<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission File Number 1-9627
ZENITH NATIONAL INSURANCE CORP.
[Exact name of registrant as specified in its charter]
Delaware 95-2702776
[State or other jurisdiction of [I.R.S. Employer
incorporation or organization] Identification No.]
21255 Califa Street, Woodland Hills, California 91367-5021
[Address of principal executive offices] [Zip Code]
(818) 713-1000
[Registrant's telephone number, including area code]
Indicate by check mark whether the registrant [1] has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and [2] has been subject to
such filing requirements for the past 90 days.
Yes [ X ] No [ ]
Number of shares of Common Stock, $1 par value per share, outstanding as of
close of business on October 31, 1998: 17,043,064, net of 7,821,770 shares of
treasury stock.
1
<PAGE>
PART 1, FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
September 30, December 31,
(In thousands, except per share data) 1998 1997
- ------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS:
Investments:
Fixed maturities:
At amortized cost (fair value $40,100 in 1998 and $48,266 in 1997) $ 38,395 $ 46,948
At fair value (cost $711,519 in 1998 and $534,771 in 1997) 727,028 542,479
Floating rate preferred stocks, at fair value (cost $16,614 in 1998 and
$14,614 in 1997) 17,887 15,670
Convertible and non-redeemable preferred stocks, at fair value (cost
$7,679 in 1998 and 6,672 in 1997) 7,216 6,602
Common stocks, at fair value (cost $30,233 in 1998 and $17,790 in 1997) 30,996 23,439
Short-term investments (at cost, which approximates fair value) 225,659 209,827
Other investments 39,668 35,008
--------- ----------
Total Investments 1,086,849 879,973
Cash (restricted cash $3,054 in 1998 and $5,524 in 1997) 8,581 12,504
Accrued investment income 13,998 9,523
Premiums receivable 116,380 72,813
Receivable from reinsurers, state trust funds and prepaid reinsurance
premiums 482,729 106,067
Deferred policy acquisition costs 21,885 20,840
Properties and equipment, less accumulated depreciation 79,592 54,531
Federal income taxes 36,034 19,940
Intangible assets 83,438 9,600
Other assets 78,573 66,365
--------- ----------
TOTAL ASSETS $ 2,008,059 $1,252,156
--------- ----------
--------- ----------
</TABLE>
(continued)
2
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
(In thousands, except per share data) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
LIABILITIES:
Policy liabilities and accruals:
Unpaid loss and loss adjustment expenses $ 1,209,505 $ 613,266
Unearned premiums 168,394 128,469
Policyholders' dividends accrued 7,554 5,360
Other policyholder funds 6,407
Reserves on loss portfolio transfers 9,911 11,054
Payable to banks and other notes payable 10,816 13,742
Senior notes payable, less unamortized issue costs of $435 in 1998 and
$526 in 1997 74,565 74,474
Other liabilities 104,543 37,518
----------- --------
TOTAL LIABILITIES 1,585,288 890,290
----------- --------
REDEEMABLE SECURITIES:
Company-obligated, mandatorily redeemable capital securities of Zenith
National Insurance Capital Trust I, holding solely 8.55% Subordinated
Deferrable Interest Debentures due 2028, of Zenith National Insurance
Corp., less unamortized issue cost and discount of $1,672 in 1998 73,328
---------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par - shares authorized 1,000; issued and outstanding,
none in 1998 and 1997
Common stock, $1 par - shares authorized 50,000; issued 24,865,
outstanding 17,043 in 1998, issued 24,681, outstanding 17,819 in 1997 24,865 24,681
Additional paid-in capital 268,375 264,098
Retained earnings 191,680 186,268
Net unrealized appreciation on investments, net of deferred tax expense of
$5,955 in 1998 and $5,025 in 1997 11,059 9,332
---------- ----------
495,979 484,379
Less treasury stock, at cost (7,822 shares in 1998 and 6,862 shares in 1997) (146,536) (122,513)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 349,443 361,866
---------- ----------
TOTAL LIABILITIES, REDEEMABLE SECURITIES AND
STOCKHOLDERS' EQUITY $2,008,059 $1,252,156
---------- ----------
---------- ----------
</TABLE>
The accompayning notes are an integral part of this statement.
3
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands, except per share data) 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSOLIDATED REVENUES:
Premiums earned $136,151 $120,475 $392,489 $368,669
Net investment income 15,194 13,272 42,108 39,126
Realized gains on investments 2,164 1,861 8,338 5,733
Real estate sales 8,398 11,480 28,830 32,617
Service fee income 1,206 2,598
-------- -------- -------- --------
Total revenues 163,113 147,088 474,363 446,145
EXPENSES:
Loss and loss adjustment expenses incurred 101,690 81,104 280,199 258,051
Policy acquisition costs 25,707 22,834 74,696 69,196
Other underwriting and operating expenses 19,233 17,902 58,076 49,521
Policyholders' dividends and participation 441 533 378 (433)
Real estate construction and operating costs 8,210 11,225 28,248 31,424
Amortization of provisional goodwill 765 1,530
Interest expense 1,908 980 3,416 2,932
-------- -------- -------- --------
Total expenses 157,954 134,578 446,543 410,691
Income before federal income tax expense 5,159 12,510 27,820 35,454
Federal income tax expense 1,659 4,510 9,620 12,454
-------- -------- -------- --------
NET INCOME $ 3,500 $ 8,000 $ 18,200 $ 23,000
-------- -------- -------- --------
-------- -------- -------- --------
EARNINGS PER SHARE:
Net income per common share - basic $ 0.21 $ 0.45 $ 1.07 $ 1.30
-------- -------- -------- --------
-------- -------- -------- --------
Net income per common share - diluted $ 0.20 $ 0.45 $ 1.06 $ 1.29
-------- -------- -------- --------
-------- -------- -------- --------
Additional Required Disclosure
Net income $ 3,500 $ 8,000 $ 18,200 $ 23,000
Change in unrealized appreciation on investments 925 8,539 1,727 8,629
-------- -------- -------- --------
Comprehensive Income $ 4,425 $ 16,539 $ 19,927 $ 31,629
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30,
(In thousands) 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Premiums collected $ 431,867 $ 393,281
Investment income received 40,379 37,612
Proceeds from sales of real estate 28,830 32,617
Loss and loss adjustment expenses paid (299,178) (256,326)
Underwriting and other operating expenses paid (145,420) (121,799)
Real estate construction costs paid (35,665) (36,612)
Reinsurance premiums paid (24,451) (20,964)
Interest paid (3,706) (3,185)
Income taxes paid (5,352) (4,497)
Net proceeds from sales of trading portfolio investments 1,416
-------- --------
Net cash (used in) provided by operating activities (12,696) 21,543
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments:
Investment securities available-for-sale (252,200) (61,985)
Other investments (7,008) (4,146)
Proceeds from maturities and redemptions of investments:
Fixed maturities held-to-maturity 8,379 4,290
Investment securities available-for-sale 55,073 22,204
Other investments 3,452
Proceeds from sales of investments:
Investment securities available-for-sale 210,448 74,454
Other investments 6,182 5,295
Net change in short-term investments (13,462) (45,800)
Capital expenditures and other, net (8,325) (7,525)
-------- --------
Net cash used in investing activities (913) (9,761)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note assumed from RISCORP (15,000)
Cash payment to RISCORP (35,000)
RISCORP acquisition costs (7,660) (1,291)
Cash acquired in RISCORP Acquisition 29,553
Net cash received from Zenith National Insurance Capital Trust I 8.55%
Capital Securities 73,320
Cash advanced from bank construction loans 23,015 29,751
Cash repaid on bank construction loans (25,941) (30,411)
Cash advanced from bank lines of credit 2,000
Cash repaid on bank lines of credit (2,000)
Cash dividends paid to common stockholders (12,739) (13,275)
Proceeds from exercise of stock options 4,161 3,919
Purchase of treasury shares (24,023) (285)
-------- --------
Net cash provided by (used in) financing activities 9,686 (11,592)
-------- --------
Net (decrease) increase in cash (3,923) 190
Cash at beginning of period 12,504 12,125
-------- --------
Cash at end of period $ 8,581 $ 12,315
-------- --------
-------- --------
</TABLE>
(continued)
5
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Nine Months Ended
September 30,
(In thousands) 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH FLOWS
FROM OPERATING ACTIVITIES:
Net Income $ 18,200 $23,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,866 4,391
Realized gains on investments (8,338) (5,733)
Net proceeds from trading portfolio 1,416
Decrease (increase) in:
Accrued investment income (1,334) (1,260)
Premiums receivable 21,971 (3,851)
Receivable from reinsurers, state trust funds and prepaid
reinsurance premiums 29,132 1,821
Deposit receivable 2,066
Deferred policy acquisition costs (7,362) (1,377)
Federal income taxes 4,095 7,967
Real estate construction in progress (9,496) (7,045)
Increase (decrease) in:
Unpaid loss and loss adjustment expenses (59,970) (682)
Unearned premiums (3,252) 11,140
Other policyholder funds (6,407) (2,707)
Other 2,199 (7,603)
------- ------
Net cash (used in) provided by operating activities $(12,696) $21,543
------- ------
------- ------
</TABLE>
The accompanying notes are an integral part of this statement.
See Note 3 for non-cash activities related to the RISCORP Acquisition.
6
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
Note 1. Basis of Presentation
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the financial
position and results of operations of Zenith National Insurance Corp. and
subsidiaries (collectively, "Zenith") for the periods presented have been
included. The results of operations for an interim period are not necessarily
indicative of the results for an entire year. Certain prior year balances
have been reclassified to conform to current year presentation.
