<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1997
REGISTRATION NO. 333-37581
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
<S> <C>
HSB GROUP, INC. HSB CAPITAL I
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS
TRUST AGREEMENT)
CONNECTICUT DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (STATE OR OTHER JURISDICTION OF INCORPORATION
OR ORGANIZATION)
6719 6159
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION
CODE NUMBER) CODE NUMBER)
06-1475343 06-6452634
(I.R.S. EMPLOYER IDENTIFICATION NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
</TABLE>
ONE STATE STREET
P.O. BOX 5024
HARTFORD, CONNECTICUT 06102-5024
(860) 722-1866
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
R. KEVIN PRICE
HSB GROUP, INC.
P.O. BOX 5024
HARTFORD, CONNECTICUT
06102-5024
(860) 722-1866
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENTS FOR SERVICE)
--------------------------
COPY TO:
STACY J. KANTER, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective. If any of
the securities being registered on this Form are to be offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
--------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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.
===============================================================================
<PAGE>
HSB CAPITAL I
OFFER TO EXCHANGE ITS
GLOBAL FLOATING RATE CAPITAL SECURITIES, SERIES B
(LIQUIDATION AMOUNT $1,000 PER EXCHANGE CAPITAL SECURITY)
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
GLOBAL FLOATING RATE CAPITAL SECURITIES, SERIES A
(LIQUIDATION AMOUNT $1,000 PER ORIGINAL CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, TO THE EXTENT DESCRIBED
HEREIN, BY
HSB GROUP, INC.
----------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON DECEMBER 5, 1997, UNLESS EXTENDED
----------------
HSB Capital I, a trust formed under the laws of the State of Delaware (the
"Issuer Trust"), hereby offers, upon the terms and subject to the conditions
set forth in this Prospectus (as the same may be amended or supplemented from
time to time, the "Prospectus") and in the accompanying Letter of Transmittal
(which together constitute the "Exchange Offer"), to exchange up to
$110,000,000 aggregate Liquidation Amount of its Global Floating Rate Capital
Securities, Series B (the "Exchange Capital Securities") which have been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a Registration Statement (as defined herein) of which this
Prospectus constitutes a part, for a like Liquidation Amount of its
outstanding Global Floating Rate Capital Securities, Series A (the "Original
Capital Securities"), of which $110,000,000 aggregate Liquidation Amount are
issued and outstanding. Pursuant to the Exchange Offer, HSB Group, Inc., a
Connecticut corporation (the "Company" or "HSB"), is also offering to
exchange (i) its guarantee of payments of cash distributions and payments on
liquidation of the Issuer Trust or redemption of the Original Capital
Securities (the "Original Guarantee") for a like guarantee in respect of the
Exchange Capital Securities (the "Exchange Guarantee") and (ii) $110,000,000
aggregate principal amount of its Global Floating Rate Junior Subordinated
Deferrable Interest Debentures, Series A due July 15, 2027 (the "Original
Junior Subordinated Debentures") for a like aggregate principal amount of its
Global Floating Rate Junior Subordinated Deferrable Interest Debentures,
Series B due July 15, 2027 (the "Exchange Junior Subordinated Debentures"),
which Exchange Guarantee and Exchange Junior Subordinated Debentures also
have been registered under the Securities Act. The Original Capital
Securities, the Original Guarantee and the Original Junior Subordinated
Debentures are collectively referred to herein as the "Original Securities"
and the Exchange Capital Securities, the Exchange Guarantee and the Exchange
Junior Subordinated Debentures are collectively referred to herein as the
"Exchange Securities."
The terms of the Exchange Securities are identical in all material
respects to the respective terms of the Original Securities, except that (i)
the Exchange Securities have been registered under the Securities Act and
therefore will not be subject to certain restrictions on transfer applicable
to the Original Securities, (ii) the Exchange Capital Securities initially
sold to institutional accredited investors will not contain the $100,000
minimum Liquidation Amount transfer restriction, (iii) the Exchange Capital
Securities will not provide for any increase in the Distribution rate
thereon, and (iv) the Exchange Junior Subordinated Debentures will not
provide for any increase in the interest rate thereon. See "Description of
Exchange Securities" and "Description of Original Securities." The Exchange
Capital Securities are being offered for exchange in order to satisfy certain
obligations of the Company and the Issuer Trust under the Registration Rights
Agreement dated as of July 10, 1997 (the "Registration Rights Agreement")
among the Company, the Issuer Trust and the Initial Purchasers (as defined
herein). In the event that the Exchange Offer is consummated, any Original
Capital Securities which remain outstanding after consummation of the
Exchange Offer and the Exchange Capital Securities issued in the Exchange
Offer will vote together as a single class for purposes of determining
whether holders of the requisite percentage in outstanding Liquidation Amount
thereof have taken certain actions or exercised certain rights under the
Trust Agreement.
(continued on the following page)
This Prospectus and the Letter of Transmittal are first being mailed to
all holders of Original Capital Securities on November 5, 1997.
SEE "RISK FACTORS" COMMENCING ON PAGE 16 FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED BY HOLDERS IN DECIDING WHETHER TO TENDER ORIGINAL
CAPITAL SECURITIES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is November 5, 1997.
<PAGE>
The Exchange Capital Securities and the Original Capital Securities
(collectively, the "Capital Securities") represent beneficial interests in
the assets of the Issuer Trust. The Company is the owner of all of the
beneficial interests represented by common securities of the Issuer Trust
(the "Common Securities," and together with the Capital Securities, the
"Trust Securities"). The First National Bank of Chicago is the Property
Trustee (the "Property Trustee") of the Issuer Trust. The Issuer Trust exists
for the sole purpose of issuing the Trust Securities and investing the
proceeds thereof in the Junior Subordinated Debentures (as defined herein).
The Junior Subordinated Debentures will mature on July 15, 2027 (the "Stated
Maturity"). The Capital Securities will have a preference over the Common
Securities under certain circumstances with respect to cash distributions and
amounts payable on liquidation, redemption or otherwise. See "Description of
Exchange Securities--Description of Exchange Capital
Securities--Subordination of Common Securities."
As used herein, (i) the "Indenture" means the Junior Subordinated
Indenture, dated as of July 15, 1997, as amended and supplemented from time
to time, between the Company and The First National Bank of Chicago, as
trustee (the "Debenture Trustee"), relating to the Junior Subordinated
Debentures, (ii) the "Trust Agreement" means the Amended and Restated Trust
Agreement relating to the Trust among the Company, as Sponsor, The First
National Bank of Chicago, as Property Trustee, First Chicago Delaware Inc.,
an affiliate of the Property Trustee, as Delaware Trustee (the "Delaware
Trustee"), and the Administrative Trustees named therein (collectively, with
the Property Trustee and Delaware Trustee, the "Issuer Trustees"), (iii) the
"Guarantee" means the Guarantee Agreement relating to the Capital Securities
between the Company and The First National Bank of Chicago, as trustee (the
"Guarantee Trustee") and (iv) the "Common Guarantee" means the Guarantee
Agreement relating to the Common Securities between the Company and The First
National Bank of Chicago, as trustee. In addition, as the context may
require, (i) "Junior Subordinated Debentures" includes the Original Junior
Subordinated Debentures and the Exchange Junior Subordinated Debentures and
(ii) "Guarantee" includes the Original Guarantee and the Exchange Guarantee.
Holders of the Capital Securities will be entitled to receive preferential
cumulative cash distributions accumulating from the date of original issuance
and payable quarterly in arrears on January 15, April 15, July 15, and
October 15, of each year, commencing October 15, 1997, at a variable annual
rate equal to LIBOR (as defined herein) plus .91% on the Liquidation Amount
(as defined herein) of $1,000 per Capital Security ("Distributions"). The
Company has the right to defer payment of interest on the Junior Subordinated
Debentures at any time or from time to time for a period not exceeding 20
consecutive quarterly periods with respect to each deferral period (each, an
"Extension Period"), provided that no Extension Period may extend beyond the
Stated Maturity (as defined herein) of the Junior Subordinated Debentures.
Upon the termination of any such Extension Period and the payment of all
amounts then due, the Company may elect to begin a new Extension Period
subject to the requirements set forth herein. If interest payments on the
Junior Subordinated Debentures are so deferred, Distributions on the Capital
Securities will also be deferred and the Company will not be permitted,
subject to certain exceptions described herein, to declare or pay any cash
distributions with respect to the Company's capital stock or debt securities
of the Company that rank pari passu in all respects with or junior to the
Junior Subordinated Debentures. During an Extension Period, interest on the
Junior Subordinated Debentures will continue to accrue (and the amount of
Distributions to which holders of the Capital Securities are entitled will
accumulate) at a variable annual rate equal to LIBOR plus .91%, compounded
quarterly from the relevant payment date for interest and holders of Capital
Securities will be required to recognize interest income for United States
federal income tax purposes. See "Description of Exchange
Securities--Description of Exchange Junior Subordinated Debentures--Option To
Extend Interest Payment Period" and "Certain Federal Income Tax
Consequences--Interest Income and original Issue Discount."
The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture (each as
defined herein), taken together, fully, irrevocably and unconditionally
guaranteed all of the Issuer Trust's obligations under the Capital
Securities. See "Relationship Among the Exchange Capital Securities, the
Exchange Junior Subordinated Debentures and the Exchange Guarantee--Full and
Unconditional Guarantee." The Guarantee of the Company guarantees the payment
of Distributions and payments on liquidation or redemption of the
2
<PAGE>
Capital Securities, but only in each case to the extent of funds held by the
Issuer Trust, as described herein (the "Guarantee"). See "Description of
Exchange Securities--Description of Exchange Guarantee." If the Company does
not make interest payments on the Junior Subordinated Debentures held by the
Issuer Trust, the Issuer Trust will have insufficient funds to pay
Distributions on the Capital Securities. The Guarantee does not cover payment
of Distributions when the Issuer Trust does not have sufficient funds to pay
such Distributions. In such event, a holder of Capital Securities may
institute a legal proceeding directly against the Company to enforce payment
of such Distributions to such holder. See "Description of Exchange
Securities--Description of Junior Exchange Subordinated
Debentures--Enforcement of Certain Rights by Holders of Capital Securities."
The obligations of the Company under the Guarantee and the Junior
Subordinated Debentures are subordinate and junior in right of payment to all
Senior Indebtedness (as defined in "Description of Exchange
Securities--Description of Exchange Junior Subordinated
Debentures--Subordination") of the Company. In addition, because the Company
is a holding company, the right of the Company to participate in any
distribution of assets of any subsidiary including its insurance
subsidiaries, upon any such subsidiary's liquidation or reorganization or
otherwise is subject to the prior claims of creditors of that subsidiary
except to the extent that the Company may itself be recognized as a creditor
of that subsidiary. Accordingly, the Junior Subordinated Debentures (and
therefore the Capital Securities) will be effectively subordinated to all
existing and future liabilities of the Company's subsidiaries under generally
accepted accounting principals ("GAAP"), and holders thereof should look only
to the assets of the Company for payments on the Junior Subordinated
Debentures. See "Risk Factors--Holding Company Structure; Structural
Subordination; Dividend Restrictions."
The Capital Securities are subject to mandatory redemption, in whole or in
part, upon repayment of the Junior Subordinated Debentures at Stated Maturity
or their earlier redemption. The Junior Subordinated Debentures are
redeemable prior to maturity at the option of the Company (i) on or after
July 15, 2007, in whole at any time or in part from time to time, or (ii) in
whole (but not in part) prior to July 15, 2007 and within 90 days following
the occurrence of a Tax Event at a redemption price set forth herein plus the
accrued and unpaid interest on the Junior Subordinated Debentures so redeemed
to the date fixed for redemption. See "Description of Exchange
Securities--Description of Exchange Junior Subordinated
Debentures--Redemption."
The Company, as the holder of the outstanding Common Securities, has the
right at any time to terminate the Issuer Trust and, after satisfaction of
the liabilities of creditors of the Issuer Trust as provided by applicable
law, cause the Junior Subordinated Debentures to be distributed to the
holders of the Capital Securities and Common Securities in liquidation of the
Issuer Trust, subject to the Property Trustee having received an opinion of
counsel to the effect that such distribution will not be a taxable event to
holders of Capital Securities. See "Description of Exchange
Securities--Description of Exchange Capital Securities--Liquidation
Distribution Upon Termination."
In the event of the termination of the Issuer Trust, after satisfaction of
liabilities to creditors of the Issuer Trust as required by applicable law,
the holders of the Capital Securities will be entitled to receive a
Liquidation Amount of $1,000 per Capital Security plus accumulated and unpaid
Distributions thereon to the date of payment, which may be in the form of a
distribution of such amount in Junior Subordinated Debentures, subject to
certain exceptions. See "Description of Exchange Securities--Exchange Capital
Securities--Liquidation Distribution Upon Termination".
The Issuer Trust is making the Exchange Offer of the Exchange Capital
Securities in reliance on the position of the staff of the Division of
Corporation Finance of the Securities and Exchange Commission (the
"Commission") as set forth in certain interpretive letters addressed to third
parties in other transactions. However, neither the Company nor the Issuer
Trust has sought its own interpretive letter and there can be no assurance
that the staff of the Division of Corporation Finance of the Commission would
make a similar determination with respect to the Exchange Offer as it has in
such interpretive letters to third parties. Based on these interpretations by
the staff of the Division of Corporation Finance of the Commission, and
subject to the two immediately following sentences, the Company and the
Issuer Trust believe that Exchange Capital Securities issued pursuant to this
Exchange Offer in exchange for Original Capital Securities may be offered for
resale, resold and otherwise transferred by a holder thereof
3
<PAGE>
(other than a holder who is a broker-dealer) without further compliance with
the registration and prospectus delivery requirements of the Securities Act,
provided that such Exchange Capital Securities are acquired in the ordinary
course of such holder's business and that such holder is not participating,
and has no arrangement or understanding with any person to participate, in a
distribution (within the meaning of the Securities Act) of such Exchange
Capital Securities. However, any holder of Original Capital Securities who is
an "affiliate" of the Company or the Issuer Trust or who intends to
participate in the Exchange Offer for the purpose of distributing Exchange
Capital Securities, or any broker-dealer who purchased Original Capital
Securities from the Issuer Trust to resell pursuant to Rule 144A under the
Securities Act ("Rule 144A") or any other available exemption under the
Securities Act, (a) will not be able to rely on the interpretations of the
staff of the Division of Corporation Finance of the Commission set forth in
the above-mentioned interpretive letters, (b) will not be permitted or
entitled to tender such Original Capital Securities in the Exchange Offer and
(c) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or other transfer of such
Original Capital Securities unless such sale is made pursuant to an exemption
from such requirements. In addition, as described below, if any broker-dealer
holds Original Capital Securities acquired for its own account as a result of
market-making or other trading activities and exchanges such Original Capital
Securities for Exchange Capital Securities, then such broker-dealer must
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such Exchange Capital Securities.
Each holder of Original Capital Securities who wishes to exchange Original
Capital Securities for Exchange Capital Securities in the Exchange Offer will
be required to represent that (i) it is not an "affiliate" of the Company or
the Issuer Trust, (ii) any Exchange Capital Securities to be received by it
are being acquired in the ordinary course of its business, (iii) it has no
arrangement or understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of such Exchange Capital
Securities, and (iv) if such holder is not a broker-dealer, such holder is
not engaged in, and does not intend to engage in, a distribution (within the
meaning of the Securities Act) of such Exchange Capital Securities. In
addition, the Company and the Issuer Trust may require such holder, as a
condition to such holder's eligibility to participate in the Exchange Offer,
to furnish to the Company and the Issuer Trust (or an agent thereof) in
writing information as to the number of "beneficial owners" (within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) on behalf of whom such holder holds the Capital
Securities to be exchanged in the Exchange Offer. Each broker-dealer that
receives Exchange Capital Securities for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Original Capital
Securities for its own account as the result of market-making activities or
other trading activities and must agree that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale
of such Exchange Capital Securities. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. Based on the position taken by the staff of the Division of
Corporation Finance of the Commission in the interpretive letters referred to
above, the Company and the Issuer Trust believe that broker-dealers who
acquired Original Capital Securities for their own accounts, as a result of
market-making activities or other trading activities ("Participating
Broker-Dealers"), may fulfill their prospectus delivery requirements with
respect to the Exchange Capital Securities received upon exchange of such
Original Capital Securities (other than Original Capital Securities which
represent an unsold allotment from the initial sale of the Original Capital
Securities) with a prospectus meeting the requirements of the Securities Act,
which may be the prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to the resale
of such Exchange Capital Securities. Each broker-dealer that receives
Exchange Capital Securities for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a prospectus in connection with
any resale of such Exchange Capital Securities. The Letter of Transmittal
states that by so acknowledging and by delivery of a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Capital Securities received in exchange for Original
Capital Securities acquired by such broker-dealer as a result of
market-making activities or other trading
4
<PAGE>
activities. The Issuer Trust and the Company have agreed that, ending on the
close of business on the 180th day following the Expiration Date (as defined
herein), it will make this Prospectus available to any broker-dealer for use
in connection with any such resale. See "Plan of Distribution." However, a
Participating Broker-Dealer who intends to use this Prospectus in connection
with the resale of Exchange Capital Securities received in exchange for
Original Capital Securities pursuant to the Exchange Offer must notify the
Company or the Issuer Trust, or cause the Company or the Issuer Trust to be
notified, on or prior to the Expiration Date, that is a Participating
Broker-Dealer. Such notice may be given in the space provided for that
purpose in the Letter of Transmittal or may be delivered to the Exchange
Agent at one of the addresses set forth herein under "The Exchange
Offer--Exchange Agent." Any Participating Broker-Dealer who is an "affiliate"
of the Company or the Issuer Trust may not rely on such interpretive letters
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. See "The
Exchange Offer--Resales of Exchange Capital Securities."
In that regard, each Participating Broker-Dealer who surrenders Original
Capital Securities pursuant to the Exchange Offer will be deemed to have
agreed, by execution of the Letter of Transmittal, that upon receipt of
notice from the Company or the Issuer Trust of the occurrence of any event or
the discovery of any fact which makes any statement contained or incorporated
by reference in this Prospectus untrue in any material respect or which
causes this Prospectus to omit to state a material fact necessary in order to
make the statements contained or incorporated by reference herein, in light
of the circumstances under which they were made, not misleading or of the
occurrence of certain other events specified in the Registration Rights
Agreement, such Participating Broker-Dealer will suspend the sale of Exchange
Capital Securities (or the Exchange Guarantee or the Exchange Junior
Subordinated Debentures, as applicable) pursuant to this Prospectus until the
Company or the Issuer Trust has amended or supplemented this Prospectus to
correct such misstatement or omission and has furnished copies of the amended
or supplemented Prospectus to such Participating Broker-Dealer, or the
Company or the Issuer Trust has given notice that the sale of the Exchange
Capital Securities (or the Exchange Guarantee or the Exchange Junior
Subordinated Debentures, as applicable) may be resumed, as the case may be.
If the Company or the Issuer Trust gives such notice to suspend the sale of
the Exchange Capital Securities (or the Exchange Guarantee or the Exchange
Junior Subordinated Debentures, as applicable), it shall extend the 180-day
period referred to above during which Participating Broker-Dealers are
entitled to use this Prospectus in connection with the resale of Exchange
Capital Securities by the number of days during the period from and including
the date of the giving of such notice to and including the date when
Participating Broker-Dealers shall have received copies of the amended or
supplemented Prospectus necessary to permit resales of the Exchange Capital
Securities or to and including the date on which the Company or the Issuer
Trust has given notice that the sale of Exchange Capital Securities (or the
Exchange Guarantee or the Exchange Junior Subordinated Debentures, as
applicable) may be resumed, as the case may be.
Prior to the Exchange Offer, there has been only a limited secondary
market and no public market for the Original Capital Securities. The Exchange
Capital Securities will be a new issue of securities for which there
currently is no market. Although Goldman Sachs & Co. and Conning & Co., the
initial purchasers of the Original Capital Securities (the "Initial
Purchasers"), have informed the Company and the Issuer Trust that they each
currently intend to make a market in the Exchange Capital Securities, they
are not obligated to do so, and any such market making may be discontinued at
any time without notice. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Exchange Capital Securities.
The Company and the Issuer Trust currently do not intend to apply for listing
of the Exchange Capital Securities on any securities exchange or for
quotation through the NASD Automated Quotation System.
Any Original Capital Securities not tendered and accepted in the Exchange
Offer will remain outstanding and will be entitled to all the same rights and
will be subject to the same limitations applicable thereto under the
Declaration (except for those rights which terminate upon consummation of the
Exchange Offer). Following consummation of the Exchange Offer, the holders of
Original Capital Securities will continue to be subject to all of the
existing restrictions upon transfer thereof and neither
5
<PAGE>
the Company nor the Issuer Trust will have any further obligation to such
holders (other than under certain limited circumstances) to provide for
registration under the Securities Act of the Original Capital Securities held
by them. To the extent that Original Capital Securities are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered
Original Capital Securities could be adversely affected. See "Risk
Factors--Consequences of a Failure to Exchange Original Capital Securities."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF ORIGINAL CAPITAL SECURITIES ARE URGED TO READ THIS
PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING
WHETHER TO TENDER THEIR ORIGINAL CAPITAL SECURITIES PURSUANT TO THE EXCHANGE
OFFER.
Original Capital Securities may be tendered for exchange on or prior to
5:00 p.m., New York City time, on December 5, 1997 (such time on such date
being hereinafter called the "Expiration Date"), unless the Exchange Offer is
extended by the Company or the Issuer Trust (in which case the term
"Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended). Tenders of Original Capital Securities may be withdrawn
at any time on or prior to the Expiration Date. The Exchange Offer is not
conditioned upon any minimum Liquidation Amount of Original Capital
Securities being tendered for exchange. However, the Exchange Offer is
subject to certain events and conditions which may be waived by the Company
or the Issuer Trust and to the terms and provisions of the Registration
Rights Agreement. Original Capital Securities may be tendered in whole or in
part having an aggregate Liquidation Amount of not less than $1,000 (one
Capital Security). The Company has agreed to pay all expenses of the Exchange
Offer. See "The Exchange Offer--Fees and Expenses." Holders of the Original
Capital Securities whose Original Capital Securities are accepted for
exchange will not receive Distributions on such Original Capital Securities
and will be deemed to have waived the right to receive any Distributions on
such Original Capital Securities accumulated from and after October 15, 1997.
Accordingly, holders of Exchange Capital Securities as of the record date for
the payment of Distributions on January 15, 1998 will be entitled to receive
Distributions accumulated from and after October 15, 1997. See "The Exchange
Offer--Distributions on Exchange Capital Securities."
Neither the Company nor the Issuer Trust will receive any cash proceeds
from the issuance of the Exchange Capital Securities offered hereby. No
dealer-manager is being used in connection with this Exchange Offer. See "Use
of Proceeds" and "Plan of Distribution."
6
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Commission's regional offices at 7
World Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and
Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material may also be obtained by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. Such information may also be accessed
electronically by means of the Commission's home page on the Internet
(http://www.sec.gov). In addition, such reports, proxy statements and other
information concerning the Company may be inspected at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005 on which
exchange certain securities of the Company are listed.
No separate financial statements of the Issuer Trust have been included
herein. The Company and the Issuer Trust do not consider that such financial
statements would be material to holders of the Capital Securities because the
Issuer Trust is a newly formed special purpose entity, has no operating
history or independent operations and is not engaged in and does not propose
to engage in any activity other than holding as trust assets the Junior
Subordinated Debentures, issuing the Trust Securities and engaging in
incidental activities. See "HSB Capital I," "Description of Exchange
Securities." In addition, the Company does not expect that the Trust will
file reports, proxy statements and other information under the Exchange Act
with the Commission.
This Prospectus constitutes a part of a registration statement on Form S-4
(the "Registration Statement") filed by the Company and the Issuer Trust with
the Commission under the Securities Act. This Prospectus does not contain all
the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission, and reference is hereby made to the Registration Statement and to
the exhibits relating thereto for further information with respect to the
Company, the Issuer Trust and the Exchange Securities. Any statements
contained herein concerning the provisions of any document are not
necessarily complete, and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety
by such reference.
7
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated into this Prospectus by reference (File No. 0-13300):
(i) The Annual Report of Hartford Steam Boiler on Form 10-K/A for the
year ended December 31, 1996;
(ii) The Quarterly Report of Hartford Steam Boiler on Form 10-Q for the
Quarter ended March 31, 1997;
(iii) The Quarterly Report of the Company on Form 10-Q for the Quarter
ended June 30, 1997; and
(iv) The Company's Current Report on Form 8-K filed on July 10, 1997 and
July 28, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the offering of the Capital Securities offered hereby shall be
deemed to be incorporated by reference into this Prospectus and to be a part
of this Prospectus from the date of filing of such document. Any statement
contained herein or in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes
of this Prospectus to the extent that a statement contained herein, or in any
other subsequently filed document which also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
As used herein, the terms "Prospectus" and "herein" mean this Prospectus,
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified
from time to time. Statements contained in this Prospectus as to the contents
of any contract or other document referred to herein do not purport to be
complete, and where reference is made to the particular provisions of such
contract or other document, such provisions are qualified in all respects by
reference to all of the provisions of such contract or other document. The
Company will provide without charge to any person to whom this Prospectus is
delivered, on the written or oral request of such person, a copy of any or
all of the foregoing documents incorporated by reference herein (other than
exhibits not specifically incorporated by reference into the texts of such
documents). Requests for such documents should be directed to R. Kevin Price,
Corporate Secretary, HSB Group, Inc. One State Street, P.O. Box 5024,
Hartford, Connecticut, 06102-5024.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus.
HSB GROUP, INC.
HSB Group, Inc. ("the Company" and together with its subsidiaries "HSB
Group") is a newly formed holding company which owns directly or indirectly,
a number of insurance and engineering service subsidiaries which specialize
in insuring against losses from accidents to boilers, pressure vessels and
mechanical and electrical machinery and equipment, and in providing related
engineering services. HSB Group's operations are divided into three industry
segments--insurance, engineering services and investments.
The most significant subsidiary of the Company is The Hartford Steam
Boiler Inspection and Insurance Company ("Hartford Steam Boiler"), an
insurance company chartered under the laws of the State of Connecticut in
1866. Hartford Steam Boiler is the largest writer of equipment breakdown
insurance in North America and is establishing a presence in the engineering
insurance market outside of North America. In 1996, earned premiums for HSB
Group's insurance products were $448.6 million, approximately 81.7 percent of
the revenues of HSB Group.
The Company's principal executive offices are located at One State Street,
Hartford, Connecticut 06102. The Company's telephone number is (860)
722-1866.
HSB CAPITAL I
The Issuer Trust is a statutory business trust created under Delaware law
pursuant to (i) the Trust Agreement executed by the Company, as Depositor,
First Chicago, as Property Trustee and First Chicago Delaware Inc., as
Delaware Trustee ("First Chicago (Delaware)"), and (ii) the filing of a
certificate of trust with the Delaware Secretary of State. The Issuer Trust's
business and affairs are conducted by its trustees: First Chicago, as
Property Trustee, and First Chicago (Delaware) as Delaware Trustee. The
Issuer Trust exists for the exclusive purposes of (i) issuing and selling the
Trust Securities, (ii) using the proceeds from the sale of Trust Securities
to acquire Junior Subordinated Debentures issued by the Company and (iii)
engaging in only those other activities necessary or incidental thereto (such
as registering the transfer of the Trust Securities). Accordingly, the Junior
Subordinated Debentures and the right to reimbursement of expenses under the
related Expense Agreement will be the sole assets of the Issuer Trust, and
payments under the Junior Subordinated Debentures and the related Expense
Agreement will be the sole sources of revenue of the Issuer Trust.
THE EXCHANGE OFFER
The Exchange Offer ............ Up to $110,000,000 aggregate Liquidation
Amount of Exchange Capital Securities are
being offered in exchange for a like
aggregate Liquidation Amount of Original
Capital Securities. Original Capital
Securities may be tendered for exchange in
whole or in part having Liquidation Amount
of $1,000 (one Capital Security). The
Company and the Issuer Trust are making the
Exchange Offer in order to satisfy their
obligations under the Registration Rights
Agreement relating to the Original Capital
Securities. For a description of the
procedures for tendering Original Capital
Securities, see "The Exchange
Offer--Procedures for Tendering Original
Capital Securities."
Expiration Date ............... 5:00 p.m., New York City time, on December
5, 1997, unless the Exchange Offer is
extended by the Company or the Issuer Trust
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(in which case the Expiration Date will be
the latest date and time to which the
Exchange Offer is extended). See "The
Exchange Offer--Terms of the Exchange Offer"
and "The Exchange Offer--Conditions to the
Exchange Offer."
