereby
certifies that ______________________ (the "Holder") is the registered owner of
common securities of the Trust representing common undivided beneficial
interests in the assets of the Trust designated the ___% Common Securities
(liquidation amount $1,000 per Common Security) (the "Common Securities"). The
Common Securities are transferable on the books and records of the Trust, in
person or by a duly authorized attorney, upon surrender of this certificate duly
endorsed and in proper form for transfer. The designation, rights, privileges,
restrictions, preference and other terms and provisions of the Common Securities
represented hereby are in all respects subject to the provisions of the Amended
and Rested Declaration of Trust of the Trust dated as of _____________ 1997, as
the same may be amended from time to time (the "Declaration"), including the
designation of the terms of the Common Securities as set forth in Annex I to the
Declaration. Capitalized terms used herein but not defined shall have the
meaning given them in the Declaration. The Sponsor will provide a copy of the
Declaration and the Indenture to a Holder without charge upon written request to
the Sponsor at its principal place of business.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal
income tax purposes, the Debentures as indebtedness and the Common Securities as
evidence of indirect beneficial ownership in the Debentures.
B-1
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this certificate this ____
day of _______________, 199_.
NATIONWIDE FINANCIAL SERVICES CAPITAL TRUST
By: ___________________________________
Name: ___________________________________
Title: Regular Trustee
B-2
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Common Security will be fixed at a rate
per annum of __% (the "Coupon Rate") of the stated liquidation amount of $1,000
per Common Security, such rate being the rate of interest payable on the
Debentures to be held by the Property Trustee. Distributions in arrears will
bear interest thereon compounded semi-annually at the Coupon Rate (to the extent
permitted by applicable law). The term "Distributions" as used herein includes
such cash distributions and any such interest payable unless otherwise stated.
A Distribution is payable only to the extent that payments are made in respect
of the Debentures held by the Property Trustee and to the extent the Property
Trustee has funds available therefor. The amount of Distributions payable for
any period will be computed for any full semi-annual Distribution period on the
basis of a 360-day year of twelve 30-day months, and for any period of less than
a full calendar month the number of days elapsed in such month.
Distributions on the Common Securities will be cumulative, will accrue
from the date of original issuance and will be payable semi-annually in arrears,
on the following dates, which dates correspond to the interest payment dates on
the Debentures: __________________ and ________________ of each year, commencing
on ___________, 1997, except as otherwise described below. So long as no Event
of Default (or an event which would be an Event of Default with the giving of
required notice or the passage of time) has occurred and is continuing, the
Debenture Issuer has the right under the Indenture to defer payments of interest
by extending the interest payment period from time to time on the Debentures for
a period not exceeding 10 consecutive semi-annual periods (each an "Extension
Period") and, as a consequence of such deferral, Distributions will also be
deferred. Despite such deferral, semi-annual Distributions will continue to
accrue with interest thereon (to the extent permitted by applicable law) at the
Coupon Rate compounded semi-annually during any such Extension Period. Prior to
the termination of any such Extension Period, the Debenture Issuer may further
extend such Extension Period so long as no Event of Default (or an event which
would be an Event of Default with the giving of required notice or the passage
of time) has occurred and is continuing; provided that such Extension Period
-------- ----
together with all such previous and further extensions thereof may not exceed 10
consecutive semi-annual periods or extend beyond the maturity (whether at the
stated maturity or by declaration of acceleration, call for redemption or
otherwise) of the Debentures under the Indenture. Payments of accrued
Distributions will be payable to Holders as they
B-3
<PAGE>
appear on the books and records of the Trust on the first record date after the
end of the Extension Period. Upon the termination of any Extension Period and
the payment of all amounts then due, the Debenture Issuer may commence a new
Extension Period, subject to the above requirements.
The Common Securities shall be redeemable as provided in the
Declaration.
B-4
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undesigned assigns and transfers this Common Security
Certificate to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
________________________________ agent to transfer this Common
--------------------------------
Security Certificate on the books of the Trust. The agent may substitute
another to act for him or her.
Date: __________________
Signature: _________________________
(Sign exactly as your name appears on the other side of this Capital Security
Certificate)
B-5
<PAGE>
EXHIBIT 4.1
- --------------------------------------------------------------------------------
NATIONWIDE FINANCIAL SERVICES, INC.
____________
Form of
INDENTURE
Dated as of _______, 1997
___________
WILMINGTON TRUST COMPANY
Trustee
____________
__% Junior Subordinated Deferrable
Interest Debentures Due 2037
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I Definitions and Other Provisions of General Application.. 2
SECTION 1.01. Definitions........................................... 2
SECTION 1.02. Compliance Certificates and Opinions.................. 10
SECTION 1.03. Form of Documents Delivered to Trustee................ 11
SECTION 1.04. Acts of Holders; Record Dates......................... 12
SECTION 1.05. Notices, Etc., to the Trustee and the Company...... 14
SECTION 1.06. Notice to Holders; Waiver............................. 14
SECTION 1.07. Conflict with Trust Indenture Act..................... 15
SECTION 1.08. Effect of Headings and Table of Contents........... 15
SECTION 1.09. Successors and Assigns................................ 15
SECTION 1.10. Separability Clause................................... 15
SECTION 1.11. Benefits of Indenture................................. 15
SECTION 1.12. Governing Law......................................... 15
SECTION 1.13. Legal Holidays........................................ 15
ARTICLE II Security Forms........................................... 16
SECTION 2.01. Forms Generally....................................... 16
ARTICLE III The Securities........................................... 16
SECTION 3.01. Title and Terms....................................... 16
SECTION 3.02. Denominations......................................... 18
SECTION 3.03. Execution, Authentication, Delivery and Dating........ 18
SECTION 3.04. Temporary Securities.................................. 18
SECTION 3.05. Registration, Registration of Transfer and Exchange... 19
SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Securities...... 20
SECTION 3.07. Payment of Interest; Interest Rights Preserved........ 21
SECTION 3.08. Persons Deemed Owners................................. 23
SECTION 3.09. Cancellation.......................................... 23
SECTION 3.10. Right of Set Off...................................... 23
SECTION 3.11. CUSIP Numbers......................................... 23
SECTION 3.12. Extension of Interest Payment Period; Notice of
Extension............................................. 23
SECTION 3.13. Paying Agent and Security Registrar................... 25
SECTION 3.14. Global Debenture...................................... 25
SECTION 3.15. Agreed Tax Treatment.................................. 27
<PAGE>
ARTICLE IV Satisfaction and Discharge............................... 27
SECTION 4.01. Satisfaction and Discharge of Indenture............ 27
SECTION 4.02. Applications of Trust Money........................ 28
ARTICLE V Remedies................................................. 29
SECTION 5.01. Events of Default.................................. 29
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment. 30
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by
Trustee............................................ 32
SECTION 5.04. Trustee May File Proofs of Claim................... 32
SECTION 5.05. Trustee May Enforce Claims Without Possession of
Securities......................................... 33
SECTION 5.06. Application of Money Collected..................... 33
SECTION 5.07. Limitation on Suits................................ 34
SECTION 5.08. Unconditional Right of Holders to Receive Principal
and Interest...................................... 34
SECTION 5.09. Restoration of Rights and Remedies................. 35
SECTION 5.10. Rights and Remedies Cumulative..................... 35
SECTION 5.11. Delay or Omission Not Waiver....................... 35
SECTION 5.12. Control by Holders................................. 35
SECTION 5.13. Waiver of Past Defaults............................ 36
SECTION 5.14. Undertaking for Costs.............................. 36
SECTION 5.15. Waiver of Stay or Extension Laws................... 36
SECTION 5.16. Enforcement by Holders of Capital Securities....... 37
ARTICLE VI The Trustee.............................................. 37
SECTION 6.01. Certain Duties and Responsibilities................... 37
SECTION 6.02. Notice of Defaults.................................... 37
SECTION 6.03. Certain Rights of Trustee............................. 38
SECTION 6.04. Not Responsible for Recitals or Issuance of
Securities......................................... 39
SECTION 6.05. May Hold Securities................................... 39
SECTION 6.06. Money Held in Trust................................... 39
SECTION 6.07. Compensation and Reimbursement........................ 39
SECTION 6.08. Disqualification; Conflicting Interests............... 40
SECTION 6.09. Corporate Trustee Required; Eligibility............... 40
SECTION 6.10. Resignation and Removal; Appointment of Successor..... 40
SECTION 6.11. Acceptance of Appointment by Successor................ 42
SECTION 6.12. Merger, Conversion, Consolidation or Succession to
Business........................................... 42
SECTION 6.13. Preferential Collection of Claims Against Company..... 43
ii
<PAGE>
ARTICLE VII Holders' Lists and Reports by Trustee and Company........ 43
SECTION 7.01. Company to Furnish Trustee Names and Addresses of
Holders............................................. 43
SECTION 7.02. Preservation of Information; Communications to Holders 43
SECTION 7.03. Reports by Trustee.................................... 44
SECTION 7.04. Reports by Company.................................... 44
SECTION 7.05. Tax Reporting......................................... 44
ARTICLE VIII Consolidation, Merger, Conveyance, Transfer or Lease..... 45
SECTION 8.01. Company May Consolidate, Etc., Only on Certain Terms.. 45
SECTION 8.02. Successor Substituted................................. 46
ARTICLE IX Supplemental Indentures.................................. 46
SECTION 9.01. Supplemental Indentures Without Consent of Holders.... 46
SECTION 9.02. Supplemental Indentures with Consent of Holders....... 47
SECTION 9.03. Execution of Supplemental Indentures.................. 48
SECTION 9.04. Effect of Supplemental Indentures..................... 49
SECTION 9.05. Conformity with Trust Indenture Act................... 49
SECTION 9.06. Reference in Securities to Supplemental Indentures.... 49
ARTICLE X Covenants; Representations and Warranties................ 49
SECTION 10.01. Payment of Principal and Interest.................... 49
SECTION 10.02. Maintenance of Office or Agency...................... 49
SECTION 10.03. Money for Security Payments to Be
Held in Trust...................................... 50
SECTION 10.04. Statement by Officers as to Default.................. 51
SECTION 10.05. Limitation on Dividends; Transactions
with Affiliates; Covenants as to
the Trust......................................... 51
SECTION 10.06. Payment of Expenses of the Trust..................... 52
ARTICLE XI Redemption of Securities................................. 53
SECTION 11.01. Right of Redemption.................................. 53
SECTION 11.02. Applicability of Article............................. 53
SECTION 11.03. Election to Redeem; Notice to Trustee................ 53
SECTION 11.04. Selection by Trustee of Securities to
Be Redeemed....................................... 53
SECTION 11.05. Notice of Redemption................................. 54
SECTION 11.06. Deposit of Redemption Price.......................... 54
SECTION 11.07. Securities Payable on Redemption Date................ 55
SECTION 11.08. Securities Redeemed in Part.......................... 55
iii
<PAGE>
SECTION 11.09. Optional Redemption.................................. 56
SECTION 11.10. Tax Event Redemption................................. 56
ARTICLE XII Subordination of Securities.............................. 57
SECTION 12.01. Agreement to Subordinate............................. 57
SECTION 12.02. Default on Senior Indebtedness....................... 58
SECTION 12.03. Liquidation; Dissolution; Bankruptcy................. 58
SECTION 12.04. Subrogation.......................................... 60
SECTION 12.05. Trustee to Effectuate Subordination.................. 61
SECTION 12.06. Notice by the Company................................ 61
SECTION 12.07. Rights of the Trustee: Holders of
Senior Indebtedness............................... 62
SECTION 12.08. Subordination May Not Be Impaired.................... 63
iv
<PAGE>
Nationwide Financial Services, Inc.
Certain Sections of this Indenture relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939
Trust Indenture Indenture
Act Section Section
S 310(a)(1)............................................................ 609
(a)(2)............................................................ 609
(a)(3)................................................. Not Applicable
(a)(4)................................................. Not Applicable
(b) ....................................................... 608, 610
S 311(a) ............................................................. 613
(b) ............................................................ 613
S 312(a) ............................................................ 701
702(a)
(b) .............................................................702(b)
(c) .............................................................702(c)
S 313(a) ......................................................... 703(a)
(a)(4) ..................................................... 101, 1004
(b) ......................................................... 703(a)
(c) ......................................................... 703(a)
(d) ......................................................... 703(b)
S 314(a) ............................................................ 704
(b) .................................................. Not Applicable
(c)(1) ........................................................... 102
(c)(2) ........................................................... 102
(c)(3) ................................................ Not Applicable
(d) .................................................. Not Applicable
(e) ............................................................ 102
S 315(a) ............................................................ 601
(b) ............................................................ 602
(c) ............................................................ 601
(d) ............................................................ 601
(e) ............................................................ 514
S 316(a) ............................................................ 101
(a)(1)(A) ........................................................ 502
(a)(1)(B) ........................................................ 513
(a)(2) ................................................ Not Applicable
(b) .............................................................. 508
(c) ........................................................... 104(c)
S 317(a)(1) ........................................................... 503
(a)(2) ........................................................... 504
(b) ............................................................. 1003
S 318(a) .............................................................. 107
____________________
Note: This reconciliation and tie shall not, for any purpose be deemed
to be a part of the Indenture.
v
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INDENTURE, dated as of ___________, 1997, between NATIONWIDE FINANCIAL
SERVICES, INC., a corporation duly organized and existing under the laws of
the State of Delaware (herein called the "Company"), and Wilmington Trust
Company, a Delaware banking corporation, as Trustee (herein called the
"Trustee").
RECITALS OF THE COMPANY
WHEREAS Nationwide Financial Services Capital Trust, a Delaware
business trust (the "Trust"), formed under the Amended and Restated Declaration
of Trust among the Company, as Sponsor, Wilmington Trust Company, as property
trustee (the "Property Trustee"), and as Delaware trustee (the "Delaware
Trustee"), and ______________, _____________________ and _________________, as
trustees, dated as of _____________, 1997 (the "Declaration"), pursuant to the
Underwriting Agreement (the "Underwriting Agreement") dated _______________,
1997, among the Company, the Trust and the Underwriters named therein, will
issue and sell up to $100 million aggregate liquidation amount of its __%
Capital Securities (the "Capital Securities") with a liquidation preference of
$1,000 per Capital Security, having an aggregate liquidation amount with respect
to the assets of the Trust of up to $100 million;
WHEREAS the trustees of the Trust, on behalf of the Trust, will
execute and deliver to the Company Common Securities evidencing an ownership
interest in the Trust, registered in the name of the Company, in an aggregate
amount equal to three percent of the capitalization of the Trust, equivalent to
up to ______ Common Securities, with a liquidation preference of $__ per Common
Security, having an aggregate liquidation amount with respect to the assets of
the Trust of up to $_________ (the "Common Securities");
WHEREAS the Trust will use the proceeds from the sale of the Capital
Securities and the Common Securities to purchase from the Company, Securities
(as defined below) in an aggregate principal amount of up to $___________;
WHEREAS the Company is guaranteeing the payment of distributions on
the Capital Securities, and payment of the Redemption Price or Tax Event
Redemption Price, as applicable (each as defined herein) and payments on
liquidation with respect to the Capital Securities, to the extent provided in
the Capital Securities Guarantee Agreement (the "Guarantee") between the Company
and Wilmington Trust Company, as Capital Securities Guarantee
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Trustee, for the benefit of the holders of the Capital Securities from time to
time;
WHEREAS the Company has duly authorized the creation of an issue of
its __% Junior Subordinated Deferrable Interest Debentures Due 2037 (the
"Securities"), of substantially the tenor and amount hereinafter set forth and
to provide therefor the Company has duly authorized the execution and delivery
of this Indenture; and
WHEREAS all things necessary to make the Securities, when executed by
the Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders (as defined herein) thereof, it is mutually agreed,
for the equal and proportionate benefit of all Holders of the Securities, as
follows:
ARTICLE I
Definitions and Other
Provisions of General Application
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SECTION 1.01. Definitions. For all purposes of this Indenture,
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except as otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles; and
(4) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
article, section or other subdivision.
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"Act", when used with respect to any Holder, has the meaning specified
in Section 1.04.
"Additional Payments" means Compounded Interest and Additional Sums,
if any.
"Additional Sums" has the meaning specified in Section 3.01.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent" means any Registrar, Paying Agent, Conversion Agent or co-
registrar.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means any day other than a Saturday or a Sunday or a
day on which banking institutions in The City of New York are authorized or
required by law or executive order to remain closed.
"Capital Securities" has the meaning specified in the Recitals to this
instrument.
"Commission" means the Securities and Exchange Commission, as form
time to time constituted, created under the Securities Exchange Act of 1934, or,
if at any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Securities" has the meaning specified in the Recitals to this
instrument.
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"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President or a Vice President, and by its Treasurer,
an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered
to the Trustee.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Securities to be redeemed that would be utilized, at
the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of such Securities.
"Comparable Treasury Price" means, with respect to any redemption
date, (i) the average of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) on the
third business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such business day, (A) the average
of the Reference Treasury Dealer Quotations for such redemption date, after
excluding the highest and lowest such Reference Treasury Dealer quotations, or
(B) if the Trustee obtains fewer than three such Reference Treasury Dealer
Quotations, the average of all such Quotations.
"Compounded Interest" has the meaning specified in Section 3.12.
"Corporate Trust Office" means the principal office of the Trustee in
Wilmington, Delaware, at which at any particular time its corporate trust
business shall be administered and which at the date of this Indenture is Rodney
Square North, 1100 N. Market Street, Wilmington, DE Attn: Corporate Trust
Administration.
"Declaration" has the meaning specified in the Recitals of this
instrument.
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"Defaulted Interest" has the meaning specified in Section 3.07.
"Delaware Trustee" has the meaning given it in the Recitals of this
instrument.
"Depository" has the meaning specified in the Declaration.
"Event of Default" has the meaning specified in Section 5.01.
"Expiration Date" has the meaning specified in Section 1.04(d).
"Extended Interest Payment Period" has the meaning specified in
Section 3.12.
"Global Debenture" has the meaning specified in Section 3.14.
"Guarantee" has the meaning specified in the Recitals to this
instrument.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively.
"Independent Investment Banker" means one of the Reference Treasury
Dealers appointed by the Trustee after consultation with the Company.
"Interest Payment Date" has the meaning specified in Section 3.01.
"Make-Whole Premium" has the meaning specified in Section 11.09.
"Maturity", when used with respect to any Security, means the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
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"Ministerial Action" has the meaning specified in Section 11.10.
"90 Day Period" has the meaning specified in Section 11.10.
"Non Book-Entry Capital Securities" has the meaning specified in
Section 3.14.
"No Recognition Opinion" has the meaning specified in Annex I to the
Declaration.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, the Vice Chairman of the Board, the President or a Vice President,
and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary of the Company, and delivered to the Trustee. One of the officers
signing an Officers' Certificate given pursuant to Section 10.04 shall be the
principal executive, financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be reasonably acceptable to the Trustee.
"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except: (i) Securities theretofore cancelled by the
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Trustee or delivered to the Trustee for cancellation; (ii) Securities for whose
payment or redemption money in the necessary amount has been theretofore
deposited with the Trustee or any Paying Agent (other than the Company) in trust
or set aside and segregated in trust by the Company (if the Company shall act as
its own Paying Agent) for the Holders of such Securities; provided, that if such
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Securities are to be redeemed, notice of such redemption has been duly given
pursuant to this Indenture or provision therefor satisfactory to the Trustee has
been made; and (iii) Securities which have been paid pursuant to Section 3.06,
converted into Common Stock pursuant to Section 13.01, or in exchange for or in
lieu of which other Securities have been authenticated and delivered pursuant to
this Indenture, other than any such Securities in respect of which there shall
have been presented to the Trustee proof satisfactory to it that such Securities
are held by a bona fide purchaser in whose hands such Securities are valid
obligations of the Company; provided, further, that in determining whether the
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Holders of the requisite aggregate liquidation amount of the Securities then
Outstanding have given any request, demand, authorization, direction, notice,
consent or waiver hereunder, Securities
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owned by the Sponsor, any Trustee or any Affiliate of the Sponsor or any Trustee
shall be disregarded and deemed not to be Outstanding, except that (a) in
determining whether any Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Securities which such Trustee knows to be so owned shall be so disregarded and
(b) the foregoing shall not apply at any time when all of the outstanding
Securities are owned by the Sponsor, one or more of the Trustees and/or any such
Affiliate. Securities so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Regular Trustees the pledgee's right so to act with respect to such Securities
and that the pledgee is not the Sponsor or any Affiliate of the Sponsor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of or interest on any Securities on behalf of the Company.
"Person" means any individual, corporation, company, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 3.06 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Property Trustee" has the meaning specified in the Recitals to this
instrument.
"Redemption Date", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price" has the meaning specified in Section 11.09.
"Redemption Tax Opinion" has the meaning set forth in Annex I to the
Declaration.
"Reference Treasury Dealer" means each of Credit Suisse First Boston
Corporation, Morgan Stanley & Co. Incorporated and Merrill Lynch, Pierce, Fenner
& Smith Incorporated and their respective successors; provided, however, that if
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any of the foregoing shall cease to be a primary U.S. Government Securities
dealer in New York City
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(a "Primary Treasury Dealer"), the Company shall substitute therefor another
Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such redemption date.
"Regular Record Date" has the meaning specified in Section 3.01.
"Responsible Officer", when used with respect to the Trustee, means
the chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, any assistant vice
president, the treasurer, any assistant treasurer, any trust officer or
assistant trust officer, the controller or any assistant controller or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above-designated officers and also means, with respect
to an particular corporate trust matter, any other officer to whom such matter
is referred because of his knowledge of and familiarity with the particular
subject.
"Securities" has the meaning specified in the Recitals to this
instrument.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 3.05.
"Senior Indebtedness" means, in respect of the Company, (i) the
principal, premium, if any, and interest in respect of (A) indebtedness of such
obligor for money borrowed and (B) indebtedness evidenced by securities,
debentures, bonds or other similar instruments issued by such obligor, (ii) all
capital lease obligations of such obligor, (iii) all obligations of such obligor
issued or assumed as the deferred purchase price of property, all conditional
sale obligations of such obligor and all obligations of such obligor under any
title retention agreement (but excluding trade accounts payable arising in the
ordinary course of business), (iv) all obligations of such obligor for the
reimbursement of any letter of credit, banker's acceptance, security purchase
facility or similar credit transaction, (v) all obligations of the type referred
to in clauses (i) through (iv) above of other persons for the payment of which
such obligor is responsible or liable
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as obligor, guarantor or otherwise, (vi) all obligations of the type referred to
in clauses (i) though (v) above of other persons secured by any lien on any
property or asset of such obligor (whether or not such obligation is assumed by
such obligor), except for (1) any such indebtedness that is by its terms
subordinated to or pari passu with the Securities and (2) any indebtedness
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(including all other debt securities) initially issued to any other trust, or a
trustee of such trust, partnership or other entity affiliated with the Company
that is, directly or indirectly, a financing vehicle of the Company (a
"Financing Entity") in connection with the issuance by such Financing Entity of
preferred securities or other similar securities and (vii) interest accruing
subsequent to events of bankruptcy of the Company and its subsidiaries at the
rate provided for in the documentation governing such Senior Indebtedness,
whether or not such interest is an allowed claim enforceable against the debtor
in a bankruptcy case under relevant bankruptcy law.
"Significant Subsidiary" means a Subsidiary, including its
Subsidiaries, which meets any of the following conditions (in each case
determined in accordance with generally accepted accounting principles): (i)
the Company's and its other Subsidiaries' investment in and advances to the
Subsidiary exceed ten percent of the total assets of the Company and its
Subsidiaries consolidated as of the end of the most recently completed fiscal
year; (ii) the Company's and its other Subsidiaries' proportionate share of the
total assets (after inter-company eliminations) of the Subsidiary exceeds 10
percent of the total assets of the Company and its Subsidiaries consolidated as
of the end of the most recently completed fiscal year; or (iii) the Company's
and its other Subsidiaries' equity interest in the income from continuing
operations before income taxes, extraordinary items and cumulative effect of a
change in accounting principles of the Subsidiary exceed ten percent of such
income of the Company and its Subsidiaries consolidated for the most recently
completed fiscal year.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 3.07.
"Stated Maturity", when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
in such Security as the fixed date on which the principal, together with any
accrued and unpaid interest (including Compounded Interest), of such Security or
such installment of interest is due and payable (whether the initial such date
or if pursuant to Section 3.01 the Company elects to change or extend the Stated
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Maturity, such later date as is chosen by the Company pursuant to Section 3.01).
"Subsidiary" of any Person means (i) a corporation more than 50% of
the outstanding Voting Stock of which is owned, directly or indirectly, by such
Person or by such Person and one or more Subsidiaries thereof or (ii) any other
Person (other than a corporation) in which such Person, or one or more other
Subsidiaries of such Person or such Person and one or more other Subsidiaries
thereof, directly or indirectly, has at least a majority ownership and power to
direct the policies, management and affairs thereof.
"Tax Event" has the meaning specified in Annex I to the Declaration.
"Tax Event Redemption Price" has the meaning specified in Section
11.10.
"Treasury Rate" means, with respect to any redemption date, the rate
per annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.
"Trust" has the meaning specified in the Recitals to this instrument.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force at the date as of which this instrument was executed; provided, however,
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that in the event the Trust Indenture Act of 1939 is amended after such date,
"Trust Indenture Act" means, to the extent required by any such amendment, the
Trust Indenture Act of 1939 as so amended.
"Trust Securities" means Common Securities and Capital Securities.
"Underwriters" with respect to the Capital Securities means Credit
Suisse First Boston Corporation, Morgan Stanley and Co. Incorporated and Merrill
Lynch, Pierce, Fenner & Smith Incorporated.
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"Underwriting Agreement" has the meaning specified in the Recitals to
this instrument.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
SECTION 1.02. Compliance Certificates and Opinions. Upon any
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application or request by the Company to the Trustee to take any action under
any provision of this Indenture, the Company shall furnish to the Trustee such
certificates and opinions as may be required under the Trust Indenture Act or
reasonably requested by the Trustee in connection with such application or
request. Each such certificate or opinion shall be given in the form of an
Officers' Certificate, if to be given by an officer of the Company, or an
Opinion of Counsel, if to be given by counsel, and shall comply with the
applicable requirements of the Trust Indenture Act and any other applicable
requirement set forth in this Indenture.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made or caused to be made such examination or investigation as is necessary
to enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 1.03. Form of Documents Delivered to Trustee. In any case
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where several matters are required to be certified by, or covered by an opinion
of, any specified Person, it is not necessary that all such matters be certified
by, or covered by the opinion of, only one such Person, or that they be so
certified or covered by only one document, but one such Person may certify or
give an opinion with respect to some matters and one or more other such
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Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.04. Acts of Holders; Record Dates. (a) Any request,
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demand, authorization, direction, notice, consent, waiver or other action
provided by this Indenture to be given to or taken by Holders may be embodied in
and evidenced by one or more instruments of substantially similar tenor signed
by such Holders in person or by an agent duly appointed in writing; and, except
as herein otherwise expressly provided, such action shall become effective when
such instrument or instruments is or are delivered to the Trustee and, where it
is hereby expressly required, to the Company. Such instrument or instruments
(and the action embodied therein and evidenced thereby) are herein sometimes
referred to as the "Act" of the Holders signing such instrument or instruments.
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Proof of execution of any such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Indenture and (subject to
Section 6.01) conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgements of deeds, certifying that the individual signing
such instrument or writing
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acknowledged to him the execution thereof. Where such execution is by a signer
acting in a capacity other than his individual capacity, such certificate or
affidavit shall also constitute sufficient proof of his authority. The fact and
date of the execution of any such instrument or writing, or the authority of the
Person executing the same, may also be proved in any other manner which the
Trustee or the Company, as the case may be, deems sufficient.
(c) The Company may, in the circumstances permitted by the Trust
Indenture Act, fix any day as the record date for the purpose of determining the
Holders of Outstanding Securities entitled to give, make or take any request,
demand, authorization, direction, notice, consent, waiver or other action, or to
vote on any action, authorized or permitted to be given or taken by Holders. If
not set by the Company prior to the first solicitation of a Holder made by any
Person in respect of any such action, or, in the case of any such vote, prior to
such vote, the record date for any such action or vote shall be the 30th day
(or, if later, the date of the most recent list of Holders required to be
provided pursuant to Section 7.01) prior to such first solicitation or vote, as
the case may be. With regard to any record date, only the Holders on such date
(or their duly designated proxies) shall be entitled to give or take, or vote
on, the relevant action.
(d) The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to join in the giving
or making of (i) any notice of default, (ii) any declaration of acceleration
referred to in Section 5.02, (iii) any request to institute proceedings referred
to in Section 5.07(2) or (iv) any direction referred to in Section 5.12. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities on such record date, and no other Holders, shall be entitled to join
in such notice, declaration, request or direction, whether or not such Holders
remain Holders after such record date; provided, that no such action shall be
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effective hereunder unless taken on or prior to the date set by the Trustee by
which any such determination shall be made (the "Expiration Date") by Holders of
the requisite principal amount of Outstanding Securities on such record date.
Nothing in this paragraph shall be construed to prevent the Trustee from setting
a new record date for any action for which a record date has previously been set
pursuant to this paragraph (whereupon the record date previously set shall
automatically and with no action by any Person be cancelled and of no effect),
and nothing in this paragraph shall be construed to render ineffective any
action taken by Holders of the requisite principal amount of Outstanding
Securities of the date such action is taken. Promptly after any record date is
set
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pursuant to this paragraph, the Trustee, at the Company's expense, shall cause
notice of such record date, the proposed action by Holders and the applicable
Expiration Date to be given to the Company in writing and to each Holder of
Securities in the manner set forth in Section 1.06.
(e) The ownership of Securities shall be proved by the Security
Register.
(f) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
(g) Without limiting the foregoing, a Holder entitled hereunder to
give or take any such action with regard to any particular Security may do so
with regard to all or any part of the principal amount of such Security or by
one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any different part of such principal amount.
SECTION 1.05. Notices, Etc., to the Trustee and the Company. Any
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request, demand, authorization, direction, notice, consent, waiver or Act of
Holders or other document provided or permitted by this Indenture to be made
upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: Corporate
Trust Trustee Administration, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of this instrument or at any other address previously
furnished in writing to the Trustee by the Company.
SECTION 1.06. Notice to Holders; Waiver. Where this Indenture
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provides for notice to Holders of any event, such notice shall be sufficiently
given (unless otherwise herein expressly provided) if in writing and mailed,
first-
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class postage prepaid, to each Holder affected by such event, at such Holder's
address as it appears in the Security Register, not later than the latest date
(if any), and not earlier than the earliest date (if any), prescribed for the
giving of such notice. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Any notice when mailed to a Holder in the aforesaid
manner shall be conclusively deemed to have been received by such Holder whether
or not actually received by such Holder. Where this Indenture provides for
notice in any manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute sufficient notification for every purpose hereunder.
SECTION 1.07. Conflict with Trust Indenture Act. If any provision
---------------------------------
hereof limits, qualifies or conflicts with a provision of the Trust Indenture
Act that is required under such Act to be a part of and govern this Indenture,
the latter provision shall control. If any provision of this Indenture modifies
or excludes any provision of the Trust Indenture Act that may be so modified or
excluded, the latter provision shall be deemed to apply to this Indenture as so
modified or to be excluded, as the case may be.
SECTION 1.08. Effect of Headings and Table of Contents. The article
----------------------------------------
and section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.
SECTION 1.09. Successors and Assigns. All covenants and agreements
----------------------
in this Indenture by the Company shall bind its successors and assigns, whether
so expressed or not.
SECTION 1.10. Separability Clause. In case any provision in this
-------------------
Indenture or in the Securities shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
15
<PAGE>
SECTION 1.11. Benefits of Indenture. Nothing in this Indenture or in
---------------------
the Securities, express or implied, shall give to any Person, other than the
parties hereto and their successors hereunder, the holders of Senior
Indebtedness, the holders of Capital Securities (to the extent provided herein)
and the Holders of Securities, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
SECTION 1.12. Governing Law. THIS INDENTURE AND THE SECURITIES SHALL
-------------
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 1.13. Legal Holidays. In any case where any Interest Payment
--------------
Date, Redemption Date or Stated Maturity of any Security shall not be a Business
Day, then (notwithstanding any other provision of this Indenture or of the
Securities) payment of interest or principal or conversion of the Securities
need not be made on such date, but may be made on the next succeeding Business
Day (except that, if such Business Day is in the next succeeding calendar year,
such Interest Payment Date, Redemption Date or Stated Maturity, as the case may
be, shall be the immediately preceding Business Day) with the same force and
effect as if made on the Interest Payment Date or Redemption Date, or at the
Stated Maturity or on such last day for conversion; provided, that no interest
--------
shall accrue for the period from and after such Interest Payment Date,
Redemption Date or Stated Maturity, as the case may be.
ARTICLE II
Security Forms
--------------
SECTION 2.01. Forms Generally. The Securities and the Trustee's
---------------
certificates of authentication shall be substantially in the form of Exhibit A-1
which is hereby incorporated in and expressly made a part of this Indenture.
The Securities may have notations, legends or endorsements required by law,
stock exchange rule, agreements to which the Company is subject, if any, or
usage (provided that any such notation, legend or endorsement is in a form
acceptable to the Company). The Company shall furnish any such legend not
contained in Exhibit A-1 to the Trustee in writing. Each Security shall be
dated the date of its authentication. The terms and provisions of the
Securities set forth in Exhibit A-1 are part of the terms of this Indenture and
to the extent applicable, the Company and the Trustee, by their execution and
delivery of this Indenture, expressly agree to such terms and provisions and to
be bound thereby.
16
<PAGE>
The definitive Securities shall be typewritten or printed,
lithographed or engraved or produced by any combination of these methods on
steel engraved borders or may be produced in any other manner permitted by the
rules of any securities exchange on which the Securities may be listed, all as
determined by the officers executing such Securities, as evidenced by their
execution of such Securities.
ARTICLE III
The Securities
--------------
SECTION 3.01. Title and Terms. The aggregate principal amount of
---------------
Securities that may be authenticated and delivered under this Indenture is
limited to $___________, except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other Securities
pursuant to Section 3.04, 3.05, 3.06, 9.06, 11.08 or 13.01.
The Securities shall be known and designated as the "__% Junior
Subordinated Deferrable Interest Debentures Due 2037" of the Company. Their
initial Stated Maturity shall be ________, 2037. They shall bear interest at
the rate of __% per annum, from ___________, 1997 or from the most recent
Interest Payment Date (as defined below) to which interest has been paid or duly
provided for, as the case may be, payable semi-annually (subject to deferral as
set forth herein), in arrears, on ___________________ and ______________________
(each an "Interest Payment Date") of each year, commencing ________, 1997 until
the principal thereof is paid or made available for payment, and they shall be
paid to the Person in whose name the Security is registered at the close of
business on the regular record date for such interest installment, which shall
be the close of business on the date which is the first day of the month in
which the Interest Payment Date occurs (the "Regular Record Date"). Interest
will compound semi-annually and will accrue to the extent permitted by law at
the rate of __% per annum on any interest installment not paid when due or
during an extension of an interest payment period as set forth in Section 3.12
hereof.
The amount of interest payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months, and for any period of less than
a full calendar month the number of days elapsed in such month. In the event
that any date on which interest is payable on the Securities is not a Business
Day, then payment of interest payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such
17
<PAGE>
Business Day is in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day, in each case with the same force and
effect as if made on such date.
If the Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, then, in any case, the Company
will pay as additional amounts ("Additional Sums") on the Securities, such
additional amounts as may be necessary in order that the amount of distributions
then due and payable by the Trust on the outstanding Capital Securities and
Common Securities shall not be reduced as a result of any additional taxes,
duties or other governmental charges to which the Trust has become subject as a
result of a Tax Event.
The principal of and interest on the Securities shall be payable at
the office or agency of the Company in the United States maintained for such
purpose and at any other office or agency maintained by the Company for such
purpose in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; provided,
--------
however, that at the option of the Company, payment of interest may be made by
- -------
check mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register.
The Securities shall be redeemable as provided in Article XI hereof.
The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article XII hereof.
SECTION 3.02. Denominations. The Securities shall be issuable only
-------------
in registered form without coupons and only in denominations of $1,000 and
integral multiples thereof.
SECTION 3.03. Execution, Authentication, Delivery and Dating. The
----------------------------------------------
Securities shall be executed on behalf of
the Company by its Chairman of the Board, its Vice Chairman of the Board, its
President or one of its Vice Presidents, under its corporate seal reproduced
thereon attested by its Secretary or one of its Assistant Secretaries. The
signature of any of these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
18
<PAGE>
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and make available for delivery such
Securities as in this Indenture provided and not otherwise.
No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder.
SECTION 3.04. Temporary Securities. Pending the preparation of
--------------------
definitive Securities, the Company may execute, and upon Company Order the
Trustee shall authenticate and deliver, temporary Securities which are printed,
lithographed, typewritten, mimeographed or otherwise produced, in any authorized
denomination, substantially of the tenor of the definitive Securities in lieu of
which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Securities may
determine, as evidenced by their execution of such Securities.
Except in the case of temporary Securities in global form, each of
which shall be exchanged in accordance with the provisions thereof, if temporary
Securities are issued, the Company will cause definitive Securities to be
prepared without unreasonable delay. After the preparation of definitive
Securities, the temporary Securities shall be exchangeable for definitive
Securities upon surrender of the temporary Securities at any office or agency of
the Company designated pursuant to Section 10.02, without charge to the Holder.
Upon surrender for cancellation of any one or more temporary Securities, the
Company shall execute and the Trustee shall authenticate and make available for
delivery in exchange therefor a like principal amount of definitive Securities
of authorized denominations. Until so exchanged the temporary Securities shall
in all respects be entitled to the same benefits under this Indenture as
definitive Securities.
19
<PAGE>
SECTION 3.05. Registration, Registration of Transfer and Exchange.
---------------------------------------------------
(a) General. The Company shall cause to be kept at the Corporate Trust Office
-------
of the Trustee a register (the register maintained in such office and in any
other office or agency designated pursuant to Section 10.02 being herein
sometimes collectively referred to as the "Security Register") in which, subject
to such reasonable regulations as it may prescribe, the Company shall provide
for the registration of Securities and of transfers of Securities. The Trustee
is hereby appointed "Security Registrar" for the purpose of registering
Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security (except a
Security in global form) at an office or agency of the Company designated
pursuant to Section 10.02 for such purpose, the Company shall execute, and the
Trustee shall authenticate and deliver, in the name of the designated transferee
or transferees, one or more new Securities of any authorized denominations and
of a like aggregate principal amount.
At the option of the Holder, Securities (except a Security in global
form) may be exchanged for other Securities of any authorized denominations and
of a like aggregate principal amount, upon surrender of the Securities to be
exchanged at such office or agency. Whenever any Securities are so surrendered
for exchange, the Company shall execute, and the Trustee shall authenticate and
make available for delivery, the Securities which the Holder making the exchange
is entitled to receive.
All Securities issued upon registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of
20
<PAGE>
Securities, other than exchanges pursuant to Section 3.04, 9.06 or 11.08 not
involving any transfer.
Neither the Company nor the Trustee shall be required (i) in the case
of a partial redemption of the Securities, to issue, register the transfer of or
exchange any Security during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of Securities
selected for redemption under Section 11.04 and ending at the close of business
on the day of such mailing and (ii) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part.
SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Securities. If
------------------------------------------------
any mutilated Security is surrendered to the Trustee, the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a new
Security of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Security
and (ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of the
notice to the Company or the Trustee that such Security has been acquired by a
bona fide purchaser, the Company shall execute and the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustees) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and shall be entitled to all the
21
<PAGE>
benefits of this Indenture equally and proportionately with any and all other
Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.07. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Holder on the
relevant Regular Record Date by virtue of having been such Holder, and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Security and
the date of the proposed payment, and at the same time the Company shall
deposit with the Trustee for such deposit prior to the date of the proposed
payment, such money when deposited to be held in trust for the benefit of
the Persons entitled to such Defaulted Interest as in this Clause provided.
Thereupon the Trustee shall fix a Special Record Date for the payment of
such Defaulted Interest which shall be not more than 15 days and not less
than 10 days prior to the date of the proposed payment and not less than 10
days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Special
Record Date and, in the name and at the expense of the Company, shall cause
notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor to be mailed, first-class postage prepaid, to each
Holder at his address as it appears in the Security Register, not less than
10 days prior to such Security Record Date. Notice of the proposed payment
of such
22
<PAGE>
Defaulted Interest and the Special Record Date therefor having been so
mailed, such Defaulted Interest shall be paid to the Persons in whose names
the Securities (or their respective Predecessor Securities) are registered
at the close of business on such Special Record Date and shall no longer be
payable pursuant to the following Clause (2).
(2) The Company may take payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and, if so
listed, upon such notice as may be required by such exchange (or by the
Trustee if the Securities are not listed), if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this Clause,
such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue (including, in each such case, Compounded Interest),
which were carried by such other Security.
SECTION 3.08. Persons Deemed Owners. Prior to due presentment of a
---------------------
Security for registration of transfer, the Company, the Trustee and any agent of
the Company or the Trustee may treat the Person in whose name such Security is
registered as the owner of such Security for the purpose of receiving payment of
principal of and (subject to Section 3.07) interest (including Compounded
Interest) on such Security and for all other purposes whatsoever, whether or not
such Security be overdue, and neither the Company, the Trustee nor any agent of
the Company or the Trustee shall be affected by notice to the contrary.
SECTION 3.09. Cancellation. All Securities surrendered for payment,
------------
redemption, registration of transfer or exchange or conversion shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly cancelled by it. The Company may at any time deliver to
the Trustee for cancellation any Securities previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and all Securities so delivered shall be promptly cancelled by the
Trustee. No Securities shall be authenticated in lieu of or in exchange for any
Securities cancelled as provided in this Section, except as expressly permitted
by this Indenture. All cancelled Securities held by the Trustee shall be
disposed of as directed by a Company
23
<PAGE>
Order; provided, however, that the Trustee shall not be required to destroy the
-------- -------
certificates representing such cancelled Securities.
SECTION 3.10. Right of Set Off. Notwithstanding anything to the
----------------
contrary in this Indenture, the Company shall have the right to set off any
payment it is otherwise required to make hereunder to the extent the Company has
theretofore made, or is concurrently on the date of such payment making, a
payment under the Guarantee.
SECTION 3.11. CUSIP Numbers. The Company in issuing the Securities
-------------
may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee
shall use "CUSIP" numbers in notices of redemption as a convenience to Holders;
provided, that any such notice may state that no representation is made as to
- --------
the correctness of such numbers either as printed on the Securities or as
contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in or omission of such numbers.
SECTION 3.12. Extension of Interest Payment Period; Notice of
-----------------------------------------------
Extension. (a) So long as no Event of Default (or an event which would be an
- ---------
Event of Default with the giving of required notice or the passage of time) has
occurred and is continuing, the Company shall have the right, at any time during
the term of the Securities, from time to time to defer payments of interest by
extending for successive periods not exceeding 10 consecutive semi-annual
periods for each such period (an "Extended Interest Payment Period"). To the
extent permitted by applicable law, interest, the payment of which has been
deferred because of the extension of the interest payment period pursuant to
this Section 3.12, will bear interest thereon at __% compounded semi-annually
for each semi-annual period of the Extended Interest Payment Period ("Compounded
Interest"). At the end of the Extended Interest Payment Period, the Company
shall pay all interest and Additional Payments then accrued and unpaid on the
Securities, including any Compounded Interest that shall be payable to the
Holders of the Securities in whose names the Securities are registered in the
Security Register on the first Regular Record Date after the end of the Extended
Interest Payment Period. Before the termination of any Extended Interest
Payment Period, the Company may further extend such period, so long as no Event
of Default (or an event which would be an Event of Default with the giving of
required notice or the passage of time) has occurred and is continuing provided
that such period together with all such further extensions thereof shall not
exceed 10 consecutive semi-annual periods or extend beyond the Maturity of the
Securities. Upon the
24
<PAGE>
termination of any Extended Interest Payment Period and upon the payment of all
interest and Additional Payments then due, the Company may commence a new
Extended Payment Period, subject to the foregoing requirements. No interest
shall be due and payable during an Extended Period except at the end thereof.
(b) If the Property Trustee is the sole holder of the Securities, the
Company shall give the Holder of the Securities and the Trustee notice of its
selection of an Extended Interest Payment Period at least one Business Day prior
to the earlier of (i) the Interest Payment Date or (ii) if the Capital
Securities are listed on the New York Stock Exchange or other stock exchange or
quotation system, the date the Trust is required to give notice to the New York
Stock Exchange or other applicable self-regulatory organization or to holders of
the Capital Securities of the record date or the date such distributions are
payable, but in any event not less than ten Business Days prior to such record
date.
(c) If the Property Trustee is not the sole holder of the Securities,
the Company shall give the Holders of the Securities and the Trustee notice of
its selection of an Extended Interest Payment Period at least ten Business Days
prior to the earlier of (i) the Interest Payment Date or (ii) if the Capital
Securities are listed on the New York Stock Exchange or other stock exchange or
quotation system, the date the Trust is required to give notice to the New York
Stock Exchange or other applicable self-regulatory organization or to holders of
the Securities of the record date or the date such distributions are payable,
but in any event not less than two Business Days prior to such record date.
(d) The quarter in which any notice is given pursuant to paragraphs
(b) and (c) hereof shall be counted as one of the 10 semi-annual periods
permitted in the maximum Extended Interest Payment Period permitted under
paragraph (a) hereof.
SECTION 3.13. Paying Agent and Security Registrar. The Trustee will
-----------------------------------
initially act as Paying Agent and Security Registrar. The Company may change
any Paying Agent, Security Registrar or co-registrar without prior notice. The
Company or any of its Affiliates may act in any such capacity.
SECTION 3.14. Global Debenture.
----------------
(a) In connection with a distribution of the Securities to holders of
the Trust Securities pursuant to the Declaration:
25
<PAGE>
(i) The Securities in certificated form to be distributed to the
holders of Capital Securities may be presented to the Trustee by the Property
Trustee in exchange for a global Security in an aggregate principal amount equal
to the aggregate principal amount of all Outstanding Securities (a "Global
Debenture"), to be registered in the name of the Depository, or its nominee, and
delivered by the Trustee to the Depositary for crediting to the accounts of its
participants pursuant to the instructions of the Regular Trustees (as defined in
the Declaration). The Company upon any such presentation shall execute a Global
Debenture in such aggregate principal amount and deliver the same to the Trustee
for authentication and delivery in accordance with this Indenture. Payments on
the Securities issued as a Global Debenture will be made to the Depository.
(ii) If any Capital Securities are held in non book-entry certificated
form, the Securities in certificated form may be presented to the Trustee by the
Property Trustee and any Capital Security certificate which represents Capital
Securities other than Capital Securities held by the Depository or its nominee
("Non Book-Entry Capital Securities") will be deemed to represent beneficial
interests in Securities presented to the Trustee by the Property Trustee having
an aggregate principal amount equal to the aggregate principal amount of the Non
Book-Entry Capital Securities until such Capital Security certificates are
presented to the Security Registrar for transfer or reissuance at which time
such Capital Security certificates will be canceled and a Debenture, registered
in the name of the holder of the Capital Security certificate or the transferee
of the holder of such Capital Security certificates, as the case may be, with an
aggregate principal amount of, with an interest rate identical to the
distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid distributions, on the Capital Security certificate canceled, will be
executed by the Company and delivered to the Trustee for authentication and
delivery in accordance with this Indenture. On issue of such Securities,
Securities with an equivalent aggregate principal amount that were presented by
the Property Trustee to the Trustee will be deemed to have been canceled.
(b) Unless and until it is exchanged for Debentures in registered
certificate form, a Global Debenture may be transferred, in whole but not in
part, only by the Depository to a nominee of the Depository or by a nominee of
the Depository to the Depository or another nominee of the Depository or by the
Depository or any such nominee to a successor Depository selected or approved by
the Company or a nominee of such successor Depository.
26
<PAGE>
(c) If at any time the Depository for the Debentures notifies the
Company that it is unwilling or unable to continue as Depository for the
Debentures or if at any time the Depository for the Debentures shall no longer
be registered or in good standing as a clearing agency under the Securities
Exchange Act of 1934, as amended, or other applicable statute or regulation, at
a time at which the Depository is required to be so registered to act as
Depository for the Debentures, and a successor Depository is not appointed by
the Company within 90 days after the Company receives such notice or becomes
aware of such condition, as the case may be, the Company will execute, and,
subject to this Indenture, the Trustee, upon written notice from the Company,
will authenticate and deliver the Debentures in definitive registered form
without coupons, in authorized denominations, and in the aggregate principal
amount equal to the principal amount of the Global Debenture in exchange for
such Global Debenture. In addition, the Company, in its sole discretion, may at
any time determine that the Debentures shall no longer be represented by a
Global Debenture. In such event the Company will execute, and subject to this
Indenture, the Trustee, upon receipt of an Officers' Certificate evidencing such
determination by the Company, will authenticate and deliver the Debentures in
definitive registered form without coupons, in authorized denominations, and in
aggregate principal amount equal to the principal amount of the Global Debenture
in exchange for such Global Debenture. Upon the exchange of the Global
Debenture for such Debentures in definitive registered form without coupons, in
authorized denominations, the Global Debenture shall be canceled by the Trustee.
Such Debentures in definitive registered form issued in exchange for the Global
Debenture shall be registered in such names and in such authorized denominations
as the Depository, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee in writing. The Trustee
shall deliver such registered certificated Debentures in definitive form in
exchange for the Global Debenture to the Depository for delivery to the Persons
in whose names such Debentures are so registered.
SECTION 3.15. Agreed Tax Treatment. Each Security issued hereunder
--------------------
shall provide that the Company and, by its acceptance of a Security or a
beneficial interest therein, the Holder of, and any Person that acquires a
beneficial interest in, such Security agree that for United States federal,
state and local tax purposes it is intended that such Security constitute
indebtedness.
ARTICLE IV
Satisfaction and Discharge
--------------------------
27
<PAGE>
SECTION 4.01. Satisfaction and Discharge of Indenture. This
---------------------------------------
Indenture shall cease to be of further effect (except as to any surviving rights
of registration of transfer or exchange of Securities herein expressly provided
for), and the Trustee, on demand of and at the expense of the Company, shall
execute proper instruments acknowledging satisfaction and discharge of this
Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered (other
than (i) Securities which have been mutilated, destroyed, lost or
stolen and which have been replaced or paid as provided in Section
3.06 and (ii) Securities for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust, as
provided in Section 10.03) have been delivered to the Trustee for
cancellation; or
(B) all such Securities not theretofore delivered to the Trustee
for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one
year under arrangements satisfactory to the Trustee for the
giving of notice of redemption by the Trustee in the name, and at
the expense, of the Company
and the Company, in the case of (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee as trust funds in
trust for the purpose an amount sufficient to pay and discharge the
entire indebtedness on such Securities not theretofore delivered to
the Trustee for cancellation, for principal and interest (including
Compounded Interest) to the date of such deposit (in the case of
Securities which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officer's Certificate
and an Opinion of Counsel, each
28
<PAGE>
stating that all conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.07 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of
this Section, the obligations of the Trustee under Section 4.02 and the last
paragraph of Section 10.03 shall survive.
SECTION 4.02. Applications of Trust Money. Subject to the provisions
---------------------------
of the last paragraph of Section 10.03, all money deposited with the Trustee
pursuant to Section 4.01 shall be held in trust and applied by it, in accordance
with the provisions of the Securities and this Indenture, to the payment, either
directly or through any Paying Agent (including the Company acting as its own
Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of
the principal and interest for whose payment such money has been deposited with
the Trustee. All moneys deposited with the Trustee pursuant to Section 4.01
(and held by it or any Paying Agent) for the payment of Securities subsequently
converted shall be returned to the Company upon Company request.