The initial recording of the RISCORP Acquisition (see Note 3) is based on a
purchase price subject to a dispute resolution process. Since this dispute
resolution process and the valuation of the acquired assets and liabilities
are continuing, the allocation of the purchase price and the provisional
goodwill may change materially.
Note 2. Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands, except per share data) 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(A) Net income $3,500 $8,000 $18,200 $23,000
- --------------------------------------------------------------------------------------------------------
(B) Weighted average outstanding
shares during the period 17,055 17,725 17,018 17,687
Additional common shares issuable
under employee stock option plans
using the treasury stock method (1) 113 193 155 169
- --------------------------------------------------------------------------------------------------------
(C) Weighted average number of common
shares outstanding assuming
exercise of stock options 17,168 17,918 17,173 17,856
- --------------------------------------------------------------------------------------------------------
(A)/(B) Net income per common share - basic $0.21 $0.45 $1.07 $1.30
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
(A)/(C) Net income per common share - diluted $0.20 $0.45 $1.06 $1.29
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) 1997 per common share data have been restated to conform to the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 128.
7
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- -------------------------------------------------------------------------------
Note 3. Acquisition of RISCORP
On April 1, 1998, pursuant to an Asset Purchase Agreement dated June 17, 1997
(as amended from time to time, the "Asset Purchase Agreement") between Zenith
Insurance Company, a wholly owned subsidiary of Zenith ("Zenith Insurance"),
and RISCORP, Inc. and certain of its subsidiaries (collectively, "RISCORP"),
Zenith Insurance acquired substantially all of the assets and certain
liabilities of RISCORP related to RISCORP's workers' compensation business
(the "RISCORP Acquisition"). At the closing, Zenith Insurance paid $35
million in cash, and assumed and repaid $15 million of indebtedness of
RISCORP, Inc. The final purchase price, which will take into account the $35
million, is not yet known, is subject to a three-step determination process,
and will be the difference between the GAAP book value of assets purchased
and the GAAP book value of the liabilities assumed by Zenith Insurance as of
April 1, 1998.
As the first step of the three-step process to determine the final purchase
price, on June 9, 1998, RISCORP provided Zenith Insurance with a "Proposed
Business Balance Sheet" indicating that RISCORP's determination of the final
purchase price is approximately $141 million. As the second step of this
process, on July 9, 1998, Zenith Insurance provided RISCORP with proposed
adjustments to the Proposed Business Balance Sheet, which adjustments were
prepared in conjunction with Zenith Insurance's external accounting and
actuarial consultants. These proposed adjustments resulted in large part from
differences in the estimation of loss and loss adjustment expense reserves,
primarily related to differences in actuarial methodology and assumptions,
including anticipated loss development. As the final step of the price
determination process, RISCORP and Zenith Insurance have submitted all items
in dispute concerning the Proposed Business Balance Sheet to a nationally
recognized independent accounting firm which will serve as the Neutral
Auditor and Neutral Actuary to resolve all such disputes. On July 24,1998,
Zenith Insurance submitted to such firm a written analysis in support of its
proposed adjustments. Such adjustments would indicate that the value of the
liabilities assumed by Zenith Insurance exceeds the value of the assets
transferred to Zenith Insurance by as much as $71 million, and that the final
purchase price will be no greater than the $35 million already paid by Zenith
Insurance at closing. On July 24, 1998, RISCORP delivered to such firm
RISCORP's initial submission indicating that its determination of the final
purchase price is approximately $141 million. On July 31, 1998, Zenith
Insurance and RISCORP made additional submissions to the Neutral Auditor and
Neutral Actuary in support of the positions taken by the parties in their
submissions on July 24, 1998.
8
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- -------------------------------------------------------------------------------
The Asset Purchase Agreement originally called for the Neutral Auditor and
Neutral Actuary to issue a determination on the disputed items within 30 days
after completion of Zenith Insurance's review of the Proposed Business
Balance Sheet on July 9, 1998, which would have resulted in a final purchase
price no later than August 10, 1998. However, pursuant to agreement among
Zenith Insurance, RISCORP and the Neutral Auditor and Neutral Actuary, the
determination of the Neutral Auditor and Neutral Actuary is not required to
be available until 90 days after the Neutral Auditor and Neutral Actuary
received the submissions made by the parties on July 31, 1998. Also, the
Neutral Auditor and Neutral Actuary have advised that the availability of the
determination may be delayed beyond that 90-day period because the Neutral
Auditor and Neutral Actuary had not received access to certain workpapers as
of July 31, 1998. On November 10, 1998, RISCORP requested that the Neutral
Auditor and Neutral Actuary consider additional materials that RISCORP will
deliver on November 13, 1998, and consideration of these additional materials
may further delay the availability of the determination by the Neutral
Auditor and the Neutral Actuary. Zenith cannot predict the outcome of the
price determination process, and the determination of the Neutral Auditor and
Neutral Actuary related to the final purchase price will not be known until
the fourth quarter of 1998 or later. Accordingly, Zenith cannot predict the
final purchase price at this time.
The RISCORP Acquisition was accounted for as a purchase by Zenith Insurance
and the assets acquired, liabilities assumed and the results of operations
from RISCORP at April 1, 1998 are included in Zenith's consolidated balance
sheet and statement of operations as of and for the quarter ended September
30, 1998. Because of the considerable uncertainty and possible range of
outcomes surrounding the determination of the final purchase price, the
assets acquired and liabilities assumed from RISCORP reflected in Zenith's
consolidated balance sheet as of September 30, 1998 represent management's
estimate of their fair values at April 1, 1998, based on currently available
information and the assumption that the final purchase price will be
$35 million.
Based on such estimates and the assumption that the final purchase price is
$35 million, the excess of the purchase price, including acquisition expense,
over the estimated fair value of net assets is approximately $76 million and
is being amortized over 25 years. Since the $76 million is based on estimates
and assumptions, it may materially change upon determination, and adjustment
of the allocation, of the final purchase price. Estimated amortization
expense, from April 1, 1998, of $0.8 million and $1.5 million was recorded in
the three and nine months ended September 30, 1998, respectively.
Evaluation and determination of the acquired assets and assumed liabilities
are continuing, including: premiums receivable; reinsurance recoverables;
state disability trust fund recoverable; accrued reinsurance commissions;
deferred acquisition costs; and unpaid loss and loss adjustment expenses.
Accordingly, the allocation of the purchase price may be adjusted.
Zenith Insurance has provided notice to RISCORP of certain breaches of
representations, warranties and covenants made by RISCORP in the Asset
Purchase Agreement. These breaches may result in recovery by Zenith Insurance
of a portion of the purchase price otherwise payable by Zenith Insurance. In
addition, Zenith Insurance believes it is entitled to receive certain assets
of RISCORP, including security deposits held by state insurance departments,
that were not transferred to Zenith Insurance at closing.
9
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- -------------------------------------------------------------------------------
Zenith Insurance has entered into a binder pending the definitive contract to
purchase ceded reinsurance protection relating to development of the loss and
loss adjustment expense reserves assumed from RISCORP.
The following table summarizes the estimated fair value of RISCORP's assets
acquired and liabilities assumed at April 1, 1998 assuming the Neutral
Auditor and Neutral Actuary agree with the adjustments proposed by Zenith and
assuming the final purchase price is $35 million.
<TABLE>
<CAPTION>
(In thousands) April 1, 1998
- ----------------------------------------------------------------------------
<S> <C>
Assets
Invested assets, primarily U.S. Government issues $201,441
Cash 29,553
Premiums receivable 58,158
Receivable from reinsurers and state trust funds 355,794
Intangible assets 65,815
Other assets 54,090
- ----------------------------------------------------------------------------
Total assets 764,851
- ----------------------------------------------------------------------------
Liabilities
Unpaid loss and loss adjustment expense 656,209
Unearned premium reserve 43,177
Other liabilities 30,465
- ----------------------------------------------------------------------------
Total liabilities 729,851
- ----------------------------------------------------------------------------
Assumed purchase price $ 35,000
- ----------------------------------------------------------------------------
</TABLE>
Pro forma total revenues for Zenith (after giving effect to the RISCORP
Acquisition as if it had been consummated at the beginning of the respective
periods) were approximately $163.1 million and $197.5 million, respectively,
for the three months ended, and $506.7 million and $604.0 million,
respectively, for the nine months ended, September 30, 1998 and 1997. Pro
forma net income was approximately $3.5 million and $10.8 million,
respectively, for the three months ended, and $6.6 million and $26.7 million,
respectively, for the nine months ended, September 30, 1998 and 1997.
Earnings per share were approximately $0.21 (basic) and $0.20 (diluted) and
$0.61 (basic) and $0.60 (diluted), respectively, for the three months ended,
and $0.39 (basic) and $0.38 (diluted) and $1.51 (basic) and $1.50 (diluted),
respectively, for the nine months ended, September 30, 1998 and 1997.
Such pro forma data has been derived in part from the historical statement of
operations data of RISCORP, Inc. as reported by RISCORP, Inc. for the three
months ended March 31, 1998 and nine months ended September 30, 1997. Zenith
specifically disclaims any responsibility for the accuracy or completeness of
such historical RISCORP, Inc. data or such pro forma data to the extent it is
based on such historical data. Further, such pro forma data may not
necessarily be indicative of future total revenues or future net income or
what they might have been if the RISCORP Acquisition had been consummated at
the beginning of each of the respective periods.