Conditions to the Exchange
Offer ......................... The Exchange Offer is subject to certain
conditions, which may be waived by the
Company and the Issuer Trust in their sole
discretion. The Exchange Offer is not
conditioned upon any minimum Liquidation
Amount of Original Capital Securities being
tendered. See "The Exchange
Offer--Conditions to the Exchange Offer."
Offer ......................... The Company and the Issuer Trust reserve the
right in their sole and absolute discretion,
subject to applicable law, at any time and
from time to time, (i) to delay the
acceptance of the Original Capital
Securities for exchange, (ii) to terminate
the Exchange Offer if certain specified
conditions have not been satisfied, (iii) to
extend the Expiration Date of the Exchange
Offer and retain all Original Capital
Securities tendered pursuant to the Exchange
Offer, subject, however, to the right of
holders of Original Capital Securities to
withdraw their tendered Original Capital
Securities, or (iv) to waive any condition
or otherwise amend the terms of the Exchange
Offer in any respect. See "The Exchange
Offer--Terms of the Exchange Offer."
Withdrawal Rights ............. Tenders of Original Capital Securities may
be withdrawn at any time on or prior to the
Expiration Date by delivering a written
notice of such withdrawal to the Exchange
Agent in conformity with certain procedures
set forth below under "The Exchange
Offer--Withdrawal Rights."
Procedures for Tendering
Original Capital Securities .. Brokers, dealers, commercial banks, trust
companies and other nominees who hold
Original Capital Securities through The
Depository Trust Company ("DTC") may effect
tenders by book-entry transfer in accordance
with DTC's Automated Tender Offer Program
("ATOP"). Holders of such Original Capital
Securities registered in the name of a
broker, dealer, commercial bank, trust
company or other nominee are urged to
contact such person promptly if they wish to
tender Original Capital Securities. In order
for Original Capital Securities to be
tendered by a means other than by book-entry
transfer, a Letter of Transmittal must be
completed and signed in accordance with the
instructions contained therein. The Letter
of Transmittal and any other documents
required by the Letter of Transmittal must
be delivered to The First National Bank of
Chicago (the "Exchange Agent") by mail,
facsimile, hand delivery or overnight
courier and either such Original Capital
Securities must be delivered to the Exchange
Agent or specified procedures for guaranteed
delivery must be complied with. See "The
Exchange Offer--Procedures for Tendering
Original Capital Securities."
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Letters of Transmittal and certificates
representing Original Capital Securities
should not be sent to the Company or the
Issuer Trust. Such documents should only be
sent to the Exchange Agent.
Resales of Exchange Capital
Securities ................... The Company and the Issuer Trust are making
the Exchange Offer in reliance on the
position of the staff of the Division of
Corporation Finance of the Commission as set
forth in certain interpretive letters
addressed to third parties in other
transactions. However, neither the Company
nor the Issuer Trust has sought its own
interpretive letter and there can be no
assurance that the staff of the Division of
Corporation Finance of the Commission would
make a similar determination with respect to
the Exchange Offer as it has in such
interpretive letters to third parties. Based
on these interpretations by the staff of the
Division of Corporation Finance of the
Commission, and subject to the two
immediately following sentences, the Company
and the Issuer Trust believe that Exchange
Capital Securities issued pursuant to this
Exchange Offer in exchange for Original
Capital Securities may be offered for
resale, resold and otherwise transferred by
a holder thereof (other than a holder who is
a broker-dealer) without further compliance
with the registration and prospectus
delivery requirements of the Securities Act,
provided that such Exchange Capital
Securities are acquired in the ordinary
course of such holder's business and that
such holder is not participating, and has no
arrangement or understanding with any person
to participate, in a distribution (within
the meaning of the Securities Act) of such
Exchange Capital Securities. However, any
holder of Original Capital Securities who is
an "affiliate" of the Company or the Issuer
Trust or who intends to participate in the
Exchange Offer for the purpose of
distributing the Exchange Capital
Securities, or any broker-dealer who
purchased the Original Capital Securities
from the Issuer Trust to resell pursuant to
Rule 144A or any other available exemption
under the Securities Act, (a) will not be
able to rely on the interpretations of the
staff of the Division of Corporation Finance
of the Commission set forth in the
above-mentioned interpretive letters, (b)
will not be permitted or entitled to tender
such Original Capital Securities in the
Exchange Offer and (c) must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with any sale or other transfer
of such Original Capital Securities unless
such sale is made pursuant to an exemption
from such requirements. In addition, as
described below, if any broker-dealer holds
Original Capital Securities acquired for its
own account as a result of market-making or
other trading activities and exchanges such
Original Capital Securities for Exchange
Capital Securities, then such broker-dealer
must deliver a prospectus meeting the
requirements of the Securities Act in
connection with any resales of such Exchange
Capital Securities.
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Each holder of Original Capital Securities
who wishes to exchange Original Capital
Securities for Exchange Capital Securities
in the Exchange Offer will be required to
represent that (i) it is not an "affiliate"
of the Company or the Issuer Trust, (ii) any
Exchange Capital Securities to be received
by it are being acquired in the ordinary
course of its business, (iii) it has no
arrangement or understanding with any person
to participate in a distribution (within the
meaning of the Securities Act) of such
Exchange Capital Securities, and (iv) if
such holder is not a broker-dealer, such
holder is not engaged in, and does not
intend to engage in, a distribution (within
the meaning of the Securities Act) of such
Exchange Capital Securities. Each
broker-dealer that receives Exchange Capital
Securities for its own account in exchange
for Original Capital Securities, where such
Original Capital Securities were acquired by
such broker-dealer as a result of
market-making activities or other trading
activities, must acknowledge that it will
deliver a prospectus in connection with any
resale of such Exchange Capital Securities.
See "Plan of Distribution." The Letter of
Transmittal states that, by so acknowledging
and by delivering a prospectus, a
broker-dealer will not be deemed to admit
that it is an "underwriter" within the
meaning of the Securities Act. Based on the
position taken by the staff of the Division
of Corporation Finance of the Commission in
the interpretive letters referred to above,
the Company and the Issuer Trust believe
that Participating Broker-Dealers who
acquired Original Capital Securities for
their own accounts as a result of
market-making activities or other trading
activities may fulfill their prospectus
delivery requirements with respect to the
Exchange Capital Securities received upon
exchange of such Original Capital Securities
(other than Original Capital Securities
which represent an unsold allotment from the
initial sale of the Original Capital
Securities) with a prospectus meeting the
requirements of the Securities Act, which
may be the prospectus prepared for an
exchange offer so long as it contains a
description of the plan of distribution with
respect to the resale of such Exchange
Capital Securities. Accordingly, this
Prospectus, as it may be amended or
supplemented from time to time, may be used
by a Participating Broker-Dealer in
connection with resales of Exchange Capital
Securities received in exchange for Original
Capital Securities where such Original
Capital Securities were acquired by such
Participating Broker-Dealer for its own
account as a result of market-making or
other trading activities. Subject to certain
provisions set forth in the Registration
Rights Agreement and to the limitations
described below under "The Exchange
Offer--Resales of Exchange Capital
Securities," the Company and the Issuer
Trust have agreed that this Prospectus, as
it may be amended or supplemented from time
to time, may be used by a Participating
Broker-Dealer in connection with resales of
such Exchange Capital Securities for a
period ending 180 days after the Expiration
Date (subject to extension under certain
limited circumstances) or, if earlier, when
all such
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<PAGE>
Exchange Capital Securities have been
disposed of by such Participating
Broker-Dealer. See "Plan of Distribution."
Any Participating Broker-Dealer who is an
"affiliate" of the Company or the Issuer
Trust may not rely on such interpretive
letters and must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with any resale transaction. See
"The Exchange Offer--Resales of Exchange
Capital Securities."
Exchange Agent ................ The exchange agent with respect to the
Exchange Offer is The First National Bank of
Chicago (the "Exchange Agent"). The
addresses, and telephone and facsimile
numbers, of the Exchange Agent are set forth
in "The Exchange Offer--Exchange Agent" and
in the Letter of Transmittal.
Use of Proceeds ............... Neither the Company nor the Issuer Trust
will receive any cash proceeds from the
issuance of the Exchange Capital Securities
offered hereby. See "Use of Proceeds."
Certain United States Federal
Income Tax Consequences; ERISA
Considerations ............... The exchange of Original Capital Securities
for Exchange Capital Securities and Original
Junior Subordinated Debentures for Exchange
Junior Subordinated Debentures pursuant to
the Exchange Offer should have no federal
income tax consequences to holders. Holders
of Original Capital Securities should review
the information set forth under "Certain
Federal Income Tax Consequences" and
"Certain ERISA Considerations" prior to
tendering Original Capital Securities in the
Exchange Offer.
THE EXCHANGE CAPITAL SECURITIES
Securities Offered ............ Up to $110,000,000 aggregate Liquidation
Amount of the Issuer Trust's Exchange
Capital Securities which have been
registered under the Securities Act
(Liquidation Amount $1,000 per Exchange
Capital Security). The Exchange Capital
Securities will be issued and the Original
Capital Securities were issued under the
Trust Agreement. The Exchange Capital
Securities and any Original Capital
Securities which remain outstanding after
consummation of the Exchange Offer will vote
together as a single class for purposes of
determining whether holders of the requisite
percentage in outstanding Liquidation Amount
thereof have taken certain actions or
exercised certain rights under the
Declaration. See "Description of Exchange
Securities--Description of Exchange Capital
Securities--Voting Rights; Amendment of the
Declaration." The terms of the Exchange
Capital Securities are identical in all
material respects to the terms of the
Original Capital Securities, except that the
Exchange Capital Securities have been
registered under the Securities Act and will
not be subject to certain restrictions on
transfer applicable to the Original Capital
Securities and will
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<PAGE>
not provide for any increase in the
Distribution rate thereon. See "The Exchange
Offer--Purpose of the Exchange Offer,"
"Description of Exchange Securities" and
"Description of Original Securities."
Distribution Dates ............ January 15, April 15, July 15 and October 15
of each year, commencing October 15, 1997.
Stated Maturity ............... July 15, 2027.
Extension Periods ............. Distributions on Exchange Capital Securities
will be deferred for the duration of any
Extension Period elected by the Company with
respect to the payment of interest on the
Exchange Junior Subordinated Debentures. No
Extension Period will exceed 20 consecutive
quarterly periods or extend beyond the
Stated Maturity Date. See "Description of
Exchange Securities--Description of Exchange
Junior Subordinated Debentures--Option to
Extend Interest Payment Date" and "Certain
Federal Income Tax Consequences--Interest
Income and Original Issue Discount."
Ranking ....................... The Exchange Capital Securities will rank
pari passu, and payments thereon will be
made pro rata, with the Original Capital
Securities and the Common Securities except
as described under "Description of Exchange
Securities--Description of Exchange Capital
Securities--Subordination of Common
Securities." The Exchange Junior
Subordinated Debentures will rank pari passu
with the Original Junior Subordinated
Debentures and all other junior subordinated
debentures to be issued by the Company
("Other Debentures"), which will be issued
and sold (if at all) to other trusts to be
established by the Company (if any), in each
case similar to the Issuer Trust ("Other
Trusts"), and will be unsecured and
subordinate and junior in right of payment
to all Senior Indebtedness to the extent and
in the manner set forth in the Indenture.
See "Description of Exchange
Securities--Description of Exchange Junior
Subordinated Debentures." The Exchange
Guarantee will rank pari passu with the
Original Guarantee and all other guarantees
(if any) to be issued by the Company with
respect to capital or preferred securities
(if any) issued by Other Trusts ("Other
Guarantees") and will constitute an
unsecured obligation of the Company and will
rank subordinate and junior in right of
payment to all Senior Indebtedness to the
extent and in the manner set forth in the
Guarantee Agreement. See "Description of
Exchange Securities--Description of Exchange
Guarantee."
Redemption .................... The Trust Securities are subject to
mandatory redemption (i) at the Stated
Maturity upon repayment of the Junior
Subordinated Debentures, (ii) in whole but
not in part, prior to July 15, 2007, and
contemporaneously with the optional
prepayment by the Company of the Junior
Subordinated Debentures upon the
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occurrence and continuation of a Tax Event
and (iii) in whole or in part, at any time
on or after July 15, 2007 contemporaneously
with the optional prepayment by the Company
of the Junior Subordinated Debentures, in
each case at the applicable Redemption
Price. See "Description of Exchange
Securities--Description of Exchange Capital
Securities--Redemption."
Shorten Maturity .............. Under certain circumstances upon the
occurrence of a Tax Event, the Company has
the right to shorten the maturity of the
Junior Subordinated Debentures. See
"Description of Capital
Securities--Conditional Right to Shorten
Maturity or Redeem upon a Tax Event" and
"Description of Junior Subordinated
Debentures--Conditional Right to Shorten
Maturity upon Tax Event."
Ratings ....................... The Capital Securities have been assigned a
rating of "A-" by Standard & Poor's Ratings
Services and "A-" by Duff & Phelps Credit
Rating Co.
Transfer Restrictions ......... The Exchange Capital Securities will be
issued, and may be transferred, only in
minimum denominations of not less than
$1,000. See "Description of Exchange
Securities--Description of Exchange Capital
Securities--Restrictions on Transfer." Any
such transfer of Exchange Capital Securities
in denominations of less than $1,000 shall
be deemed to be void and of no legal effect
whatsoever.
ERISA Considerations .......... Prospective purchasers must carefully
consider the restrictions on purchase set
forth under "Notice to Investors" and
"Certain ERISA Considerations."
Absence of Market for the
Capital Securities ........... The Exchange Capital Securities will be a
new issue of securities for which there
currently is no market. Although the Initial
Purchasers have informed the Issuer Trust
and the Company that they each currently
intend to make a market in the Capital
Securities, the Initial Purchasers are not
obligated to do so, and any such market
making may be discontinued at any time
without notice. Accordingly, there can be no
assurance as to the development or liquidity
of any market for the Capital Securities.
The Issuer Trust and the Company do not
intend to apply for listing of the Capital
Securities on any securities exchange or for
quotation through the NASD Automated
Quotation System. See "Plan of Distribution."
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As used herein (i) the "Junior Subordinated Indenture" means the Junior
Subordinated Indenture, as amended and supplemented from time to time,
between the Company and First Chicago, as trustee (the "Debenture Trustee"),
and (ii) the "Trust Agreement" means the Amended and Restated Trust Agreement
relating to the Issuer Trust among the Company, as Depositor, the Property
Trustee, and First Chicago (Delaware), as Delaware Trustee (the "Delaware
Trustee") (collectively, the "Issuer Trustees").
RISK FACTORS
Prospective investors in the Capital Securities should carefully review
all of the information set forth in this Prospectus and, in particular,
should consider the risk factors listed below. Prospective investors are also
cautioned that, in addition to the historical information included herein
with respect to the Company, this Prospectus includes certain forward-looking
statements and information that are based on the Company's beliefs as well as
on assumptions made by and information currently available to management of
the Company. When used in this Prospectus, the words "expect," "anticipate,"
"intend," " plan," " believe," "estimate" and similar expressions are
intended to identify such forward-looking statements. However, this
Prospectus also contains other forward-looking statements. Such statements
are not guarantees of future performance and involve certain risks,
uncertainties and assumptions, including but not limited to the factors
discussed below, which could cause the Company's future results to differ
materially from those expressed in any forward-looking statements made by or
on behalf of the Company. Many of such factors are beyond the Company's
ability to control or predict. Readers are cautioned not to put undue
reliance on forward-looking statements. The Company disclaims any intent or
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES
The obligations of the Company under the Guarantee issued by the Company
for the benefit of the holders of Capital Securities and under the Junior
Subordinated Debentures are subordinate and junior in right of payment to all
Senior Indebtedness 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
(and thus the ability of holders of the Capital Securities to benefit
indirectly from such distribution) is subject to the prior claims of
creditors of that subsidiary, except to the extent that the Company may
itself be recognized as a creditor of that subsidiary. In addition, there are
various legal limitations on the extent to which the Company's subsidiaries
may extend credit, pay dividends or otherwise supply funds to the Company or
various of its affiliates. Accordingly, the Junior Subordinated Debentures
and Guarantee will be effectively subordinated to all existing and future
liabilities of the Company's subsidiaries, and holders of Junior Subordinated
Debentures and the Guarantee should look only to the assets of the Company
for payments on the Junior Subordinated Debentures and the Guarantee. See
"HSB Group, Inc." None of the Junior Subordinated Indenture, the Guarantee or
the Trust Agreement places any limitation on the amounts of secured or
unsecured debt, including Senior Indebtedness, that may be incurred by the
Company. See "Description of Exchange Securities--Description of Exchange
Guarantee--Status of the Guarantee" and "Description of Exchange
Securities--Description of Exchange Junior Subordinated
Debentures--Subordination."
The ability of the Issuer Trust to pay amounts due on the Capital
Securities is solely dependent upon the Company making payments on the Junior
Subordinated Debentures as and when required.
HOLDING COMPANY STRUCTURE; STRUCTURAL SUBORDINATION; DIVIDEND RESTRICTIONS
Effective June 24, 1997, the Company was organized as a holding company
with all of its operations being conducted by subsidiaries. The Company,
however, has, or in the future may have, continuing expenditures for
administrative expenses, corporate services, the payment of principal and
interest on borrowings, including the Junior Subordinated Debentures, and
dividends on preferred stock. In addition, Hartford Steam Boiler, the
Company's most significant subsidiary, has historically paid dividends on its
common shares, and it is anticipated that the Company will likewise pay
dividends on its common stock at a rate which equals or exceeds the rate paid
by Hartford Steam Boiler prior to the holding company formation.
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The Company expects to rely primarily on dividends and tax payments from
its subsidiaries for funds to meet its obligations. Payments of dividends by
the insurance subsidiaries of the Company are subject to various laws and
regulations which limit the amount of dividends that can be paid without
prior approval from the applicable state department of insurance. Under the
insurance holding company laws of Connecticut which apply to Hartford Steam
Boiler, approval of the insurance commissioner is required for payment of a
dividend which when added to the other dividends or distributions made within
the preceding twelve months, exceeds the greater of (i) 10% of policyholder
surplus as of December 31 of the preceding year or (ii) net income for the
twelve-month period ending on December 31 of the preceding year. The maximum
dividend permitted by law is not necessarily indicative of an insurer's
actual ability to pay dividends, which may be further affected by business
and regulatory considerations, such as the impact of dividends on surplus,
which could affect an insurer's ratings, competitive position, the amount of
premiums that can be written and the ability to pay future dividends.
Furthermore, each state department of insurance has broad discretion to limit
the payment of dividends by insurance companies domiciled in that state. A
prolonged material decline in insurance subsidiary profits or materially
adverse insurance regulatory developments, however, could subject the Company
to shortages of cash because of its inability to receive dividends from
subsidiaries.
In addition, except to the extent that the Company may itself be a
creditor with recognized claims against its subsidiaries, claims of creditors
of such subsidiaries will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of the Company,
including claims under the Junior Subordinated Debentures and the Guarantee,
even though such subsidiary obligations do not constitute Senior
Indebtedness. Accordingly, the Junior Subordinated Debentures will be
effectively subordinated to all existing and future liabilities of the
Company's subsidiaries, including loss reserves, unearned premium reserves
and guarantee obligations. GAAP basis liabilities of the subsidiaries,
including loss reserves and unearned premium reserves aggregated $750.7
million at December 31, 1996. In addition, Hartford Steam Boiler has agreed
to guarantee up to $16 million in respect of debt incurred by Radian
International, LLC, a joint venture between Hartford Steam Boiler and The Dow
Chemical Company ("Radian International"). As of June 30, 1997, the guarantee
was applicable to $13.7 million of Radian International. Such guarantee will
terminate upon the sale of the Company's interest in Radian International to
The Dow Chemical Company which is expected to take place on or about January
1, 1997. See "HSB Group, Inc.--Strategy; Recent History."
In addition, in the event of a default on the Company's debt or an
insolvency, liquidation or other reorganization of the Company, creditors of
the Company will have no right to proceed against the assets of the
subsidiaries or to cause their liquidation under federal and state bankruptcy
laws. If any of the Company's subsidiaries were to be liquidated, such
liquidation would be conducted under the insurance laws of the domiciliary
jurisdiction of such subsidiary by the insurance regulator as the receiver
with respect to such subsidiary's property and business.
REGULATION
The Company's U.S. insurance subsidiaries are regulated under the
insurance and insurance holding company laws of their state of domicile and
other states in which they operate. These laws, in general, require approval
of the applicable insurance regulators prior to certain actions by the
insurance companies, such as the payment of dividends in excess of statutory
limitations (as discussed above under "Holding Company Structure; Structural
Subordination; Dividend Restrictions") and certain transactions and
continuing service arrangements with affiliates. Regulation and supervision
of each insurance subsidiary is administered by state insurance commissioners
who have broad statutory powers with respect to the granting and revoking of
licenses, approvals of premium rates, forms of insurance contracts and types
and amounts of business which may be conducted in light of the policyholders'
surplus of the particular company. The statutes of most states provide for
the filing of premium rates and such rates may be disapproved if they are
found to be excessive, inadequate or unfairly discriminatory. The
determination of rates is based on various factors, including acquisition
costs, engineering and loss and loss adjustment expense experience. The
failure to obtain, or delay in obtaining, the required approvals could have
an adverse impact on the operations of the Company's insurance subsidiaries.
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The nature and extent of regulations pertaining to the business the
Company writes outside of the U.S. varies considerably. Regulations cover
various financial and operational areas including such matters as amount and
type of reserves, currency, policy language, repatriation of assets and
compulsory cessions of reinsurance.
Insurance regulatory authorities require property and casualty insurers to
maintain a reasonable ratio between net premiums written and total capital
and surplus. Accordingly, a property and casualty insurance company's volume
of net premiums written is limited by the amount of its capital and surplus.
In the absence of mitigating factors, a ratio of 3 to 1 or less is considered
acceptable by most regulatory authorities. Hartford Steam Boiler's historical
ratio has been well within this range. Nevertheless, adverse underwriting
experience, significant losses in its investment portfolio or changes in
statutory accounting principles could have a material negative impact on
Hartford Steam Boiler's surplus to policyholders.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
So long as no Event of Default under the Junior Subordinated Indenture (a
"Debenture Event of Default") has occurred or is continuing, the Company has
the right under the Junior Subordinated Indenture to defer the payment of
interest on the Junior Subordinated Debentures at any time or from time to
time for a period not exceeding 20 consecutive quarterly periods with respect
to each Extension Period, provided that no Extension Period may extend beyond
the Stated Maturity of the Junior Subordinated Debentures. As a consequence
of any such deferral, quarterly Distributions on the Capital Securities by
the Issuer Trust will be deferred (and the amount of Distributions to which
holders of the Capital Securities are entitled will accumulate additional
Distributions thereon at the rate of the Floating Rate per annum, compounded
quarterly from the relevant payment date for such Distributions) during any
such Extension Period. During any such Extension Period, the Company may not,
and may not permit any subsidiary of the Company to, (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock, (ii)
make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company (including other
Junior Subordinated Debentures) that rank pari passu in all respects with or
junior in interest to the Junior Subordinated Debentures or (iii) make any
guarantee payments with respect to any guarantee by the Company of the debt
securities of any subsidiary of the Company if such guarantee ranks pari
passu with or junior in interest to the Junior Subordinated Debentures (other
than (a) dividends or distributions in Company Common Stock, (b) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in
the future, or the redemption or repurchase of any such rights pursuant
thereto, (c) payments under the Guarantee and (d) purchases of Company Common
Stock related to the issuance of Company Common Stock or rights under any of
the Company's or its subsidiaries' benefit plans for their directors,
officers or employees). Prior to the termination of any such Extension
Period, the Company may further defer the payment of interest, provided that
no Extension Period may exceed 20 consecutive quarterly periods or extend
beyond the Stated Maturity of the Junior Subordinated Debentures. Upon the
termination of any Extension Period and the payment of all interest then
accrued and unpaid (together with interest thereon at the annual rate of the
Floating Rate, compounded quarterly, to the extent permitted by applicable
law), the Company may elect to begin a new Extension Period subject to the
above requirements. There is no limitation on the number of times that the
Company may elect to begin an Extension Period. See "Description of Exchange
Capital Securities--Distributions" and "Description of Exchange Junior
Subordinated Debentures--Option To Extend Interest Payment Period."
Should an Extension Period occur, a holder of Capital Securities will
continue to accrue income (in the form of original issue discount) in respect
of its pro rata share of the Junior Subordinated Debentures held by the
Issuer Trust for United States federal income tax purposes, which will be
allocated but not distributed, to holders of record of any Capital
Securities. As a result during such an Extension Period, a holder of Capital
Securities will include such income in gross income for United States federal
income tax purposes in advance of the receipt of cash, and will not receive
the cash related to such income from the Issuer Trust if the holder disposes
of the Capital Securities prior to the record date for the payment of
Distributions. See "Certain Federal Income Tax Consequences--Interest Income
and Original Issue Discount" and "--Sales of Capital Securities."
18
<PAGE>
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 elect to exercise such
right in the future, the market price of the Capital Securities is likely to
be affected. A holder that disposes of its Capital Securities during an
Extension 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 preferred beneficial interests in the Issuer Trust) may be more
volatile than the market prices of other securities on which original
discount accrues that are not subject to such deferrals.
TAX EVENT--SHORTENING OF MATURITY OR REDEMPTION
Upon the occurrence and during the continuation of a Tax Event, the
Company has the right, if certain conditions are met, (i) to shorten the
maturity of the Junior Subordinated Debentures to a date not earlier than
April 15, 2012 or (ii) to redeem the Junior Subordinated Debentures in whole
(but not in part) prior to July 15, 2007 and within 90 days following the
occurrence of such Tax Event and therefore cause a mandatory redemption of
the Capital Securities before July 15, 2007. Any such redemption shall be at
a price equal to the Redemption Price (as defined in "Description of Exchange
Capital Securities--Redemption").
See "--Possible Tax Law Changes Affecting the Capital Securities" below
for a discussion of previous legislative proposals. The adoption of similar
legislation could give rise to a Tax Event,which may permit the Company to
shorten the maturity of the Junior Subordinated Debentures, resulting in the
shortening of the maturity of the Capital Securities or which may permit the
Company to cause a redemption of the Capital Securities prior to July 15,
2007. Prospective investors should be aware that the Company's exercise of
its right to shorten the maturity of the Junior Subordinated Debentures will
be a taxable event to holders of Capital Securities if the Junior
Subordinated Debentures are treated as equity for purposes of United States
federal income taxation before the maturity is shortened. See "Description of
Exchange Capital Securities--Conditional Right to Shorten Maturity or Redeem
upon a Tax Event" and "Description of Exchange Junior Subordinated
Debentures--Conditional Right to Shorten Maturity upon a Tax Event."
"Tax Event" means the receipt by the Issuer Trust of an opinion of counsel
to the Company experienced in such matters to the effect that, as a result of
any amendment to, or change (including any announced prospective change) in,
the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, or as a result
of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change
is effective or which pronouncement or decision is announced on or after the
date of issuance of such Capital Securities under the Trust Agreement, there
is more than an insubstantial risk that (i) the Issuer Trust is, or will be
within 90 days of the date of such opinion, subject to United States federal
income tax with respect to income received or accrued on the Junior
Subordinated Debentures, (ii) interest payable by the Company on the Junior
Subordinated Debentures is not, or within 90 days of the date of such
opinion, will not be, deductible by the Company, in whole or in part, for
United States federal income tax purposes or (iii) the Issuer Trust is, or
will be within 90 days of the date of such opinion, subject to more than a de
minimis amount of other taxes, duties or other governmental charges.
EXCHANGE OF CAPITAL SECURITIES FOR JUNIOR SUBORDINATED DEBENTURES
The holders of all of the outstanding Common Securities have the right at
any time to terminate the Issuer Trust and, after satisfaction of the
liabilities of creditors of the Issuer 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 Issuer Trust, subject to the
Property Trustee having received an opinion of counsel to the effect that
such distribution will not be a taxable event to holders of Capital
Securities. See "Description of Exchange Capital Securities--Liquidation
Distribution Upon Termination."
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<PAGE>
MARKET PRICES
There can be no assurance as to the market prices for Capital Securities
or Junior Subordinated Debentures that may be distributed in exchange for
Capital Securities if a liquidation of the Issuer Trust occurs. 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 liquidation of
the Issuer 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 on termination of the
Issuer Trust, prospective purchasers of Exchange Capital Securities are also
making an investment decision with regard to the Exchange Junior Subordinated
Debentures and should carefully review all the information regarding the
Exchange Junior Subordinated Debentures contained herein. See "Description of
Exchange Junior Subordinated Debentures."