ARTICLE V
Remedies
--------
SECTION 5.01. Events of Default. "Event of Default," wherever used
-----------------
herein, means any one of the following events that has occurred and is
continuing (whatever the reason for such Event of Default and whether it shall
be occasioned by the provisions of Article XII or be voluntary or involuntary or
be effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or governmental
body):
(1) default in the payment of the principal of (or premium, if any,
on) any Security when due whether at Maturity, upon redemption, by
declaration or otherwise; or
(2) default in the payment of any interest upon any Security,
including any Compounded Interest in respect thereof, when it becomes due
and payable, and continuance of such default for a period of 30 days;
provided, that a valid extension of the interest payment period by the
--------
Company pursuant to this
29
<PAGE>
Indenture shall not constitute a default in the payment of interest for
this purpose; or
(3) default in the performance, or breach, of any covenant or warranty
of the Company in this Indenture (other than a default in whose performance
or whose breach is elsewhere in this Section specifically dealt with), and
continuance of such default or breach for a period of 90 days after there
has been given, by registered or certified mail, to the Company by the
Trustee or to the Company and the Trustee by the Holders of at least 25% in
principal amount of the Outstanding Securities, a written notice specifying
such default or breach and requiring it to be remedied and stating that
such notice is a "Notice of Default" hereunder; or
(4) entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under any applicable
Federal or state bankruptcy, insolvency, reorganization or other similar
law or (B) a decree or order adjudging the Company or any Significant
Subsidiary a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition of
or in respect of the Company or any Significant Subsidiary under any
applicable Federal or state law, or appointing a custodian, receiver,
liquidator, assignee, trustee, rehabilitator, sequestrator or other similar
official of the Company, or any Significant Subsidiary or ordering the
winding up or liquidation of the Company's or any Significant Subsidiary's
affairs, and the continuance of any such decree or order for relief or any
such other decree or order unstayed and in effect for a period of 60
consecutive days; or
(5) the commencement by the Company or any Significant Subsidiary of a
voluntary case or proceeding under any applicable Federal or state
bankruptcy, insolvency, reorganization or other similar law or of any other
case or proceeding to be adjudicated as bankrupt or insolvent, or the
consent by the Company or any Significant Subsidiary or to the entry of a
decree or order for relief in respect of itself in an involuntary case or
proceeding under any applicable Federal or state bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against the Company or any
Significant Subsidiary, or the filing by the Company or any Significant
Subsidiary of a petition or answer or
30
<PAGE>
consent seeking reorganization or relief under any applicable Federal or
state law, or the consent by the Company or any Significant Subsidiary to
the filing of such petition or to the appointment of or taking possession
by a custodian, receiver, liquidator, assignee, trustee, rehabilitator,
sequestrator or other similar official of the Company or any Significant
Subsidiary or of substantially all of the property of the Company or any
Significant Subsidiary, or the making by the Company or any Significant
Subsidiary of an assignment for the benefit of creditors, or the admission
by the Company or any Significant Subsidiary in writing of its inability to
pay its debts generally as they become due, or the taking of corporate
action by the Company or any Significant Subsidiary in furtherance of any
such action; or
(6) the voluntary or involuntary dissolution, winding up or
termination of the Trust, except in connection with (i) the distribution of
Securities to holders of Capital Securities in liquidation or redemption of
their interests in the Trust, (ii) the redemption of all of the outstanding
Capital Securities of the Trust or (iii) certain mergers, consolidations or
amalgamations, each as permitted by the Declaration.
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment. If
--------------------------------------------------
an Event of Default occurs and is continuing, then and in every such case, the
Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities may declare the principal of all the Securities and any
other amounts payable hereunder (including any Additional Sums) to be due and
payable immediately, by a notice in writing to the Company (and to the Trustee
if given by Holders); provided, that, if the Property Trustee is the sole Holder
--------
of the Securities and if upon an Event of Default, the Trustee or the Holders of
not less than 25% in principal amount of the Outstanding Securities fail to
declare the principal of all the Securities to be due and payable, the holders
of at least 25% in aggregate liquidation amount of Capital Securities then
outstanding shall have such right by a notice in writing to the Company and the
Trustee; and upon any such declaration such principal and all accrued interest
shall become due and payable; provided, that the payment of principal, premium,
--------
if any, and interest on such Securities shall remain subordinated to the extent
provided in Article XII. If an Event of Default specified in any one of
Sections 5.01(5)-(7) occurs, all unpaid principal and accrued interest on the
Outstanding Securities shall become and be immediately due and payable without
any declaration or other act on the part of the Trustee, the Property Trustee,
any Holder or any holder of Capital Securities.
31
<PAGE>
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as provided in this Article hereinafter, the Holders of a majority
in aggregate principal amount of the Outstanding Securities, by written notice
to the Company and the Trustee, may rescind and annul such declaration and its
consequences if:
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all over due interest (including all Additional Payments) on
all Securities,
(B) the principal of any Securities which have become due
otherwise than by such declaration of acceleration and interest
thereon at the rate borne by the Securities, and applicable premium,
if any, and
(C) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
and
(2) all Events of Default, other than the non-payment of the principal
of Securities which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 5.13.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee. The Company covenants that if
- -------
(1) default is made in the payment of any interest (including any
Additional Payments) on any Security when such interest becomes due and
payable and such default continues for a period of 30 days, or
(2) default is made in the payment of the principal or premium, if
any, of any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal, premium, if any, and interest (including any
32
<PAGE>
Additional Payments) and, to the extent that payment thereof shall be legally
enforceable, interest on any overdue principal or premium, if any, and on any
overdue interest (including any Additional Payments), at the rate borne by the
Securities, and, in addition thereto, all amounts owing to the Trustee under
Section 6.07.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 5.04. Trustee May File Proofs of Claim. In case of any
--------------------------------
judicial proceeding relative to the Company (or any other obligor upon the
Securities), its property or its creditors, the Trustee shall be entitled and
empowered, by intervention in such proceeding or otherwise, to take any and all
actions authorized under the Trust Indenture Act in order to have claims of the
Holders and the Trustee allowed in any such proceeding. In particular, the
Trustee shall be authorized to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same; and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due it, and any predecessor Trustee, under Section 6.07.
No provision of this Indenture shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt an behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 5.05. Trustee May Enforce Claims Without Possession of
------------------------------------------------
Securities. All rights of action and claims under this Indenture or the
- ----------
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name as trustee of an express trust, and any recovery of judgment shall,
after provision for the payment of all the amounts owing to the Trustee and any
predecessor Trustee under Section 6.07 the
33
<PAGE>
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, be for the ratable benefit of the Holders of the
Securities in respect of which such judgment has been recovered.
SECTION 5.06. Application of Money Collected. Subject to Article XII,
------------------------------
any money collected by the Trustee pursuant to this article shall be applied in
the following order, at the date or dates fixed by the Trustee and, in case of
the distribution of such money on account of principal or interest (including
any Additional Payments), upon presentation of the Securities and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the Trustee and any
predecessor Trustee under Section 6.07;
SECOND: To the payment of the amounts then due and unpaid for
principal and premium, if any, (including any Additional Payments) on the
Securities in respect of which or for the benefit of which such money has
been collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for principal
and premium, if any, and interest (including any Additional Payments)
respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
SECTION 5.07. Limitation on Suits. Subject to Section 5.08, no
-------------------
Holder of any Security shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of not less than 25% in aggregate principal amount of
the Outstanding Securities shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
34
<PAGE>
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 5.08. Unconditional Right of Holders to Receive Principal and
-------------------------------------------------------
Interest. Notwithstanding any other provision in this Indenture, the Holder of
- --------
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of and (subject to Section 3.07) interest
(including any Additional Payments) and premium, if any, on such Security on the
respective Stated Maturities expressed in such Security (or, in the case of
redemption, on the Redemption Date) and to institute suit for the enforcement of
any such payment, and such rights shall not be impaired without the consent of
such Holder. If the Property Trustee is the sole Holder of the Securities, any
holder of the Capital Securities shall have the right to institute suit on
behalf of the Trust for the enforcement of any such payment.
SECTION 5.09. Restoration of Rights and Remedies. If the Trustee or
----------------------------------
any Holder has instituted any proceeding to enforce any right or remedy under
this Indenture and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to the Trustee or to such Holder, then
and in every such case, subject to any determination in such proceeding, the
Company, the Trustee and the Holders shall be restored severally and
respectively to their former positions hereunder and thereafter all rights and
remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
SECTION 5.10. Rights and Remedies Cumulative. Except as otherwise
------------------------------
provided with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Securities in the last paragraph of Section 3.06, no right or
remedy herein conferred upon or reserved to the Trustee or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the
35
<PAGE>
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 5.11. Delay or Omission Not Waiver. No delay or omission of
----------------------------
the Trustee or of any Holder of any Security to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this article or by law to the Trustee or to the
Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
SECTION 5.12. Control by Holders. The Holders of a majority in
------------------
principal amount of the Outstanding Securities shall have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Trustee or exercising any trust or power conferred on the Trustee;
provided, that
- --------
(1) such direction shall not be in conflict with any rule of law or
with this Indenture; and
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
SECTION 5.13. Waiver of Past Defaults. Subject to Section 9.02
-----------------------
hereof, the Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences, except a default
(1) in the payment of the principal of, premium, if any, or interest
(including any Additional Payments) on any Security (unless such default
has been cured and a sum sufficient to make all such payments due otherwise
than by acceleration has been deposited with the Trustee); or
(2) in respect of a covenant or provision hereof which under Article
IX cannot be modified or amended without the consent of the Holder of each
Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be
36
<PAGE>
deemed to have been cured, for every purpose of this Indenture; but no such
waiver shall extend to any subsequent or other default or impair any right
consequent thereon.
SECTION 5.14. Undertaking for Costs. In any suit for the enforcement
---------------------
of any right or remedy under this Indenture, or in any suit against the Trustee
for any action taken, suffered or omitted by it as Trustee, a court may require
any party litigant in such suit to file an undertaking to pay the costs of such
suit, and may assess costs against any such party litigant, in the manner and to
the extent provided in the Trust Indenture Act; provided, that neither this
--------
Section nor the Trust Indenture Act shall be deemed to authorize any court to
require such an undertaking or to make such an assessment in any suit instituted
by the Company or the Trustee or in any suit for the enforcement of the right to
receive the principal of and interest (including any Additional Payments) and
premium, if any, on any Security.
SECTION 5.15. Waiver of Stay or Extension Laws. The Company covenants
--------------------------------
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of this
Indenture; and the Company (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
SECTION 5.16. Enforcement by Holders of Capital Securities.
--------------------------------------------
Notwithstanding anything to the contrary contained herein and in addition to any
other rights of the holders of the Capital Securities provided herein or in the
Declaration, if the Property Trustee fails to enforce its rights under the
Securities, any holder may institute any legal proceeding directly against the
Company to enforce the Property Trustee's rights, as Holder of the Securities,
without first instituting any legal proceeding against the Property Trustee or
any other Person.
37
<PAGE>
ARTICLE VI
The Trustee
-----------
SECTION 6.01. Certain Duties and Responsibilities. (a) Except
-----------------------------------
during the continuance of an Event of Default, the Trustee undertakes to perform
such duties and only such duties as are specifically set forth in this
Indenture, and no implied covenants or obligations shall be read into this
Indenture against the Trustee.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(c) Notwithstanding the foregoing, (i) the duties and
responsibilities of the Trustee shall be as provided by the Trust Indenture Act
and (ii) no provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it. Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section.
SECTION 6.02. Notice of Defaults. The Trustee shall give the Holders
------------------
notice of any default hereunder as and to the extent provided by the Trust
Indenture Act. For the purpose of this Section, the term "default" means any
event which is, or after notice or lapse of time or both would become, an Event
of Default.
SECTION 6.03. Certain Rights of Trustee. Subject to the provisions
-------------------------
of Section 6.01:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
38
<PAGE>
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel of its choice and the advice
of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may take such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to reasonable examination of the books, records and
premises of the Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with the due care
by it hereunder; and
(h) the Trustee shall not be liable for any action taken, suffered,
or omitted to be taken by it in
39
<PAGE>
good faith, without negligence or willful misconduct, and reasonably
believed by it to be authorized or within the discretion or rights or
powers conferred upon it by this Indenture.
SECTION 6.04. Not Responsible for Recitals or Issuance of Securities.
------------------------------------------------------
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
of the Securities. The Trustee shall not be accountable for the use or
application by the Company of the Securities or the proceeds thereof.
SECTION 6.05. May Hold Securities. The Trustee, any Paying Agent,
-------------------
any Security Registrar or any other agent of the Company, in its individual or
any other capacity, may become the owner or pledgee of Securities and, subject
to Sections 6.08 and 6.13, may otherwise deal with the Company with the same
rights it would have if it were not Trustee, Paying Agent, Security Registrar,
or such other agent.
SECTION 6.06. Money Held in Trust. Money held by the Trustee in
-------------------
trust hereunder need not be segregated from other funds except to the extent
required by law. The Trustee shall be under no liability for interest on any
money received by it hereunder except as otherwise agreed with the Company.
SECTION 6.07. Compensation and Reimbursement. The Company agrees:
------------------------------
(1) to pay to the Trustee from time to time such reasonable
compensation as the Company and the Trustee shall from time to time agree
in writing for all services rendered by it hereunder (which compensation
shall not be limited by any provision of law in regard to the compensation
of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, fees, disbursements
and advances incurred or made by the Trustee in accordance with any
provision of this Indenture (including the reasonable compensation and the
expenses and disbursements of its agents and counsel), except any such
expense, disbursement or advance as may be attributable to its negligence
or bad faith; and
(3) to indemnify the Trustee and any predecessor Trustee for, and to
hold it harmless against, any loss,
40
<PAGE>
liability or expense incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of
this trust, including the costs and expenses of defending itself against
any claim or liability in connection with the exercise or performance of
any of its powers or duties hereunder.
SECTION 6.08. Disqualification; Conflicting Interests. If the
---------------------------------------
Trustee has or shall acquire a conflicting interest within the meaning of the
Trust Indenture Act, the Trustee shall either eliminate such interest or resign,
to the extent and in the manner provided by, and subject to the provisions of,
the Trust Indenture Act and this Indenture.
SECTION 6.09. Corporate Trustee Required; Eligibility. There shall
---------------------------------------
at all times be a Trustee hereunder which shall be a Person that is eligible
pursuant to the Trust Indenture Act to act as such and has a combined capital
and surplus of at least $50,000,000 and has its Corporate Trust Office in New
York, New York. If such Person publishes reports of condition at least
annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purpose of this Section, the combined capital
and surplus of such Person shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
SECTION 6.10. Resignation and Removal; Appointment of Successor. (a)
-------------------------------------------------
No resignation or removal of the Trustee and no appointment of a successor
Trustee pursuant to this Article shall become effect until the acceptance of
appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 30 days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities, delivered to the
Trustee and to the Company. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within
41
<PAGE>
30 days after the giving of such notice of resignation, the resigning Trustee
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 6.08 after written
request therefor by the Company or by any Holder who has been a bona fide
Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 6.09 and
shall fail to resign after written request therefor by the Company or by
any such Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or if its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company may remove the Trustee, or (ii) subject
to Section 5.14, any Holder who has been a bona fide Holder of a Security for at
least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Holders and accepted appointment in the manner hereinafter provided, any Holder
who has been a bona fide Holder of a Security for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
42
<PAGE>
(f) The Company shall give written notice of each resignation and
each removal of the Trustee and each appointment of a successor Trustee to all
Holders in the manner provided in Section 1.06. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 6.11. Acceptance of Appointment by Successor. Every
--------------------------------------
successor Trustee appointed hereunder shall execute, acknowledge and deliver to
the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; provided, that on request of the Company or the
--------
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee,
the Company shall execute any and all instruments required to more fully and
certainly vest in and confirm to such successor Trustee all such rights, powers
and trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 6.12. Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business. Any corporation into which the Trustee may be merged or converted or
- --------
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In the case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
SECTION 6.13. Preferential Collection of Claims Against Company. If
-------------------------------------------------
and when the Trustee shall be or become a creditor of the Company (or any other
obligor upon the
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Securities), the Trustee shall be subject to the provisions of the Trust
Indenture Act regarding the collection of claims against the Company (or any
such other obligor).
ARTICLE VII
Holders' Lists and Reports by Trustee and Company
-------------------------------------------------
SECTION 7.01. Company to Furnish Trustee Names and Addresses of
-------------------------------------------------
Holders. The Company will furnish or cause to be furnished to the Trustee
- -------
(a) semiannually, not later than February 15 and August 15 in each
year, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of the date not more than 15 days
prior to the delivery thereof, and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the
time such list is furnished;
excluding from any such list names and addresses received by the Trustee in its
- ---------
capacity as Security Registrar.
SECTION 7.02. Preservation of Information; Communications to Holders.
------------------------------------------------------
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.01 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.01 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of Holders made pursuant to
the Trust Indenture Act.
SECTION 7.03. Reports by Trustee. (a) Within 60 days after May 15
------------------
of each year, commencing May 15, 1997,
44
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the Trustee shall transmit by first-class mail to Holders such reports
concerning the Trustee and its actions under this Indenture as may be required
pursuant to the Trust Indenture Act in the manner provided pursuant thereto.
(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange upon
which the Securities are listed, with the Commission and with the Company. The
Company will notify the Trustee when the Securities are listed on any stock
exchange.
SECTION 7.04. Reports by Company. The Company shall file with the
------------------
Trustee and the Commission, and transmit to Holders, such information, documents
and other reports, and such summaries thereof, as may be required pursuant to
the Trust Indenture Act at the times and in the manner provided pursuant to such
Act; provided, that any such information, documents or reports required to be
--------
filed with the Commission pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 shall be filed with the Trustee within 15 days after the
same is so required to be filed with the Commission.
Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 7.05. Tax Reporting. The Company shall provide to the
-------------
Trustee on a timely basis such information as the Trustee requires to enable the
Trustee to prepare and file any form required to be submitted by the Company
with the Internal Revenue Service and the Holders relating to original issue
discount, including, without limitation, Form 1099-OID or any successor form.
ARTICLE VIII
Consolidation, Merger, Conveyance, Transfer or Lease
----------------------------------------------------
SECTION 8.01. Company May Consolidate, Etc., Only on Certain Terms.
----------------------------------------------------
The Company shall not consolidate with or merge with or into any other Person
or, directly or indirectly, convey, transfer or lease all or substantially all
of its properties and assets on a consolidated basis to any Person, unless:
45
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(1) in case the Company shall consolidate with or merge with or into
another Person or convey, transfer or lease all or substantially all of its
properties and assets on a consolidated basis to any Person, the Person
formed by such consolidation or into which the Company is merged or the
Person which acquires by conveyance, transfer or lease all or substantially
all of the properties and assets of the Company on a consolidated basis
shall be a corporation, partnership or trust, shall be organized and
validly existing under the laws of the United States of America, any State
thereof or the District of Columbia and shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the Trustee, in
form reasonably satisfactory to the Trustee, the due and punctual payment
of the principal of and interest (including any Additional Payments) on all
the Securities and the performance or observance of every covenant of this
Indenture on the part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction and treating
any indebtedness which becomes an obligation of the Company or a Subsidiary
as a result of such transaction as having been incurred by the Company or
such Subsidiary at the time of such transaction, no Event of Default, and
no event which, after notice or lapse of time or both, would become an
Event of Default, shall have happened and be continuing;
(3) such consolidation or merger or conveyance, transfer or lease of
assets of the Company is permitted under, and does not give rise to any
breach or violation of, the Declaration or the Guarantee; and
(4) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease and, if a supplemental indenture is required
in connection with such transaction, such supplemental indenture, comply
with this Article and that all conditions precedent herein provided for
relating to such transaction have been complied with.
SECTION 8.02. Successor Substituted. Upon any consolidation of the
---------------------
Company with, or merger of the Company into, any other Person or any conveyance,
transfer or lease of all or substantially all the properties and assets of the
Company on a consolidated basis in accordance with Section 8.01, the successor
Person formed by such consolidation or into which the Company is merged or to
which such conveyance, transfer or lease is made shall succeed to, and
46
<PAGE>
be substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor Person had been named
as the Company herein, and thereafter, except in the case of a lease, the
predecessor Person shall be relieved of al obligations and covenants under this
Indenture and the Securities.
ARTICLE IX
Supplemental Indentures
-----------------------
SECTION 9.01. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holders, the Company, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the Trustee
for any of the following purposes:
(1) to evidence the succession or another Person to the Company and
the assumption by any such successor of the covenants of the Company herein
and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Company; or
(3) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture which shall not be inconsistent with the provisions of
this Indenture; provided, that such action pursuant to this clause (3)
--------
shall not adversely affect the interest of the Holders of the Securities
or, so long as any of the Capital Securities shall remain outstanding, the
holders of the Capital Securities; or
(4) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust
Indenture Act; or
(5) to make any other change that does not adversely affect the
rights of any Holder or any holder of Capital Securities (so long as any
are outstanding).
SECTION 9.02. Supplemental Indentures with Consent of Holders. With
-----------------------------------------------
the consent of the Holders of not less than a majority in principal amount of
the Outstanding
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Securities, by Act of said Holders delivered to the Company and the Trustee, the
Company, when authorized by a Board Resolution, and the Trustee may enter into
an indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the Holders under
this Indenture; provided, however, that no such supplemental indenture shall,
-------- -------
without the consent of the Holder of each Outstanding Security affected thereby,
(1) extend the Stated Maturity of the principal of, or any
installment of interest (including any Additional Payments) or premium, if
any, on, any Security, or reduce the principal amount thereof, or reduce
the rate or extend the time for payment of interest thereon, or reduce any
premium payable upon the redemption thereof, or change the place of payment
where, or the coin or currency in which, any Security or interest or
premium, if any, thereon is payable, or impair the right to institute suit
for the enforcement of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption, on or after the Redemption Date),
or modify the provisions of this Indenture with respect to the
subordination of the Securities in a manner adverse to the Holders,
(2) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences provided for in this Indenture,
or
(3) modify any of the provisions of this Section or Section 5.13,
except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security affected thereby.
Notwithstanding anything to the contrary in this Indenture or the
Declaration, if the Property Trustee is the sole holder of the Securities, so
long as any of the Capital Securities remains outstanding, no amendment shall be
made that adversely affects the holders of such Capital Securities, and no
termination of this Indenture shall occur, and no waiver of any Event of Default
or compliance with any covenant under this Indenture shall be effective, without
the prior consent of the holders of the percentage of the aggregate liquidation
amount of such Capital Securities then outstanding which is at least equal to
the
48
<PAGE>
percentage of aggregate stated liquidation preference of the Outstanding
Securities as shall be required under this Indenture to effect any such
amendment, termination or waiver.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Persons entitled to consent to any indenture
supplemental hereto. If a record date is fixed, the Holders on such record
date, or their duly designated proxies, and only such Persons, shall be entitled
to consent to such supplemental indenture, whether or not such Holders remain
Holders after such record date; provided, that unless such consent shall have
--------
become effective by virtue of the requisite percentage having been obtained
prior to the date which is 90 day after such record date, any such consent
previously given shall automatically and without further action by any Holder be
canceled and of no further effect.
SECTION 9.03. Execution of Supplemental Indentures. In executing, or
------------------------------------
accepting the additional trusts created by, any supplemental indenture permitted
by this Article or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Section
6.01) shall be fully protected in relying upon, an Opinion of Counsel stating
that the execution of such supplemental indenture is authorized or permitted by
this Indenture. The Trustee may, but shall not be obligated to, enter into any
such supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
SECTION 9.04. Effect of Supplemental Indentures. Upon the execution
---------------------------------
of any supplemental indenture under this Article, this Indenture shall be
modified in accordance therewith, and such supplemental indenture shall form a
part of this Indenture for all purposes; and every Holder of Securities
theretofore or thereafter authenticated and delivered hereunder shall be bound
thereby. No such supplemental indenture shall directly or indirectly modify the
provisions of Article XII in any manner which might terminate or impair the
rights of the Senior Indebtedness pursuant to such subordination provisions.
SECTION 9.05. Conformity with Trust Indenture Act. Every
-----------------------------------
supplemental indenture executed pursuant to this
49
<PAGE>
Article shall conform to the requirements of the Trust Indenture Act.
SECTION 9.06. Reference in Securities to Supplemental Indentures.
--------------------------------------------------
Securities authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may, and shall if required by the Trustee,
bear a notation in form approved by the Trustee as to any matter provided for in
such supplemental indenture. If the Company shall so determine, new Securities
so modified as to conform, in the opinion of the Trustee and the Company, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding
Securities.
ARTICLE X
Covenants; Representations and Warranties
-----------------------------------------
SECTION 10.01. Payment of Principal and Interest. The Company will
---------------------------------
duly and punctually pay the principal of and interest on the Securities in
accordance with the terms of the Securities and this Indenture.
SECTION 10.02. Maintenance of Office or Agency. The Company will
-------------------------------
maintain in the United States an office or agency where Securities may be
presented or surrendered for payment, where Securities may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Securities and this Indenture may be served. The
Company will give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, and the Company hereby appoints the Trustee as its agent to receive all
such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in the United States) where the Securities may be presented
or surrendered for any or all such purposes and may from time to time rescind
such designations; provided, however, that no such designation or rescission
-------- -------
shall in any manner relieve the Company of its obligation to maintain an office
or agency in the United States for such purposes. The Company will give prompt
written notice to the Trustee of any such designation or
50
<PAGE>
rescission and of any change in the location of any such other office or agency.
SECTION 10.03. Money for Security Payments to Be Held in Trust. If
-----------------------------------------------
the Company shall at any time act as its own Paying Agent, it will, on or before
each due date of the principal of or interest on any of the Securities,
segregate and hold in trust for the benefit of the Persons entitled thereto a
sum sufficient to pay the principal or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided and
will promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will,
prior to each due date of the principal or interest on any Securities, deposit
with a Paying Agent a sum sufficient to pay the principal, premium, if any, or
interest so becoming due, such sum to be held as provided by the Trust Indenture
Act, and (unless such Paying Agent is the Trustee) the Company will promptly
notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will (i) comply with the provisions of the Trust Indenture Act
applicable to it as a Paying Agent and (ii) during the continuance of any
default by the Company (or any other obligor upon the Securities) in the making
of any payment in respect of the Securities, upon the written request of the
Trustee, forthwith pay to the Trustee all sums held in trust by such Paying
Agent as such.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of or interest or
premium, if any, on any Security and remaining unclaimed for two years after
such principal or interest or premium, if any, has become due and payable shall
be paid to the Company on Company Request, or (if then held by the Company)
shall be discharged from such
51
<PAGE>
trust; and the Holder of any such Security shall thereafter, as an unsecured
general creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease.
SECTION 10.04. Statement by Officers as to Default. The Company will
-----------------------------------
deliver to the Trustee and the Property Trustee, within 120 days after the end
of each fiscal year of the Company ending after the date hereof, an Officers'
Certificate, stating whether or not to the best knowledge of the signers thereof
the Company is in default in the performance and observance of any of the
material terms, provisions and conditions of this Indenture (without regard to
any period of grace or requirement of notice provided hereunder) and, if the
Company shall be in default, specifying all such defaults and the nature and
status thereof of which they may have knowledge.
SECTION 10.05. Limitation on Dividends; Transactions with Affiliates;
------------------------------------------------------
Covenants as to the Trust. (a) The Company covenants that the Company (i)
- -------------------------
shall not declare or pay dividends on, make distributions with respect to, or
redeem, purchase or acquire, or make a liquidation payment with respect to, any
of its capital stock (other than stock dividends paid by the Company which
consist of stock of the same class as that on which the dividend is being paid),
(ii) shall not make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities issued by the Company that rank
pari passu with or junior to the Securities, and (iii) shall not make any
guarantee payments with respect to the foregoing (other than pursuant to the
Guarantee), in each case if at such time (i) there shall have occurred any event
that with the giving of notice or the lapse of time or both, would constitute an
Event of Default hereunder, (ii) the Company shall be in default with respect to
its payment of any obligations under the Guarantee or (iii) the Company shall
have given notice of its selection of an Extended Interest Payment Period as
provided herein and such period, or any extension thereof, shall be continuing.
(b) The Company also covenants and agrees (i) that it shall directly
maintain 100% ownership of the Common Securities of the Trust; provided,
--------
however, that any permitted successor of the Company hereunder may succeed to
- -------
the Company's ownership of such Common Securities and (ii) that it shall use its
reasonable efforts, consistent with the terms and provisions of the Declaration,
to cause the Trust (x) to remain a statutory business trust, except in
connection with the distribution of the Securities to the holders of the Trust
Securities in liquidation of the Trust,
52
<PAGE>
the redemption of all of the Trust Securities of the Trust, or certain mergers,
consolidations or amalgamations, each as permitted by the Declaration, and (y)
to otherwise continue to be classified as a grantor trust for United States
Federal income tax purposes.
SECTION 10.06. Payment of Expenses of the Trust. In connection with
--------------------------------
the offering, sale and issuance of the Securities to the Property Trustee in
connection with the sale of the Trust Securities by the Trust, the Company
shall:
(a) pay for all costs, fees and expenses relating to the offering,
sale and issuance of the Securities, including commissions or other
compensation to the Underwriters payable pursuant to the Underwriting
Agreement and compensation of the Trustee under this Indenture in
accordance with the provisions of Section 6.07 of this Indenture;
(b) be responsible for and pay for all debts and obligations (other
than with respect to the Trust Securities) of the Trust, pay for all costs
and expenses of the Trust (including, but not limited to, costs and
expenses relating to the organization of the Trust, the offering, sale and
issuance of the Trust Securities (including commissions or other
compensation to, and indemnification of, the Underwriters in connection
therewith), the fees and expenses of the Property Trustee and the Delaware
Trustee, the costs and expenses relating to the operation of the Trust,
including without limitation, costs and expenses of accountants, attorneys,
statistical or bookkeeping services, expenses for printing and engraving
and computing or accounting equipment, paying agent(s), registrar(s),
transfer agent(s), duplicating, travel and telephone and other
telecommunications expenses and costs and expenses incurred in connection
with the acquisition, financing, and disposition of Trust assets);
(c) be primarily liable for any indemnification obligations arising
with respect to the Declaration; and
(d) pay any and all taxes (other than United States withholding taxes
attributable to the Trust or its assets) and all liabilities, costs and
expenses with respect to such taxes of the Trust.
53
<PAGE>
ARTICLE XI
Redemption of Securities
------------------------
SECTION 11.01. Right of Redemption. The Securities may be redeemed
-------------------
at the election of the Company, (a) as a whole or in part, at any time or from
time to time, at the Redemption Prices set forth in Section 11.09 below and (b)
in certain circumstances upon the occurrence of a Tax Event at the Tax Event
Redemption Price set forth in Section 11.10 below.
SECTION 11.02. Applicability of Article. Redemption of Securities at
------------------------
the election of the Company, as permitted by Section 11.01, shall be made in
accordance with such provision and this Article.
SECTION 11.03. Election to Redeem; Notice to Trustee. The election
-------------------------------------
of the Company to redeem Securities pursuant to Section 11.01 shall be evidenced
by a Board Resolution. In case of any redemption at the election of the
Company, the Company shall, at least 60 days and no more than 90 days prior to
the Redemption Date fixed by the Company, notify the Trustee in writing of such
Redemption Date and of the principal amount of Securities to be redeemed and
provide a copy of the notice of redemption given to Holders of Securities to be
redeemed pursuant to Section 11.05.
SECTION 11.04. Selection by Trustee of Securities to Be Redeemed. If
-------------------------------------------------
less than all the Securities are to be redeemed (unless such redemption affects
only a single Security), the particular Securities to be redeemed shall be
selected not more than 60 days prior to the Redemption Date by the Trustee, from
the Outstanding Securities not previously called for redemption, by such method
(including, without limitation, pro rata or by lot) as the Trustee shall deem
fair and appropriate.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption as aforesaid and, in case of any Securities
selected for partial redemption as aforesaid, the principal amount thereof to be
redeemed.
The provisions of the two preceding paragraphs shall not apply with
respect to any redemption affecting only a single Security, whether such
Security is to be redeemed in whole or in part. In the case of any such
redemption in part, the unredeemed portion of the principal amount of the
Security shall be in an authorized denomination (which shall not be less than
the minimum authorized denomination) for such Security.
54
<PAGE>
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Securities redeemed or to be redeemed only in part, to the
portion of the principal amount of such Securities which has been or is to be
redeemed.
SECTION 11.05. Notice of Redemption. Notice of redemption shall be
--------------------
given by first-class mail, postage prepaid, mailed not less than 30 nor more
than 60 days prior to the Redemption Date, to each Holder of Securities to be
redeemed, at such Holder's address appearing in the Security Register.
All notices of redemption shall identify the Securities to be redeemed
(including, if relevant, CUSIP or ISIN number) and shall state:
(1) the Redemption Date,
(2) the Redemption Price (or Tax Event Redemption Price in the case
of a redemption pursuant to a Tax Event),
(3) that on the Redemption Date the Redemption Price (or Tax Event
Redemption Price in the case of a redemption pursuant to a Tax Event) will
become due and payable upon each such Security to be redeemed and that
interest thereon will cease to accrue on and after said date, and
(4) the place or places where such Securities are to be surrendered
for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 11.06. Deposit of Redemption Price. Prior to any Redemption
---------------------------
Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if
the Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 10.03) an amount of money sufficient to pay the Redemption
Price (or Tax Event Redemption Price in the case of a redemption pursuant to a
Tax Event) of, and (except if the Redemption Date shall be an Interest Payment
Date) accrued interest on, all the Securities which are to be redeemed on that
date.
SECTION 11.07. Securities Payable on Redemption Date. Notice of
-------------------------------------
redemption having been given as aforesaid, the Securities so to be redeemed
shall, on the Redemption
55
<PAGE>
Date, become due and payable at the Redemption Price (or Tax Event Redemption
Price in the case of a redemption pursuant to a Tax Event) therein specified,
and from and after such date (unless the Company shall default in the payment of
the Redemption Price (or Tax Event Redemption Price in the case of a redemption
pursuant to a Tax Event) and accrued interest) such Securities shall cease to
bear interest. Upon surrender of any such Security for redemption in accordance
with said notice, such Security shall be paid by the Company at the Redemption
Price (or Tax Event Redemption Price in the case of a redemption pursuant to a
Tax Event), together with accrued interest (including Additional Payments, if
any) to the Redemption Date; provided, however, that installments of interest
-------- -------
whose Stated Maturity is on or prior to the Redemption Date shall be payable to
the Holders of such securities, or one or more Predecessor Securities,
registered as such at the close of business on the relevant Record Dates
according to the terms and the provisions of Section 3.07.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal shall, until paid, bear interest
from the Redemption Date at the rate borne by the Security.
SECTION 11.08. Securities Redeemed in Part. In the event of any
---------------------------
redemption in part, the Company shall not be required to (i) issue, register the
transfer of or exchange any Security during a period beginning at the opening of
business 15 days before any selection for redemption of Securities and ending at
the close of business on the earliest date in which the relevant notice of
redemption is deemed to have been given to all Holders of Securities to be so
redeemed and (ii) register the transfer of or exchange any Securities so
selected for redemption, in whole or in part, except for the unredeemed portion
of any Securities being redeemed in part.
Any Security which is to be redeemed only in part shall be surrendered
at a place of payment therefor (with, if the Company or the Trustee so requires,
due endorsement by, or a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and make available for delivery to the Holder of such
Security without service charge, a new Security or Securities, of any authorized
denomination as requested by such Holder, in aggregate principal amount equal to
and in exchange for the unredeemed portion of the principal of the Security so
surrendered.
56
<PAGE>
SECTION 11.09. Optional Redemption. (a) Subject to the provisions
-------------------
of this Article XI, the Company shall have the right to redeem the Securities,
in whole or in part, at any time or from time to time, after the issuance of the
Capital Securities, at a redemption price equal to 100% of the principal amount
to be redeemed plus the Make-Whole Premium, if any, plus any accrued and unpaid
interest thereon, (including Compounded Interest, if any), to the date of such
redemption (collectively, the "Redemption Price"). The Make-Whole Premium means
the excess, if any of (i) the sum of the present values of the remaining
scheduled payments of principal and interest thereon discounted to the
redemption date on a semiannual basis at the Treasury Rate plus __ basis points
over (ii) 100% of the principal amount of Securities to be redeemed. Any
redemption pursuant to this paragraph will be made upon not less than 30 days
nor more than 60 days notice to the Holder of the Securities, at the Redemption
Price. The Redemption Price shall be paid prior to 12:00 noon, New York time,
on the date of such redemption or at such earlier time as the Company determines
and specifies in the notice of redemption; provided, that, the Company shall
--------
deposit with the Trustee an amount sufficient to pay the Redemption Price by
10:00 a.m., New York time, on the date such Redemption Price is to be paid.
(b) If a partial redemption of the Securities would result in the
delisting of the Capital Securities issued by the Trust from any national
securities exchange or other organization on which the Capital Securities are
listed, the Company shall not be permitted to effect such partial redemption and
may only redeem the Securities in whole.
(c) The Company may not redeem fewer than all of the Outstanding
Securities unless all accrued and unpaid interest (including Additional
Payments) on the Securities has been paid as of the Interest Payment Date next
preceding the Redemption Date.
SECTION 11.10. Tax Event Redemption. If a Tax Event has occurred and
--------------------
is continuing and:
(a) the Company has received a Redemption Tax Option; or
(b) the Trustee shall have been informed by tax counsel that a No
Recognition Opinion cannot be delivered to the Trust, then, notwithstanding
Section 11.09(a) but subject to Section 11.09(b), the Company shall have
the right upon not less than 30 days nor more than 60 days notice to the
Holders of the Securities to redeem the Securities in whole or in part for
cash, within 90 days following the occurrence of
57
<PAGE>
such Tax Event (the "90 Day Period"), at a redemption price equal to 100%
of the principal amount to be redeemed plus any accrued and unpaid interest
thereon (including Compounded Interest, if any) to the date of such
redemption (the "Tax Event Redemption Price"); provided, that if at the
--------
time there is available to the Company the opportunity to eliminate, within
the 90 Day Period, the Tax Event by taking some ministerial action
("Ministerial Action"), such as filing a form or making an election, or
pursuing some other similar reasonable measure which has no adverse effect
on the Company, the Trust or the Holders of the Trust Securities issued by
the Trust, the Company shall pursue such Ministerial Action in lieu of
redemption; and provided, further, that the Company shall have no right to
-------- -------
redeem the Securities while the Trust is pursuing any Ministerial Action
pursuant to its obligations under the Declaration. The Tax Event
Redemption Price shall be paid prior to 12:00 noon, New York time, on the
date of such redemption or such earlier time as the Company determines;
provided, that, the Company shall deposit with the Trustee an amount
--------
sufficient to pay the Tax Event Redemption Price by 10:00 a.m., New York
time, on the date such Tax Event Redemption Price is to be paid.
ARTICLE XII
Subordination of Securities
---------------------------
SECTION 12.01. Agreement to Subordinate. The Company covenants and
------------------------
agrees, and each Holder of Securities by such Holder's acceptance thereof
likewise covenants and agrees, that all Securities shall be issued subject to
the provisions of this Article XII; and each Holder of a Security, whether upon
original issue or upon transfer or assignment thereof, accepts and agrees to be
bound by such provisions. The payment by the Company of the principal of,
premium, if any, and interest (including Additional Payments) on all Securities
issued hereunder shall, to the extent and in the manner hereinafter set forth,
be subordinated and junior in right of payment to the prior payment in full of
all Senior Indebtedness, whether outstanding at the date of this Indenture or
thereafter incurred; provided, however, that no provision of this Article XII
-------- -------
shall prevent the occurrence of any default or Event of Default hereunder.
SECTION 12.02. Default on Senior Indebtedness. In the event and
------------------------------
during the continuation of any default by the Company in the payment of
principal, premium, interest or any other payment due on any Senior Indebtedness
continuing beyond the period of grace, if any, specified in
58
<PAGE>
the instrument evidencing such Senior Indebtedness, unless and until such
default shall have been cured or waived or shall have ceased to exist, and in
the event that the maturity of any Senior Indebtedness has been accelerated
because of a default, then no payment shall be made by the Company with respect
to the principal of (including redemption payments), premium, if any, or
interest on the Securities.
In the event that, notwithstanding the foregoing, any payment shall be
received by the Trustee when such payment is prohibited by the preceding
paragraph of this Section 12.02, such payment shall be held in trust for the
benefit of, and shall be paid over or delivered to, the holders of Senior
Indebtedness or their respective representatives, or to the trustee or trustees
under any indenture pursuant to which any of such Senior Indebtedness may have
been issued, as their respective interests may appear, but only to the extent
that the holders of the Senior Indebtedness (or their representative or
representatives or a trustee) notify the Trustee in writing within 90 days of
such payment of the amounts then due and owing on the Senior Indebtedness and
only the amount specified in such notice to the Trustee shall be paid to the
holders of Senior Indebtedness.
SECTION 12.03. Liquidation; Dissolution; Bankruptcy. Upon any
------------------------------------
payment by the Company or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to creditors upon any
dissolution or winding up or liquidation or reorganization of the Company,
whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or
other proceedings, all amounts (including principal, premium, if any, and
interest) due or to become due upon all Senior Indebtedness shall first be paid
in full, or payment thereof provided for in money in accordance with its terms,
before any payment is made on account of the principal (and premium, if any) or
interest on the Securities; and upon any such dissolution or winding up or
liquidation or reorganization, any payment by the Company, or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities, to which the Holders of the Securities or the Trustee would be
entitled, except for the provisions of this Article XII, shall be paid by the
Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or
other Person making such payment or distribution, or by the Holders of the
Securities or by the Trustee under this Indenture if received by them or it,
directly to the holders of Senior Indebtedness (pro rata to such holders on the
basis of the respective amounts of Senior Indebtedness held by such holders, as
calculated by the Company) or their representative or representatives, or to the
trustee or
59
<PAGE>
trustees under any indenture pursuant to which any instruments evidencing such
Senior Indebtedness may have been issued, as their respective interests may
appear, to the extent necessary to pay such Senior Indebtedness in full, in
money or money's worth, after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness, before any
payment or distribution is made to the Holders of Securities or to the Trustee.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, prohibited by the foregoing, shall be received by the
Trustee or the Holders of the Securities before all Senior Indebtedness is paid
in full, or provision is made for such payment in money in accordance with its
terms, such payment or distribution shall be held in trust for the benefit of
and shall be paid over or delivered to the holders of Senior Indebtedness or
their representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing such Senior Indebtedness
may have been issued, and their respective interests may appear, as calculated
by the Company, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay such Senior Indebtedness in full
in money in accordance with its terms, after giving effect to any concurrent
payment or distribution to or for the holders of such Senior Indebtedness.
For purposes of this Article XII, the words, "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the extent provided in this Article XII with respect
to the Securities to the payment of all Senior Indebtedness which may at the
time be outstanding; provided, that (i) such Senior Indebtedness is assumed by
--------
the new corporation, if any, resulting from any such reorganization or
readjustment, and (ii) the rights of the holders of such Senior Indebtedness are
not, without the consent of such holders, altered by such reorganization or
readjustment. The consolidation of the Company with, or the merger of the
Company with or into, another Person or the liquidation or dissolution of the
Company following the conveyance, transfer or lease of all or substantially all
its properties and assets on a consolidated basis to another Person upon the
terms and conditions provided for in Article VIII hereof shall not be deemed a
dissolution, winding up, liquidation or reorganization for the purposes of this
Section 12.03 if such other Person shall, as a part of such consolidation,
merger, conveyance, transfer or lease, comply with the
60
<PAGE>
conditions stated in Article VIII hereof. Nothing in Section 12.02 or in this
Section 12.03 shall apply to claims of, or payments to, the Trustee under or
pursuant to Section 6.07 hereof.
SECTION 12.04. Subrogation. Subject to the payment in full of all
-----------
Senior Indebtedness, the rights of the Holders of the Securities shall be
subrogated to the rights of the holders of such Senior Indebtedness to receive
payments or distributions of cash, property or securities of the Company, as the
case may be, applicable to such Senior Indebtedness until the principal of (and
premium, if any) and interest on the Securities shall be paid in full; and, for
the purposes of such subrogation, no payments or distributions to the holders of
such Senior Indebtedness of any cash, property or securities to which the
Holders of the Securities or the Trustee would be entitled except for the
provisions of this Article XII, to or for the benefit of the holders of such
Senior Indebtedness by Holders of the Securities or the Trustee, shall, as
between the Company, its creditors other than holders of Senior Indebtedness,
and the Holders of the Securities, be deemed to be a payment by the Company to
or on account of such Senior Indebtedness. It is understood that the provisions
of this Article XII are and are intended solely for the purposes of defining the
relative rights of the Holders of the Securities, on the one hand, and the
holders of such Senior Indebtedness on the other hand.
Nothing contained in this Article XII or elsewhere in this Indenture
or in the Securities is intended to or shall impair, as between the Company, its
creditors other than the holders of Senior Indebtedness, and the Holders of the
Securities, the obligation of the Company, which is absolute and unconditional,
to pay to the Holders of the Securities the principal of (and premium, if any)
and interest on the Securities as and when the same shall become due and payable
in accordance with their terms, or is intended to or shall affect the relative
rights of the Holders of the Securities and creditors of the Company, as the
case may be, other than the holders of Senior Indebtedness, nor shall anything
herein or therein prevent the Trustee or the Holder of any Security from
exercising all remedies otherwise permitted by applicable law upon default under
this Indenture, subject to the rights, if any, under this Article XII of the
holders of such Senior Indebtedness in respect of cash, property or securities
of the Company, as the case may be, received upon the exercise of any such
remedy.
61
<PAGE>
Upon any payment or distribution of assets of the Company referred to
in this Article XII, the Trustee, subject to the provisions of Sections 6.01 and
6.03, and the Holders of the Securities, shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which such
dissolution, winding up, liquidation or reorganization proceedings are pending,
or a certificate of the receiver, trustee in bankruptcy, liquidation trustee,
agent or other Person making such payment or distribution, delivered to the
Trustee or to the Holders of the Securities, for the purposes of ascertaining
the Persons entitled to participate in such distribution, the holders of the
Senior Indebtedness and other indebtedness of the Company, as the case may be,
the amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article XII.
SECTION 12.05. Trustee to Effectuate Subordination. Each Holder of
-----------------------------------
Securities by such Holder's acceptance thereof authorizes and directs the
Trustee on such Holder's behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article XII and
appoints the Trustee as such Holder's attorney-in-fact for any and all such
purposes.
SECTION 12.06. Notice by the Company. The Company shall give prompt
---------------------
written notice to a Responsible Officer of the Trustee of any fact known to the
Company which would prohibit the making of any payment of monies to or by the
Trustee in respect of the Securities pursuant to the provisions of this Article
XII. Notwithstanding the provisions of this Article XII or any other provision
of this Indenture, the Trustee shall not be charged with knowledge of the
existence of any facts which would prohibit the making of any payment of monies
to or by the Trustee in respect of the Securities pursuant to the provisions of
this Article XII, unless and until a Responsible Officer of the Trustee shall
have received written notice thereof at the Corporate Trust Office of the
Trustee from the Company or a holder or holders of Senior Indebtedness or from
any trustee therefor; and, before the receipt of any such written notice, the
Trustee, subject to the provisions of Section 6.03 hereof, shall be entitled in
all respects to assume that no such facts exist; provided, however, that if the
-------- -------
Trustee shall not have received the notice provided for in this Section 12.06 at
least two Business Days prior to the date upon which by the terms hereof any
money may become payable for any purpose (including, without limitation, the
payment of the principal of (and premium, if any) or interest on any Security),
then, anything herein contained to the contrary notwithstanding, the Trustee
shall have full power and authority to receive such monies and to apply the
62
<PAGE>
same to the purposes for which they were received, and shall not be affected by
any notice to the contrary which may be received by it within two Business Days
prior to such date.
The Trustee, subject to the provisions of Sections 6.01 and 6.03,
shall be entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Senior Indebtedness (or a trustee on
behalf of such holder) to establish that such notice has been given by a holder
of such Senior Indebtedness or a trustee on behalf of any such holder or
holders. In the event that the Trustee determines in good faith that further
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article XII, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the right of
such Person under this Article XII, and, if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
SECTION 12.07. Rights of the Trustee: Holders of Senior
-----------------------------------------
Indebtedness. The Trustee in its individual capacity shall be entitled to all
the rights set forth in this Article XII in respect of any Senior Indebtedness
at any time held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder.
With respect to the holders of Senior Indebtedness of the Company, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are set forth in this Article XII, and no implied covenants or
obligations with respect to the holders of such Senior Indebtedness shall be
read into this Indenture against the Trustee. The Trustee shall not be deemed
to owe any fiduciary duty to the holders of such Senior Indebtedness and,
subject to the provisions of Section 6.03, the Trustee shall not be liable to
any holder of such Senior Indebtedness if it shall pay over or deliver to
Holders of Securities, the Company or any other Person money or assets to which
any holder of such Senior Indebtedness shall be entitled by virtue of this
Article XII or otherwise.
SECTION 12.08. Subordination May Not Be Impaired. No right of any
---------------------------------
present or future holder of any Senior Indebtedness to enforce subordination as
herein provided shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Company or by
63
<PAGE>
any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof which any such holder may have or
otherwise be charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the holders of the Securities
and without impairing or releasing the subordination provided in this Article
XII or the obligations hereunder of the Holders of the Securities to the holders
of Senior Indebtedness, do any one or more of the following: (i) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, such Senior Indebtedness, or otherwise amend or supplement in any manner
such Senior Indebtedness or any instrument evidencing the same or any agreement
under which such Senior Indebtedness is outstanding; (ii) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing such Senior Indebtedness; (iii) release any Person liable in any manner
for the collection of such Senior Indebtedness; and (iv) exercise or refrain
from exercising any rights against the Company and any other person.
------------------------------------------
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
64
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
NATIONWIDE FINANCIAL GROUP, INC.
By:
--------------------------------------
Name:
Title:
Attest:
- --------------------------
WILMINGTON TRUST COMPANY
By:
--------------------------------------
Name:
Title:
Attest:
- --------------------------
65
<PAGE>
STATE OF __________ )
) ss.:
COUNTY OF __________)
On the _____ day of _____, 1997 before me personally came
______________, to me known, who, being by me duly sworn, did depose and say
that s/he is the __________ _________________________________ of Nationwide
Financial Services, Inc., one of the corporations described in and which
executed the foregoing instrument; and that he signed his name thereto by
authority of the Board of Directors of such corporation.
--------------------------------------
Notary Public
[Notarial Seal]
66
<PAGE>
STATE OF __________ )
) ss.:
COUNTY OF __________)
On the ____ day of __________, 1997 before me personally came
___________________ to me known, who, being by me duly sworn, did depose and say
that s/he is an _______________ of [TRUSTEE], a corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
authority of the Board of Directors of such corporation.
--------------------------------------
Notary Public
[Notarial Seal]
67
<PAGE>
EXHIBIT A-1
FORM OF SECURITY
[FORM OF FACE OF SECURITY]
[IF THE DEBENTURE IS TO BE A GLOBAL DEBENTURE INSERT - This Debenture
is a Global Debenture within the meaning of the Indenture hereinafter referred
to and is registered in the name of the Depository Trust Company (the
"Depository") or a nominee of the Depository. This Debenture is exchangeable
for Debentures registered in the name of a person other than the Depository or
its nominee only in the limited circumstances described in the Indenture and no
transfer of this Debenture (other than a transfer of this Debenture as a whole
by the Depository to a nominee of the Depository or by a nominee of the
Depository to the Depository or another nominee of the Depository) may be
registered except in limited circumstances.