10
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- -------------------------------------------------------------------------------
Note 4. Comprehensive Income
As of January 1, 1998, Zenith adopted SFAS No. 130 "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting and presenting
comprehensive income and its components in a full set of financial
statements. Comprehensive income includes net income and all changes in
stockholders' equity (except those arising from transactions with
stockholders) and changes in net unrealized appreciation (depreciation) on
investments. The new standard requires only additional disclosures in the
consolidated financial statements; it does not affect the financial position
or results of operations.
Note 5. Costs of Computer Software Developed or Obtained for Internal Use
Zenith adopted Statement of Position ("SOP") 98-1 "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use" effective
January 1, 1998. SOP 98-1 requires capitalization of certain internal and
external costs associated with computer software developed or obtained for
internal use. For the three and nine months ended September 30, 1998,
software capitalization was $3.2 million and $4.8 million, respectively.
Note 6. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133 "Accounting for Derivative Instruments and Hedging Activities". The
new pronouncement, which is effective for all fiscal quarters beginning after
June 15, 1999, requires that all companies carry derivatives on the balance
sheet at fair value. Changes in the fair value of derivatives must be
recognized in income when they occur, unless the derivative qualifies for
hedge accounting. Zenith does not currently have any derivatives and
therefore does not believe that there will be any impact on its financial
statements as a result of the adoption of SFAS No. 133.
Note 7. Capital Securities and Subordinated Debentures
On July 30, 1998, Zenith issued $75 million of 8.55% Capital Securities at a
price of $996.24 per security through the Zenith National Insurance Capital
Trust I, a Delaware statutory business trust (the "Trust") all of the voting
securities of which are owned by Zenith. Each Capital Security pays
semi-annual cumulative cash distributions at the annual rate of 8.55% of the
$1,000 liquidation amount per security.
11
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- -------------------------------------------------------------------------------
The Trust used the proceeds from its offering to purchase $75 million of
Zenith's 8.55% Subordinated Deferrable Interest Debentures due 2028 (the
"Subordinated Debentures"), which constitute the principal asset of the
Trust. The semi-annual interest payments on the Subordinated Debentures may
be deferred by Zenith for up to ten consecutive semi-annual periods. The
Subordinated Debentures are redeemable at any time by Zenith at the then
present value of the remaining scheduled payments of principal and interest.
Payments on the Capital Securities, including distributions and redemptions,
follow those of the Subordinated Debentures. Zenith used $65 million from the
net proceeds to make a capital contribution to Zenith Insurance. The
remaining net proceeds were used for general corporate purposes. The issue
cost and discount on the Subordinated Debentures of $1.7 million are being
amortized over the term of the Subordinated Debentures. During the three
months and nine months ended September 30, 1998, approximately $9,000 of such
costs were amortized.
Zenith fully and unconditionally guaranteed the distributions on, and the
liquidation amount generally of, the Capital Securities to the extent the
Trust has funds legally available therefor. Zenith's guarantee of the Capital
Securities, as well as the Subordinated Debentures, are subordinated to all
other indebtedness of Zenith.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Zenith's principal source of consolidated earnings is the income, including
investment income, from the operations of its property-casualty insurance
business. The comparative results of operations are set forth in the table
below, followed by a discussion of significant changes.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income, after taxes $10,229 $8,799 $28,127 $25,941
Realized gains on investments, after taxes 1,407 1,209 5,420 3,726
- ---------------------------------------------------------------------------------------------------------
Sub-total 11,636 10,008 33,547 29,667
- ---------------------------------------------------------------------------------------------------------
Property-casualty underwriting loss, after taxes:
Loss excluding catastrophes (3,204) (677) (4,547) (2,606)
Catastrophe loss (2,600) (65) (5,850) (975)
- ---------------------------------------------------------------------------------------------------------
Property-casualty underwriting loss, after taxes (5,804) (742) (10,397) (3,581)
- ---------------------------------------------------------------------------------------------------------
Income from real estate operations, after taxes 122 165 378 764
Interest expense, after taxes (1,240) (637) (2,220) (1,906)
Parent expenses, after taxes (1,214) (794) (3,108) (1,944)
- ---------------------------------------------------------------------------------------------------------
Net income $3,500 $8,000 $18,200 $23,000
- ---------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
Premiums earned, underwriting results and combined ratios before taxes for
the three and nine months ended September 30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums earned:
Workers' compensation
California $ 31,157 $ 31,283 $ 91,601 $100,520
Outside California 41,024 27,475 110,582 81,861
-------------------------------------------------------------
Total workers' compensation 72,181 58,758 202,183 182,381
Other property-casualty 56,162 53,273 167,317 160,748
Reinsurance 7,808 8,444 22,989 25,540
-------------------------------------------------------------
Total $136,151 $120,475 $392,489 $368,669
-------------------------------------------------------------
-------------------------------------------------------------
Underwriting income (loss) before taxes:
Workers' compensation $(13,154) $ (6,245) $(29,331) $(19,003)
Other property-casualty 3,165 2,246 4,916 4,882
Reinsurance 1,070 3,004 8,963 9,005
-------------------------------------------------------------
Total $ (8,919) $ (995) $(15,452) $ (5,116)
-------------------------------------------------------------
-------------------------------------------------------------
Combined loss and expense ratios:
Workers' compensation
Loss and loss adjustment expenses 83.5% 75.7% 78.9% 77.3%
Underwriting expenses 34.1% 34.0% 35.4% 33.1%
Dividends to policyholders 0.6% 0.9% 0.2%
-------------------------------------------------------------
Combined ratio 118.2% 110.6% 114.5% 110.4%
Other property-casualty
Loss and loss adjustment expenses 64.3% 63.5% 66.2% 65.9%
Underwriting expenses 30.1% 32.3% 30.9% 31.1%
-------------------------------------------------------------
Combined ratio 94.4% 95.8% 97.1% 97.0%
Reinsurance
Loss and loss adjustment expenses 67.5% 33.3% 42.4% 43.9%
Underwriting expenses 18.8% 31.1% 18.6% 20.9%
-------------------------------------------------------------
Combined ratio 86.3% 64.4% 61.0% 64.8%
Total property-casualty
Loss and loss adjustment expenses 74.7% 67.3% 71.3% 70.0%
Underwriting expenses 31.6% 33.1% 32.5% 31.4%
Dividends to policyholders 0.3% 0.4% 0.1%
-------------------------------------------------------------
Combined ratio 106.6% 100.8% 103.9% 101.4%
-------------------------------------------------------------
-------------------------------------------------------------
</TABLE>
13
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
RISCORP ACQUISITION
On April 1, 1998, pursuant to an Asset Purchase Agreement dated June 17, 1997
(as amended from time to time, the "Asset Purchase Agreement") between Zenith
Insurance Company, a wholly owned subsidiary of Zenith ("Zenith Insurance"),
and RISCORP, Inc. and certain of its subsidiaries (collectively, "RISCORP"),
Zenith Insurance acquired substantially all of the assets and certain
liabilities of RISCORP related to RISCORP's workers' compensation business
(the "RISCORP Acquisition"). At the closing, Zenith Insurance paid $35
million in cash, and assumed and repaid $15 million of indebtedness of
RISCORP, Inc. The final purchase price, which will take into account the $35
million, is not yet known, is subject to a three-step determination process,
and will be the difference between the GAAP book value of assets purchased
and the GAAP book value of the liabilities assumed by Zenith Insurance as of
April 1, 1998.
As the first step of the three-step process to determine the final purchase
price, on June 9, 1998, RISCORP provided Zenith Insurance with a "Proposed
Business Balance Sheet" indicating that RISCORP's determination of the final
purchase price is approximately $141 million. As the second step of this
process, on July 9, 1998, Zenith Insurance provided RISCORP with proposed
adjustments to the Proposed Business Balance Sheet, which adjustments were
prepared in conjunction with Zenith Insurance's external accounting and
actuarial consultants. These proposed adjustments resulted in large part from
differences in the estimation of loss and loss adjustment expense reserves,
primarily related to differences in actuarial methodology and assumptions,
including anticipated loss development. As the final step of the price
determination process, RISCORP and Zenith Insurance have submitted all items
in dispute concerning the Proposed Business Balance Sheet to a nationally
recognized independent accounting firm which will serve as the Neutral
Auditor and Neutral Actuary to resolve all such disputes. On July 24,1998,
Zenith Insurance submitted to such firm a written analysis in support of its
proposed adjustments. Such adjustments would indicate that the value of the
liabilities assumed by Zenith Insurance exceeds the value of the assets
transferred to Zenith Insurance by as much as $71 million, and that the final
purchase price will be no greater than the $35 million already paid by Zenith
Insurance at closing. On July 24, 1998, RISCORP delivered to such firm
RISCORP's initial submission indicating that its determination of the final
purchase price is approximately $141 million. On July 31, 1998, Zenith
Insurance and RISCORP made additional submissions to the Neutral Auditor and
Neutral Actuary in support of the positions taken by the parties in their
submissions on July 24, 1998.