RIGHTS UNDER THE GUARANTEE
First Chicago will act as the trustee under the Guarantee (the "Guarantee
Trustee") and will hold the Guarantee for the benefit of the holders of the
Capital Securities. First Chicago will also act as Debenture Trustee for the
Junior Subordinated Debentures and as Property Trustee and First Chicago
(Delaware) will act as Delaware Trustee under the Trust Agreement. The
Guarantee guarantees to the holders of the Capital Securities the following
payments, to the extent not paid by the Issuer Trust: (i) any accumulated and
unpaid Distributions required to be paid on the Capital Securities, to the
extent that the Issuer Trust has funds on hand available therefor at such
time, (ii) the Redemption Price with respect to any Capital Securities called
for redemption, to the extent that the Issuer Trust has funds on hand
available therefor at such time and (iii) upon a voluntary or involuntary
termination, winding-up or liquidation of the Issuer Trust (unless the Junior
Subordinated Debentures are distributed to holders of the Capital
Securities), the lesser of (a) the aggregate of the Liquidation Amount and
all accumulated and unpaid Distributions to the date of payment to the extent
that the Issuer Trust has funds on hand available therefor at such time and
(b) the amount of assets of the Issuer Trust remaining available for
distribution to holders of the Capital Securities on liquidation of the
Issuer Trust after payment of creditors of the Issuer Trust as required by
applicable law. The Guarantee is subordinate as described under "--Ranking of
Subordinated Obligations Under the Guarantee and the Junior Subordinated
Debentures." The holders of not less than 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
Guarantee Trustee in respect of the Guarantee or to direct the exercise of
any trust 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 Issuer Trust, the Guarantee
Trustee or any other person or entity. If the Company were to default on its
obligation to pay amounts payable under the Junior Subordinated Debentures,
the Issuer Trust would lack funds for the payment of Distributions or amounts
payable on redemption of the Capital Securities or otherwise and, in such
event, holders of the Capital Securities would not be able to rely upon the
Guarantee for payment of such amounts. Instead, in the event a Debenture
Event of Default shall have occurred and be continuing and such event is
attributable to the failure of the Company to pay interest on or principal of
the Junior Subordinated Debentures on the payment date on which such payment
is due and payable, then a holder of Capital Securities may institute a legal
proceeding directly against the Company for enforcement of payment to such
holder of the principal of or interest on such Junior Subordinated Debentures
having a principal amount equal to the aggregate Liquidation Amount of the
Capital Securities of such holder (a "Direct Action"). In connection with
such Direct Action, the Company will have a right of set-off under the Junior
Subordinated Indenture to the extent of any payment made by the Company to
such holder of Capital Securities in the Direct Action. Except as described
herein, holders of Capital Securities will not be able to exercise directly
any other remedy available to the holders of the Junior Subordinated
Debentures or assert directly any other rights in respect of the Junior
Subordinated Debentures. See "Description of Exchange Securities--Description
of Exchange Junior Subordinated Debentures--Enforcement of Certain Rights by
Holders of Capital Securities," "--Debenture Events of Default" and
"Description of Exchange Guarantee." The Trust
20
<PAGE>
Agreement provides that each holder of Capital Securities by acceptance
thereof agrees to the provisions of the Guarantee and the Junior Subordinated
Indenture.
LIMITED VOTING RIGHTS
Holders of Capital Securities will generally have limited voting rights
relating only to the modification of the Capital Securities and the exercise
of the Issuer Trust's rights as holder of Junior Subordinated Debentures and
the Guarantee. Holders of Capital Securities will not be entitled to appoint,
remove or replace the Property Trustee or the Delaware Trustee except upon
the occurrence of certain events described herein. The Property Trustee and
the holders of all of the Common Securities may amend the Trust Agreement
without the consent of holders of Capital Securities to ensure that the
Issuer Trust will be classified for United States federal income tax purposes
as a grantor trust. See "Description of Exchange Capital Securities--Voting
Rights; Amendment of Trust Agreement" and "--Removal of Issuer Trustees;
Appointment of Successors."
CONSEQUENCES OF A FAILURE TO EXCHANGE ORIGINAL CAPITAL SECURITIES
The Original Capital Securities have not been registered under the
Securities Act or any state securities laws and therefore may not be offered,
sold or otherwise transferred except in compliance with the registration
requirements of the Securities Act and any other applicable securities laws,
or pursuant to an exemption therefrom or in a transaction not subject
thereto, and in each case in compliance with certain other conditions and
restrictions. Original Capital Securities which remain outstanding after
consummation of the Exchange Offer will continue to bear a legend reflecting
such restrictions on transfer. In addition, upon consummation of the Exchange
Offer, holders of Original Capital Securities which remain outstanding will
not be entitled to any rights to have such Original Capital Securities
registered under the Securities Act or to any similar rights under the
Registration Rights Agreement (subject to certain limited exceptions). The
Company and the Issuer Trust do not intend to register under the Securities
Act any Original Capital Securities which remain outstanding after
consummation of the Exchange Offer (subject to such limited exceptions, if
applicable). To the extent that Original Capital Securities are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered
Original Capital Securities could be adversely affected.
The Exchange Capital Securities and any Original Capital Securities which
remain outstanding after consummation of the Exchange Offer will vote
together as a single class for purposes of determining whether holders of the
requisite percentage in outstanding Liquidation Amount thereof have taken
certain actions or exercised certain rights under the Declaration. See
"Description of Exchange Securities--Description of Exchange Capital
Securities--Voting Rights; Amendment of the Declaration."
The Original Capital Securities provide, among other things, that, if a
registration statement relating to the Exchange Offer has not been filed by
October 13, 1997 and declared effective by December 12, 1997, the
Distribution rate borne by the Original Capital Securities will increase by
0.25% per annum until such registration statement has been filed or declared
effective, as the case may be. Upon consummation of the Exchange Offer,
holders of Original Capital Securities will not be entitled to any increase
in the Distribution rate thereon or any further registration rights under the
Registration Rights Agreement, except under limited circumstances. See
"Description of Original Securities."
ABSENCE OF PUBLIC MARKET
The Original Capital Securities were issued to, and the Company believes
such securities are currently owned by, a relatively small number of
beneficial owners. The Original Capital Securities have not been registered
under the Securities Act and will be subject to restrictions on
transferability if they are not exchanged for the Exchange Capital
Securities. Although the Exchange Capital Securities may be resold or
otherwise transferred by the holders (who are not affiliates of the Company
or the Issuer Trust) without compliance with the registration requirements
under the Securities Act, they will constitute a new issue of securities with
no established trading market. The Company and the Issuer Trust have been
advised by the Initial Purchasers that the Initial Purchasers presently
intend to make a market in the
21
<PAGE>
Exchange Capital Securities. However, the Initial Purchasers are not
obligated to do so and any market-making activity with respect to the
Exchange Capital Securities may be discontinued at any time without notice.
In addition, such market-making activity will be subject to the limits
imposed by the Securities Act and the Exchange Act and may be limited during
the Exchange Offer. Accordingly, no assurance can be given that an active
public or other market will develop for the Exchange Capital Securities or
the Original Capital Securities, or as to the liquidity of or the trading
market for the Exchange Capital Securities or the Original Capital
Securities. If an active public market does not develop, the market price and
liquidity of the Exchange Capital Securities may be adversely affected.
If a public trading market develops for the Exchange Capital Securities,
future trading prices will depend on many factors, including, among other
things, prevailing interest rates, the financial condition of the Company and
its subsidiaries, and the market for similar securities. Depending on these
and other factors, the Exchange Capital Securities may trade at a discount.
Notwithstanding the registration of the Exchange Capital Securities in the
Exchange Offer, holders who are "affiliates" (as defined under Rule 405 of
the Securities Act) of the Company or the Issuer Trust may publicly offer for
sale or resell the Exchange Capital Securities only in compliance with the
provisions of Rule 144 under the Securities Act.
Each broker-dealer that receives Exchange Capital Securities for its own
account in exchange for Original Capital Securities, where such Original
Capital Securities were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Capital Securities. See "Plan of Distribution."
POSSIBLE TAX LAW CHANGES AFFECTING THE CAPITAL SECURITIES
On February 6, 1997, as part of the fiscal budget submitted to Congress,
the Clinton Administration proposed certain changes to federal income tax law
which would, among other things, generally treat as equity, for federal
income tax purposes, certain debt obligations, such as the Junior
Subordinated Debentures, that were issued on or after the date of "first
committee action" (the "Clinton Proposal"). The Junior Subordinated
Debentures were issued prior to the date of first committee action. The
Clinton Proposal was not included in the tax legislation signed into law by
President Clinton on August 5, 1997. There can be no assurance, however, that
similar legislation enacted in the future will not adversely affect the tax
treatment of the Junior Subordinated Debentures, which could result in the
redemption of the Junior Subordinated Debentures by the Company and the
distribution of the resulting cash in redemption of the Capital Securities or
a shortening of the maturity of the Capital Securities. See "Description of
Exchange Junior Subordinated Debentures--Redemption" and "Description of
Exchange Capital Securities--Redemption." See also "Certain Federal Income
Tax Consequences--Possible Tax Law Changes."
EXCHANGE OFFER PROCEDURES
Subject to the conditions set forth under "The Exchange Offer--Conditions
to the Exchange Offer," delivery of Exchange Capital Securities in exchange
for Original Capital Securities tendered and accepted for exchange pursuant
to the Exchange Offer will be made only after timely receipt by the Exchange
Agent of (i) certificates for Original Capital Securities or a book-entry
confirmation of a book-entry transfer of Original Capital Securities into the
Exchange Agent's account at DTC, including an Agent's Message (as defined
under "The Exchange Offer--Acceptance for Exchange and Issuance of Exchange
Capital Securities") if the tendering holder does not deliver a Letter of
Transmittal, (ii) a completed and signed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees, or, in the case of a
book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal,
and (iii) any other documents required by the Letter of Transmittal.
Therefore, holders of Original Capital Securities desiring to tender such
Original Capital Securities in exchange for Exchange Capital Securities
should allow sufficient time to ensure timely delivery. Neither the Company
nor the Issuer Trust is under a duty to give notification of defects or
irregularities with respect to the tenders of Original Capital Securities for
exchange.
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<PAGE>
Each broker-dealer that receives Exchange Securities for its own account
in exchange for Securities, where such Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Securities. See "Plan of Distribution."
23
<PAGE>
HSB GROUP, INC.
GENERAL
HSB Group, Inc. is a newly formed holding company which owns directly or
indirectly, a number of insurance and engineering service subsidiaries which
specialize in insuring against losses from accidents to boilers, pressure
vessels and mechanical and electrical machinery and equipment, and in
providing related engineering services. HSB Group's operations are divided
into three industry segments--insurance, engineering services and
investments.
The most significant subsidiary of the Company is Hartford Steam Boiler,
an insurance company chartered under the laws of the State of Connecticut in
1866. Hartford Steam Boiler is the largest writer of equipment breakdown
insurance in North America and is establishing a presence in the engineering
insurance market outside of North America. In 1996, earned premiums for HSB
Group's insurance products were $448.6 million, approximately 81.7 percent of
the revenues of HSB Group.
EQUIPMENT BREAKDOWN INSURANCE
Hartford Steam Boiler is the largest writer of equipment breakdown
insurance in North America and is establishing a presence in the engineering
insurance market outside of North America. Based on gross earned premium,
Hartford Steam Boiler's U.S. market share, at approximately 40 percent, has
remained fairly stable over the past ten years.
Equipment breakdown insurance provides for the indemnification of the
policyholder for financial loss resulting from destruction or damage to an
insured boiler, pressure vessel, or other item of machinery or equipment
caused by an accident. This financial loss can include the cost to repair or
replace the damaged equipment (property damage), and product spoilage, lost
profits and expenses to avert lost profits (business interruption) stemming
from an accident. This heavy emphasis on loss prevention historically has had
the dual effect of increasing underwriting and inspection expenses, while
reducing loss and loss adjustment expenses. In this regard, the Company
distinguishes itself from other insurance suppliers by providing a high level
of loss prevention, failure analysis and other engineering services with its
insurance products. An important ancillary benefit for the policyholder is
that the inspection performed by the Company's inspector on a boiler,
pressure vessel, or other piece of equipment, as part of the insurance
process, is normally accepted by state and other regulatory jurisdictions for
their certification purposes. Without a certificate of inspection by the
insurance carrier or another inspection agency, policyholders cannot legally
operate many types of equipment.
The Company also writes all risk property insurance for risks with
significant machinery and equipment exposures, in addition to its more
traditional boiler and machinery products. The all risk line is marketed to
customers with equipment and machinery exposures, such as electric utilities,
where sophisticated engineering services are important to loss prevention and
control.
ENGINEERING AND INSPECTION SERVICES
Separate divisions of the Company's Engineering Department provide quality
assurance services, training for nondestructive testing, inspections to code
standards of the American Society of Mechanical Engineers (ASME), ISO
certification services and other specialized consulting and inspection
services related to the design and application of boilers, pressure vessels,
and many other types of equipment for domestic and foreign equipment
manufacturers and their customers. The Company is the largest Authorized
Inspection Agency for ASME codes in the world. In addition, the Company's
Engineering Department focuses on researching and developing potential new
products and services, and new markets for current services. In 1996, net
engineering services revenues were $55.8 million, approximately 10.2 percent
of the Company's revenues.
STRATEGY; RECENT HISTORY
The Company's strategy is to maintain its market share in North America
and expand overseas through leveraging its engineering expertise in assessing
and managing risk to provide insurance products.
24
<PAGE>
The Company is a multi-national company operating in North American,
European, and Asian markets. Currently, the Company's principal market is the
United States. However, the Company seeks to become a stronger competitor in
international markets as it believes that there is significant opportunity
for profitable growth overseas. In 1996 the revenues and pre-tax income
associated with operations outside of the United States were approximately
18.9 percent and 28.3 percent, respectively. Identifiable assets associated
with operations outside of the United States are approximately 23.1 percent
of the consolidated amount. The Company conducts it business in Canada
through its subsidiary, The Boiler Inspection and Insurance Company of
Canada. Insurance for risks located in countries other than the United States
and Canada is written by HSB Engineering Insurance Limited (HSB EIL). In
December 1994, the Company purchased the remaining 50% interest in HSB EIL's
parent company, Engineering Insurance Group (EIG) from General Reinsurance
Corporation.
Effective December 1, 1996 the Company increased its membership
participation in Industrial Risk Insurers ("IRI") from 14 percent to 23.5
percent. IRI is a voluntary, unincorporated joint underwriting association,
comprised of property casualty insurance members, which provides property
insurance for "highly protected risks"--larger manufacturing, processing, and
industrial businesses which have invested in protection against loss through
the use of sprinklers and other means. The Company has increased its share
because it believes that participation in the IRI is an opportunity to apply
the Company's underwriting, engineering and reinsurance skill sets to a large
block of business and to potentially provide a quick turnaround of IRI's
underwriting results with only a limited capital outlay.
In January 1996, the Company completed the formation of Radian
International with Dow to provide environmental, engineering, information
technology, remediation and strategic chemical management services to
industries and governments world-wide. In connection with the formation of
the new company, the Company contributed substantially all of the assets of
its wholly-owned subsidiary, Radian Corporation, and Dow contributed the
assets of Dow Environmental, Inc., its wholly-owned subsidiary, as well as
access to certain of its technologies which help support the businesses
expected to be conducted by the joint venture company. Radian International
currently is 40 percent owned by Radian Corporation and 60 percent owned by
Dow Environmental Inc. In 1996, the Company's share of the joint venture's
results are recorded as equity in Radian rather than consolidated with the
Company's net engineering services revenue and other income statement
accounts. The joint venture agreement with Dow provided HSB the option to put
its share of the joint venture to Dow any time during the period from
December 31, 1997 to December 31, 1998 upon giving appropriate notice. On
July 28, 1997 the HSB Board of Directors ratified management's decision to
put its share of Radian International to Dow on or about January 1, 1998 for
approximately $145 million. This amount is not subject to any material
adjustment due to the future operating results of Radian International;
therefore this will result in a pre-tax gain of approximately $60 million.
Due to this decision, the results of Radian International have been
classified as discontinued operations. HSB's share of Radian International's
results has been immaterial to the consolidated results during the first six
months of 1997.
The Company's principal executive offices are located at One State Street,
Hartford, Connecticut 06102. The Company's telephone number is (860)
722-1866.
CORPORATE STRUCTURE; NEWLY ORGANIZED HOLDING COMPANY
The Company was recently incorporated to become the holding company of,
and the direct owner of, Hartford Steam Boiler and certain of its
subsidiaries.
On June 24, 1997, (the "Effective Time"), each share of common stock
outstanding of Hartford Steam Boiler immediately prior to the Effective Time
was exchanged for one share of common stock of the Company. Each share of
preferred stock of Hartford Steam Boiler outstanding immediately prior to the
Effective Time was exchanged for one share of preferred stock of the Company
(which series has substantially identical rights and preferences as Hartford
Steam Boiler preferred stock) (the "Share Exchange") for the sole purpose of
making the Company the holding company and sole stockholder of Hartford Steam
Boiler and certain other subsidiaries.
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<PAGE>
The holding company was formed in order to achieve greater operating and
financial flexibility in connection with certain investments, business
operations and financing activities. Holding company structures are
frequently used when an organization conducts regulated and unregulated lines
of businesses and are commonly found in the insurance industry.
The consolidated financial position and consolidated results of operations
of the Company are substantially identical to those of Hartford Steam Boiler
immediately prior to the exchange. Complete pro forma and comparative
financial information regarding the Company and its consolidated subsidiaries
giving effect to the Share Exchange has not been included herein because
immediately following the Effective Time of the Share Exchange, the
consolidated financial statements for the Company was substantially the same
as the consolidated financial statementsof Hartford Steam Boiler immediately
prior to the Share Exchange.
26
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER INFORMATION
The selected consolidated financial data set forth in the table below for
each of the years in the five year period ended December 31, 1996 have been
derived from Hartford Steam Boiler's consolidated financial statements and
Hartford Steam Boiler's 1996 Annual Report on Form 10-K/A, each of which is
incorporated by reference herein. The Company is a newly formed company
created for the purpose of making the Company the holding company and sole
stockholder of Hartford Steam Boiler and certain other subsidiaries. The
Share Exchange creating the new holding company structure was consummated on
June 24, 1997. The consolidated financial position and consolidated results
of operations of the Company are substantially identical to those of Hartford
Steam Boiler immediately prior to the Share Exchange. See "HSB Group,
Inc.--Corporate Structure; Newly Organized Holding Company." The data
presented for the six month periods ending June 30, 1997 and 1996 have been
derived from unaudited consolidated financial statements included in the
Company's Quarterly Report on Form 10-Q and Hartford Steam Boiler's Quarterly
Report on Form 10-Q for such periods. The data presented for the periods
ending June 30, 1997 and 1996 have been prepared on the same basis as the
audited consolidated financial statements and include all adjustments,
consisting of normal, recurring accruals that the Company considers necessary
for a fair presentation of the financial position and results of operations
for the periods presented. Operating results for the period ended June 30,
1997 are not necessarily indicative of the results that may be expected for
the fiscal year ended December 31, 1997. The selected financial data
presented below should be read in conjunction with the Company's consolidated
financial statements and notes thereto and other information appearing in
Hartford Steam Boiler's 1996 Annual Report on Form 10-K/A, and with the
unaudited financial statements in the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997, each of which is incorporated herein by
reference. All numbers have been restated to eliminate the effect of Radian
International and reflect it as a discontinued operation.
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<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- ---------- -------- ---------- --------- --------
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF CONSOLIDATED STATEMENTS OF
OPERATIONS
Revenues:
Insurance premiums .................... $ 239.5 $ 221.3 $ 448.6 $389.1 $336.6 $349.2 $342.9
Net engineering services(1) ........... 29.7 26.8 55.8 49.9 48.0 46.0 49.4
Income from investment operations. ... 20.7 21.9 44.4 31.7 34.9 55.4 62.8
Total revenues(1)...................... 289.9 270.0 548.8 470.7 419.5 450.6 455.1
Income from continuing operations
before income taxes and accounting
changes............................... 43.5 34.6 72.9 72.2 61.3 12.8 66.7
Income taxes .......................... 11.3 8.2 18.3 19.5 16.8 1.7 14.2
Income from continuing operations
before accounting changes ............ 32.2 26.4 54.6 52.7 44.5 11.1 52.5
Income per common share from
continuing operations before
accounting changes ................... 1.58 1.29 2.71 2.58 2.17 .54 2.52
Dividends paid per common share ........ 1.14 1.14 2.28 2.22 2.14 2.12 2.03
SUMMARY OF CONSOLIDATED STATEMENTS OF
FINANCIAL POSITION
Total assets ........................... $1181.2 $1025.6 $1,116.3 $954.1 $877.8 $857.6 $865.7
Long-term borrowings and capital lease
obligations ........................... 53.0 53.4 53.0 53.4 28.4 28.4 28.4
Convertible redeemable preferred ..... 20.0 -- 20.0 -- -- -- --
Common ................................ 349.5 343.7 345.6 341.1 299.5 324.7 374.3
Per common share ...................... 17.71 16.98 17.25 16.81 14.67 15.80 18.05
Common shares outstanding at end of
period(2) ............................ 19.7 20.2 20.0 20.3 20.4 20.5 20.7
INSURANCE
Operating gain (loss)................... $ 21.4 $ 9.8 $ 21.8 $ 34.2 $ 20.7 $(26.4) $ 1.8
Loss ratio ............................ 43.0 % 45.6% 45.6% 39.8% 42.5% 57.1% 50.3%
Expense ratio ......................... 47.9 % 49.5% 49.1% 50.9% 50.5% 50.5% 49.2%
Combined ratio ........................ 90.9 % 95.1% 94.7% 90.7% 93.0%(3) 107.6% 99.5%
ENGINEERING SERVICES(1)
Gross revenues.......................... $ 29.7 $ 26.8 $ 55.8 $ 49.9 $ 48.3 $ 47.6 $ 50.2
Subcontract & equipment resale costs .. --- --- -- --- .3 1.6 .8
Net revenues .......................... 29.7 26.8 55.8 49.9 48.0 46.0 49.4
Operating gain ......................... 2.0 3.2 7.3 6.7 4.3 4.0 5.5
Gross margin .......................... 6.6 % 12.0 % 13.2% 13.3% 8.9% 8.4% 11.0%
Net margin ............................ 6.6% 12.0 % 13.2% 13.3% 9.0% 8.7% 11.1%
INVESTMENTS
Net investment income................... $ 16.7 $ 15.9 $ 32.3 $ 28.2 $ 26.2 $ 29.3 $ 32.0
Realized investment gains .............. 4.0 6.0 12.1 2.8 8.7 26.1 30.8
Income from investment operations .... 20.7 21.9 44.4 31.0 34.9 55.4 62.8
</TABLE>
- ------------
(1) Effective June 30, 1997 Radian is identified as a discontinued
operation and consequently is excluded from all periods presented.
(2) Reflects the repurchase of approximately .3 million through June in
1997, .3 million shares in 1996, .1 million shares in 1995, .1 million
shares in 1994, .2 million shares in 1993, and .3 million shares in
1992.
(3) Excludes charge for Proposition 103. Had the $2.9 million charge been
included, the expense ratio would have been 51.3% and the combined
ratio would have been 93.8%.
28
<PAGE>
HSB CAPITAL I
The Issuer Trust is a statutory business trust created under Delaware law
pursuant to (i) the Trust Agreement executed by the Company, as Depositor,
First Chicago, as Property Trustee, and First Chicago (Delaware), as Delaware
Trustee, and (ii) the filing of a certificate of trust with the Delaware
Secretary of State. The Issuer Trust's business and affairs are conducted by
its trustees: First Chicago, as Property Trustee, and First Chicago,
(Delaware) as Delaware Trustee. In addition, three individuals who are
employees or officers of or affiliated with the holder of a majority of the
Common Securities will act as administrators with respect to the Issuer Trust
(the "Administrators"). The Administrators will be selected by the holders of
the Common Securities. See "Description of Capital
Securities--Miscellaneous." The Issuer Trust exists for the exclusive
purposes of (i) issuing and selling the Trust Securities, (ii) using the
proceeds from the sale of Trust Securities to acquire Junior Subordinated
Debentures issued by the Company and (iii) engaging in only those other
activities necessary or incidental thereto (such as registering the transfer
of the Trust Securities). Accordingly, the Junior Subordinated Debentures and
the right to reimbursement of expenses under the related Expense Agreement
will be the sole assets of the Issuer Trust, and payments under the Junior
Subordinated Debentures and the related Expense Agreement will be the sole
revenue of the Issuer Trust.
All of the Common Securities will be owned by the Company. The Common
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Capital Securities, except that upon the occurrence and continuance
of an Event of Default under the Trust Agreement resulting from a Debenture
Event of Default under the Junior Subordinated Indenture, the rights of the
holders of the Common Securities to payment in respect of Distributions and
payments upon liquidation, redemption or otherwise will be subordinated to
the rights of the holders of the Capital Securities. See "Description of
Capital Securities--Subordination of Common Securities." The Company will
acquire Common Securities in an aggregate liquidation amount equal to 3% of
the total capital of the Issuer Trust. The Issuer Trust has a term of 31
years, but may terminate earlier as provided in the Trust Agreement. The
principal executive office of the Issuer Trust is One State Street, Hartford,
Connecticut 06102, Attention: Corporate Secretary, and its telephone number
is (860) 722-1866.
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
The ratio of earnings to fixed charges and preferred stock dividend
requirements for the Company including its consolidated subsidiaries is
computed by dividing earnings by fixed charges and preferred stock dividend
requirements. Earnings consist of income before income taxes plus fixed
charges. Fixed charges consist of interest expense, capitalized interest,
one-third (the portion deemed representative of the interest factor) of net
rents and expenses under long-term leases and preferred stock dividend
requirements which consist of the pre-tax earnings which would be required to
cover dividends required to be paid on the Company's majority-owned
subsidiary's outstanding preferred stock. The following table sets forth the
ratio of earnings to fixed charges for the Company and its consolidated
subsidiaries for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------
--------------
1997 1996 1995 1994 1993 1992
- -------------------------------------- ------------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges 9.53 8.29 7.22 7.97 2.60 8.94
Ratio of Earnings to Fixed Charges and
Preferred Dividends .................. 8.13 8.29 7.22 7.97 2.60 8.94
Pro forma Ratio of Earnings to Fixed
Charges and Preferred Dividends and
Capital Securities Dividends ......... 5.34 5.09
</TABLE>
29
<PAGE>
USE OF PROCEEDS
Neither the Company nor the Issuer Trust will receive any cash proceeds
from the issuance of the Exchange Capital Securities and the Exchange
Guarantee offered hereby. In consideration for issuing the Exchange Capital
Securities in exchange for Original Capital Securities as described in this
Prospectus, the Issuer Trust will receive Original Capital Securities in like
Liquidation Amount. The Original Capital Securities surrendered in exchange
for the Exchange Capital Securities will be retired and canceled.
The proceeds to the Issuer Trust (without giving effect to expenses of the
offering payable by the Company) from the offering of the Original Capital
Securities was $108,861,500. All of the proceeds from the sale of the
Original Capital Securities were invested by the Issuer Trust in the Original
Junior Subordinated Debentures. The Company intends that the net proceeds
from the sale of the Original Junior Subordinated Debentures will be used for
general corporate purposes which may include, without limitation, repurchases
of the Company's common stock, funding investments in, or extensions of
credit to, the Company's subsidiaries, repayment of outstanding indebtedness
and maturing obligations, and financing possible future acquisitions. As of
the date of this Prospectus, the Company has not entered into any material
agreements or understandings with respect to any potential acquisition. The
precise amount and timing of the application of such net proceeds used for
these purposes will depend on market prices for the Company's common stock
and the funding requirements and availability of other funds to the Company
and its subsidiaries.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company and its subsidiaries as of June 30, 1997 as adjusted to give effect
to the issuance of $110 million of Global Floating Rate Capital Securities by
the Issuer Trust. The issuance of the Exchange Capital Securities in the
Exchange Offer will have no effect on the capitalization of the Company. The
following data should be read in conjunction with the consolidated financial
statements and notes thereto of the Company and its subsidiaries incorporated
herein by reference.