Unless this Debenture certificate is presented by an authorized
representative of the Depository to the Trust or its agent for registration of
transfer, exchange or payment, and any Debenture certificate issued is
registered in the name of Cede & Co. or such other name as requested by an
authorized representative of the Depository (and any payment hereon is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of the Depository), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner
hereof, Cede & Co., has an interest herein].
__% Junior Subordinated
Deferrable Interest Debenture Due 2037
No. $
[CUSIP No. ]
NATIONWIDE FINANCIAL SERVICES, INC., a corporation duly organized and
existing under the laws of the State of Delaware (herein called "the Company",
which term includes any successor corporation under the Indenture hereinafter
referred to), pursuant to an indenture, dated as of ______, 1997 (the
"Indenture") and for value received, hereby promises to pay to , or
registered assigns, the principal sum [indicated on Schedule A-1 hereof/1/] [of
___________ Dollars ($_______)/2/] on __________, 2037.
Interest Payment Dates: _______________ and _____________,
commencing __________, 1997
<PAGE>
Regular Record Dates: the close of business on the first day of the month in
which the Interest Payment Date occurs, commencing
_______, 1997
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
______________________
/1/ To be used for Global Debenture.
/2/ To be used for Certificated Debentures.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
signed manually or by facsimile by its duly authorized officers and a facsimile
of its corporate seal to be affixed hereto or imprinted hereon.
Dated:
NATIONWIDE FINANCIAL SERVICES, INC.
By:
--------------------------------------
Name:
Title:
[Seal]
Attest:
- --------------------------
3
<PAGE>
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned
Indenture.
Dated: --------------------------------,
as Trustee
By:
----------------------------
Authorized Signatory
[FORM OF REVERSE OF SECURITY]
NATIONWIDE FINANCIAL SERVICES, INC.
__% Junior Subordinated
Deferrable Interest Debenture Due 2037/1/
1. Interest. Nationwide Financial Services, Inc., a Delaware
--------
corporation (the "Company"), is the issuer of this __% Junior Subordinated
Deferrable Interest Debenture Due 2037 (the "Security") limited in aggregate
principal amount to $_____________, issued under the Indenture hereinafter
referred to. The Company promises to pay interest on the securities in cash
from _____________, 1997 or from the most recent interest payment date to which
interest has been paid or duly provided for, semi-annually (subject to deferral
for up to 10 consecutive semi-annual periods as described in Section 3 hereof)
in arrears on ___________ and __________ of each year (each such date, an
"Interest Payment Date"), commencing __________, 1997, at the rate of __% per
annum plus Additional Payments, if any, until the principal hereof shall have
----
become due and payable.
The amount of interest payable for any period will be computed on the
basis of twelve 30-day months and a 360 day year and, for any period of less
than a full calendar month, the number of days elapsed in such month. To the
extent lawful, the Company shall pay interest (including post-petition interest
in any proceeding under any bankruptcy or similar law) on overdue installments
of interest (without regard to any applicable grace period) at
- --------------
/1/ All terms used in this Security which are defined in the Indenture or
in the Declaration referred to therein shall have the meanings assigned to them
in the Indenture or the Declaration, as the case may be.
4
<PAGE>
the rate borne by the Securities, compounded semi-annually. Any interest paid
on this Security shall be increased to the extent necessary to pay Additional
Payments as set forth in this Security.
2. Additional Sums. The Company shall pay to Nationwide Financial
---------------
Services Capital Trust (and its permitted successors or assigns under the
Declaration) (the "Trust") the Additional Sums.
3. Extension of Interest Payment Period. So long as no Event of
------------------------------------
Default (or an event which would be an Event of Default with the giving of
required notice or the passage of time) has occurred and is continuing the
Company shall have the right, at any time during the term of this Security, from
time to time to defer payments of interest by extending the interest payment
period of such Security for up to 10 consecutive semi-annual periods (an
"Extended Interest Payment Period"). To the extent permitted by applicable law,
interest, the payment of which has been deferred because of the extension of the
interest payment period pursuant to Section 3.12 of the Indenture, will bear
interest thereon at __% compounded semi-annually for each semi-annual period of
the Extended Interest Payment Period ("Compounded Interest"). At the end of the
Extended Interest Payment Period, the Company shall pay all interest then
accrued and unpaid on the Securities including any Compounded Interest that
shall be payable to the Holders of the Securities in whose names the Securities
are registered in the Security Register on the first Regular Record Date after
the end of the Extended Interest Payment Period. Before the termination of any
Extended Interest Payment Period, the Company may further extend such period so
long as no Event of Default (or an event which would be an Event of Default with
the giving of required notice or the passage of time) has occurred and is
continuing; provided, that such period together with all such further extensions
--------
thereof shall not exceed 10 consecutive semi annual periods or extend beyond the
Maturity of the Security. Upon the termination of any Extended Interest Payment
Period and upon the payment of all interest and Additional Payments, if any,
then due, the Company may commence a new Extended Interest Payment Period,
subject to the foregoing requirements. No interest shall be due and payable
during an Extended Interest Payment Period except at the end thereof.
If the Property Trustee is the sole holder of the Security, the
Company shall give the Holder of the Security and the Trustee notice of its
selection of an Extended Interest Payment Period at least one Business Day prior
to the earlier of (i) the Interest Payment Date or (ii) if the Capital
Securities are listed on the New York Stock Exchange or other stock exchange or
quotation system, the date the
5
<PAGE>
Trust is required to give notice to the New York Stock Exchange or other
applicable self-regulatory organization or to holders of the Capital Securities
on the record date or he date such distributions are payable, but in any event
not less than ten Business Days prior to such record date.
If the Property Trustee is not the sole holder of the Securities, the
Company shall give the Holders of these Securities and the Trustee notice of its
selection of an Extended Interest Payment Period at least ten Business Days
prior to the earlier of (i) the Interest Payment Date or (ii) the date the Trust
is required to give notice to the New York Stock Exchange or other applicable
self-regulatory organization or to holders of the Securities on the record date
or the date such distributions are payable, but in any event not less than two
Business Days prior to such record date.
The semi-annual period in which any notice is given pursuant to the
second and third paragraphs of this Section 3 shall be counted as one of the 10
semi-annual periods permitted in the maximum Extended Interest Payment Period
permitted under the first paragraph of this Section 3.
4. Method of Payment. The interest so payable, and punctually paid
-----------------
or duly provided for, on any Interest Payment Date will, as provided in the
Indenture, be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on the regular
record date for such interest installment, which shall be the close of business
on the first day of the month in which the Interest Payment Date occurs (the
"Regular Record Date"), commencing __________, 1997. Any such interest not so
punctually paid or duly provided for shall forthwith cease to be payable to the
Holder on such Regular Record Date and may either be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities not less than ten days prior to such Special Record Date, or be paid
at any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the securities may be listed, and upon such
notice as may be required by such exchange, all as more fully provided in said
Indenture.
Payment of the principal of and interest on this Security will be made
at the office or agency of the Company maintained for that purpose in New York,
New York, in such coin or currency of the United States of America as at the
6
<PAGE>
time of payment is legal tender for payment of public and private debts;
provided, however, that, at the option of the Company, payment of interest may
- -------- -------
be made by check mailed to the address of the person entitled thereto as such
address shall appear in the Security Register.
5. Paying Agent and Security Registrar. The Trustee will act as
-----------------------------------
Paying Agent and Security Registrar. The Company may change any Paying Agent,
Security Registrar or co-registrar without prior notice. The Company or any of
its Affiliates may act in any such capacity.
6. Indenture. The Company issued the Securities under an indenture,
---------
dated as of ____________, 1997 (the "Indenture"), between the Company and
______________, as Trustee (herein called the "Trustee", which term includes any
successor trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Trustee,
the Company and the Holders of the Securities, and of the terms upon which the
Securities are, and are to be, authenticated and delivered. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb)
("TIA") as in effect on the date of the Indenture. The Securities are subject
to, and qualified by, all such terms, certain of which are summarized hereon,
and holders are referred to the Indenture and the TIA for a statement of such
terms. The Securities are unsecured general obligations of the Company limited
to $________________ in the aggregate principal amount and subordinated in right
of payment to all existing and future Senior Indebtedness of the Company. No
reference herein to the Indenture and no provision of this Security or of the
Indenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of and interest on this Security at the
times, place and rate, and in the coin or currency, herein prescribed or to
convert this Security as provided in the Indenture.
7. Optional Redemption. Subject to the applicable provisions of the
-------------------
Indenture, the Company shall have the right to redeem the Securities, in whole
or in part, at any time or from time to time, after the issuance of the Capital
Securities, at the Redemption Price (which Redemption Price includes the Make-
Whole Premium). On or after the Redemption Date, interest will cease to accrue
on the Securities, or portion thereof, called for redemption.
8. Optional Redemption Upon Tax Event. The Securities are subject to
----------------------------------
redemption in whole or in part for
7
<PAGE>
cash, if a Tax Event (as defined in Annex I to the Declaration) shall occur and
be continuing and certain other conditions specified in the Indenture are met,
at a redemption price equal to the Tax Event Redemption Price (which Tax Event
Redemption Price does not include the Make-Whole Premium). Any redemption
pursuant to this Section 8 will be made upon not less than 30 nor more than 60
days' notice.
9. Notice of Redemption. Notice of redemption will be mailed at
--------------------
least 30 days but not more than 60 days before the Redemption Date to each
Holder of the Securities to be redeemed at his address of record. In the event
of a redemption of less than all of the Securities, the Securities will be
chosen for redemption by the Trustee in accordance with the Indenture. On and
after the Redemption Date, interest ceases to accrue on the Securities or
portions of them called for redemption.
If this Security is redeemed subsequent to a Regular Record Date with
respect to any Interest Payment Date specified above and on or prior to such
Interest Payment Date, then any accrued interest will be paid to the person in
whose name this Security is registered at the close of business on such record
date.
10. Mandatory Redemption. The Securities will mature on ___________,
--------------------
2037. Upon the repayment of the Securities, whether at maturity or upon
acceleration or earlier redemption or otherwise, the proceeds from such
repayment or payment (including, without limitation, any Market-Whole Premium)
shall simultaneously be applied to redeem Trust Securities having an aggregate
liquidation amount of the Securities so repaid or redeemed at the applicable
redemption price together with accrued and unpaid distributions through the date
of redemption; provided, that holders of the Trust Securities shall be given not
--------
less than 30 nor more than 60 days notice of such redemption.
11. Subordination. The payment of the principal of, interest on or
-------------
any other amounts due on the Securities is subordinated in right of payment to
all existing and future Senior Indebtedness (as defined below) of the Company,
as described in the Indenture. Each holder, by accepting a Security, agrees to
such subordination and authorizes and directs the Trustee on its behalf to take
such action as may be necessary or appropriate to effectuate the subordination
so provided and appoints the Trustee as its attorney-in-fact for such purpose.
Senior Indebtedness shall mean in respect of the Company (i) the
principal, premium, if any, and interest in respect of (A) indebtedness of such
obligor for money
8
<PAGE>
borrowed and (B) indebtedness evidenced by securities, debentures, bonds or
other similar instruments issued by such obligor, (ii) all capital lease
obligations of such obligor, (iii) all obligations of such obligor issued or
assumed as the deferred purchase price of property, all conditional sale
obligations of such obligor and all obligations of such obligor under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business), (iv) all obligations of such obligor of the
reimbursement of any letter of credit, banker's acceptance, security purchase
facility or similar credit transaction, (v) all obligations of the type referred
to in clauses (i) through (iv) above of other persons for the payment of which
such obligor is responsible or liable as obligor, guarantor or otherwise, (vi)
al obligations of the type referred to in clauses (i) through (v) above of other
persons secured by any lien on any property or asset of such obligor (whether or
not such obligation is assumed by such obligor), except for (1) any such
indebtedness that is by its terms subordinated to or pari passu with the
Securities and (2) any indebtedness (including all other debt securities and
guarantees in respect of those debt securities) initially issued to any other
trust, or a trustee of such trust, partnership, or other entity affiliated with
the Company that is, directly or indirectly, a financing vehicle of the Company
(a "Financing Entity") in connection with the issuance by such Financing Entity
of preferred securities or other similar securities and (vii) interest accruing
subsequent to events of bankruptcy of the Company and its subsidiaries at the
rate provided for in the documentation governing such Senior Indebtedness,
whether or not such interest is an allowed claim enforceable against the debtor
in a bankruptcy case under relevant bankruptcy law.
12. Registration, Transfer, Exchange and Denominations. As provided
--------------------------------------------------
in the Indenture and subject to certain limitations therein set forth, the
transfer of this Security is registrable in the Security Register, upon
surrender of his Security for registration of transfer at the office or agency
of the Company in New York, New York, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and integral multiples thereof. No service charge shall
be made for any such registration of transfer or exchange, but the Company
9
<PAGE>
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. Prior to due presentment of this
Security for registration of transfer, the Company, the Trustee and any agent of
the Company or the Trustee may treat the Person in whose name this Security is
registered as the owner hereof for all purposes, whether or not this Security be
overdue, and neither the Company, the Trustee nor any such agent shall be
affected by notice to the contrary. In the event of redemption or conversion of
this Security in part only, a new Security or Securities for the unredeemed or
unconverted portion hereof will be issued in the name of the Holder hereof upon
the cancellation hereof.
13. Persons Deemed Owners. Except as provided in Section 3 hereof,
---------------------
the registered Holder of a Security may be treated as its owner for all
purposes.
14. Unclaimed Money. If money for the payment of principal or
---------------
interest remains unclaimed for two years, the Trustee and the Paying Agent shall
pay the money back to the Company at its written request. After that, holders
of Securities entitled to the money must look to the Company for payment unless
an abandoned property law designates another Person and all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
15. Defaults and Remedies. The Securities shall have the Events of
---------------------
Defaults as set forth in Section 5.01 of the Indenture. Subject to certain
limitations in the Indenture, if an Event of Default occurs and is continuing,
the Trustee by notice to the Company or the holders of at least 25% in aggregate
principal amount of the then outstanding Securities by notice to the Company and
the Trustee may declare all the Securities to be due and payable immediately;
provided, that, if the Property Trustee is the sole Holder of the Security and
- --------
if, upon an Event of Default, the Trustee or the holder of not less than 25% in
aggregate principal amount of the then outstanding Securities fail to declare
the principal of all the Securities to be immediately due and payable, the
holders of at least 25% in aggregate liquidation amount of Capital Securities
then outstanding shall have such right by a notice in writing to the Company and
the Trustee; and upon any such declaration such principal and all accrued
interest shall become immediately due and payable; provided, that the payment of
--------
principal and interest on such Securities shall remain subordinated to the
extent provided in the Indenture.
The holders of a majority in principal amount of the Securities then
outstanding by written notice to the Trustee may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or
10
<PAGE>
decree and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of the
acceleration. Holders may not enforce the Indenture or the Securities except as
provided in the Indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding Securities issued under the
Indenture may direct the Trustee in its exercise of any trust or power. The
Company must furnish annually compliance certificates to the Trustee and the
Property Trustee. The above description of Events of Default and remedies is
qualified by reference to, and subject in its entirety by, the more complete
description thereof contained in the Indenture.
16. Amendments, Supplements and Waivers. The Indenture permits,
-----------------------------------
subject to the rights of holders of Capital Securities set forth therein and in
the Declaration and with certain other exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of the Holders of all the Securities, subject to the
right of the holders of the Capital Securities set forth therein and in the
Declaration, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holder of this Security shall be conclusive
and binding upon such Holder and upon all future Holders of this Security and of
any Security issued upon the registration of transfer hereof or in exchange
therefor or in lieu hereof, whether or not notation of such consent or waiver is
made upon this Security. The above description of amendments, supplements and
waivers is qualified by reference to, and subject in its entirety by the more
complete description thereof contained in the Indenture.
17. Trustee Dealings with the Company. The Trustee, in its
---------------------------------
individual or any other capacity may become the owner or pledgee of the
Securities and may otherwise deal with the Company or an Affiliate with the same
rights it would have, as if it were not Trustee, subject to certain limitations
provided for in the Indenture and in the TIA. Any Agent may do the same with
like rights.
18. No Recourse Against Others. A director, officer, employee or
--------------------------
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
11
<PAGE>
claim based on, in respect of or by reason of such obligations or their
creation. Each Holder of the Securities by accepting a Security waives and
releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
19. Governing Law. THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL
-------------
GOVERN THE INDENTURE AND THE SECURI TIES WITHOUT REGARD TO CONFLICT OF LAW
PROVISIONS THEREOF.
20. Authentication. The Securities shall not be valid until
--------------
authenticated by the manual signature of an authorized officer of the Trustee or
an authenticating agent.
21. Abbreviations. Customary abbreviations may be used in the name
-------------
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
22. Agreed Tax Treatment. The Company and, by its acceptance of this
--------------------
Security or a beneficial interest therein, the Holder of, and any Person that
acquires a beneficial interest in, this Security agree that for United States
federal, state and local tax purposes it is intended that this Security
constitute indebtedness.
12
<PAGE>
The Company will furnish to any Holder of the Securities upon written
request and without charge a copy of the Indenture. Request may be made to:
Nationwide Financial Services, Inc.
One Nationwide Plaza
Columbus, Ohio 43215
Attention of: Chief Financial Officer
13
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
(I) or (we) assign and transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Your Signature:
------------------------------------------------
(Sign exactly as your name appears on the other
side of this Security)
Date:
---------------------------------
Signature Guarantee: /2/
-----------------------------
- ------------
/2/ Signature must be guaranteed by a commercial bank, trust company or member
firm of the New York Stock Exchange.
14
<PAGE>
SCHEDULE A
The initial principal amount of this Global Security shall be $ .
The following increases or decreases in the principal amount of this Global
Security have been made:
<TABLE>
<CAPTION>
Amount of increase
in Principal Amount
of this Global Signature of
Security Including Amount of decrease Principal Amount of authorized officer
open exercise of in Principal Amount this Global Security of Trustee or
over-allotment of this Global following such Securities
Date Made option Security decrease or increase Custodian
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 4.4
Form of
CAPITAL SECURITIES GUARANTEE AGREEMENT
Between
NATIONWIDE FINANCIAL SERVICES, INC.
(As Guarantor)
and
WILMINGTON TRUST COMPANY
(As Capital Securities Guarantee Trustee)
Dated as of _____ __, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions and Interpretation
------------------------------
SECTION 1.01. Definitions and Interpretation............... 1
ARTICLE II
Trust Indenture Act
-------------------
SECTION 2.01. Trust Indenture Act; Application................ 5
SECTION 2.02. Lists of Holders of Securities.................. 5
SECTION 2.03. Reports by the Capital Securities
Guarantee Trustee............................... 5
SECTION 2.04. Periodic Reports to Capital
Securities Guarantee Trustee.................... 6
SECTION 2.05. Evidence of Compliance with
Conditions Precedent............................ 6
SECTION 2.06. Events of Default; Waiver....................... 6
SECTION 2.07. Event of Default; Notice........................ 6
SECTION 2.08. Conflicting Interests........................... 7
ARTICLE III
Powers, Duties and Rights of
----------------------------
Capital Securities Guarantee Trustee
------------------------------------
SECTION 3.01. Powers and Duties of the Capital
Securities Guarantee Trustee.................... 7
SECTION 3.02. Certain Rights of Capital
Securities Guarantee Trustee.................... 9
SECTION 3.03. Not Responsible for Recitals or
Issuance of Guarantee........................... 11
ARTICLE IV
Capital Securities Guarantee Trustee
------------------------------------
SECTION 4.01. Capital Securities Guarantee
Trustee; Eligibility............................ 12
SECTION 4.02. Appointment, Removal and
Resignation of Capital Securities
Guarantee Trustee............................... 12
ARTICLE V
Guarantee
---------
SECTION 5.01. Guarantee....................................... 14
SECTION 5.02. Subordination................................... 14
SECTION 5.03. Waiver of Notice and Demand..................... 14
SECTION 5.04. Obligations Not Affected........................ 14
SECTION 5.05. Rights of Holders............................... 15
<PAGE>
SECTION 5.06. Guarantee of Payment............................ 16
SECTION 5.07. Subrogation..................................... 16
SECTION 5.08. Independent Obligations......................... 16
ARTICLE VI
Limitation of Transactions; Subordination
-----------------------------------------
SECTION 6.01. Limitations of Transactions..................... 16
SECTION 6.02. Ranking......................................... 17
ARTICLE VII
Termination
-----------
SECTION 7.01. Termination..................................... 17
ARTICLE VIII
Indemnification
---------------
SECTION 8.01. Exculpation..................................... 18
SECTION 8.02. Indemnification................................. 18
ARTICLE IX
Miscellaneous
-------------
SECTION 9.01. Successors and Assigns.......................... 19
SECTION 9.02. Amendments...................................... 19
SECTION 9.03. Notices......................................... 19
SECTION 9.04. Benefit......................................... 20
SECTION 9.05. Governing Law................................... 20
<PAGE>
THIS CAPITAL SECURITIES GUARANTEE AGREEMENT ("Capital Securities
Guarantee"), dated as of _______, 1997, is executed and delivered by NATIONWIDE
FINANCIAL SERVICES, INC., a Delaware corporation (the "Guarantor"), and
WILMINGTON TRUST COMPANY, a Delaware banking corporation, as trustee (the
"Capital Securities Guarantee Trustee"), for the benefit of the Holders (as
defined herein) from time to time of the Capital Securities (as defined herein)
of NATIONWIDE FINANCIAL SERVICES CAPITAL TRUST, a Delaware statutory business
trust (the "Issuer").
WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the
"Declaration"), dated as of _______, 1997, among the trustees of the Issuer
named therein, the Guarantor, as Sponsor, and the holders from time to time of
undivided beneficial interests in the assets of the Issuer, the Issuer is
issuing on the date hereof Capital Securities having an aggregate stated
liquidation preference of $___________, designated the __% Capital Securities
(the "Capital Securities"); and
WHEREAS as incentive for the Holders to purchase the Capital
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth in this Capital Securities Guarantee, to pay to the Holders
of the Capital Securities the Guarantee Payments (as defined herein) and to make
certain other payments on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of
Capital Securities, which purchase the Guarantor hereby agrees shall benefit the
Guarantor, the Guarantor executes and delivers this Capital Securities Guarantee
for the benefit of the Holders.
ARTICLE I
Definitions and Interpretation
------------------------------
SECTION 1.01. Definitions and Interpretation. In this Capital
------------------------------
Securities Guarantee, unless the context otherwise requires:
(a) capitalized terms used in this Capital Securities Guarantee but
not defined in the preamble above have the respective meanings assigned to
them in this Section 1.01;
(b) a term defined anywhere in this Capital Securities Guarantee has
the same meaning throughout;
<PAGE>
(c) all references to "the Capital Securities Guarantee" or "this
Guarantee" are to this Capital Securities Guarantee as modified,
supplemented or amended from time to time;
(d) all references in this Capital Securities Guarantee to Articles
and Sections are to Articles and Sections of this Capital Securities
Guarantee unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning
when used in this Capital Securities Guarantee unless otherwise defined in
this Capital Securities Guarantee or unless the context otherwise requires;
and
(f) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule 405 of
---------
the Securities Act of 1933, as amended, or any successor rule thereunder.
"Common Securities" means the common securities representing common
-----------------
undivided beneficial interest in the assets of the Issuer.
"Covered Person" means any Holder or beneficial owner of Capital
--------------
Securities.
"Debentures" means the series of junior subordinated debt securities
----------
of the Guarantor designated the __% Junior Subordinated Deferrable Interest
Debentures Due 2037 hold by the Property Trustee of the Issuer.
"Event of Default" means a default by the Guarantor on any of its
----------------
payment or other obligations under this Capital Securities Guarantee.
"Guarantee Payments" means the following payments or distributions,
------------------
without duplication, with respect to the Capital Securities, to the extent not
paid or made by or on behalf of the Issuer: (i) any accrued and unpaid
Distributions (as defined in the Declaration) that are required to be paid on
such Capital Securities to the extent the Issuer shall have funds available
therefor, (ii) the amount payable upon redemption to the extent the Issuer has
funds available therefor, with respect to any Capital Securities called for
redemption by the Issuer, and (iii) upon a voluntary or involuntary dissolution,
winding-up or termination of the Issuer (other than in connection with the
distribution of Debentures to the Holders in exchange for Capital Securities as
provided in the Declaration), the
2
<PAGE>
lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid
Distributions on the Capital Securities to the date of payment, to the extent
the Issuer shall have funds available therefor, and (b) the amount of assets of
the Issuer remaining available for distribution to Holders upon liquidation of
the Issuer (in either case, the "Liquidation Distribution"). If an event of
default under the Indenture has occurred and is continuing, the rights of
holders of the Common Securities to receive payments as provided in the
Declaration are subordinated to the rights of Holders of Capital Securities to
receive Guarantee Payments.
"Holder" means any holder, as registered on the books and records of
------
the Issuer of any Capital Securities; provided, however, that, in determining
-------- -------
whether the holders of the requisite percentage of Capital Securities have given
any request, notice, consent or waiver hereunder, "Holder" shall not include the
Guarantor or any Affiliate of the Guarantor.
"Indemnified Person" means the Capital Securities Guarantee Trustee,
------------------
any Affiliate of the Capital Securities Guarantee Trustee, or any officers,
directors, shareholders, members, partners, employees, representatives or agents
of the Capital Securities Guarantee Trustee.
"Indenture" means the Indenture dated as of
---------
_________, 1997, among the Guarantor (the "Debenture Issuer") and Wilmington
Trust Company, as trustee, and any indenture supplemental thereto pursuant to
which the Debentures are to be issued to the Property Trustee of the Issuer.
"Majority in liquidation preference of the Capital Securities" means,
----------------------------------------- ------------------
except as provided by the Trust Indenture Act, Holder(s) of Capital Securities,
voting separately as a class, representing more than 50% of the stated
liquidation amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions to
the date upon which the voting percentages are determined) of all Capital
Securities then outstanding.
"Officers' Certificate" means, with respect to any Person, a
---------------------
certificate signed by the Chairman of the Board, President or a Vice President,
and by the Treasurer, an Assistant Treasurer, the Controller, the Secretary or
an Assistant Secretary of such Person, and delivered to the Preferred Guarantee
Trustee. Any Officers' Certificate delivered with respect to compliance with a
condition or covenant provided for in this Capital Securities Guarantee shall
include:
3
<PAGE>
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers'
Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
------
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated organization or association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Capital Securities Guarantee Trustee" means Wilmington Trust Company until
------------------------------------
a Successor Capital Securities Guarantee Trustee has been appointed and has
accepted such appointment pursuant to the terms of this Capital Securities
Guarantee and thereafter means each such Successor Capital Securities Guarantee
Trustee.
"Responsible Officer" means, with respect to the Capital Securities
-------------------
Guarantee Trustee, the chairman of the board of directors, the president, any
vice-president, any assistant vice-president, the secretary, any assistant
secretary, the treasurer, any assistant treasurer, any trust officer or
assistant trust officer or any other officer of the Capital Securities Guarantee
Trustee customarily performing functions similar to those performed by any of
the above designated officers and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of that officer's knowledge of and familiarity with the particular
subject.
"Successor Capital Securities Guarantee Trustee" means a successor Capital
----------------------------------------------
Securities Guarantee Trustee possessing the qualifications to act as Capital
Securities Guarantee Trustee under Section 4.01. Any entity that engages in a
merger, conversion or consolidation with, or acquires all or substantially all
of the corporate trust business of, a Capital Securities Guarantee Trustee shall
be a Successor Capital Securities Guarantee Trustee.
4
<PAGE>
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
-------------------
ARTICLE II
Trust Indenture Act
-------------------
SECTION 2.01. Trust Indenture Act; Application. (a) This Capital
--------------------------------
Securities Guarantee is subject to the provisions of the Trust Indenture Act
that are required to be part of this Capital Securities Guarantee, which are
incorporated by reference hereto, and shall, to the extent applicable, be
governed by such provisions; and
(b) If and to the extent that any provision of this Capital Securities
Guarantee limits, qualifies or conflicts with the duties imposed by Sections 310
to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control.
SECTION 2.02. Lists of Holders of Securities. (a) The Guarantor
------------------------------
shall provide the Capital Securities Guarantee Trustee (i) within 14 days after
each record date for the payment of Distributions (as defined in the
Declaration), a list, in such form as the Capital Securities Guarantee Trustee
may reasonably require, of the names and addresses of the Holders of the Capital
Securities ("List of Holders") as of such date; provided that the Guarantor
--------
shall not be obligated to provide such List of Holders at any time the List of
Holders does not differ from the most recent List of Holders given to the
Capital Securities Guarantee Trustee by the Guarantor, and (ii) at any other
time, within 30 days of receipt by the Guarantor of a written request for a List
of Holders as of a date no more than 14 days before such List of Holders is
given to the Capital Securities Guarantee Trustee. The Capital Securities
Guarantee Trustee may destroy any List of Holders previously given to it on
receipt of a new List of Holders.
(b) The Capital Securities Guarantee Trustee shall comply with its
obligations under Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act.
SECTION 2.03. Reports by the Capital Securities Guarantee Trustee.
---------------------------------------------------
Within 60 days after May 15 of each year, the Capital Securities Guarantee
Trustee shall provide to the Holders of the Capital Securities such reports as
are required by Section 313 of the Trust Indenture Act, if any, in the form and
in the manner provided by Section 313 of the Trust Indenture Act. The Capital
Securities Guarantee Trustee shall also comply with the requirements of Section
313(d) of the Trust Indenture Act.
5
<PAGE>
SECTION 2.04. Periodic Reports to Capital Securities Guarantee
------------------------------------------------
Trustee. The Guarantor shall provide to the Capital Securities Guarantee
- -------
Trustee, the Securities and Exchange Commission and the Holders such documents,
reports and information as required by Section 314 (if any) and the compliance
certificate required by Section 314 of the Trust Indenture Act in the form, in
the manner and at the times required by Section 314 of the Trust Indenture Act.
SECTION 2.05. Evidence of Compliance with Conditions Precedent. The
------------------------------------------------
Guarantor shall provide to the Capital Securities Guarantee Trustee such
evidence of compliance with any conditions precedent, if any, provided for in
this Capital Securities Guarantee which relate to any of the matters set forth
in Section 314(c) of the Trust Indenture Act. Any certificate or opinion
required to be given by an officer pursuant to Section 314(c)(1) may be given in
the form of an Officers' Certificate.
SECTION 2.06. Events of Default; Waiver. The Holders of a Majority
-------------------------
in liquidation amount of the Capital Securities may, by vote, on behalf of the
Holders of all of the Capital Securities, waive any past Event of Default and
its consequences. Upon such waiver, any such Event of Default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
cured, for every purpose of this Capital Securities Guarantee, but no such
waiver shall extend to any subsequent or other default or Event of Default or
impair any right consequent therefrom.
SECTION 2.07. Event of Default; Notice. (a) The Capital Securities
------------------------
Guarantee Trustee shall, within 90 days after the occurrence of an Event of
Default, transmit by mail, first class postage prepaid, to the Holders of the
Capital Securities, notices of all Events of Default known to the Capital
Securities Guarantee Trustee, unless such defaults have been cured before the
giving of such notice; provided that except in the case of a default in the
--------
payment of a Guarantee Payment, the Capital Securities Guarantee Trustee shall
be protected in withholding such notice if and so long as the board of
directors, the executive committee, or a trust committee of directors and/or
Responsible Officers of the Capital Securities Guarantee Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders of the Capital Securities.
(b) The Capital Securities Guarantee Trustee shall not be deemed to
have knowledge of any Event of Default except any Event of Default as to which
the Capital Securities Guarantee Trustee shall have received written notice or a
Responsible Officer charged with the
6
<PAGE>
administration of the Declaration shall have obtained written notice of such
Event of Default.
SECTION 2.08. Conflicting Interests. The Declaration shall be deemed
---------------------
to be specifically described in this Capital Securities Guarantee for the
purposes of clause (i) of the first proviso contained in Section 310(b) of the
Trust Indenture Act.
ARTICLE III
Powers, Duties and Rights of Capital Securities Guarantee Trustee
-----------------------------------------------------------------
SECTION 3.01. Powers and Duties of the Capital Securities Guarantee
-----------------------------------------------------
Trustee. (a) This Capital Securities Guarantee shall be held by the Capital
- -------
Securities Guarantee Trustee for the benefit of the Holders of the Capital
Securities, and the Capital Securities Guarantee Trustee shall not transfer this
Capital Securities Guarantee to any Person except a Holder of Capital Securities
exercising his or her rights pursuant to Section 5.05(d) or to a Successor
Capital Securities Guarantee Trustee on acceptance by such Successor Capital
Securities Guarantee Trustee of its appointment to act as Successor Capital
Securities Guarantee Trustee. The right, title and interest of the Capital
Securities Guarantee Trustee shall automatically vest in any Successor Capital
Securities Guarantee Trustee, and such vesting and cessation of title shall be
effective whether or not conveyancing documents have been executed and delivered
pursuant to the appointment of such Successor Capital Securities Guarantee
Trustee.
(b) If an Event of Default has occurred and is continuing, the
Capital Securities Guarantee Trustee shall enforce this Capital Securities
Guarantee for the benefit of the Holders of the Capital Securities.
(c) The Capital Securities Guarantee Trustee, before the occurrence
of any Event of Default and after the curing of all Events of Default that may
have occurred, shall undertake to perform only such duties as are specifically
set forth in this Capital Securities Guarantee, and no implied covenants shall
be read into this Capital Securities Guarantee against the Capital Securities
Guarantee Trustee. In case an Event of Default has occurred (that has not been
cured or waived pursuant to Section 2.06), the Capital Securities Guarantee
Trustee shall exercise such of the rights and powers vested in it by this
Capital Securities Guarantee, and use the same degree of care and skill in its
exercise thereof, as a prudent person
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would exercise or use under the circumstances in the conduct of his or her own
affairs.
(d) No provision of this Capital Securities Guarantee shall be
construed to relieve the Capital Securities Guarantee Trustee from liability for
its own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) prior to the occurrence of any Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Capital Securities
Guarantee Trustee shall be determined solely by the express provisions
of this Capital Securities Guarantee, and the Capital Securities
Guarantee Trustee shall not be liable except for the performance of
such duties and obligations as are specifically set forth in this
Capital Securities Guarantee, and no implied covenants or obligations
shall be read into this Capital Securities Guarantee against the
Capital Securities Guarantee Trustee; and
(B) in the absence of bad faith on the part of the Capital
Securities Guarantee Trustee, the Capital Securities Guarantee Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates
or opinions furnished to the Capital Securities Guarantee Trustee and
conforming to the requirements of this Capital Securities Guarantee;
but in the case of any such certificates or opinions that by any
provision hereof are specifically required to be furnished to the
Capital Securities Guarantee Trustee, the Capital Securities Guarantee
Trustee shall be under a duty to examine the same to determine whether
or not they conform to the requirements of this Capital Securities
Guarantee;
(ii) the Capital Securities Guarantee Trustee shall not be liable
for any error of judgment made in good faith by a Responsible Officer of
the Capital Securities Guarantee Trustee, unless it shall be proved that
the Capital Securities Guarantee Trustee was negligent in ascertaining the
pertinent facts upon which such judgment was made;
(iii) the Capital Securities Guarantee Trustee shall not be liable
with respect to any action taken or
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omitted to be taken by it in good faith in accordance with the direction of
the Holders of not less than a Majority in liquidation amount of the
Capital Securities, relating to the time, method and place of conducting
any proceeding for any remedy available to the Capital Securities Guarantee
Trustee, or exercising any trust or power conferred upon the Capital
Securities Guarantee Trustee under this Capital Securities Guarantee; and
(iv) no provision of this Capital Securities Guarantee shall
require the Capital Securities Guarantee Trustee to expend or risk its own
funds or otherwise incur personal financial liability in the performance of
any of its duties or in the exercise of any of its rights or powers, if the
Capital Securities Guarantee Trustee shall have reasonable grounds for
believing that the repayment of such funds or liability is not reasonably
assured to it under the terms of this Capital Securities Guarantee or
adequate indemnity against such risk or liability is not reasonably assured
to it.
SECTION 3.02. Certain Rights of Capital Securities Guarantee Trustee.
------------------------------------------------------
(a) Subject to the provisions of Section 3.01:
(i) the Capital Securities Guarantee Trustee may rely and shall be
fully protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and to
have been signed, sent or presented by the proper party or parties;
(ii) any direction or act of the Guarantor contemplated by this
Capital Securities Guarantee shall be sufficiently evidenced by an
Officers' Certificate;
(iii) whenever, in the administration of this Capital Securities
Guarantee, the Capital Securities Guarantee Trustee shall deem it desirable
that a matter be proved or established before taking, suffering or omitting
any action hereunder, the Capital Securities Guarantee Trustee (unless
other evidence is herein specifically prescribed) may, in the absence of
bad faith on its part, request and rely upon an Officers' Certificate
which, upon receipt of such request, shall be promptly delivered by the
Guarantor;
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(iv) the Capital Securities Guarantee Trustee shall have no duty to
see to any recording, filing or registration of any instrument (or any
rerecording, refiling or registration thereof);
(v) the Capital Securities Guarantee Trustee may consult with legal
counsel of its selection, and the written advice or opinion of such legal
counsel with respect to legal matters shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted to be taken by it hereunder in good faith and in accordance with
such advice or opinion. Such legal counsel may be legal counsel to the
Guarantor or any of its Affiliates and may include any of the Guarantor's
employees. The Capital Securities Guarantee Trustee shall have the right
at any time to seek instructions concerning the administration of this
Capital Securities Guarantee from any court of competent jurisdiction;
(vi) the Capital Securities Guarantee Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by this
Capital Securities Guarantee at the request or direction of any Holder,
unless such Holder shall have provided to the Capital Securities Guarantee
Trustee such adequate security and indemnity as would satisfy a reasonable
person in the position of the Capital Securities Guarantee Trustee, against
the costs, expenses (including attorneys' fees and expenses) and
liabilities that might be incurred by it in complying with such request or
direction, including such reasonable advances as may be requested by the
Capital Securities Guarantee Trustee; provided that nothing contained in
--------
this Section 3.02(a)(vi) shall be taken to relieve the Capital Securities
Guarantee Trustee, upon the occurrence of an Event of Default, of its
obligation to exercise the rights and powers vested in it by this Capital
Securities Guarantee;
(vii) the Capital Securities Guarantee Trustee shall not be bound
to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond debenture, note, other evidence of
indebtedness or other paper or document, but the Capital Securities
Guarantee Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit;
(viii) the Capital Securities Guarantee Trustee may execute any of
the trusts or powers hereunder or
10
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perform any duties hereunder either directly or by or through agents or
attorneys, and the Capital Securities Guarantee Trustee shall not be
responsible for any misconduct or negligence on the part of any agent or
attorney appointed with due care by it hereunder;
(ix) any action taken by the Capital Securities Guarantee Trustee
or its agents hereunder shall bind the Holders of the Capital Securities,
and the signature of the Capital Securities Guarantee Trustee or its agents
alone shall be sufficient and effective to perform any such action; it
being understood that no third party shall be required to inquire as to the
authority of the Capital Securities Guarantee Trustee to so act or as to
its compliance with any of the terms and provisions of this Capital
Securities Guarantee, both of which shall be conclusively evidenced by the
Capital Securities Guarantee Trustee's or its agent's taking such action;
and
(x) whenever in the administration of this Capital Securities
Guarantee the Capital Securities Guarantee Trustee shall deem it desirable
to receive instructions with respect to enforcing any remedy or right or
taking any other action hereunder, the Capital Securities Guarantee Trustee
(i) may request written instructions from the Holders of the Capital
Securities or, other than with respect to enforcing any remedy or right or
taking any action related thereto, the Guarantor, (ii) may refrain from
enforcing such remedy or right or taking such other action until such
written instructions are received, and (iii) shall be protected in acting
in accordance with such written instructions.
(b) No provision of this Capital Securities Guarantee shall be deemed to
impose any duty or obligation on the Capital Securities Guarantee Trustee to
perform any act or acts or exercise any right, power, duty or obligation
conferred or imposed on it, in any jurisdiction in which it shall be illegal, or
in which the Capital Securities Guarantee Trustee shall be unqualified or
incompetent in accordance with applicable law, to perform any such act or acts
or to exercise any such right, power, duty or obligation. No permissive power
or authority available to the Capital Securities Guarantee Trustee shall be
construed to be a duty.
SECTION 3.03. Not Responsible for Recitals or Issuance of Guarantee.
-----------------------------------------------------
The recitals contained in this Capital Securities Guarantee shall be taken as
the statements of the Guarantor, and the Capital Securities Guarantee Trustee
does not assume any responsibility for their correctness. The Capital
Securities Guarantee Trustee
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<PAGE>
makes no representations as to the validity or sufficiency of this Capital
Securities Guarantee.
ARTICLE IV
Capital Securities Guarantee Trustee
------------------------------------
SECTION 4.01. Capital Securities Guarantee Trustee; Eligibility. (a)
-------------------------------------------------
There shall at all times be a Capital Securities Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under the laws
of the United States of America or any State or Territory thereof or of the
District of Columbia, or a corporation or Person permitted by the
Securities and Exchange Commission to act as an institutional trustee under
the Trust Indenture Act, authorized under such laws to exercise corporate
trust powers, having a combined capital and surplus of at least 50 million
U.S. dollars (U.S.$50,000,000), and subject to supervision or examination
by Federal, State, Territorial or District of Columbia authority. If such
corporation publishes reports of condition at least annually, pursuant to
law or to the requirements of the supervising or examining authority
referred to above, then, for the purposes of this Section 4.01(a)(ii), the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published.
(b) If at any time the Capital Securities Guarantee Trustee shall
cease to be eligible to so act under Section 4.01(a), the Capital Securities
Guarantee Trustee shall immediately resign in the manner and with the effect set
out in Section 4.02(c).
(c) If the Capital Securities Guarantee Trustee has or shall acquire
any "conflicting interest" within the meaning of Section 3.10(b) of the Trust
Indenture Act, the Capital Securities Guarantee Trustee and Guarantor shall in
all respects comply with the provisions of Section 3.10(b) of the Trust
Indenture Act.
SECTION 4.02. Appointment, Removal and Resignation of Capital
-----------------------------------------------
Securities Guarantee Trustee. (a) Subject to Section 4.02(b), the Capital
- ----------------------------
Securities Guarantee Trustee may be appointed or removed without cause at any
time by the Guarantor, except that, if an Event of Default shall have occurred
and be continuing, the Capital
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Securities Guarantee Trustee may be removed only by the vote of Holders of a
majority in liquidation preference of the Capital Securities voting as a class
at a meeting of Holders of Capital Securities.
(b) The Capital Securities Guarantee Trustee shall not be removed in
accordance with Section 4.02(a) until a Successor Capital Securities Guarantee
Trustee has been appointed and has accepted such appointment by written
instrument executed by each Successor Capital Securities Guarantee Trustee and
delivered to the Guarantor.
(c) The Capital Securities Guarantee Trustee appointed to office shall
hold office until a Successor Capital Securities Guarantee Trustee shall have
been appointed or until its removal or resignation. The Capital Securities
Guarantee Trustee may resign from office (without need for prior or subsequent
accounting) by an instrument in writing executed by the Capital Securities
Guarantee Trustee and delivered to the Guarantor, which resignation shall not
take effect until a Successor Capital Securities Guarantee Trustee has been
appointed and has accepted such appointment by instrument in writing executed by
such Successor Capital Securities Guarantee Trustee and delivered to the
Guarantor and the resigning Capital Securities Guarantee Trustee.
(d) If no Successor Capital Securities Guarantee Trustee shall have
been appointed and accepted appointment as provided in this Section 4.02 within
60 days after delivery to the Guarantor of an instrument of removal or
resignation, the Capital Securities Guarantee Trustee resigning or being removed
may petition any court of competent jurisdiction for appointment of a Successor
Capital Securities Guarantee Trustee. Such court may thereupon, after
prescribing such notice, if any, as it may deem proper, appoint a Successor
Capital Securities Guarantee Trustee.
(e) No Capital Securities Guarantee Trustee shall be liable for the
acts or omissions to act of any Successor Capital Securities Guarantee Trustee.
(f) Upon termination of this Capital Securities Guarantee or
resignation of the Capital Securities Guarantee Trustee pursuant to this Section
4.02, the Guarantor shall pay to the Capital Securities Guarantee Trustee all
amounts accrued and owing to the Capital Securities Guarantee Trustee on the
date of such termination, removal or resignation.
(g) The Capital Securities Guarantee Trustee may engage in any merger,
conversion, consolidation or sale of all or substantially all of its corporate
trust business,
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provided that the Successor Capital Securities Guarantee Trustee shall be
otherwise qualified and eligible under this Capital Securities Guarantee
Agreement.
ARTICLE V
Guarantee
---------
SECTION 5.01. Guarantee. The Guarantor irrevocably and
---------
unconditionally agrees to pay in full to the Holders the Guarantee Payments
(without duplication of amounts theretofore paid by or on behalf of the Issuer),
as and when due, regardless of any defense, right of set-off or counterclaim
that the Issuer may have or assert. The Guarantor's obligation to make a
Guarantee Payment may be satisfied by direct payment of the required amounts by
the Guarantor to the Holders or by causing the Issuer to pay such amounts to the
Holders.
SECTION 5.02. Subordination. If an Event of Default (as defined in
-------------
the Indenture), has occurred and is continuing, the rights of Holders of the
Common Securities to receive payments as provided in the Declaration are
subordinated to the rights of Holders of Capital Securities to receive Guarantee
Payments under this Capital Securities Guarantee.
SECTION 5.03. Waiver of Notice and Demand. The Guarantor hereby
---------------------------
waives notice of acceptance of this Capital Securities Guarantee and of any
liability to which it applies or may apply, presentment, demand for payment, any
right to require a proceeding first against the Issuer or any other Person
before proceeding against the Guarantor, protest, notice of nonpayment, notice
of dishonor, notice of redemption and all other notices and demands.
SECTION 5.04. Obligations Not Affected. The obligations, covenants,
------------------------
agreements and duties of the Guarantor under this Capital Securities Guarantee
shall in no way be affected or impaired by reason of the happening from time to
time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied agreement,
covenant, term or condition relating to the Capital Securities to be performed
or observed by the Issuer;
(b) the extension of time for the payment by the Issuer of all or any
portion of the Distributions, the amount payable upon redemption, the
Liquidation Distribution or any other sums payable under the terms of the
Capital Securities or the extension of time for the performance of
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<PAGE>
any other obligation under, arising out of, or in connection with, the Capital
Securities (other than an extension of time for payment of Distributions, the
amount payable upon redemption, Liquidation Distribution or other sum payable
that results from the extension of any interest payment period on the
Debentures;
(c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Capital Securities, or any
action on the part of the Issuer granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Issuer or any of the assets of the
Issuer;
(e) any invalidity of, or defect or deficiency in the Capital
Securities;
(f) the settlement or compromise of any obligation guaranteed hereby
or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute
a legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 5.04 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders or any other Person to
give notice to, or obtain consent of, the Guarantor with respect to the
happening of any of the foregoing.
SECTION 5.05. Rights of Holders. The Guarantor expressly
-----------------
acknowledges that:
(a) This Capital Securities Guarantee will be deposited with the
Capital Securities Guarantee Trustee to be held for the benefit of the Holders.
(b) The Capital Securities Guarantee Trustee has the right to enforce
this Capital Securities Guarantee on behalf of the Holders.
(c) The Holders of a Majority in liquidation amount of the Capital
Securities have the right to direct the time, method and place of conducting any
proceeding for
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any remedy available to the Capital Securities Guarantee Trustee in respect of
this Capital Securities Guarantee or exercising any trust or power conferred
upon the Capital Securities Guarantee Trustee under this Capital Securities
Guarantee.
(d) Any Holder of Capital Securities may institute a legal proceeding
directly against the Guarantor to enforce its rights under this Capital
Securities Guarantee, without first instituting a legal proceeding against the
Issuer, the Capital Securities Guarantee Trustee or any other Person.
SECTION 5.06. Guarantee of Payment. This Capital Securities
--------------------
Guarantee creates a guarantee of payment and not of collection. The Capital
Securities Guarantee will not be discharged except by payment of the Guarantee
Payments in full (without duplication of amounts theretofore paid by the Issuer)
or upon distribution of Debentures to Holders as provided in the Declaration.
SECTION 5.07. Subrogation. The Guarantor shall be subrogated to all
-----------
(if any) rights of the Holders of Capital Securities against the Issuer in
respect of any amounts paid to such Holders by the Guarantor under this Capital
Securities Guarantee; provided, however, that the Guarantor shall not (except to
-------- -------
the extent required by mandatory provisions of law) be entitled to enforce or
exercise any right that it may acquire by way of subrogation or any indemnity,
reimbursement or other agreement, in all cases as a result of payment under this
Capital Securities Guarantee, if, at the time of any such payment, any amounts
are due and unpaid under this Capital Securities Guarantee. If any amount shall
be paid to the Guarantor in violation of the preceding sentence, the Guarantor
agrees to hold such amount in trust for the Holders and to pay over such amount
to the Holders.
SECTION 5.08. Independent Obligations. The Guarantor acknowledges
-----------------------
that its obligations hereunder are independent of the obligations of the Issuer
with respect to the Capital Securities, and that the Guarantor shall be liable
as principal and as debtor hereunder to make Guarantee Payments pursuant to the
terms of this Capital Securities Guarantee notwithstanding the occurrence of any
event referred to in subsections (a) through (g), inclusive, of Section 5.04
hereof.
ARTICLE VI
Limitation of Transactions; Subordination
-----------------------------------------
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SECTION 6.01. Limitations of Transactions. So long as any Capital
---------------------------
Securities remain outstanding, if there shall have occurred an Event of Default,
an event that, with the giving of notice or the lapse of time or both, would
constitute an Event of Default under the Indenture or a selection by the
Guarantor of an Extended Interest Payment Period as provided in the Indenture
and such period, or any extension thereof, shall be continuing, then (a) the
Guarantor shall not declare or pay any dividend on, or make any distribution
with respect to, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its capital stock (other than stock dividends paid by the
Guarantor which stock dividends consist of the stock of the same class as that
on which the dividend is being paid), (b) the Guarantor shall not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by the Guarantor which rank pari passu with or
junior to the Debentures and (c) shall not make any guarantee payments with
respect to the foregoing (other than pursuant to this Capital Securities
Guarantee).
SECTION 6.02. Ranking. This Capital Securities Guarantee will
-------
constitute an unsecured obligation of the Guarantor and will rank (i)
subordinate and junior in right of payment to all other liabilities of the
Guarantor, except any liabilities that may be made pari passu or junior
---- -----
expressly by their terms, (ii) pari passu with the most senior preferred or
---- -----
preference stock now or hereafter issued by the Guarantor and with any guarantee
now or hereafter entered into by the Guarantor in respect of any preferred or
preference stock or preferred security of any Affiliate of the Guarantor, and
(iii) senior to the Guarantor's common stock.
ARTICLE VII
Termination
-----------
SECTION 7.01. Termination. This Capital Securities Guarantee shall
-----------
terminate upon (i) full payment of the amount payable upon redemption of all
Capital Securities, (ii) the distribution of the Debentures to the Holders of
all of the Capital Securities or (iii) full payment of the amounts payable in
accordance with the Declaration upon liquidation of the Issuer. Notwithstanding
the foregoing, this Capital Securities Guarantee will continue to be effective
or will be reinstated, as the case may be, if at any time any Holder of Capital
Securities must restore payment of any sums paid under the Capital Securities or
under this Capital Securities Guarantee.
17
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ARTICLE VIII
Indemnification
---------------
SECTION 8.01. Exculpation. (a) No Indemnified Person shall be
-----------
liable, responsible, or accountable in damages or otherwise to the Guarantor or
any Covered Person for any loss, damage or claim incurred by reason of any act
or omission performed or omitted by such Indemnified Person in good faith in
accordance with this Capital Securities Guarantee and in a manner that such
Indemnified Person reasonably believed to be within the scope of the authority
conferred on such Indemnified Person by this Capital Securities Guarantee or by
law, except that an Indemnified Person shall be liable for any such loss, damage
or claim incurred by reason of such Indemnified Person's negligence or willful
misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Guarantor and upon such information, opinions,
reports or statements presented to the Guarantor by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Guarantor, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Capital Securities might properly be paid.