14
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
The Asset Purchase Agreement originally called for the Neutral Auditor and
Neutral Actuary to issue a determination on the disputed items within 30 days
after completion of Zenith Insurance's review of the Proposed Business
Balance Sheet on July 9, 1998, which would have resulted in a final purchase
price no later than August 10, 1998. However, pursuant to agreement among
Zenith Insurance, RISCORP and the Neutral Auditor and Neutral Actuary, the
determination of the Neutral Auditor and Neutral Actuary is not required to
be available until 90 days after the Neutral Auditor and Neutral Actuary
received the submissions made by the parties on July 31, 1998. Also, the
Neutral Auditor and Neutral Actuary have advised that the availability of the
determination may be delayed beyond that 90-day period because the Neutral
Auditor and Neutral Actuary had not received access to certain workpapers as
of July 31, 1998. On November 10, 1998 RISCORP requested that the Neutral
Auditor and the Neutral Actuary consider additional materials that RISCORP
will deliver on November 13, 1998, and consideration of these additional
materials may further delay the availability of the determination by the
Neutral Auditor and the Neutral Actuary. Zenith cannot predict the outcome of
the price determination process, and the determination of the Neutral Auditor
and Neutral Actuary related to the final purchase price will not be known
until the fourth quarter of 1998 or later. Accordingly, Zenith cannot predict
the final purchase price at this time.
The RISCORP Acquisition was accounted for as a purchase by Zenith Insurance
and the assets acquired, liabilities assumed and the results of operations
from RISCORP at April 1, 1998 are included in Zenith's consolidated balance
sheet and statement of operations as of and for the quarter ended September
30, 1998. Because of the considerable uncertainty and possible range of
outcomes surrounding the determination of the final purchase price, the
assets acquired and liabilities assumed from RISCORP reflected in Zenith's
consolidated balance sheet as of September 30, 1998 represent management's
estimate of their fair values at April 1, 1998, based on currently available
information and the assumption that the final purchase price will be $35
million.
Based on such estimates and the assumption that the final purchase price is
$35 million, the excess of the purchase price, including acquisition expense,
over the estimated fair value of net assets is approximately $76 million and
is being amortized over 25 years. Since the $76 million is based on estimates
and assumptions, it may materially change upon determination, and adjustment
of the allocation, of the final purchase price. Estimated amortization
expense, from April 1, 1998, of $0.8 million and $1.5 million was recorded in
the three and nine months ended September 30, 1998, respectively.
Evaluation and determination of the acquired assets and assumed liabilities
are continuing, including: premiums receivable; reinsurance recoverables;
state disability trust fund recoverable; accrued reinsurance commissions;
deferred acquisition costs; and unpaid loss and loss adjustment expenses.
Accordingly, the allocation of the purchase price may be adjusted.
Zenith Insurance has provided notice to RISCORP of certain breaches of
representations, warranties and covenants made by RISCORP in the Asset
Purchase Agreement. These breaches may result in recovery by Zenith Insurance
of a portion of the purchase price otherwise payable by Zenith Insurance. In
addition, Zenith Insurance believes it is entitled to receive certain assets
of RISCORP, including security deposits held by state insurance departments,
that were not transferred to Zenith Insurance at closing.
Zenith Insurance has entered into a binder pending the definitive contract to
purchase ceded reinsurance protection relating to development of the loss and
loss adjustment expense reserves assumed from RISCORP.
15
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
PROPERTY-CASUALTY INSURANCE OPERATIONS
The business acquired from RISCORP, effective April 1, 1998, contributed
$22.7 million and $47.4 million of workers' compensation premiums earned in
the three and nine months ended September 30, 1998, respectively. This
business contributed an underwriting loss, before taxes, of $5.5 million and
$9.6 million in the three and nine months ended September 30, 1998,
respectively. The RISCORP Acquisition reduced earnings per share in the three
and nine months ended September 30, 1998 by $0.09 and $0.18, respectively,
due to provisional goodwill amortization and other expenses. Excess costs in
the former RISCORP business will adversely impact the underwriting results in
Zenith's workers' compensation operation, pending the integration of such
former RISCORP business into Zenith's existing workers' compensation
operations.
Competition in the workers' compensation business continues to be intense.
Excluding the effect of the additional premiums from the RISCORP Acquisition,
premiums earned by Zenith's workers' compensation written both inside and
outside of California decreased in the three months and nine months ended
September 30, 1998 compared to the corresponding periods in 1997. The
underwriting results for the three and nine months ended September 30, 1998
include $2.0 million, before tax, of losses related to catastrophic workers'
compensation claims in the third quarter.
Profitability is dependent upon the ability to maintain adequate rates,
manage claims costs and keep operating expenses in line with premium volume.
Zenith is unable to predict when its workers' compensation operation will
return to underwriting profitability that is consistent with Zenith's
historical experience.
California wind and storm damage sustained by Zenith's other
property-casualty operations in the first quarter of 1998 also contributed to
the decline in the underwriting results for nine months ended September 30,
1998 compared to the corresponding period in 1997. Notwithstanding these
catastrophe losses and intense competition, Zenith's other property-casualty
operations are achieving favorable underwriting results.
Reinsurance premiums earned declined in the three months and nine months
ended September 30, 1998 compared to the corresponding periods in 1997 due
primarily to selected non-renewal of certain reinsurance treaties and
softening of property catastrophe rates. The underwriting results for the
three and nine months ended September 30, 1998 include estimated catastrophe
losses related to Hurricane Georges of $2.0 million before taxes in the third
quarter. The decrease in the loss and loss adjustment expense ratio for
reinsurance, excluding the impact of Hurricane Georges, for the nine months
ended September 30, 1998 as compared to the corresponding period in 1997 is
due to favorable development for certain treaties in addition to current
operations.
Total catastrophe losses reduced earnings per share by $0.15 and $0.34 per
share for the three and nine months ended September 30, 1998, respectively,
as compared to none and $0.05 per share for the corresponding periods in 1997.
16
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
INVESTMENTS
Zenith's invested assets and cash increased by approximately $230 million as
a result of the RISCORP Acquisition. The investment portfolio acquired in the
RISCORP Acquisition consists of investment grade U.S. treasury notes,
corporate debt and municipal debt.
Investment income for the three and nine months ended September 30, 1998
increased from the corresponding periods in 1997 primarily due to the
increase in invested assets added by the RISCORP Acquisition.
The yields on invested assets, which vary with the general level of interest
rates, were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment yield, before taxes 5.8% 6.0% 5.9% 5.9%
Investment yield, after taxes 3.9% 4.0% 3.9% 3.9%
- ---------------------------------------------------------------------------------------------------
</TABLE>
Bonds with an investment grade rating represented 97% and 96% of the
consolidated carrying values of fixed maturities at September 30, 1998 and
December 31, 1997, respectively. The average maturity of the investment
portfolio was 4.7 years at September 30, 1998 and 4.2 years at December 31,
1997.
The total fair value of fixed maturity investments, and the unrealized gain
on held-to-maturity and available-for-sale fixed maturity investments, were
as follows:
<TABLE>
<CAPTION>
Unrealized Gain on Fixed Maturities
--------------------------------------------
Total Fair Held-to-Maturity Available-for-Sale
Value of --------------- ------------------
(in thousands) Fixed Maturities Before Tax Before Tax After Tax
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
At September 30, 1998 $992,787 $1,705 $15,455 $10,045
At December 31, 1997 800,572 1,318 7,744 5,034
At September 30, 1997 788,232 738 3,645 2,369
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The change in fair value of fixed maturity investments available-for-sale
resulted in an increase in stockholders' equity of $5.0 million, after
deferred taxes, between December 31, 1997 and September 30, 1998.
Stockholders' equity will continue to be affected by volatility in the fixed
maturity securities market.
17
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
The change in the carrying value of Zenith's consolidated investment
portfolio during the nine months ended September 30, 1998 was as follows:
<TABLE>
<CAPTION>
(in thousands)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Carrying value at December 31, 1997 $ 879,973
Purchases at cost 259,208
Investments acquired in RISCORP Acquisition 201,441
Maturities and redemptions (63,452)
Proceeds from sales of investments (216,631)
Net realized gain on:
Investments available-for-sale 4,928
Other investments 3,410
------
Total 8,338
Change in unrealized gains 2,657
Increase in short-term investments 13,462
Net amortization of bonds and preferred stocks and
other changes 1,853
- ---------------------------------------------------------------------------------------------------
Carrying value at September 30, 1998 $1,086,849
- ---------------------------------------------------------------------------------------------------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The decrease in net cash provided by operating activities is primarily due to
a $26.4 million decrease in cash flows from workers' compensation operations
caused by a decrease in premium income (net of ceded reinsurance). Also,
principally as a result of the RISCORP Acquisition, there was an increase in
workers' compensation loss and loss adjustment expense payments associated
with the unpaid loss and loss adjustment expense reserves acquired April 1,
1998 and an increase in operating expenses.
Zenith has three revolving, unsecured lines of credit amounting to $100
million, all of which is available at September 30, 1998.
Zenith is principally dependent upon its portfolio of marketable securities
and the investment yields thereon; dividends from its insurance subsidiaries,
whose operations are supported by their own cash flows; and available lines
of credit to pay its expenses, service debt and pay any cash dividends which
may be declared to its stockholders.
During the first nine months of 1998, Zenith repurchased 960,180 shares on
the open market for a total purchase price of $24 million. The repurchase was
funded by proceeds from the sale and maturity of certain investment
securities.
On July 30, 1998, Zenith issued $75 million of 8.55% Capital Securities at a
price of $996.24 per security through the Zenith National Insurance Capital
Trust I, a Delaware statutory business trust (the "Trust"), all of the voting
securities of which are owned by Zenith. Each Capital Security pays
semi-annual cumulative cash distributions at the annual rate of 8.55% of the
$1,000 liquidation amount per security.
18
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
The Trust used the proceeds from its offering to purchase $75 million of
Zenith's 8.55% Subordinated Deferrable Interest Debentures due 2028 (the
"Subordinated Debentures"), which constitute the principal asset of the
Trust. The semi-annual interest payments on the Subordinated Debentures may
be deferred by Zenith for up to ten consecutive semi-annual periods. The
Subordinated Debentures are redeemable at any time by Zenith at the then
present value of the remaining scheduled payments of principal and interest.