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
($ IN MILLIONS)
ACTUAL AS ADJUSTED
-------- -------------
<S> <C> <C>
Total Long Term Debt ..................................................... 25.1 25.1
Capital Lease ............................................................ 27.9 27.9
-------- -------------
Total Long Term Debt and Capital Lease ................................. 53.0 53.0
-------- -------------
Company Obligated Mandatorily Redeemable Capital Securities of Subsidiary
Trust Holding Solely Junior Subordinated Deferrable Interest Debentures
of the Company(1) ....................................................... 110.0
Less Discount and Expenses Related to the Issuance of Mandatorily
Redeemable Capital Securities(2) ........................................ (2.4)
Convertible Redeemable Preferred Stock--Series B ......................... 20.0 20.0
-------- -------------
20.0 127.6
-------- -------------
Shareholders' Equity
Common Stock ............................................................ 10.0 10.0
Additional Paid In ...................................................... 31.5 31.5
Unrealized Investment Gains.............................................. 63.7 63.7
Retained Earnings........................................................ 249.2 249.2
Benefit Plans............................................................ (4.9) (4.9)
-------- -------------
Total Shareholders' Equity.............................................. 349.5 349.5
Total Capitalization of the Company..................................... 422.5 530.1
</TABLE>
- ------------
(1) The sole assets of the Issuer Trust will be the Junior Subordinated
Debentures. The Junior Subordinated Debentures held by the Issuer Trust
will mature on July 15, 2027. The Company initially will own all of the
Common Securities of the Issuer Trust. See "Accounting Treatment."
(2) Includes discount of $1.1 million and underwriting, legal and other
fees of $1.3 million.
30
<PAGE>
ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer Trust will be treated as a
subsidiary of the Company and, accordingly, the accounts of the Issuer Trust
will be included in the consolidated financial statements of the Company. The
Capital Securities will be presented as a separate line item in the
consolidated balance sheets of the Company, entitled "Company Obligated
Mandatorily Redeemable Capital Securities of Subsidiary Trust Holding Solely
Junior Subordinated Deferrable Interest Debentures of the Company" and
appropriate disclosures about the Capital Securities, the Guarantee and the
Junior Subordinated Debentures will be included in the notes to the Company's
consolidated financial statements. For financial reporting purposes, the
Company will record Distributions payable on the Capital Securities as an
expense in the Company's consolidated statements of income.
RATING OF CAPITAL SECURITIES
The Capital Securities have been assigned a rating of "A-" by Standard and
Poor's Ratings Services and "A-" by Duff & Phelps Credit Rating Co. A
security rating is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time by the assigning rating
organization. There is no assurance that any rating will remain in effect for
any given period of time or that any rating will not be revised or withdrawn
entirely by a assigning rating organization in the future if in its judgment
circumstances so warrant.
31
<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Original Capital Securities, the
Company and the Issuer Trust entered into the Registration Rights Agreement
with the Initial Purchasers, pursuant to which the Company and the Issuer
Trust agreed to file and to use their reasonable efforts to cause to become
effective with the Commission a registration statement with respect to the
exchange of the Original Capital Securities for capital securities with terms
identical in all material respects to the terms of the Original Capital
Securities. A copy of the Registration Rights Agreement has been filed as an
Exhibit to the Registration Statement of which this Prospectus is a part.
The Exchange Offer is being made to satisfy the contractual obligations of
the Company and the Issuer Trust under the Registration Rights Agreement. The
form and terms of the Exchange Capital Securities are the same as the form
and terms of the Original Capital Securities except that the Exchange Capital
Securities have been registered under the Securities Act and will not be
subject to certain restrictions on transfer applicable to the Original
Capital Securities, and will not provide for any increase in the Distribution
rate thereon. In that regard, the Original Capital Securities provide, among
other things, that, if a registration statement relating to the Exchange
Offer has not been filed by October 13, 1997 and declared effective by
December 12, 1997, the Distribution rate borne by the Original Capital
Securities will increase by 0.25% per annum until such registration statement
is filed or declared effective, as the case may be. Upon consummation of the
Exchange Offer, holders of Original Capital Securities will not be entitled
to any increase in the Distribution rate thereon or any further registration
rights under the Registration Rights Agreement, except under limited
circumstances. See "Risk Factors--Consequences of a Failure to Exchange
Original Capital Securities" and "Description of Original Securities."
The Exchange Offer is not being made to, nor will the Issuer Trust accept
tenders for exchange from, holders of Original Capital Securities in any
jurisdiction in which the Exchange Offer or the acceptance thereof would not
be in compliance with the securities or blue sky laws of such jurisdiction.
Each broker-dealer that receives Exchange Securities for its own account
in exchange for Securities, where such Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Securities. See "Plan of Distribution."
Unless the context requires otherwise, the term "holder" with respect to
the Exchange Offer means any person in whose name the Original Capital
Securities are registered on the books of the Issuer Trust or any other
person who has obtained a properly completed bond power from the registered
holder, or any person whose Original Capital Securities are held of record by
The Depository Trust Company ("DTC") who desires to deliver such Original
Capital Securities by book-entry transfer at DTC.
Pursuant to the Exchange Offer, the Company will exchange as soon as
practicable after the date hereof, the Original Guarantee for the Exchange
Guarantee and the Original Junior Subordinated Debentures, in an amount
corresponding to the Original Capital Securities accepted for exchange, for a
like aggregate principal amount of the Exchange Junior Subordinated
Debentures. The Exchange Guarantee and Exchange Junior Subordinated
Debentures have been registered under the Securities Act.
TERMS OF THE EXCHANGE OFFER
The Issuer Trust hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal, to exchange up to $110,000,000 aggregate Liquidation Amount of
Exchange Capital Securities for a like aggregate Liquidation Amount of
Original Capital Securities properly tendered on or prior to the Expiration
Date and not properly withdrawn in accordance with the procedures described
below. The Issuer Trust will issue, promptly after the Expiration Date, an
aggregate Liquidation Amount of up to $110,000,000 of Exchange Capital
Securities in exchange for a like principal amount of outstanding Original
Capital Securities tendered and accepted in connection with the Exchange
Offer. Holders may tender their Original Capital Securities in whole or in
part in a Liquidation Amount of not less than $1,000 Liquidation Amount (one
Capital Security).
32
<PAGE>
The Exchange Offer is not conditioned upon any minimum Liquidation Amount
of Original Capital Securities being tendered. As of the date of this
Prospectus, $110,000,000 aggregate Liquidation Amount of the Original Capital
Securities is outstanding.
Holders of Original Capital Securities do not have any appraisal or
dissenters' rights in connection with the Exchange Offer. Original Capital
Securities which are not tendered for or are tendered but not accepted in
connection with the Exchange Offer will remain outstanding and be entitled to
the benefits of the Declaration, but will not be entitled to any further
registration rights under the Registration Rights Agreement, except under
limited circumstances. See "Risk Factors--Consequences of a Failure to
Exchange Original Capital Securities" and "Description of Original
Securities."
If any tendered Original Capital Securities are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set
forth herein or otherwise, certificates for any such unaccepted Original
Capital Securities will be returned, without expense, to the tendering holder
thereof promptly after the Expiration Date.
Holders who tender Original Capital Securities in connection with the
Exchange Offer will not be required to pay brokerage commissions or fees or,
subject to the instructions in the Letter of Transmittal, transfer taxes with
respect to the exchange of Original Capital Securities in connection with the
Exchange Offer. The Company will pay all charges and expenses, other than
certain applicable taxes described below, in connection with the Exchange
Offer. See "--Fees and Expenses."
NEITHER THE COMPANY, THE BOARD OF DIRECTORS OF THE COMPANY NOR ANY TRUSTEE
OF THE ISSUER TRUST MAKES ANY RECOMMENDATION TO HOLDERS OF ORIGINAL CAPITAL
SECURITIES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY
PORTION OF THEIR ORIGINAL CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER.
IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION.
HOLDERS OF ORIGINAL CAPITAL SECURITIES MUST MAKE THEIR OWN DECISIONS WHETHER
TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF
ORIGINAL CAPITAL SECURITIES TO TENDER BASED ON SUCH HOLDERS' OWN FINANCIAL
POSITIONS AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on
December 5, 1997 unless the Exchange Offer is extended by the Company or the
Issuer Trust (in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended).
The Company and the Issuer Trust expressly reserve the right in their sole
and absolute discretion, subject to applicable law, at any time and from time
to time, (i) to delay the acceptance of the Original Capital Securities for
exchange, (ii) to terminate the Exchange Offer (whether or not any Original
Capital Securities have theretofore been accepted for exchange) if the Issuer
Trust determines, in its sole and absolute discretion, that any of the events
or conditions referred to under "--Conditions to the Exchange Offer" have
occurred or exist or have not been satisfied, (iii) to extend the Expiration
Date of the Exchange Offer and retain all Original Capital Securities
tendered pursuant to the Exchange Offer, subject, however, to the right of
holders of Original Capital Securities to withdraw their tendered Original
Capital Securities as described under "--Withdrawal Rights," and (iv) to
waive any condition or otherwise amend the terms of the Exchange Offer in any
respect. If the Exchange Offer is amended in a manner determined by the
Company and the Issuer Trust to constitute a material change, or if the
Company and the Issuer Trust waive a material condition of the Exchange
Offer, the Company and the Issuer Trust will promptly disclose such amendment
by means of a prospectus supplement that will be distributed to the holders
of the Original Capital Securities, and the Company and the Issuer Trust will
extend the Exchange Offer to the extent required by Rule 14e-1 under the
Exchange Act.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and
by making a public announcement thereof, and such announcement in the case of
an extension will be made no later than 9:00 a.m., New York City time,
33
<PAGE>
on the next business day after the previously scheduled Expiration Date.
Without limiting the manner in which the Company and the Issuer Trust may
choose to make any public announcement and subject to applicable law, the
Company and the Issuer Trust shall have no obligation to publish, advertise
or otherwise communicate any such public announcement other than by issuing a
release to an appropriate news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE CAPITAL SECURITIES
Upon the terms and subject to the conditions of the Exchange Offer, the
Issuer Trust will exchange Exchange Capital Securities for Original Capital
Securities validly tendered and not withdrawn (pursuant to the withdrawal
rights described under "--Withdrawal Rights") promptly after the Expiration
Date.
Subject to the conditions set forth under "--Conditions to the Exchange
Offer," delivery of Exchange Capital Securities in exchange for Original
Capital Securities tendered and accepted for exchange pursuant to the
Exchange Offer will be made only after timely receipt by the Exchange Agent
of (i) certificates for Original Capital Securities or a book-entry
confirmation of a book-entry transfer of Original Capital Securities into the
Exchange Agent's account at DTC, including an Agent's Message if the
tendering holder does not deliver a Letter of Transmittal, (ii) a completed
and signed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, or, in the case of a book-entry transfer, an Agent's
Message in lieu of the Letter of Transmittal, and (iii) any other documents
required by the Letter of Transmittal. Accordingly, the delivery of Exchange
Capital Securities might not be made to all tendering holders at the same
time, and will depend upon when certificates for Original Capital Securities,
book-entry confirmations with respect to Original Capital Securities and
other required documents are received by the Exchange Agent.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of Original Capital Securities into the Exchange Agent's
account at DTC. See "--Procedures for Tendering Original Capital
Securities--Book--Entry Transfer." The term "Agent's Message" means a
message, transmitted by DTC to and received by the Exchange Agent and forming
a part of a book-entry confirmation, which states that DTC has received an
express acknowledgment from the tendering participant, which acknowledgment
states that such participant has received and agrees to be bound by the
Letter of Transmittal and that the Issuer Trust and the Company may enforce
such Letter of Transmittal against such participant.
Subject to the terms and conditions of the Exchange Offer, the Company and
the Issuer Trust will be deemed to have accepted for exchange, and thereby
exchanged, Original Capital Securities validly tendered and not withdrawn as,
if and when the Issuer Trust gives oral or written notice to the Exchange
Agent of the Company's and the Issuer Trust's acceptance of such Original
Capital Securities for exchange pursuant to the Exchange Offer. The Exchange
Agent will act as agent for the Company and the Issuer Trust for the purpose
of receiving tenders of Original Capital Securities, Letters of Transmittal
and related documents, and as agent for tendering holders for the purpose of
receiving Original Capital Securities, Letters of Transmittal and related
documents and transmitting Exchange Capital Securities which will not be held
in global form by DTC or a nominee of DTC to validly tendering holders. Such
exchange will be made promptly after the Expiration Date. If for any reason
whatsoever, acceptance for exchange or the exchange of any Original Capital
Securities tendered pursuant to the Exchange Offer is delayed (whether before
or after the Company's and the Issuer Trust's acceptance for exchange of
Original Capital Securities) or the Company and the Issuer Trust extend the
Exchange Offer or are unable to accept for exchange or exchange Original
Capital Securities tendered pursuant to the Exchange Offer, then, without
prejudice to the Company's and the Issuer Trust's rights set forth herein,
the Exchange Agent may, nevertheless, on behalf of the Company and the Issuer
Trust and subject to Rule 14e-1(c) under the Exchange Act, retain tendered
Original Capital Securities and such Original Capital Securities may not be
withdrawn except to the extent tendering holders are entitled to withdrawal
rights as described under "--Withdrawal Rights."
Pursuant to an Agent's Message or a Letter of Transmittal, a holder of
Original Capital Securities will represent, warrant and agree in the Letter
of Transmittal that it has full power and authority to tender, exchange,
sell, assign and transfer Original Capital Securities, that the Issuer Trust
will acquire good,
34
<PAGE>
marketable and unencumbered title to the tendered Original Capital
Securities, free and clear of all liens, restrictions, charges and
encumbrances, and the Original Capital Securities tendered for exchange are
not subject to any adverse claims or proxies. The holder also will warrant
and agree that it will, upon request, execute and deliver any additional
documents deemed by the Issuer Trust or the Exchange Agent to be necessary or
desirable to complete the exchange, sale, assignment, and transfer of the
Original Capital Securities tendered pursuant to the Exchange Offer.
PROCEDURES FOR TENDERING ORIGINAL CAPITAL SECURITIES
VALID TENDER
Except as set forth below, in order for Original Capital Securities to be
validly tendered by book-entry transfer, an Agent's Message or a completed
and signed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, and in either case any other documents required by the
Letter of Transmittal, must be delivered to the Exchange Agent by mail,
facsimile, hand delivery or overnight courier at one of the Exchange Agent's
addresses set forth under "--Exchange Agent" on or prior to the Expiration
Date and either (i) such Original Capital Securities must be tendered
pursuant to the procedures for book-entry transfer set forth below or (ii)
the guaranteed delivery procedures set forth below must be complied with.
Except as set forth below, in order for Original Capital Securities to be
validly tendered by a means other than by book-entry transfer, a completed
and signed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, and any other documents required by the Letter of
Transmittal must be delivered to the Exchange Agent by mail, facsimile, hand
delivery or overnight courier at one of the Exchange Agent's addresses set
forth under "--Exchange Agent" on or prior to the Expiration Date and either
(i) such Original Capital Securities must be delivered to the Exchange Agent
on or prior to the Expiration Date or (ii) the guaranteed delivery procedures
set forth below must be complied with. If less than all Original Capital
Securities are tendered, a tendering holder should fill in the amount of
Original Capital Securities being tendered in the appropriate box on the
Letter of Transmittal. The entire amount of Original Capital Securities
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS TO BE BY MAIL, THE USE OF REGISTERED MAIL,
RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE
IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE
TIMELY DELIVERY.
BOOK-ENTRY TRANSFER
The Exchange Agent and DTC have confirmed that any Participant (as defined
in "Description of Exchange Securities--Description of Exchange Capital
Securities--Depositary Procedures") in DTC's book-entry transfer facility
system may utilize DTC's ATOP procedures to tender Original Capital
Securities. The Exchange Agent will establish an account with respect to the
Original Capital Securities at DTC for purposes of the Exchange Offer within
two business days after the date of this Prospectus. Any Participant may make
a book-entry delivery of the Original Capital Securities by causing DTC to
transfer such Original Capital Securities into the Exchange Agent's account
at DTC in accordance with DTC's ATOP procedures for transfer. However,
although delivery of Original Capital Securities may be effected through
book-entry transfer into the Exchange Agent's account at DTC, an Agent's
Message or a completed and signed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees and any other documents
required by the Letter of Transmittal, must in any case be delivered to and
received by the Exchange Agent at one of its addresses set forth under
"--Exchange Agent" on or prior to the Expiration Date, or the guaranteed
delivery procedure set forth below must be complied with.
35
<PAGE>
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Signature Guarantees. Certificates for the Original Capital Securities
need not be endorsed and signature guarantees on the Letter of Transmittal
are unnecessary unless (a) a certificate for the Original Capital Securities
is registered in a name other than that of the person surrendering the
certificate or (b) such holder completes the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" in the Letter of
Transmittal. In the case of (a) or (b) above, such certificates for Original
Capital Securities must be duly endorsed or accompanied by a properly
executed bond power, with the endorsement or signature on the bond power and
on the Letter of Transmittal guaranteed by a firm or other entity identified
in Rule 17Ad-15 under the Exchange Act as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii)
a broker, dealer, municipal securities broker or dealer or government
securities broker or dealer; (iii) a credit union; (iv) a national securities
exchange, registered securities association or clearing agency; or (v) a
savings association that is a participant in a Securities Transfer
Association (an "Eligible Institution"), unless surrendered on behalf of such
Eligible Institution. See Instruction 1 to the Letter of Transmittal.
Guaranteed Delivery. If a holder desires to tender Original Capital
Securities pursuant to the Exchange Offer and the certificates for such
Original Capital Securities are not immediately available or time will not
permit all required documents to reach the Exchange Agent on or prior to the
Expiration Date, or the procedure for book-entry transfer cannot be completed
on a timely basis, such Original Capital Securities may nevertheless be
tendered, provided that all of the following guaranteed delivery procedures
are complied with:
(a) such tenders are made by or through an Eligible Institution;
(b) properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form accompanying the Letter of Transmittal, is
received by the Exchange Agent, as provided below, on or prior to the
Expiration Date; and
(c) the certificates (or a book-entry confirmation) representing all
tendered Original Capital Securities, in proper form for transfer,
together with a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), with any required signature guarantees and any
other documents required by the Letter of Transmittal, are received by the
Exchange Agent within three New York Stock Exchange, Inc. trading days
after the date of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of Exchange
Capital Securities in exchange for Original Capital Securities tendered and
accepted for exchange pursuant to the Exchange Offer will in all cases be
made only after timely receipt by the Exchange Agent of Original Capital
Securities, or of a book-entry confirmation with respect to such Original
Capital Securities, and a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), together with any required signature
guarantees and any other documents required by the Letter of Transmittal.
Accordingly, the delivery of Exchange Capital Securities might not be made to
all tendering holders at the same time, and will depend upon when Original
Capital Securities, book-entry confirmations with respect to Original Capital
Securities and other required documents are received by the Exchange Agent.
The Issuer Trust's acceptance for exchange of Original Capital Securities
tendered pursuant to any of the procedures described above will constitute a
binding agreement between the tendering holder and the Issuer Trust upon the
terms and subject to the conditions of the Exchange Offer.
Determination of Validity. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange
of any tendered Original Capital Securities will be determined by the Company
and the Issuer Trust, in their sole discretion, whose determination shall be
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final and binding on all parties. The Company and the Issuer Trust reserve
the absolute right, in their sole and absolute discretion, to reject any and
all tenders determined by them not to be in proper form or the acceptance of
which, or exchange for, may, in the opinion of counsel to the Company and the
Issuer Trust, be unlawful. The Company and the Issuer Trust also reserve the
absolute right, subject to applicable law, to waive any of the conditions of
the Exchange Offer as set forth under "--Conditions to the Exchange Offer" or
any condition or irregularity in any tender of Original Capital Securities of
any particular holder whether or not similar conditions or irregularities are
waived in the case of other holders.
The interpretation by the Company and the Issuer Trust of the terms and
conditions of the Exchange Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding. No tender of Original
Capital Securities will be deemed to have been validly made until all
irregularities with respect to such tender have been cured or waived. Neither
the Company, the Issuer Trust, any affiliates or assigns of the Company or
the Issuer Trust, the Exchange Agent nor any other person shall be under any
duty to give any notification of any irregularities in tenders or incur any
liability for failure to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney,
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
Corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by the Company
and the Issuer Trust, proper evidence satisfactory to the Company and the
Issuer Trust, in their sole discretion, of such person's authority to so act
must be submitted.
A beneficial owner of Original Capital Securities that are held by or
registered in the name of a broker, dealer, commercial bank, trust Company or
other nominee or custodian is urged to contact such entity promptly if such
beneficial holder wishes to participate in the Exchange Offer.
RESALES OF EXCHANGE CAPITAL SECURITIES
The Issuer Trust is making the Exchange Offer for the Exchange Capital
Securities in reliance on the position of the staff of the Division of
Corporation Finance of the Commission as set forth in certain interpretive
letters addressed to third parties in other transactions. However, neither
the Company nor the Issuer Trust sought its own interpretive letter and there
can be no assurance that the staff of the Division of Corporation Finance of
the Commission would make a similar determination with respect to the
Exchange Offer as it has in such interpretive letters to third parties. Based
on these interpretations by the staff of the Division of Corporation Finance
of the Commission, and subject to the two immediately following sentences,
the Company and the Issuer Trust believe that Exchange Capital Securities
issued pursuant to this Exchange Offer in exchange for Original Capital
Securities may be offered for resale, resold and otherwise transferred by a
holder thereof (other than a holder who is a broker-dealer) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such Exchange Capital Securities are acquired
in the ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such Exchange Capital Securities. However, any holder of Original Capital
Securities who is an "affiliate" of the Company or the Issuer Trust or who
intends to participate in the Exchange Offer for the purpose of distributing
Exchange Capital Securities, or any broker-dealer who purchased Original
Capital Securities from the Issuer Trust to resell pursuant to Rule 144A or
any other available exemption under the Securities Act, (a) will not be able
to rely on the interpretations of the staff of the Division of Corporation
Finance of the Commission set forth in the above-mentioned interpretive
letters, (b) will not be permitted or entitled to tender such Original
Capital Securities in the Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Original Capital
Securities unless such sale is made pursuant to an exemption from such
requirements. In addition, as described below, if any broker-dealer holds
Original Capital Securities acquired for its own account as a result of
market-making or other trading activities and exchanges such Original Capital
Securities for Exchange Capital Securities, then such broker-dealer must
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such Exchange Capital Securities.
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Each holder of Original Capital Securities who wishes to exchange Original
Capital Securities for Exchange Capital Securities in the Exchange Offer will
be required to represent that (i) it is not an "affiliate" of the Company or
the Issuer Trust, (ii) any Exchange Capital Securities to be received by it
are being acquired in the ordinary course of its business, (iii) it has no
arrangement or understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of such Exchange Capital
Securities, and (iv) if such holder is not a broker-dealer, such holder is
not engaged in, and does not intend to engage in, a distribution (within the
meaning of the Securities Act) of such Exchange Capital Securities. In
addition, the Company and the Issuer Trust may require such holder, as a
condition to such holder's eligibility to participate in the Exchange Offer,
to furnish to the Company and the Issuer Trust (or an agent thereof) in
writing information as to the number of "beneficial owners" (within the
meaning of Rule 13d-3 under the Exchange Act) on behalf of whom such holder
holds the Capital Securities to be exchanged in the Exchange Offer. Each
broker-dealer that receives Exchange Capital Securities for its own account
pursuant to the Exchange Offer must acknowledge that it acquired the Original
Capital Securities for its own account as the result of market-making
activities or other trading activities and must agree that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resale of such Exchange Capital Securities. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. Based on the position taken by the staff
of the Division of Corporation Finance of the Commission in the interpretive
letters referred to above, the Company and the Issuer Trust believe that
Participating Broker-Dealers who acquired Original Capital Securities for
their own accounts as a result of market-making activities or other trading
activities may fulfill their prospectus delivery requirements with respect to
the Exchange Capital Securities received upon exchange of such Original
Capital Securities (other than Original Capital Securities which represent an
unsold allotment from the initial sale of the Original Capital Securities)
with a prospectus meeting the requirements of the Securities Act, which may
be the prospectus prepared for an exchange offer so long as it contains a
description of the plan of distribution with respect to the resale of such
Exchange Capital Securities. Accordingly, this Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer during the period referred to below in connection with resales
of Exchange Capital Securities received in exchange for Original Capital
Securities where such Original Capital Securities were acquired by such
Participating Broker-Dealer for its own account as a result of market-making
or other trading activities. Subject to certain provisions set forth in the
Registration Rights Agreement, the Company and the Issuer Trust have agreed
that this Prospectus, as it may be amended or supplemented from time to time,
may be used by a Participating Broker-Dealer in connection with resales of
such Exchange Capital Securities for a period ending 180 days after the
Expiration Date (subject to extension under certain limited circumstances
described below) or, if earlier, when all such Exchange Capital Securities
have been disposed of by such Participating Broker-Dealer. See "Plan of
Distribution." However, a Participating Broker-Dealer who intends to use this
Prospectus in connection with the resale of Exchange Capital Securities
received in exchange for Original Capital Securities pursuant to the Exchange
Offer must notify the Company or the Issuer Trust, or cause the Company or
the Issuer Trust to be notified, on or prior to the Expiration Date, that it
is a Participating Broker-Dealer. Such notice may be given in the space
provided for that purpose in the Letter of Transmittal or may be delivered to
the Exchange Agent at one of the addresses set forth herein under "--Exchange
Agent." Any Participating Broker-Dealer who is an "affiliate" of the Company
or the Issuer Trust may not rely on such interpretive letters and must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale transaction.
In that regard, each Participating Broker-Dealer who surrenders Original
Capital Securities pursuant to the Exchange Offer will be deemed to have
agreed, by execution of the Letter of Transmittal, that upon receipt of
notice from the Company or the Issuer Trust of the occurrence of any event or
the discovery of (i) any fact which makes any statement contained or
incorporated by reference in this Prospectus untrue in any material respect
or (ii) any fact which causes this Prospectus to omit to state a material
fact necessary in order to make the statements contained or incorporated by
reference herein, in light of the circumstances under which they were made,
not misleading, or (iii) of the occurrence of certain other events specified
in the Registration Rights Agreement, such Participating Broker-Dealer will
suspend the
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sale of Exchange Capital Securities (or the Exchange Guarantee or the
Exchange Junior Subordinated Debentures, as applicable) pursuant to this
Prospectus until the Company or the Issuer Trust has amended or supplemented
this Prospectus to correct such misstatement or omission and has furnished
copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer, or the Company or the Issuer Trust has given notice that the
sale of the Exchange Capital Securities (or the Exchange Guarantee or the
Exchange Junior Subordinated Debentures, as applicable) may be resumed, as
the case may be. If the Company or the Issuer Trust gives such notice to
suspend the sale of the Exchange Capital Securities (or the Exchange
Guarantee or the Exchange Junior Subordinated Debentures, as applicable), it
shall extend the 180-day period referred to above during which Participating
Broker-Dealers are entitled to use this Prospectus in connection with the
resale of Exchange Capital Securities by the number of days during the period
from and including the date of the giving of such notice to and including the
date when Participating Broker-Dealers shall have received copies of the
amended or supplemented Prospectus necessary to permit resales of the
Exchange Capital Securities or to and including the date on which the Company
or the Issuer Trust has given notice that the sale of Exchange Capital
Securities (or the Exchange Guarantee or the Exchange Junior Subordinated
Debentures, as applicable) may be resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Original Capital
Securities may be withdrawn at any time on or prior to the Expiration Date.
In order for a withdrawal to be effective a written, telegraphic, telex or
facsimile transmission of such notice of withdrawal must be timely received
by the Exchange Agent at one of its addresses set forth under "--Exchange
Agent" on or prior to the Expiration Date. Any such notice of withdrawal must
specify the name of the person who tendered the Original Capital Securities
to be withdrawn, the aggregate principal amount of Original Capital
Securities to be withdrawn, and (if certificates for such Original Capital
Securities have been tendered) the name of the registered holder of the
Original Capital Securities as set forth on the Original Capital Securities,
if different from that of the person who tendered such Original Capital
Securities. If Original Capital Securities have been delivered or otherwise
identified to the Exchange Agent, then prior to the physical release of such
Original Capital Securities, the tendering holder must submit the serial
numbers shown on the particular Original Capital Securities to be withdrawn
and the signature on the notice of withdrawal must be guaranteed by an
Eligible Institution, except in the case of Original Capital Securities
tendered for the account of an Eligible Institution. If Original Capital
Securities have been tendered pursuant to the procedures for book-entry
transfer set forth in "--Procedures for Tendering Original Capital
Securities," the notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawal of Original Capital
Securities, in which case a notice of withdrawal will be effective if
delivered to the Exchange Agent by written, telegraphic, telex or facsimile
transmission. Withdrawals of tenders of Original Capital Securities may not
be rescinded. Original Capital Securities properly withdrawn will not be
deemed validly tendered for purposes of the Exchange Offer, but may be
retendered at any subsequent time on or prior to the Expiration Date by
following any of the procedures described above under "--Procedures for
Tendering Original Capital Securities."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Issuer Trust,
in its sole discretion, whose determination shall be final and binding on all
parties. Neither the Company, the Issuer Trust, any affiliates or assigns of
the Company or the Issuer Trust, the Exchange Agent nor any other person
shall be under any duty to give any notification of any irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification. Any Original Capital Securities which have been tendered but
which are withdrawn will be returned to the holder thereof promptly after
withdrawal.