SECTION 8.02. Indemnification. (a) The Guarantor agrees to
---------------
indemnify each Indemnified Person for, and to hold each Indemnified Person
harmless against, any and all loss, liability or expense including taxes (other
than taxes based on the income of such Indemnified Person) incurred without
negligence or bad faith on its part, arising out of or in connection with the
acceptance or administration of the trust or trusts hereunder, including the
costs and expenses (including reasonable legal fees and expenses) of defending
itself against or investigating any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder. The
obligation to indemnify as set forth in this Section 8.02 shall survive the
termination of this Capital Securities Guarantee.
(b) To the fullest extent permitted by applicable law, expenses
(including legal fees and expenses) incurred by an Indemnified Person in
defending any claim, demand, action, suit or proceeding shall, from time to
time, be
18
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advanced by the Guarantor prior to the final disposition of such claim, demand,
action, suit or proceeding upon receipt by the Guarantor of an undertaking by or
on behalf of the Indemnified Person to repay such amount if it shall be
determined that the Indemnified Person is not entitled to be indemnified as
authorized in Section 8.02(a).
(c) No Indemnified Person shall claim or exact any lien or charge on
any Guarantee Payments as a result of any amount due to it under this Capital
Securities Guarantee.
ARTICLE IX
Miscellaneous
-------------
SECTION 9.01. Successors and Assigns. All guarantees and agreements
----------------------
contained in this Capital Securities Guarantee shall bind the successors,
assigns, receivers, trustees and representatives of the Guarantor and shall
inure to the benefit of the Holders of the Capital Securities then outstanding.
Except in connection with any permitted merger or consolidation of the Guarantor
with or into another entity or any permitted sale, transfer or lease of the
Guarantor's assets to another entity, the Guarantor may not assign its rights or
delegate its obligations under the Capital Securities Guarantee without the
prior approval of the Holders of at least 66 2/3% of the aggregate liquidation
amount of the Capital Securities then outstanding.
SECTION 9.02. Amendments. Except with respect to any changes that do
----------
not adversely affect the rights of Holders (in which case no consent of Holders
will be required), this Capital Securities Guarantee may only be amended with
the prior approval of the Holders of at least 66 2/3% in liquidation amount of a
the outstanding Capital Securities. The provisions of Section 12.02 of the
Declaration with respect to meetings of Holders of the Capital Securities apply
to the giving of such approval.
SECTION 9.03. Notices. All notices provided for in this Capital
-------
Securities Guarantee shall be in writing, duly signed by the party giving such
notice, and shall be delivered, telecopied or mailed by first-class mail, as
follows:
(a) If given to the Capital Securities Guarantee Trustee, at the
Capital Securities Guarantee Trustee's mailing address set forth below (or such
other address as the Capital Securities Guarantee Trustee may give notice of to
the Holders of the Capital Securities):
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Wilmington Trust Company
Rodney Square North, 1100 N. Market Street
Wilmington, Delaware
Attn: Corporate Trust
Trustee Administration
(b) If given to the Guarantor, at the Guarantor's mailing address set
forth below (or such other address as the Guarantor may give notice of to the
Holders of the Capital Securities):
Nationwide Financial Services, Inc.
One Nationwide Plaza
Columbus, Ohio 43215
(c) If given to any Holder of Capital Securities, at the address set
forth on the books and records of the Issuer.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
SECTION 9.04. Benefit. This Capital Securities Guarantee is solely
-------
for the benefit of the Holders of the Capital Securities and, subject to Section
3.01(a), is not separately transferable from the Capital Securities.
SECTION 9.05. Governing Law. THIS CAPITAL SECURITIES GUARANTEE SHALL
-------------
BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
20
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THIS CAPITAL SECURITIES GUARANTEE is executed as of the day and year
first above written.
NATIONWIDE FINANCIAL SERVICES, INC.,
as Guarantor,
By
-------------------------------------------
Name:
Title:
WILMINGTON TRUST COMPANY,
as Capital Securities
Guarantee Trustee,
By
-------------------------------------------
Name:
Title:
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EXHIBIT 5.1
[Letterhead of LeBoeuf, Lamb, Greene & MacRae, L.L.P.]
March 4, 1997
Nationwide Financial Services, Inc.
Nationwide Financial Services Capital Trust
One Nationwide Plaza
Columbus, OH 43215-2220
Re: Nationwide Financial Services Inc. and Nationwide
Financial Services Capital Trust -- Registration
Statement on Form S-1 (File No. 333-18533)
-------------------------------------------------
Dear Ladies and Gentlemen:
We are acting as counsel for Nationwide Financial Services, Inc., a
Delaware corporation (the "Company"), and Nationwide Financial Services Capital
Trust, a statutory business trust formed under the laws of the State of Delaware
(the "Trust"), in connection with the proposed issue and sale of $100,000,000
aggregate principal amount of Junior Subordinated Deferrable Interest Debentures
(the "Debentures") of the Company, $100,000,000 aggregate liquidation amount of
Capital Securities (the "Capital Securities") of the Trust, and a guarantee with
respect to the Capital Securities (the "Guarantee") executed and delivered by
the Company for the benefit of the holders of the Capital Securities, pursuant
to the above captioned Registration Statement (the "Registration Statement").
In so acting, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of the Registration Statement, the
Prospectus that is a part of the Registration Statement (the "Prospectus"), the
form of Indenture with respect to the Debentures, the form of the Debenture, the
form of the Capital Securities Guarantee Agreement (which includes the form of
the Guarantee) and such corporate records, certificates and other documents as
we have considered necessary for the purposes hereof. In such examination, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to the original documents
of all documents submitted to us as copies and the authenticity of the originals
of such latter documents. In addition, we have assumed that the Indenture and
the Capital Securities Guarantee Agreement (including the form of Guarantee
contained therein), when executed, will be in substantially the form reviewed by
us. As to any facts material to our opinion, we have, when relevant facts were
not independently established, relied upon the aforesaid records, certificates
and documents.
<PAGE>
Nationwide Financial Services, Inc.
Nationwide Financial Services Capital Trust
March 4, 1997
Page 2
Based on the foregoing, we are of the opinion that:
1. The Debentures, upon issuance, delivery and payment therefor in
the manner described in the Registration Statement and in accordance with
the terms of the Indenture (filed as Exhibit 4.1 to the Registration
Statement), will be duly and validly issued and will constitute valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, subject to applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, rehabilitation, liquidation,
moratorium or other similar laws affecting the rights of the creditors
generally and to general principles of equity.
2. The Guarantee (filed as Exhibit 4.4 to the Registration
Statement), when executed, will constitute the valid and binding obligation
of the Company, enforceable against the Company in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, rehabilitation, liquidation, moratorium or other similar
laws affecting the rights of creditors generally and to general principles
of equity.
Our opinion set forth herein is limited in all cases to matters
arising under the laws of the State of New York and the General Corporation Law
of the State of Delaware.
We understand that you have received an opinion from Richards, Layton
& Finger, L.L.P., special Delaware counsel for the Company and the Trust. We
are expressing no opinion with respect to the matters contained in such opinion.
We consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus. In giving such consent, we do not thereby concede
that we are within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Commission thereunder.
Very truly yours,
LEBOEUF, LAMB, GREENE & MACRAE, L.L.P.
<PAGE>
EXHIBIT 5.2
[Letterhead of Richards, Layton & Finger]
March 4, 1997
Nationwide Financial Services Capital Trust
c/o Nationwide Financial Services, Inc.
One Nationwide Plaza
Columbus, Ohio 43215
Re: Nationwide Financial Services Capital Trust
-------------------------------------------
Ladies and Gentlemen:
We have acted as special Delaware counsel for Nationwide Financial
Services, Inc., a Delaware corporation (the "Company"), and Nationwide Financial
Services Capital Trust, a Delaware business trust (the "Trust" ), in connection
with the matters set forth herein. At your request, this opinion is being
furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) The Certificate of Trust of the Trust, dated December 18, 1996 as
filed with the office of the Secretary of State of the State of Delaware (the
"Secretary of State") on December 19, 1996 (the "Certificate of Trust");
(b) The Declaration of Trust of the Trust, dated as of December 18,
1996 between the Company and the trustees of the Trust named therein;
(c) The Registration Statement (the "Registration Statement") on Form
S-1, including a preliminary prospectus with respect to the Trust (the
"Prospectus"), relating to the
<PAGE>
Nationwide Financial Services Capital Trust
March 4, 1997
Page 2
Capital Securities of the Trust representing preferred undivided beneficial
interests in the assets of the Trust (each, a "Capital Security" and
collectively, the "Capital Securities"), filed by the Company and the Trust with
the Securities and Exchange Commission on or about March 4, 1997;
(d) A form of Amended and Restated Declaration of Trust for the Trust,
to be entered into between the Company, the trustees of the Trust named therein,
and the holders, from time to time, of the undivided beneficial interests in the
assets of the Trust (including Exhibits A and B thereto) (the "Declaration of
Trust"), attached as an exhibit to the Registration Statement; and
(e) A Certificate of Good Standing for the Trust, dated March 4, 1997,
obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise defined are
used as defined in the Declaration of Trust.
For purposes of this opinion, we have not reviewed any documents other
than the documents listed in paragraphs (a) through (e) above. In particular,
we have not reviewed any document (other than the documents listed in paragraphs
(a) through (e) above) that is referred to in or incorporated by reference into
the documents reviewed by us. We have assumed that there exists no provision in
any document that we have not reviewed that is inconsistent with the opinions
stated herein. We have conducted no independent factual investigation of our
own but rather have relied solely upon the foregoing documents, the statements
and information set forth therein and the additional matters recited or assumed
herein, all of which we have assumed to be true, complete and accurate in all
material respects.
With respect to all documents examined by us, we have assumed (i) the
authenticity of all documents submitted to us as authentic originals, (ii) the
conformity with the originals of all documents submitted to us as copies or
forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Declaration
of Trust and the Certificate of Trust are in full force and effect and have not
been amended, (ii) except to the extent provided in paragraph 1 below, the due
organization or due formation, as the case may be, and valid existence in good
standing of each party to the documents examined by us under the laws of the
jurisdiction governing its creation, organization or formation, (iii) the legal
capacity of natural persons who are parties to the documents examined by us,
(iv) that each of the parties to the documents examined by us has the power and
authority to execute and deliver, and to perform its obligations under, such
documents, (v) the due authorization, execution and
<PAGE>
Nationwide Financial Services Capital Trust
March 4, 1997
Page 3
delivery by all parties thereto of all documents examined by us, (vi) the
receipt by each Person to whom a Capital Security is to be issued by the Trust
(collectively, the "Capital Security Holders") of a certificate for such Capital
Security in the form prescribed by the Declaration of Trust and the payment for
such Capital Security, in accordance with the Declaration of Trust and the
Registration Statement, and (vii) that the Capital Securities are issued and
sold to the Capital Security Holders in accordance with the Declaration of Trust
and the Registration Statement. We have not participated in the preparation of
the Registration Statement and assume no responsibility for its contents.
This opinion is limited to the laws of the State of Delaware
(excluding the securities laws of the State of Delaware), and we have not
considered and express no opinion on the laws of any other jurisdiction,
including federal laws and rules and regulations relating thereto. Our opinions
are rendered only with respect to Delaware laws and rules, regulations and
orders thereunder which are currently in effect.
Based upon the foregoing, and upon our examination of such questions
of law and statutes of the State of Delaware as we have considered necessary or
appropriate, and subject to the assumptions, qualifications, limitations and
exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Business Trust Act.
2. The Capital Securities of the Trust will represent valid and,
subject to the qualifications set forth in paragraph 3 below, fully paid and
nonassessable undivided beneficial interests in the assets of the Trust.
3. The Capital Security Holders, as beneficial owners of the Trust,
will be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware. We note that the Capital Security
Holders may be obligated to make payments as set forth in the Declaration of
Trust.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. We hereby
consent to the use of our name under the heading "Legal Matters" in the
Prospectus. In giving the foregoing consents, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
<PAGE>
Nationwide Financial Services Capital Trust
March 4, 1997
Page 4
Securities and Exchange Commission thereunder. Except as stated above, without
our prior written consent, this opinion may not be furnished or quoted to, or
relied upon by, any other person for any purpose.
Very truly yours,
RICHARDS, LAYTON & FINGER
CDK
<PAGE>
EXHIBIT 8.1
[Letterhead of LeBoeuf, Lamb, Greene & MacRae, L.L.P.]
March 5, 1997
Nationwide Financial Services, Inc.
One Nationwide Plaza
Columbus, Ohio 43215
Re: Subordinated Debt Securities
----------------------------
Gentlemen:
We have acted as counsel to Nationwide Financial Services, Inc.
("Nationwide") and Nationwide Financial Services Capital Trust, (the "Trust") in
connection with the issuance of securities by Nationwide, and by the Trust, as
described in the Registration Statement on Form S-1 (Registration No. 333-18533)
filed with the Securities and Exchange Commission (the "Commission") on December
23, 1996, as amended by Amendment No. 1 ("Amendment No. 1") filed with the
Commission on or about February 20, 1997 (as so amended, the "Registration
Statement"), and the Prospectus dated contained therein (the "Prospectus"). This
opinion is hereby delivered on the date the Prospectus is declared effective by
the Commission.
We understand that the transaction will consist of the following:
Nationwide, a domestic corporation, will issue junior subordinated
debt securities (the "Debentures") which will be held by the Trust, a Delaware
business trust. The Trust will initially have the following trustees
(collectively, the "Trustees"): (a) three trustees who are natural persons
employed by or affiliated with Nationwide (the "Regular Trustees"), and a fourth
trustee (the "Property Trustee"), which will be a financial institution that is
unaffiliated with Nationwide and whose principal place of business is in
Delaware. The Declaration of Trust, including any Amended and Restated
<PAGE>
Nationwide Financial Services, Inc.
March 5, 1997
Page 2
Declaration of Trust, establishing the Trust (collectively, the "Declaration")
authorizes the Trustees to have the Trust issue (a) capital securities (the
"Capital Securities") representing beneficial undivided interests in the Trust
and (b) common securities (the "Common Securities") representing all residual
beneficial undivided interests in the Trust. All of the Common Securities will
be directly or indirectly owned by Nationwide. The Declaration will not permit
the issuance by the Trust of any securities or other beneficial interests other
than the Capital Securities and the Common Securities issued on the Closing Date
(as defined in the Declaration). Pursuant to the Declaration, the Property
Trustee will hold a security interest in the Debentures owned by the Trust for
the benefit of the holders of the Capital Securities and secondarily, the Common
Securities. The Property Trustee will also receive all interest and principal
paid in respect of the Debentures and will maintain such funds in a segregated
non-interest bearing account pending distribution.
Holders of the Capital Securities will be entitled to receive
cumulative cash distributions ("Distributions") at a specified annual rate of
____% of the liquidation amount of $1,000 per Capital Security, accruing from
the date of original issuance and payable semi-annually in arrears on __________
and ___________ of each year, commencing _________, 1997. Nationwide will
guarantee (the "Guarantee") the payment of distributions by the Trust if and to
the extent the Trust has funds available for such purpose. In the event the
Trust does not have sufficient funds to pay such distributions, the holders of
Capital Securities, among other remedies, will be entitled to direct the
Property Trustee to enforce the Property Trustee's rights under the indenture
(the "Indenture") executed in connection with the issuance of the Debentures.
We understand that the Debentures will have a maturity of 40 years,
and will pay interest accruing from the date of original issuance and payable
semi-annually in arrears on _____ and _______of each year, commencing
__________, 1997, at an annual rate equal to the annual rate of interest on the
Capital Securities. Nationwide has the right to defer payments of interest on
the Debentures at any time for up to 10 consecutive semi-annual periods (each
group of consecutive periods a "Deferral Period"). If interest payments are so
deferred, Distributions will also be deferred. During such Deferral Period,
Distributions will continue to accrue with interest thereon (to the extent
permitted by applicable law) at an annual rate of ____ % per annum compounded
semi-annually. We also understand that the Debentures will be subordinate to
all senior indebtedness of Nationwide, but will rank pari passu with the
---- -----
<PAGE>
Nationwide Financial Services, Inc.
March 5, 1997
Page 3
general unsecured creditors of Nationwide and will be senior to all classes of
equity. The management of Nationwide reasonably expects that, as of the date of
issuance and throughout the term of the Debentures, Nationwide will have assets
and cash flow sufficient to service the Debentures pursuant to their terms and
that Nationwide has no current plan or intention to exercise its right to defer
payments of interest on the Debentures. The terms of the Debentures, other than
the option of Nationwide to defer payment of interest for up to 10 consecutive
semi-annual periods, will generally be consistent with other indebtedness of
Nationwide.
In rendering our opinion, we have reviewed and relied upon (i) the
Registration Statement, (ii) the Prospectus, (iii) the Officer's Certificate of
Nationwide dated March __, 1997 and (iv) such other documents, and have made
such further investigations as we have deemed necessary to render the opinion
set forth below. In performing our examination, as to any facts material to our
opinion, we have, when relevant facts were not independently established by us,
relied upon representations to us by representatives of Nationwide and the
Trust, and have assumed the truth and accuracy of the representations in the
documents and instruments described herein.
Based upon the foregoing, and subject to the assumptions and
qualifications set forth herein, we are of the opinion that:
1. Upon the issuance of the Capital Securities, the Trust will be
classified as a grantor trust for U.S. Federal income tax purposes, rather than
as an association taxable as a corporation or as a partnership. Accordingly,
each beneficial owner of the Capital Securities will be treated for U.S. Federal
income tax purposes as the owner of an undivided interest in the Debentures.
2. The Debentures, when issued, will constitute indebtedness of
Nationwide for U.S. Federal income tax purposes. Accordingly, interest on the
Debentures will be deductible by Nationwide on an economic accrual basis,
regardless of when such interest is actually paid.
3. Nationwide has the option to defer payments of interest on the
Debentures; however, Nationwide has determined that the likelihood of its
exercising this option is remote. Accordingly, although the matter is not free
from doubt, the Debentures, for U.S. Federal income tax purposes, should not,
when issued, be considered issued with original issue discount.
<PAGE>
Nationwide Financial Services, Inc.
March 5, 1997
Page 4
4. The discussion set forth in the Prospectus under the heading
"United States Federal Income Taxation" is a fair and accurate summary of the
matters addressed therein, based upon current law and the assumptions stated or
referred to therein.
The above opinions are based upon provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), its legislative history, the Treasury
Regulations thereunder, and published rulings and court decisions in effect as
of the date hereof which is the effective date of the Prospectus, all of which
are subject to change, possibly retroactively, and no assurance can be given
that the Internal Revenue Service will not take contrary positions. We are
admitted to the practice of law in the State of New York, and we express no
opinion herein as to any laws other than the Federal tax laws of the United
States of America. The opinions rendered herein are for your sole benefit and
may not be relied upon by any other party or in any other transaction.
Very truly yours,
LEBOUEF, LAMB, GREENE & MACRAE, L.L.P.
<PAGE>
EXHIBIT 10.1
================================================================================
FORM
INTERCOMPANY AGREEMENT
AMONG
NATIONWIDE FINANCIAL SERVICES, INC.,
NATIONWIDE MUTUAL INSURANCE COMPANY
AND
NATIONWIDE CORPORATION
Dated as of March , 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS...............................................1
SECTION 1.1 Definitions.........................................1
ARTICLE II COSTS AND EXPENSES........................................7
SECTION 2.1 Allocation of Costs and Expenses....................7
ARTICLE III CORPORATE GOVERNANCE......................................7
SECTION 3.1 Nationwide Consent to Certain Actions...............7
ARTICLE IV LICENSING AGREEMENT.......................................9
SECTION 4.1 Grant of License....................................9
SECTION 4.2 Nationwide Guidelines and Standards................10
SECTION 4.3 Nationwide Retention of Ownership..................11
SECTION 4.4 Infringement.......................................12
SECTION 4.5 License Fee........................................12
SECTION 4.6 Transactions Affecting NFS, Nationwide and the
Marks..............................................13
SECTION 4.7 Trademark, Trade Name, and/or Service Mark Usage
Marking Requirements and Quality Control...........13
SECTION 4.8 Term and Termination of License....................14
SECTION 4.9 Effect of Termination; Further Assurances;
Attorney-in Fact...................................14
ARTICLE V EQUITY PURCHASE RIGHTS...................................15
SECTION 5.1 Equity Purchase Rights.............................15
ARTICLE VI FINANCIAL AND OTHER INFORMATION..........................17
SECTION 6.1 Twenty Percent Threshold...........................17
SECTION 6.2 Nationwide Annual Statements.......................21
SECTION 6.3 Forty Percent Threshold............................22
SECTION 6.4 Fifty Percent Threshold............................22
SECTION 6.5 Ten Percent Threshold..............................23
SECTION 6.6. Confidentiality....................................24
ARTICLE VII REGISTRATION RIGHTS......................................24
SECTION 7.1 Piggyback Registrations............................24
SECTION 7.2 Requested Registrations............................25
SECTION 7.3 Registration Procedures............................27
SECTION 7.4 Restriction on Disposition of Registrable Shares...30
SECTION 7.5 Selection of Underwriters..........................31
SECTION 7.6 Registration Expenses..............................31
SECTION 7.7 Conversion of Other Securities.....................31
SECTION 7.8 Rule 144...........................................31
SECTION 7.9 Transfer of Registration Rights....................32
i
<PAGE>
ARTICLE VIII INDEMNIFICATION..........................................32
SECTION 8.1 Cross Indemnification..............................32
SECTION 8.2 Registration Statement Indemnification.............33
SECTION 8.3 Contribution.......................................34
SECTION 8.4 Procedure..........................................35
SECTION 8.5 Other Matters......................................36
ARTICLE IX DISPUTE RESOLUTION.......................................36
SECTION 9.1 Negotiation........................................36
SECTION 9.2 Arbitration........................................36
ARTICLE X NATIONWIDE EXCLUSIVE MARKETING FORCE.....................38
SECTION 10.1 Use of Nationwide Exclusive Marketing Force........38
SECTION 10.2 Effect of Termination; Further Assurances;
Attorney-in-Fact...................................38
ARTICLE XI REPRESENTATIONS AND WARRANTIES...........................39
SECTION 11.1 Representations and Warranties of Nationwide and
NWC................................................39
SECTION 11.2 Representations and Warranties of NFS..............40
ARTICLE XII MISCELLANEOUS............................................41
SECTION 12.1 Notices............................................41
SECTION 12.2 Binding Nature of Agreement........................42
SECTION 12.3 Interpretation.....................................42
SECTION 12.4 Remedies...........................................42
SECTION 12.5 Governing Law......................................43
SECTION 12.6 Counterparts.......................................43
SECTION 12.7 Severability.......................................43
SECTION 12.8 Amendments and Waivers.............................43
SECTION 12.9 Entire Agreement...................................43
SECTION 12.10 No Assignment......................................43
SECTION 12.11 Further Assurances.................................43
SECTION 12.12 No Third Party Beneficiaries.......................43
EXHIBITS
EXHIBIT A Trademarks
EXHIBIT B Form of Designated Subsidiary Agreement
EXHIBIT C Guidelines with Respect to the Marks
ii
<PAGE>
INTERCOMPANY AGREEMENT, dated as of March , 1997 ("this Agreement"),
among NATIONWIDE FINANCIAL SERVICES, INC., a Delaware corporation ("NFS"),
NATIONWIDE MUTUAL INSURANCE COMPANY, an Ohio mutual company ("Nationwide"), and
NATIONWIDE CORPORATION, an Ohio corporation ("NWC").
WITNESSETH:
WHEREAS, Nationwide owns substantially all of the outstanding common
stock of NWC and, as of the date hereof, NWC owns all of the outstanding Class
B Common Stock, par value $0.01 per share (the "Class B Common Stock"), of NFS,
constituting all of the outstanding capital stock of NFS;
WHEREAS, NFS is issuing shares of Class A Common Stock, par value $0.01
per share (the "Class A Common Stock"), to the public in an offering (the
"Initial Public Offering") registered under the Securities Act of 1933, as
amended (the "Securities Act");
WHEREAS, as a result of the Initial Public Offering, NFS will cease to be
a wholly owned subsidiary of NWC; and
WHEREAS, in contemplation of the Initial Public Offering, NFS, NWC and
Nationwide desire to enter into this Agreement to set forth the terms of
certain agreements among them.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. For all purposes of this Agreement,
-----------
the following definitions shall apply unless the context otherwise requires:
"Actions" has the meaning set forth in Section 8.1.
-------
"Average Market Price" of any security on any date means the average
--------------------
of the daily closing prices for the 20 consecutive trading days before the day
in question. The closing price for each trading day shall be the last reported
sales price or, in case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices, in either case on the New
York Stock Exchange, Inc. or, if such security is not listed or admitted to
trading on such exchange, on the principal national securities exchange on
which such security is listed or
<PAGE>
admitted to trading or, if not listed or admitted to trading on any national
securities exchange, on the Nasdaq Stock Market's National Market or, if such
security is not listed or admitted to trading on any national securities
exchange or quoted on such National Market, the average of the closing bid and
asked prices in the over-the-counter market as furnished by any New York Stock
Exchange member firm selected from time to time by NFS for that purpose. For
the purpose of this definition, the term "trading day" shall mean each Monday,
Tuesday, Wednesday, Thursday and Friday, other than any day on which securities
are not traded on such exchange or in such market because such exchange or
market is closed.
"Business Day" means any day that is not a Saturday or a Sunday or a
------------
day on which banking institutions in New York City are authorized or obligated
by law or executive order to close.
"Capital Expenditure" means, with respect to any Person, any expense
-------------------
or liability incurred or expenditure made which, in accordance with GAAP, is
required to be capitalized on such Person's balance sheet.
"Class A Common Stock" has the meaning set forth in the recitals of
--------------------
this Agreement.
"Class B Common Stock" has the meaning set forth in the recitals of
--------------------
this Agreement.
"Closing Date" means the date of the closing of the initial sale of
------------
Class A Common Stock in the Initial Public Offering.
"Common Stock" means, collectively, the Class A Common Stock and
------------
Class B Common Stock and any other class or series of common stock of NFS
hereafter created.
"Demand Registration" has the meaning set forth in Section 7.2(a).
-------------------
"Designated Businesses" means (i) the subsidiaries of Nationwide Life
---------------------
whose capital stock was dividended to NWC as part of the Transactions and (ii)
the business reinsured pursuant to the modified coinsurance agreements
effective as of January 1, 1996 between Nationwide Life and certain other
members of the Nationwide Affiliated Group.
"Designated Subsidiary" has the meaning set forth in Section 4.1.
---------------------
"Designated Subsidiary Agreement" has the meaning set forth in
-------------------------------
Section 4.1.
- 2 -
<PAGE>
"Dispute" has the meaning set forth in Section 9.1.
-------
"Equity Purchase Rights" has the meaning set forth in Section 5.1.
----------------------
"Equity Purchase Share Amount" has the meaning set forth in Section
----------------------------
5.1.
"Equity Purchase Shares" means shares of Voting Stock or any
----------------------
securities convertible into or exchangeable for shares of Voting Stock or any
options, warrants or rights to acquire shares of Voting Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Fixed Income Offerings" has the meaning ascribed thereto in the IPO
----------------------
Registration Statement.
"GAAP" means United States generally accepted accounting principles.
----
"Indebtedness" means, with respect to any Person, any liability of
------------
such Person in respect of borrowed money evidenced by bonds, notes, debentures
or similar instruments and shall also include (i) any liability of such Person
under any agreement related to the fixing of interest rates on any
Indebtedness, (ii) any capitalized lease obligations of such Person (if and to
the extent the same would appear on a balance sheet of such Person prepared in
accordance with GAAP), (iii) reimbursement obligations of such Person in
respect of letters of credit (regardless of whether such items would appear on
a balance sheet of such Person) and (iv) guarantees by such Person with respect
to the items described in clauses (i), (ii) and (iii) above (regardless of
whether such guarantees would appear on a balance sheet of such Person).
"Indemnitee" has the meaning set forth in Section 8.4.
----------
"Initial Public Offering" has the meaning set forth in the recitals
-----------------------
of this Agreement.
"Inspectors" has the meaning set forth in Section 7.3(g).
----------
"Interested Director" means any member of the Board of Directors of
-------------------
NFS who also is an officer or director of any member of the Nationwide
Affiliated Group.
"IPO Registration Statement" means the registration statement of NFS
--------------------------
filed with the SEC under the Securities Act relating to the Initial Public
Offering.
- 3 -
<PAGE>
"License" has the meaning set forth in Section 4.1.
-------
"License Fee" has the meaning set forth in Section 4.5.
-----------
"Losses" has the meaning set forth in Section 8.1.
------
"Marks" has the meaning set forth in Section 4.1.
-----
"Nationwide" has the meaning set forth in the first paragraph of this
----------
Agreement.
"Nationwide Affiliated Group" means, collectively, Nationwide and all
---------------------------
of its direct and indirect subsidiaries and affiliates now or hereafter
existing, other than NFS and its Subsidiaries.
"Nationwide Annual Financial Statements" has the meaning set forth in
--------------------------------------
Section 6.2.
"Nationwide Auditors" has the meaning set forth in Section 6.2(a).
-------------------
"Nationwide Life" means Nationwide Life Insurance Company, an Ohio
---------------
insurance company.
"Nationwide Exclusive Marketing Force" means insurance agents under
------------------------------------
contract with the Nationwide Affiliated Group to sell commercial, personal
lines and life insurance and annuity products issued by the Nationwide
Affiliated Group; provided, however, that the term Nationwide Exclusive
-------- -------
Marketing Force shall not include the marketing forces established exclusively
for and which solely represent non-insurance company Subsidiaries of NFS.
"NFS" has the meaning set forth in the first paragraph of this
---
Agreement.
"NFS Auditors" has the meaning set forth in Section 6.2(a).
------------
"NFS Information" has the meaning set forth in Section 6.1(k).
---------------
"NFS Public Documents" has the meaning set forth in Section 6.1(h).
--------------------
"NWC" has the meaning set forth in the first paragraph of this
---
Agreement.
"Outstanding Voting Stock" means the shares of Voting Stock issued
------------------------
and outstanding, but shall not include shares of Voting Stock held by NFS as
treasury stock or by any Subsidiary of NFS.
- 4 -
<PAGE>
"Person" means any individual, corporation, partnership, joint
------
venture, limited liability company, association or other business entity and
any trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Piggyback Registration" has the meaning set forth in Section 7.1(a).
----------------------
"Public Company Stock" means any class or series of Voting Stock
--------------------
registered under the Exchange Act.
"Public Filings" has the meaning set forth in Section 6.1(l).
--------------
"Prospectus" means the prospectus or prospectuses included in any
----------
Registration Statement, as amended or supplemented by any prospectus supplement
and by all other amendments and supplements to such prospectus, including
post-effective amendments and all material incorporated by reference in such
prospectus or prospectuses.
"Records" has the meaning set forth in Section 7.3(g).
-------
"Registrable Shares" means any shares of Class A Common Stock held by
------------------
any member of the Nationwide Affiliated Group or by any Transferee thereof.
"Registration Indemnitee" has the meaning set forth in Section
-----------------------
8.2(a).
"Registration Statement" means any registration statement of NFS
----------------------
filed with the SEC under the Securities Act, including, but not limited to, the
registration statements relating to the Initial Public Offering and the Fixed
Income Offerings and any registration statement that relates to any of the
Registrable Shares, including in each such case the Prospectus relating
thereto, amendments and supplements to such Registration Statement, including
post-effective amendments, all exhibits and all materials incorporated by
reference in such Registration Statement and Prospectus.
"Regulation S-K" means Regulation S-K of the General Rules and
--------------
Regulations under the Securities Act.
"Regulation S-X" means Regulation S-X of the General Rules and
--------------
Regulations under the Securities Act.
"Rules" has the meaning set forth in Section 9.2(a).
-----
"Scope of the License" has the meaning set forth in Section 4.1.
--------------------
- 5 -
<PAGE>
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" has the meaning set forth in the recitals of this
--------------
Agreement.
"Subsidiary" or "Subsidiaries" of NFS means and includes all
------------
corporations, partnerships, joint ventures, limited liability companies,
associations and other Persons: (i) in which NFS owns (directly or indirectly)
50 percent or more of the outstanding voting stock, voting power, partnership
interests or similar ownership interests; (ii) of which NFS otherwise possesses
(directly or indirectly) the power to direct or cause the direction of the
management and policies; or (iii) that would be considered "subsidiaries" of
NFS within the meaning of Regulation S-K or Regulation S-X.
"Termination Date" has the meaning set forth in Section 10.1.
----------------
"this Agreement" has the meaning set forth in the first paragraph of
--------------
this Agreement.
"Transactions" means, collectively, (i) the dividend by Nationwide
------------
Life to NWC of all of the outstanding capital stock of the subsidiaries of
Nationwide Life that do not offer or distribute long-term savings and
retirement products; (ii) the dividend of $50 million by Nationwide Life to
NWC; (iii) the reinsurance of Nationwide Life's accident and health and group
life insurance business by certain other members of the Nationwide Affiliated
Group; (iv) the dividend of $850 million by Nationwide Life to NFS and the
dividend of an equal amount by NFS to NWC; (v) the contribution by NWC to
Nationwide Life of those companies that offer or distribute long-term savings
and retirement products; (vi) the split and reclassification of the Common
Stock held by NWC prior to the Initial Public Offering; (vii) the Initial
Public Offering; and (viii) the Fixed Income Offerings.
"Transferee" has the meaning set forth in Section 7.9(a).
----------
"Trigger Date" means the date on which the members of the Nationwide
------------
Affiliated Group cease to own, in the aggregate, at least 50 percent of the
voting power of the Outstanding Voting Stock.
"Underwritten Registration" or "Underwritten Offering" means a
---------------------
registration in which securities of NFS are sold to underwriters for reoffering
to the public.
"Voting Stock" means all securities issued by NFS having the ordinary
------------
power to vote in the election of directors of NFS, other
- 6 -
<PAGE>
than securities having such power only upon the occurrence of a default or any
other extraordinary contingency.
"Wholly Owned Subsidiary" of NFS means and includes all Subsidiaries
-----------------------
of NFS in which NFS owns (directly or indirectly) all of the outstanding voting
stock, voting power, partnership interests or similar ownership interests,
except for director's qualifying shares in nominal amounts.
ARTICLE II
COSTS AND EXPENSES
SECTION 2.1 Allocation of Costs and Expenses. NFS shall pay
--------------------------------
(or, to the extent incurred by and paid for by any member of the Nationwide
Affiliated Group, shall reimburse as promptly as practicable such member of the
Nationwide Affiliated Group for any and all amounts so paid) for all fees,
costs and expenses incurred by NFS or any member of the Nationwide Affiliated
Group in connection with the Transactions, including, but not limited to, any
and all fees, costs and expenses related to: (i) the preparation and
negotiation of this Agreement and of all of the documentation related to the
Transactions and all related transactions; (ii) the preparation and execution
or filing of any and all further documents, agreements, forms, applications,
contracts or consents associated with the Transactions and all related
transactions; (iii) NFS's formation; (iv) the preparation, printing and filing
of the Registration Statements relating to the Initial Public Offering and the
Fixed Income Offerings, including all fees and expenses of complying with
applicable federal, state or foreign securities laws and domestic or foreign
securities exchange rules and regulations together with fees and expenses of
counsel retained to effect such compliance; (v) the preparation, printing and
distribution of the Prospectuses for the Initial Public Offering and the Fixed
Income Offerings; and (vi) the listing of the Class A Common Stock and any
other securities of NFS on any domestic or foreign securities exchange;
provided, however, that in no event shall NFS pay, reimburse or
- -------- -------
otherwise have any responsibility or liability for any amount for which
Nationwide is liable pursuant to Section 8.1(a).
ARTICLE III
CORPORATE GOVERNANCE
SECTION 3.1 Nationwide Consent to Certain Actions. Until the
-------------------------------------
Trigger Date, NFS will not permit any of the following to occur without the
prior written consent of Nationwide:
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<PAGE>
(i) any consolidation or merger of NFS with or into any Person or
of any Person with or into NFS (other than a merger or consolidation of
NFS with or into a Wholly Owned Subsidiary of NFS);
(ii) any consolidation or merger of any Subsidiary of NFS with or
into any Person or of any Person with or into any Subsidiary of NFS
(other than a merger or consolidation of a Subsidiary of NFS with or into
NFS or a Wholly Owned Subsidiary of NFS);
(iii) any sale, lease, exchange or other disposition or any
acquisition (by way of merger or consolidation, acquisition of stock,
other securities or assets, or otherwise), in each case by NFS or any
Subsidiary of NFS, directly or indirectly in a single transaction, or
series of related transactions valued in the aggregate, involving
consideration in excess of $250 million (other than acquisitions,
dispositions and transfers of securities pursuant to portfolio investment
decisions in the ordinary course of business and transactions to which
NFS and one or more Wholly Owned Subsidiaries of NFS are the only
parties);
(iv) any increase or decrease in the authorized capital stock of
NFS or the creation of any class or series of capital stock of NFS;
(v) any issuance by NFS or any Subsidiary of NFS of any shares of
its respective capital stock or any options, warrants or rights to
acquire such capital stock or securities convertible into or exchangeable
for capital stock, except (A) up to 2.6 million shares of Class A Common
Stock issuable pursuant to employee and director stock option, profit
sharing and other benefit plans and any options exercisable therefor, (B)
shares of Class A Common Stock issued upon the conversion of any Class B
Common Stock, (C) the issuance of shares of capital stock of a Wholly
Owned Subsidiary of NFS to NFS or another Wholly Owned Subsidiary of NFS
and (D) in the Initial Public Offering;
(vi) the dissolution, liquidation or winding up of NFS;
(vii) any alteration, amendment or repeal of, or adoption of any
provision inconsistent with, Articles FIFTH, NINTH, TENTH and ELEVENTH of
the Restated Certificate of Incorporation of NFS or of Article II,
Section 11 of the Restated Bylaws of NFS;
- 8 -
<PAGE>
(viii) the election, removal or filling of a vacancy in the office
serving in the capacity of the Chairman, Chief Executive Officer or
President of NFS;
(ix) the declaration of dividends on any class or series of the
capital stock of NFS except for cash dividends on the Common Stock in an
amount not to exceed the greater of (x) the most recent regular cash
dividend on the Common Stock and (y) 15 percent of the product of (1) the
last reported sale price of the Class A Common Stock on the principal
national securities exchange on which the Class A Common Stock is listed
on the day preceding the day such dividend is declared and (2) the number
of outstanding shares of Class A Common Stock;
(x) any Capital Expenditure or series of related Capital
Expenditures of NFS or any Subsidiary of NFS in excess of $250 million
during any period of 12 consecutive months;
(xi) the creation or incurrence by NFS or any Subsidiary of NFS,
in a single transaction or a series of related transactions, of
Indebtedness in excess of $100 million, except as contemplated by the
Fixed Income Offerings; or
(xii) any change in the number of directors on the Board of
Directors of NFS, the establishment of any committee of the Board of
Directors of NFS, the determination of the members of the Board of
Directors of NFS or any committee thereof, the removal of members of the
Board of Directors of NFS or any committee thereof, and the filling of
newly created memberships and vacancies on the Board of Directors of NFS
or any committees thereof, except in all cases as described in the IPO
Registration Statement.
ARTICLE IV
LICENSING AGREEMENT
SECTION 4.1 Grant of License. Nationwide hereby grants to NFS
----------------
a non-exclusive and non-transferable license (which is revocable under the
circumstances set forth below) (the "License") to use the name "Nationwide" and
the trademarks, trade names and service marks specified in Exhibit A
---------
hereto, as such Exhibit A may be amended from time to time in accordance
---------
with Section 4.3(b)(such trademarks, trade names and service marks hereinafter
collectively referred to as the "Marks"), but only in the manner identified in
Exhibit A hereto, including the attachments thereto, or Exhibit C or
- --------- ---------
otherwise approved in
- 9 -
<PAGE>
advance in writing by Nationwide, in each case, solely for the purpose of
identifying and advertising NFS's insurance and long-term savings and
retirement business and activities related to such business in the United
States and Canada, subject to any and all legal requirements and legal or
policy limitations on such licensing that may arise from time to time in any
jurisdiction (the "Scope of the License"). Notwithstanding the foregoing, NFS
shall only use the Marks in connection with operations, services and products
of a quality specified and approved by Nationwide in accordance with Section
4.7 hereof. NFS shall have no right to transfer, assign or sublicense its
rights with regard to the License or authorize any person to use the Marks
without Nationwide's prior written consent and any such purported transfer,
assignment or sublicense without Nationwide's prior written consent shall be
null and void; provided, however, that any Wholly Owned Subsidiary of
-------- -------
NFS that is specifically approved in advance in writing by Nationwide (a
"Designated Subsidiary") and which enters into an agreement with Nationwide (a
"Designated Subsidiary Agreement") substantially in the form of Exhibit B
---------
hereto may use the Marks in accordance with the terms of such Designated
Subsidiary Agreement and in the forms and manner and in connection with such
operations, services and products of such Designated Subsidiary as shall be
identified and approved in advance in writing by Nationwide in accordance with
the provisions of this Article IV.
Notwithstanding the foregoing, in the event that a Designated Subsidiary
Agreement is terminated, the Scope of the License shall automatically be deemed
amended (without any action by the parties hereto or thereto) to no longer
license hereunder the Marks for use by such Designated Subsidiary, and such
Designated Subsidiary shall, and NFS shall cause such Designated Subsidiary to,
cease as promptly as reasonably and commercially practicable, but no later than
10 days following such termination, all use of the Marks in connection with all
of such Designated Subsidiary's operations, products and services and all
rights of such Designated Subsidiary with respect to the Marks shall revert
automatically to Nationwide.
NFS and each Designated Subsidiary shall execute all additional documents
that Nationwide may reasonably request, both prior and subsequent to the
expiration or earlier termination of the License, in order to perfect,
maintain, defend or terminate any right of any party in the Marks in any
country of the world, as determined by Nationwide in its sole discretion.
SECTION 4.2 Nationwide Guidelines and Standards. NFS agrees
-----------------------------------
that all advertising, promotion and use of the Marks by NFS and the Designated
Subsidiaries shall in all material respects be consistent with such guidelines
and standards of Nationwide as may be issued from time to time and disclosed to
- 10 -
<PAGE>
NFS pursuant to the last sentence of this Section 4.2, it being agreed that NFS
will use its best efforts to comply as promptly as practicable with any changed
guidelines. NFS agrees that, in the conduct of the business and activities of
NFS and the Designated Subsidiaries under the Marks, it shall, and shall cause
each Designated Subsidiary to, adhere to the appropriate ethical, legal and
business standards and the standards of Nationwide pertaining to NFS's and the
Designated Subsidiaries' businesses and operations, and NFS shall, and shall
cause each Designated Subsidiary to, knowingly do nothing to bring disrepute to
or in any manner damage the goodwill symbolized by the Marks and shall make
available to Nationwide any requested information necessary for Nationwide to
evaluate any such effect on said goodwill. Attached hereto as Exhibit C is
---------
a copy of Nationwide's current guidelines with respect to the advertising,
promotion and use of the Marks as in effect on the date hereof. Nationwide
will promptly provide to NFS a copy of all amendments and replacement of such
guidelines.
SECTION 4.3 Nationwide Retention of Ownership. (a) NFS
---------------------------------
acknowledges and agrees that Nationwide is the effective owner of all of the
right, title and interest in the Marks and all goodwill associated therewith
and acknowledges the validity of all trademark and service mark registrations
of the Nationwide pertaining thereto. NFS agrees that it shall, and shall
cause each of its officers, directors and Subsidiaries to, uphold the goodwill
inherent in the Marks and to assist the Nationwide in any way reasonably
possible to protect the rights of the Nationwide therein. All use of the Marks
by NFS and the Designated Subsidiaries (including all past, present and future
use), and the goodwill generated thereby, shall inure to the benefit of the
Nationwide and shall not vest in NFS or in any Designated Subsidiary, and, for
purposes of trademark registration, all use of the Marks by NFS and the
Designated Subsidiaries shall be deemed to have been made for the benefit of
the Nationwide. NFS and the Designated Subsidiaries shall not, without the
written consent of Nationwide, file or prosecute any trademark, trade name
and/or service mark application to the Marks or any trademarks or service marks
confusingly similar thereto.
(b) Additional trademarks, trade names and service marks may be added
to Exhibit A hereto if (i) NFS makes a written request therefor to such
---------
effect, which request shall specify in reasonable detail a description or
drawing of such trademarks, trade names or service marks and a description of
the manner in which such trademarks, trade name or service marks are to be
used, (ii) NFS shall have provided to Nationwide all additional information
reasonably requested by Nationwide with respect thereto within 10 Business Days
after such request, and (iii) within 30 Business Days after its receipt of the
written request
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<PAGE>
referred to in clause (i) above, Nationwide shall have consented in writing to
the inclusion of such trademark, trade name or service mark on Exhibit A
---------
hereto. If the conditions set forth in clauses (i), (ii) and (iii) above are
satisfied, Exhibit A shall be deemed to have been amended to include such
---------
trademark, trade name or service marks (and such trademark, trade name or
service marks shall become part of the Marks) and promptly thereafter the
parties shall execute and deliver to each other a written instrument
acknowledging such amendment and attaching Exhibit A, as so amended,
---------
thereto. NFS acknowledges that the Nationwide shall be the exclusive owners of
all of the right, title and interest in all the marks that become part of the
Marks subsequent to the date hereof. The addition of Marks to Exhibit A
---------
hereto shall not affect the Scope of the License or any other term thereof.
SECTION 4.4 Infringement. NFS acknowledges that it is of the
------------
utmost importance to protect the Marks against unfair competition,
disparagement, infringement and/or dilution. NFS shall as promptly as
practicable notify Nationwide in writing of any infringement of the Marks or of
any act of unfair competition, disparagement or dilution by third parties
relating to the Marks, whenever such infringement or act shall come to NFS's
attention. Nationwide shall have the primary responsibility promptly to
initiate and pursue appropriate actions which, in the reasonable judgment of
Nationwide, are necessary to protect Nationwide's rights to the Marks against
such infringements or acts; provided, however, that if, in the
-------- -------
reasonable judgment of NFS, Nationwide has not within 60 days after written
notification by NFS of such infringement or act, initiated and pursued
appropriate actions necessary to protect Nationwide's rights against such
infringement or act, or unfair competition, disparagement and/or dilution, NFS
may commence a suit or other action in its name that is necessary to protect
the Marks with regard thereto. Nationwide and NFS shall cooperate with each
other to the fullest extent necessary to maintain and/or implement the actions
taken by the other under this Section 4.4, including, without limitation, being
joined as a necessary co-plaintiff in an action brought hereunder. In any such
action where the parties hereto are co-plaintiffs, any recoveries, damages and
costs (including attorneys' fees) or proceeds of a settlement resulting from
such action shall be equitably apportioned between Nationwide and NFS.
SECTION 4.5 License Fee. From the date hereof until the
-----------
License terminates, NFS shall pay Nationwide a fee of $10,000 per annum (the
"License Fee"). The License Fee with respect to the first 12-month period
shall be payable in advance on the Closing Date and the License Fee with
respect to each 12-month period thereafter shall be payable in advance on each
successive anniversary of the Closing Date; provided, however, that if
-------- -------
any
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<PAGE>
such anniversary falls on a day that is not a Business Day, the License Fee
shall be paid on the next succeeding Business Day. In the event the License is
terminated prior to the end of any such 12-month period, Nationwide shall not
have any obligation to refund to NFS any portion of the License Fee relating to
such 12-month period.
SECTION 4.6 Transactions Affecting NFS, Nationwide and the
-----------------------------------------------
Marks. NFS shall not, and shall cause each of its Subsidiaries not to, take
- -----
any action with respect to the following matters without informing Nationwide
in advance in writing of all material facts relating thereto and without
obtaining Nationwide's prior written consent thereto:
(a) the commencement, settlement, defense of, consent to a judgment or
decree or other activity with respect to any suit, action or proceeding before
any federal, state, local or foreign court, agency, authority, instrumentality,
arbitration panel or other governmental body or authority involving the Marks,
except as otherwise provided in Section 4.4;
(b) any changes in NFS's or its Subsidiaries' names, logos, signs,
trademarks or other identifications that might reasonably be expected to affect
the appearance of, the reputation of or the goodwill associated with the Marks
or any member of the Nationwide Affiliated Group; or
(c) any television, radio, newspaper, magazine or other advertising
campaign or strategy using the Marks or referring, directly or indirectly, to
any member of the Nationwide Affiliated Group.
SECTION 4.7 Trademark, Trade Name, and/or Service Mark Usage Marking
---------------------------------------------------------
Requirements and Quality Control. (a) NFS shall, and shall cause the
- --------------------------------
Designated Subsidiaries to, apply the appropriate statutory notice (i.e.,
----
the letter "R" in a circle, unless the mark is unregistered, in which case,
"TM" or "SM", as appropriate) or such other notice as may be required by
foreign jurisdictions in connection with the use of the Marks and will, to the
extent reasonably practicable, disclose that use of the Marks is pursuant to
the License granted herein by the Nationwide.
(b) The quality standards applied to the products and services bearing
the Marks, or offered in connection with the Marks, shall be as specified by
Nationwide from time to time in writing. Notwithstanding any other provision
in this Article IV, all operations, products and services offered in connection
with the Marks by NFS and any Designated Subsidiary shall conform in all
material respects to such quality standards. To assure that the applicable
quality standards are maintained, Nationwide shall
- 13 -
<PAGE>
have the right to periodically inspect and evaluate the use of the Marks;
provided that such inspections and evaluations shall be conducted (i)
- --------
during regular business hours and (ii) in such manner as will not interfere
with the conduct of business by NFS or any Designated Subsidiary, as the case
may be, in the ordinary course. Upon request, NFS shall deliver to Nationwide
samples of such use of the Marks by NFS and the Designated Subsidiaries. If
Nationwide disapproves of the quality of such samples, NFS and/or the
Designated Subsidiaries shall have 30 days to cure the deficiency and neither
NFS nor the Designated Subsidiaries may use the Marks in such manner unless and
until such deficiency is cured to Nationwide's reasonable satisfaction.
SECTION 4.8 Term and Termination of License. (a) The License
-------------------------------
granted pursuant to this Article IV shall commence on the Closing Date and,
subject to termination in accordance with paragraph (b) or (c) of this Section
4.8, shall continue in full force and effect for a term of 10 years and
thereafter shall automatically be renewed without any required action or
consent of Nationwide or any other person for successive 10-year terms.
(b) The License shall terminate, subject to earlier termination in
accordance with Section 4.8(c), upon the earlier to occur of (i) the date on
which NFS gives written notice to the Nationwide of the complete termination of
the use of the Marks by NFS and the Designated Subsidiaries or (ii) the date
that is 365 days from the date on which Nationwide gives written notice to NFS
that it has elected to terminate the License; provided, however, that
-------- -------
Nationwide may not give NFS any such notice until the later to occur of (A) the
first anniversary of the Trigger Date or (B) the fourth anniversary of the
Closing Date.
(c) Nationwide shall have the right to terminate the License upon
written notice to NFS at any time if Nationwide notifies NFS in writing that,
in the reasonable judgment of Nationwide, NFS or any Designated Subsidiary has
failed to comply with any term or provision of this Article IV or of such
Designated Subsidiary's Designated Subsidiary Agreement, as the case may be,
and in either case such noncompliance is not cured to the reasonable
satisfaction of Nationwide within 30 days after NFS's receipt of such notice.