Payments on the Capital Securities, including distributions and redemptions,
follow those of the Subordinated Debentures. Zenith used $65 million from the
net proceeds to make a capital contribution to Zenith Insurance. The
remaining net proceeds were used for general corporate purposes. The issue
cost and discount on the Subordinated Debentures of $1.7 million are being
amortized over the term of the Subordinated Debentures. During the three
months and nine months ended September 30, 1998, approximately $9,000 of such
costs were amortized.
Zenith fully and unconditionally guaranteed the distributions on, and the
liquidation amount generally of, the Capital Securities to the extent the
Trust has funds legally available therefor. Zenith's guarantee of the Capital
Securities, as well as the Subordinated Debentures, are subordinated to all
other indebtedness of Zenith.
The net proceeds from the Capital Securities were primarily invested by
Zenith in various short-term securities which, in the aggregate, yield less
than the interest cost of the Subordinated Debenture.
On September 28, 1998, the Board of Directors declared a regular quarterly
cash dividend of $0.25 per share on the outstanding shares, payable on
November 13, 1998 to stockholders of record at the close of business on
October 30, 1998.
On April 1, 1998, in connection with the closing of the RISCORP Acquisition,
Zenith Insurance paid $35 million to RISCORP and subsequently repaid $15
million in indebtedness assumed from RISCORP, Inc.
19
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
YEAR 2000
The Year 2000 Problem refers to the inability of information technology
("IT") and non-information technology ("non-IT") systems to accurately
process dates during and after 1999. IT systems include computer hardware and
software. Non-IT systems include equipment that incorporates embedded micro
controllers such as elevators, security systems and HVAC systems. If not
corrected, the processes of IT and non-IT systems that are date sensitive
could fail or miscalculate data resulting in disruptions of operations such
as a temporary inability to process transactions, send and receive electronic
data with third parties or otherwise engage in normal business activities.
There may also be a negative impact on the economic and social infrastructure
on which Zenith depends.
In early 1996, Zenith formed a Year 2000 team consisting of staff familiar
with the Company's IT and non-IT systems to coordinate the elimination, to
the extent possible, of Zenith's exposure to the Year 2000 problem. Reports
of the Year 2000 team's efforts are presented to Zenith's Board of Directors
periodically.
Since 1996, Zenith has been systematically replacing and modifying its
internal systems to function correctly with dates from 1999 forward, thereby
rendering them "Year 2000 Compliant." Internal systems ("Internal Systems")
consist of (1) core information technology systems supporting corporate level
accounting and financial reporting processes ("Core Corporate IT Systems");
(2) core information technology systems supporting operational processes
involving (a) underwriting, premium collection and claims processes in
Zenith's insurance operations (including those systems acquired in the
RISCORP Acquisition) and (b) land acquisitions, development, construction,
sales and escrow tracking/monitoring in the Perma-Bilt operations ("Core
Operational IT Systems"); (3) computer networks and communications
infrastructure ("IT Infrastructure"); (4) personal and laptop computers
including applications ("Other IT Equipment"); and (5) owned facility systems
which rely on non-computer equipment incorporating embedded microprocessors,
such as elevators, HVAC and security as well as office equipment such as
facsimile and copy machines and postage meters ("Facilities and Other Non-IT
Systems"). The majority of Zenith's Year 2000 compliance efforts have been
staffed internally, although Zenith has engaged and will continue to engage
technical consultants to assist its internal staff, as well as to assist
Zenith in reviewing its progress.
The Internal Systems are being corrected through a process with five phases,
some of which are concurrent: (1) Inventory (listing IT and non-IT systems
and their components); (2) Assessment (identifying possible Year 2000-related
failures and developing strategies to repair, replace, or eliminate them);
(3) Remediation (creating or acquiring corrections to identified
deficiencies); (4) Validation (confirming whether corrections would be
successful); and (5) Implementation (installing corrections into the business
operations for general use).
20
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
The status and scheduled completion dates of efforts to make the Internal
Systems supporting Zenith's operations Year 2000 Compliant are as follows:
<TABLE>
<CAPTION>
Inventory Assessment Remediation Validation Implementation
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Core Corporate IT Systems: Completed Completed Completed 3/31/99 3/31/99
- -------------------------
Core Operational IT Systems:
- ---------------------------------
Workers' Compensation Completed Completed Completed 3/31/99 4/30/99
Other Property-Casualty Completed Completed 3/31/99 3/31/99 4/30/99
Reinsurance Completed Completed Completed Completed Completed
Perma-Bilt Completed Completed Completed 3/31/99 4/30/99
IT Infrastructure:
- ---------------------------------
Workers' Compensation 11/30/98 3/31/99 6/30/99 7/31/99 7/31/99
Other Property-Casualty 11/30/98 3/31/99 6/30/99 7/31/99 7/31/99
Reinsurance 11/30/98 3/31/99 6/30/99 7/31/99 7/31/99
Perma-Bilt Completed Completed Completed 3/31/99 3/31/99
Other IT Equipment:
- ---------------------------------
Workers' Compensation 12/31/98 2/28/99 5/31/99 7/31/99 7/31/99
Other Property-Casualty 12/31/98 2/28/99 5/31/99 7/31/99 7/31/99
Reinsurance 12/31/98 2/28/99 5/31/99 7/31/99 7/31/99
Perma-Bilt 12/31/98 3/31/99 3/31/99 3/31/99 3/31/99
Facilities and Other Non-IT
Systems:
- ---------------------------------
Woodland Hills, CA Completed Completed Completed 11/30/98 12/31/98
Sarasota, FL Completed Completed 5/30/99 8/31/99 8/31/99
Sacramento, CA Completed Completed Completed Completed Completed
</TABLE>
Zenith's Year 2000 efforts also include a systematic assessment of the Year
2000 Compliance status of third parties upon which the Company relies in its
business operations, including major suppliers of services and products,
owners of its leased facilities and principal business partners
(collectively, "Key External Dependencies"). Zenith has used letters,
questionnaires, surveys and interviews to determine whether these Key
External Dependencies will achieve Year 2000 Compliance. To date, Zenith has
been unable, in most cases, to obtain reliable information, and is therefore
uncertain about the state of readiness of many of its Key External
Dependencies. Although none of the Key External Dependencies has informed
Zenith that it has a Year 2000 issue that would have a material effect on
Zenith, few have provided definitive statements, written assurances or
warranties that they will be Year 2000 Compliant. Zenith intends to continue
its systematic assessment, including follow-ups of its Key External
Dependencies.
21
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
All companies are faced with certain unknown risks arising from Year 2000
issues that may impact them negatively. Zenith's Year 2000 efforts have been
designed to mitigate to the extent possible its risks from Year 2000-related
failures faced by the company. Despite Zenith's Year 2000-related efforts,
Zenith recognizes the possibility of some negative impact on its operations
resulting from Year 2000-related failures. Zenith believes that the most
reasonably likely worst case Year 2000 scenarios could include failures of
Zenith's Internal Systems, a failure of one or more of its critical Key
External Dependencies, such as financial institutions, agents/brokers or
reinsurers, and/or the contamination of Zenith's IT systems due to receipt of
corrupted data. Such a scenario could result in a disruption of Zenith's
normal business activities and could have a material adverse effect on its
financial condition and results of operations. In the quarter ended September
30, 1998, Zenith began developing contingency plans to substantially reduce
material business disruptions from such risks. Although the contingency plans
are in the early process of formulation, Zenith intends such plans to include
measures, such as 1) acceleration into the last quarter of 1999 the
performance of obligations and duties otherwise owed in the first quarter of
2000; 2) identification of alternatives to Key External Dependencies that may
not be Year 2000 Compliant and therefore unable to meet Zenith's needs; and
3) certain activities in Zenith's pre-existing Business Recovery/Resumption
Plan designed for Zenith to operate during, and to recover from,
catastrophes. All contingency plans are expected to be in place by September
30, 1999.
Zenith has been planning to upgrade its IT Infrastructure and its IT
Equipment for some time; however, because of the Year 2000 problem, certain
components of those plans will have to be accelerated. At this time Zenith is
still in the process of determining which components should be accelerated
and the costs that should be treated as Year 2000-related. Zenith does not
have an estimate of these costs and they are not included in the following
table under "Estimate to Complete" and "Total Estimated IT Expenditure" (both
of which are expected to increase due to such acceleration and because Zenith
is in the process of retaining certain consultants to review its progress).
The table sets out the costs for either repairing Zenith's IT systems ("IT
Repair Costs") or for replacing them ("IT Replacement Costs").
<TABLE>
<CAPTION>
Percent
Expenditures Expended Estimate Total
as of as of to Estimated IT
(in thousands) 9/30/98 9/30/98 Complete Expenditure
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IT Repair Costs $3,848 88% $529 $4,377
IT Replacement Costs:
Software 197 100% 197
Hardware 191 100% 191
Related Expenditures 248 84% 47 295
- --------------------------------------------------------------------------------------------------
Total $4,484 89% $576 $5,060
- --------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
IT Costs include external costs and the cost of dedicated information
technology personnel. IT Repair Costs are expensed as they are incurred; IT
Replacement Costs are capitalized in accordance with SOP 98-1. (See Note 5 of
Notes to the Consolidated Financial Statements.) The internal cost of user
participation in acceptance testing has not been measured and is not included
in the foregoing estimates. Although not quantified at this time, costs
associated with non-IT systems and contingency planning are not expected to
be significant. All Year 2000-related costs have been, and will continue to
be, funded from internal sources. No planned information technology projects
were deferred because of Year 2000 related efforts.