DISTRIBUTIONS ON EXCHANGE CAPITAL SECURITIES
Holders of Original Capital Securities whose Original Capital Securities
are accepted for exchange will not receive Distributions on such Original
Capital Securities and will be deemed to have waived the right to receive any
Distributions on such Original Capital Securities accumulated from and after
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October 15, 1997. Accordingly, holders of Exchange Capital Securities as of
the record date for the payment of Distributions on January 15, 1998 will be
entitled to receive Distributions accumulated from and after October 15,
1997.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Company and the Issuer Trust will not be
required to accept for exchange, or to exchange, any Original Capital
Securities for any Exchange Capital Securities, and, as described below, may
terminate the Exchange Offer (whether or not any Original Capital Securities
have theretofore been accepted for exchange) or may waive any conditions to
or amend the Exchange Offer, if any of the following conditions have occurred
or exists or have not been satisfied:
(a) there shall occur a change in the current interpretation by the staff
of the Commission which permits the Exchange Capital Securities issued
pursuant to the Exchange Offer in exchange for Original Capital Securities
to be offered for resale, resold and otherwise transferred by holders
thereof (other than broker-dealers and any such holder which is an
"affiliate" of the Company or the Issuer Trust within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Capital Securities are acquired in the ordinary course of such
holders' business and such holders have no arrangement or understanding
with any person to participate in the distribution of such Exchange
Capital Securities; or
(b) any law, statute, rule or regulation shall have been adopted or
enacted which, in the judgment of the Company or the Issuer Trust, would
reasonably be expected to impair its ability to proceed with the Exchange
Offer; or
(c) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration
Statement, or proceedings shall have been initiated or, to the knowledge
of the Company or the Issuer Trust, threatened for that purpose, or any
governmental approval has not been obtained, which approval the Company or
the Issuer Trust shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby; or
(d) the Company shall receive an opinion of counsel experienced in such
matters to the effect that there is more than an insubstantial risk that
consummation of the Exchange Offer would result in interest payable to the
Issuer Trust on the Junior Subordinated Debentures being not deductible by
the Company for United States federal income tax purposes.
If the Company or the Issuer Trust determines in its sole and absolute
discretion that any of the foregoing events or conditions has occurred or
exists or has not been satisfied, it may, subject to applicable law,
terminate the Exchange Offer (whether or not any Original Capital Securities
have theretofore been accepted for exchange) or may waive any such condition
or otherwise amend the terms of the Exchange Offer in any respect. If such
waiver or amendment constitutes a material change to the Exchange Offer, the
Company or the Issuer Trust will promptly disclose such waiver or amendment
by means of a prospectus supplement that will be distributed to the
registered holders of the Original Capital Securities and will extend the
Exchange Offer to the extent required by Rule 14e-1 under the Exchange Act.
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EXCHANGE AGENT
The First National Bank of Chicago has been appointed as Exchange Agent
for the Exchange Offer. Delivery of the Letters of Transmittal and any other
required documents, questions, requests for assistance, and requests for
additional copies of this Prospectus or of the Letter of Transmittal should
be directed to the Exchange Agent as follows:
By Mail:
(Registered or Certified Mail
recommended)
The First National Bank of
Chicago
c/o First Chicago Trust
Company of New York
14 Wall Street
8th Floor, Window 2
New York, New York 10005
Facsimile Transmissions:
(Eligible Institutions Only)
(212) 240-8938
To Confirm by Telephone
or for Information Call:
(212) 240-8801
By Hand or Overnight
Delivery:
The First National Bank of
Chicago
c/o First Chicago Trust
Company of New York
14 Wall Street
8th Floor, Window 2
New York, New York 10005
Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.
FEES AND EXPENSES
The Company has agreed to pay the Exchange Agent reasonable and customary
fees for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith. The Company will also pay brokerage houses
and other custodians, nominees and fiduciaries the reasonable out-of-pocket
expenses incurred by them in forwarding copies of this Prospectus and related
documents to the beneficial owners of Original Capital Securities, and in
handling or tendering for their customers.
Holders who tender their Original Capital Securities for exchange will not
be obligated to pay any transfer taxes in connection therewith. If, however,
Exchange Capital Securities are to be delivered to, or are to be issued in
the name of, any person other than the registered holder of the Original
Capital Securities tendered, or if a transfer tax is imposed for any reason
other than the exchange of Original Capital Securities in connection with the
Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the
amount of such transfer taxes will be billed directly to such tendering
holder.
Neither the Company nor the Issuer Trust will make any payment to
brokers,dealers or other nominees soliciting acceptances of the Exchange
Offer.
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DESCRIPTION OF EXCHANGE SECURITIES
The terms of the Original Securities are identical in all materials
respects to the Exchange Securities, except that (i) the Original Securities
have not been registered under the Securities Act, are subject to certain
restrictions on transfer and are entitled to certain rights under the
applicable Registration Rights Agreement (which rights will terminate upon
consummation of the Exchange Offer, except under limited circumstances), (ii)
the Exchange Capital Securities will not contain the restrictions on transfer
applicable to Original Capital Securities, (iii) the Exchange Capital
Securities will not provide for any increase in the Distribution rate thereon
and (iv) the Exchange Junior Subordinated Debentures will not provide for any
increase in the interest rate thereon. The Original Securities provide that,
in the event that a registration statement relating to the Exchange Offer has
not been filed by October 13, 1997 and been declared effective by December
12, 1997, or, in certain limited circumstances, in the event a shelf
registration statement (the "Shelf Registration Statement") with respect to
the resale of the Original Capital Securities is not declared effective by
the time required by the Registration Rights Agreement, then liquidated
damages will accrue at the rate of 0.25% per annum on the principal amount of
the Original Junior Subordinated Debentures and Distributions will accrue at
the rate of 0.25% per annum on the Liquidation Amount of the Original Capital
Securities, for the period from the occurrence of such event until such time
as such registration statement has been filed or declared effective, as the
case may be. The Exchange Securities are not, and upon consummation of the
Exchange Offer the Original Securities will not be, entitled to any such
additional interest or Distributions. Accordingly, holders of Original
Capital Securities should review the information set forth under "Risk
Factors--Consequences of a Failure to Exchange Original Capital Securities"
and "Description of Exchange Securities."
DESCRIPTION OF EXCHANGE CAPITAL SECURITIES
The Exchange Capital Securities will represent preferred beneficial
interests in the Issuer Trust and the holders thereof will be entitled to a
preference over the Common Securities in certain circumstances with respect
to Distributions and amounts payable on redemption of the Trust Securities or
liquidation of the Issuer Trust. See "--Subordination of Common Securities."
The Trust Agreement has been qualified under the Trust Indenture Act of 1939,
as amended (the "Trust Indenture Act"). This summary of certain provisions of
the Exchange Capital Securities, the Common Securities and the Trust
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Trust Agreement,
including the definitions therein of certain terms.
Whenever particular defined terms of the Trust Agreement (as amended or
supplemented from time to time) are referred to herein, such defined terms
are incorporated herein by reference. The Trust Agreement is available upon
request from the Issuer Trustees.
General. The Exchange Capital Securities will be limited to $110,000,000
aggregate Liquidation Amount outstanding. The Exchange Capital Securities
will rank pari passu, and payments will be made thereon pro rata, with the
Common Securities except as described under "--Subordination of Common
Securities." Legal title to the Junior Subordinated Debentures will be held
by the Issuer Trust in trust for the benefit of the holders of the Trust
Securities. The Exchange Guarantee Agreement executed by the Company for the
benefit of the holders of the Exchange Capital Securities will be a guarantee
on a subordinated basis with respect to the Exchange Capital Securities but
will not guarantee payment of Distributions or amounts payable on redemption
or liquidation of such Capital Securities when the Issuer Trust does not have
funds on hand available to make such payments. See "Description of Exchange
Guarantee."
Distributions. The Exchange Capital Securities represent undivided
beneficial interests in the assets of the Issuer Trust, and Distributions on
each Exchange Capital Security will be payable at a variable annual rate
equal to LIBOR plus .91% on the stated Liquidation Amount of $1,000, payable
quarterly in arrears on January 15, April 15, July 15, and October 15 of each
year (each a "Distribution Date"), to the holders of the Exchange Capital
Securities at the close of business on the January 1, April 1, July 1, and
October 1, as the case may be, next preceding the relevant Distribution Date.
Distributions on the Exchange Capital Securities will be cumulative.
Distributions will accumulate from the date of original issuance. The amount
of Distributions payable for any period will be computed on the basis of the
actual
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number of days in the applicable Distribution period (which actual number of
days shall include the first day but exclude the last day of such
Distribution period) divided by 360. In the event that any date on which
Distributions are payable on the Exchange Capital Securities is not a
Business Day (as defined below), then payment of the Distributions payable on
such date will be made on the next succeeding day that is a Business Day (and
without any additional Distributions or other payment in respect of any such
delay), except if such Business Day is in the next 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 the date such payment was
originally payable.
So long as no Event of Default under the Junior Subordinated Indenture has
occurred and is continuing, the Company has the right under the Junior
Subordinated Indenture to defer the payment of interest on the Exchange
Junior Subordinated Debentures at any time or from time to time for a period
not exceeding 20 consecutive quarterly periods with respect to each Extension
Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Exchange Junior Subordinated Debentures. As a consequence of
any such election, quarterly Distributions on the Exchange Capital Securities
will be deferred by the Issuer Trust during any such Extension Period.
Distributions to which holders of the Exchange Capital Securities are
entitled will accumulate additional Distributions thereon at the rate per
annum equal to LIBOR plus .91% on the stated Liquidation Amount of $1,000
thereof, compounded quarterly from the relevant payment date for such
Distributions. The term "Distributions" as used herein shall include any such
additional Distributions. During any such Extension Period, the Company may
not, and may not permit any subsidiary of the Company to (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock, (ii)
make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu
in all respects with or junior in interest to the Exchange Junior
Subordinated Debentures or (iii) make any guarantee payments with respect to
any guarantee by the Company of the debt securities of any subsidiary of the
Company if such guarantee ranks pari passu with or junior in interest to the
Exchange Junior Subordinated Debentures (other than (a) dividends or
distributions in common stock of the Company, (b) any declaration of a
dividend in connection with the implementation of a stockholders' rights
plan, or the issuance of stock under any such plan in the future, or the
redemption or repurchase of any such rights pursuant thereto, (c) payments
under the Guarantee and (d) purchases of common stock related to the issuance
of common stock or rights under any of the Company's or its subsidiaries'
benefit plans for their directors, officers or employees). Prior to the
termination of any such Extension Period, the Company may further defer the
payment of interest, provided that no Extension Period may exceed 20
consecutive quarterly periods or extend beyond the Stated Maturity of the
Exchange Junior Subordinated Debentures. Upon the termination of any such
Extension Period and the payment of all amounts then due, the Company may
elect to begin a new Extension Period. There is no limitation on the number
of times that the Company may elect to begin an Extension Period. See
"Description of Exchange Junior Subordinated Debentures--Option To Extend
Interest Payment Period" and "Certain Federal Income Tax
Consequences--Interest Income and Original Issue Discount."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Exchange
Junior Subordinated Debentures.
The revenue of the Issuer Trust available for distribution to holders of
the Exchange Capital Securities will be limited to payments under the
Exchange Junior Subordinated Debentures in which the Issuer Trust will invest
the proceeds from the issuance and sale of the Capital Securities. See
"Description of Exchange Junior Subordinated Debentures." If the Company does
not make interest payments on the Junior Subordinated Debentures, the Issuer
Trust will not have funds available to pay Distributions on the Capital
Securities. The payment of Distributions (if and to the extent the Issuer
Trust has funds legally available or the payment of such Distributions and
cash sufficient to make such payments) is guaranteed by the Company on a
limited basis as set forth herein under "Description of Exchange Guarantee."
Distribution Rate. LIBOR and the amount of Distributions payable in
respect of each Distribution period will be calculated by First Chicago as
Calculation Agent, in the same manner as LIBOR and the interest payable in
respect of each interest payment period for the Exchange Junior Subordinated
Debentures, as described under "Description of Exchange Junior Subordinated
Debentures--Determination of Interest Rate."
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Redemption. Upon the repayment or redemption, in whole or in part, of the
Junior Subordinated Debentures, whether at maturity or upon earlier
redemption as provided in the Junior Subordinated Indenture, the proceeds
from such repayment or redemption shall be applied by the Property Trustee to
redeem a Like Amount (as defined below) of the Trust Securities, upon not
less than 30 nor more than 60 days' notice, at a redemption price (the
"Redemption Price") equal to the aggregate Liquidation Amount of such Trust
Securities plus accumulated but unpaid Distributions thereon to the date of
redemption (the "Redemption Date"). See "Description of Exchange Junior
Subordinated Debentures--Redemption." If less than all of the Junior
Subordinated Debentures are to be repaid or redeemed on a Redemption Date,
then the proceeds from such repayment or redemption shall be allocated to the
redemption pro rata of the Capital Securities and the Common Securities. The
amount of premium, if any, paid by the Company upon the redemption of all or
any part of Junior Subordinated Debentures to be repaid or redeemed on a
Redemption Date shall be allocated to the redemption pro rata of the Capital
Securities and the Common Securities.
The Company has the right to redeem the Junior Subordinated Debentures (i)
on or after July 15, 2007, in whole at any time or in part from time to time,
or (ii) in whole (but not in part) prior to July 15, 2007 and within 90 days
following the occurrence of a Tax Event. A redemption of the Junior
Subordinated Debentures would cause a mandatory redemption of the Capital
Securities and Common Securities.
"Business Day" means a day other than (i) a Saturday or a Sunday, (ii) a
day on which banking institutions in The City of New York are authorized by
law or executive order to remain closed, or (iii) a day on which the Property
Trustee's corporate trust office or the corporate trust office of the
Debenture Trustee is closed for business.
"Like Amount" means (i) with respect to a redemption of Capital
Securities, Capital Securities having a Liquidation Amount (as defined below)
equal to that portion of the principal amount of Junior Subordinated
Debentures to be contemporaneously redeemed in accordance with the Junior
Subordinated Debentures, allocated to the Common Securities and to the
Capital Securities based upon the relative Liquidation Amounts of such
classes and the proceeds of which will be used to pay the Redemption Price of
the Capital Securities and (ii) with respect to a distribution of Junior
Subordinated Debentures to holders of Capital Securities in connection with a
dissolution or liquidation of the Issuer Trust, Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Capital Securities of the holder to whom such Junior Subordinated Debentures
are distributed.
"Liquidation Amount" means the stated amount of $1,000 per Capital
Security.
Payment of Additional Sums. In the event a Tax Event has occurred and is
continuing and the Issuer Trust is the holder of all of the Junior
Subordinated Debentures, the Company will pay Additional Sums (as defined
below), if any, on the Junior Subordinated Debentures.
"Additional Sums" means the additional amounts as may be necessary in
order that the amount of Distributions then due and payable by the Issuer
Trust on the outstanding Capital Securities and Common Securities of the
Issuer Trust shall not be reduced as a result of any additional taxes, duties
and other governmental charges to which the Issuer Trust has become subject
as a result of a Tax Event.
Redemption Procedures. Exchange Capital Securities redeemed on each
Redemption Date shall be redeemed at the Redemption Price with the applicable
proceeds from the contemporaneous redemption of the Exchange Junior
Subordinated Debentures. Redemptions of the Exchange Capital Securities shall
be made and the Redemption Price shall be payable on each Redemption Date
only to the extent that the Issuer Trust has funds on hand available for the
payment of such Redemption Price. See also "--Subordination of Common
Securities."
If the Issuer Trust gives a notice of redemption in respect of the
Exchange Capital Securities, then, by 12:00 noon, New York City time, on the
Redemption Date, to the extent funds are available, in the case of Exchange
Capital Securities held in book-entry form, the Property Trustee will deposit
irrevocably with DTC funds sufficient to pay the applicable Redemption Price
and will give DTC irrevocable instructions and authority to pay the
Redemption Price to the holders of the Exchange Capital Securities. With
respect
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to Exchange Capital Securities not held in book-entry form, the Property
Trustee, to the extent funds are available, will irrevocably deposit with the
paying agent for the Exchange Capital Securities funds sufficient to pay the
applicable Redemption Price and will give such paying agent irrevocable
instructions and authority to pay the Redemption Price to the holders thereof
upon surrender of their certificates evidencing the Exchange Capital
Securities. Notwithstanding the foregoing, Distributions payable on or prior
to the Redemption Date for any Exchange Capital Securities called for
redemption shall be payable to the holders of the Exchange Capital Securities
on the relevant record dates for the related Distribution Dates. If notice of
redemption shall have been given and funds deposited as required, then upon
the date of such deposit, all rights of the holders of such Exchange Capital
Securities so called for redemption will cease, except the right of the
holders of such Exchange Capital Securities to receive the Redemption Price,
but without interest on such Redemption Price, and such Exchange Capital
Securities will cease to be outstanding. In the event that any date fixed for
redemption of Exchange Capital Securities is not a Business Day, then payment
of the Redemption Price 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 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 Exchange Capital Securities called for redemption is improperly
withheld or refused and not paid either by the Issuer Trust or by the Company
pursuant to the Exchange Guarantee as described under "Description of
Exchange Guarantee," Distributions on such Exchange Capital Securities will
continue to accrue at the then applicable rate, from the Redemption Date
originally established by the Issuer Trust for such Exchange Capital
Securities to the date such Redemption Price is actually paid, in which case
the actual payment date will be the date fixed for redemption for purposes of
calculating the Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), 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.
If less than all of the Capital Securities and Common Securities are to be
redeemed on a Redemption Date, then the aggregate Liquidation Amount of such
Capital Securities and Common Securities to be redeemed shall be allocated
pro rata to the Capital Securities and the Common Securities based upon the
relative Liquidation Amounts of such classes. The particular Capital
Securities to be redeemed shall be selected on a pro rata basis not more than
60 days prior to the Redemption Date by the Property Trustee from the
outstanding Capital Securities not previously called for redemption. The
Property Trustee shall promptly notify the trust registrar in writing of the
Capital Securities selected for redemption and, in the case of any Capital
Securities selected for partial redemption, the Liquidation Amount thereof to
be redeemed. For all purposes of the Trust Agreement, unless the context
otherwise requires, all provisions relating to the redemption of Capital
Securities shall relate, in the case of any Capital Securities redeemed or to
be redeemed only in part, to the portion of the aggregate Liquidation Amount
of Capital Securities which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each holder of Capital Securities to be
redeemed at its registered address. Unless the Company defaults in payment of
the Redemption Price on the Junior Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on the Junior Subordinated
Debentures or portions thereof (and distributions will cease to accumulate on
the Capital Securities or portions thereof) called for redemption.
Conditional Right to Shorten Maturity or Redeem upon a Tax Event. If a Tax
Event occurs then the Company shall have the right, prior to the termination
of the Issuer Trust, (i) to shorten the Stated Maturity of the Junior
Subordinated Debentures to the minimum extent required, but in any event to a
date not earlier than April 15, 2012 (the action referred to in this clause
(i) being referred to herein as a "Maturity Advancement"), such that, in the
opinion of counsel to the Company experienced in such matters, after
advancing the Stated Maturity, interest paid on the Junior Subordinated
Debentures will be deductible for federal income tax purposes, or (ii) to
redeem the Junior Subordinated Debentures, in whole but not in part, at any
time within 90 days following the occurrence of the Tax Event at a
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Redemption Price equal to 100% of the principal amount thereof plus accrued
and unpaid interest thereon to the Redemption Date. See "Description of
Exchange Capital Securities--Redemption" and "Description of Exchange Junior
Subordinated Debentures--General" and "--Redemption".
Holders of Capital Securities should consult their own tax advisors
regarding the tax consequences to them of a Maturity Advancement.
See "Certain Federal Tax Law Considerations--Possible Tax Law Changes" and
"Risk Factors--Tax Event Shortening of Maturity or Redemption" and
"--Possible Tax Law Changes Affecting the Capital Securities" for a
discussion of previous legislative proposals. The adoption of similar
legislation could give rise to a Tax Event, which may permit the Company to
shorten the Stated Maturity of the Junior Subordinated Debentures or cause a
redemption of the Capital Securities prior to July 15, 2007.
Subordination of Common Securities. Payment of Distributions on, and the
Redemption Price of, the Issuer Trust's Capital Securities and Common
Securities, as applicable, shall be made pro rata based on the Liquidation
Amount of such Capital Securities and Common Securities; provided, however,
that if on any Distribution Date or Redemption Date a Debenture Event of
Default shall have occurred and be continuing, no payment of any Distribution
on, or Redemption Price of, any of the Common Securities, and no other
payment on account of the redemption, liquidation or other acquisition of
such Common Securities, shall be made unless payment in full in cash of all
accumulated and unpaid Distributions on all of the outstanding Capital
Securities for all Distribution periods terminating on or prior thereto, or
in the case of payment of the Redemption Price the full amount of such
Redemption Price on all of the outstanding Capital Securities then called for
redemption, 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 Redemption Price of, the Capital Securities then due
and payable.
In the case of any Event of Default resulting from a Debenture Event of
Default, the Company as holder of the Common Securities will be deemed to
have waived any right to act with respect to any such Event of Default under
the Trust Agreement until the effect of all such Events of Default with
respect to such Capital Securities have been cured, waived or otherwise
eliminated. Until any such Events of Default under the Trust Agreement 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
such Capital Securities and not on behalf of the Company as holder of the
Common Securities, and only the holders of such Capital Securities will have
the right to direct the Property Trustee to act on their behalf.
Liquidation Distribution Upon Termination. The amount payable on the
Capital Securities in the event of any liquidation of the Issuer Trust is
$1,000 per Capital Security plus accumulated and unpaid Distributions, which
may be in the form of a distribution of such amount in Junior Subordinated
Debentures, subject to certain exceptions.
The holders of all of the outstanding Common Securities have the right at
any time to terminate the Issuer Trust and, after satisfaction of the
liabilities of creditors of the Issuer Trust as provided by applicable law,
cause the Junior Subordinated Debentures to be distributed to the holders of
the Capital Securities and Common Securities in liquidation of the Issuer
Trust, subject to (i) the Property Trustee having received an opinion of
counsel to the effect that such distribution will not be a taxable event to
holders of Capital Securities.
Pursuant to the Trust Agreement, the Issuer Trust shall automatically
terminate upon expiration of its term and shall terminate on the first to
occur of: (i) certain events of bankruptcy, dissolution or liquidation of the
Company; (ii) the distribution of a Like Amount of the Junior Subordinated
Debentures to the holders of its Trust Securities, if the holders of Common
Securities have given written direction to the Property Trustee to terminate
the Issuer Trust (which direction, subject to the foregoing restrictions, is
optional and wholly within the discretion of the holders of Common
Securities); (iii) redemption of all of the Capital Securities as described
under "Description of Exchange Capital Securities--Redemption" or (iv) the
entry of an order for the dissolution of the Issuer Trust by a court of
competent jurisdiction.
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If an early termination occurs as described in clause (i), (ii) or (iv)
above, the Issuer Trust shall be liquidated by the Issuer Trustees as
expeditiously as the Issuer Trustees determine to be possible by
distributing, after satisfaction of liabilities to creditors of the Issuer
Trust as provided by applicable law, to the holders of such Trust Securities
a Like Amount of the Junior Subordinated Debentures, unless such distribution
is determined by the Property Trustee not to be practical, in which event
such holders will be entitled to receive out of the assets of the Issuer
Trust available for distribution to holders, after satisfaction of
liabilities to creditors of the Issuer Trust as provided by applicable law,
an amount equal to, in the case of holders of Capital Securities, the
aggregate of the Liquidation Amount plus accumulated and unpaid Distributions
thereon to the date of payment (such amount being the "Liquidation
Distribution"). If such Liquidation Distribution can be paid only in part
because the Issuer Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Issuer Trust on its Capital Securities shall be paid on a pro rata basis. The
holder(s) of the Common Securities will be entitled to receive distributions
upon any such liquidation pro rata with the holders of the Capital
Securities, except that if a Debenture Event of Default has occurred and is
continuing, the Capital Securities shall have a priority over the Common
Securities.
After the liquidation date fixed for any distribution of Junior
Subordinated Debentures (i) the Capital Securities will no longer be deemed
to be outstanding, (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 with respect to Capital Securities held by DTC or its
nominee and (iii) any certificates representing the Capital Securities not
held by DTC or its nominee will be deemed to represent the Junior
Subordinated Debentures having a principal amount equal to the stated
Liquidation Amount of the Capital Securities and bearing accrued and unpaid
interest in an amount equal to the accumulated and unpaid Distributions on
the Capital Securities until such certificates are presented to the Security
Registrar for transfer or reissuance.
If the Company does not redeem the Junior Subordinated Debentures prior to
maturity and the Issuer Trust is not liquidated and the Junior Subordinated
Debentures are not distributed to holders of the Capital Securities, the
Capital Securities will remain outstanding until the repayment of the Junior
Subordinated Debentures.
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 if a dissolution and liquidation of the
Issuer Trust were to occur. 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 Issuer Trust, may
trade at a discount to the price that the investor paid to purchase the
Capital Securities offered hereby.
Events of Default; Notice. Any one of the following events constitutes an
"Event of Default" under the Trust Agreement (an "Event of Default") with
respect to the Capital Securities (whatever the reason for such Event of
Default and whether it shall 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):
(i) the occurrence of a Debenture Event of Default under the Exchange
Junior Subordinated Indenture (see "Description of Exchange Junior
Subordinated Debentures--Debenture Events of Default"); or
(ii) default by the Issuer Trust in the payment of any Distribution when
it becomes due and payable, and continuation of such default for a period
of 30 days (subject to the deferral of any due date in the case of an
Extension Period); or
(iii) default by the Issuer Trust in the payment of any Redemption Price
of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees in the Trust Agreement
(other than a covenant or warranty a default in the performance of which
or the breach of which is dealt with in clause (ii) or (iii) above), and
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continuation of such default or breach for a period of 90 days after there
has been given, by registered or certified mail, to the Issuer Trustees by
the holders of at least 25% in aggregate Liquidation Amount of the
outstanding Capital 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" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee if a successor Property Trustee has not
been appointed within 90 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of Trust Securities and the
Administrators, unless such Event of Default shall have been cured or waived.
The Company, as Depositor, and the Administrators are required to file
annually with the Property Trustee a certificate as to whether or not they
are in compliance with all the conditions and covenants applicable to them
under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the
Capital Securities shall have a preference over the Common Securities upon
termination of the Issuer Trust as described above. See "--Liquidation
Distribution Upon Termination." The existence of an Event of Default does not
entitle the holders of Capital Securities to accelerate the maturity thereof.
Removal of Issuer Trustees; Appointment of Successors. The holders of a
majority in Liquidation Amount of Capital Securities may remove an Issuer
Trustee for cause or, if an Event of Default has occurred and is continuing,
with or without cause. Unless an Event of Default described in (i), (ii) or
(iii) of the definition thereof or an event which with notice and/or lapse of
time would constitute such an Event of Default (collectively, an "Issuer
Trust Default") shall have occurred and be continuing, any Issuer Trustee may
be removed at any time by the holder of the Common Securities. If an Issuer
Trustee shall resign, be removed by the holder of Common Securities or the
holder of Capital Securities, become incapable of acting as trustee, or if a
vacancy shall occur in the office of any Issuer Trustee for any cause, (i) if
an Issuer Trust Default has not occurred, or has occurred and is not
continuing, the holder of the Common Securities, or (ii) if an Issuer Trust
Default has occurred and is continuing, the applicable Issuer Trustee (unless
a Debenture Event of Default has occurred and is continuing), or the holders
of at least 25% in Liquidation Amount of Capital Securities, shall appoint a
successor. If a successor has not been appointed, any holder of Capital
Securities or Common Securities or the Property Trustee may petition a court
in the State of Delaware to appoint a successor. Any Delaware Trustee must
meet the applicable requirements of Delaware law. Any Property Trustee must
be a national or state-chartered bank and at the time of appointment have
capital and surplus of at least $50,000,000. No resignation or removal of an
Issuer Trustee and no appointment of a successor trustee shall be effective
until the acceptance of appointment by the successor trustee in accordance
with the provisions of the Trust Agreement.
Merger or Consolidation of Issuer Trustees. Any entity into which the
Property Trustee or the Delaware Trustee may be merged or converted or with
which it may be consolidated, or any entity resulting from any merger,
conversion or consolidation to which such Trustee shall be a party, or any
entity succeeding to all or substantially all the corporate trust business of
such Trustee, shall be the successor of such Trustee under the Trust
Agreement, provided such entity shall be otherwise qualified and eligible.