SECTION 4.9 Effect of Termination; Further Assurances;
-------------------------------------------
Attorney-in Fact. (a) Upon the termination of the License: (i) all rights
- ----------------
of NFS and the Designated Subsidiaries with respect to the Marks shall revert
automatically to the Nationwide and NFS shall, and shall cause each of the
Designated Subsidiaries to, discontinue all uses of the Marks within 30 days
after such termination; (ii) to the extent requested by Nationwide, NFS shall,
and shall cause each Designated Subsidiary to, as promptly as reasonably
practicable but not later than 30
- 14 -
<PAGE>
days, at its own expense take all legal and administrative steps that may be
required to protect the Nationwide's ownership of and goodwill symbolized by
the Marks; and (iii) NFS shall, and shall cause each of its Designated
Subsidiaries to, amend its respective charter or other organizational documents
to change each such Person's name to one that does not include the word
"Nationwide" or any Mark or any variant or derivative thereof subject to any
required regulatory approval, which NFS will use its best efforts to obtain or
cause to be obtained.
(b) NFS hereby appoints Nationwide as its agent and attorney-in-fact to
execute on its behalf and in its name any documents that Nationwide, in its
good faith reasonable judgment, deems necessary in order to terminate any
rights of NFS or the Designated Subsidiaries in respect of the Marks, however
created, anywhere in the world under or pursuant to this Agreement. This
provision shall not relieve NFS of its obligation to, as promptly as reasonably
practicable, execute any such documents upon the request of Nationwide.
ARTICLE V
EQUITY PURCHASE RIGHTS
SECTION 5.1 Equity Purchase Rights. Until the Trigger Date,
----------------------
NWC shall have the equity purchase rights set forth in this Section 5.1 (the
"Equity Purchase Rights"); provided, however, that NWC shall not be
-------- -------
entitled to Equity Purchase Rights to the extent that the principal national
securities exchange in the United States on which the Common Stock is listed or
traded, if any, prohibits or limits the granting by NFS of such Equity Purchase
Rights.
As soon as practicable after determining to issue Equity Purchase Shares,
but in any event at least five Business Days prior to the issuance of Equity
Purchase Shares to any Person other than to a member of the Nationwide
Affiliated Group (other than Equity Purchase Shares (i) the issuance of which
was consented to by Nationwide pursuant to Section 3.1 hereof, unless such
consent specifically references and is conditioned on the exercise by
Nationwide of Equity Purchase Rights, (ii) if NFS then has outstanding Public
Company Stock, issued under dividend reinvestment plans that offer Voting Stock
to security holders at a discount from Average Market Price no greater than is
then customary for public corporations, (iii) issued pursuant to the
Transactions, or (iv) issued in mergers, acquisitions and exchange offers), NFS
shall notify NWC in writing of such proposed sale (which notice shall specify,
to the extent practicable, the purchase price for, and terms and conditions of,
such Equity Purchase Shares) and shall offer to sell to NWC
- 15 -
<PAGE>
(which offer may be assigned by NWC to another member of the Nationwide
Affiliated Group) at the purchase price (net of underwriting discounts or
commissions, if any), if any, to be paid by the transferee(s) of such Equity
Purchase Shares an amount of Equity Purchase Shares determined as provided
below. Immediately after the amount of Equity Purchase Shares to be sold to
Persons other than to NWC (or such assignee) is known to NFS, NFS shall notify
NWC (or such assignee) of such amount. If such offer is accepted in writing
within five Business Days after the notice of such proposed sale (or such
longer period as is necessary for NWC (or such assignee) to obtain any required
regulatory consents or approvals), NFS shall sell to NWC (or such assignee) an
amount of Equity Purchase Shares (the "Equity Purchase Share Amount") equal to
the product of (x) the quotient of (1) the aggregate number of shares of Voting
Stock owned by the members of the Nationwide Affiliated Group immediately prior
to the issuance of the Equity Purchase Shares by (2) the aggregate number of
shares of Outstanding Voting Stock owned by Persons other than the members of
the Nationwide Affiliated Group immediately prior to the issuance of the Equity
Purchase Shares, multiplied by (y) the aggregate number of Equity Purchase
Shares being issued by NFS to Persons other than the members of the Nationwide
Affiliated Group rounded up to the nearest whole Equity Purchase Share. If, at
the time of the determination of any Equity Purchase Share Amount, any other
Person has preemptive or other equity purchase rights similar to the Equity
Purchase Rights, such Equity Purchase Share Amount shall be recalculated to
take into account the amount of Voting Stock to be sold to such Persons,
rounding up such Equity Purchase Share Amount to the nearest whole Equity
Purchase Share.
The purchase and sale of any Equity Purchase shares pursuant to this
Section 5.1 shall take place at 9:00 a.m. on the latest of (i) the fifth
Business Day following the acceptance of such offer, (ii) the Business Day on
which such Equity Purchase Shares are issued to Persons other than NWC (or such
assignee) and (iii) the fifth Business Day following the expiration of any
required regulatory waiting periods or the obtaining of any required regulatory
consents or approvals, at the offices of Nationwide. At the time of purchase,
NFS shall deliver to NWC (or such assignee) certificates registered in the name
of NWC (or such assignee). The purchase price shall be in United States
dollars by bank check or wire transfer of immediately available funds, as
specified by NWC (or such assignee), not less than one Business Day prior to
the date of purchase. NFS and NWC (or such assignee) will use their best
efforts to comply as soon as practicable with all federal and state laws and
regulations and stock exchange listing requirements applicable to any purchase
and sale of securities under this Section 5.1.
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<PAGE>
ARTICLE VI
FINANCIAL AND OTHER INFORMATION
SECTION 6.1 Twenty Percent Threshold. NFS agrees that, during
------------------------
any period in which the members of the Nationwide Affiliated Group, own, in the
aggregate, at least 20 percent of the voting power of the Outstanding Voting
Stock, or during any period in which any member of the Nationwide Affiliated
Group is required to account for its investment in NFS on a consolidated basis
or under the equity method of accounting (determined in accordance with GAAP
consistently applied after consultation with the Nationwide Auditors):
(a) Maintenance of Books and Records. NFS shall, and shall cause
--------------------------------
each of its consolidated Subsidiaries to (i) make and keep books, records and
accounts, which, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of NFS and such Subsidiaries and
(ii) devise and maintain a system of internal accounting controls sufficient to
provide reasonable assurances that: (A) transactions are executed in
accordance with management's general or specific authorization, (B)
transactions are recorded as necessary (1) to permit preparation of financial
statements in conformity with GAAP and for each insurance company, in
conformity with accounting practices prescribed or permitted by the department
of insurance of the insurance company's state of domicile, and (2) to maintain
accountability for assets and (C) access to assets is permitted only in
accordance with management's general or specific authorization.
(b) Fiscal Year. NFS shall, and shall cause each of its
-----------
consolidated Subsidiaries to, maintain a fiscal year that commences on January
1 and ends on December 31 of each calendar year; provided, however,
-------- -------
that, if on the date hereof any consolidated Subsidiary of NFS does not
maintain a fiscal year that commences on January 1 and ends on December 31, NFS
shall use its best efforts to cause such Subsidiary to change its fiscal year
to one which ends on December 31 if such change is reasonably practical.
(c) Unaudited Quarterly Financial Statements. As soon as
----------------------------------------
practicable, and within 35 days after the end of each of the first three fiscal
quarters in each fiscal year of NFS, NFS shall deliver to Nationwide drafts of
the consolidated financial statements of NFS (and notes thereto) for such
periods and for the period from the beginning of the current fiscal year to the
end of such quarter setting forth in each case in comparative form for each
such fiscal quarter of NFS the consolidated figures (and noted thereto) for the
corresponding quarter and periods of
- 17 -
<PAGE>
the previous fiscal year and all in reasonable detail and prepared in
accordance with Article 10 of Regulation S-X. The information set forth in
this subsection (e) is herein referred to as the "Quarterly Financial
Statements." NFS shall deliver to Nationwide all revisions to such drafts as
soon as practicable after any such revisions are prepared or made. No later
than the date NFS publicly files the Quarterly Financial Statements with the
SEC or otherwise, NFS shall deliver to Nationwide the final form of the
Quarterly Financial Statements.
(d) Quarterly and Annual Reports Furnished to State Insurance
----------------------------------------------------------
Regulatory Authorities. Prior to the filing by NFS or any Subsidiary of NFS
- ----------------------
of quarterly or annual reports with any and all state insurance regulatory
authorities in each jurisdiction in which such reports are required to be
filed, NFS shall deliver drafts of such reports to Nationwide and shall give
Nationwide a reasonable opportunity to review and comment on such reports.
(e) Audited Annual Financial Information. As soon as is
------------------------------------
practicable, and: (i) within 60 days after the end of each fiscal year of NFS,
NFS shall deliver to Nationwide drafts of the consolidated financial statements
of NFS (and notes thereto) for such year setting forth in each case in
comparative form the consolidated figures (and notes thereto) for the previous
fiscal year and all in reasonable detail and prepared in accordance with
Regulation S-X. The information set forth in this subsection (e) is herein
referred to as the "Annual Financial Statements." NFS shall deliver to
Nationwide all revisions to such drafts as soon as any such revisions are
prepared or made. NFS shall deliver to Nationwide, no later than 90 days after
the end of each fiscal year of NFS (or on such earlier date on which the same
are filed with the SEC), in final form, the Annual Financial Statements
accompanied by an opinion thereon by NFS's independent certified public
accountants.
(f) Other Financial Information. NFS shall provide to Nationwide
---------------------------
upon request such other information and analyses as Nationwide may reasonably
request in order to analyze the financial statements and condition of NFS and
its Subsidiaries and shall provide Nationwide and its accountants with an
opportunity to meet with management of NFS (and shall use commercially
reasonable efforts to cause its accountants to so meet) in connection
therewith. NFS shall deliver to Nationwide all Quarterly Financial Statements
and Annual Financial Statements of each Subsidiary of NFS that is itself
required to file financial statements with the SEC or otherwise make such
financial statements publicly available, with such financial statements to be
provided in the same manner and detail and on the same time schedule as those
financial statements of NFS required to be delivered to Nationwide pursuant to
this Section 6.1.
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(g) General Financial Statement Requirements. All information
----------------------------------------
provided by NFS or any of its Subsidiaries to Nationwide pursuant to Sections
6.l(c)-(h) shall be consistent in all material respects with the format and
detail and otherwise with the procedures and practices in effect on the date
hereof with respect to the provision of such financial and other information by
NFS and its Subsidiaries to Nationwide, with such changes therein as may be
reasonably requested by Nationwide from time to time, unless changes in such
procedures or practices are required in order to comply with the rules and
regulations of the SEC or any other applicable regulatory authority, as
applicable.
(h) Public Information and SEC Reports. NFS and each of its
----------------------------------
Subsidiaries that file information with the SEC shall deliver to Nationwide (to
the attention of its General Counsel) as promptly as practicable as the same are
substantially final, drafts of all reports, notices and proxy and information
statements to be sent or made available by NFS or any of its Subsidiaries to
their security holders and all regular, periodic and other reports filed under
the Exchange Act (including Reports on Forms 10-K, 10-Q and 8-K and Annual
Reports to shareholders), and all registration statements and prospectuses to be
filed by NFS or any of its Subsidiaries with the SEC or any securities exchange
pursuant to the listed company manual (or similar requirements) of such exchange
(collectively, "NFS Public Documents") prior to the filing thereof with the SEC,
and, no later than the date the same are printed, sent or filed, whichever is
earliest, final copies of all NFS Public Documents. Prior to issuance, NFS shall
deliver to Nationwide copies of all press releases and other statements to be
made available by NFS or any of its Subsidiaries to the public, including,
without limitation, information concerning material developments in the
business, properties, results of operations, financial condition or prospects of
NFS or any of its Subsidiaries. No report, registration, information or proxy
statement, prospectus or other document that refers, or contains information
with respect, to any member of the Nationwide Affiliated Group shall be filed
with the SEC or otherwise made public by NFS or any of its Subsidiaries without
the consent of Nationwide (which shall not be unreasonably withheld or delayed)
with respect to those portions of such document which contain information with
respect to such member of the Nationwide Affiliated Group, except as may be
required by law, rule or regulation (in which case NFS shall use commercially
reasonable efforts to notify Nationwide and obtain its consent before making
such a filing with the SEC or otherwise making any such information public).
(i) Budgets and Projections. NFS shall, as promptly as
-----------------------
practicable, deliver to Nationwide copies of annual and other budgets and
financial projections (consistent in terms of format and detail and otherwise
with the procedures in effect on the
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date hereof) relating to NFS or any of its Subsidiaries and shall provide
Nationwide an opportunity to meet with management of NFS and its Subsidiaries
to discuss such budgets and projections.
(j) Other Information. With reasonable promptness, NFS shall
-----------------
deliver to Nationwide such additional financial and other information and data
with respect to NFS and its Subsidiaries and their business, properties,
financial position, results of operations and prospects as from time to time
may be reasonably requested by Nationwide.
(k) Earnings Releases. Nationwide agrees that, unless required by
-----------------
law, rule or regulations or unless NFS shall have consented thereto, no member
of the Nationwide Affiliated Group shall publicly release any quarterly, annual
or other financial information of or concerning NFS or any of its Subsidiaries
("NFS Information") delivered to Nationwide pursuant to this Section 6.1 prior
to the time that NFS publicly releases such information. NFS and Nationwide
will consult on the timing of their annual and quarterly earnings releases. In
the event that any member of the Nationwide Affiliated Group is required by law
to publicly release such NFS Information prior to the public release of
Nationwide's financial information, Nationwide will use commercially reasonable
efforts to give NFS notice of such release of NFS Information and to obtain its
consent prior to such release of NFS Information.
(l) Nationwide Affiliated Group Public Filings. Nationwide and NFS
------------------------------------------
shall cooperate with each other to the extent reasonably requested by the other
in the preparation of any of their respective public earnings releases,
quarterly reports on Form 10-Q, Annual Reports to stockholders or
policyholders, annual reports on Form 10-K, any current reports on Form 8-K and
any other proxy, information and registration statements, notices, prospectuses
and other filings made by them or any of their respective subsidiaries with the
SEC, any national securities exchange, any governmental or regulatory authority
or otherwise made publicly available (collectively, "Public Filings").
Nationwide and NFS agree to provide to each other all information that the
other reasonably requests in connection with any such Public Filings or that,
in the reasonable judgment of their respective General Counsels, is required to
be disclosed therein under any law, rule or regulation. Such information shall
be provided by Nationwide or NFS, as the case may be, in as timely a manner as
practicable to enable NFS or Nationwide, as the case may be, to prepare, print
and release the Public Filings. If and to the extent requested by Nationwide
or NFS, the other party, shall diligently review all drafts of such Public
Filings and prepare in a diligent and timely fashion any portion of such Public
Filing pertaining to such other party or its subsidiaries. Unless required by
law, rule or regulation, Nationwide or NFS, as
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the case may be, shall not publicly release any financial or other information
that conflicts with the information with respect to the other party that is
included in any Public Filing without the prior written consent of NFS or
Nationwide, as the case may be.
(m) Subject to the requirements of applicable laws, rules and
regulations, (i) if NFS chooses or is required to submit to a vote of its
stockholders the election, approval or ratification of the selection of its
independent certified public accountants pursuant to Schedule 14A under the
Exchange Act, NFS shall so submit to such a vote such accounting firm, and (ii)
if NFS does not submit a firm of accountants to such a vote, NFS shall cause
its independent certified public accountants to be such accounting firm as is
designated, from time to time, by Nationwide, unless the stockholders of NFS
oppose or fail to ratify such firm, or elect another firm.
SECTION 6.2 Nationwide Annual Statements. In connection with
----------------------------
Nationwide's preparation of its audited annual financial statements and its
Annual Reports to policyholders (collectively, the "Nationwide Annual Financial
Statements"), during any period in which the members of the Nationwide
Affiliated Group own, in the aggregate, at least 20 percent of the voting power
of the Outstanding Voting Stock or 20 percent of the Common Stock then
outstanding, or during any period in which any member of the Nationwide
Affiliated Group is required to account for its investment in NFS on a
consolidated basis or under the equity method of accounting) (determined in
accordance with GAAP consistent applied after consultation with the Nationwide
Auditors), NFS agrees as follows:
(a) Coordination of Auditor's Opinions. NFS will use commercially
----------------------------------
reasonable efforts to enable its independent certified public accountants (the
"NFS Auditors") to complete their audit such that they will date their opinion
on NFS's audited annual financial statements (the "NFS Annual Financial
Statements") on or before the date that Nationwide's independent certified
public accountants (the "Nationwide Auditors") date their opinion on the
Nationwide Annual Statements, and to enable Nationwide to meet its timetable
for the printing, filing and public dissemination of the Nationwide Annual
Statements.
(b) Access to Personnel and Working Papers. NFS will authorize the
--------------------------------------
NFS Auditors to make available to the Nationwide Auditors both the personnel
who performed or are performing the annual audit of NFS and, consistent with
customary professional practice and courtesy of such auditors with respect to
the furnishing of work papers, work papers related to the annual audit of NFS,
in all cases within a reasonable time after the NFS Auditor's opinion date, so
that the Nationwide Auditors are able
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<PAGE>
to perform the procedures they consider necessary to take responsibility for
the work of the NFS Auditors as it relates to the Nationwide Auditors report on
the Nationwide Annual Financial Statements, all within sufficient time to
enable Nationwide to meet its timetable for the printing, filing and public
dissemination of the Nationwide Annual Statements; provided, however, that
-------- -------
nothing in this Section 6.2(b) shall in any way be construed as a representation
of or covenant by NFS that any or all of such personnel or work papers will be
so provided.
SECTION 6.3 Forty Percent Threshold. NFS agrees that, during
-----------------------
any period in which the members of the Nationwide Affiliated Group own, in the
aggregate, at least 40 percent of the voting power of the Outstanding Voting
Stock or during any period in which any member of the Nationwide Affiliated
Group is required to account for its investment in NFS on a consolidated basis
or under the equity method of accounting (determined in accordance with GAAP
consistently applied:
(a) Internal Auditors. NFS shall provide Nationwide and the
-----------------
internal auditors or other representatives of Nationwide reasonable access to
NFS's and its Subsidiaries' books and records so that Nationwide may conduct
reasonable audits relating to the financial statements provided by NFS pursuant
to Sections 6.1(c)-(f) inclusive, as well as to the internal accounting controls
and operations of NFS and its Subsidiaries; provided, however, that such audits
-------- -------
shall be conducted (i) during regular business hours and (ii) in such manner as
will not interfere with the conduct of business by NFS or any Subsidiary in the
ordinary course.
(b) Accounting Estimates and Principles. NFS will give Nationwide
-----------------------------------
as much prior notice as reasonably practicable of any proposed significant
charges in accounting estimates or discretionary accounting principles from
those in effect on the date hereof. In this connection, NFS will consult with
Nationwide and, if requested by Nationwide, NFS will consult with the
Nationwide Auditors with respect thereto. NFS will not make any change in
discretionary accounting principles without Nationwide's prior consent (which
consent will not be unreasonably withheld or delayed) if such a change would be
sufficiently material to be required to be disclosed in NFS's financial
statements as filed with the SEC or otherwise publicly disclosed therein.
SECTION 6.4 Fifty Percent Threshold. NFS agrees that, during
-----------------------
any period in which the members of the Nationwide Affiliated Group own, in the
aggregate, at least 50 percent of the voting power of the Outstanding Voting
Stock or during any period in which any member of the Nationwide Affiliated
Group is required to account for its investment in NFS on a consolidated
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<PAGE>
basis or under the equity method of accounting (determined in accordance with
GAAP consistently applied:
(a) Detailed Quarterly Financial Information. As soon as
----------------------------------------
practicable, and within 35 days after the end of the first three fiscal
quarters in each fiscal year of NFS, NFS shall deliver to Nationwide and NWC
(i) a detailed consolidated balance sheet and consolidated statement of income
consistent with Nationwide's present chart of accounts (with such changes in
such chart of accounts as may be requested by Nationwide from time to time) and
(ii) statistical information necessary for inclusion in any Nationwide
Affiliated Group member's quarterly earnings press release, along with
appropriate supporting documentation.
(b) Detailed Annual Financial Information. As soon as practicable,
-------------------------------------
and within 60 days after the end of each fiscal year of NFS, NFS shall deliver
to Nationwide (i) a detailed consolidated balance sheet and consolidated
statement of income consistent with Nationwide's present chart of accounts
(with such changes in such chart of accounts a may be requested by Nationwide
from time to time) as of and for the full fiscal year, and (ii) statistical
information necessary for inclusion in Nationwide's annual earnings press
release, along with appropriate supporting documentation.
(c) Accountants' Reports. Promptly, but in no event later than five
--------------------
Business Days following the receipt thereof, NFS shall deliver to Nationwide
copies of all reports submitted to NFS or any of its Subsidiaries by their
independent certified public accountants, including, without limitation, each
report submitted to NFS or any of its Subsidiaries concerning its accounting
practices and systems and any comment letter submitted to management in
connection with their annual audit and all responses by management to such
reports and letters.
SECTION 6.5 Ten Percent Threshold. NFS agrees that, during any
---------------------
period in which NWC owns, in the aggregate, at least 10 percent of the voting
power of the Outstanding Voting Stock, NFS shall:
(a) furnish to Nationwide as soon as practicable after they are
publicly available, copies of all financial statements, reports, notices and
proxy statements sent by NFS in a general mailing to all its shareholders, of
all reports on Forms 10-K, 10-Q and 8-K, and of all final prospectuses filed
pursuant to Rule 424 under the Securities Act except with respect to the
Initial Public Offering and the Fixed Income Offerings; and
(b) permit Nationwide to visit and inspect any of the properties,
corporate books, and financial and other records of NFS and its Subsidiaries,
and to discuss the affairs, finances
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<PAGE>
and accounts of any such corporations with the officers of NFS and the NFS
Auditors, all at such time as often as Nationwide may reasonably request;
provided, however, that the foregoing shall be conducted (i) during
- -------- -------
regular business hours and (ii) in such manner as will not interfere with the
conduct of business of NFS or any Subsidiary in the ordinary course.
SECTION 6.6. Confidentiality. All information provided by NFS
---------------
and its Subsidiaries pursuant to this Article VI, except if the purpose for
which such information is furnished to Nationwide pursuant to this Agreement
contemplates such disclosure and except for disclosure to the other members of
the Nationwide Affiliated Group by Nationwide, be kept confidential by
Nationwide and the other members of the Nationwide Affiliated Group, and
Nationwide and the other members of the Nationwide Affiliated Group will not
disclose any such information until such information becomes available
generally to the public, except as such disclosure may be required by law, rule
or regulation. Further, Nationwide shall not, and shall not permit any member
of the Nationwide Affiliated Group to, (i) use in any manner any such
information in connection with the purchase or sale of or any offer to purchase
or sell any securities issued by NFS or (ii) make any purchase or sale of or
any offer to purchase or sell any security while in possession of any such
information, unless and until in each such case such information is publicly
disclosed.
ARTICLE VII
REGISTRATION RIGHTS
SECTION 7.1 Piggyback Registrations.
-----------------------
(a) Right to Piggyback Registration. Whenever NFS proposes to
-------------------------------
register any of its Common Stock (or securities convertible into or
exchangeable or exercisable for Common Stock) under the Securities Act for its
own account or the account of any stockholder of NFS (other than the Initial
Public Offering, offerings pursuant to employee benefit plans, or noncash
offerings in connection with a proposed acquisition, exchange offer,
recapitalization or similar transaction) and the registration form to be used
may be used for the registration of Registrable Shares (a "Piggyback
Registration"), NFS will give written notice as promptly as practicable to
Nationwide and to all other holders of Common Stock having similar registration
rights, of its intention to effect such a registration and, subject to Section
7.1(b), shall include in such registration all Registrable Shares with respect
to which NFS has received written request for inclusion therein within 15 days
after receipt of NFS's notice.
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<PAGE>
(b) Priority. If a registration pursuant to this Section 7.1
--------
involves an Underwritten Offering and the managing underwriter advises NFS in
good faith that in its opinion the number of securities requested to be
included in such registration exceeds the number that can be sold in such
offering without having an adverse effect on such offering, including the price
at which such securities can be sold, then NFS will be required to include in
such registration the maximum number of shares that such underwriter advises
can be so sold, allocated:
(i) if such registration was initiated by NFS, (A) first, to the
securities NFS proposes to sell, (B) second, among the shares of Common
Stock requested to be included in such registration by members of the
Nationwide Affiliated Group and any other stockholders of NFS owning
shares of Common Stock eligible for registration pro rata, on the
--- ----
basis of the number of shares of Common Stock each holder requests be
included in such registration, and (C) third, among other securities, if
any, requested and otherwise eligible to be included in such registration;
and
(ii) if such registration was initiated by a security holder of
NFS, (A) first, among the shares of Common Stock requested to be included
in such registration by such requesting security holder, (B) second,
among the shares of Common Stock requested to be included in such
registration by members of the Nationwide Affiliated Group and among the
shares of Common Stock requested to be included in such registration by
any other stockholder of NFS owning shares of Common Stock eligible for
such registration, pro rata, on the basis of the number of shares
--- ----
of Common Stock each holder requests be included in such registration,
and (C) third, among other securities, if any, requested and otherwise
eligible to be included in such registration (including securities to be
sold for the account of NFS).
SECTION 7.2 Requested Registrations.
-----------------------
(a) Right to Request Registration. At any time after the date
-----------------------------
hereof, upon the written request of any member of the Nationwide Affiliated
Group requesting that NFS effect the registration under the Securities Act of
all or part of the Registrable Shares (a "Demand Registration"), NFS shall use
commercially reasonable efforts to effect, as expeditiously as possible, the
registration under the Securities Act of such number of Registrable Shares
requested to be so registered; provided, however, that NFS shall not be
-------- -------
required to file a registration statement pursuant to this Section 7.2 (a), (i)
within six months after the effective date of any other registration statement
of NFS requested hereunder or pursuant to which any member of the Nationwide
Affiliated Group shall have
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<PAGE>
been given an opportunity to participate pursuant to Section 7.l; (ii) relating
to an offering on a delayed or continuous basis pursuant to Rule 415 (or any
successor rule to similar effect) promulgated under the Securities Act if NFS
is not, at the time, eligible to register shares of Common Stock on Form S-3
(or a successor form); (iii) with respect to any offering that is not
reasonably expected to yield gross proceeds of at least $20 million; or (iv)
more than two times in any calendar year or more than four times in any five
consecutive calendar years.
As promptly as practicable after receipt of any such request for a Demand
Registration, NFS shall give written notice of such request to all other
holders of Common Stock having rights to have their shares included in such
registration and shall, subject to the provisions of Section 7.2(c), include in
such registration all such Registrable Shares with respect to which each member
of the Nationwide Affiliated Group or such other stockholder has requested to
be so registered.
(b) Effective Registration. A registration requested pursuant to
----------------------
this Section 7.2 shall not be deemed to have been effected (and, therefore, not
requested for purposes of Section 7.2(a)) (i) unless the registration statement
relating thereto has become effective under the Securities Act, (ii) if after
it has become effective such registration is interfered with by any stop order,
injunction or other order or requirement of the SEC or other governmental
agency or court for any reason other than a misrepresentation or an omission by
any member of the Nationwide Affiliated Group and, as a result thereof, the
Registrable Shares requested to be registered cannot be completely distributed
in accordance with the plan of distribution, (iii) if the conditions to closing
specified in the purchase agreement or underwriting agreement entered into in
connection with such registration are not satisfied or waived other than by
reason of some act or omission by any member of the Nationwide Affiliated
Group or (iv) if, pursuant to Section 7.2(c) less than all of the Registrable
Shares requested be registered were actually registered.
(c) Priority. If a requested registration pursuant to this Section
--------
7.2 involves an Underwritten Offering and the managing underwriter shall advise
NFS that in its opinion the number of securities requested to be included in
such registration exceeds the number which can be sold in such offering without
having an adverse effect on such offering, including the price at which such
securities can be sold, then NFS will be required to include in such
registration the maximum number of shares that such underwriter advises can be
so sold, allocated (i) first, to Registrable Shares requested by members of the
Nationwide Affiliated Group to be included in such registration, (ii) second,
among all shares of Common Stock requested to be
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<PAGE>
included in such registration by any other stockholder of NFS owning shares of
Common Stock eligible for such registration, pro rata on the basis of
--- ----
the number of shares of Common Stock requested to be included in such
registration, and (iii) third, among other securities, if any, requested and
otherwise eligible to be included in such registration (including securities to
be sold for the account of NFS.
(d) Preemption of Demand Registration. Notwithstanding the
---------------------------------
foregoing, if the board of directors of NFS determines in its good faith
judgment, (i) after consultation with a nationally recognized investment
banking firm, that there will be an adverse effect on the contemplated public
offering of NFS's securities, (ii) that the disclosures that would be required
to be made by NFS in connection with such registration would be materially
harmful to NFS because of transactions then being considered by, or other
events then concerning, NFS or any of its Subsidiaries, or (iii) that
registration at the time would require the inclusion of pro forma or other
information, which requirement NFS is reasonably unable to comply with, then
NFS may defer the filing (but not the preparation) of the registration
statement which is required to effect any registration pursuant to this Section
7.2 for a reasonable period of time, but not in excess of 90 calendar days;
provided, however, that at all times NFS is in good faith using all
- -------- -------
reasonable efforts to file the registration statement as soon as practicable.
SECTION 7.3 Registration Procedures. If and whenever NFS is
-----------------------
required to effect or cause the registration of any Registrable Shares under
the Securities Act as provided this Agreement, NFS shall:
(a) prepare and file with the SEC as expeditiously as possible but in
no event later than 90 days after receipt of a request for registration with
respect to such Registrable Shares, a Registration Statement on any form for
which NFS then qualifies or which counsel for NFS shall deem appropriate, which
form shall be available for the sale of the Registrable Shares in accordance
with the intended methods of distribution thereof, and use commercially
reasonable efforts to cause such Registration Statement to become effective as
soon as practicable; provided, however, that before filing with the SEC
-------- -------
a Registration Statement or Prospectus, NFS shall (i) furnish to Nationwide
copies of all such documents proposed to be filed, which documents shall be
subject to the reasonable and timely review of Nationwide, and (ii) notify
Nationwide of any stop order issued or threatened by the SEC and take all
reasonable actions required to prevent the entry of such stop order or to
remove it if entered;
(b) prepare and file with the SEC such amendments and supplements to
such Registration Statement and the Prospectus
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<PAGE>
used in connection therewith as may be necessary to keep such Registration
Statement effective for a period of not less than 180 days or such shorter
period which shall terminate when all Registrable Shares covered by such
Registration Statement have been sold, and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such Registration Statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such Registration
Statement;
(c) furnish, without charge, to Nationwide and each underwriter, if
any, such number of copies of such Registration Statement, each amendment and
supplement thereto (including one conformed copy to Nationwide and one signed
copy to each managing underwriter and in each case including all exhibits
thereto), and the Prospectus included in such Registration Statement (including
each preliminary prospectus), in conformity with the requirements of the
Securities Act, and such other documents as Nationwide may reasonably request
in order to facilitate the disposition of the Registrable Shares registered
thereunder;
(d) use commercially reasonable efforts to register or qualify such
Registrable Shares covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions within the United States of
America as the selling holders, and the managing underwriter, if any,
reasonably request and do any and all other acts and things which may he
reasonably necessary or advisable to enable the selling holders and each
underwriter, if any, to consummate the disposition in such jurisdictions of the
Registrable Shares registered thereunder; provided, however, that NFS
-------- -------
shall not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
paragraph (d), (ii) subject itself to taxation in any such jurisdiction or
(iii) consent to general service of process in any such jurisdiction;
(e) as promptly as practicable notify the managing underwriter, if any,
Nationwide and the other selling holders, if any, at any time when a Prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event that comes to NFS's attention if, as a result of such
event, the Prospectus included in such Registration Statement contains an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, and NFS shall as promptly as practicable prepare and furnish to the
selling holders a supplement or amendment to such Prospectus so that as
thereafter delivered, such Prospectus shall not contain an untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, that if NFS determines
- -------- -------
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<PAGE>
in good faith (i) that the disclosure that would be required to be made by NFS
would be materially harmful to NFS because of transactions then being
considered by, or other events then concerning, NFS or any of its Subsidiaries,
or (ii) a supplement or amendment to such Prospectus at such time would require
the inclusion of pro forma or other information, which requirement NFS is
reasonably unable to comply with, then NFS may defer, for a reasonable period
of time not to exceed 90 days, furnishing to the selling holders a supplement
or amendment to such Prospectus; and provided, further, that at all
-------- -------
times NFS is in good faith using all reasonable efforts to file such amendment
as soon as practicable;
(f) use commercially reasonable efforts to cause all such securities
being registered to be listed on each securities exchange on which similar
securities issued by NFS are then listed, and enter into such customary
agreements including a listing application and indemnification agreement in
customary form, and to provide a transfer agent and registrar for such
Registrable Shares covered by such Registration Statement no later than the
effective date of such Registration Statement;
(g) make available for inspection by Nationwide or any holder of
securities covered by such Registration Statement, any underwriter
participating in any distribution pursuant to such Registration Statement, and
any attorney, accountant or other agent retained by such persons (collectively,
the "Inspectors"), all financial and other records, pertinent corporate
documents and properties of NFS's and its Subsidiaries (collectively,
"Records"), if any, as shall be reasonably necessary to enable them to exercise
their due diligence responsibilities, and cause NFS's and its Subsidiaries'
officers, directors and employees to supply all information and respond to all
inquiries reasonably requested by any such Inspector in connection with such
Registration Statement. Notwithstanding the foregoing, NFS shall have no
obligation to disclose any Records to the Inspectors in the event NFS
determines that such disclosure is reasonable likely to have an adverse effect
on NFS's ability to assert the existence of an attorney-client or other
applicable privilege with respect thereto;
(h) if requested, use commercially reasonable efforts to obtain a "cold
comfort" letter from the NFS Auditors in customary form and covering such
matters of the type customarily covered by "cold comfort" letters;
(i) make available senior management personnel to participate in, and
cause them to cooperate with the underwriters in connection with, "road show"
and other customary marketing activities, including "one-on-one" meetings with
prospective purchasers of the Registrable Shares; and
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<PAGE>
(j) otherwise use commercially reasonable efforts to comply with all
applicable rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering a
period of at least 12 months, beginning with the first month after the
effective date of the Registration Statement (as the term "effective date" is
defined in Rule 158(c) under the Securities Act), which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act and Rule
158 thereunder.
It shall be a condition precedent to the obligation of NFS to take any
action pursuant to this Agreement in respect of the Registrable Shares that are
to be registered at the request of any member of the Nationwide Affiliated
Group that such member of the Nationwide Affiliated Group shall have furnished
to NFS such information regarding the Registrable Shares held by such members
of the Nationwide Affiliated Group and the intended method of disposition
thereof as NFS shall reasonably request and as shall be required in connection
with the action to be taken by NFS.
In connection with any registration pursuant to Section 7.1 which is an
Underwritten Offering, Nationwide shall, and shall cause the member of the
Nationwide Affiliated Group to, enter into an underwriting or similar agreement
in form and substance customary for underwritten public offerings similar to
the Underwritten Offering.
SECTION 7.4 Restriction on Disposition of Registrable Shares.
------------------------------------------------
Nationwide agrees that, upon receipt of any notice from NFS of the happening of
any event of the kind described in Section 7.3(f), Nationwide shall, and shall
cause each member of the Nationwide Affiliated Group to, discontinue
disposition of Registrable Shares pursuant to the Registration Statement
covering such Registrable Shares until receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 7.3(f), or until
otherwise notified by NFS such member of the Nationwide Affiliated Group, and,
if so directed by NFS, Nationwide shall, and shall cause such member of the
Nationwide Affiliated Group to deliver to NFS (at NFS's expense) all copies
(including, without limitation, any and all drafts), other than permanent file
copies, then in their possession, of the Prospectus covering such Registrable
Shares at the time of receipt of such notice. In the event NFS shall give any
such notice, the period mentioned in Section 7.3(b) hereof shall be extended by
the greater of (i) three months or (ii) the number of days during the period
from and including the date of the giving of such notice pursuant to Section
7.3(f) to and including the date when the selling holders shall have received
the copies of the supplemented or amended Prospectus contemplated by Section
7.3(f).
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<PAGE>
SECTION 7.5 Selection of Underwriters. If any offering
-------------------------
pursuant to a registration requested pursuant to Section 7.2 hereof is to be an
Underwritten Offering, Nationwide shall select a managing underwriter or
underwriters to administer the offering.
SECTION 7.6 Registration Expenses. NFS shall pay for all costs
---------------------
and expenses with respect to its compliance with its obligations in connection
with a registration hereunder, including, but not limited to: (i) all
registration and filing fees; (ii) fees and expenses of compliance with
securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications of the Registrable Shares);
(iii) printing expenses; (iv) internal expenses (including without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties); (v) the fees and expenses incurred in connection with the
listing of the Registrable Shares on any national securities exchange or inter
dealer quotation system; (vi) the fees and disbursements of counsel for NFS,
and the NFS Auditors (including the expenses of any comfort letters or costs
associated with the delivery by the NFS Auditors of a comfort letter or comfort
letters); (vii) the reasonable fees and disbursements of not more than one firm
of attorneys acting as legal counsel for all of the selling stockholders,
collectively; (viii) the fees and expenses of any registrar and transfer agent
or any depository; (ix) the underwriting fees, discounts and commissions
applicable to any Common Stock sold for the account of NFS; and (x) the cost of
preparing all documentation in connection therewith. Except as otherwise
provided in clause (ix) of this Section 7.6, NFS shall have no obligation to
pay any underwriting fees, discounts, commissions, bonuses or similar amounts
attributable to the sale of Registrable Shares, including, without limitation,
the fees and expenses of any underwriters and such underwriters' counsel.
SECTION 7.7 Conversion of Other Securities. If any holder of
------------------------------
Registrable Shares offers any options, rights, warrants or other securities
issued by it or any other Person that are offered with, convertible into or
exercisable or exchangeable for any Registrable Shares, the Registrable Shares
underlying such options, rights, warrants or other securities shall be eligible
for registration pursuant to Sections 7.1 and 7.2.
SECTION 7.8 Rule 144. If and for so long as NFS is subject to
--------
the reporting requirements of the Exchange Act, NFS shall take such measures
and file such information, documents and reports as shall be required by the
SEC as a condition to the availability of Rule 144 (or any successor provision)
under the Securities Act.
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<PAGE>
SECTION 7.9 Transfer of Registration Rights. (a) Any member
-------------------------------
of the Nationwide Affiliated Group may transfer all or any portion of its
rights under this Article VII and Article VIII (provided that no obligations or
liabilities under Article VIII may be so transferred by any member of the
Nationwide Affiliated Group without the consent of NFS, which shall not be
unreasonably withheld) to any transferee (each, a "Transferee") of Registrable
Shares. Any transfer of registration rights pursuant to this Section 7.9 shall
be effective upon receipt by NFS of written notice from such member of the
Nationwide Affiliated Group stating the name and address of the Transferee and
identifying the amount of Registrable Shares with respect to which the rights
under this Article VII (and Article VIII) are being transferred and the nature
of the rights so transferred and receipt by NFS of an instrument reasonably
satisfactory to NFS pursuant to which such Transferee agrees to be bound by the
covenants and agreements of the transferor contained in this Agreement. In
connection with any such transfer, the terms "Nationwide" and "member of the
Nationwide Affiliated Group" as used in this Agreement shall, where appropriate
to assign each rights and obligations to such Transferee, be deemed to refer to
the transferee holder of such Registrable Shares. Any member of the Nationwide
Affiliated Group and such Transferee may exercise the registration rights
hereunder in such proportion as they shall agree among themselves.
(b) After such transfer, each member of the Nationwide Affiliated Group
shall retain its rights under this Agreement with respect to all other
Registrable Shares owned by such member of the Nationwide Affiliated Group.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 Cross Indemnification. (a) Nationwide agrees to
---------------------
indemnify and hold harmless NFS and its Subsidiaries and each of the officers,
directors, employees and agents of NFS and its Subsidiaries against any and all
costs and expenses (including, without limitation, attorneys' fees, interest,
penalties and costs of investigation or preparation for defense), judgments,
fines, losses, claims, damages, liabilities, demands, assessments and amounts
paid in settlement (collectively, "Losses"), in each case based on, arising out
of, resulting from or in connection with any claim, action, cause of action,
suits, proceeding or investigation, whether civil, criminal, administrative,
investigative or other (collectively, "Actions"), based on, arising out of,
pertaining to or in connection with (i) any breach by Nationwide or NWC of this
Agreement or any Designated Subsidiary Agreement, (ii) any third party claims
that
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<PAGE>
the Nationwide does not have the right to use or license the Marks in the
United States or Canada in connection with the products and services within the
Scope of the License as and to the extent provided therein and (iii) the
Designated Businesses.
(b) NFS agrees to indemnify and hold harmless each member of the
Nationwide Affiliated Group and each of the officers, directors, employees and
agents of each member of the Nationwide Affiliated Group, against any and all
Losses, in each case, based on, arising out of, resulting from or in connection
with any Actions, based on, arising out of, pertaining to or in connection with
(i) any breach by NFS of this Agreement or any breach by any Subsidiary of NFS
of any Designated Subsidiary Agreement or (ii) any use of the Marks by NFS and
its Subsidiaries not in accordance with the provisions of this Agreement.
SECTION 8.2 Registration Statement Indemnification. (a) NFS
--------------------------------------
agrees to indemnify and hold harmless each member of the Nationwide Affiliated
Group, each Transferee and each Person, if any, who controls any of the
foregoing within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act (collectively, the "Registration Indemnitee") from and
against any and all Losses arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement or Prospectus, or arising out of or based upon any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such Losses arise out of or are based upon any untrue statement or omission or
alleged untrue statement or omission which has been made therein or omitted
therefrom in reliance upon and in conformity with information relating to a
Registration Indemnitee furnished in writing to NFS by or on behalf of such
Registration Indemnitee expressly for use in the Registration Statement or
Prospectus.
(b) Each Registration Indemnitee agrees, severally and not jointly, to
indemnify and hold harmless NFS, its directors, its officers who sign any
Registration Statement, and any person who controls NFS within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, to the same
extent as the indemnity from NFS to each Registration Indemnitee provided in
Section 8.2(a), but only with respect to information relating to such
Registration Indemnitee furnished in writing to NFS by or on behalf of such
Registration Indemnitee expressly for use in the Registration Statement or
Prospectus. If any Action shall be brought against NFS, any of its directors,
any such officer, or any such controlling person based on any Registration
Statement or Prospectus and in respect of which indemnity may be sought against
a Registration Indemnitee pursuant to this paragraph (b), such Registration
Indemnitee shall have the rights and duties
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<PAGE>
given to NFS by Sections 8.3-8.5 hereof (except that if NFS shall have assumed
the defense thereof such Registration Indemnitee shall not be required to do
so, but may employ separate counsel therein and participate in the defense
thereof, but the fees and expenses of such counsel shall be at such
Registration Indemnitee's expense), and NFS, its directors, any such officer,
and any such controlling person shall have the rights and duties given to the
Registration Indemnitee by Article VIII hereof.
SECTION 8.3 Contribution. (a) If the indemnification provided
------------
for in this Article VIII is unavailable to an indemnified party under Section
8.2 hereof with respect to any Losses referred to therein, then an indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such Losses (i)
in such proportion as is appropriate to reflect the relative benefits received
by NFS, on the one hand, and the applicable Registration Indemnitee, on the
other hand, from the offering of the securities covered by such Registration
Statement and Prospectus, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of NFS, on the one hand, and the applicable
Registration Indemnitee, on the other hand, in connection with the statements
or omissions that resulted in such Losses, an well an any other relevant
equitable considerations. The relative benefits received by NFS, on the one
hand, and the applicable Registration Indemnitee, on the other hand, shall be
deemed to be in the same proportion as the total net proceeds from the
applicable securities offering (before deducting expenses) received by NFS bear
to the total net proceeds from such offering (before deducting expenses)
received by such Registration Indemnitee. The relative fault of NFS, on the
one hand, and the applicable Registration Indemnitee, on the other hand, shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by NFS, on the one
hand, or by such Registration Indemnitee, on the other hand, and the parties
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(b) NFS and each Registration Indemnitee agree that it would not be
just and equitable if contribution pursuant to this Section 8.3 were determined
by pro rata allocation or by any other method of allocation that does
--- ----
not take account of the equitable considerations referred to in Section 8.3(a).
The amount paid or payable by an indemnified party as a result of the Losses
referred to in Section 8.3(a) shall be deemed to include, subject to the
limitations set forth herein, any legal or other expenses reasonably incurred by
such party in connection with
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<PAGE>
investigating any claim or defending any such Action. Notwithstanding the
provisions of this Section 8.3(b), a Registration Indemnitee shall not be
required to contribute any amount in excess of the amount by which the proceeds
to such Registration Indemnitee exceed the amount of any damages that such
Registration Indemnitee has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation, within the meaning of Section 11(f) of
the Securities Act, shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
SECTION 8.4 Procedure. If any Action shall be brought against
---------
a Registration Indemnitee or any other Person entitled to indemnification
pursuant to this Article VIII (collectively with the Registration Indemnitee,
the "Indemnitee") in respect of which indemnity may be sought against NFS, such
Indemnitee shall promptly notify NFS, and NFS shall assume the defense thereof,
including the employment of counsel and payment of all fees and expenses. Such
Indemnitee shall have the right to employ separate counsel in any such action,
suit or proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such person unless (i) NFS
has agreed in writing to pay such fees and expenses, (ii) NFS has failed to
assume the defense and employ counsel, or (iii) the named parties to an Action
(including any impleaded parties) include both an Indemnitee and NFS and such
Indemnitee shall have been advised by its counsel that representation of such
indemnified party and NFS by the same counsel would be inappropriate under
applicable standards of professional conduct (whether or not such
representation by the same counsel has been proposed) due to actual or
potential differing interests between them (in which case NFS shall not have
the right to assume the defense of such Action on behalf of such Indemnitee).
It is understood, however, that NFS shall, in connection with any one such
Action or separate but substantially similar or related Actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all such
Indemnitees not having actual or potential differing interests among
themselves, and that all such fees and expenses shall be reimbursed as they are
incurred. NFS shall not be liable for any settlement of any such Action
affected without its written consent, but if settled with such written consent,
or if there be a final judgment for the plaintiff in any such Action, NFS
agrees to indemnify and hold harmless each Indemnitee, to the extent provided
in the preceding paragraph from and against any Losses by reason of such
settlement or judgment.
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<PAGE>
SECTION 8.5 Other Matters. (a) No indemnifying party shall
-------------
without the prior written consent of the indemnified party effect any
settlement of any pending or threatened Action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such Action.
(b) Any Losses for which an indemnified party is entitled to
indemnification or contribution under this Article VIII shall be paid by the
indemnifying party to the indemnified party as such Losses are incurred. The
indemnity and contribution agreements contained in this Article VIII shall
remain operative and in full force and effect regardless of (i) any
investigation made by or on behalf of any Indemnitee, NFS, its directors or
officers, or any person controlling such Indemnitee and (ii) any termination of
this Agreement.
ARTICLE IX
DISPUTE RESOLUTION
SECTION 9.1 Negotiation. (a) In the event of any dispute,
-----------
controversy or claim arising out of or relating to this Agreement or the
breach, termination or validity thereof (a "Dispute"), upon the written notice
of any party hereto to the others, the parties hereto shall attempt in good
faith to negotiate a resolution of the Dispute.
(b) If the parties are unable to resolve the Dispute within 30 days
after the receipt of such notice, then any party may submit the Dispute to
arbitration in accordance with Section 9.2 as the exclusive means to resolve
the Dispute.
SECTION 9.2 Arbitration. (a) Any Dispute not resolved
-----------
pursuant to Section 9.1 shall, at the request of any party hereto, be finally
settled by arbitration administered by the American Arbitration Association
under its Commercial Arbitration Rules then in effect (the "Rules") except as
modified herein. The arbitration shall be held in Columbus, Ohio.
(b) There shall be three arbitrators of whom NFS and Nationwide each
shall select one within 15 days of respondent's receipt of claimant's demand
for arbitration. The two party-appointed arbitrators shall select a third
arbitrator to serve as Chair of the tribunal within 15 days after the selection
of the second arbitrator. If any arbitrator has not been appointed within the
time limits specified herein, such appointment shall be made by the American
Arbitration Association in accordance
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<PAGE>
with the Rules upon the written request of NFS or Nationwide within 15 days
after such request.
(c) The hearing shall be held no later than 90 days following the
appointment of the third arbitrator.
(d) The arbitral tribunal shall permit prehearing discovery that is
relevant to the subject matter of the Dispute taking into account the parties'
desire that the arbitration be conducted expeditiously and most effectively.
All discovery shall be completed within 40 days after the appointment of the
third arbitrator.
(e) The award shall be final and binding and shall be the sole and
exclusive remedy between the Parties regarding any claims, counterclaims,
issues, or accounting presented to the arbitral tribunal. The arbitration
shall be governed by the United States Arbitration Act, 9 U.S.C. SS 1-16, and
judgment upon any award may be entered in any court having jurisdiction.
(f) NFS and Nationwide will bear equally all fees, costs, disbursements
and other expenses of the arbitration, and each Party shall be responsible for
all fees, costs, disbursements and other expenses incurred in the preparation
and prosecution of their own case; provided, however, that in the event
-------- -------
that a party fails to comply with the orders or decision of the arbitral
tribunal, then such noncomplying party shall be liable for all costs and
expenses (including, without limitation, attorneys' fees) incurred by the other
parties in its effort to obtain either an order to compel, or an enforcement of
an award from a court of competent jurisdiction.
(g) The arbitral tribunal shall be authorized in its discretion to
grant pre-award and post-award interest at commercial rates. The arbitral
tribunal shall have no authority to award punitive damages or any other damages
not measured by the prevailing parties actual damages.
(h) All notices by or party to the others in connection with the
arbitration shall be in accordance with the provisions of Section 10.1, except
that all notices made pursuant to this Article IX must be made by personal
delivery or overnight courier. This agreement to arbitrate shall be binding
upon the successors and permitted assigns of each party hereto. This Agreement
and the rights and obligations of the parties shall remain in full force and
effect pending the award in any arbitration proceeding hereunder.
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<PAGE>
ARTICLE X
NATIONWIDE EXCLUSIVE MARKETING FORCE
SECTION 10.1 Use of Nationwide Exclusive Marketing Force.
-------------------------------------------
Nationwide hereby grants NFS and its insurance company Subsidiaries the
exclusive, non-assignable right to distribute variable annuity, fixed annuity
and individual universal, variable and traditional life insurance products
through the Nationwide Exclusive Marketing Force. The granting of such right
to NFS and its insurance company Subsidiaries by Nationwide (x) acknowledges
that certain NFS insurance company Subsidiaries have existing agent agreements
individually with the Nationwide Exclusive Marketing Force and the granting of
such right is an extension and affirmation of these rights and (y) permits NFS
and its insurance company Subsidiaries to enter into new and/or renewal agent
agreements or any similar agreements with the Nationwide Exclusive Marketing
Force with respect to the distribution of variable annuity, fixed annuity and
individual universal, variable and traditional life insurance products. Such
right shall terminate on the date that is 365 days from the date on which
Nationwide gives written notice to NFS that it has elected to terminate such
right (the "Termination Date"); provided, however, that Nationwide may
-------- -------
not give NFS any such notice until the later to occur of (i) the first
anniversary of the Trigger Date or (ii) the fourth anniversary of the Closing
Date. Such NFS insurance company Subsidiaries having existing agreements with
the Nationwide Exclusive Marketing Force at the Termination Date may terminate
such right, in whole or in part, by the individual cancellation of those agent
agreements in accordance with the terms thereof and applicable law.