The reader is directed to the section of this Report entitled "Forward
Looking Information" and cautioned that the foregoing discussion on the Year
2000 Problem must be read in conjunction with such section. The forward
looking information on the Year 2000 Problem, including its impact on Zenith,
future costs, scheduled completion dates, and the success of Zenith's efforts
in preparing for it are based on management's best estimates of future
events. Such estimates, however, are subject is the inherent uncertainty of
the ultimate effect and the extent of the Year 2000 Problem and the
availability of technical resources and hardware.
CODIFICATION OF STATUTORY ACCOUNTING PRINCIPLES
In March of 1998, the National Association of Insurance Commissioners
approved the codification of statutory accounting principles for use by
insurance departments, insurers, and auditors. Currently, it is not known
which states will adopt the comprehensive basis of statutory accounting and
reporting. Therefore, the implementation date cannot be determined.
Implementation of the codified statutory accounting principles may affect the
surplus level and the capitalization requirements of Zenith's insurance
subsidiaries on a statutory basis. Zenith has not determined the impact of
this codification.
23
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
FORWARD LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a safe harbor
for forward-looking statements if accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed. Forward-looking statements include
those related to the plans and objectives of management for future
operations, future economic performance, or projections of revenues, income,
earnings per share, capital expenditures, dividends, capital structure, or
other financial items. Statements containing words such as EXPECT,
ANTICIPATE, BELIEVE, or similar words that are used in Management's
Discussion and Analysis of Financial Condition and Results of Operations, in
other parts of this report or in other written or oral information conveyed
by or on behalf of Zenith are intended to identify forward-looking
statements. Zenith undertakes no obligation to update such forward-looking
statements, which are subject to a number of risks and uncertainties that
could cause actual results to differ materially from those projected. These
risks and uncertainties include but are not limited to the following: (1)
heightened competition, particularly intense price competition; (2) adverse
state and federal legislation and regulation; (3) changes in interest rates
causing a reduction of investment income; (4) general economic and business
conditions which are less favorable than expected; (5) unanticipated changes
in industry trends; (6) adequacy of loss reserves; (7) catastrophic events or
the occurrence of a significant number of storms, and wind and hail losses;
(8) ability to timely and accurately complete the Year 2000 conversion
process; (9) impact of any failure of third parties with whom Zenith does
business to be Year 2000-compliant; (10) uncertainties related to the RISCORP
Acquisition, including (a) the ability of Zenith to integrate on a profitable
basis the business acquired from RISCORP, (b) the determination of the final
purchase price, (c) the value of transferred assets and transferred
liabilities, (d) the ability of Zenith to recover from RISCORP certain assets
not transferred to Zenith at closing and (e) the ability of Zenith to recover
any amounts from RISCORP for breaches of representations, warranties and
covenants under the Asset Purchase Agreement; (11) changing environment for
controlling medical, legal and rehabilitation costs, as well as fraud and
abuse; and (12) other risks detailed herein and from time to time in Zenith's
other reports and filings with the Securities and Exchange Commission.
24
<PAGE>
PART II, OTHER INFORMATION
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Pursuant to the issuance of the Confidential Offering Circular dated July 27,
1998, on July 30, 1998, Zenith sold $75 million of 8.55% Capital Securities
at a price of $996.24 per security through the Zenith National Insurance
Capital Trust I, a Delaware statutory business trust (the "Trust"), all of
the voting securities of which are owned by Zenith to a limited number of
institutional investors in a Rule 144A offering. The Trust used the proceeds
from its offering to purchase $75 million of Zenith's 8.55% Subordinated
Deferrable Interest Debentures due 2028 (the "Subordinated Debentures"),
which constitute the principal asset of the Trust. Zenith fully and
unconditionally guaranteed the distributions on, and the liquidation amount
generally of, the Capital Securities to the extent the Trust has funds
legally available therefor. Zenith's guarantee of the Capital Securities, as
well as the Subordinated Debentures, are subordinated to all other
indebtedness of Zenith. (See Note 7 to the Consolidated Financial Statements).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C>
3.1 Certificate of Incorporation of Zenith as in effect immediately prior
to November 22, 1985. (Incorporated herein by reference to Exhibit 3 to
Zenith's amendment on Form 8, date of amendment October 10, 1985, to
Zenith's Current Report on Form 8-K, date of report July 26, 1985.)
Certificate of Amendment to Certificate of Incorporation of Zenith,
effective November 22, 1985. (Incorporated herein by reference to
Zenith's Current Report on Form 8-K, date of report November 22, 1985.)
3.2 By-laws of Zenith, as currently in effect. (Incorporated herein by
reference to Exhibit 3.2 to Zenith's Annual Report on Form 10-K for
the year ended December 31, 1988.)
10.1 Loan Revision Agreement, dated June 26,1998, to the promissory note,
dated July 1, 1997, between Zenith National Insurance Corp. and City
National Bank.
10.2 Second Amendment, dated July 23, 1998, to the Credit Agreement, dated
July 24, 1997, between Zenith National Insurance Corp. and Bank of
America National Trust and Savings Association.
10.3 Restated Tranche A Note, dated July 23, 1998 between Zenith National
Insurance Corp. and Bank of America National Trust and Savings
Association.
10.4 Third Amendment, dated August 21, 1998, to the Credit Agreement, dated
July 24, 1997, between Zenith National Insurance Corp. and Bank of
America National Trust and Savings Association.
</TABLE>
25
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C>
10.5 Fourth Amendment, dated September 15, 1998, to the Line of Credit
Agreement, dated December 15, 1994, between Zenith National Insurance
Corp. and Sanwa Bank California.
10.6 Indenture, dated July 30, 1998, between Zenith National Insurance
Corp. and Norwest Bank Minnesota, National Association.
10.7 Capital Securities Guarantee Agreement, dated July 30, 1998, between
Zenith National Insurance Corp. and Norwest Bank Minnesota, National
Association.
10.8 Amended and Restated Declaration of Trust of Zenith National Insurance
Capital Trust I, dated July 30, 1998, between Zenith National Insurance
Corp., the trustees and the holders.
10.9 Purchase Agreement between Zenith National Insurance Corp., Zenith
National Insurance Capital Trust I, Credit Suisse First Boston
Corporation, BancAmerica Robertson Stephens and Donaldson, Lufkin &
Jenrette Securities Corporation, dated July 27, 1998, for $75,000,000
Zenith National Insurance Capital Trust I 8.55% Capital Securities.
10.10 Workers' Compensation Quota Share Reinsurance Agreement, dated October
13, 1998, between Zenith Insurance Company and American Re-Insurance
Company.
11 Statement re computation of per share earnings. (Note 2 of the
Consolidated Financial Statements included in Item 1 of Part I of this
Quarterly Report on Form 10-Q is incorporated herein by reference.)
27 Financial data schedule
</TABLE>
(b) Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K dated July 9, 1998 on
July 9, 1998 in connection with the acquisition by Zenith Insurance of
substantially all the assets and certain of the liabilities of RISCORP.
26
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ZENITH NATIONAL INSURANCE CORP.
Registrant
Date: November 13, 1998 /s/ Stanley R. Zax
-----------------------------------
Stanley R. Zax
Chairman of the Board and President
(Principal Executive Officer)
Date: November 13, 1998 /s/ Fredricka Taubitz
-----------------------------------
Fredricka Taubitz
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
27
<PAGE>
[LOGO] LOAN REVISION AGREEMENT
(Unsecured or Secured by Personal Property Only)
Note No. 209600/11552
This LOAN REVISION AGREEMENT ("Agreement") refers to the loan evidenced by a
promissory note ("Note") dated July 1, 1997, as previously revised by that
certain Modification of Note dated October 10, 1997 in favor of CITY NATIONAL
BANK, a national banking association ("CNB") executed by ZENITH NATIONAL
INSURANCE CORP., A DELAWARE CORPORATION ("Borrower") in the original principal
amount of $20,000,000.00, payable in full on July 1, 1998, subject to any
installment maturities in the Note.
The principal balance of the Note as of June 26, 1998, is $0.00.
Each Borrower hereby requests that CNB revise the terms of the Note and that CNB
accept payment of the Note at the time, or times, and in the manner following:
TERMINATION DATE OF THE NOTE IS HEREBY EXTENDED TO JULY 1, 1999.
In consideration of CNB's acceptance of the revision of the Note, including the
time for payment thereof, all as set forth above, each Borrower does hereby
acknowledge and admit to such indebtedness, and further does unconditionally
agree to pay such indebtedness together with interest thereon within the time
and in the manner as revised in accordance with this Agreement.
This Agreement is a revision of the terms of repayment only, and not a novation;
and except as herein provided, all of the terms and conditions of the Note shall
remain unchanged and in full force and effect.
When more than one Borrower signs this Agreement, all agree:
a. That breach of any covenant by any Borrower may, at CNB's option, be
treated as a breach by all Borrowers; and
b. That the liability and obligations of each Borrower are joint and
several.
Dated at Beverly Hills, California, this 26th day of June, 1998.
ZENITH NATIONAL INSURANCE CORP., A
DELAWARE CORPORATION
By: /s/ Stanley R. Zax
---------------------------------------------------
Stanley R. Zax, Chairman of the Board and President
<PAGE>
GUARANTORS
I hereby join in the foregoing request and agree that any and all of my
obligations relating to the above described Note shall remain in effect and
shall relate fully to such Note as it is hereby modified, extended and/or
revised
Date
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Accepted and revision and/or extension granted in reliance upon each of the
representations and agreements hereinabove contained.