Mergers, Consolidations, Amalgamations or Replacements of the Issuer
Trust. The Issuer Trust may not merge with or into, consolidate, amalgamate,
or be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any entity, except as described below or as
otherwise set forth in the Trust Agreement. The Issuer Trust may, at the
request of the holder of the Common Securities and with the consent of the
Administrative Trustees, but without the consent of the holders of the
outstanding Trust Securities, merge with or into, consolidate, amalgamate, or
be replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to a trust organized as such under the laws of
any State; provided, that (i) such successor entity either (a) expressly
assumes all of the obligations of the Issuer Trust with respect to the
Capital Securities or (b) substitutes for the Capital Securities other
securities having substantially the same terms as the Capital Securities (the
"Successor Securities") so long as the Successor Securities rank the same as
the Capital Securities rank in priority
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with respect to distributions and payments upon liquidation, redemption and
otherwise, (ii) a trustee of such successor entity is appointed possessing
the same powers and duties as the Property Trustee as the holder of the
Junior Subordinated Debentures, (iii) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not cause the
Capital Securities (including any Successor Securities) to be downgraded by
any nationally recognized statistical rating organization, (iv) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does
not adversely affect the rights, preferences and privileges of the holders of
the Capital Securities (including any Successor Securities) in any material
respect, (v) such successor entity has a purpose substantially identical to
that of the Issuer Trust, (vi) prior to such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Issuer Trust
has received an opinion from independent counsel experienced in such matters
to the effect that (a) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Capital Securities
(including any Successor Securities) in any material respect and (b)
following such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease, neither the Issuer Trust nor such successor entity will be
required to register as an investment Company under the Investment Company
Act of 1940, as amended (the "Investment Company Act"), and (vii) the Company
or any permitted successor or assignee owns all of the common securities of
such successor entity and guarantees the obligations of such successor entity
under the Successor Securities at least to the extent provided by the
Guarantee. Notwithstanding the foregoing, the Issuer Trust shall not, except
with the consent of each holder of Capital Securities, 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 other
entity or permit any other entity to consolidate, amalgamate, merge with or
into, or replace it if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the Issuer Trust or the successor
entity to be classified as other than a grantor trust for United States
federal income tax purposes.
Voting Rights; Amendment of Trust Agreement. Except as provided below and
under "Description of Exchange Guarantee--Amendments and Assignment" and as
otherwise required by law and the Trust Agreement, the holders of the Capital
Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the holders of a
majority of the Common Securities and the Property Trustee, without the
consent of the holders of the Capital Securities (i) to cure any ambiguity,
correct or supplement any provisions in the Trust Agreement that may be
inconsistent with any other provision, or to make any other provisions with
respect to matters or questions arising under the Trust Agreement, which
shall not be inconsistent with the other provisions of the Trust Agreement,
or (ii) to modify, eliminate or add to any provisions of the Trust Agreement
to such extent as shall be necessary to ensure that the Issuer Trust will be
classified for United States federal income tax purposes as a grantor trust
at all times that any Trust Securities are outstanding or to ensure that the
Issuer Trust will not be required to register as an "investment company"
under the Investment Company Act; provided, however, such action shall not
adversely affect in any material respect the interests of any holder of Trust
Securities, and any amendments of the Trust Agreement shall become effective
when notice thereof is given to the holders of Trust Securities. The Trust
Agreement may be amended by the holders of a majority of the Common
Securities and the Property Trustee with (i) the consent of holders
representing not less than a majority (based upon Liquidation Amounts) of the
outstanding Capital Securities and (ii) receipt by the Issuer Trustees of an
opinion of counsel to the effect that such amendment or the exercise of any
power granted to the Issuer Trustees in accordance with such amendment will
not affect the Issuer Trust's status as a grantor trust for United States
federal income tax purposes or the Issuer Trust's exemption from status as an
"investment company" under the Investment Company Act. Notwithstanding the
foregoing, without the consent of each holder of Trust Securities, the Trust
Agreement may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount
of any Distribution required to be made in respect of the Trust Securities as
of a specified date or (ii) restrict the right of a holder of Trust
Securities to institute suit for the enforcement of any such payment on or
after such date. The Exchange Capital Securities and any Original Capital
Securities which remain outstanding after consummation of the Exchange Offer
will vote together as a single class for purposes of determining whether
holders of the requisite percentage in outstanding Liquidation Amount thereof
have taken certain actions or exercised certain rights under the Trust
Agreement.
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So long as any Junior Subordinated Debentures are held by the Issuer
Trust, the Issuer Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee,
or executing any trust or power conferred on the Property Trustee with
respect to the Junior Subordinated Debentures, (ii) waive any past default
that is waivable under Section 5.13 of the Junior Subordinated Indenture,
(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 Junior
Subordinated Indenture or the Junior Subordinated Debentures, where such
consent shall be required, without, in each case, obtaining the prior
approval of the holders of a majority in aggregate Liquidation Amount of all
outstanding Capital Securities; provided, however, that where a consent under
the Junior Subordinated Indenture would require the consent of each holder of
Junior Subordinated Debentures affected thereby, no such consent shall be
given by the Property Trustee without the prior consent of each holder of the
Capital Securities. The Issuer Trustees 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. The Property Trustee shall notify each holder of Capital
Securities of any notice of default with respect to the Junior Subordinated
Debentures. In addition to obtaining the foregoing approvals of the holders
of the Capital Securities, prior to taking any of the foregoing actions, the
Issuer Trustees shall obtain an opinion of counsel experienced in such
matters to the effect that the Issuer Trust will not be classified as an
association taxable as a corporation for United States federal income tax
purposes on account of such action.
Any required approval of holders of Exchange Capital Securities may be
given at a meeting of holders of Exchange Capital Securities convened for
such purpose or pursuant to written consent. The Property Trustee will cause
a notice of any meeting at which holders of Exchange 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 given to each holder of record of Exchange
Capital Securities in the manner set forth in the Trust Agreement.
No vote or consent of the holders of Capital Securities will be required
to redeem and cancel Capital Securities in accordance with the Trust
Agreement.
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 Company, the Issuer Trustees or any
affiliate of the Company or any Issuer Trustee shall, for purposes of such
vote or consent, be treated as if they were not outstanding.
Form, Denomination, Book-Entry Procedures and Transfer. The Exchange
Capital Securities initially will be represented by one or more Capital
Securities in registered, global form (collectively, the "Global Capital
Securities"). The Global Capital Securities will be deposited upon issuance
with the Property Trustee as custodian for DTC, in New York, New York, and
registered in the name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Capital Securities may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee, and such transfer shall be effective only
when reflected in the securities register maintained by or on behalf of the
Issuer Trust. Beneficial interests in the Global Capital Securities may not
be exchanged for Capital Securities in certificated form except in the
limited circumstances described below. See "--Exchange of Book-Entry Capital
Securities for Certificated Capital Securities".
Other Capital Securities will be issued only in registered, certificated
(i.e., non-global) form. Other Capital Securities may not be exchanged for
beneficial interests in any Global Capital Securities except in the limited
circumstances described below. See "--Exchange of Certificated Capital
Securities for Book-Entry Capital Securities".
Depositary Procedures. DTC has advised the Issuer Trust and the Company
that DTC is a limited-purpose trust Company created to hold securities for
its participating organizations (collectively, the "Participants") and to
facilitate the clearance and settlement of transactions in those securities
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between Participants through electronic book-entry changes in accounts of its
Participants. The Participants include securities brokers and dealers
(including the Initial Purchasers), banks, trust companies, clearing
Corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly (collectively, the "Indirect Participants"). Persons
who are not Participants may beneficially own securities held by or on behalf
of DTC only through the Participants or the Indirect Participants. The
ownership and transfer of ownership interest of each actual purchaser of each
security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.
DTC has also advised the Issuer Trust and the Company that, pursuant to
procedures established by it, (i) upon deposit of the Global Capital
Securities, DTC will credit the accounts of Participants designated by the
Initial Purchasers with portions of the Liquidation Amount of the Global
Capital Securities and (ii) ownership of such interests in the Global Capital
Securities will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interests in the Global Capital
Securities).
Investors in the Global Capital Securities may hold their interests
directly through DTC if they are participants in such system, or indirectly
through organizations which are participants in such system. All interests in
a Global Capital Security may be subject to the procedures and requirements
of DTC. The laws of some states require that certain persons take physical
delivery in certificated form of securities that they own. Consequently, the
ability to transfer beneficial interests in a Global Capital Security to such
persons will be limited to that extent. Because DTC can act only on behalf of
Participants, which in turn act on behalf of Indirect Participants and
certain banks, the ability of a person having beneficial interests in a
Global Capital Security to pledge such interests to persons or entities that
do not participate in the DTC system, or otherwise take actions in respect of
such interests, may be affected by the lack of a physical certificate
evidencing such interests. For certain other restrictions on the
transferability of the Capital Securities, see "--Exchange of Book-Entry
Capital Securities for Certificated Capital Securities" and "--Exchange of
Certificated Capital Securities for Book-Entry Capital Securities".
Except as described below, owners of interests in the Global Capital
Securities will not have Capital Securities registered in their name, will
not receive physical delivery of Capital Securities in certificated form and
will not be considered the registered owners or holders thereof under the
Issuer Trust Agreement for any purpose.
Payments in respect of the Global Capital Security registered in the name
of DTC or its nominee will be payable by the Property Trustee to DTC in its
capacity as the registered holder under the Trust Agreement. Under the terms
of the Trust Agreement, the Property Trustee will treat the persons in whose
names the Capital Securities, including the Global Capital Securities, are
registered as the owners thereof for the purpose of receiving such payments
and for any and all other purposes whatsoever. Consequently, neither the
Property Trustee nor any agent thereof has or will have any responsibility or
liability for (i) any aspect of DTC's records or any Participant's or
Indirect Participant's records relating to or payments made on account of
beneficial ownership interests in the Global Capital Securities, or for
maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in the Global Capital Securities or (ii) any other matter
relating to the actions and practices of DTC or any of its Participants or
Indirect Participants. DTC has advised the Issuer Trust and the Company that
its current practice, upon receipt of any payment in respect of securities
such as the Capital Securities, is to credit the accounts of the relevant
Participants with the payment on the payment date, in amounts proportionate
to their respective holdings in Liquidation Amount of beneficial interests in
the relevant security as shown on the records of DTC unless DTC has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of
Capital Securities will be governed by standing instructions and customary
practices and will be the responsibility of the Participants or the Indirect
Participants and will not be the responsibility of DTC, the Property Trustee,
the Issuer Trust or the Company. Neither the Issuer Trust or the Company nor
the Property Trustee will be liable for any delay
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by DTC or any of its Participants in identifying the beneficial owners of the
Capital Securities, and the Issuer Trust or the Company and the Property
Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Secondary market trading activity in interests in the Global Capital
Securities will settle in immediately available funds, subject in all cases
to the rules and procedures of DTC and its participants. Transfers between
Participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in same-day funds.
DTC has advised the Issuer Trust and the Company that it will take any
action permitted to be taken by a holder of Capital Securities only at the
direction of one or more Participants to whose account with DTC interests in
the Global Capital Securities are credited and only in respect of such
portion of the Liquidation Amount of the Capital Securities as to which such
Participant or Participants has or have given such direction. However, if
there is an Event of Default under the Trust Agreement, DTC reserves the
right to exchange the Global Capital Securities for legended Capital
Securities in certificated form and to distribute such Capital Securities to
its Participants.
The information in this section concerning DTC and its book-entry systems
has been obtained from sources that the Issuer Trust and the Company believe
to be reliable, but neither the Issuer Trust nor the Company takes
responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate
transfers of interest in the Global Capital Securities among participants in
DTC, they are under no obligation to perform or to continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Issuer Trust or the Company nor the Property Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Exchange of Book-Entry Capital Securities for Certificated Capital
Securities. A Global Capital Security is exchangeable for Exchange Capital
Securities in registered certificated form if (i) DTC (x) notifies the Issuer
Trust that it is unwilling or unable to continue as Depositary for the Global
Capital Security and the Issuer Trust thereupon fails to appoint a successor
Depositary within 90 days or (y) has ceased to be a clearing agency
registered under the Exchange Act, (ii) the Company in its sole discretion
elects to cause the issuance of the Exchange Capital Securities in
certificated form or (iii) there shall have occurred and be continuing an
Event of Default or any event which after notice or lapse of time or both
would be an Event of Default under the Trust Agreement. In all cases,
certificated Capital Securities delivered in exchange for any Global Capital
Security or beneficial interests therein will be registered in the names, and
issued in any approved denominations, requested by or on behalf of the
Depositary (in accordance with its customary procedures).
Exchange of Certificated Capital Securities for Book-Entry Capital
Securities. Other Capital Securities, which will be issued in certificated
form, may not be exchanged for beneficial interests in any Global Capital
Security unless such exchange occurs in connection with a transfer of such
Other Capital Securities and the transferor first delivers to the Property
Trustee a written certificate (in the form provided in the Trust Agreement)
to the effect that such transfer will comply with the appropriate transfer
restrictions applicable to such Capital Securities.
Payment and Paying Agency. Payments in respect of the Exchange Capital
Securities shall be made to DTC, which shall credit the relevant accounts at
DTC on the applicable Distribution Dates or, if the Issuer Trust's Exchange
Capital Securities are not held by DTC, such payments may be made, at the
option of the Company, by check mailed to the address of the holder entitled
thereto as such address shall appear on the Security Register or by wire
transfer. The paying agent (the "Paying Agent") shall initially be the
Property Trustee and any co-paying agent chosen by the Property Trustee and
acceptable to the Administrators. The Paying Agent shall be permitted to
resign as Paying Agent upon 30 days' written notice to the Property Trustee
and the Administrators. In the event that the Property Trustee shall no
longer be the Paying Agent, the Company, or if an Issuer Trust Default shall
have occurred and be continuing, the Property Trustee shall appoint a
successor (which shall be a bank or trust Company reasonably acceptable to
the Administrators) to act as Paying Agent.
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First Chicago has informed the Issuer Trust that so long as it serves as
paying agent for the Exchange Capital Securities, it anticipates that
information regarding Distributions on the Capital Securities, including
payment date, record date and redemption information, will be made available
through First Chicago.
Registrar and Transfer Agent. The Property Trustee will act as registrar
and transfer agent for the Capital Securities.
Registration of transfers of Capital Securities will be effected without
charge by or on behalf of the Issuer Trust, but upon payment of any tax or
other governmental charges that may be imposed in connection with any
transfer or exchange. The Issuer Trust will not be required to register or
cause to be registered the transfer of its Capital Securities after such
Capital Securities have been called for redemption.
Information Concerning the Property Trustee. The Property Trustee, other
than during the occurrence and continuance of an Event of Default, undertakes
to perform only such duties as are specifically set forth in the Trust
Agreement and, after such Event of Default, must exercise the same degree of
care and skill as a prudent person would exercise or use in the conduct of
his or her own affairs. Subject to this provision, the Property Trustee is
under no obligation to exercise any of the powers vested in it by the Trust
Agreement at the request of any holder of Capital Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby. If no Event of Default has occurred and is
continuing and the Property Trustee is required to decide between alternative
courses of action, construe ambiguous provisions in the Trust Agreement or is
unsure of the application of any provision of the Trust Agreement, and the
matter is not one on which holders of Capital Securities are entitled under
the Trust Agreement to vote, then the Property Trustee shall take such action
as it deems advisable and in the best interests of the holders of the Trust
Securities and will have no liability except for its own bad faith,
negligence or willful misconduct.
For information concerning the relationship between First Chicago, the
Property Trustee, and the Company, see "Description of Exchange Junior
Subordinated Debentures--Information Concerning the Debenture Trustee."
Miscellaneous. The Administrators and the Property Trustee are authorized
and directed to conduct the affairs of and to operate the Issuer Trust in
such a way that the Issuer Trust will not be deemed to be an "investment
Company" required to be registered under the Investment Company Act or
classified as an association taxable as a Corporation for United States
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 Property Trustee and the holders
of Common Securities are authorized to take any action, not inconsistent with
applicable law, the certificate of trust of the Issuer Trust or the Trust
Agreement, that the Property Trustee and the holders of Common Securities
determine in their discretion to be necessary or desirable for such purposes,
as long as such action does not materially adversely affect the interests of
the holders of the Capital Securities.
Holders of the Capital Securities have no preemptive or similar rights.
The Issuer Trust may not borrow money or issue debt or mortgage or pledge
any of its assets.
DESCRIPTION OF EXCHANGE JUNIOR SUBORDINATED DEBENTURES
The Exchange Junior Subordinated Debentures are to be issued under the
Junior Subordinated Indenture, between the Company and the Debenture Trustee.
This summary of certain terms and provisions of the Exchange Junior
Subordinated Debentures and the Junior Subordinated Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Junior Subordinated Indenture, a copy of which will be
available from the Debenture Trustee upon request. Whenever particular
defined terms of the Junior Subordinated Indenture (as supplemented or
amended from time to time) are referred to herein, such defined terms are
incorporated herein by reference.
General. Concurrently with the issuance of the Exchange Capital
Securities, the Issuer Trust invested the proceeds thereof, together with the
consideration paid by the Company for the Common
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Securities, in the Original Junior Subordinated Debentures issued by the
Company. The Exchange Junior Subordinated Debentures will bear interest,
accruing from July 15, 1997, at the variable annual rate of LIBOR plus .91%
on the principal amount thereof, payable quarterly in arrears on January 15,
April 15, July 15 and October 15 of each year (each, an "Interest Payment
Date"), commencing October 15, 1997, to the person in whose name each
Exchange Junior Subordinated Debenture is registered at the close of business
on the January 1, April 1, July 1 and October 1 next preceding such Interest
Payment Date. It is anticipated that, until the liquidation, if any, of the
Issuer Trust, each Exchange Junior Subordinated Debenture will be held in the
name of the Property Trustee for the benefit of the holders of the Trust
Securities. The amount of interest payable for any period will be computed on
the basis of the actual number of days in the applicable payment period
(which actual number of days shall include the first day but exclude the last
day of such payment period) divided by 360. In the event that any date on
which interest is payable on the Exchange 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 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 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 the date such payment was originally payable.
Accrued interest that is not paid on the applicable Interest Payment Date
will bear additional interest on the amount thereof (to the extent permitted
by law) at the variable rate per annum of LIBOR plus .91% on the principal
amount thereof from the relevant payment date for such interest. The term
"interest" as used herein shall include quarterly interest payments, interest
on quarterly interest payments not paid on the applicable Interest Payment
Date and Additional Sums (as defined below), as applicable.
The Exchange Junior Subordinated Debentures will mature on the Stated
Maturity.
The Exchange Junior Subordinated Debentures will rank pari passu with the
Original Junior Subordinated Debentures. The Exchange Junior Subordinated
Debentures will be unsecured and will rank junior and be subordinate in right
of payment to all Senior Indebtedness 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 (and thus the ability of holders of the
Capital Securities to benefit indirectly from such distribution), is subject
to the prior claims of creditors of that subsidiary, except to the extent
that the Company may itself be recognized as a creditor of that subsidiary.
Accordingly, the Exchange Junior Subordinated Debentures will be effectively
subordinated to all existing and future liabilities of the Company's
subsidiaries, and holders of Exchange Junior Subordinated Debentures should
look only to the assets of the Company for payments on the Exchange Junior
Subordinated Debentures. See "HSB Group, Inc." The Junior Subordinated
Indenture does not limit the incurrence or issuance of other secured or
unsecured debt of the Company, including Senior Indebtedness, whether under
the Junior Subordinated Indenture or any existing or other indenture that the
Company may enter into in the future or otherwise. See "--Subordination."
Determination of Interest Rate. First Chicago, as Calculation Agent (the
"Calculation Agent"), will calculate the interest rate for each quarterly
interest period based on LIBOR determined as of two London Business Days
(defined as any day, other than a Saturday or Sunday, on which banks are open
for business in London) prior to the first day of such interest period (each,
a "Determination Date"). "LIBOR" means, with respect to a quarterly interest
period relating to an Interest Payment Date (in the following order of
priority):
(1) the rate (expressed as a percentage per annum) for Eurodollar
deposits having a three-month maturity that appears on Telerate Page 3750
as of 11:00 a.m. (London time) on the related Determination Date;
(2) if such rate does not appear on Telerate Page 3750 as of 11:00 a.m.
(London time) on the related Determination Date, LIBOR will be the
arithmetic mean (if necessary rounded upwards to the nearest whole
multiple of 0.00001%) of the rates (expressed as percentages per annum)
for Eurodollar deposits having a three-month maturity that appear on
Reuters Monitor Money Rates Page LIBOR ("Reuters Page LIBOR") as of 11:00
a.m. (London time) on such Determination Date;
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(3) if such rate does not appear on Reuters Page LIBOR as of 11:00 a.m.
(London time) on the related Determination Date, the Calculation Agent
will request the principal London offices of four leading banks in the
London interbank market to provide such banks' offered quotations
(expressed as percentages per annum) to prime banks in the London
interbank market for Eurodollar deposits having a three-month maturity as
of 11:00 a.m. (London time) on such Determination Date. If at least two
quotations are provided, LIBOR will be the arithmetic mean (if necessary
rounded upwards to the nearest whole multiple of 0.00001%) of such
quotations;
(4) if fewer than two such quotations are provided as requested in clause
(3) above, the Calculation Agent will request four major New York City
banks to provide such banks' offered quotations (expressed as percentages
per annum) to leading European banks for loans in Eurodollars having a
three-month maturity as of 11:00 a.m. (London time) on such Determination
Date. If at least two such quotations are provided, LIBOR will be the
arithmetic mean (if necessary rounded upwards to the nearest whole
multiple of 0.00001%) of such quotations; and
(5) if fewer than two such quotations are provided as requested in clause
(4) above, LIBOR will be LIBOR as determined on the previous Determination
Date.
If the rate for Eurodollar deposits having a three-month maturity that
initially appears on Telerate Page 3750 or Reuters Page LIBOR, as the case
may be, as of 11:00 a.m. (London time) on the related Determination Date is
superseded on Telerate Page 3750 or Reuters Page LIBOR, as the case may be,
by a corrected rate before 12:00 noon (London time) on such Determination
Date, the corrected rate as so substituted on the applicable page will be the
applicable LIBOR for such Determination Date.
Absent manifest error, the Calculation Agent's determination of LIBOR and
its calculation of the applicable interest rate for each interest period will
be final and binding. Investors may obtain the interest rates for the current
and preceding interest period by writing or calling Corporate Trust
Administration at the Calculation Agent at One First National Plaza, Suite
0126, Chicago, Illinois 60670-0126 (telephone (312) 407-4660).
Option To Extend Interest Payment Period. So long as no Event of Default
under the Junior Subordinated Indenture has occurred and is continuing, the
Company has the right under the Junior Subordinated Indenture at any time
during the term of the Exchange Junior Subordinated Debentures to defer the
payment of interest at any time or from time to time for a period not
exceeding 20 consecutive quarterly periods with respect to each Extension
Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Exchange Junior Subordinated Debentures. At the end of such
Extension Period, the Company must pay all interest then accrued and unpaid
(together with interest thereon at the variable annual rate of LIBOR plus
.91% on the principal amount thereof, compounded quarterly from the relevant
payment date for such interest. The amount of additional interest payable for
any full interest period will be computed by dividing the rate per annum by
four. During an Extension Period, interest will continue to accrue and
holders of Exchange Junior Subordinated Debentures (or holders of Capital
Securities while outstanding) will be required to accrue interest income for
United States federal income tax purposes. See "Certain Federal Income Tax
Consequences--Interest Income and Original Issue Discount."
During any such Extension Period, the Company may not, and may not permit
any subsidiary of the Company to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock or (ii) make any payment
of principal, interest or premium, if any, on or repay, repurchase or redeem
any debt securities of the Company that rank pari passu in all respects with
or junior in interest to the Exchange Junior Subordinated Debentures or (iii)
make any guarantee payments with respect to any guarantee by the Company of
the debt securities of any subsidiary of the Company if such guarantee ranks
pari passu with or junior in interest to the Exchange Junior Subordinated
Debentures (other than (a) dividends or distributions in common stock of the
Company, (b) any declaration of a dividend in connection with the
implementation of a stockholders' rights plan, or the issuance of stock under
any such plan in the future, or the redemption or repurchase of any such
rights pursuant thereto, (c) payments under the Guarantee and (d) purchases
of common stock related to the issuance of common stock or rights under any
of the
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Company's or its subsidiaries' benefit plans for their directors, officers or
employees). Prior to the termination of any such Extension Period, the
Company may further defer the payment of interest, provided that no Extension
Period may exceed 20 consecutive quarterly periods or extend beyond the
Stated Maturity of the Exchange Junior Subordinated Debentures. Upon the
termination of any such Extension Period and the payment of all amounts then
due on any Interest Payment Date, the Company may elect to begin a new
Extension Period subject to the above requirements. No interest shall be due
and payable during an Extension Period, except at the end thereof. The
Company must give the Property Trustee and the Debenture Trustee notice of
its election of such Extension Period at least one Business Day prior to the
earlier of (i) the date the Distributions on the Capital Securities would
have been payable except for the election to begin such Extension Period or
(ii) the date the Property Trustee is required to give notice to any
applicable self-regulatory organization or to holders of the Capital
Securities of the record date or (iii) the date such Distributions are
payable, but in any event not less than one Business Day prior to such record
date. The Property Trustee shall give notice of the Company's election to
begin a new Extension Period to the holders of the Capital Securities. There
is no limitation on the number of times that the Company may elect to begin
an Extension Period.
Redemption. The Exchange Junior Subordinated Debentures are redeemable
prior to maturity at the option of the Company (i) on or after July 15, 2007,
in whole or in part at any time or in part from time to time, or (ii) in
whole (but not in part) prior to July 15, 2007, and within 90 days following
the occurrence of a Tax Event (as defined under "Description of Exchange
Capital Securities--Redemption"), at a redemption price equal to 100% of the
principal amount of the Exchange Junior Subordinated Debentures so redeemed
plus accrued and unpaid interest thereon to date of redemption. The proceeds
of any such redemption will be used by the Issuer Trust to redeem the
Exchange Capital Securities.
Conditional Right to Shorten Maturity upon a Tax Event. The maturity of
the Exchange Junior Subordinated Debentures may be shortened at the option of
the Company under the circumstances described under "Description of Exchange
Capital Securities--Conditional Right to Shorten Maturity or Redeem upon a
Tax Event." Upon the exercise of the right to shorten the maturity of the
Exchange Junior Subordinated Debentures, the Company will no longer have the
right to redeem the Exchange Junior Subordinated Debentures prior to the new
Stated Maturity upon the occurrence of a Tax Event or to further shorten the
maturity of the Exchange Junior Subordinated Debentures.
See "Certain Federal Income Tax Consequences--Possible Tax Law Changes"
for a discussion of certain legislative proposals that, if adopted, could
give rise to a Tax Event, which may permit the Company to shorten the
maturity of the Exchange Junior Subordinated Debentures.
Additional Sums. If the Issuer 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 Exchange Junior Subordinated
Debentures such amounts as shall be required so that the Distributions
payable by the Issuer Trust shall not be reduced as a result of any such
additional taxes, duties or other governmental charges. The Company has
covenanted in the Junior Subordinated Indenture that, if and so long as (i)
the Issuer Trust is the holder of all Junior Subordinated Debentures and (ii)
a Tax Event in respect of the Issuer Trust has occurred and is continuing,
the Company will pay to the Issuer Trust such Additional Sums (as defined
under "Description of Exchange Capital Securities--Redemption").
Registration, Denomination and Transfer. The Exchange Junior Subordinated
Debentures will be registered in the name of the Issuer Trust. In the event
that the Exchange Junior Subordinated Debentures are distributed to holders
of Exchange Capital Securities, it is anticipated that the depositary
arrangements for the Exchange Junior Subordinated Debentures will be
substantially identical to those in effect for the Exchange Capital
Securities. See "Description of Exchange Capital Securities--Book Entry,
Delivery and Form."
Although DTC has agreed to the foregoing procedures, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling
or unable to continue as depositary and a successor depositary is not
appointed by the Company within 90 days, the Company will cause the Exchange
Junior Subordinated Debentures to be issued in definitive registered form.
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Payments on Junior Subordinated Debentures represented by a global
security will be made to Cede, the nominee for DTC, as the depositary for the
Junior Subordinated Debentures. In the event Junior Subordinated Debentures
are issued in definitive registered form, principal and interest will be
payable, the transfer of the Junior Subordinated Debentures will be
registrable, and Junior Subordinated Debentures will be exchangeable for
Junior Subordinated Debentures of other denominations of a like aggregate
principal amount, at the corporate trust office of the Debenture Trustee in
New York, New York, or at the offices of any paying agent or transfer agent
appointed by the Company, provided that payment of interest may be made at
the option of the Company by check mailed to the address of the persons
entitled thereto or by wire transfer.