SECTION 10.2 Effect of Termination; Further Assurances;
-------------------------------------------
Attorney-in-Fact. (a) Upon receipt of a written termination notice pursuant
- ----------------
to Section 10.1(a), NFS shall, and shall cause its Subsidiaries to, at its own
expense take all legal and administrative steps that may be required under
applicable legal, regulatory and contractual requirements to terminate its
agency contracts with the Nationwide Exclusive Marketing Force effective not
later than the Termination Date.
(b) NFS hereby appoints Nationwide as its agent and
attorney-in-fact, on its behalf and in its name any document that Nationwide,
in its good faith reasonable judgment, deems necessary in order to terminate
NFS's agency contracts with the Nationwide Exclusive Marketing Force effective
not later than the Termination Date.
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<PAGE>
ARTICLE XI
REPRESENTATIONS AND WARRANTIES
Nationwide, NWC and NFS represent and warrant to each other as follows:
SECTION 11.1 Representations and Warranties of Nationwide and
-------------------------------------------------
NWC. Nationwide and NWC hereby represent and warrant to NFS as follows:
- ---
(a) Organization and Existence; Authority. Nationwide is a
-------------------------------------
mutual insurance company duly organized, validly existing and in good standing
under the laws of Ohio. NWC is a corporation duly organized, validly existing
and in good standing under the laws of Delaware. Nationwide and NWC each have
all corporate power and authority necessary to enter into this Agreement. The
execution, delivery and performance by Nationwide and NWC of this Agreement
have been duly and validly authorized by all necessary corporate action. This
Agreement has been duly executed and delivered by each of Nationwide and NWC
and constitutes a valid and binding obligation of each of Nationwide and NWC,
enforceable against each of Nationwide and NWC in accordance with its terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally and by the principles governing the availability of equitable
remedies).
(b) No Conflict. Neither the execution, delivery or
-----------
performance by Nationwide or NWC of this Agreement, nor the consummation by
Nationwide or NWC of the transactions contemplated hereby, will (i) violate or
conflict with any provision of the Certificate of Incorporation or Bylaws of
Nationwide or NWC, (ii) violate, conflict with, result in a breach of or
constitute (with or without notice or lapse of time or both) a default under,
give rise to a right of termination or cancellation of, or result in any change
in the terms of, any contract or permit to which Nationwide or NWC is a party
or by which Nationwide or NWC is bound or affected, or to which any of the
properties or assets of Nationwide or NWC are subject, (iii) violate or
conflict with any order, judgement, injunction, award or decree of any
governmental authority applicable to Nationwide or NWC or to the properties or
assets of Nationwide or NWC, or (iv) violate or conflict with any statute, law
or regulation of any jurisdiction applicable to Nationwide or NWC or to the
properties or assets of Nationwide or NWC; other than, in the case of clauses
(ii), (iii) and (iv) above, any such conflicts, violations, defaults, rights or
changes that individually or in the aggregate would not have a material adverse
effect on Nationwide or NWC or interfere in any material way with the
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<PAGE>
ability of Nationwide or NWC to consummate the transactions contemplated
hereby.
(c) Consents. Except as contemplated by this Agreement, no
--------
consent, authorization, order or approval of, registration or filing with, or
notice to, any governmental authority is required to be obtained, made or given
by or with respect to Nationwide or NWC in connection with the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby, other than any of the foregoing which, if not
obtained or made, would not individually or in the aggregate have a material
adverse effect on Nationwide or NWC or interfere in any material way with the
ability of Nationwide or NWC to consummate the transactions contemplated
hereby.
SECTION 11.2 Representations and Warranties of NFS. NFS hereby
-------------------------------------
represents and warrants to Nationwide and NWC as follows:
(a) Organization and Existence; Authority. NFS is a
-------------------------------------
corporation duly organized, validly existing and in good standing under the
laws of Delaware. NFS has all corporate power and authority necessary to enter
into this Agreement. The execution, delivery and performance by NFS of this
Agreement have been duly and validly authorized by all necessary corporate
action. This Agreement has been duly executed and delivered by NFS and
constitutes a valid and binding obligation of NFS, enforceable against NFS in
accordance with its terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and by the principles governing the
availability of equitable remedies).
(b) No Conflict. Neither the execution, delivery or
-----------
performance by NFS of this Agreement, nor the consummation by NFS of the
transactions contemplated hereby, will (i) violate or conflict with any
provision of the Certificate of Incorporation or Bylaws of NFS, (ii) violate,
conflict with, result in a breach of or constitute (with or without notice or
lapse of time or both) a default under, give rise to a right of termination or
cancellation of, or result in any change in the terms of, any contract or
permit to which NFS is a party or by which NFS is bound or affected, or to
which any of the properties or assets of NFS are subject, (iii) violate or
conflict with any order, judgement, injunction, award or decree of any
governmental authority applicable to NFS or to the properties or assets of NFS,
or (iv) violate or conflict with any statute, law or regulation of any
jurisdiction applicable to NFS or to the properties or assets of NFS; other
than, in the case of clauses (ii), (iii) and (iv) above, any such conflicts,
violations, defaults, rights or changes that individually or in the aggregate
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<PAGE>
would not have a material adverse effect on NFS or interfere in any material
way with the ability of NFS to consummate the transactions contemplated hereby.
(c) Consents. Except as contemplated by this Agreement, no
--------
consent, authorization, order or approval of, registration or filing with, or
notice to, any governmental authority is required to be obtained, made or given
by or with respect to NFS in connection with the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby, other than any of the foregoing which, if not obtained or
made, would not individually or in the aggregate have a material adverse effect
on NFS or interfere in any material way with the ability of NFS to consummate
the transactions contemplated hereby.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 Notices. All notices and other communications
-------
provided for hereunder shall be dated and in writing and shall be deemed to
have been given (i) when delivered, if delivered personally, sent by confirmed
telecopy or sent by registered or certified mail, return receipt requested,
postage prepaid, (ii) on the next business day if sent by overnight courier and
(iii) when received if delivered otherwise. Such notices shall be delivered to
the address set forth below, or to such other address as a party shall have
furnished to the other party in accordance with this Section 10.1.
If to Nationwide, to:
Nationwide Mutual Insurance Company
One Nationwide Plaza
Columbus, Ohio 43215
Attention: Chief Executive Officer
If to NWC, to:
Nationwide Corporation
One Nationwide Plaza
Columbus, Ohio 43215
Attention: President
If to NFS, to:
Nationwide Financial Services, Inc.
One Nationwide Plaza
Columbus, Ohio 43215
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Attention: President
each with a copy to:
Office of General Counsel
Nationwide Insurance Companies
One Nationwide Plaza
Columbus, Ohio 43215
Attention: General Counsel
SECTION 12.2 Binding Nature of Agreement. This Agreement shall
---------------------------
be binding upon and inure to the benefit of and be enforceable by the parties
hereto or their successors in interest, except as expressly otherwise provided
herein.
SECTION 12.3 Interpretation. The table of contents and the
--------------
descriptive headings of the several Articles and Sections of this Agreement are
for reference only and shall not affect the interpretation of this Agreement.
Wherever the words "include," "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation." The words "herein," "hereof" and "hereunder," and other words of
similar import, refer to this Agreement as a whole and not to any particular
Article, Section or clause.
SECTION 12.4 Remedies. Without limiting the rights of each
--------
party hereto to pursue any and all other legal and equitable rights available
to such party against the other parties for failure to perform their
obligations under this Agreement, the parties hereto acknowledge and agree that
the remedy at law for any failure to perform their obligations hereunder would
be inadequate and that each of them, respectively, shall be entitled to
specific performance, injunctive relief or other equitable remedies in the
event of any such failure. Without limiting the generality of the foregoing,
NFS acknowledges and agrees that (i) its covenants and obligations hereunder
are special, unique and relate to matters of extraordinary importance to
Nationwide and NWC, that in the event NFS fails to perform, observe or
discharge any of its obligations under this Agreement Nationwide and NWC will
be irreparably harmed and that no remedy at law will provide adequate relief to
Nationwide and NWC, and (ii) Nationwide and NWC shall be entitled to a
temporary restraining order and temporary and permanent injunctive and other
respectable relief in case of any failure by NFS to perform, observe or
discharge any of its covenants or obligations hereunder and without the
necessity of proving actual damages. The remedies provided herein shall be
cumulative and shall not preclude assertion by any party hereto of any other
rights or the seeking of any other remedies, either legal or equitable, against
any other party hereto. This Section 12.4 shall not limit the
- 42 -
<PAGE>
right of any party hereto to seek arbitration pursuant to Article IX as the
exclusive means for settling a Dispute.
SECTION 12.5 Governing Law. This Agreement shall be governed by
-------------
and construed and enforced in accordance with the laws of the State of Ohio,
without regard to the principles of conflicts of law.
SECTION 12.6 Counterparts. This Agreement may be executed by
------------
the parties hereto in separate counterparts, each of which, when so executed
and delivered, shall be an original, but all such counterparts shall together
constitute one and the same instrument.
SECTION 12.7 Severability. In the event that any one or more of
------------
the provisions of this Agreement, or the application thereof in any
circumstances, is or becomes invalid, illegal or unenforceable in any respect
for any reason, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions contained herein shall
not be in any way impaired thereby, it being intended that all of the rights
and privileges of the parties hereto shall be enforceable to the fullest extent
permitted by law.
SECTION 12.8 Amendments and Waivers. This Agreement may be
----------------------
amended, modified or supplemented, and the terms hereof may be waived, only by
written instrument executed by the parties hereto or, in the case of a waiver,
by the party waiving compliance.
SECTION 12.9 Entire Agreement. This Agreement, including any
----------------
schedules or exhibits annexed hereto, contains the entire agreement among the
parties hereto in respect of the subject matter hereof. There are no
restrictions, promises, representation, warranties, covenants or undertakings,
other than those expressly set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
SECTION 12.10 No Assignment. Except as otherwise provided
-------------
herein, neither this Agreement nor any of the rights, interests or obligations
of any party hereto may be assigned by such party without the prior written
consent of the other parties.
SECTION 12.11 Further Assurances. Each party hereto shall, on
------------------
notice, request from any other party hereto, take such further action not
specifically required hereby at the expense of the requesting party, as the
requesting party may reasonably request for the implementation of the
transactions contemplated hereby.
SECTION 12.12 No Third Party Beneficiaries. Except as
----------------------------
specifically contemplated in Article VIII, nothing in this
- 43 -
<PAGE>
Agreement shall convey any rights upon any person or entity which is not a
party or a permitted assignee of a party to this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective authorized officers as of the date first above
written.
NATIONWIDE FINANCIAL SERVICES, INC.
By
------------------------------------
Name:
Title:
NATIONWIDE MUTUAL INSURANCE COMPANY
By
------------------------------------
Name:
Title:
NATIONWIDE CORPORATION
By
------------------------------------
Name:
Title:
- 44 -
<PAGE>
EXHIBIT 11.1
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS
($000,000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
Income from continuing operations........................ $ 212.3
Income from discontinued operations, net of federal
income tax expense...................................... 11.3
-------
Net income............................................... $ 223.6
=======
Pro forma weighted average number of common shares
outstanding
(in thousands):
Class A common shares expected to be issued in the Eq-
uity Offerings........................................ 20,540
Class B common shares outstanding...................... 104,745
-------
125,285
=======
Pro forma results per common share:
Income from continuing operations...................... $1.69
Net income............................................. $1.78
</TABLE>
<PAGE>
EXHIBIT 12.1
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS REGARDING COMPUTATION OF RATIOS
($000,000'S OMITTED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
PRO
FORMA(1) HISTORICAL
-------- ------------------------------------------
1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Income from continuing
operations before
federal income tax
expense and cumulative
effect of accounting
changes................. $ 229.2 $ 328.1 $ 281.2 $ 240.4 $ 275.8 $116.4
Fixed charges............ 1,013.0 982.3 950.3 844.6 823.9 802.4
-------- -------- -------- -------- -------- ------
$1,242.2 $1,310.4 $1,231.5 $1,085.0 $1,099.7 $918.8
======== ======== ======== ======== ======== ======
Fixed Charges:
Interest credited to
policyholder account
balances................ $ 982.3 $ 982.3 $ 950.3 $ 844.6 $ 823.9 $802.4
Interest on debt......... 30.7 -- -- -- -- --
-------- -------- -------- -------- -------- ------
$1,013.0 $ 982.3 $ 950.3 $ 844.6 $ 823.9 $802.4
======== ======== ======== ======== ======== ======
Ratio of earnings to fixed
charges................... 1.2x 1.3x 1.3x 1.3x 1.3x 1.1x
======== ======== ======== ======== ======== ======
Ratio of earnings to fixed
charges, excluding
interest credited to
policyholder account
balances.................. 8.5x N/A N/A N/A N/A N/A
======== ======== ======== ======== ======== ======
</TABLE>
- --------
(1) Pro Forma results are presented as if the 1996 Cash Dividend, the Special
Dividend, the Equity Offerings, the Note Offering and the Capital
Securities Offering had been consummated at the beginning of the period
indicated.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Nationwide Financial Services, Inc.:
We consent to the use of our reports included herein and to the reference to
our firm under the headings "Experts", "Summary Consolidated Financial Data"
and "Selected Consolidated Financial Data" in the prospectus. Our reports
dated January 31, 1997 included herein refer to a change in accounting
principle. In 1994, the Company changed its accounting for investments in debt
and equity securities. Our reports also refer to the formation of the Company
as a holding company for Nationwide Life Insurance Company and the other
companies within the Nationwide Insurance Enterprise that offer or distribute
long-term savings and retirement products. The consolidated financial
statements are presented as if these companies were consolidated for all
periods presented.
KPMG Peat Marwick LLP
Columbus, Ohio
March 5, 1997
<PAGE>
EXHIBIT 25.1
Registration No.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) ___
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
NATIONWIDE FINANCIAL SERVICES, INC.
(Exact name of obligor as specified in its charter)
Delaware 31-1486870
(State of incorporation) (I.R.S. employer identification no.)
One Nationwide Plaza
Columbus, Ohio 43215
(Address of principal executive offices) (Zip Code)
___% Junior Subordinated Deferrable Interest Debentures of
Nationwide Financial Services, Inc.
(Title of the indenture securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each
affiliation:
Based upon an examination of the books and records of the trustee and
upon information furnished by the obligor, the obligor is not an affiliate of
the trustee.
ITEM 3. LIST OF EXHIBITS.
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which includes the
certificate of authority of Wilmington Trust Company to commence business and
the authorization of Wilmington Trust Company to exercise corporate trust
powers.
B. Copy of By-Laws of Wilmington Trust Company.
C. Consent of Wilmington Trust Company required by Section 321(b) of
Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington Trust Company.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Wilmington Trust Company, a corporation organized and
existing under the laws of Delaware, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington and State of Delaware on the 21st day
of February, 1997.
WILMINGTON TRUST COMPANY
[SEAL]
Attest:/s/ Patricia A. Evans By:/s/ Emmett R. Harmon
----------------------------- ----------------------
Assistant Secretary Name: Emmett R. Harmon
Title: Vice President
2
<PAGE>
EXHIBIT A
AMENDED CHARTER
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON MAY 9, 1987
<PAGE>
AMENDED CHARTER
OR
ACT OF INCORPORATION
OF
WILMINGTON TRUST COMPANY
WILMINGTON TRUST COMPANY, originally incorporated by an Act of the General
Assembly of the State of Delaware, entitled "An Act to Incorporate the Delaware
Guarantee and Trust Company", approved March 2, A.D. 1901, and the name of which
company was changed to "WILMINGTON TRUST COMPANY" by an amendment filed in the
Office of the Secretary of State on March 18, A.D. 1903, and the Charter or Act
of Incorporation of which company has been from time to time amended and changed
by merger agreements pursuant to the corporation law for state banks and trust
companies of the State of Delaware, does hereby alter and amend its Charter or
Act of Incorporation so that the same as so altered and amended shall in its
entirety read as follows:
FIRST: - The name of this corporation is WILMINGTON TRUST COMPANY.
SECOND: - The location of its principal office in the State of Delaware is at
Rodney Square North, in the City of Wilmington, County of New Castle; the name
of its resident agent is WILMINGTON TRUST COMPANY whose address is Rodney Square
North, in said City. In addition to such principal office, the said corporation
maintains and operates branch offices in the City of Newark, New Castle County,
Delaware, the Town of Newport, New Castle County, Delaware, at Claymont, New
Castle County, Delaware, at Greenville, New Castle County Delaware, and at
Milford Cross Roads, New Castle County, Delaware, and shall be empowered to
open, maintain and operate branch offices at Ninth and Shipley Streets, 418
Delaware Avenue, 2120 Market Street, and 3605 Market Street, all in the City of
Wilmington, New Castle County, Delaware, and such other branch offices or places
of business as may be authorized from time to time by the agency or agencies of
the government of the State of Delaware empowered to confer such authority.
THIRD: - (a) The nature of the business and the objects and purposes proposed to
be transacted, promoted or carried on by this Corporation are to do any or all
of the things herein mentioned as fully and to the same extent as natural
persons might or could do and in any part of the world, viz.:
(1) To sue and be sued, complain and defend in any Court of law or
equity and to make and use a common seal, and alter the seal at pleasure, to
hold,
<PAGE>
purchase, convey, mortgage or otherwise deal in real and personal estate and
property, and to appoint such officers and agents as the business of the
Corporation shall require, to make by-laws not inconsistent with the
Constitution or laws of the United States or of this State, to discount bills,
notes or other evidences of debt, to receive deposits of money, or securities
for money, to buy gold and silver bullion and foreign coins, to buy and sell
bills of exchange, and generally to use, exercise and enjoy all the powers,
rights, privileges and franchises incident to a corporation which are proper or
necessary for the transaction of the business of the Corporation hereby created.
(2) To insure titles to real and personal property, or any estate or
interests therein, and to guarantee the holder of such property, real or
personal, against any claim or claims, adverse to his interest therein, and to
prepare and give certificates of title for any lands or premises in the State of
Delaware, or elsewhere.
(3) To act as factor, agent, broker or attorney in the receipt,
collection, custody, investment and management of funds, and the purchase, sale,
management and disposal of property of all descriptions, and to prepare and
execute all papers which may be necessary or proper in such business.
(4) To prepare and draw agreements, contracts, deeds, leases,
conveyances, mortgages, bonds and legal papers of every description, and to
carry on the business of conveyancing in all its branches.
(5) To receive upon deposit for safekeeping money, jewelry, plate,
deeds, bonds and any and all other personal property of every sort and kind,
from executors, administrators, guardians, public officers, courts, receivers,
assignees, trustees, and from all fiduciaries, and from all other persons and
individuals, and from all corporations whether state, municipal, corporate or
private, and to rent boxes, safes, vaults and other receptacles for such
property.
(6) To act as agent or otherwise for the purpose of registering,
issuing, certificating, countersigning, transferring or underwriting the stock,
bonds or other obligations of any corporation, association, state or
municipality, and may receive and manage any sinking fund therefor on such terms
as may be agreed upon between the two parties, and in like manner may act as
Treasurer of any corporation or municipality.
(7) To act as Trustee under any deed of trust, mortgage, bond or
other instrument issued by any state, municipality, body politic, corporation,
2
<PAGE>
association or person, either alone or in conjunction with any other person or
persons, corporation or corporations.
(8) To guarantee the validity, performance or effect of any contract
or agreement, and the fidelity of persons holding places of responsibility or
trust; to become surety for any person, or persons, for the faithful performance
of any trust, office, duty, contract or agreement, either by itself or in
conjunction with any other person, or persons, corporation, or corporations, or
in like manner become surety upon any bond, recognizance, obligation, judgment,
suit, order, or decree to be entered in any court of record within the State of
Delaware or elsewhere, or which may now or hereafter be required by any law,
judge, officer or court in the State of Delaware or elsewhere.
(9) To act by any and every method of appointment as trustee, trustee
in bankruptcy, receiver, assignee, assignee in bankruptcy, executor,
administrator, guardian, bailee, or in any other trust capacity in the
receiving, holding, managing, and disposing of any and all estates and property,
real, personal or mixed, and to be appointed as such trustee, trustee in
bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator,
guardian or bailee by any persons, corporations, court, officer, or authority,
in the State of Delaware or elsewhere; and whenever this Corporation is so
appointed by any person, corporation, court, officer or authority such trustee,
trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor,
administrator, guardian, bailee, or in any other trust capacity, it shall not be
required to give bond with surety, but its capital stock shall be taken and held
as security for the performance of the duties devolving upon it by such
appointment.
(10) And for its care, management and trouble, and the exercise of
any of its powers hereby given, or for the performance of any of the duties
which it may undertake or be called upon to perform, or for the assumption of
any responsibility the said Corporation may be entitled to receive a proper
compensation.
(11) To purchase, receive, hold and own bonds, mortgages, debentures,
shares of capital stock, and other securities, obligations, contracts and
evidences of indebtedness, of any private, public or municipal corporation
within and without the State of Delaware, or of the Government of the United
States, or of any state, territory, colony, or possession thereof, or of any
foreign government or country; to receive, collect, receipt for, and dispose of
interest, dividends and income upon and from any of the bonds, mortgages,
debentures, notes, shares of capital stock, securities, obligations, contracts,
evidences of indebtedness and other property held and owned by it, and to
3
<PAGE>
exercise in respect of all such bonds, mortgages, debentures, notes, shares of
capital stock, securities, obligations, contracts, evidences of indebtedness and
other property, any and all the rights, powers and privileges of individual
owners thereof, including the right to vote thereon; to invest and deal in and
with any of the moneys of the Corporation upon such securities and in such
manner as it may think fit and proper, and from time to time to vary or realize
such investments; to issue bonds and secure the same by pledges or deeds of
trust or mortgages of or upon the whole or any part of the property held or
owned by the Corporation, and to sell and pledge such bonds, as and when the
Board of Directors shall determine, and in the promotion of its said corporate
business of investment and to the extent authorized by law, to lease, purchase,
hold, sell, assign, transfer, pledge, mortgage and convey real and personal
property of any name and nature and any estate or interest therein.
(b) In furtherance of, and not in limitation, of the powers conferred by the
laws of the State of Delaware, it is hereby expressly provided that the said
Corporation shall also have the following powers:
(1) To do any or all of the things herein set forth, to the same
extent as natural persons might or could do, and in any part of the world.
(2) To acquire the good will, rights, property and franchises and to
undertake the whole or any part of the assets and liabilities of any person,
firm, association or corporation, and to pay for the same in cash, stock of this
Corporation, bonds or otherwise; to hold or in any manner to dispose of the
whole or any part of the property so purchased; to conduct in any lawful manner
the whole or any part of any business so acquired, and to exercise all the
powers necessary or convenient in and about the conduct and management of such
business.
(3) To take, hold, own, deal in, mortgage or otherwise lien, and to
lease, sell, exchange, transfer, or in any manner whatever dispose of property,
real, personal or mixed, wherever situated.
(4) To enter into, make, perform and carry out contracts of every
kind with any person, firm, association or corporation, and, without limit as to
amount, to draw, make, accept, endorse, discount, execute and issue promissory
notes, drafts, bills of exchange, warrants, bonds, debentures, and other
negotiable or transferable instruments.
(5) To have one or more offices, to carry on all or any of its
operations and businesses, without restriction to the same extent as natural
persons might or could do, to purchase or otherwise acquire, to hold, own, to
mortgage, sell,
4
<PAGE>
convey or otherwise dispose of, real and personal property, of every class and
description, in any State, District, Territory or Colony of the United States,
and in any foreign country or place.
(6) It is the intention that the objects, purposes and powers
specified and clauses contained in this paragraph shall (except where otherwise
expressed in said paragraph) be nowise limited or restricted by reference to or
inference from the terms of any other clause of this or any other paragraph in
this charter, but that the objects, purposes and powers specified in each of the
clauses of this paragraph shall be regarded as independent objects, purposes and
powers.
FOURTH: - (a) The total number of shares of all classes of stock which the
Corporation shall have authority to issue is forty-one million (41,000,000)
shares, consisting of:
(1) One million (1,000,000) shares of Preferred stock, par value
$10.00 per share (hereinafter referred to as "Preferred Stock"); and
(2) Forty million (40,000,000) shares of Common Stock, par value
$1.00 per share (hereinafter referred to as "Common Stock").
(b) Shares of Preferred Stock may be issued from time to time in one or more
series as may from time to time be determined by the Board of Directors each of
said series to be distinctly designated. All shares of any one series of
Preferred Stock shall be alike in every particular, except that there may be
different dates from which dividends, if any, thereon shall be cumulative, if
made cumulative. The voting powers and the preferences and relative,
participating, optional and other special rights of each such series, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding; and, subject to the
provisions of subparagraph 1 of Paragraph (c) of this Article FOURTH, the Board
of Directors of the Corporation is hereby expressly granted authority to fix by
resolution or resolutions adopted prior to the issuance of any shares of a
particular series of Preferred Stock, the voting powers and the designations,
preferences and relative, optional and other special rights, and the
qualifications, limitations and restrictions of such series, including, but
without limiting the generality of the foregoing, the following:
(1) The distinctive designation of, and the number of shares of
Preferred Stock which shall constitute such series, which number may be
increased (except where otherwise provided by the Board of Directors) or
decreased (but not below the number of shares thereof then outstanding) from
time to time by like action of the Board of Directors;
5
<PAGE>
(2) The rate and times at which, and the terms and conditions on
which, dividends, if any, on Preferred Stock of such series shall be paid, the
extent of the preference or relation, if any, of such dividends to the dividends
payable on any other class or classes, or series of the same or other class of
stock and whether such dividends shall be cumulative or non-cumulative;
(3) The right, if any, of the holders of Preferred Stock of such
series to convert the same into or exchange the same for, shares of any other
class or classes or of any series of the same or any other class or classes of
stock of the Corporation and the terms and conditions of such conversion or
exchange;
(4) Whether or not Preferred Stock of such series shall be subject to
redemption, and the redemption price or prices and the time or times at which,
and the terms and conditions on which, Preferred Stock of such series may be
redeemed.
(5) The rights, if any, of the holders of Preferred Stock of such
series upon the voluntary or involuntary liquidation, merger, consolidation,
distribution or sale of assets, dissolution or winding-up, of the Corporation.
(6) The terms of the sinking fund or redemption or purchase account,
if any, to be provided for the Preferred Stock of such series; and
(7) The voting powers, if any, of the holders of such series of
Preferred Stock which may, without limiting the generality of the foregoing
include the right, voting as a series or by itself or together with other series
of Preferred Stock or all series of Preferred Stock as a class, to elect one or
more directors of the Corporation if there shall have been a default in the
payment of dividends on any one or more series of Preferred Stock or under such
circumstances and on such conditions as the Board of Directors may determine.
(c) (1) After the requirements with respect to preferential dividends on the
Preferred Stock (fixed in accordance with the provisions of section (b) of this
Article FOURTH), if any, shall have been met and after the Corporation shall
have complied with all the requirements, if any, with respect to the setting
aside of sums as sinking funds or redemption or purchase accounts (fixed in
accordance with the provisions of section (b) of this Article FOURTH), and
subject further to any conditions which may be fixed in accordance with the
provisions of section (b) of this Article FOURTH, then and not otherwise the
holders of Common Stock shall be entitled to receive such dividends as may be
declared from time to time by the Board of Directors.
(2) After distribution in full of the preferential amount, if any,
(fixed in accordance with the provisions of section (b) of this Article FOURTH),
to be
6
<PAGE>
distributed to the holders of Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets, dissolution or winding-
up, of the Corporation, the holders of the Common Stock shall be entitled to
receive all of the remaining assets of the Corporation, tangible and intangible,
of whatever kind available for distribution to stockholders ratably in
proportion to the number of shares of Common Stock held by them respectively.
(3) Except as may otherwise be required by law or by the provisions
of such resolution or resolutions as may be adopted by the Board of Directors
pursuant to section (b) of this Article FOURTH, each holder of Common Stock
shall have one vote in respect of each share of Common Stock held on all matters
voted upon by the stockholders.
(d) No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series of
stock or of other securities of the Corporation shall have any preemptive right
to purchase or subscribe for any unissued stock of any class or series or any
additional shares of any class or series to be issued by reason of any increase
of the authorized capital stock of the Corporation of any class or series, or
bonds, certificates of indebtedness, debentures or other securities convertible
into or exchangeable for stock of the Corporation of any class or series, or
carrying any right to purchase stock of any class or series, but any such
unissued stock, additional authorized issue of shares of any class or series of
stock or securities convertible into or exchangeable for stock, or carrying any
right to purchase stock, may be issued and disposed of pursuant to resolution of
the Board of Directors to such persons, firms, corporations or associations,
whether such holders or others, and upon such terms as may be deemed advisable
by the Board of Directors in the exercise of its sole discretion.
(e) The relative powers, preferences and rights of each series of Preferred
Stock in relation to the relative powers, preferences and rights of each other
series of Preferred Stock shall, in each case, be as fixed from time to time by
the Board of Directors in the resolution or resolutions adopted pursuant to
authority granted in section (b) of this Article FOURTH and the consent, by
class or series vote or otherwise, of the holders of such of the series of
Preferred Stock as are from time to time outstanding shall not be required for
the issuance by the Board of Directors of any other series of Preferred Stock
whether or not the powers, preferences and rights of such other series shall be
fixed by the Board of Directors as senior to, or on a parity with, the powers,
preferences and rights of such outstanding series, or any of them; provided,
however, that the Board of Directors may provide in the resolution or
resolutions as to any series of Preferred Stock adopted pursuant to section (b)
of this Article FOURTH that the consent of the holders of a majority (or such
greater proportion as shall be therein fixed) of the outstanding shares of such
series voting
7
<PAGE>
thereon shall be required for the issuance of any or all other series of
Preferred Stock.
(f) Subject to the provisions of section (e), shares of any series of Preferred
Stock may be issued from time to time as the Board of Directors of the
Corporation shall determine and on such terms and for such consideration as
shall be fixed by the Board of Directors.
(g) Shares of Common Stock may be issued from time to time as the Board of
Directors of the Corporation shall determine and on such terms and for such
consideration as shall be fixed by the Board of Directors.
(h) The authorized amount of shares of Common Stock and of Preferred Stock may,
without a class or series vote, be increased or decreased from time to time by
the affirmative vote of the holders of a majority of the stock of the
Corporation entitled to vote thereon.
FIFTH: - (a) The business and affairs of the Corporation shall be conducted and
managed by a Board of Directors. The number of directors constituting the
entire Board shall be not less than five nor more than twenty-five as fixed from
time to time by vote of a majority of the whole Board, provided, however, that
the number of directors shall not be reduced so as to shorten the term of any
director at the time in office, and provided further, that the number of
directors constituting the whole Board shall be twenty-four until otherwise
fixed by a majority of the whole Board.
(b) The Board of Directors shall be divided into three classes, as nearly equal
in number as the then total number of directors constituting the whole Board
permits, with the term of office of one class expiring each year. At the annual
meeting of stockholders in 1982, directors of the first class shall be elected
to hold office for a term expiring at the next succeeding annual meeting,
directors of the second class shall be elected to hold office for a term
expiring at the second succeeding annual meeting and directors of the third
class shall be elected to hold office for a term expiring at the third
succeeding annual meeting. Any vacancies in the Board of Directors for any
reason, and any newly created directorships resulting from any increase in the
directors, may be filled by the Board of Directors, acting by a majority of the
directors then in office, although less than a quorum, and any directors so
chosen shall hold office until the next annual election of directors. At such
election, the stockholders shall elect a successor to such director to hold
office until the next election of the class for which such director shall have
been chosen and until his successor shall be elected and qualified. No decrease
in the number of directors shall shorten the term of any incumbent director.
8
<PAGE>
(c) Notwithstanding any other provisions of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and notwithstanding the fact
that some lesser percentage may be specified by law, this Charter or Act of
Incorporation or the By-Laws of the Corporation), any director or the entire
Board of Directors of the Corporation may be removed at any time without cause,
but only by the affirmative vote of the holders of two-thirds or more of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class) cast at a meeting of the stockholders called for that purpose.
(d) Nominations for the election of directors may be made by the Board of
Directors or by any stockholder entitled to vote for the election of directors.
Such nominations shall be made by notice in writing, delivered or mailed by
first class United States mail, postage prepaid, to the Secretary of the
Corporation not less than 14 days nor more than 50 days prior to any meeting of
the stockholders called for the election of directors; provided, however, that
if less than 21 days' notice of the meeting is given to stockholders, such
written notice shall be delivered or mailed, as prescribed, to the Secretary of
the Corporation not later than the close of the seventh day following the day on
which notice of the meeting was mailed to stockholders. Notice of nominations
which are proposed by the Board of Directors shall be given by the Chairman on
behalf of the Board.
(e) Each notice under subsection (d) shall set forth (i) the name, age,
business address and, if known, residence address of each nominee proposed in
such notice, (ii) the principal occupation or employment of such nominee and
(iii) the number of shares of stock of the Corporation which are beneficially
owned by each such nominee.
(f) The Chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
(g) No action required to be taken or which may be taken at any annual or
special meeting of stockholders of the Corporation may be taken without a
meeting, and the power of stockholders to consent in writing, without a meeting,
to the taking of any action is specifically denied.
SIXTH: - The Directors shall choose such officers, agent and servants as may be
provided in the By-Laws as they may from time to time find necessary or proper.
SEVENTH: - The Corporation hereby created is hereby given the same powers,
rights and privileges as may be conferred upon corporations organized under the
Act
9
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entitled "An Act Providing a General Corporation Law", approved March 10, 1899,
as from time to time amended.
EIGHTH: - This Act shall be deemed and taken to be a private Act.
NINTH: - This Corporation is to have perpetual existence.
TENTH: - The Board of Directors, by resolution passed by a majority of the whole
Board, may designate any of their number to constitute an Executive Committee,
which Committee, to the extent provided in said resolution, or in the By-Laws of
the Company, shall have and may exercise all of the powers of the Board of
Directors in the management of the business and affairs of the Corporation, and
shall have power to authorize the seal of the Corporation to be affixed to all
papers which may require it.
ELEVENTH: - The private property of the stockholders shall not be liable for the
payment of corporate debts to any extent whatever.
TWELFTH: - The Corporation may transact business in any part of the world.
THIRTEENTH: - The Board of Directors of the Corporation is expressly authorized
to make, alter or repeal the By-Laws of the Corporation by a vote of the
majority of the entire Board. The stockholders may make, alter or repeal any
By-Law whether or not adopted by them, provided however, that any such
additional By-Laws, alterations or repeal may be adopted only by the affirmative
vote of the holders of two-thirds or more of the outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class).
FOURTEENTH: - Meetings of the Directors may be held outside of the State of
Delaware at such places as may be from time to time designated by the Board, and
the Directors may keep the books of the Company outside of the State of Delaware
at such places as may be from time to time designated by them.
FIFTEENTH: - (a) In addition to any affirmative vote required by law, and except
as otherwise expressly provided in sections (b) and (c) of this Article
FIFTEENTH:
(A) any merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with or into (i) any Interested Stockholder (as
hereinafter defined) or (ii) any other corporation (whether or not itself an
Interested Stockholder), which, after such merger or consolidation, would be an
Affiliate (as hereinafter defined) of an Interested Stockholder, or
10
<PAGE>
(B) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of related transactions) to or with
any Interested Stockholder or any Affiliate of any Interested Stockholder of any
assets of the Corporation or any Subsidiary having an aggregate fair market
value of $1,000,000 or more, or
(C) the issuance or transfer by the Corporation or any Subsidiary (in
one transaction or a series of related transactions) of any securities of the
Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of
any Interested Stockholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate fair market value of $1,000,000
or more, or
(D) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation, or
(E) any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or consolidation
of the Corporation with any of its Subsidiaries or any similar transaction
(whether or not with or into or otherwise involving an Interested Stockholder)
which has the effect, directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity or convertible securities
of the Corporation or any Subsidiary which is directly or indirectly owned by
any Interested Stockholder, or any Affiliate of any Interested Stockholder,
shall require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, considered for the purpose of this
Article FIFTEENTH as one class ("Voting Shares"). Such affirmative vote shall
be required notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
(2) The term "business combination" as used in this Article FIFTEENTH shall
mean any transaction which is referred to any one or more of clauses (A) through
(E) of paragraph 1 of the section (a).
(b) The provisions of section (a) of this Article FIFTEENTH shall not be
applicable to any particular business combination and such business combination
shall require only such affirmative vote as is required by law and any other
provisions of the Charter or Act of Incorporation of By-Laws if such business
combination has been approved by a majority of the whole Board.
(c) For the purposes of this Article FIFTEENTH:
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(1) A "person" shall mean any individual firm, corporation or other entity.
(2) "Interested Stockholder" shall mean, in respect of any business
combination, any person (other than the Corporation or any Subsidiary) who or
which as of the record date for the determination of stockholders entitled to
notice of and to vote on such business combination, or immediately prior to the
consummation of any such transaction:
(A) is the beneficial owner, directly or indirectly, of more than 10% of the
Voting Shares, or
(B) is an Affiliate of the Corporation and at any time within two years prior
thereto was the beneficial owner, directly or indirectly, of not less than 10%
of the then outstanding voting Shares, or
(C) is an assignee of or has otherwise succeeded in any share of capital stock
of the Corporation which were at any time within two years prior thereto
beneficially owned by any Interested Stockholder, and such assignment or
succession shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of the
Securities Act of 1933.
(3) A person shall be the "beneficial owner" of any Voting Shares:
(A) which such person or any of its Affiliates and Associates (as hereafter
defined) beneficially own, directly or indirectly, or
(B) which such person or any of its Affiliates or Associates has (i) the right
to acquire (whether such right is exercisable immediately or only after the
passage of time), pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or
understanding, or
(C) which are beneficially owned, directly or indirectly, by any other person
with which such first mentioned person or any of its Affiliates or Associates
has any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of capital stock of the Corporation.
(4) The outstanding Voting Shares shall include shares deemed owned through
application of paragraph (3) above but shall not include any other Voting Shares
which may be issuable pursuant to any agreement, or upon exercise of conversion
rights, warrants or options or otherwise.
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(5) "Affiliate" and "Associate" shall have the respective meanings given those
terms in Rule 12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as in effect on December 31, 1981.
(6) "Subsidiary" shall mean any corporation of which a majority of any class of
equity security (as defined in Rule 3a11-1 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect in December 31, 1981) is
owned, directly or indirectly, by the Corporation; provided, however, that for
the purposes of the definition of Investment Stockholder set forth in paragraph
(2) of this section (c), the term "Subsidiary" shall mean only a corporation of
which a majority of each class of equity security is owned, directly or
indirectly, by the Corporation.
(d) majority of the directors shall have the power and duty to determine for
the purposes of this Article FIFTEENTH on the basis of information known to
them, (1) the number of Voting Shares beneficially owned by any person (2)
whether a person is an Affiliate or Associate of another, (3) whether a person
has an agreement, arrangement or understanding with another as to the matters
referred to in paragraph (3) of section (c), or (4) whether the assets subject
to any business combination or the consideration received for the issuance or
transfer of securities by the Corporation, or any Subsidiary has an aggregate
fair market value of $1,00,000 or more.
(e) Nothing contained in this Article FIFTEENTH shall be construed to relieve
any Interested Stockholder from any fiduciary obligation imposed by law.
SIXTEENTH: Notwithstanding any other provision of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and in addition to any other
vote that may be required by law, this Charter or Act of Incorporation by the
By-Laws), the affirmative vote of the holders of at least two-thirds of the
outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class) shall be required to amend, alter or repeal any provision of Articles
FIFTH, THIRTEENTH, FIFTEENTH or SIXTEENTH of this Charter or Act of
Incorporation.
SEVENTEENTH: (a) a Director of this Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except to the extent such exemption from liability or
limitation thereof is not permitted under the Delaware General Corporation Laws
as the same exists or may hereafter be amended.
(b) Any repeal or modification of the foregoing paragraph shall not adversely
affect any right or protection of a Director of the Corporation existing
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hereunder with respect to any act or omission occurring prior to the time of
such repeal or modification."
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EXHIBIT B
BY-LAWS
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WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON JANUARY 16, 1997
<PAGE>
BY-LAWS OF WILMINGTON TRUST COMPANY
ARTICLE I
STOCKHOLDERS' MEETINGS
Section 1. The Annual Meeting of Stockholders shall be held on the third
Thursday in April each year at the principal office at the Company or at such
other date, time, or place as may be designated by resolution by the Board of
Directors.
Section 2. Special meetings of all stockholders may be called at any time
by the Board of Directors, the Chairman of the Board or the President.
Section 3. Notice of all meetings of the stockholders shall be given by
mailing to each stockholder at least ten (10 days before said meeting, at his
last known address, a written or printed notice fixing the time and place of
such meeting.
Section 4. A majority in the amount of the capital stock of the Company
issued and outstanding on the record date, as herein determined, shall
constitute a quorum at all meetings of stockholders for the transaction of any
business, but the holders of a small number of shares may adjourn, from time to
time, without further notice, until a quorum is secured. At each annual or
special meeting of stockholders, each stockholder shall be entitled to one vote,
either in person or by proxy, for each shares of stock registered in the
stockholder's name on the books of the Company on the record date for any such
meeting as determined herein.
ARTICLE II
DIRECTORS
Section 1. The number and classification of the Board of Directors shall
be as set forth in the Charter of the Bank.
Section 2. No person who has attained the age of seventy-two (72) years
shall be nominated for election to the Board of Directors of the Company,
provided, however, that this limitation shall not apply to any person who was
serving as director of the Company on September 16, 1971.
Section 3. The class of Directors so elected shall hold office for three
years or until their successors are elected and qualified.
Section 4. The affairs and business of the Company shall be managed and
conducted by the Board of Directors.
<PAGE>
Section 5. The Board of Directors shall meet at the principal office of
the Company or elsewhere in its discretion at such times to be determined by a
majority of its members, or at the call of the Chairman of the Board of
Directors or the President.
Section 6. Special meetings of the Board of Directors may be called at
any time by the Chairman of the Board of Directors or by the President, and
shall be called upon the written request of a majority of the directors.
Section 7. A majority of the directors elected and qualified shall be
necessary to constitute a quorum for the transaction of business at any meeting
of the Board of Directors.
Section 8. Written notice shall be sent by mail to each director of any
special meeting of the Board of Directors, and of any change in the time or
place of any regular meeting, stating the time and place of such meeting, which
shall be mailed not less than two days before the time of holding such meeting.
Section 9. In the event of the death, resignation, removal, inability to
act, or disqualification of any director, the Board of Directors, although less
than a quorum, shall have the right to elect the successor who shall hold office
for the remainder of the full term of the class of directors in which the
vacancy occurred, and until such director's successor shall have been duly
elected and qualified.
Section 10. The Board of Directors at its first meeting after its
election by the stockholders shall appoint an Executive Committee, a Trust
Committee, an Audit Committee and a Compensation Committee, and shall elect from
its own members a Chairman of the Board of Directors and a President who may be
the same person. The Board of Directors shall also elect at such meeting a
Secretary and a Treasurer, who may be the same person, may appoint at any time
such other committees and elect or appoint such other officers as it may deem
advisable. The Board of Directors may also elect at such meeting one or more
Associate Directors.
Section 11. The Board of Directors may at any time remove, with or
without cause, any member of any Committee appointed by it or any associate
director or officer elected by it and may appoint or elect his successor.
Section 12. The Board of Directors may designate an officer to be in
charge of such of the departments or division of the Company as it may deem
advisable.
ARTICLE III
COMMITTEES
Section I. Executive Committee
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(A) The Executive Committee shall be composed of not more than nine
members who shall be selected by the Board of Directors from its own members and
who shall hold office during the pleasure of the Board.
(B) The Executive Committee shall have all the powers of the Board of
Directors when it is not in session to transact all business for and in behalf
of the Company that may be brought before it.
(C) The Executive Committee shall meet at the principal office of the
Company or elsewhere in its discretion at such times to be determined by a
majority of its members, or at the call of the Chairman of the Executive
Committee or at the call of the Chairman of the Board of Directors. The
majority of its members shall be necessary to constitute a quorum for the
transaction of business. Special meetings of the Executive Committee may be
held at any time when a quorum is present.
(D) Minutes of each meeting of the Executive Committee shall be kept
and submitted to the Board of Directors at its next meeting.
(E) The Executive Committee shall advise and superintend all
investments that may be made of the funds of the Company, and shall direct the
disposal of the same, in accordance with such rules and regulations as the Board
of Directors from time to time make.
(F) In the event of a state of disaster of sufficient severity to
prevent the conduct and management of the affairs and business of the Company by
its directors and officers as contemplated by these By-Laws any two available
members of the Executive Committee as constituted immediately prior to such
disaster shall constitute a quorum of that Committee for the full conduct and
management of the affairs and business of the Company in accordance with the
provisions of Article III of these By-Laws; and if less than three members of
the Trust Committee is constituted immediately prior to such disaster shall be
available for the transaction of its business, such Executive Committee shall
also be empowered to exercise all of the powers reserved to the Trust Committee
under Article III Section 2 hereof. In the event of the unavailability, at such
time, of a minimum of two members of such Executive Committee, any three
available directors shall constitute the Executive Committee for the full
conduct and management of the affairs and business of the Company in accordance
with the foregoing provisions of this Section. This By-Law shall be subject to
implementation by Resolutions of the Board of Directors presently existing or
hereafter passed from time to time for that purpose, and any provisions of these
By-Laws (other than this Section) and any resolutions which are contrary to the
provisions of this Section or to the provisions of any such implementary
Resolutions shall be suspended during such a disaster period until it shall be
determined by any interim Executive Committee acting under this section that it
shall be to the advantage of the Company to resume the conduct and management of
its affairs and business under all of the other provisions of these By-Laws.
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Section 2. Trust Committee
(A) The Trust Committee shall be composed of not more than thirteen
members who shall be selected by the Board of Directors, a majority of whom
shall be members of the Board of Directors and who shall hold office during the
pleasure of the Board.
(B) The Trust Committee shall have general supervision over the Trust
Department and the investment of trust funds, in all matters, however, being
subject to the approval of the Board of Directors.
(C) The Trust Committee shall meet at the principal office of the
Company or elsewhere in its discretion at such times to be determined by a
majority of its members or at the call of its chairman. A majority of its
members shall be necessary to constitute a quorum for the transaction of
business.
(D) Minutes of each meeting of the Trust Committee shall be kept and
promptly submitted to the Board of Directors.
(E) The Trust Committee shall have the power to appoint Committees
and/or designate officers or employees of the Company to whom supervision over
the investment of trust funds may be delegated when the Trust Committee is not
in session.
Section 3. Audit Committee
(A) The Audit Committee shall be composed of five members who shall
be selected by the Board of Directors from its own members, none of whom shall
be an officer of the Company, and shall hold office at the pleasure of the
Board.
(B) The Audit Committee shall have general supervision over the Audit
Division in all matters however subject to the approval of the Board of
Directors; it shall consider all matters brought to its attention by the officer
in charge of the Audit Division, review all reports of examination of the
Company made by any governmental agency or such independent auditor employed for
that purpose, and make such recommendations to the Board of Directors with
respect thereto or with respect to any other matters pertaining to auditing the
Company as it shall deem desirable.
(C) The Audit Committee shall meet whenever and wherever the majority
of its members shall deem it to be proper for the transaction of its business,
and a majority of its Committee shall constitute a quorum.
Section 4. Compensation Committee
<PAGE>
(A) The Compensation Committee shall be composed of not more than
five (5) members who shall be selected by the Board of Directors from its own
members who are not officers of the Company and who shall hold office during the
pleasure of the Board.
(B) The Compensation Committee shall in general advise upon all
matters of policy concerning the Company brought to its attention by the
management and from time to time review the management of the Company, major
organizational matters, including salaries and employee benefits and
specifically shall administer the Executive Incentive Compensation Plan.
(C) Meetings of the Compensation Committee may be called at any time
by the Chairman of the Compensation Committee, the Chairman of the Board of
Directors, or the President of the Company.
Section 5. Associate Directors
(A) Any person who has served as a director may be elected by the
Board of Directors as an associate director, to serve during the pleasure of the
Board.
(B) An associate director shall be entitled to attend all directors
meetings and participate in the discussion of all matters brought to the Board,
with the exception that he would have no right to vote. An associate director
will be eligible for appointment to Committees of the Company, with the
exception of the Executive Committee, Audit Committee and Compensation
Committee, which must be comprised solely of active directors.
Section 6. Absence or Disqualification of Any Member of a Committee
(A) In the absence or disqualification of any member of any Committee
created under Article III of the By-Laws of this Company, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absence or
disqualified member.
ARTICLE IV
OFFICERS
Section 1. The Chairman of the Board of Directors shall preside at all
meetings of the Board and shall have such further authority and powers and shall
perform such duties as the Board of Directors may from time to time confer and
direct. He shall also exercise such powers and perform such duties as may from
time to time be agreed upon between himself and the President of the Company.
5
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Section 2. The Vice Chairman of the Board. The Vice Chairman of the
-------------------------------
Board of Directors shall preside at all meetings of the Board of Directors at
which the Chairman of the Board shall not be present and shall have such further
authority and powers and shall perform such duties as the Board of Directors or
the Chairman of the Board may from time to time confer and direct.
Section 3. The President shall have the powers and duties pertaining to
the office of the President conferred or imposed upon him by statute or assigned
to him by the Board of Directors in the absence of the Chairman of the Board the
President shall have the powers and duties of the Chairman of the Board.
Section 4. The Chairman of the Board of Directors or the President as
designated by the Board of Directors, shall carry into effect all legal
directions of the Executive Committee and of the Board of Directors, and shall
at all times exercise general supervision over the interest, affairs and
operations of the Company and perform all duties incident to his office.
Section 5. There may be one or more Vice Presidents, however denominated
by the Board of Directors, who may at any time perform all the duties of the
Chairman of the Board of Directors and/or the President and such other powers
and duties as may from time to time be assigned to them by the Board of
Directors, the Executive Committee, the Chairman of the Board or the President
and by the officer in charge of the department or division to which they are
assigned.
Section 6. The Secretary shall attend to the giving of notice of meetings
of the stockholders and the Board of Directors, as well as the Committees
thereof, to the keeping of accurate minutes of all such meetings and to
recording the same in the minute books of the Company. In addition to the other
notice requirements of these By-Laws and as may be practicable under the
circumstances, all such notices shall be in writing and mailed well in advance
of the scheduled date of any other meeting. He shall have custody of the
corporate seal and shall affix the same to any documents requiring such
corporate seal and to attest the same.
Section 7. The Treasurer shall have general supervision over all assets
and liabilities of the Company. He shall be custodian of and responsible for
all monies, funds and valuables of the Company and for the keeping of proper
records of the evidence of property or indebtedness and of all the transactions
of the Company. He shall have general supervision of the expenditures of the
Company and shall report to the Board of Directors at each regular meeting of
the condition of the Company, and perform such other duties as may be assigned
to him from time to time by the Board of Directors of the Executive Committee.
Section 8. There may be a Controller who shall exercise general
supervision over the internal operations of the Company, including accounting,
and shall render to the Board of
6
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Directors at appropriate times a report relating to the general condition and
internal operations of the Company.
There may be one or more subordinate accounting or controller officers
however denominated, who may perform the duties of the Controller and such
duties as may be prescribed by the Controller.
Section 9. The officer designated by the Board of Directors to be in
charge of the Audit Division of the Company with such title as the Board of
Directors shall prescribe, shall report to and be directly responsible only to
the Board of Directors.
There shall be an Auditor and there may be one or more Audit Officers,
however denominated, who may perform all the duties of the Auditor and such
duties as may be prescribed by the officer in charge of the Audit Division.
Section 10. There may be one or more officers, subordinate in rank to all
Vice Presidents with such functional titles as shall be determined from time to
time by the Board of Directors, who shall ex officio hold the office Assistant
Secretary of this Company and who may perform such duties as may be prescribed
by the officer in charge of the department or division to whom they are
assigned.