Dated: June 26, 1998. CITY NATIONAL BANK
By: /s/ Fernando Buesa
-------------------------------
Fernando Buesa, Vice President
2
<PAGE>
SECOND AMENDMENT TO
CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") dated as of
July 23, 1998 is entered into between ZENITH NATIONAL INSURANCE CORP. (the
"Company"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the
"Bank").
W I T N E S E T H
WHEREAS, the Company and the Bank are parties to that certain Credit
Agreement dated as of July 24, 1997 (as amended, herein called the "Credit
Agreement"; terms used but not otherwise defined herein are used herein as
defined in the Credit Agreement); and
WHEREAS, the Company and the Bank desire to make certain amendments to
the Credit Agreement on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises, and intending to be
legally bound hereby, the Company and the Bank hereby agree as follows:
SECTION 1. AMENDMENTS.
Subject to and upon the terms and conditions hereof and in reliance
on the Company's warranties set forth in SECTION 2 below as of the date
hereof the Credit Agreement is amended so that the definition of "Tranche A
Termination Date" contained in Section 1.1 of the Credit Agreement shall be
amended to delete the reference to July 23, 1998 contained therein and
replace it with a reference to July 22, 1999.
SECTION 2. WARRANTIES.
To induce the Bank to enter into this Amendment, the Company warrants
to the Bank as of the date hereof that:
(a) After giving effect to this Amendment, all representations and
warranties contained in the Credit Agreement and the Loan Documents are true
and correct in all material respects on and as of the date hereof (except to
the extent such representations and warranties expressly refer to an earlier
date).
(b) After giving effect to this Amendment, no Default or Event of
Default has occurred and is continuing.
(c) The execution, delivery and performance by the Company of this
Amendment have been duly authorized by all necessary corporate and other action
and do not and will not require any registration with, consent or approval of,
notice to or action by, any
<PAGE>
Person (including any governmental authority) in order to be effective and
enforceable. The Credit Agreement as modified by this Amendment constitutes the
legal, valid and binding obligation of the Company, enforceable against it in
accordance with the Credit Agreement's terms, without defense, counterclaim or
offset.
SECTION 3. GENERAL.
(a) As hereby modified, the Credit Agreement shall remain in full
force and effect and is hereby ratified, approved and confirmed in all respects.
(b) The Company acknowledges and agrees that the execution and
delivery by the Bank of this Amendment shall not be deemed to create a course of
dealing or otherwise obligate the Bank to execute similar modifications under
the same or similar circumstances in the future.
(c) This Amendment may be executed in any number of counterparts and
by the different parties on separate counterparts, and each such counterpart
shall be deemed to be an original, but all such counterparts shall together
constitute but one and the same Amendment.
-2-
<PAGE>
Delivered at Chicago, Illinois, as of the date and year first above written.
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ Gary R. Peet
----------------------------------------
Name: GARY R. PEET
Title: Managing Director
ZENITH NATIONAL INSURANCE CORP.
By: /s/ Stanley R. Zax
----------------------------------------
Name: STANLEY R. ZAX
Title: CHAIRMAN AND PRESIDENT
-3-
<PAGE>
RESTATED TRANCHE A NOTE
$20,000,000 July 23, 1998
On or before July 22, 1999 the undersigned, FOR VALUE RECEIVED,
promises to pay to the order of BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION (the "Lender") at its principal office at 231 South LaSalle Street
in Chicago, Illinois, TWENTY MILLION DOLLARS ($20,000,000) or, if less, the
aggregate unpaid principal amount of all Tranche A Loans (as defined in the
Credit Agreement hereinafter referred to) made by the Lender to the undersigned
pursuant to the Credit Agreement, as shown in the schedule attached hereto (and
any continuation thereof).
The undersigned also promises to pay interest on the unpaid principal
amount hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates PER ANNUM and on the dates specified in the Credit Agreement.
Payments of both principal and interest are to be made in lawful
money of the United States of America in same day or immediately available
funds.
This Restated Note is the Tranche A Note described in, and is subject
to the terms and provisions of, a Credit Agreement, dated as of July 24, 1997
(as the same may at any time be amended or modified and in effect, the "Credit
Agreement"), between the undersigned and the Lender. Reference is hereby made to
the Credit Agreement for a statement of the prepayment rights and obligations
of the undersigned and for a statement of the terms and conditions under which
the due date of this Restated Note may be accelerated. Upon the occurrence of
any Event of Default as specified in the Credit Agreement, the principal
balance hereof and the interest accrued hereon may be declared to be forthwith
due and payable, and any indebtedness of the holder hereof to the undersigned
may be appropriated and applied hereon.
THIS RESTATED TRANCHE A NOTE CONSTITUTES A RENEWAL AND RESTATEMENT
OF, AND A REPLACEMENT AND SUBSTITUTE FOR, THE EXISTING TRANCHE A NOTE. THE
INDEBTEDNESS EVIDENCED BY THE EXISTING TRANCHE A NOTE IS CONTINUING
INDEBTEDNESS, AND NOTHING HEREIN SHALL BE DEEMED TO CONSTITUTE A PAYMENT,
SETTLEMENT OR NOVATION OF THE EXISTING FACILITY A NOTE OR TO ADVERSELY AFFECT
ANY RIGHTS OF THE LENDER IN CONNECTION WITH THIS NOTE, THE CREDIT AGREEMENT OR
THE LOAN DOCUMENTS.
<PAGE>
In addition to and not in limitation of the foregoing and the
provisions of the Credit Agreement, the undersigned further agrees, subject
only to any limitation imposed by applicable law, to pay all expenses,
including reasonable attorneys' fees and legal expenses, incurred by the holder
of this Restated Note in endeavoring to collect any amounts payable hereunder
which are not paid when due, whether by acceleration or otherwise.
All parties hereto, whether as makers, endorsers, or otherwise,
severally waive presentment for payment, demand, protest and notice of
dishonor.
THIS RESTATED NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
ZENITH NATIONAL INSURANCE CORP.
By:/s/ Stanley R. Zax
----------------------------------
Name:
--------------------------------
Title: Chairman
-------------------------------
-2-
<PAGE>
THIRD AMENDMENT TO
CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment") dated as
of August 21, 1998 is entered into between ZENITH NATIONAL INSURANCE CORP. (the
"Company"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the
"Bank").
W I T N E S E T H:
WHEREAS, the Company and the Bank are parties to that certain Credit
Agreement dated as of July 24, 1997 (as amended, herein called the "Credit
Agreement"; terms used but not otherwise defined herein are used herein as
defined in the Credit Agreement); and
WHEREAS, the Company and the Bank desire to make certain amendments to
the Credit Agreement on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises, and intending to be
legally bound hereby, the Company and the Bank hereby agree as follows:
SECTION 1. AMENDMENTS.
Subject to and upon the terms and conditions hereof and in reliance on
the Company's warranties set forth in SECTION 2 below, as of the date hereof the
Credit Agreement is amended as follows:
1.1 Section 1.1 of the Credit Agreement is hereby amended to add the
following definitions thereto in alphabetical order:
"CAPITAL SECURITIES" shall have the meaning provided therefor in the
Capital Trust Offering Memorandum.
"CAPITAL TRUST" shall mean the Zenith National Insurance Capital Trust
I, a statutory business trust fund formed under the laws of the State of
Delaware.
"CAPITAL TRUST OFFERING MEMORANDUM" shall mean the Confidential
Offering Circular, dated July 27, 1998 related to the Capital Trust and the
securities being issued thereby.
"DECLARATION" shall have the meaning provided therefor in the Capital
Trust Offering Memorandum.
"DISTRIBUTION" shall have the meaning provided therefor in the Capital
Trust Offering Memorandum.
<PAGE>
"GUARANTEE" shall have the meaning provided therefor in the Capital
Trust Offering Memorandum.
"INDENTURE" shall have the meaning provided therefor in the Capital
Trust Offering Memorandum.
"SUBORDINATED DEBENTURES" shall have the meaning provided therefor in
the Capital Trust Offering Memorandum.
1.2 The definition of "Total Capitalization" contained in Section 1.1
of the Credit Agreement shall be amended to read as follows:
"TOTAL CAPITALIZATION" shall mean (a) principal of all Indebtedness of
the Company described in clauses (a), (d) or (f) of the definition thereof
for which the Company is directly liable or a Contingent Obligation of the
Company related to Indebtedness described in one of such clauses plus (b)
the Total Shareholders' Equity of the Company plus (c) the aggregate
liquidation amount of any Capital Securities then outstanding.
1.3 The definition of "Fixed Interest Charges" contained in Section
1.1 of the Credit Agreement shall be amended to read as follows:
"FIXED INTEREST CHARGES" shall mean interest paid or, without
duplication, accrued but unpaid on the Loans or any other Indebtedness
described in clauses (a) or (d) of the definition thereof, which shall be
determined at the end of each fiscal quarter for the four consecutive
fiscal quarters then ended; PROVIDED, THAT interest on the Subordinated
Debentures and Distributions on the Capital Securities shall be excluded
from this definition for purposes of the calculation.
1.4 The following sentence shall be added to the end of the
definition of "Indebtedness" in Section 1.1 of the Credit Agreement:
"Except for purposes of Section 8.1(e), neither the Subordinated Debentures
nor the Capital Securities shall constitute Indebtedness of the Company for
purposes of this Agreement."