The Exchange Junior Subordinated Debentures will be issuable only in
registered form without coupons. Exchange Junior Subordinated Debentures will
be exchangeable for other Junior Subordinated Debentures, of any authorized
denominations, of a like aggregate principal amount.
Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the Security Registrar or at the office of
any transfer agent designated by the Company for such purpose without service
charge and upon payment of any taxes and other governmental charges as
described in the Junior Subordinated Indenture. The Company will appoint the
Debenture Trustee as Security Registrar under the Junior Subordinated
Indenture. The Company may at any time designate additional transfer agents
with respect to the Junior Subordinated Debentures.
In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of Junior
Subordinated Debentures and ending at the close of business on the day of
mailing of the relevant notice of redemption or (ii) transfer or exchange any
Junior Subordinated Debentures so selected for redemption, except, in the
case of any Junior Subordinated Debentures being redeemed in part, any
portion thereof not to be redeemed.
Any moneys deposited with the Debenture Trustee or any paying agent, or
then held by the Company in trust, for the payment of the principal of (and
premium, if any) or interest on any Junior Subordinated Debenture and
remaining unclaimed for two years after such principal (and premium, if any)
or interest has become due and payable shall, at the request of the Company,
be repaid to the Company and the holder of such Junior Subordinated Debenture
shall thereafter look, as a general unsecured creditor, only to the Company
for payment thereof.
Restrictions on Certain Payments; Certain Covenants of the Company. The
Company has covenanted that it will not, and will not permit any subsidiary
of the Company to, (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any
of the Company's capital stock or (ii) make any payment of principal of or
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company that rank pari passu in all respects with or junior
in interest to the Exchange Junior Subordinated Debentures or make any
guarantee payments with respect to any guarantee by the Company of the debt
securities of any subsidiary of the Company if such guarantee ranks pari
passu with or junior in interest to the Exchange Junior Subordinated
Debentures (other than (a) dividends or distributions in common stock of the
Company, (b) any declaration of a dividend in connection with the
implementation of a stockholders' rights plan, or the issuance of stock under
any such plan in the future, or the redemption or repurchase of any such
rights pursuant thereto, (c) payments under the Guarantee and (d) purchases
of common stock related to the issuance of common stock or rights under any
of the Company's or its subsidiaries' benefit plans for their directors,
officers or employees), if at such time (i) there shall have occurred any
event of which the Company has actual knowledge that (a) with the giving of
notice or the lapse of time, or both, would constitute a Debenture Event of
Default and (b) in respect of which the Company shall not have taken
reasonable steps to cure, (ii) if such Junior Subordinated Debentures are
held by the Issuer Trust, the Company shall be in default with respect to its
payment of any obligations under the Guarantee or (iii)
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the Company shall have given notice of its selection of an Extension Period
as provided in the Junior Subordinated Indenture with respect to the Exchange
Junior Subordinated Debentures and shall not have rescinded such notice, or
such Extension Period, or any extension thereof, shall be continuing.
The Company has covenanted in the Junior Subordinated Indenture, (i) to
maintain directly or indirectly 100% ownership of the Common Securities of
the Issuer Trust, provided that certain successors which are permitted
pursuant to the Junior Subordinated Indenture may succeed to the Company's
ownership of the Common Securities, (ii) as holder of the Common Securities,
not to voluntarily terminate, wind-up or liquidate the Issuer Trust, except
(a) in connection with a distribution of Junior Subordinated Debentures to
the holders of the Capital Securities in liquidation of the Issuer Trust or
(b) in connection with certain mergers, consolidations or amalgamations
permitted by the Trust Agreement and (iii) to use its reasonable efforts,
consistent with the terms and provisions of the Trust Agreement, to cause the
Issuer Trust to remain classified as a grantor trust and not as an
association taxable as a Corporation for United States federal income tax
purposes.
Modification of Junior Subordinated Indenture. From time to time the
Company and the Debenture Trustee may, without the consent of the holders of
the Exchange Junior Subordinated Debentures, amend, waive or supplement the
Junior Subordinated Indenture for specified purposes, including, among other
things, curing ambiguities, defects or inconsistencies (provided that any
such action does not materially adversely affect the interests of the holders
of the Exchange Junior Subordinated Debentures or the holders of the Exchange
Capital Securities so long as they remain outstanding) and qualifying, or
maintaining the qualification of, the Junior Subordinated Indenture under the
Trust Indenture Act of 1939. The Junior Subordinated Indenture contains
provisions permitting the Company and the Debenture Trustee, with the consent
of the holders of not less than a majority in principal amount of the
Exchange Junior Subordinated Debentures, to modify the Junior Subordinated
Indenture in a manner affecting the rights of the holders of the Exchange
Junior Subordinated Debentures; provided, that no such modification may,
without the consent of the holder of each outstanding Exchange Junior
Subordinated Debenture so affected, (i) change the Stated Maturity of the
Exchange Junior Subordinated Debentures, or reduce the principal amount
thereof or any premium payable upon redemption, or reduce the rate or extend
the time of payment of interest thereon or (ii) reduce the percentage of
principal amount of Exchange Junior Subordinated Debentures, the holders of
which are required to consent to any such modification of the Subordinated
Indenture, provided that, so long as any of the Exchange Capital Securities
remain outstanding, no such modification may be made that adversely affects
the holders of such Exchange Capital Securities in any material respect, and
no termination of the Junior Subordinated Indenture may occur, and no waiver
of any Debenture Event of Default or compliance with any covenant under the
Junior Subordinated Indenture may be effective, without the prior consent of
the holders of at least a majority of the aggregate Liquidation Amount of
such Exchange Capital Securities unless and until the principal of the
Exchange Junior Subordinated Debentures and all accrued and unpaid interest
thereon have been paid in full and certain other conditions are satisfied.
Debenture Events of Default. The Junior Subordinated Indenture provides
that any one or more of the following described events with respect to the
Exchange Junior Subordinated Debentures that has occurred and is continuing
constitutes a Debenture Event of Default with respect to the Exchange Junior
Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Exchange Junior
Subordinated Debentures when due (subject to the deferral of any due date
in the case of an Extension Period); or
(ii) failure to pay any principal or premium, if any, on the Exchange
Junior Subordinated Debentures when due whether at maturity, upon
redemption, by declaration of acceleration or otherwise; or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Junior Subordinated Indenture for a period of
90 days after there has been given, by registered or certified mail, to
the Company from the Debenture Trustee or the holders of at least 25% in
aggregate outstanding principal amount of the outstanding Junior
Subordinated Debentures a written notice specifying such default or breach
and requiring it to be remedied and stating that such notice is a "Notice
of Default"; or
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(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
The holders of a majority in aggregate outstanding principal amount of
Junior Subordinated Debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Debenture
Trustee. The Debenture Trustee or the holders of not less than 25% in
aggregate outstanding principal amount of Junior Subordinated Debentures may
declare the principal and accrued interest due and payable immediately upon a
Debenture Event of Default, and, should the Debenture Trustee or such holders
of Junior Subordinated Debentures fail to make such declaration, the holders
of at least 25% in aggregate Liquidation Amount of the Capital Securities
shall have such right. The holders of a majority in aggregate outstanding
principal amount of Junior Subordinated Debentures may annul such declaration
and waive the default if the default (other than the non-payment of the
principal of Junior Subordinated Debentures which has become due solely by
such acceleration) has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee. Should the holders of Junior
Subordinated Debentures fail to annul such declaration and waive such
default, the holders of a majority in aggregate Liquidation Amount of the
Capital Securities shall have such right.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures affected thereby may, on behalf of the holders
of all the Junior Subordinated Debentures, waive any past default, except a
default in the payment of principal or interest (unless such default has been
cured and a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration has been deposited with the
Debenture Trustee) or a default in respect of a covenant or provision which
under the Junior Subordinated Indenture cannot be modified or amended without
the consent of the holder of each outstanding Junior Subordinated Debenture.
Should the holders of such Junior Subordinated Debentures fail to waive any
such past default, the holders of a majority in aggregate Liquidation Amount
of the Capital Securities shall have such right. The Company is required to
file annually with the Debenture Trustee a certificate as to whether or not
the Company is in compliance with all the conditions and covenants applicable
to it under the Junior Subordinated Indenture.
In case a Debenture Event of Default shall occur and be continuing, the
Property Trustee will have the right to declare the principal of and the
accrued interest on the Junior Subordinated Debentures, and any other amounts
payable under the Junior Subordinated Indenture, to be forthwith due and
payable and to enforce its other rights as a creditor with respect to the
Junior Subordinated Debentures.
Enforcement of Certain Rights by Holders of Capital Securities. If a
Debenture 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 Exchange Junior Subordinated Debentures on the date such interest or
principal is otherwise payable, a holder of Exchange Capital Securities may
institute a Direct Action. The Company may not amend the Junior Subordinated
Indenture to remove the foregoing right to bring a Direct Action without the
prior written consent of the holders of all of the Capital Securities. The
Company shall have the right under the Exchange Junior Subordinated Indenture
to set-off any payment made to such holder of Capital Securities by the
Company in connection with a Direct Action.
The holders of the Exchange Capital Securities would not be able to
exercise directly any remedies available to the holders of the Exchange
Junior Subordinated Debentures other than those set forth in the preceding
paragraph unless there shall have been an Event of Default under the Trust
Agreement. See "Description of Exchange Capital Securities--Events of
Default; Notice."
Consolidation, Merger, Sale of Assets and Other Transactions. The Junior
Subordinated Indenture provides that the Company shall not consolidate with
or merge into any other Person or convey, transfer or lease its properties
and assets substantially as an entirety to any Person, and no Person shall
consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, unless (i)
in case the Company consolidates with or merges into another Person or
conveys or transfers its properties and assets substantially as an entirety
to any Person, the successor Person is organized under the laws of the United
States or any state or the District of Columbia, and such successor Person
expressly assumes the Company's obligations on the Exchange Junior
Subordinated Debentures issued under the Junior Subordinated Indenture; (ii)
immediately after giving effect thereto,
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no Debenture Event of Default, and no event which, after notice or lapse of
time or both, would become a Debenture Event of Default, shall have occurred
and be continuing; (iii) such transaction is permitted under the Trust
Agreement and Guarantee and does not give rise to any breach or violation of
the Trust Agreement or Guarantee; and (iv) certain other conditions as
prescribed in the Junior Subordinated Indenture are met.
The general provisions of the Junior Subordinated Indenture do not afford
holders of the Exchange Junior Subordinated Debentures protection in the
event of a highly leveraged or other transaction involving the Company that
may adversely affect holders of the Exchange Junior Subordinated Debentures.
Satisfaction and Discharge. The Junior Subordinated Indenture provides
that when, among other things, all Junior Subordinated Debentures not
previously delivered to the Debenture Trustee for cancellation (i) have
become due and payable or (ii) will become due and payable at their Stated
Maturity within one year, and the Company deposits or causes to be deposited
with the Debenture Trustee funds, in trust, for the purpose and in an amount
sufficient to pay and discharge the entire indebtedness on the Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation, for the principal (and premium, if any) and interest and
Additional Sums to the date of the deposit or to the Stated Maturity, as the
case may be, then the Subordinated Indenture will cease to be of further
effect (except as to the Company's obligations to pay all other sums due
pursuant to the Junior Subordinated Indenture and to provide the officers'
certificates and opinions of counsel described therein), and the Company will
be deemed to have satisfied and discharged the Junior Subordinated Indenture.
Subordination. The Exchange Junior Subordinated Debentures shall be
subordinate and junior in right of payment, to the extent set forth in the
Junior Subordinated Indenture, to all Senior Indebtedness (as defined below)
of the Company. In the event that the Company shall default in the payment of
any principal, premium, if any, or interest, if any, on any Senior
Indebtedness when the same becomes due and payable, whether at maturity or at
a date fixed for prepayment or by declaration of acceleration or otherwise,
then, unless and until such default shall have been cured or waived or shall
have ceased to exist or all Senior Indebtedness shall have been paid, no
direct or indirect payment (in cash, property, securities, by set-off or
otherwise) shall be made or agreed to be made for principal, premium, if any,
or interest, if any, on the Exchange Junior Subordinated Debentures, or in
respect of any redemption, repayment, retirement, purchase or other
acquisition of any of the Exchange Junior Subordinated Debentures.
"Debt" means with respect to the Company, whether recourse is to all or a
portion of the assets of the Company and whether or not contingent, (i) every
obligation of the Company for money borrowed; (ii) every obligation of the
Company evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of
property, assets or businesses; (iii) every reimbursement obligation of the
Company with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of the Company; (iv) every obligation of
the Company issued or assumed as the deferred purchase price of property or
services (but excluding trade accounts payable or accrued liabilities,
arising in the ordinary course of business); (v) every capital lease
obligation of the Company; (vi) all indebtedness of the Company whether
incurred on or prior to the date of the Junior Subordinated Indenture or
thereafter incurred, for claims in respect of derivative products, including
interest rate, foreign exchange rate and commodity forward contracts, options
and swaps and similar arrangements; and (vii) every obligation of the type
referred to in clauses (i) through (vi) of another Person and all dividends
of another Person the payment of which, in either case, the Company has
guaranteed or is responsible or liable for, directly or indirectly, as
obligor or otherwise.
"Senior Indebtedness" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether
or not such claim for post-petition interest is allowed in such proceeding),
on Debt of the Company, whether incurred on or prior to the date of the
Junior Subordinated Indenture or thereafter incurred, unless, in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are not superior in right
of payment to the Junior
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Subordinated Debentures; provided, however, that Senior Indebtedness shall
not be deemed to include (i) any Debt of the Company which when incurred and
without respect to any election under Section 1111(b) of the United States
Bankruptcy Code of 1978, as amended, was without recourse to the Company,
(ii) any Debt of the Company to any of its subsidiaries, (iii) Debt to any
employee of the Company and (iv) any other debt securities issued pursuant to
the Junior Subordinated Indenture.
In the event of (i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding
relating to the Company, its creditors or its property, (ii) any proceeding
for the liquidation, dissolution or other winding up of the Company,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (iii) any assignment by the Company for the benefit of creditors
or (iv) any other marshalling of the assets of the Company, all Senior
Indebtedness (including any interest thereon accruing after the commencement
of any such proceedings) shall first be paid in full before any payment or
distribution, whether in cash, securities or other property, shall be made on
account of the principal of or premium, if any, or interest, if any, on the
Junior Subordinated Debentures. In such event, any payment or distribution on
account of the principal of or premium, if any, or interest, if any, on the
Junior Subordinated Debentures, whether in cash, securities or other property
(other than securities of the Company or any other corporation provided for
by a plan of reorganization or readjustment the payment of which is
subordinate, at least to the extent provided in the subordination provisions
with respect to the Junior Subordinated Debentures, to the payment of all
Senior Indebtedness at the time outstanding, and to any securities issued in
respect thereof under any such plan of reorganization or readjustment), which
would otherwise (but for the subordination provisions) be payable or
deliverable in respect of the Junior Subordinated Debentures shall be paid or
delivered directly to the holders of Senior Indebtedness in accordance with
the priorities then existing among such holders until all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall have been paid in full.
In the event of any such proceeding, after payment in full of all sums
owing with respect to Senior Indebtedness, the holders of Junior Subordinated
Debentures, together with the holders of any obligations of the Company
ranking on a parity with the Junior Subordinated Debentures, shall be
entitled to be paid from the remaining assets of the Company the amounts at
the time due and owing on account of unpaid principal of and premium, if any,
and interest, if any, on the Junior Subordinated Debentures and such other
obligations before any payment or other distribution, whether in cash,
property or otherwise, shall be made on account of any capital stock or
obligations of the Company ranking junior to the Junior Subordinated
Debentures and such other obligations. If any payment or distribution on
account of the principal of or interest on the Junior Subordinated Debentures
of any character or any security, whether in cash, securities or other
property (other than securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment the payment of which
is subordinate, at least to the extent provided in the subordination
provisions with respect to the Junior Subordinated Debentures, to the payment
of all Senior Indebtedness at the time outstanding and to any securities
issued in respect thereof under any such plan of reorganization or
readjustment) shall be received by any holder of any Junior Subordinated
Debentures in contravention of any of the terms hereof and before all the
Senior Indebtedness shall have been paid in full, such payment or
distribution or security shall be received in trust for the benefit of, and
shall be paid over or delivered and transferred to, the holders of the Senior
Indebtedness at the time outstanding in accordance with the priorities then
existing among such holders for application to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay all such Senior
Indebtedness in full. By reason of such subordination, in the event of the
insolvency of the Company, holders of Senior Indebtedness may receive more,
ratably, and holders of the Junior Subordinated Debentures having a claim
pursuant to such securities may receive less, ratably, than the other
creditors of the Company. Such subordination will not prevent the occurrence
of any Event of Default in respect of the Junior Subordinated Debentures.
The Junior Subordinated Indenture places no limitation on the amount of
additional Senior Indebtedness that may be incurred by the Company. The
Company expects from time to time to incur additional indebtedness
constituting Senior Indebtedness.
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Governing Law. The Junior Subordinated Indenture and the Exchange Junior
Subordinated Debentures will be governed by and construed in accordance with
the laws of the State of New York.
Information Concerning the Debenture Trustee. The Debenture Trustee is
under no obligation to exercise any of the powers vested in it by the Junior
Subordinated Indenture at the request of any holder of Exchange Junior
Subordinated Debentures, unless offered reasonable indemnity by such holder
against the costs, expenses and liabilities which might be incurred thereby.
The Debenture Trustee is not required to expend or risk its own funds or
otherwise incur personal financial liability in the performance of its duties
if the Debenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
First Chicago, Debenture Trustee, also serves as issuing agent with
respect to certain negotiable certificates of deposit issued by the Company's
subsidiaries. In addition, the Company and certain of its affiliates maintain
deposit accounts and/or conduct other banking transactions with First
Chicago.
Covenant to Pay Trust Expenses. The Indenture provides that the Company
will irrevocably and unconditionally guarantee to each person or entity to
whom the Issuer Trust becomes indebted or liable, the full payment of any
costs, expenses or liabilities of the Issuer Trust, other than obligations of
the Issuer Trust to pay to the holders of the Capital Securities or other
similar interests in the Issuer Trust of the amounts due such holders
pursuant to the terms of the Capital Securities or such other similar
interests, as the case may be. The obligation of the Company includes the
payment of fees and expenses related to (i) the offering of the Trust
Securities and the Subordinated Debentures, (ii) the organization,
maintenance and dissolution of the Issuer Trust, (iii) the retention of the
Debenture Trustee, Issuer Trustee, Delaware Trustee, Property Trustee, the
Calculation Agent and Administrative Trustees and (iv) the enforcement by the
Property Trustee of the rights of the holders of the Capital Securities. The
payment of such fees and expenses will be fully and unconditionally
guaranteed by the Company. The obligations to guarantee payment of such
expenses of the Issuer Trust will constitute an unsecured obligation of the
Company and will rank subordinate and junior in right of payment to all
Senior Indebtedness of the Company in the same manner as Junior Subordinated
Debentures.
DESCRIPTION OF EXCHANGE GUARANTEE
An Exchange Guarantee will be executed and delivered by the Company
concurrently with the issuance by the Issuer Trust of its Capital Securities
for the benefit of the holders from time to time of such Exchange Capital
Securities. First Chicago will act as trustee ("Guarantee Trustee") under the
Exchange Guarantee. This summary of certain provisions of the Exchange
Guarantee does not purport to be complete and is subject to, and qualified in
its entirety by reference to, all of the provisions of the Exchange Guarantee
Agreement, including the definitions therein of certain terms. A copy of the
Exchange Guarantee is available upon request from the Guarantee Trustee. The
Guarantee Trustee will hold the Exchange Guarantee for the benefit of the
holders of the Exchange Capital Securities.
General. The Company will irrevocably agree to pay in full on a
subordinated basis, to the extent set forth herein, the Guarantee Payments
(as defined below) to the holders of the Exchange Capital Securities, as and
when due, regardless of any defense, right of set-off or counterclaim that
such Issuer Trust may have or assert other than the defense of payment. The
following payments with respect to the Exchange Capital Securities, to the
extent not paid by or on behalf of the Issuer Trust (the "Guarantee
Payments"), will be subject to the Exchange Guarantee: (i) any accrued and
unpaid Distributions required to be paid on such Exchange Capital Securities,
to the extent that the Issuer Trust has funds on hand available therefor at
such time, (ii) the Redemption Price with respect to any Exchange Capital
Securities called for redemption, to the extent that the Issuer Trust has
funds on hand available therefor at such time, and (iii) upon a voluntary or
involuntary termination, winding up or liquidation of the Issuer Trust
(unless the Exchange Junior Subordinated Debentures are distributed to
holders of the Exchange Capital Securities), the lesser of (a) the aggregate
amount of the Liquidation Amount of $1,000 per Exchange Capital Security plus
accrued and unpaid Distributions of the Exchange Capital Securities and (b)
the amount of assets of the Issuer Trust remaining available for distribution
to holders of Exchange
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Capital Securities on liquidation of the Issuer Trust. 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 the Exchange Capital
Securities or by causing the Issuer Trust to pay such amounts to such
holders.
The Exchange Guarantee will be an irrevocable guarantee on a subordinated
basis of the Issuer Trust's obligations under the Exchange Capital
Securities, but will apply only to the extent that the Issuer Trust has funds
sufficient to make such payments, and is not a guarantee of collection.
If the Company does not make interest payments on the Exchange Junior
Subordinated Debentures held by the Issuer Trust, the Issuer Trust will not
be able to pay Distributions on the Exchange Capital Securities and will not
have funds legally available therefor. The Exchange Guarantee will rank
subordinate and junior in right of payment to all Senior Indebtedness of the
Company. See "--Status of 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 that subsidiary,
except to the extent the Company may itself be recognized as a creditor of
that subsidiary. Accordingly, the Company's obligations under the Exchange
Guarantee will be effectively subordinated to all existing and future
liabilities of the Company's subsidiaries, and claimants should look only to
the assets of the Company for payments thereunder. The payment of dividends
by the Company's insurance company subsidiaries, including Hartford Steam
Boiler, is limited under the insurance holding laws of each subsidiary's
domicile. See "HSB Group, Inc." The Exchange Guarantee does not limit the
incurrence or issuance of other secured or unsecured debt of the Company,
including Senior Indebtedness, whether under the Junior Subordinated
Indenture or any other indenture that the Company may enter into in the
future or otherwise.
The Company has, through the Exchange Guarantee, the Trust Agreement, the
Junior Subordinated Debentures and the Junior Subordinated Indenture, taken
together, fully, irrevocably and unconditionally guaranteed all of the Issuer
Trust's obligations under the Exchange 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, irrevocable and
unconditional guarantee of the Issuer Trust's obligations under the Exchange
Capital Securities. See "Relationship Among the Exchange Capital Securities,
the Exchange Junior Subordinated Debentures and the Exchange Guarantee."
Status of the Exchange Guarantee. The Exchange Guarantee will constitute
an unsecured obligation of the Company and will rank subordinate and junior
in right of payment to all Senior Indebtedness of the Company in the same
manner as the Exchange Junior Subordinated Debentures.
The Exchange Guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding
directly against the Guarantor to enforce its rights under the Exchange
Guarantee without first instituting a legal proceeding against any other
person or entity). The Exchange Guarantee will be held for the benefit of the
holders of the Exchange Capital Securities. The Exchange Guarantee will not
be discharged except by payment of the Guarantee Payments in full to the
extent not paid by the Issuer Trust or upon distribution to the holders of
the Exchange Capital Securities of the Exchange Junior Subordinated
Debentures. The Exchange Guarantee does not place a limitation on the amount
of additional Senior Indebtedness that may be incurred by the Company. The
Company expects from time to time to incur additional indebtedness
constituting Senior Indebtedness.
The obligations of the Company under the Exchange Guarantee will rank pari
passu with the obligations of the Company under any similar Guarantee
Agreements issued by the Company on behalf of holders of preferred or capital
securities issued by the Issuer Trust.
Amendments and Assignment. Except with respect to any changes which do not
adversely affect the rights of holders of the Exchange Capital Securities in
any material respect (in which case no vote will be required), the Exchange
Guarantee may not be amended without the prior approval of the holders of not
less than a majority of the aggregate Liquidation Amount of such outstanding
Exchange Capital Securities. The manner of obtaining any such approval will
be as set forth under "Description of the
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Exchange Capital Securities--Voting Rights; Amendment of Trust Agreement."
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 Exchange Capital
Securities then outstanding.
Events of Default. An event of default under the Exchange Guarantee will
occur upon the failure of the Company to perform any of its payment or other
obligations thereunder. The holders of not less than a majority in aggregate
Liquidation Amount of the Exchange Capital Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of the Exchange Guarantee or to
direct the exercise of any trust or power conferred upon the Guarantee
Trustee under the Exchange Guarantee.
Any holder of the Exchange Capital Securities may institute a legal
proceeding directly against the Company to enforce its rights under the
Exchange Guarantee without first instituting a legal proceeding against the
Issuer Trust, the Guarantee Trustee or any other person or entity.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with
all the conditions and covenants applicable to it under the Guarantee.
Information Concerning the Guarantee Trustee. The Guarantee Trustee, other
than during the occurrence and continuance of a default by the Company in
performance of the Exchange Guarantee, undertakes to perform only such duties
as are specifically set forth in the Exchange Guarantee and, after default
with respect to the Exchange Guarantee, must exercise the same degree of care
and skill as a prudent person would exercise or use in the conduct of his or
her own affairs. Subject to this provision, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Exchange
Guarantee at the request of any holder of any Exchange Capital Securities
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred thereby.
For information concerning the relationship between First Chicago, the
Property Trustee, and the Company, see "Description of Exchange Junior
Subordinated Debentures--Information Concerning the Debenture Trustee."
Termination of the Exchange Guarantee. The Exchange Guarantee will
terminate and be of no further force and effect upon full payment of the
Redemption Price of the Exchange Capital Securities, upon full payment of the
amounts payable upon liquidation of the Issuer Trust or upon distribution of
Exchange Junior Subordinated Debentures to the holders of the Exchange
Capital Securities. The Exchange Guarantee will continue to be effective or
will be reinstated, as the case may be, if at any time any holder of the
Exchange Capital Securities must restore payment of any sums paid under the
Exchange Capital Securities or the Exchange Guarantee.
Governing Law. The Exchange Guarantee will be governed by and construed in
accordance with the laws of the State of New York.
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RELATIONSHIP AMONG THE EXCHANGE CAPITAL SECURITIES, THE EXCHANGE
JUNIOR SUBORDINATED DEBENTURES AND THE EXCHANGE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Exchange Capital
Securities (to the extent the Issuer Trust has funds available for the
payment of such Distributions) are irrevocably guaranteed by the Company as
and to the extent set forth under "Description of Exchange Guarantee." Taken
together, the Company's obligations under the Exchange Junior Subordinated
Debentures, the Junior Subordinated Indenture, the Trust Agreement, and the
Exchange Guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee of payments of distributions and other amounts due on
the Exchange 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, irrevocable and
unconditional guarantee of the Issuer Trust's obligations under the Exchange
Capital Securities. If and to the extent that the Company does not make
payments on the Exchange Junior Subordinated Debentures, the Issuer Trust
will not pay Distributions or other payments due on the Exchange Capital
Securities. The Exchange Guarantee does not cover payment of Distributions
when the Issuer Trust does not have sufficient funds to pay such
Distributions or other payments. In such event, the remedy of a holder of the
Exchange Capital Securities is to institute a legal proceeding directly
against the Company for enforcement of payment of such Distributions or other
payments to such holder. The obligations of the Company under the Exchange
Guarantee are subordinate and junior in right of payment to all Senior
Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on
the Exchange Junior Subordinated Debentures, such payments will be sufficient
to cover Distributions and other payments due on the Capital Securities,
primarily because (i) the aggregate principal amount of the Exchange Junior
Subordinated Debentures will be equal to the sum of the aggregate stated
Liquidation Amount of the Exchange Capital Securities and Common Securities,
(ii) the interest rate and interest and other payment dates on the Exchange
Junior Subordinated Debentures will match the Distribution rate and
Distribution and other payment dates for the Exchange Capital Securities,
(iii) the Company shall pay for all and any costs, expenses and liabilities
of the Issuer Trust except the Issuer Trust's obligations to holders of its
Exchange Capital Securities, and (iv) the Trust Agreement further provides
that the Issuer Trust will not engage in any activity that is not consistent
with the limited purposes of the Issuer Trust.
Notwithstanding anything to the contrary in the Junior Subordinated
Indenture, the Company has the right to set off any payment 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 Exchange Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF EXCHANGE CAPITAL SECURITIES
A holder of any Exchange Capital Security may institute a legal proceeding
directly against the Company to enforce its rights under the Exchange
Guarantee without first instituting a legal proceeding against the Guarantee
Trustee, the Issuer Trust or any other person or entity.