Section 11. The powers and duties of all other officers of the Company
shall be those usually pertaining to their respective offices, subject to the
direction of the Board of Directors, the Executive Committee, Chairman of the
Board of Directors or the President and the officer in charge of the department
or division to which they are assigned.
ARTICLE V
STOCK AND STOCK CERTIFICATES
Section 1. Shares of stock shall be transferrable on the books of the
Company and a transfer book shall be kept in which all transfers of stock shall
be recorded.
Section 2. Certificate of stock shall bear the signature of the President
or any Vice President, however denominated by the Board of Directors and
countersigned by the Secretary or Treasurer or an Assistant Secretary, and the
seal of the corporation shall be engraved thereon. Each certificate shall
recite that the stock represented thereby is transferrable only upon the books
of the Company by the holder thereof or his attorney, upon surrender of the
certificate properly endorsed. Any certificate of stock surrendered to the
Company shall be cancelled at the time of transfer, and before a new certificate
or certificates shall be issued in lieu thereof. Duplicate certificates of
stock shall be issued only upon giving such security as may be satisfactory to
the Board of Directors or the Executive Committee.
7
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Section 3. The Board of Directors of the Company is authorized to fix in
advance a record date for the determination of the stockholders entitled to
notice of, and to vote at, any meeting of stockholders and any adjournment
thereof, or entitled to receive payment of any dividend, or to any allotment or
rights, or to exercise any rights in respect of any change, conversion or
exchange of capital stock, or in connection with obtaining the consent of
stockholders for any purpose, which record date shall not be more than 60 nor
less than 10 days proceeding the date of any meeting of stockholders or the date
for the payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock shall go into
effect, or a date in connection with obtaining such consent.
ARTICLE VI
SEAL
Section 1. The corporate seal of the Company shall be in the following
form:
Between two concentric circles the words
"Wilmington Trust Company" within the inner
circle the words "Wilmington, Delaware."
ARTICLE VII
FISCAL YEAR
Section 1. The fiscal year of the Company shall be the calendar year.
ARTICLE VIII
EXECUTION OF INSTRUMENTS OF THE COMPANY
Section 1. The Chairman of the Board, the President or any Vice
President, however denominated by the Board of Directors, shall have full power
and authority to enter into, make, sign, execute, acknowledge and/or deliver and
the Secretary or any Assistant Secretary shall have full power and authority to
attest and affix the corporate seal of the Company to any and all deeds,
conveyances, assignments, releases, contracts, agreements, bonds, notes,
mortgages and all other instruments incident to the business of this Company or
in acting as executor, administrator, guardian, trustee, agent or in any other
fiduciary or representative capacity by any and every method of appointment or
by whatever person, corporation, court officer or authority in the State of
Delaware, or elsewhere, without any specific authority, ratification, approval
or confirmation by the Board of Directors or the
8
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Executive Committee, and any and all such instruments shall have the same force
and validity as although expressly authorized by the Board of Directors and/or
the Executive Committee.
ARTICLE IX
COMPENSATION OF DIRECTORS AND MEMBERS OF COMMITTEES
Section 1. Directors and associate directors of the Company, other than
salaried officers of the Company, shall be paid such reasonable honoraria or
fees for attending meetings of the Board of Directors as the Board of Directors
may from time to time determine. Directors and associate directors who serve as
members of committees, other than salaried employees of the Company, shall be
paid such reasonable honoraria or fees for services as members of committees as
the Board of Directors shall from time to time determine and directors and
associate directors may be employed by the Company for such special services as
the Board of Directors may from time to time determine and shall be paid for
such special services so performed reasonable compensation as may be determined
by the Board of Directors.
ARTICLE X
INDEMNIFICATION
Section 1. (A) The Corporation shall indemnify and hold harmless, to the
fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person who was or is made or is threatened to be made
a party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding") by reason of
the fact that he, or a person for whom he is the legal representative, 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, fiduciary or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or non-profit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses reasonably
incurred by such person. The Corporation shall indemnify a person in connection
with a proceeding initiated by such person only if the proceeding was authorized
by the Board of Directors of the Corporation.
(B) The Corporation shall pay the expenses incurred in defending any
proceeding in advance of its final disposition, provided, however, that the
-------- -------
payment of expenses incurred by a Director officer in his capacity as a Director
or officer in advance of the final disposition of the proceeding shall be made
only upon receipt of an undertaking by the Director or officer to repay all
amounts advanced if it should be ultimately determined that the Director or
officer is not entitled to be indemnified under this Article or otherwise.
9
<PAGE>
(C) If a claim for indemnification or payment of expenses, under this
Article X is not paid in full within ninety days after a written claim therefor
has been received by the Corporation the claimant may file suit to recover the
unpaid amount of such claim and, if successful in whole or in part, shall be
entitled to be paid the expense of prosecuting such claim. In any such action
the Corporation shall have the burden of proving that the claimant was not
entitled to the requested indemnification of payment of expenses under
applicable law.
(D) The rights conferred on any person by this Article X shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the Charter or Act of Incorporation, these By-
Laws, agreement, vote of stockholders or disinterested Directors or otherwise.
(E) Any repeal or modification of the foregoing provisions of this
Article X shall not adversely affect any right or protection hereunder of any
person in respect of any act or omission occurring prior to the time of such
repeal or modification.
ARTICLE XI
AMENDMENTS TO THE BY-LAWS
Section 1. These By-Laws may be altered, amended or repealed, in whole or
in part, and any new By-Law or By-Laws adopted at any regular or special meeting
of the Board of Directors by a vote of the majority of all the members of the
Board of Directors then in office.
10
<PAGE>
EXHIBIT C
SECTION 321(B) CONSENT
Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as amended,
Wilmington Trust Company hereby consents that reports of examinations by
Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
WILMINGTON TRUST COMPANY
Dated: February 21, 1997 By: /s/ Emmett R. Harmon
---------------------
Name: Emmett R. Harmon
Title: Vice President
<PAGE>
EXHIBIT D
NOTICE
This form is intended to assist state nonmember banks and savings
banks with state publication requirements. It has not been approved
by any state banking authorities. Refer to your appropriate state
banking authorities for your state publication requirements.
R E P O R T O F C O N D I T I O N
Consolidating domestic subsidiaries of the
WILMINGTON TRUST COMPANY of WILMINGTON
- -------------------------------------------- ----------------
Name of Bank City
in the State of DELAWARE , at the close of business on December 31, 1996.
----------
<TABLE>
<CAPTION>
ASSETS
Thousands of dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coins...................... 213,895
Interest-bearing balances................................................ 0
Held-to-maturity securities.................................................... 465,818
Available-for-sale securities.................................................. 752,297
Federal funds sold............................................................. 95,000
Securities purchased under agreements to resell................................ 39,190
Loans and lease financing receivables:
Loans and leases, net of unearned income...................... 3,634,003
LESS: Allowance for loan and lease losses.................... 51,847
LESS: Allocated transfer risk reserve........................ 0
Loans and leases, net of unearned income, allowance, and reserve......... 3,582,156
Assets held in trading accounts................................................ 0
Premises and fixed assets (including capitalized leases)....................... 89,129
Other real estate owned........................................................ 3,520
Investments in unconsolidated subsidiaries and associated companies............ . 52
Customers' liability to this bank on acceptances outstanding................... 0
Intangible assets 4............................................................ 4,593
Other assets................................................................... 114,300
Total assets................................................................... 5,359,950
</TABLE>
CONTINUED ON NEXT PAGE
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES
<S> <C>
Deposits:
In domestic offices............................................................ 3,749,697
Noninterest-bearing...................................................... 852,790
Interest-bearing......................................................... 2,896,907
Federal funds purchased........................................................ 77,825
Securities sold under agreements to repurchase................................. 192,295
Demand notes issued to the U.S. Treasury....................................... 53,526
Trading liabilities............................................................ 0
Other borrowed money:.......................................................... ///////
With original maturity of one year or less............................... 714,000
With original maturity of more than one year............................. 43,000
Mortgage indebtedness and obligations under capitalized leases................. 0
Bank's liability on acceptances executed and outstanding....................... 0
Subordinated notes and debentures.............................................. 0
Other liabilities.............................................................. 98,756
Total liabilities.............................................................. 4,929,099
Limited-life preferred stock and related surplus............................... 0
<CAPTION>
EQUITY CAPITAL
<S> <C>
Perpetual preferred stock and related surplus.................................. 0
Common Stock................................................................... 500
Surplus........................................................................ 62,118
Undivided profits and capital reserves......................................... 367,371
Net unrealized holding gains (losses) on available-for-sale securities......... 862
Total equity capital........................................................... 430,851
Total liabilities, limited-life preferred stock, and equity capital............ 5,359,950
</TABLE>
<PAGE>
EXHIBIT 25.2
Registration No.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) ___
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
NATIONWIDE FINANCIAL SERVICES, INC.
NATIONWIDE FINANCIAL SERVICES CAPITAL TRUST
(Exact name of obligor as specified in its charter)
Delaware 31-1486870
Delaware Applied For
(State of incorporation) (I.R.S. employer identification no.)
One Nationwide Plaza
Columbus, Ohio 43215
(Address of principal executive offices) (Zip Code)
Capital Securities of
Nationwide Financial Services Capital Trust
(Title of the indenture securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each
affiliation:
Based upon an examination of the books and records of the trustee and
upon information furnished by the obligor, the obligor is not an affiliate of
the trustee.
ITEM 3. LIST OF EXHIBITS.
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which includes the
certificate of authority of Wilmington Trust Company to commence business and
the authorization of Wilmington Trust Company to exercise corporate trust
powers.
B. Copy of By-Laws of Wilmington Trust Company.
C. Consent of Wilmington Trust Company required by Section 321(b) of
Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington Trust Company.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Wilmington Trust Company, a corporation organized and
existing under the laws of Delaware, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington and State of Delaware on the 21st day
of February, 1997.
WILMINGTON TRUST COMPANY
[SEAL]
Attest:/s/ Patricia A. Evans By:/s/ Emmett R. Harmon
----------------------------- ----------------------
Assistant Secretary Name: Emmett R. Harmon
Title: Vice President
2
<PAGE>
EXHIBIT A
AMENDED CHARTER
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON MAY 9, 1987
<PAGE>
AMENDED CHARTER
OR
ACT OF INCORPORATION
OF
WILMINGTON TRUST COMPANY
WILMINGTON TRUST COMPANY, originally incorporated by an Act of the General
Assembly of the State of Delaware, entitled "An Act to Incorporate the Delaware
Guarantee and Trust Company", approved March 2, A.D. 1901, and the name of which
company was changed to "WILMINGTON TRUST COMPANY" by an amendment filed in the
Office of the Secretary of State on March 18, A.D. 1903, and the Charter or Act
of Incorporation of which company has been from time to time amended and changed
by merger agreements pursuant to the corporation law for state banks and trust
companies of the State of Delaware, does hereby alter and amend its Charter or
Act of Incorporation so that the same as so altered and amended shall in its
entirety read as follows:
FIRST: - The name of this corporation is WILMINGTON TRUST COMPANY.
SECOND: - The location of its principal office in the State of Delaware is at
Rodney Square North, in the City of Wilmington, County of New Castle; the name
of its resident agent is WILMINGTON TRUST COMPANY whose address is Rodney Square
North, in said City. In addition to such principal office, the said corporation
maintains and operates branch offices in the City of Newark, New Castle County,
Delaware, the Town of Newport, New Castle County, Delaware, at Claymont, New
Castle County, Delaware, at Greenville, New Castle County Delaware, and at
Milford Cross Roads, New Castle County, Delaware, and shall be empowered to
open, maintain and operate branch offices at Ninth and Shipley Streets, 418
Delaware Avenue, 2120 Market Street, and 3605 Market Street, all in the City of
Wilmington, New Castle County, Delaware, and such other branch offices or places
of business as may be authorized from time to time by the agency or agencies of
the government of the State of Delaware empowered to confer such authority.
THIRD: - (a) The nature of the business and the objects and purposes proposed to
be transacted, promoted or carried on by this Corporation are to do any or all
of the things herein mentioned as fully and to the same extent as natural
persons might or could do and in any part of the world, viz.:
(1) To sue and be sued, complain and defend in any Court of law or
equity and to make and use a common seal, and alter the seal at pleasure, to
hold,
<PAGE>
purchase, convey, mortgage or otherwise deal in real and personal estate and
property, and to appoint such officers and agents as the business of the
Corporation shall require, to make by-laws not inconsistent with the
Constitution or laws of the United States or of this State, to discount bills,
notes or other evidences of debt, to receive deposits of money, or securities
for money, to buy gold and silver bullion and foreign coins, to buy and sell
bills of exchange, and generally to use, exercise and enjoy all the powers,
rights, privileges and franchises incident to a corporation which are proper or
necessary for the transaction of the business of the Corporation hereby created.
(2) To insure titles to real and personal property, or any estate or
interests therein, and to guarantee the holder of such property, real or
personal, against any claim or claims, adverse to his interest therein, and to
prepare and give certificates of title for any lands or premises in the State of
Delaware, or elsewhere.
(3) To act as factor, agent, broker or attorney in the receipt,
collection, custody, investment and management of funds, and the purchase, sale,
management and disposal of property of all descriptions, and to prepare and
execute all papers which may be necessary or proper in such business.
(4) To prepare and draw agreements, contracts, deeds, leases,
conveyances, mortgages, bonds and legal papers of every description, and to
carry on the business of conveyancing in all its branches.
(5) To receive upon deposit for safekeeping money, jewelry, plate,
deeds, bonds and any and all other personal property of every sort and kind,
from executors, administrators, guardians, public officers, courts, receivers,
assignees, trustees, and from all fiduciaries, and from all other persons and
individuals, and from all corporations whether state, municipal, corporate or
private, and to rent boxes, safes, vaults and other receptacles for such
property.
(6) To act as agent or otherwise for the purpose of registering,
issuing, certificating, countersigning, transferring or underwriting the stock,
bonds or other obligations of any corporation, association, state or
municipality, and may receive and manage any sinking fund therefor on such terms
as may be agreed upon between the two parties, and in like manner may act as
Treasurer of any corporation or municipality.
(7) To act as Trustee under any deed of trust, mortgage, bond or
other instrument issued by any state, municipality, body politic, corporation,
2
<PAGE>
association or person, either alone or in conjunction with any other person or
persons, corporation or corporations.
(8) To guarantee the validity, performance or effect of any contract
or agreement, and the fidelity of persons holding places of responsibility or
trust; to become surety for any person, or persons, for the faithful performance
of any trust, office, duty, contract or agreement, either by itself or in
conjunction with any other person, or persons, corporation, or corporations, or
in like manner become surety upon any bond, recognizance, obligation, judgment,
suit, order, or decree to be entered in any court of record within the State of
Delaware or elsewhere, or which may now or hereafter be required by any law,
judge, officer or court in the State of Delaware or elsewhere.
(9) To act by any and every method of appointment as trustee, trustee
in bankruptcy, receiver, assignee, assignee in bankruptcy, executor,
administrator, guardian, bailee, or in any other trust capacity in the
receiving, holding, managing, and disposing of any and all estates and property,
real, personal or mixed, and to be appointed as such trustee, trustee in
bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator,
guardian or bailee by any persons, corporations, court, officer, or authority,
in the State of Delaware or elsewhere; and whenever this Corporation is so
appointed by any person, corporation, court, officer or authority such trustee,
trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor,
administrator, guardian, bailee, or in any other trust capacity, it shall not be
required to give bond with surety, but its capital stock shall be taken and held
as security for the performance of the duties devolving upon it by such
appointment.
(10) And for its care, management and trouble, and the exercise of
any of its powers hereby given, or for the performance of any of the duties
which it may undertake or be called upon to perform, or for the assumption of
any responsibility the said Corporation may be entitled to receive a proper
compensation.
(11) To purchase, receive, hold and own bonds, mortgages, debentures,
shares of capital stock, and other securities, obligations, contracts and
evidences of indebtedness, of any private, public or municipal corporation
within and without the State of Delaware, or of the Government of the United
States, or of any state, territory, colony, or possession thereof, or of any
foreign government or country; to receive, collect, receipt for, and dispose of
interest, dividends and income upon and from any of the bonds, mortgages,
debentures, notes, shares of capital stock, securities, obligations, contracts,
evidences of indebtedness and other property held and owned by it, and to
3
<PAGE>
exercise in respect of all such bonds, mortgages, debentures, notes, shares of
capital stock, securities, obligations, contracts, evidences of indebtedness and
other property, any and all the rights, powers and privileges of individual
owners thereof, including the right to vote thereon; to invest and deal in and
with any of the moneys of the Corporation upon such securities and in such
manner as it may think fit and proper, and from time to time to vary or realize
such investments; to issue bonds and secure the same by pledges or deeds of
trust or mortgages of or upon the whole or any part of the property held or
owned by the Corporation, and to sell and pledge such bonds, as and when the
Board of Directors shall determine, and in the promotion of its said corporate
business of investment and to the extent authorized by law, to lease, purchase,
hold, sell, assign, transfer, pledge, mortgage and convey real and personal
property of any name and nature and any estate or interest therein.
(b) In furtherance of, and not in limitation, of the powers conferred by the
laws of the State of Delaware, it is hereby expressly provided that the said
Corporation shall also have the following powers:
(1) To do any or all of the things herein set forth, to the same
extent as natural persons might or could do, and in any part of the world.
(2) To acquire the good will, rights, property and franchises and to
undertake the whole or any part of the assets and liabilities of any person,
firm, association or corporation, and to pay for the same in cash, stock of this
Corporation, bonds or otherwise; to hold or in any manner to dispose of the
whole or any part of the property so purchased; to conduct in any lawful manner
the whole or any part of any business so acquired, and to exercise all the
powers necessary or convenient in and about the conduct and management of such
business.
(3) To take, hold, own, deal in, mortgage or otherwise lien, and to
lease, sell, exchange, transfer, or in any manner whatever dispose of property,
real, personal or mixed, wherever situated.
(4) To enter into, make, perform and carry out contracts of every
kind with any person, firm, association or corporation, and, without limit as to
amount, to draw, make, accept, endorse, discount, execute and issue promissory
notes, drafts, bills of exchange, warrants, bonds, debentures, and other
negotiable or transferable instruments.
(5) To have one or more offices, to carry on all or any of its
operations and businesses, without restriction to the same extent as natural
persons might or could do, to purchase or otherwise acquire, to hold, own, to
mortgage, sell,
4
<PAGE>
convey or otherwise dispose of, real and personal property, of every class and
description, in any State, District, Territory or Colony of the United States,
and in any foreign country or place.
(6) It is the intention that the objects, purposes and powers
specified and clauses contained in this paragraph shall (except where otherwise
expressed in said paragraph) be nowise limited or restricted by reference to or
inference from the terms of any other clause of this or any other paragraph in
this charter, but that the objects, purposes and powers specified in each of the
clauses of this paragraph shall be regarded as independent objects, purposes and
powers.
FOURTH: - (a) The total number of shares of all classes of stock which the
Corporation shall have authority to issue is forty-one million (41,000,000)
shares, consisting of:
(1) One million (1,000,000) shares of Preferred stock, par value
$10.00 per share (hereinafter referred to as "Preferred Stock"); and
(2) Forty million (40,000,000) shares of Common Stock, par value
$1.00 per share (hereinafter referred to as "Common Stock").
(b) Shares of Preferred Stock may be issued from time to time in one or more
series as may from time to time be determined by the Board of Directors each of
said series to be distinctly designated. All shares of any one series of
Preferred Stock shall be alike in every particular, except that there may be
different dates from which dividends, if any, thereon shall be cumulative, if
made cumulative. The voting powers and the preferences and relative,
participating, optional and other special rights of each such series, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding; and, subject to the
provisions of subparagraph 1 of Paragraph (c) of this Article FOURTH, the Board
of Directors of the Corporation is hereby expressly granted authority to fix by
resolution or resolutions adopted prior to the issuance of any shares of a
particular series of Preferred Stock, the voting powers and the designations,
preferences and relative, optional and other special rights, and the
qualifications, limitations and restrictions of such series, including, but
without limiting the generality of the foregoing, the following:
(1) The distinctive designation of, and the number of shares of
Preferred Stock which shall constitute such series, which number may be
increased (except where otherwise provided by the Board of Directors) or
decreased (but not below the number of shares thereof then outstanding) from
time to time by like action of the Board of Directors;
5
<PAGE>
(2) The rate and times at which, and the terms and conditions on
which, dividends, if any, on Preferred Stock of such series shall be paid, the
extent of the preference or relation, if any, of such dividends to the dividends
payable on any other class or classes, or series of the same or other class of
stock and whether such dividends shall be cumulative or non-cumulative;
(3) The right, if any, of the holders of Preferred Stock of such
series to convert the same into or exchange the same for, shares of any other
class or classes or of any series of the same or any other class or classes of
stock of the Corporation and the terms and conditions of such conversion or
exchange;
(4) Whether or not Preferred Stock of such series shall be subject to
redemption, and the redemption price or prices and the time or times at which,
and the terms and conditions on which, Preferred Stock of such series may be
redeemed.
(5) The rights, if any, of the holders of Preferred Stock of such
series upon the voluntary or involuntary liquidation, merger, consolidation,
distribution or sale of assets, dissolution or winding-up, of the Corporation.
(6) The terms of the sinking fund or redemption or purchase account,
if any, to be provided for the Preferred Stock of such series; and
(7) The voting powers, if any, of the holders of such series of
Preferred Stock which may, without limiting the generality of the foregoing
include the right, voting as a series or by itself or together with other series
of Preferred Stock or all series of Preferred Stock as a class, to elect one or
more directors of the Corporation if there shall have been a default in the
payment of dividends on any one or more series of Preferred Stock or under such
circumstances and on such conditions as the Board of Directors may determine.
(c) (1) After the requirements with respect to preferential dividends on the
Preferred Stock (fixed in accordance with the provisions of section (b) of this
Article FOURTH), if any, shall have been met and after the Corporation shall
have complied with all the requirements, if any, with respect to the setting
aside of sums as sinking funds or redemption or purchase accounts (fixed in
accordance with the provisions of section (b) of this Article FOURTH), and
subject further to any conditions which may be fixed in accordance with the
provisions of section (b) of this Article FOURTH, then and not otherwise the
holders of Common Stock shall be entitled to receive such dividends as may be
declared from time to time by the Board of Directors.
(2) After distribution in full of the preferential amount, if any,
(fixed in accordance with the provisions of section (b) of this Article FOURTH),
to be
6
<PAGE>
distributed to the holders of Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets, dissolution or winding-
up, of the Corporation, the holders of the Common Stock shall be entitled to
receive all of the remaining assets of the Corporation, tangible and intangible,
of whatever kind available for distribution to stockholders ratably in
proportion to the number of shares of Common Stock held by them respectively.
(3) Except as may otherwise be required by law or by the provisions
of such resolution or resolutions as may be adopted by the Board of Directors
pursuant to section (b) of this Article FOURTH, each holder of Common Stock
shall have one vote in respect of each share of Common Stock held on all matters
voted upon by the stockholders.
(d) No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series of
stock or of other securities of the Corporation shall have any preemptive right
to purchase or subscribe for any unissued stock of any class or series or any
additional shares of any class or series to be issued by reason of any increase
of the authorized capital stock of the Corporation of any class or series, or
bonds, certificates of indebtedness, debentures or other securities convertible
into or exchangeable for stock of the Corporation of any class or series, or
carrying any right to purchase stock of any class or series, but any such
unissued stock, additional authorized issue of shares of any class or series of
stock or securities convertible into or exchangeable for stock, or carrying any
right to purchase stock, may be issued and disposed of pursuant to resolution of
the Board of Directors to such persons, firms, corporations or associations,
whether such holders or others, and upon such terms as may be deemed advisable
by the Board of Directors in the exercise of its sole discretion.
(e) The relative powers, preferences and rights of each series of Preferred
Stock in relation to the relative powers, preferences and rights of each other
series of Preferred Stock shall, in each case, be as fixed from time to time by
the Board of Directors in the resolution or resolutions adopted pursuant to
authority granted in section (b) of this Article FOURTH and the consent, by
class or series vote or otherwise, of the holders of such of the series of
Preferred Stock as are from time to time outstanding shall not be required for
the issuance by the Board of Directors of any other series of Preferred Stock
whether or not the powers, preferences and rights of such other series shall be
fixed by the Board of Directors as senior to, or on a parity with, the powers,
preferences and rights of such outstanding series, or any of them; provided,
however, that the Board of Directors may provide in the resolution or
resolutions as to any series of Preferred Stock adopted pursuant to section (b)
of this Article FOURTH that the consent of the holders of a majority (or such
greater proportion as shall be therein fixed) of the outstanding shares of such
series voting
7
<PAGE>
thereon shall be required for the issuance of any or all other series of
Preferred Stock.
(f) Subject to the provisions of section (e), shares of any series of Preferred
Stock may be issued from time to time as the Board of Directors of the
Corporation shall determine and on such terms and for such consideration as
shall be fixed by the Board of Directors.
(g) Shares of Common Stock may be issued from time to time as the Board of
Directors of the Corporation shall determine and on such terms and for such
consideration as shall be fixed by the Board of Directors.
(h) The authorized amount of shares of Common Stock and of Preferred Stock may,
without a class or series vote, be increased or decreased from time to time by
the affirmative vote of the holders of a majority of the stock of the
Corporation entitled to vote thereon.
FIFTH: - (a) The business and affairs of the Corporation shall be conducted and
managed by a Board of Directors. The number of directors constituting the
entire Board shall be not less than five nor more than twenty-five as fixed from
time to time by vote of a majority of the whole Board, provided, however, that
the number of directors shall not be reduced so as to shorten the term of any
director at the time in office, and provided further, that the number of
directors constituting the whole Board shall be twenty-four until otherwise
fixed by a majority of the whole Board.
(b) The Board of Directors shall be divided into three classes, as nearly equal
in number as the then total number of directors constituting the whole Board
permits, with the term of office of one class expiring each year. At the annual
meeting of stockholders in 1982, directors of the first class shall be elected
to hold office for a term expiring at the next succeeding annual meeting,
directors of the second class shall be elected to hold office for a term
expiring at the second succeeding annual meeting and directors of the third
class shall be elected to hold office for a term expiring at the third
succeeding annual meeting. Any vacancies in the Board of Directors for any
reason, and any newly created directorships resulting from any increase in the
directors, may be filled by the Board of Directors, acting by a majority of the
directors then in office, although less than a quorum, and any directors so
chosen shall hold office until the next annual election of directors. At such
election, the stockholders shall elect a successor to such director to hold
office until the next election of the class for which such director shall have
been chosen and until his successor shall be elected and qualified. No decrease
in the number of directors shall shorten the term of any incumbent director.
8
<PAGE>
(c) Notwithstanding any other provisions of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and notwithstanding the fact
that some lesser percentage may be specified by law, this Charter or Act of
Incorporation or the By-Laws of the Corporation), any director or the entire
Board of Directors of the Corporation may be removed at any time without cause,
but only by the affirmative vote of the holders of two-thirds or more of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class) cast at a meeting of the stockholders called for that purpose.
(d) Nominations for the election of directors may be made by the Board of
Directors or by any stockholder entitled to vote for the election of directors.
Such nominations shall be made by notice in writing, delivered or mailed by
first class United States mail, postage prepaid, to the Secretary of the
Corporation not less than 14 days nor more than 50 days prior to any meeting of
the stockholders called for the election of directors; provided, however, that
if less than 21 days' notice of the meeting is given to stockholders, such
written notice shall be delivered or mailed, as prescribed, to the Secretary of
the Corporation not later than the close of the seventh day following the day on
which notice of the meeting was mailed to stockholders. Notice of nominations
which are proposed by the Board of Directors shall be given by the Chairman on
behalf of the Board.
(e) Each notice under subsection (d) shall set forth (i) the name, age,
business address and, if known, residence address of each nominee proposed in
such notice, (ii) the principal occupation or employment of such nominee and
(iii) the number of shares of stock of the Corporation which are beneficially
owned by each such nominee.
(f) The Chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
(g) No action required to be taken or which may be taken at any annual or
special meeting of stockholders of the Corporation may be taken without a
meeting, and the power of stockholders to consent in writing, without a meeting,
to the taking of any action is specifically denied.
SIXTH: - The Directors shall choose such officers, agent and servants as may be
provided in the By-Laws as they may from time to time find necessary or proper.
SEVENTH: - The Corporation hereby created is hereby given the same powers,
rights and privileges as may be conferred upon corporations organized under the
Act
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entitled "An Act Providing a General Corporation Law", approved March 10, 1899,
as from time to time amended.
EIGHTH: - This Act shall be deemed and taken to be a private Act.
NINTH: - This Corporation is to have perpetual existence.
TENTH: - The Board of Directors, by resolution passed by a majority of the whole
Board, may designate any of their number to constitute an Executive Committee,
which Committee, to the extent provided in said resolution, or in the By-Laws of
the Company, shall have and may exercise all of the powers of the Board of
Directors in the management of the business and affairs of the Corporation, and
shall have power to authorize the seal of the Corporation to be affixed to all
papers which may require it.
ELEVENTH: - The private property of the stockholders shall not be liable for the
payment of corporate debts to any extent whatever.
TWELFTH: - The Corporation may transact business in any part of the world.
THIRTEENTH: - The Board of Directors of the Corporation is expressly authorized
to make, alter or repeal the By-Laws of the Corporation by a vote of the
majority of the entire Board. The stockholders may make, alter or repeal any
By-Law whether or not adopted by them, provided however, that any such
additional By-Laws, alterations or repeal may be adopted only by the affirmative
vote of the holders of two-thirds or more of the outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class).
FOURTEENTH: - Meetings of the Directors may be held outside
of the State of Delaware at such places as may be from time to time designated
by the Board, and the Directors may keep the books of the Company outside of the
State of Delaware at such places as may be from time to time designated by them.
FIFTEENTH: - (a) In addition to any affirmative vote required by law, and except
as otherwise expressly provided in sections (b) and (c) of this Article
FIFTEENTH:
(A) any merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with or into (i) any Interested Stockholder (as
hereinafter defined) or (ii) any other corporation (whether or not itself an
Interested Stockholder), which, after such merger or consolidation, would be an
Affiliate (as hereinafter defined) of an Interested Stockholder, or
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(B) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of related transactions) to or with
any Interested Stockholder or any Affiliate of any Interested Stockholder of any
assets of the Corporation or any Subsidiary having an aggregate fair market
value of $1,000,000 or more, or
(C) the issuance or transfer by the Corporation or any Subsidiary (in
one transaction or a series of related transactions) of any securities of the
Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of
any Interested Stockholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate fair market value of $1,000,000
or more, or
(D) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation, or
(E) any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or consolidation
of the Corporation with any of its Subsidiaries or any similar transaction
(whether or not with or into or otherwise involving an Interested Stockholder)
which has the effect, directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity or convertible securities
of the Corporation or any Subsidiary which is directly or indirectly owned by
any Interested Stockholder, or any Affiliate of any Interested Stockholder,
shall require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, considered for the purpose of this
Article FIFTEENTH as one class ("Voting Shares"). Such affirmative vote shall
be required notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
(2) The term "business combination" as used in this Article FIFTEENTH shall
mean any transaction which is referred to any one or more of clauses (A) through
(E) of paragraph 1 of the section (a).
(b) The provisions of section (a) of this Article FIFTEENTH shall not be
applicable to any particular business combination and such business combination
shall require only such affirmative vote as is required by law and any other
provisions of the Charter or Act of Incorporation of By-Laws if such business
combination has been approved by a majority of the whole Board.
(c) For the purposes of this Article FIFTEENTH:
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(1) A "person" shall mean any individual firm, corporation or other entity.
(2) "Interested Stockholder" shall mean, in respect of any business
combination, any person (other than the Corporation or any Subsidiary) who or
which as of the record date for the determination of stockholders entitled to
notice of and to vote on such business combination, or immediately prior to the
consummation of any such transaction:
(A) is the beneficial owner, directly or indirectly, of more than 10% of the
Voting Shares, or
(B) is an Affiliate of the Corporation and at any time within two years prior
thereto was the beneficial owner, directly or indirectly, of not less than 10%
of the then outstanding voting Shares, or
(C) is an assignee of or has otherwise succeeded in any share of capital stock
of the Corporation which were at any time within two years prior thereto
beneficially owned by any Interested Stockholder, and such assignment or
succession shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of the
Securities Act of 1933.
(3) A person shall be the "beneficial owner" of any Voting Shares:
(A) which such person or any of its Affiliates and Associates (as hereafter
defined) beneficially own, directly or indirectly, or
(B) which such person or any of its Affiliates or Associates has (i) the right
to acquire (whether such right is exercisable immediately or only after the
passage of time), pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or
understanding, or
(C) which are beneficially owned, directly or indirectly, by any other person
with which such first mentioned person or any of its Affiliates or Associates
has any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of capital stock of the Corporation.
(4) The outstanding Voting Shares shall include shares deemed owned through
application of paragraph (3) above but shall not include any other Voting Shares
which may be issuable pursuant to any agreement, or upon exercise of conversion
rights, warrants or options or otherwise.
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(5) "Affiliate" and "Associate" shall have the respective meanings given those
terms in Rule 12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as in effect on December 31, 1981.
(6) "Subsidiary" shall mean any corporation of which a majority of any class of
equity security (as defined in Rule 3a11-1 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect in December 31, 1981) is
owned, directly or indirectly, by the Corporation; provided, however, that for
the purposes of the definition of Investment Stockholder set forth in paragraph
(2) of this section (c), the term "Subsidiary" shall mean only a corporation of
which a majority of each class of equity security is owned, directly or
indirectly, by the Corporation.
(d) majority of the directors shall have the power and duty to determine for
the purposes of this Article FIFTEENTH on the basis of information known to
them, (1) the number of Voting Shares beneficially owned by any person (2)
whether a person is an Affiliate or Associate of another, (3) whether a person
has an agreement, arrangement or understanding with another as to the matters
referred to in paragraph (3) of section (c), or (4) whether the assets subject
to any business combination or the consideration received for the issuance or
transfer of securities by the Corporation, or any Subsidiary has an aggregate
fair market value of $1,00,000 or more.
(e) Nothing contained in this Article FIFTEENTH shall be construed to relieve
any Interested Stockholder from any fiduciary obligation imposed by law.
SIXTEENTH: Notwithstanding any other provision of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and in addition to any other
vote that may be required by law, this Charter or Act of Incorporation by the
By-Laws), the affirmative vote of the holders of at least two-thirds of the
outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class) shall be required to amend, alter or repeal any provision of Articles
FIFTH, THIRTEENTH, FIFTEENTH or SIXTEENTH of this Charter or Act of
Incorporation.
SEVENTEENTH: (a) a Director of this Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except to the extent such exemption from liability or
limitation thereof is not permitted under the Delaware General Corporation Laws
as the same exists or may hereafter be amended.
(b) Any repeal or modification of the foregoing paragraph shall not adversely
affect any right or protection of a Director of the Corporation existing
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hereunder with respect to any act or omission occurring prior to the time of
such repeal or modification."
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EXHIBIT B
BY-LAWS
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON JANUARY 16, 1997
<PAGE>
BY-LAWS OF WILMINGTON TRUST COMPANY
ARTICLE I
STOCKHOLDERS' MEETINGS
Section 1. The Annual Meeting of Stockholders shall be held on the third
Thursday in April each year at the principal office at the Company or at such
other date, time, or place as may be designated by resolution by the Board of
Directors.
Section 2. Special meetings of all stockholders may be called at any time
by the Board of Directors, the Chairman of the Board or the President.
Section 3. Notice of all meetings of the stockholders shall be given by
mailing to each stockholder at least ten (10 days before said meeting, at his
last known address, a written or printed notice fixing the time and place of
such meeting.
Section 4. A majority in the amount of the capital stock of the Company
issued and outstanding on the record date, as herein determined, shall
constitute a quorum at all meetings of stockholders for the transaction of any
business, but the holders of a small number of shares may adjourn, from time to
time, without further notice, until a quorum is secured. At each annual or
special meeting of stockholders, each stockholder shall be entitled to one vote,
either in person or by proxy, for each shares of stock registered in the
stockholder's name on the books of the Company on the record date for any such
meeting as determined herein.
ARTICLE II
DIRECTORS
Section 1. The number and classification of the Board of Directors shall
be as set forth in the Charter of the Bank.
Section 2. No person who has attained the age of seventy-two (72) years
shall be nominated for election to the Board of Directors of the Company,
provided, however, that this limitation shall not apply to any person who was
serving as director of the Company on September 16, 1971.
Section 3. The class of Directors so elected shall hold office for three
years or until their successors are elected and qualified.
Section 4. The affairs and business of the Company shall be managed and
conducted by the Board of Directors.
<PAGE>
Section 5. The Board of Directors shall meet at the principal office of
the Company or elsewhere in its discretion at such times to be determined by a
majority of its members, or at the call of the Chairman of the Board of
Directors or the President.
Section 6. Special meetings of the Board of Directors may be called at
any time by the Chairman of the Board of Directors or by the President, and
shall be called upon the written request of a majority of the directors.
Section 7. A majority of the directors elected and qualified shall be
necessary to constitute a quorum for the transaction of business at any meeting
of the Board of Directors.
Section 8. Written notice shall be sent by mail to each director of any
special meeting of the Board of Directors, and of any change in the time or
place of any regular meeting, stating the time and place of such meeting, which
shall be mailed not less than two days before the time of holding such meeting.
Section 9. In the event of the death, resignation, removal, inability to
act, or disqualification of any director, the Board of Directors, although less
than a quorum, shall have the right to elect the successor who shall hold office
for the remainder of the full term of the class of directors in which the
vacancy occurred, and until such director's successor shall have been duly
elected and qualified.
Section 10. The Board of Directors at its first meeting after its
election by the stockholders shall appoint an Executive Committee, a Trust
Committee, an Audit Committee and a Compensation Committee, and shall elect from
its own members a Chairman of the Board of Directors and a President who may be
the same person. The Board of Directors shall also elect at such meeting a
Secretary and a Treasurer, who may be the same person, may appoint at any time
such other committees and elect or appoint such other officers as it may deem
advisable. The Board of Directors may also elect at such meeting one or more
Associate Directors.
Section 11. The Board of Directors may at any time remove, with or
without cause, any member of any Committee appointed by it or any associate
director or officer elected by it and may appoint or elect his successor.
Section 12. The Board of Directors may designate an officer to be in
charge of such of the departments or division of the Company as it may deem
advisable.
ARTICLE III
COMMITTEES
Section I. Executive Committee
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(A) The Executive Committee shall be composed of not more than nine
members who shall be selected by the Board of Directors from its own members and
who shall hold office during the pleasure of the Board.
(B) The Executive Committee shall have all the powers of the Board of
Directors when it is not in session to transact all business for and in behalf
of the Company that may be brought before it.
(C) The Executive Committee shall meet at the principal office of the
Company or elsewhere in its discretion at such times to be determined by a
majority of its members, or at the call of the Chairman of the Executive
Committee or at the call of the Chairman of the Board of Directors. The
majority of its members shall be necessary to constitute a quorum for the
transaction of business. Special meetings of the Executive Committee may be
held at any time when a quorum is present.
(D) Minutes of each meeting of the Executive Committee shall be kept
and submitted to the Board of Directors at its next meeting.
(E) The Executive Committee shall advise and superintend all
investments that may be made of the funds of the Company, and shall direct the
disposal of the same, in accordance with such rules and regulations as the Board
of Directors from time to time make.
(F) In the event of a state of disaster of sufficient severity to
prevent the conduct and management of the affairs and business of the Company by
its directors and officers as contemplated by these By-Laws any two available
members of the Executive Committee as constituted immediately prior to such
disaster shall constitute a quorum of that Committee for the full conduct and
management of the affairs and business of the Company in accordance with the
provisions of Article III of these By-Laws; and if less than three members of
the Trust Committee is constituted immediately prior to such disaster shall be
available for the transaction of its business, such Executive Committee shall
also be empowered to exercise all of the powers reserved to the Trust Committee
under Article III Section 2 hereof. In the event of the unavailability, at such
time, of a minimum of two members of such Executive Committee, any three
available directors shall constitute the Executive Committee for the full
conduct and management of the affairs and business of the Company in accordance
with the foregoing provisions of this Section. This By-Law shall be subject to
implementation by Resolutions of the Board of Directors presently existing or
hereafter passed from time to time for that purpose, and any provisions of these
By-Laws (other than this Section) and any resolutions which are contrary to the
provisions of this Section or to the provisions of any such implementary
Resolutions shall be suspended during such a disaster period until it shall be
determined by any interim Executive Committee acting under this section that it
shall be to the advantage of the Company to resume the conduct and management of
its affairs and business under all of the other provisions of these By-Laws.
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Section 2. Trust Committee
(A) The Trust Committee shall be composed of not more than thirteen
members who shall be selected by the Board of Directors, a majority of whom
shall be members of the Board of Directors and who shall hold office during the
pleasure of the Board.
(B) The Trust Committee shall have general supervision over the Trust
Department and the investment of trust funds, in all matters, however, being
subject to the approval of the Board of Directors.
(C) The Trust Committee shall meet at the principal office of the
Company or elsewhere in its discretion at such times to be determined by a
majority of its members or at the call of its chairman. A majority of its
members shall be necessary to constitute a quorum for the transaction of
business.
(D) Minutes of each meeting of the Trust Committee shall be kept
and promptly submitted to the Board of Directors.
(E) The Trust Committee shall have the power to appoint Committees
and/or designate officers or employees of the Company to whom supervision over
the investment of trust funds may be delegated when the Trust Committee is not
in session.
Section 3. Audit Committee
(A) The Audit Committee shall be composed of five members who shall
be selected by the Board of Directors from its own members, none of whom shall
be an officer of the Company, and shall hold office at the pleasure of the
Board.
(B) The Audit Committee shall have general supervision over the Audit
Division in all matters however subject to the approval of the Board of
Directors; it shall consider all matters brought to its attention by the officer
in charge of the Audit Division, review all reports of examination of the
Company made by any governmental agency or such independent auditor employed for
that purpose, and make such recommendations to the Board of Directors with
respect thereto or with respect to any other matters pertaining to auditing the
Company as it shall deem desirable.
(C) The Audit Committee shall meet whenever and wherever the majority
of its members shall deem it to be proper for the transaction of its business,
and a majority of its Committee shall constitute a quorum.
Section 4. Compensation Committee
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(A) The Compensation Committee shall be composed of not more than
five (5) members who shall be selected by the Board of Directors from its own
members who are not officers of the Company and who shall hold office during the
pleasure of the Board.
(B) The Compensation Committee shall in general advise upon all
matters of policy concerning the Company brought to its attention by the
management and from time to time review the management of the Company, major
organizational matters, including salaries and employee benefits and
specifically shall administer the Executive Incentive Compensation Plan.
(C) Meetings of the Compensation Committee may be called at any time
by the Chairman of the Compensation Committee, the Chairman of the Board of
Directors, or the President of the Company.
Section 5. Associate Directors
(A) Any person who has served as a director may be elected by the
Board of Directors as an associate director, to serve during the pleasure of the
Board.
(B) An associate director shall be entitled to attend all directors
meetings and participate in the discussion of all matters brought to the Board,
with the exception that he would have no right to vote. An associate director
will be eligible for appointment to Committees of the Company, with the
exception of the Executive Committee, Audit Committee and Compensation
Committee, which must be comprised solely of active directors.
Section 6. Absence or Disqualification of Any Member of a Committee
(A) In the absence or disqualification of any member of any Committee
created under Article III of the By-Laws of this Company, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absence or
disqualified member.
ARTICLE IV
OFFICERS
Section 1. The Chairman of the Board of Directors shall preside at all
meetings of the Board and shall have such further authority and powers and shall
perform such duties as the Board of Directors may from time to time confer and
direct. He shall also exercise such powers and perform such duties as may from
time to time be agreed upon between himself and the President of the Company.
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Section 2. The Vice Chairman of the Board. The Vice Chairman of the
-------------------------------
Board of Directors shall preside at all meetings of the Board of Directors at
which the Chairman of the Board shall not be present and shall have such further
authority and powers and shall perform such duties as the Board of Directors or
the Chairman of the Board may from time to time confer and direct.
Section 3. The President shall have the powers and duties pertaining to
the office of the President conferred or imposed upon him by statute or assigned
to him by the Board of Directors in the absence of the Chairman of the Board the
President shall have the powers and duties of the Chairman of the Board.
Section 4. The Chairman of the Board of Directors or the President as
designated by the Board of Directors, shall carry into effect all legal
directions of the Executive Committee and of the Board of Directors, and shall
at all times exercise general supervision over the interest, affairs and
operations of the Company and perform all duties incident to his office.
Section 5. There may be one or more Vice Presidents, however denominated
by the Board of Directors, who may at any time perform all the duties of the
Chairman of the Board of Directors and/or the President and such other powers
and duties as may from time to time be assigned to them by the Board of
Directors, the Executive Committee, the Chairman of the Board or the President
and by the officer in charge of the department or division to which they are
assigned.
Section 6. The Secretary shall attend to the giving of notice of meetings
of the stockholders and the Board of Directors, as well as the Committees
thereof, to the keeping of accurate minutes of all such meetings and to
recording the same in the minute books of the Company. In addition to the other
notice requirements of these By-Laws and as may be practicable under the
circumstances, all such notices shall be in writing and mailed well in advance
of the scheduled date of any other meeting. He shall have custody of the
corporate seal and shall affix the same to any documents requiring such
corporate seal and to attest the same.
Section 7. The Treasurer shall have general supervision over all assets
and liabilities of the Company. He shall be custodian of and responsible for
all monies, funds and valuables of the Company and for the keeping of proper
records of the evidence of property or indebtedness and of all the transactions
of the Company. He shall have general supervision of the expenditures of the
Company and shall report to the Board of Directors at each regular meeting of
the condition of the Company, and perform such other duties as may be assigned
to him from time to time by the Board of Directors of the Executive Committee.
Section 8. There may be a Controller who shall exercise general
supervision over the internal operations of the Company, including accounting,
and shall render to the Board of
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Directors at appropriate times a report relating to the general condition and
internal operations of the Company.
There may be one or more subordinate accounting or controller officers
however denominated, who may perform the duties of the Controller and such
duties as may be prescribed by the Controller.
Section 9. The officer designated by the Board of Directors to be in
charge of the Audit Division of the Company with such title as the Board of
Directors shall prescribe, shall report to and be directly responsible only to
the Board of Directors.
There shall be an Auditor and there may be one or more Audit Officers,
however denominated, who may perform all the duties of the Auditor and such
duties as may be prescribed by the officer in charge of the Audit Division.
Section 10. There may be one or more officers, subordinate in rank to all
Vice Presidents with such functional titles as shall be determined from time to
time by the Board of Directors, who shall ex officio hold the office Assistant
Secretary of this Company and who may perform such duties as may be prescribed
by the officer in charge of the department or division to whom they are
assigned.
Section 11. The powers and duties of all other officers of the Company
shall be those usually pertaining to their respective offices, subject to the
direction of the Board of Directors, the Executive Committee, Chairman of the
Board of Directors or the President and the officer in charge of the department
or division to which they are assigned.
ARTICLE V
STOCK AND STOCK CERTIFICATES
Section 1. Shares of stock shall be transferrable on the books of the
Company and a transfer book shall be kept in which all transfers of stock shall
be recorded.
Section 2. Certificate of stock shall bear the signature of the President
or any Vice President, however denominated by the Board of Directors and
countersigned by the Secretary or Treasurer or an Assistant Secretary, and the
seal of the corporation shall be engraved thereon. Each certificate shall
recite that the stock represented thereby is transferrable only upon the books
of the Company by the holder thereof or his attorney, upon surrender of the
certificate properly endorsed. Any certificate of stock surrendered to the
Company shall be cancelled at the time of transfer, and before a new certificate
or certificates shall be issued in lieu thereof. Duplicate certificates of
stock shall be issued only upon giving such security as may be satisfactory to
the Board of Directors or the Executive Committee.
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Section 3. The Board of Directors of the Company is authorized to fix in
advance a record date for the determination of the stockholders entitled to
notice of, and to vote at, any meeting of stockholders and any adjournment
thereof, or entitled to receive payment of any dividend, or to any allotment or
rights, or to exercise any rights in respect of any change, conversion or
exchange of capital stock, or in connection with obtaining the consent of
stockholders for any purpose, which record date shall not be more than 60 nor
less than 10 days proceeding the date of any meeting of stockholders or the date
for the payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock shall go into
effect, or a date in connection with obtaining such consent.
ARTICLE VI
SEAL
Section 1. The corporate seal of the Company shall be in the following
form:
Between two concentric circles the words
"Wilmington Trust Company" within the inner
circle the words "Wilmington, Delaware."
ARTICLE VII
FISCAL YEAR
Section 1. The fiscal year of the Company shall be the calendar year.
ARTICLE VIII
EXECUTION OF INSTRUMENTS OF THE COMPANY
Section 1. The Chairman of the Board, the President or any Vice
President, however denominated by the Board of Directors, shall have full power
and authority to enter into, make, sign, execute, acknowledge and/or deliver and
the Secretary or any Assistant Secretary shall have full power and authority to
attest and affix the corporate seal of the Company to any and all deeds,
conveyances, assignments, releases, contracts, agreements, bonds, notes,
mortgages and all other instruments incident to the business of this Company or
in acting as executor, administrator, guardian, trustee, agent or in any other
fiduciary or representative capacity by any and every method of appointment or
by whatever person, corporation, court officer or authority in the State of
Delaware, or elsewhere, without any specific authority, ratification, approval
or confirmation by the Board of Directors or the
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Executive Committee, and any and all such instruments shall have the same force
and validity as although expressly authorized by the Board of Directors and/or
the Executive Committee.
ARTICLE IX
COMPENSATION OF DIRECTORS AND MEMBERS OF COMMITTEES
Section 1. Directors and associate directors of the Company, other than
salaried officers of the Company, shall be paid such reasonable honoraria or
fees for attending meetings of the Board of Directors as the Board of Directors
may from time to time determine. Directors and associate directors who serve as
members of committees, other than salaried employees of the Company, shall be
paid such reasonable honoraria or fees for services as members of committees as
the Board of Directors shall from time to time determine and directors and
associate directors may be employed by the Company for such special services as
the Board of Directors may from time to time determine and shall be paid for
such special services so performed reasonable compensation as may be determined
by the Board of Directors.
ARTICLE X
INDEMNIFICATION
Section 1. (A) The Corporation shall indemnify and hold harmless, to the
fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person who was or is made or is threatened to be made
a party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding") by reason of
the fact that he, or a person for whom he is the legal representative, 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, fiduciary or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or non-profit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses reasonably
incurred by such person. The Corporation shall indemnify a person in connection
with a proceeding initiated by such person only if the proceeding was authorized
by the Board of Directors of the Corporation.
(B) The Corporation shall pay the expenses incurred in defending any
proceeding in advance of its final disposition, provided, however, that the
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payment of expenses incurred by a Director officer in his capacity as a Director
or officer in advance of the final disposition of the proceeding shall be made
only upon receipt of an undertaking by the Director or officer to repay all
amounts advanced if it should be ultimately determined that the Director or
officer is not entitled to be indemnified under this Article or otherwise.
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(C) If a claim for indemnification or payment of expenses, under this
Article X is not paid in full within ninety days after a written claim therefor
has been received by the Corporation the claimant may file suit to recover the
unpaid amount of such claim and, if successful in whole or in part, shall be
entitled to be paid the expense of prosecuting such claim. In any such action
the Corporation shall have the burden of proving that the claimant was not
entitled to the requested indemnification of payment of expenses under
applicable law.
(D) The rights conferred on any person by this Article X shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the Charter or Act of Incorporation, these By-
Laws, agreement, vote of stockholders or disinterested Directors or otherwise.
(E) Any repeal or modification of the foregoing provisions of this
Article X shall not adversely affect any right or protection hereunder of any
person in respect of any act or omission occurring prior to the time of such
repeal or modification.
ARTICLE XI
AMENDMENTS TO THE BY-LAWS
Section 1. These By-Laws may be altered, amended or repealed, in whole or
in part, and any new By-Law or By-Laws adopted at any regular or special meeting
of the Board of Directors by a vote of the majority of all the members of the
Board of Directors then in office.
10
<PAGE>
EXHIBIT C
SECTION 321(B) CONSENT
Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as amended,
Wilmington Trust Company hereby consents that reports of examinations by
Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
WILMINGTON TRUST COMPANY
Dated: February 21, 1997 By: /s/ Emmett R. Harmon
---------------------
Name: Emmett R. Harmon
Title: Vice President
<PAGE>
EXHIBIT D
NOTICE
This form is intended to assist state nonmember banks and savings
banks with state publication requirements. It has not been approved
by any state banking authorities. Refer to your appropriate state
banking authorities for your state publication requirements.
R E P O R T O F C O N D I T I O N
Consolidating domestic subsidiaries of the
WILMINGTON TRUST COMPANY of WILMINGTON
- -------------------------------- ----------------
Name of Bank
City
in the State of DELAWARE , at the close of business on December 31, 1996.
----------
<TABLE>
<CAPTION>
ASSETS
Thousands of dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coins...................... 213,895
Interest-bearing balances................................................ 0
Held-to-maturity securities.................................................... 465,818
Available-for-sale securities.................................................. 752,297
Federal funds sold............................................................. 95,000
Securities purchased under agreements to resell................................ 39,190
Loans and lease financing receivables:
Loans and leases, net of unearned income....................... 3,634,003
LESS: Allowance for loan and lease losses..................... 51,847
LESS: Allocated transfer risk reserve......................... 0
Loans and leases, net of unearned income, allowance, and reserve......... 3,582,156
Assets held in trading accounts................................................ 0
Premises and fixed assets (including capitalized leases)....................... 89,129
Other real estate owned........................................................ 3,520
Investments in unconsolidated subsidiaries and associated companies............ 52
Customers' liability to this bank on acceptances outstanding................... 0
Intangible assets.............................................................. 4,593
Other assets................................................................... 114,300
Total assets................................................................... 5,359,950
</TABLE>
CONTINUED ON NEXT PAGE
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES
<S>............................................................................ <C>
Deposits:
In domestic offices............................................................ 3,749,697
Noninterest-bearing............................................ 852,790
Interest-bearing............................................... 2,896,907
Federal funds purchased........................................................ 77,825
Securities sold under agreements to repurchase................................. 192,295
Demand notes issued to the U.S. Treasury....................................... 53,526
Trading liabilities............................................................ 0
Other borrowed money:.......................................................... ///////
With original maturity of one year or less............................... 714,000
With original maturity of more than one year............................. 43,000
Mortgage indebtedness and obligations under capitalized leases................. 0
Bank's liability on acceptances executed and outstanding....................... 0
Subordinated notes and debentures.............................................. 0
Other liabilities.............................................................. 98,756
Total liabilities.............................................................. 4,929,099
Limited-life preferred stock and related surplus............................... 0
<CAPTION>
EQUITY CAPITAL
<S>............................................................................ <C>
Perpetual preferred stock and related surplus.................................. 0
Common Stock................................................................... 500
Surplus........................................................................ 62,118
Undivided profits and capital reserves......................................... 367,371
Net unrealized holding gains (losses) on available-for-sale securities......... 862
Total equity capital........................................................... 430,851
Total liabilities, limited-life preferred stock, and equity capital............ 5,359,950
</TABLE>
<PAGE>
EXHIBIT 25.3
Registration No.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) ___
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
NATIONWIDE FINANCIAL SERVICES, INC.
(Exact name of obligor as specified in its charter)
Delaware 31-1486870
(State of incorporation) (I.R.S. employer identification no.)
One Nationwide Plaza
Columbus, Ohio 43215
(Address of principal executive offices) (Zip Code)
Guarantee of Capital Securities of
Nationwide Financial Services, Inc.
(Title of the indenture securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each
affiliation:
Based upon an examination of the books and records of the trustee and
upon information furnished by the obligor, the obligor is not an affiliate of
the trustee.
ITEM 3. LIST OF EXHIBITS.
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which includes the
certificate of authority of Wilmington Trust Company to commence business and
the authorization of Wilmington Trust Company to exercise corporate trust
powers.
B. Copy of By-Laws of Wilmington Trust Company.
C. Consent of Wilmington Trust Company required by Section 321(b) of
Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington Trust Company.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Wilmington Trust Company, a corporation organized and
existing under the laws of Delaware, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington and State of Delaware on the 21st day
of February, 1997.
WILMINGTON TRUST COMPANY
[SEAL]
Attest:/s/ Patricia A. Evans By:/s/ Emmett R. Harmon
----------------------------- ----------------------
Assistant Secretary Name: Emmett R. Harmon
Title: Vice President
2
<PAGE>
EXHIBIT A
AMENDED CHARTER
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON MAY 9, 1987
<PAGE>
AMENDED CHARTER
OR
ACT OF INCORPORATION
OF
WILMINGTON TRUST COMPANY
WILMINGTON TRUST COMPANY, originally incorporated by an Act of the General
Assembly of the State of Delaware, entitled "An Act to Incorporate the Delaware
Guarantee and Trust Company", approved March 2, A.D. 1901, and the name of which
company was changed to "WILMINGTON TRUST COMPANY" by an amendment filed in the
Office of the Secretary of State on March 18, A.D. 1903, and the Charter or Act
of Incorporation of which company has been from time to time amended and changed
by merger agreements pursuant to the corporation law for state banks and trust
companies of the State of Delaware, does hereby alter and amend its Charter or
Act of Incorporation so that the same as so altered and amended shall in its
entirety read as follows:
FIRST: - The name of this corporation is WILMINGTON TRUST COMPANY.
SECOND: - The location of its principal office in the State of Delaware is at
Rodney Square North, in the City of Wilmington, County of New Castle; the name
of its resident agent is WILMINGTON TRUST COMPANY whose address is Rodney Square
North, in said City. In addition to such principal office, the said corporation
maintains and operates branch offices in the City of Newark, New Castle County,
Delaware, the Town of Newport, New Castle County, Delaware, at Claymont, New
Castle County, Delaware, at Greenville, New Castle County Delaware, and at
Milford Cross Roads, New Castle County, Delaware, and shall be empowered to
open, maintain and operate branch offices at Ninth and Shipley Streets, 418
Delaware Avenue, 2120 Market Street, and 3605 Market Street, all in the City of
Wilmington, New Castle County, Delaware, and such other branch offices or places
of business as may be authorized from time to time by the agency or agencies of
the government of the State of Delaware empowered to confer such authority.
THIRD: - (a) The nature of the business and the objects and purposes proposed to
be transacted, promoted or carried on by this Corporation are to do any or all
of the things herein mentioned as fully and to the same extent as natural
persons might or could do and in any part of the world, viz.:
(1) To sue and be sued, complain and defend in any Court of law or
equity and to make and use a common seal, and alter the seal at pleasure, to
hold,
<PAGE>
purchase, convey, mortgage or otherwise deal in real and personal estate and
property, and to appoint such officers and agents as the business of the
Corporation shall require, to make by-laws not inconsistent with the
Constitution or laws of the United States or of this State, to discount bills,
notes or other evidences of debt, to receive deposits of money, or securities
for money, to buy gold and silver bullion and foreign coins, to buy and sell
bills of exchange, and generally to use, exercise and enjoy all the powers,
rights, privileges and franchises incident to a corporation which are proper or
necessary for the transaction of the business of the Corporation hereby created.
(2) To insure titles to real and personal property, or any estate or
interests therein, and to guarantee the holder of such property, real or
personal, against any claim or claims, adverse to his interest therein, and to
prepare and give certificates of title for any lands or premises in the State of
Delaware, or elsewhere.
(3) To act as factor, agent, broker or attorney in the receipt,
collection, custody, investment and management of funds, and the purchase, sale,
management and disposal of property of all descriptions, and to prepare and
execute all papers which may be necessary or proper in such business.
(4) To prepare and draw agreements, contracts, deeds, leases,
conveyances, mortgages, bonds and legal papers of every description, and to
carry on the business of conveyancing in all its branches.
(5) To receive upon deposit for safekeeping money, jewelry, plate,
deeds, bonds and any and all other personal property of every sort and kind,
from executors, administrators, guardians, public officers, courts, receivers,
assignees, trustees, and from all fiduciaries, and from all other persons and
individuals, and from all corporations whether state, municipal, corporate or
private, and to rent boxes, safes, vaults and other receptacles for such
property.
(6) To act as agent or otherwise for the purpose of registering,
issuing, certificating, countersigning, transferring or underwriting the stock,
bonds or other obligations of any corporation, association, state or
municipality, and may receive and manage any sinking fund therefor on such terms
as may be agreed upon between the two parties, and in like manner may act as
Treasurer of any corporation or municipality.
(7) To act as Trustee under any deed of trust, mortgage, bond or
other instrument issued by any state, municipality, body politic, corporation,
2
<PAGE>
association or person, either alone or in conjunction with any other person or
persons, corporation or corporations.
(8) To guarantee the validity, performance or effect of any contract
or agreement, and the fidelity of persons holding places of responsibility or
trust; to become surety for any person, or persons, for the faithful performance
of any trust, office, duty, contract or agreement, either by itself or in
conjunction with any other person, or persons, corporation, or corporations, or
in like manner become surety upon any bond, recognizance, obligation, judgment,
suit, order, or decree to be entered in any court of record within the State of
Delaware or elsewhere, or which may now or hereafter be required by any law,
judge, officer or court in the State of Delaware or elsewhere.
(9) To act by any and every method of appointment as trustee, trustee
in bankruptcy, receiver, assignee, assignee in bankruptcy, executor,
administrator, guardian, bailee, or in any other trust capacity in the
receiving, holding, managing, and disposing of any and all estates and property,
real, personal or mixed, and to be appointed as such trustee, trustee in
bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator,
guardian or bailee by any persons, corporations, court, officer, or authority,
in the State of Delaware or elsewhere; and whenever this Corporation is so
appointed by any person, corporation, court, officer or authority such trustee,
trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor,
administrator, guardian, bailee, or in any other trust capacity, it shall not be
required to give bond with surety, but its capital stock shall be taken and held
as security for the performance of the duties devolving upon it by such
appointment.
(10) And for its care, management and trouble, and the exercise of
any of its powers hereby given, or for the performance of any of the duties
which it may undertake or be called upon to perform, or for the assumption of
any responsibility the said Corporation may be entitled to receive a proper
compensation.
(11) To purchase, receive, hold and own bonds, mortgages, debentures,
shares of capital stock, and other securities, obligations, contracts and
evidences of indebtedness, of any private, public or municipal corporation
within and without the State of Delaware, or of the Government of the United
States, or of any state, territory, colony, or possession thereof, or of any
foreign government or country; to receive, collect, receipt for, and dispose of
interest, dividends and income upon and from any of the bonds, mortgages,
debentures, notes, shares of capital stock, securities, obligations, contracts,
evidences of indebtedness and other property held and owned by it, and to
3
<PAGE>
exercise in respect of all such bonds, mortgages, debentures, notes, shares of
capital stock, securities, obligations, contracts, evidences of indebtedness and
other property, any and all the rights, powers and privileges of individual
owners thereof, including the right to vote thereon; to invest and deal in and
with any of the moneys of the Corporation upon such securities and in such
manner as it may think fit and proper, and from time to time to vary or realize
such investments; to issue bonds and secure the same by pledges or deeds of
trust or mortgages of or upon the whole or any part of the property held or
owned by the Corporation, and to sell and pledge such bonds, as and when the
Board of Directors shall determine, and in the promotion of its said corporate
business of investment and to the extent authorized by law, to lease, purchase,
hold, sell, assign, transfer, pledge, mortgage and convey real and personal
property of any name and nature and any estate or interest therein.
(b) In furtherance of, and not in limitation, of the powers conferred by the
laws of the State of Delaware, it is hereby expressly provided that the said
Corporation shall also have the following powers:
(1) To do any or all of the things herein set forth, to the same
extent as natural persons might or could do, and in any part of the world.
(2) To acquire the good will, rights, property and franchises and to
undertake the whole or any part of the assets and liabilities of any person,
firm, association or corporation, and to pay for the same in cash, stock of this
Corporation, bonds or otherwise; to hold or in any manner to dispose of the
whole or any part of the property so purchased; to conduct in any lawful manner
the whole or any part of any business so acquired, and to exercise all the
powers necessary or convenient in and about the conduct and management of such
business.
(3) To take, hold, own, deal in, mortgage or otherwise lien, and to
lease, sell, exchange, transfer, or in any manner whatever dispose of property,
real, personal or mixed, wherever situated.
(4) To enter into, make, perform and carry out contracts of every
kind with any person, firm, association or corporation, and, without limit as to
amount, to draw, make, accept, endorse, discount, execute and issue promissory
notes, drafts, bills of exchange, warrants, bonds, debentures, and other
negotiable or transferable instruments.
(5) To have one or more offices, to carry on all or any of its
operations and businesses, without restriction to the same extent as natural
persons might or could do, to purchase or otherwise acquire, to hold, own, to
mortgage, sell,
4
<PAGE>
convey or otherwise dispose of, real and personal property, of every class and
description, in any State, District, Territory or Colony of the United States,
and in any foreign country or place.
(6) It is the intention that the objects, purposes and powers
specified and clauses contained in this paragraph shall (except where otherwise
expressed in said paragraph) be nowise limited or restricted by reference to or
inference from the terms of any other clause of this or any other paragraph in
this charter, but that the objects, purposes and powers specified in each of the
clauses of this paragraph shall be regarded as independent objects, purposes and
powers.
FOURTH: - (a) The total number of shares of all classes of stock which the
Corporation shall have authority to issue is forty-one million (41,000,000)
shares, consisting of:
(1) One million (1,000,000) shares of Preferred stock, par value
$10.00 per share (hereinafter referred to as "Preferred Stock"); and
(2) Forty million (40,000,000) shares of Common Stock, par value
$1.00 per share (hereinafter referred to as "Common Stock").
(b) Shares of Preferred Stock may be issued from time to time in one or more
series as may from time to time be determined by the Board of Directors each of
said series to be distinctly designated. All shares of any one series of
Preferred Stock shall be alike in every particular, except that there may be
different dates from which dividends, if any, thereon shall be cumulative, if
made cumulative. The voting powers and the preferences and relative,
participating, optional and other special rights of each such series, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding; and, subject to the
provisions of subparagraph 1 of Paragraph (c) of this Article FOURTH, the Board
of Directors of the Corporation is hereby expressly granted authority to fix by
resolution or resolutions adopted prior to the issuance of any shares of a
particular series of Preferred Stock, the voting powers and the designations,
preferences and relative, optional and other special rights, and the
qualifications, limitations and restrictions of such series, including, but
without limiting the generality of the foregoing, the following:
(1) The distinctive designation of, and the number of shares of
Preferred Stock which shall constitute such series, which number may be
increased (except where otherwise provided by the Board of Directors) or
decreased (but not below the number of shares thereof then outstanding) from
time to time by like action of the Board of Directors;
5
<PAGE>
(2) The rate and times at which, and the terms and conditions on
which, dividends, if any, on Preferred Stock of such series shall be paid, the
extent of the preference or relation, if any, of such dividends to the dividends
payable on any other class or classes, or series of the same or other class of
stock and whether such dividends shall be cumulative or non-cumulative;
(3) The right, if any, of the holders of Preferred Stock of such
series to convert the same into or exchange the same for, shares of any other
class or classes or of any series of the same or any other class or classes of
stock of the Corporation and the terms and conditions of such conversion or
exchange;
(4) Whether or not Preferred Stock of such series shall be subject to
redemption, and the redemption price or prices and the time or times at which,
and the terms and conditions on which, Preferred Stock of such series may be
redeemed.
(5) The rights, if any, of the holders of Preferred Stock of such
series upon the voluntary or involuntary liquidation, merger, consolidation,
distribution or sale of assets, dissolution or winding-up, of the Corporation.
(6) The terms of the sinking fund or redemption or purchase account,
if any, to be provided for the Preferred Stock of such series; and
(7) The voting powers, if any, of the holders of such series of
Preferred Stock which may, without limiting the generality of the foregoing
include the right, voting as a series or by itself or together with other series
of Preferred Stock or all series of Preferred Stock as a class, to elect one or
more directors of the Corporation if there shall have been a default in the
payment of dividends on any one or more series of Preferred Stock or under such
circumstances and on such conditions as the Board of Directors may determine.
(c) (1) After the requirements with respect to preferential dividends on the
Preferred Stock (fixed in accordance with the provisions of section (b) of this
Article FOURTH), if any, shall have been met and after the Corporation shall
have complied with all the requirements, if any, with respect to the setting
aside of sums as sinking funds or redemption or purchase accounts (fixed in
accordance with the provisions of section (b) of this Article FOURTH), and
subject further to any conditions which may be fixed in accordance with the
provisions of section (b) of this Article FOURTH, then and not otherwise the
holders of Common Stock shall be entitled to receive such dividends as may be
declared from time to time by the Board of Directors.
(2) After distribution in full of the preferential amount, if any,
(fixed in accordance with the provisions of section (b) of this Article FOURTH),
to be
6
<PAGE>
distributed to the holders of Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets, dissolution or winding-
up, of the Corporation, the holders of the Common Stock shall be entitled to
receive all of the remaining assets of the Corporation, tangible and intangible,
of whatever kind available for distribution to stockholders ratably in
proportion to the number of shares of Common Stock held by them respectively.
(3) Except as may otherwise be required by law or by the provisions
of such resolution or resolutions as may be adopted by the Board of Directors
pursuant to section (b) of this Article FOURTH, each holder of Common Stock
shall have one vote in respect of each share of Common Stock held on all matters
voted upon by the stockholders.
(d) No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series of
stock or of other securities of the Corporation shall have any preemptive right
to purchase or subscribe for any unissued stock of any class or series or any
additional shares of any class or series to be issued by reason of any increase
of the authorized capital stock of the Corporation of any class or series, or
bonds, certificates of indebtedness, debentures or other securities convertible
into or exchangeable for stock of the Corporation of any class or series, or
carrying any right to purchase stock of any class or series, but any such
unissued stock, additional authorized issue of shares of any class or series of
stock or securities convertible into or exchangeable for stock, or carrying any
right to purchase stock, may be issued and disposed of pursuant to resolution of
the Board of Directors to such persons, firms, corporations or associations,
whether such holders or others, and upon such terms as may be deemed advisable
by the Board of Directors in the exercise of its sole discretion.
(e) The relative powers, preferences and rights of each series of Preferred
Stock in relation to the relative powers, preferences and rights of each other
series of Preferred Stock shall, in each case, be as fixed from time to time by
the Board of Directors in the resolution or resolutions adopted pursuant to
authority granted in section (b) of this Article FOURTH and the consent, by
class or series vote or otherwise, of the holders of such of the series of
Preferred Stock as are from time to time outstanding shall not be required for
the issuance by the Board of Directors of any other series of Preferred Stock
whether or not the powers, preferences and rights of such other series shall be
fixed by the Board of Directors as senior to, or on a parity with, the powers,
preferences and rights of such outstanding series, or any of them; provided,
however, that the Board of Directors may provide in the resolution or
resolutions as to any series of Preferred Stock adopted pursuant to section (b)
of this Article FOURTH that the consent of the holders of a majority (or such
greater proportion as shall be therein fixed) of the outstanding shares of such
series voting
7
<PAGE>
thereon shall be required for the issuance of any or all other series of
Preferred Stock.
(f) Subject to the provisions of section (e), shares of any series of Preferred
Stock may be issued from time to time as the Board of Directors of the
Corporation shall determine and on such terms and for such consideration as
shall be fixed by the Board of Directors.
(g) Shares of Common Stock may be issued from time to time as the Board of
Directors of the Corporation shall determine and on such terms and for such
consideration as shall be fixed by the Board of Directors.
(h) The authorized amount of shares of Common Stock and of Preferred Stock may,
without a class or series vote, be increased or decreased from time to time by
the affirmative vote of the holders of a majority of the stock of the
Corporation entitled to vote thereon.
FIFTH: - (a) The business and affairs of the Corporation shall be conducted and
managed by a Board of Directors. The number of directors constituting the
entire Board shall be not less than five nor more than twenty-five as fixed from
time to time by vote of a majority of the whole Board, provided, however, that
the number of directors shall not be reduced so as to shorten the term of any
director at the time in office, and provided further, that the number of
directors constituting the whole Board shall be twenty-four until otherwise
fixed by a majority of the whole Board.
(b) The Board of Directors shall be divided into three classes, as nearly equal
in number as the then total number of directors constituting the whole Board
permits, with the term of office of one class expiring each year. At the annual
meeting of stockholders in 1982, directors of the first class shall be elected
to hold office for a term expiring at the next succeeding annual meeting,
directors of the second class shall be elected to hold office for a term
expiring at the second succeeding annual meeting and directors of the third
class shall be elected to hold office for a term expiring at the third
succeeding annual meeting. Any vacancies in the Board of Directors for any
reason, and any newly created directorships resulting from any increase in the
directors, may be filled by the Board of Directors, acting by a majority of the
directors then in office, although less than a quorum, and any directors so
chosen shall hold office until the next annual election of directors. At such
election, the stockholders shall elect a successor to such director to hold
office until the next election of the class for which such director shall have
been chosen and until his successor shall be elected and qualified. No decrease
in the number of directors shall shorten the term of any incumbent director.
8
<PAGE>
(c) Notwithstanding any other provisions of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and notwithstanding the fact
that some lesser percentage may be specified by law, this Charter or Act of
Incorporation or the By-Laws of the Corporation), any director or the entire
Board of Directors of the Corporation may be removed at any time without cause,
but only by the affirmative vote of the holders of two-thirds or more of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class) cast at a meeting of the stockholders called for that purpose.
(d) Nominations for the election of directors may be made by the Board of
Directors or by any stockholder entitled to vote for the election of directors.
Such nominations shall be made by notice in writing, delivered or mailed by
first class United States mail, postage prepaid, to the Secretary of the
Corporation not less than 14 days nor more than 50 days prior to any meeting of
the stockholders called for the election of directors; provided, however, that
if less than 21 days' notice of the meeting is given to stockholders, such
written notice shall be delivered or mailed, as prescribed, to the Secretary of
the Corporation not later than the close of the seventh day following the day on
which notice of the meeting was mailed to stockholders. Notice of nominations
which are proposed by the Board of Directors shall be given by the Chairman on
behalf of the Board.
(e) Each notice under subsection (d) shall set forth (i) the name, age,
business address and, if known, residence address of each nominee proposed in
such notice, (ii) the principal occupation or employment of such nominee and
(iii) the number of shares of stock of the Corporation which are beneficially
owned by each such nominee.
(f) The Chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
(g) No action required to be taken or which may be taken at any annual or
special meeting of stockholders of the Corporation may be taken without a
meeting, and the power of stockholders to consent in writing, without a meeting,
to the taking of any action is specifically denied.
SIXTH: - The Directors shall choose such officers, agent and servants as may be
provided in the By-Laws as they may from time to time find necessary or proper.
SEVENTH: - The Corporation hereby created is hereby given the same powers,
rights and privileges as may be conferred upon corporations organized under the
Act
9
<PAGE>
entitled "An Act Providing a General Corporation Law", approved March 10, 1899,
as from time to time amended.
EIGHTH: - This Act shall be deemed and taken to be a private Act.
NINTH: - This Corporation is to have perpetual existence.
TENTH: - The Board of Directors, by resolution passed by a majority of the whole
Board, may designate any of their number to constitute an Executive Committee,
which Committee, to the extent provided in said resolution, or in the By-Laws of
the Company, shall have and may exercise all of the powers of the Board of
Directors in the management of the business and affairs of the Corporation, and
shall have power to authorize the seal of the Corporation to be affixed to all
papers which may require it.
ELEVENTH: - The private property of the stockholders shall not be liable for the
payment of corporate debts to any extent whatever.
TWELFTH: - The Corporation may transact business in any part of the world.
THIRTEENTH: - The Board of Directors of the Corporation is expressly authorized
to make, alter or repeal the By-Laws of the Corporation by a vote of the
majority of the entire Board. The stockholders may make, alter or repeal any
By-Law whether or not adopted by them, provided however, that any such
additional By-Laws, alterations or repeal may be adopted only by the affirmative
vote of the holders of two-thirds or more of the outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class).
FOURTEENTH: - Meetings of the Directors may be held outside
of the State of Delaware at such places as may be from time to time designated
by the Board, and the Directors may keep the books of the Company outside of the
State of Delaware at such places as may be from time to time designated by them.
FIFTEENTH: - (a) In addition to any affirmative vote required by law, and except
as otherwise expressly provided in sections (b) and (c) of this Article
FIFTEENTH:
(A) any merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with or into (i) any Interested Stockholder (as
hereinafter defined) or (ii) any other corporation (whether or not itself an
Interested Stockholder), which, after such merger or consolidation, would be an
Affiliate (as hereinafter defined) of an Interested Stockholder, or
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<PAGE>
(B) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of related transactions) to or with
any Interested Stockholder or any Affiliate of any Interested Stockholder of any
assets of the Corporation or any Subsidiary having an aggregate fair market
value of $1,000,000 or more, or
(C) the issuance or transfer by the Corporation or any Subsidiary (in
one transaction or a series of related transactions) of any securities of the
Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of
any Interested Stockholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate fair market value of $1,000,000
or more, or
(D) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation, or
(E) any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or consolidation
of the Corporation with any of its Subsidiaries or any similar transaction
(whether or not with or into or otherwise involving an Interested Stockholder)
which has the effect, directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity or convertible securities
of the Corporation or any Subsidiary which is directly or indirectly owned by
any Interested Stockholder, or any Affiliate of any Interested Stockholder,
shall require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, considered for the purpose of this
Article FIFTEENTH as one class ("Voting Shares"). Such affirmative vote shall
be required notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
(2) The term "business combination" as used in this Article FIFTEENTH shall
mean any transaction which is referred to any one or more of clauses (A) through
(E) of paragraph 1 of the section (a).
(b) The provisions of section (a) of this Article FIFTEENTH shall not be
applicable to any particular business combination and such business combination
shall require only such affirmative vote as is required by law and any other
provisions of the Charter or Act of Incorporation of By-Laws if such business
combination has been approved by a majority of the whole Board.
(c) For the purposes of this Article FIFTEENTH:
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(1) A "person" shall mean any individual firm, corporation or other entity.
(2) "Interested Stockholder" shall mean, in respect of any business
combination, any person (other than the Corporation or any Subsidiary) who or
which as of the record date for the determination of stockholders entitled to
notice of and to vote on such business combination, or immediately prior to the
consummation of any such transaction:
(A) is the beneficial owner, directly or indirectly, of more than 10% of the
Voting Shares, or
(B) is an Affiliate of the Corporation and at any time within two years prior
thereto was the beneficial owner, directly or indirectly, of not less than 10%
of the then outstanding voting Shares, or
(C) is an assignee of or has otherwise succeeded in any share of capital stock
of the Corporation which were at any time within two years prior thereto
beneficially owned by any Interested Stockholder, and such assignment or
succession shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of the
Securities Act of 1933.
(3) A person shall be the "beneficial owner" of any Voting Shares:
(A) which such person or any of its Affiliates and Associates (as hereafter
defined) beneficially own, directly or indirectly, or
(B) which such person or any of its Affiliates or Associates has (i) the right
to acquire (whether such right is exercisable immediately or only after the
passage of time), pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or
understanding, or
(C) which are beneficially owned, directly or indirectly, by any other person
with which such first mentioned person or any of its Affiliates or Associates
has any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of capital stock of the Corporation.
(4) The outstanding Voting Shares shall include shares deemed owned through
application of paragraph (3) above but shall not include any other Voting Shares
which may be issuable pursuant to any agreement, or upon exercise of conversion
rights, warrants or options or otherwise.
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(5) "Affiliate" and "Associate" shall have the respective meanings given those
terms in Rule 12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as in effect on December 31, 1981.
(6) "Subsidiary" shall mean any corporation of which a majority of any class of
equity security (as defined in Rule 3a11-1 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect in December 31, 1981) is
owned, directly or indirectly, by the Corporation; provided, however, that for
the purposes of the definition of Investment Stockholder set forth in paragraph
(2) of this section (c), the term "Subsidiary" shall mean only a corporation of
which a majority of each class of equity security is owned, directly or
indirectly, by the Corporation.
(d) majority of the directors shall have the power and duty to determine for
the purposes of this Article FIFTEENTH on the basis of information known to
them, (1) the number of Voting Shares beneficially owned by any person (2)
whether a person is an Affiliate or Associate of another, (3) whether a person
has an agreement, arrangement or understanding with another as to the matters
referred to in paragraph (3) of section (c), or (4) whether the assets subject
to any business combination or the consideration received for the issuance or
transfer of securities by the Corporation, or any Subsidiary has an aggregate
fair market value of $1,00,000 or more.
(e) Nothing contained in this Article FIFTEENTH shall be construed to relieve
any Interested Stockholder from any fiduciary obligation imposed by law.
SIXTEENTH: Notwithstanding any other provision of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and in addition to any other
vote that may be required by law, this Charter or Act of Incorporation by the
By-Laws), the affirmative vote of the holders of at least two-thirds of the
outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class) shall be required to amend, alter or repeal any provision of Articles
FIFTH, THIRTEENTH, FIFTEENTH or SIXTEENTH of this Charter or Act of
Incorporation.
SEVENTEENTH: (a) a Director of this Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except to the extent such exemption from liability or
limitation thereof is not permitted under the Delaware General Corporation Laws
as the same exists or may hereafter be amended.
(b) Any repeal or modification of the foregoing paragraph shall not adversely
affect any right or protection of a Director of the Corporation existing
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hereunder with respect to any act or omission occurring prior to the time of
such repeal or modification."
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EXHIBIT B
BY-LAWS
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON JANUARY 16, 1997
<PAGE>
BY-LAWS OF WILMINGTON TRUST COMPANY
ARTICLE I
STOCKHOLDERS' MEETINGS
Section 1. The Annual Meeting of Stockholders shall be held on the third
Thursday in April each year at the principal office at the Company or at such
other date, time, or place as may be designated by resolution by the Board of
Directors.
Section 2. Special meetings of all stockholders may be called at any time
by the Board of Directors, the Chairman of the Board or the President.
Section 3. Notice of all meetings of the stockholders shall be given by
mailing to each stockholder at least ten (10 days before said meeting, at his
last known address, a written or printed notice fixing the time and place of
such meeting.
Section 4. A majority in the amount of the capital stock of the Company
issued and outstanding on the record date, as herein determined, shall
constitute a quorum at all meetings of stockholders for the transaction of any
business, but the holders of a small number of shares may adjourn, from time to
time, without further notice, until a quorum is secured. At each annual or
special meeting of stockholders, each stockholder shall be entitled to one vote,
either in person or by proxy, for each shares of stock registered in the
stockholder's name on the books of the Company on the record date for any such
meeting as determined herein.
ARTICLE II
DIRECTORS
Section 1. The number and classification of the Board of Directors shall
be as set forth in the Charter of the Bank.
Section 2. No person who has attained the age of seventy-two (72) years
shall be nominated for election to the Board of Directors of the Company,
provided, however, that this limitation shall not apply to any person who was
serving as director of the Company on September 16, 1971.
Section 3. The class of Directors so elected shall hold office for three
years or until their successors are elected and qualified.
Section 4. The affairs and business of the Company shall be managed and
conducted by the Board of Directors.
<PAGE>
Section 5. The Board of Directors shall meet at the principal office of
the Company or elsewhere in its discretion at such times to be determined by a
majority of its members, or at the call of the Chairman of the Board of
Directors or the President.
Section 6. Special meetings of the Board of Directors may be called at
any time by the Chairman of the Board of Directors or by the President, and
shall be called upon the written request of a majority of the directors.
Section 7. A majority of the directors elected and qualified shall be
necessary to constitute a quorum for the transaction of business at any meeting
of the Board of Directors.
Section 8. Written notice shall be sent by mail to each director of any
special meeting of the Board of Directors, and of any change in the time or
place of any regular meeting, stating the time and place of such meeting, which
shall be mailed not less than two days before the time of holding such meeting.
Section 9. In the event of the death, resignation, removal, inability to
act, or disqualification of any director, the Board of Directors, although less
than a quorum, shall have the right to elect the successor who shall hold office
for the remainder of the full term of the class of directors in which the
vacancy occurred, and until such director's successor shall have been duly
elected and qualified.
Section 10. The Board of Directors at its first meeting after its
election by the stockholders shall appoint an Executive Committee, a Trust
Committee, an Audit Committee and a Compensation Committee, and shall elect from
its own members a Chairman of the Board of Directors and a President who may be
the same person. The Board of Directors shall also elect at such meeting a
Secretary and a Treasurer, who may be the same person, may appoint at any time
such other committees and elect or appoint such other officers as it may deem
advisable. The Board of Directors may also elect at such meeting one or more
Associate Directors.
Section 11. The Board of Directors may at any time remove, with or
without cause, any member of any Committee appointed by it or any associate
director or officer elected by it and may appoint or elect his successor.
Section 12. The Board of Directors may designate an officer to be in
charge of such of the departments or division of the Company as it may deem
advisable.
ARTICLE III
COMMITTEES
Section I. Executive Committee
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(A) The Executive Committee shall be composed of not more than nine
members who shall be selected by the Board of Directors from its own members and
who shall hold office during the pleasure of the Board.
(B) The Executive Committee shall have all the powers of the Board of
Directors when it is not in session to transact all business for and in behalf
of the Company that may be brought before it.
(C) The Executive Committee shall meet at the principal office of the
Company or elsewhere in its discretion at such times to be determined by a
majority of its members, or at the call of the Chairman of the Executive
Committee or at the call of the Chairman of the Board of Directors. The
majority of its members shall be necessary to constitute a quorum for the
transaction of business. Special meetings of the Executive Committee may be
held at any time when a quorum is present.
(D) Minutes of each meeting of the Executive Committee shall be kept
and submitted to the Board of Directors at its next meeting.
(E) The Executive Committee shall advise and superintend all
investments that may be made of the funds of the Company, and shall direct the
disposal of the same, in accordance with such rules and regulations as the Board
of Directors from time to time make.
(F) In the event of a state of disaster of sufficient severity to
prevent the conduct and management of the affairs and business of the Company by
its directors and officers as contemplated by these By-Laws any two available
members of the Executive Committee as constituted immediately prior to such
disaster shall constitute a quorum of that Committee for the full conduct and
management of the affairs and business of the Company in accordance with the
provisions of Article III of these By-Laws; and if less than three members of
the Trust Committee is constituted immediately prior to such disaster shall be
available for the transaction of its business, such Executive Committee shall
also be empowered to exercise all of the powers reserved to the Trust Committee
under Article III Section 2 hereof. In the event of the unavailability, at such
time, of a minimum of two members of such Executive Committee, any three
available directors shall constitute the Executive Committee for the full
conduct and management of the affairs and business of the Company in accordance
with the foregoing provisions of this Section. This By-Law shall be subject to
implementation by Resolutions of the Board of Directors presently existing or
hereafter passed from time to time for that purpose, and any provisions of these
By-Laws (other than this Section) and any resolutions which are contrary to the
provisions of this Section or to the provisions of any such implementary
Resolutions shall be suspended during such a disaster period until it shall be
determined by any interim Executive Committee acting under this section that it
shall be to the advantage of the Company to resume the conduct and management of
its affairs and business under all of the other provisions of these By-Laws.
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<PAGE>
Section 2. Trust Committee
(A) The Trust Committee shall be composed of not more than thirteen
members who shall be selected by the Board of Directors, a majority of whom
shall be members of the Board of Directors and who shall hold office during the
pleasure of the Board.
(B) The Trust Committee shall have general supervision over the Trust
Department and the investment of trust funds, in all matters, however, being
subject to the approval of the Board of Directors.
(C) The Trust Committee shall meet at the principal office of the
Company or elsewhere in its discretion at such times to be determined by a
majority of its members or at the call of its chairman. A majority of its
members shall be necessary to constitute a quorum for the transaction of
business.
(D) Minutes of each meeting of the Trust Committee shall be kept
and promptly submitted to the Board of Directors.
(E) The Trust Committee shall have the power to appoint Committees
and/or designate officers or employees of the Company to whom supervision over
the investment of trust funds may be delegated when the Trust Committee is not
in session.
Section 3. Audit Committee
(A) The Audit Committee shall be composed of five members who shall
be selected by the Board of Directors from its own members, none of whom shall
be an officer of the Company, and shall hold office at the pleasure of the
Board.
(B) The Audit Committee shall have general supervision over the Audit
Division in all matters however subject to the approval of the Board of
Directors; it shall consider all matters brought to its attention by the officer
in charge of the Audit Division, review all reports of examination of the
Company made by any governmental agency or such independent auditor employed for
that purpose, and make such recommendations to the Board of Directors with
respect thereto or with respect to any other matters pertaining to auditing the
Company as it shall deem desirable.
(C) The Audit Committee shall meet whenever and wherever the majority
of its members shall deem it to be proper for the transaction of its business,
and a majority of its Committee shall constitute a quorum.
Section 4. Compensation Committee
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(A) The Compensation Committee shall be composed of not more than
five (5) members who shall be selected by the Board of Directors from its own
members who are not officers of the Company and who shall hold office during the
pleasure of the Board.
(B) The Compensation Committee shall in general advise upon all
matters of policy concerning the Company brought to its attention by the
management and from time to time review the management of the Company, major
organizational matters, including salaries and employee benefits and
specifically shall administer the Executive Incentive Compensation Plan.
(C) Meetings of the Compensation Committee may be called at any time
by the Chairman of the Compensation Committee, the Chairman of the Board of
Directors, or the President of the Company.
Section 5. Associate Directors
(A) Any person who has served as a director may be elected by the
Board of Directors as an associate director, to serve during the pleasure of the
Board.
(B) An associate director shall be entitled to attend all directors
meetings and participate in the discussion of all matters brought to the Board,
with the exception that he would have no right to vote. An associate director
will be eligible for appointment to Committees of the Company, with the
exception of the Executive Committee, Audit Committee and Compensation
Committee, which must be comprised solely of active directors.
Section 6. Absence or Disqualification of Any Member of a Committee
(A) In the absence or disqualification of any member of any Committee
created under Article III of the By-Laws of this Company, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absence or
disqualified member.
ARTICLE IV
OFFICERS
Section 1. The Chairman of the Board of Directors shall preside at all
meetings of the Board and shall have such further authority and powers and shall
perform such duties as the Board of Directors may from time to time confer and
direct. He shall also exercise such powers and perform such duties as may from
time to time be agreed upon between himself and the President of the Company.
5
<PAGE>
Section 2. The Vice Chairman of the Board. The Vice Chairman of the
-------------------------------
Board of Directors shall preside at all meetings of the Board of Directors at
which the Chairman of the Board shall not be present and shall have such further
authority and powers and shall perform such duties as the Board of Directors or
the Chairman of the Board may from time to time confer and direct.
Section 3. The President shall have the powers and duties pertaining to
the office of the President conferred or imposed upon him by statute or assigned
to him by the Board of Directors in the absence of the Chairman of the Board the
President shall have the powers and duties of the Chairman of the Board.
Section 4. The Chairman of the Board of Directors or the President as
designated by the Board of Directors, shall carry into effect all legal
directions of the Executive Committee and of the Board of Directors, and shall
at all times exercise general supervision over the interest, affairs and
operations of the Company and perform all duties incident to his office.
Section 5. There may be one or more Vice Presidents, however denominated
by the Board of Directors, who may at any time perform all the duties of the
Chairman of the Board of Directors and/or the President and such other powers
and duties as may from time to time be assigned to them by the Board of
Directors, the Executive Committee, the Chairman of the Board or the President
and by the officer in charge of the department or division to which they are
assigned.
Section 6. The Secretary shall attend to the giving of notice of meetings
of the stockholders and the Board of Directors, as well as the Committees
thereof, to the keeping of accurate minutes of all such meetings and to
recording the same in the minute books of the Company. In addition to the other
notice requirements of these By-Laws and as may be practicable under the
circumstances, all such notices shall be in writing and mailed well in advance
of the scheduled date of any other meeting. He shall have custody of the
corporate seal and shall affix the same to any documents requiring such
corporate seal and to attest the same.
Section 7. The Treasurer shall have general supervision over all assets
and liabilities of the Company. He shall be custodian of and responsible for
all monies, funds and valuables of the Company and for the keeping of proper
records of the evidence of property or indebtedness and of all the transactions
of the Company. He shall have general supervision of the expenditures of the
Company and shall report to the Board of Directors at each regular meeting of
the condition of the Company, and perform such other duties as may be assigned
to him from time to time by the Board of Directors of the Executive Committee.
Section 8. There may be a Controller who shall exercise general
supervision over the internal operations of the Company, including accounting,
and shall render to the Board of
6
<PAGE>
Directors at appropriate times a report relating to the general condition and
internal operations of the Company.
There may be one or more subordinate accounting or controller officers
however denominated, who may perform the duties of the Controller and such
duties as may be prescribed by the Controller.
Section 9. The officer designated by the Board of Directors to be in
charge of the Audit Division of the Company with such title as the Board of
Directors shall prescribe, shall report to and be directly responsible only to
the Board of Directors.
There shall be an Auditor and there may be one or more Audit Officers,
however denominated, who may perform all the duties of the Auditor and such
duties as may be prescribed by the officer in charge of the Audit Division.
Section 10. There may be one or more officers, subordinate in rank to all
Vice Presidents with such functional titles as shall be determined from time to
time by the Board of Directors, who shall ex officio hold the office Assistant
Secretary of this Company and who may perform such duties as may be prescribed
by the officer in charge of the department or division to whom they are
assigned.
Section 11. The powers and duties of all other officers of the Company
shall be those usually pertaining to their respective offices, subject to the
direction of the Board of Directors, the Executive Committee, Chairman of the
Board of Directors or the President and the officer in charge of the department
or division to which they are assigned.
ARTICLE V
STOCK AND STOCK CERTIFICATES
Section 1. Shares of stock shall be transferrable on the books of the
Company and a transfer book shall be kept in which all transfers of stock shall
be recorded.
Section 2. Certificate of stock shall bear the signature of the President
or any Vice President, however denominated by the Board of Directors and
countersigned by the Secretary or Treasurer or an Assistant Secretary, and the
seal of the corporation shall be engraved thereon. Each certificate shall
recite that the stock represented thereby is transferrable only upon the books
of the Company by the holder thereof or his attorney, upon surrender of the
certificate properly endorsed. Any certificate of stock surrendered to the
Company shall be cancelled at the time of transfer, and before a new certificate
or certificates shall be issued in lieu thereof. Duplicate certificates of
stock shall be issued only upon giving such security as may be satisfactory to
the Board of Directors or the Executive Committee.
7
<PAGE>
Section 3. The Board of Directors of the Company is authorized to fix in
advance a record date for the determination of the stockholders entitled to
notice of, and to vote at, any meeting of stockholders and any adjournment
thereof, or entitled to receive payment of any dividend, or to any allotment or
rights, or to exercise any rights in respect of any change, conversion or
exchange of capital stock, or in connection with obtaining the consent of
stockholders for any purpose, which record date shall not be more than 60 nor
less than 10 days proceeding the date of any meeting of stockholders or the date
for the payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock shall go into
effect, or a date in connection with obtaining such consent.
ARTICLE VI
SEAL
Section 1. The corporate seal of the Company shall be in the following
form:
Between two concentric circles the words
"Wilmington Trust Company" within the inner
circle the words "Wilmington, Delaware."
ARTICLE VII
FISCAL YEAR
Section 1. The fiscal year of the Company shall be the calendar year.
ARTICLE VIII
EXECUTION OF INSTRUMENTS OF THE COMPANY
Section 1. The Chairman of the Board, the President or any Vice
President, however denominated by the Board of Directors, shall have full power
and authority to enter into, make, sign, execute, acknowledge and/or deliver and
the Secretary or any Assistant Secretary shall have full power and authority to
attest and affix the corporate seal of the Company to any and all deeds,
conveyances, assignments, releases, contracts, agreements, bonds, notes,
mortgages and all other instruments incident to the business of this Company or
in acting as executor, administrator, guardian, trustee, agent or in any other
fiduciary or representative capacity by any and every method of appointment or
by whatever person, corporation, court officer or authority in the State of
Delaware, or elsewhere, without any specific authority, ratification, approval
or confirmation by the Board of Directors or the
8
<PAGE>
Executive Committee, and any and all such instruments shall have the same force
and validity as although expressly authorized by the Board of Directors and/or
the Executive Committee.
ARTICLE IX
COMPENSATION OF DIRECTORS AND MEMBERS OF COMMITTEES
Section 1. Directors and associate directors of the Company, other than
salaried officers of the Company, shall be paid such reasonable honoraria or
fees for attending meetings of the Board of Directors as the Board of Directors
may from time to time determine. Directors and associate directors who serve as
members of committees, other than salaried employees of the Company, shall be
paid such reasonable honoraria or fees for services as members of committees as
the Board of Directors shall from time to time determine and directors and
associate directors may be employed by the Company for such special services as
the Board of Directors may from time to time determine and shall be paid for
such special services so performed reasonable compensation as may be determined
by the Board of Directors.
ARTICLE X
INDEMNIFICATION
Section 1. (A) The Corporation shall indemnify and hold harmless, to the
fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person who was or is made or is threatened to be made
a party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding") by reason of
the fact that he, or a person for whom he is the legal representative, 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, fiduciary or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or non-profit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses reasonably
incurred by such person. The Corporation shall indemnify a person in connection
with a proceeding initiated by such person only if the proceeding was authorized
by the Board of Directors of the Corporation.
(B) The Corporation shall pay the expenses incurred in defending any
proceeding in advance of its final disposition, provided, however, that the
-------- -------
payment of expenses incurred by a Director officer in his capacity as a Director
or officer in advance of the final disposition of the proceeding shall be made
only upon receipt of an undertaking by the Director or officer to repay all
amounts advanced if it should be ultimately determined that the Director or
officer is not entitled to be indemnified under this Article or otherwise.
9
<PAGE>
(C) If a claim for indemnification or payment of expenses, under this
Article X is not paid in full within ninety days after a written claim therefor
has been received by the Corporation the claimant may file suit to recover the
unpaid amount of such claim and, if successful in whole or in part, shall be
entitled to be paid the expense of prosecuting such claim. In any such action
the Corporation shall have the burden of proving that the claimant was not
entitled to the requested indemnification of payment of expenses under
applicable law.
(D) The rights conferred on any person by this Article X shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the Charter or Act of Incorporation, these By-
Laws, agreement, vote of stockholders or disinterested Directors or otherwise.
(E) Any repeal or modification of the foregoing provisions of this
Article X shall not adversely affect any right or protection hereunder of any
person in respect of any act or omission occurring prior to the time of such
repeal or modification.
ARTICLE XI
AMENDMENTS TO THE BY-LAWS
Section 1. These By-Laws may be altered, amended or repealed, in whole or
in part, and any new By-Law or By-Laws adopted at any regular or special meeting
of the Board of Directors by a vote of the majority of all the members of the
Board of Directors then in office.
10
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EXHIBIT C
SECTION 321(B) CONSENT
Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as amended,
Wilmington Trust Company hereby consents that reports of examinations by
Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
WILMINGTON TRUST COMPANY
Dated: February 21, 1997 By: /s/ Emmett R. Harmon
---------------------
Name: Emmett R. Harmon
Title: Vice President
<PAGE>
EXHIBIT D
NOTICE
This form is intended to assist state nonmember banks and savings
banks with state publication requirements. It has not been approved
by any state banking authorities. Refer to your appropriate state
banking authorities for your state publication requirements.
R E P O R T O F C O N D I T I O N
Consolidating domestic subsidiaries of the
WILMINGTON TRUST COMPANY of WILMINGTON
- -------------------------------------- -----------------
Name of Bank
City
in the State of DELAWARE , at the close of business on December 31, 1996.
----------
<TABLE>
<CAPTION>
ASSETS
Thousands of dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coins...................... 213,895
Interest-bearing balances................................................ 0
Held-to-maturity securities.................................................... 465,818
Available-for-sale securities.................................................. 752,297
Federal funds sold............................................................. 95,000
Securities purchased under agreements to resell................................ 39,190
Loans and lease financing receivables:
Loans and leases, net of unearned income...................... 3,634,003
LESS: Allowance for loan and lease losses.................... 51,847
LESS: Allocated transfer risk reserve........................ 0
Loans and leases, net of unearned income, allowance, and reserve......... 3,582,156
Assets held in trading accounts................................................ 0
Premises and fixed assets (including capitalized leases)....................... 89,129
Other real estate owned........................................................ 3,520
Investments in unconsolidated subsidiaries and associated companies............ 52
Customers' liability to this bank on acceptances outstanding................... 0
Intangible assets.............................................................. 4,593
Other assets................................................................... 114,300
Total assets................................................................... 5,359,950
</TABLE>
CONTINUED ON NEXT PAGE
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES
<S> <C>
Deposits:
In domestic offices............................................................ 3,749,697
Noninterest-bearing...................................................... 852,790
Interest-bearing......................................................... 2,896,907
Federal funds purchased........................................................ 77,825
Securities sold under agreements to repurchase................................. 192,295
Demand notes issued to the U.S. Treasury....................................... 53,526
Trading liabilities............................................................ 0
Other borrowed money:.......................................................... ///////
With original maturity of one year or less............................... 714,000
With original maturity of more than one year............................. 43,000
Mortgage indebtedness and obligations under capitalized leases................. 0
Bank's liability on acceptances executed and outstanding....................... 0
Subordinated notes and debentures.............................................. 0
Other liabilities.............................................................. 98,756
Total liabilities.............................................................. 4,929,099
Limited-life preferred stock and related surplus............................... 0
<CAPTION>
EQUITY CAPITAL
<S> <C>
Perpetual preferred stock and related surplus.................................. 0
Common Stock................................................................... 500
Surplus........................................................................ 62,118
Undivided profits and capital reserves......................................... 367,371
Net unrealized holding gains (losses) on available-for-sale securities......... 862
Total equity capital........................................................... 430,851
Total liabilities, limited-life preferred stock, and equity capital............ 5,359,950
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NATIONWIDE
FINANCIAL SERVICES, INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001029457
<NAME> NATIONWIDE FINANCIAL SERVICES CAPITAL TRUST
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-31-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 12,304,639
<DEBT-CARRYING-VALUE> 5,877
<DEBT-MARKET-VALUE> 5,944
<EQUITIES> 59,131
<MORTGAGE> 5,272,119
<REAL-ESTATE> 265,759
<TOTAL-INVEST> 18,317,270
<CASH> 43,183
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 1,366,509
<TOTAL-ASSETS> 47,770,238
<POLICY-LOSSES> 17,179,060
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 361,401
<POLICY-HOLDER-FUNDS> 60,073
<NOTES-PAYABLE> 0
0
0
<COMMON> 104,745
<OTHER-SE> 2,026,988
<TOTAL-LIABILITY-AND-EQUITY> 47,770,238
198,642
<INVESTMENT-INCOME> 1,357,759
<INVESTMENT-GAINS> (208)
<OTHER-INCOME> 59,505
<BENEFITS> 1,160,580
<UNDERWRITING-AMORTIZATION> 133,394
<UNDERWRITING-OTHER> 353,565
<INCOME-PRETAX> 328,088
<INCOME-TAX> 115,810
<INCOME-CONTINUING> 212,278
<DISCONTINUED> 11,324
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 223,602
<EPS-PRIMARY> 2.13
<EPS-DILUTED> 2.13
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