A default or event of default under any Senior Indebtedness of the Company
would not constitute a default or an Event of Default under the Trust
Agreement. However, in the event of payment defaults under, or acceleration
of, Senior Indebtedness of the Company, the subordination provisions of the
Junior Subordinated Indenture provide that no payments may be made in respect
of the Exchange Junior Subordinated Debentures until such Senior Indebtedness
has been paid in full or any payment default thereunder has been cured or
waived. Failure to make required payments on the Exchange Junior Subordinated
Debentures would constitute an Event of Default.
LIMITED PURPOSE OF ISSUER TRUST
The Issuer Trust's Exchange Capital Securities evidence an undivided
beneficial interest in the assets of the Issuer Trust, and the Issuer Trust
exists for the sole purpose of issuing its Capital Securities and
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Common Securities and investing the proceeds thereof in the Junior
Subordinated Debentures. A principal difference between the rights of a
holder of a Capital Security and a holder of Junior Subordinated Debentures
is that a holder of Junior Subordinated Debentures is entitled to receive
from the Company the principal amount of and interest accrued on Junior
Subordinated Debentures held, while a holder of Capital Securities is
entitled to receive Distributions from the Issuer Trust (or from the Company
under the Guarantee) if and to the extent the Issuer Trust has funds
available for the payment of such Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or liquidation
of the Issuer Trust involving the liquidation of the Junior Subordinated
Debentures, after satisfaction of the liabilities of creditors of the Issuer
Trust as required by applicable law, the holders of the Capital Securities
will be entitled to receive, out of assets held by the Issuer Trust, the
Liquidation Distribution in cash. See "Description of Exchange Capital
Securities--Liquidation Distribution Upon Termination." Upon any voluntary or
involuntary liquidation or bankruptcy of the Company, the Property Trustee,
as holder of the Exchange Junior Subordinated Debentures, would be a
subordinated creditor of the Company, subordinated in right of payment to all
Senior Indebtedness as set forth in the Junior Subordinated Indenture, but
entitled to receive payment in full of principal and interest, before any
stockholders of the Company receive payments or distributions. Since the
Company is the guarantor under the Exchange Guarantee and has agreed to pay
for all costs, expenses and liabilities of the Issuer Trust (other than the
Issuer Trust's obligations to the holders of its Capital Securities), the
positions of a holder of the Exchange Capital Securities and a holder of such
Exchange Junior Subordinated Debentures relative to other creditors and to
stockholders of the Company in the event of liquidation or bankruptcy of the
Company are expected to be substantially the same.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of certain of the material United States
federal income tax consequences of the exchange of Original Securities for
Exchange Securities pursuant to the Exchange Offer. Unless otherwise stated,
this summary deals only with Capital Securities held as capital assets by
holders who purchased the Capital Securities upon original issuance. 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, persons that have
a functional currency other than the U.S. Dollar 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. Further, it does not
include any description of any alternative minimum tax consequences or the
tax laws of any state or local government of any foreign government that may
be applicable to the Capital Securities. This summary is based on the
Internal Revenue Code of 1986, as amended (the "Code"), 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.
EXCHANGE OF CAPITAL SECURITIES FOR EXCHANGE CAPITAL SECURITIES
The exchange of Original Securities for Exchange Securities pursuant to
the Exchange Offer should have no federal income tax consequences to holders.
Such exchange should not be treated as an "exchange" for United States
federal income tax purposes because the Exchange Capital Securities and
Exchange Junior Subordinated Debentures should not be considered to differ
materially in kind or extent from the Original Capital Securities and the
Original Junior Subordinated Debentures, respectively, and because the
exchange will occur by operation of the terms of the Original Capital
Securities and Original Junior Subordinated Debentures. Accordingly, the
Exchange Junior Subordinated Debentures should have the same issue price as
the Junior Subordinated Debentures, and a holder should have the same
adjusted tax basis and holding period in the Exchange Capital Securities as
the holder had in the Original Capital Securities immediately before the
exchange. Moreover, a holder that acquired an interest in the Original Junior
Subordinated Debentures with either market discount or bond premium will hold
an interest in the Exchange Junior Subordinated Debentures with the same
amount of market discount or bond premium and will be required to include
such market discount in or deduct such bond premium from their income in the
same manner as on the Original Junior Subordinated Debentures. Holders are
urged to consult their tax advisors regarding the applicability of the market
discount and bond premium rules.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
In connection with the issuance of the Original Junior Subordinated
Debentures, Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden, Arps"),
special tax counsel to the Company and Issuer Trust, rendered its opinion
generally to the effect that, under then current law and assuming full
compliance with the terms of the Indenture (and certain other documents), and
based on certain facts and assumptions contained in such opinion, the
Original Junior Subordinated Debentures held by the Issuer Trust will be
classified for United States federal income tax purposes as indebtedness of
the Company.
CLASSIFICATION OF HSB CAPITAL TRUST
In connection with the issuance of the Original Capital Securities,
Skadden, Arps rendered its opinion generally to the effect that, under then
current law and assuming full compliance with the terms of the Declaration
and the Indenture (and certain other documents), and based on certain facts
and assumptions contained in such opinion, the Issuer Trust will 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, and each holder will be required to include in its
gross income interest or original issue discount ("OID") with respect to its
allocable share of those Junior Subordinated Debentures.
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INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under applicable Treasury regulations (the "Regulations"), the Junior
Subordinated Debentures will constitute variable rate debt instruments that
will not be treated as issued with OID provided that stated interest is
unconditionally payable at least annually. Under such Regulations, a "remote"
contingency that stated interest will not be timely paid will be ignored in
determining whether a debt instrument is issued with OID. The Company
believes that the likelihood of its exercising its option to defer payments
is remote. Based on the foregoing, the Company believes that the Junior
Subordinated Debentures will not be considered to be issued with OID at the
time of their original issuance and, accordingly, a holder of the Capital
Securities should include in gross income such holder's allocable share of
interest on the Junior Subordinated Debentures in accordance with such
holder's method of tax accounting.
Under the Regulations, if the Company exercised its option to defer any
payment of interest, the Junior Subordinated Debentures would at that time be
treated as issued with OID, and all stated interest on the Junior
Subordinated Debentures would thereafter be treated as OID as long as the
Junior Subordinated Debentures remained outstanding. In such event, all of a
holder's taxable interest income with respect to the Junior Subordinated
Debentures would be accounted for as OID on an economic accrual basis
regardless of such holder's method of tax accounting, and actual
distributions of stated interest would not be reported as taxable income. In
general, the amount of OID that would accrue during any quarter would be
calculated as if interest on the Junior Subordinated Debentures were payable
at a fixed rate equal to the value of LIBOR plus .91% at the time when the
Company first exercised its option to defer an interest payment, increased or
decreased to take into account the difference, if any, between that rate and
any actual payment of stated interest during the quarter. Consequently, a
holder of Capital Securities would be required to include in gross income OID
even though the Company would not make any actual cash payments during an
Extension Period.
The Regulations have not been addressed in any rulings or other
interpretations by the Internal Revenue Service (the "IRS"), and it is
possible that the IRS could take a position contrary to the interpretation
herein.
Because income on the Capital Securities will constitute interest or OID,
corporate holders of Capital Securities will not be entitled to a
dividends-received deduction with respect to any income recognized with
respect to the Capital Securities.
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH
Under certain circumstances, as described under "Description of the
Capital Securities--Liquidation Distribution Upon Termination," Junior
Subordinated Debentures may be distributed to holders in exchange for the
Capital Securities upon the liquidation of the Issuer 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 received in liquidation
of the Issuer Trust would include the period during which the Capital
Securities were held by such holder.
Under certain circumstances, as described under "Description of the
Capital Securities--Redemption", the Junior Subordinated Debentures may be
redeemed by the Company for cash and the proceeds of such redemption
distributed by the Issuer Trust 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 would 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 be considered to have disposed
of all or part of the holder's pro rata share of the Junior Subordinated
Debentures and 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
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such Capital Securities. Assuming that the Company does not exercise its
option to defer payment of interest on the Junior Subordinated Debentures, a
holder's adjusted tax basis in the Capital Securities generally will be its
initial purchase price. If the Junior Subordinated Debentures are deemed to
be issued with OID as a result of the Company's deferral of any interest
payment, a holder's tax basis in the Capital Securities generally will be its
initial purchase price, increased by OID previously includible in such
holder's gross income to the date of disposition and decreased by
distributions or other payments received on the Capital Securities since and
including the date of the first Extension Period. Such gain or loss generally
will be a capital gain or loss (except to the extent of any accrued interest
with respect to such holder's pro rata share of the Junior Subordinated
Debentures not previously included in income) and generally will be a
long-term capital gain or loss if the Capital Securities have been held for
more than one year.
Should the Company exercise its option to defer any payment of interest on
the Junior Subordinated Debentures, the Capital Securities may trade at a
price that does not accurately reflect the value of accrued but unpaid
interest with respect to the underlying Junior Subordinated Debentures. In
the event of such a deferral, a holder who disposes of its Capital Securities
between record dates for payments of distributions thereon will be required
to include in income as ordinary income accrued but unpaid interest on the
Junior Subordinated Debentures to the date of disposition and to add such
amount to its 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, such 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.
CONDITIONAL RIGHT TO SHORTEN MATURITY
Prospective investors should be aware that the Company's exercise of its
right to shorten the maturity of the Junior Subordinated Debentures will be a
taxable event to holders of Capital Securities if the Junior Subordinated
Debentures are treated as equity for purposes of United States federal income
taxation before the maturity is shortened. See "Description of Capital
Securities--Conditional Right to Shorten Maturity or Redeem upon a Tax
Event," "Description of Junior Subordinated Debentures--Conditional Right to
Shorten Maturity or Redeem upon a Tax Event" and "--Possible Tax Law
Changes."
POSSIBLE TAX LAW CHANGES
On February 6, 1997, as part of the fiscal budget submitted to Congress,
the Clinton Administration proposed the Clinton Proposal which would, among
other things, generally treat as equity, for federal income tax purposes,
certain debt obligations, such as the Junior Subordinated Debentures, that
were issued on or after the date of "first committee action". The Junior
Subordinated Debentures were issued prior to the date of first committee
action. The Clinton Proposal was not included in the tax legislation signed
into law by President Clinton on August 5, 1997. There can be no assurance,
however, that similar legislation enacted in the future will not adversely
affect the tax treatment of the Junior Subordinated Debentures, which could
result in the redemption of the Junior Subordinated Debentures by the Company
and the distribution of the resulting cash in redemption of the Capital
Securities or a shortening of the maturity of the Capital Securities. See
"Description of Exchange Junior Subordinated Debentures--Redemption" and
"Description of Exchange Capital Securities--Redemption."
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 non-resident fiduciary of a foreign estate or
trust.
Under present United States federal income tax law: (i) payments by the
Issuer 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
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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 Issuer Trust or its agent, under penalties of perjury, that it is not a
United States Alien 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 Issuer 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 holding such security for the beneficial owner and
furnished the Issuer 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.
Proposed Treasury regulations could affect the procedures to be followed
by a United States Alien Holder in establishing such holder's status for
purposes of United States federal withholding tax rules. The proposed
regulations, if adopted in their current form, generally would be effective
for payments made after December 31, 1997. Prospective purchasers should
consult their tax advisors concerning the potential adoption of such
regulations and their effect on an investment in the Capital Securities.
INFORMATION REPORTING TO HOLDERS
Generally, 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 United States federal income tax,
provided the required information is provided to the IRS on a timely basis.
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 WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF THE CAPITAL SECURITIES AND THE EXCHANGE OF
ORIGINAL CAPITAL SECURITIES FOR EXCHANGE CAPITAL SECURITIES PURSUANT TO THE
EXCHANGE OFFER, 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.
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CERTAIN ERISA CONSIDERATIONS
Each fiduciary of a Plan should consider the fiduciary standards of ERISA
in the context of the Plan's particular circumstances before authorizing an
investment in the Capital Securities. 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 Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit Plans, as well
as individual retirement accounts and Keogh plans subject to Section 4975 of
the Code (also "Plans"), from engaging in certain transactions involving
"plan assets" with persons who are "parties in interest" under ERISA or
"disqualified persons" under the Code ("Parties in Interest") with respect to
such Plan. A violation of these "prohibited transaction" rules may result in
an excise tax or other liabilities under ERISA and/or Section 4975 of the
Code for such persons, unless exemptive relief is available under an
applicable statutory or administrative exemption. Employee benefit plans that
are governmental plans (as defined in Section 3(32) of ERISA), certain church
plans (as defined in Section 3(33) of ERISA) and foreign plans (as described
in Section 4(b)(5) of ERISA) are not subject to the requirements of ERISA or
Section 4975 of the Code.
Under a regulation (the "Plan Assets Regulation") issued by the U.S.
Department of Labor (the "DOL"), the assets of the Issuer Trust would be
deemed to be "plan assets" of a Plan for purposes of ERISA and Section 4975
of the Code if "plan assets" of the Plan were used to acquire an equity
interest in the Trust and no exception were applicable under the Plan Assets
Regulation. An "equity interest" is defined under the Plan Assets Regulation
as any interest in an entity other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features and specifically includes a beneficial interest in a trust.
Pursuant to an exception contained in the Plan Assets Regulation, the
assets of the Issuer Trust would not be deemed to be "plan assets" of
investing Plans if, immediately after the most recent acquisition of any
equity interest in the Trust, less than 25% of the value of each class of
equity interests in the Trust were held by Plans, other employee benefit
plans not subject to ERISA or Section 4975 of the Code (such as governmental,
church and foreign plans), and entities holding assets deemed to be "plan
assets" of any Plan (collectively, "Benefit Plan Investors"). No assurance
can be given by the Initial Purchasers that the value of the Capital
Securities held by Benefit Plan Investors will be less than 25% of the total
value of such Capital Securities at the completion of the initial offering or
thereafter, and no monitoring or other measures will be taken with respect to
the satisfaction of the conditions to this exception. All of the Common
Securities will be purchased and held by the Company.
Certain transactions involving the Issuer Trust could be deemed to
constitute direct or indirect prohibited transactions under ERISA and Section
4975 of the Code with respect to a Plan if the Capital Securities were
acquired with "plan assets" of such Plan and assets of the Issuer Trust were
deemed to be "plan assets" of Plans investing in the Issuer Trust. For
example, if the Company is a Party in Interest with respect to an investing
Plan (either directly or by reason of its ownership of its subsidiaries),
extensions of credit between the Company and the Issuer Trust (as represented
by the Junior Subordinated Debentures and the Guarantee) would likely be
prohibited by Section 406(a)(1)(B) of ERISA and Section 4975(c)(1)(B) of the
Code, unless exemptive relief were available under an applicable
administrative exemption (see below). In addition, if the Company were
considered to be a fiduciary with respect to the Issuer Trust as a result of
certain powers it holds (such as the powers to remove and replace the
Property Trustee and the Administrators), the optional redemption or
acceleration of the Junior Subordinated Debentures could be considered to be
prohibited transactions under Section 406(b) of ERISA and Section
4975(c)(1)(E) of the Code. In order to seek to avoid such prohibited
transactions, each investing Plan, by purchasing the Capital Securities, will
be deemed to have directed the Issuer Trust to invest in the Junior
Subordinated Debentures and to have appointed the Property Trustee and will
have certain powers with respect to the removal and replacement of the
Property Trustee.
The DOL has issued five PTCEs that may provide exemptive relief for direct
or indirect prohibited transactions resulting from the purchase or holding of
the Capital Securities, assuming that assets of the
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Issuer Trust were deemed to be "plan assets" of Plans investing in the Trust
(see above). Those class exemptions are PTCE 96-23 (for certain transactions
determined by in-house asset managers), PTCE 95-60 (for certain transactions
involving insurance company general accounts), PTCE 91-38 (for certain
transactions involving bank collective investment funds), PTCE 90-1 (for
certain transactions involving insurance company separate accounts), and PTCE
84-14 (for certain transactions determined by independent qualified asset
managers).
Because the Capital Securities may be deemed to be equity interests in the
Issuer Trust for purposes of applying ERISA and Section 4975 of the Code, the
Capital Securities may not be purchased or held by any Plan, any entity whose
underlying assets include "plan assets" by reason of any Plan's investment in
the entity (a "Plan Asset Entity") or any person investing "plan assets" of
any Plan, unless such purchaser or holder is eligible for the exemptive
relief available under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or another
applicable exemption. 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 or another applicable exemption with respect to
such purchase or holding. See "Notice to Investors" herein.
In order to delineate fiduciary responsibility appropriately, each
investing Plan, by purchasing the Capital Securities, will be deemed to have
(i) directed the Issuer Trust to invest in the Junior Subordinated Debentures
and (ii) appointed First Chicago (an entity unaffiliated with and independent
of the Issuer Trust) as Property Trustee under the Trust Agreement
responsible for certain administrative functions with respect to the Capital
Securities. The appointment of First Chicago as Property Trustee in the
preceding sentence does not extend beyond the duties of First Chicago as
Property Trustee set forth in the Trust Agreement and First Chicago expressly
assumes no other fiduciary responsibilities to the Plan, including without
limitation any duty with respect to the prudence or diversification of
investments under the Plan.
Due to the complexity of these rules and the penalties that may be imposed
upon persons involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries or other persons considering
purchasing the Capital Securities on behalf of or with "plan assets" of any
Plan consult with their counsel regarding the potential consequences if the
assets of the Issuer Trust were deemed to be "plan assets" and the
availability of exemptive relief under PTCE 96-23, 95-60, 91-38, 90-1 or
84-14 or any other applicable exemption.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Securities
received in exchange for Securities where such Securities were acquired as a
result of market-making activities or other trading activities. The Company
has agreed that, for a period of 180 days after the Expiration Date, it will
make this prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sale of Exchange
Securities by broker-dealers. Exchange Securities received by broker-dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange
Securities or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation
in the form of commissions or concessions from any such broker-dealer or the
purchasers of any such Exchange Securities. Any broker-dealer that resells
Exchange Securities that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Securities may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
Exchange Securities and any commission or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer (including the expenses of one
counsel for the Holders of the Securities) other than commissions or
concessions of any brokers or dealers and will indemnify the Holders of the
Securities (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
VALIDITY OF SECURITIES
The validity of the Exchange Capital Securities, the Exchange Guarantee
and the Exchange Junior Subordinated Debentures will be passed upon for the
Company by Robert C. Walker, Senior Vice President and General Counsel of the
Company and by Skadden, Arps, Slate, Meagher & Flom LLP as special counsel to
the Issuer Trust. Certain matters relating to United States federal income
tax considerations will be passed upon for the Company by Skadden, Arps,
Slate, Meagher & Flom LLP.
EXPERTS
The consolidated financial statements and schedules of Hartford Steam
Boiler and consolidated subsidiaries included in the Company's Annual Report
on Form 10-K as of December 31, 1996 and 1995, and for each of the years in
the three-year period ended December 31, 1996, have been incorporated by
reference herein and elsewhere in the Registration Statement, in reliance
upon the report of Coopers & Lybrand LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THE ISSUER TRUST
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER
THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS OR AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Available Information ...................... 7
Incorporation of Certain Documents
by Reference .............................. 8
Prospectus Summary ......................... 9
Risk Factors ............................... 16
HSB Group, Inc. ............................ 24
Selected Consolidated Financial Data
and Other Information ..................... 27
HSB Capital I .............................. 29
Ratio of Earnings to Fixed Charges and
Preferred Stock Dividend Requirements .... 29
Use of Proceeds ............................ 30
Capitalization ............................. 30
Accounting Treatment ....................... 31
Rating of Capital Securities ............... 31
The Exchange Offer ......................... 32
Description of Exchange Securities ........ 42
Relationship Among the Exchange Capital
Securities, the Exchange Junior
Subordinated Debentures and the Exchange
Guarantee ................................. 65
Certain Federal Income Tax Consequences ... 67
Certain ERISA Considerations ............... 71
Plan of Distribution ....................... 73
Validity of Securities ..................... 73
Experts .................................... 73
</TABLE>
$110,000,000
HSB CAPITAL I
OFFER TO EXCHANGE ITS GLOBAL
FLOATING RATE CAPITAL SECURITIES,
SERIES B
(LIQUIDATION AMOUNT $1,000 PER EXCHANGE
CAPITAL SECURITY) WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 FOR ANY
AND ALL OF ITS OUTSTANDING
GLOBAL FLOATING RATE
CAPITAL SECURITIES, SERIES A
(LIQUIDATION AMOUNT $1,000 PER ORIGINAL CAPITAL SECURITY) FULLY AND
UNCONDITIONALLY GUARANTEED, TO THE EXTENT DESCRIBED HEREIN, BY
HSB GROUP, INC.
PROSPECTUS
NOVEMBER 5, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
HSB Group's Articles of Incorporation provide that HSB will indemnify
directors to the fullest extent permitted under the law. The Connecticut
Business Corporation Act ("CBCA") permits a corporation to indemnify its
directors against liability (including judgments, settlements, penalties and
fines) if such individual acted in good faith, reasonably believed that his
or her conduct was in the corporation's best interests and, in the case of
criminal proceedings, had no reasonable cause to believe his or her conduct
was unlawful. In a proceeding by or in the right of the corporation, the
corporation may indemnify a director only for reasonable expenses, and may
not indemnify a director who is adjudged liable to the corporation.
Indemnification of such expenses is mandatory when a director is successful
in the defense of any proceeding. The CBCA also permits a corporation to pay
or reimburse the reasonable expenses incurred by a director who is a party to
an action, suit or proceeding (whether civil, criminal, administrative or
investigative) in advance of the final disposition of such action, suit or
proceeding provided that (i) such director affirms in writing such director's
good faith belief that the standard of conduct required under the statute has
been met; (ii) such director furnishes a written undertaking to repay the
corporation if it is ultimately determined that such standard has not been
met; and (iii) a determination is made pursuant to the statute that the facts
then known would not preclude indemnification under the statute. Provision
for such advance of expenses in accordance with the CBCA is included in HSB
Group's Articles of Incorporation. As permitted by the CBCA, HSB Group will
continue to secure insurance which provides broader indemnification of
directors than is required under the CBCA.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
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<S> <C>
4.1 Indenture of HSB Group, Inc. relating to the Junior Subordinated Debentures (incorporated herein by
reference to Exhibit 4 to HSB Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June
30, 1997 (File No. 001-13135))*
4.2 First Supplemental Indenture of HSB Group, Inc. (incorporated herein by reference to Exhibit 4 to HSB
Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 (File No. 001-13135))*
4.3 Form of Certificate of Exchange Junior Subordinated Debentures*
4.4 Certificate of Trust of HSB Capital I*
4.5 Amended and Restated Trust Agreement of HSB Capital Inc. (incorporated herein by reference to Exhibit
4 to HSB Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 (File No. 001-13135))*
4.6 Form of Exchange Capital Security Certificate for HSB Capital I*
4.7 Form of Exchange Guarantee of HSB Group, Inc. relating to the Exchange Capital Securities*
4.8 Registration Rights Agreement*
5.1 Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom LLP to HSB Group, Inc. as to legality of
the Exchange Capital Securities to be issued by HSB Capital I*
5.2 Opinion and Consent of Robert C. Walker, Senior Vice President and General Counsel, of HSB Group, Inc.
as to the Exchange Junior Subordinated Debentures and the Exchange Guarantee to be issued by HSB Group,
Inc.*
8 Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom LLP as to certain federal income tax matters*
12.1 Computation of ratio of earnings to fixed charges*
23.1 Consent of Coopers & Lybrand LLP*
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP*
23.3 Consent of Robert C. Walker, Senior Vice President and General Counsel of HSB Group, Inc.*
23.4 Consent of Skadden, Arps, Slate, Meagher & Flom LLP*
24 Power of Attorney of certain officers and directors of HSB Group, Inc.*
25.1 Form T-1 Statement of Eligibility of The First National Bank of Chicago to act as trustee under the
Indenture*
25.2 Form T-1 Statement of Eligibility of The First National Bank of Chicago to act as Property Trustee under
the Amended and Restated Trust Agreement of HSB Capital I*
25.3 Form T-1 Statement of Eligibility of The First National Bank of Chicago under the Exchange Guarantee
for the benefit of the holders of Exchange Capital Securities of HSB Capital I*
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery*
99.3 Form of Exchange Agent Agreement*
</TABLE>
- ------------
* Previously filed
ITEM 22. UNDERTAKINGS
Each of the undersigned Registrants hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, as amended,
each filing of a Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-2
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of each undersigned Registrant pursuant to the provisions, or otherwise, each
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
each undersigned Registrant of expenses incurred or paid by a director,
officer of controlling person of each 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, each
Registrant will, unless in the opinion of its counsel the matter has been
settled by the controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the HSB Group,
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-4 and has duly caused this Amendment
No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Hartford, in the State
of Connecticut, on the 9th of October, 1997.
HSB GROUP, INC.
By: /s/ GORDON W. KREH
-----------------------------------
Gordon W. Kreh
President, Chief Executive
Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons
in the capacities indicated on the 31st of October, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------------- ----------
<S> <C>
/S/ GORDON W. KREH Chairman of the Board, Chief Executive
---------------------------- Officer and Director
Gordon W. Kreh
* Senior Vice President, Treasurer and
---------------------------- Chief Financial Officer (Principal
Saul L. Basch Financial Officer and Principal
Accounting Officer)
/s/ ROBERT C. WALKER Senior Vice President and General
---------------------------- Counsel
Robert C. Walker
* Director
----------------------------
Joel B. Alvord
* Director
----------------------------
Richard H. Booth
* Director
----------------------------
Colin G. Campbell
* Director
----------------------------
Richard G. Dooley
* Director
----------------------------
William B. Ellis
* Director
----------------------------
E. James Ferland
* Director
----------------------------
Simon W. Leathes
II-4
<PAGE>
SIGNATURE TITLE
----------- -------
* Director
----------------------------
Lois Dickson Rice
* Director
----------------------------
John M. Washburn, Jr.
* Director
----------------------------
Wilson Wilde
*By:/s/ROBERT C. WALKER
----------------------------
Attorney-in-fact
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, HSB Capital I
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-4 and has duly caused this Amendment No. 1
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Hartford, in the State of
Connecticut, on the 31st of October, 1997.
HSB Capital I
/s/ SAUL L. BASCH
-----------------------------------
By Saul L. Basch
Administrative Trustee
/s/ R. KEVIN PRICE
-----------------------------------
By R. Kevin Price
Administrative Trustee
/s/ ROBERT C. WALKER
-----------------------------------
By Robert C. Walker
Administrative Trustee
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- ----------------
<S> <C>
4.1 Indenture of HSB Group, Inc. relating to the Junior Subordinated Debentures (incorporated
herein by reference to Exhibit 4 to HSB Group, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 (File No. 001-13135))*
4.2 First Supplemental Indenture of HSB Group, Inc.(incorporated herein by reference to Exhibit
4 to HSB Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 1997
(File No. 001-13135))*
4.3 Form of Certificate of Exchange Junior Subordinated Debentures*
4.4 Certificate of Trust of HSB Capital I*
4.5 Amended and Restated Trust Agreement of HSB Capital I, (incorporated herein by reference to
Exhibit 4 to HSB Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30,
1997 (File No. 001-13135))*
4.6 Form of Exchange Capital Security Certificate for HSB Capital I*
4.7 Form of Exchange Guarantee of HSB Group, Inc. relating to the Exchange Capital Securities*
4.8 Registration Rights Agreement*
5.1 Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom LLP to HSB Group Inc. as to
legality of the Exchange Capital Securities to be issued by HSB Capital I*
5.2 Opinion and Consent of Robert C. Walker, Senior Vice President and General Counsel, of HSB
Group Inc. as to the Exchange Junior Subordinated Debentures and the Exchange Guarantee to
be issued by HSB Group, Inc.*
8 Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom LLP, as to certain federal
income tax matters*
12.1 Computation of ratio of earnings to fixed charges *
23.1 Consent of Coopers & Lybrand LLP*
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP*
23.3 Consent of Robert C. Walker, Senior Vice President and General Counsel of HSB Group, Inc.*
23.4 Consent of Skadden, Arps, Slate, Meagher & Flom LLP*
24 Power of Attorney of certain officers and directors of HSB Group, Inc.*
25.1 Form T-1 Statement of Eligibility of The First National Bank of Chicago to act as trustee
under the Indenture*
25.2 Form T-1 Statement of Eligibility of The First National Bank of Chicago to act as Property
Trustee under the Amended and Restated Trust Agreement of HSB Capital I*
25.3 Form T-1 Statement of Eligibility of The First National Bank of Chicago under the Exchange
Guarantee for the benefit of the holders of Exchange Capital Securities of HSB Capital I*
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery*
99.3 Form of Exchange Agent Agreement*
</TABLE>
- ------------
* Previously filed
II-7