1.5 The following sentence shall be added to the end of the
definition of "Contingent Obligations" in Section 1.1 of the Credit
Agreement:
"Company's obligations under the Guarantee, the Subordinated Debentures,
the Indenture, and the Declaration (which taken together is a full and
unconditional guaranty by the Company of the Capital Trust's obligations
under the Capital Security) shall not
-2-
<PAGE>
constitute Contingent Obligations for purposes of this Agreement except for
purposes of Section 8.1(e) "
1.6 Delete the heading "Long-Term Debt Rating of the Company" for the
gird under "Applicable Margin" in Section 1.1 of the Credit Agreement and
replace with "Rating of Company's 9% Senior Notes due 2002." In the
absence of a rating on such 9% Notes, an equivalent senior unsecured debt
rating or in the absence of that, a rating one level above the rating on
the 8.55% Capital Securities.
1.7 Delete the heading "Long-Term Debt Rating of the Company" for the
gird under Section 2.9(b) of the Credit Agreement and replace with "Rating
of Company's 9% Senior Notes due 2002." In the absence of a rating on such
9% Notes, an equivalent senior unsecured debt rating or in the absence of
that, a rating one level above the rating on the 8.55% Capital Securities.
SECTION 2. WARRANTIES.
To induce the Bank to enter into this Amendment, the Company warrants
to the Bank as of the date hereof that:
(a) After giving effect to this Amendment, all representations and
warranties contained in the Credit Agreement and the Loan Documents are true and
correct in all material respects on and as of the date hereof (except to the
extent such representations and warranties expressly refer to an earlier date).
(b) After giving effect to this Amendment, no Default or Event of
Default has occurred and is continuing.
(c) The execution, delivery and performance by the Company of this
Amendment have been duly authorized by all necessary corporate and other action
and do not and will not require any registration with, consent or approval of,
notice to or action by, any Person (including any governmental authority) in
order to be effective and enforceable. The Credit Agreement as modified by this
Amendment constitutes the legal, valid and binding obligation of the Company,
enforceable against it in accordance with the Credit Agreement's terms, without
defense, counterclaim or offset.
SECTION 3. GENERAL.
(a) As hereby modified, the Credit Agreement shall remain in full
force and effect and is hereby ratified, approved and confirmed in all respects.
(b) The Company acknowledges and agrees that the execution and
delivery by the Bank of this Amendment shall not be deemed to create a course of
dealing or otherwise
-3-
<PAGE>
obligate the Bank to execute similar modifications under the same or similar
circumstances in the future.
(c) This Amendment may be executed in any number of counterparts and
by the different parties on separate counterparts, and each such counterpart
shall be deemed to be an original, but all such counterparts shall together
constitute but one and the same Amendment.
Delivered at Chicago, Illinois, as of the date and year first above written.
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ Gary R. Peet
----------------------------------
Name: Gary R. Peet
Title: Managing Director
ZENITH NATIONAL INSURANCE CORP.
By: /s/ Stanley R. Zax
----------------------------------
Name: Stanely R. Zax
Title: Chairman & President
-4-
<PAGE>
[LOGO]
FOURTH AMENDMENT TO LINE OF CREDIT AGREEMENT
This Fourth Amendment to Line of Credit Agreement (the "Amendment") is
effective as of September 15, 1998 by and between SANWA BANK CALIFORNIA (the
"Bank") and ZENITH NATIONAL INSURANCE CORP. (the "Borrower") with respect to the
following:
This Amendment shall be deemed to be a part of and subject to that certain
Line of Credit Agreement dated as of December 15, 1994, as heretofore amended,
and any and all addenda and riders heretofore made (collectively the
"Agreement"). Unless otherwise defined herein, all terms used in this Amendment
shall have the same meanings as in the Agreement. To the extent that any of the
terms or provisions of this Amendment conflict with those contained in the
Agreement, the terms and provisions contained herein shall control.
WHEREAS, the Borrower and the Bank mutually desire to extend and/or modify
the Agreement.
NOW THEREFORE, for value received and hereby acknowledged, the Borrower and
the Bank agree as follows:
1. CERTAIN DEFINED TERMS. Unless elsewhere defined in this Fourth
Amendment, the following terms shall have the following meaning
"CAPITAL SECURITIES" shall mean the 8.55% Capital Securities
issued by the Trust on July 30, 1998.
"CONFIDENTIAL OFFERING CIRCULAR" shall mean the Confidential
Offering Circular dated July 27, 1998 for the Capital Securities to be
issued by the Trust.
"CONTINGENT OBLIGATIONS" shall mean any agreement, undertaking or
arrangement (other than insurance and reinsurance obligations and surety
bonds, in each case entered into in the ordinary course of business) by
which any Person guarantees, endorses or otherwise becomes or is
contingently liable for (by direct or indirect agreement, contingent or
otherwise, to provide funds for payment, to supply funds to, or otherwise
to invest in, a debtor, or otherwise to assure a creditor against loss but
excluding the Borrower's agreement to subordinate debt owed to it by
Perma-Bilt, a Nevada corporation, to amounts owed to others) the debt,
obligation or other liability of any other Person (other than by
endorsements of instruments in the course of collection), or guarantees the
payment of dividends or other distributions upon the shares of any other
Person. The amount of any Person's obligation under any Contingent
Obligation shall (subject to any limitation set forth therein) be deemed to
be the outstanding principal amount of the debt, obligation of other
liability guaranteed thereby. The obligations of the Borrower through the
Guarantee, the Declaration, the Subordinated Deferrable Interest
Debentures, and the Indenture (which taken together is a full and
unconditional guaranty by Borrower of the Trust's obligations under the
Capital Securities) shall not constitute Contingent Obligations for the
purposes of this Agreement except for the provisions of section 5.02.
1
<PAGE>
"DECLARATION" shall mean as specified in the Confidential
Offering Circular.
"DEBT" shall mean the outstanding principal for which Borrower
is either directly liable or indirectly liable as a Contingent Obligation
for (a) all indebtedness for borrowed money (b) all obligations evidenced
by notes, bonds, debentures or similar instruments, including obligations
so evidenced incurred in connection with the acquisition of property,
assets or business but excluding the Subordinated Deferrable Interest
Debentures and the Capital Securities (c) all obligations with respect to
capital leases.
"DISTRIBUTIONS" shall mean as specified in the Confidential
Offering Circular.
"FIXED INTEREST CHARGES" shall mean interest paid, or without
duplication, accrued but unpaid on (i) the Line of Credit, (ii) all
indebtedness for borrowed money, and (iii) all obligations evidenced by
notes, bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets,
or businesses, which shall be determined at the end of each fiscal quarter
for the four consecutive fiscal quarters then ended." For the purposes of
this definition Distributions and interest on the Subordinated Deferrable
Interest Debentures will be excluded.
"GUARANTEE" shall mean as specified in the Confidential Offering
Circular.
"INDENTURE" shall mean as specified in the Confidential Offering
Circular.
"SUBORDINATED DEFERRABLE INTEREST DEBENTURES" shall mean the
$77,320,000 8.55% Subordinated Deferrable Interest Debentures due August 1,
2028 issued by the Borrower.
"TOTAL CAPITALIZATION" shall be defined as (a) Debt plus (b)
Total Shareholder's Equity of the Borrower plus (c) the aggregate
liquidation amount of the Capital Securities.
"TRUST" shall mean Zenith National Insurance Capital Trust I, a
statutory business trust formed under the laws of the State of Delaware.
The Borrower will own all the common securities of the Trust.
6. EVENTS OF DEFAULT. Section 5.02 of the Agreement is deleted in its
entirety and the following is inserted in lieu thereof:
"5.02.
a) Performance under this Agreement. The Borrower shall fail in any
material respect to perform or observe any material term, covenant or
agreement contained in this Agreement or any material document,
instrument or agreement evidencing or relating to any material
indebtedness of the Borrower to the Bank and any such failure
(exclusive of the payment of money to the Bank under this Agreement or
any other document, instrument or agreement, which failure shall
constitute an immediate Event of Default if not paid within five (5)
business days after notice from the Bank that the same is past due)
shall continue for more than 30 days after written notice from the
Bank to the Borrower of the existence and character of such Event of
Default or should the default require more than (30) days but less
than ninety (90) days to correct, the Borrower does not commence
material corrective action within thirty (30) days and actively
pursues such corrective action.
2
<PAGE>
b) Performance With Other Third Parties. The Borrower shall:
(1) fail to make any payment in respect of (a) all indebtedness
of Borrower for borrowed money (b) all obligations of Borrower
evidenced by notes, bonds, debentures, Subordinated Deferrable
Interest Debentures, Capital Securities or similar instruments,
including obligations so evidenced incurred in connection with
the acquisition of property, assets or businesses (c) all
non-contingent reimbursement or payment obligations of Borrower
with respect to Surety Instruments and (d) all obligations of
Borrower with respect to capital leases or any Contingent
Obligations of Borrower related to (a), (b), (c), and (d), having
an aggregate principal amount (including undrawn committed or
available amounts and including amounts owing to all creditors
under any combined or syndicated credit agreement) of more than
$10,000,000 when due (whether by scheduled maturity, required
prepayment, acceleration, demand, or otherwise) and such failure
continues after the applicable grace or notice period, if any,
specified in the relevant document on the date of such failure;
or
(2) fail to perform or observe any other condition or covenant,
or any other event shall occur or condition exist, under any
agreement or instrument relating to any such indebtedness or
Contingent Obligation and such failure continues after the
applicable grace or notice period, if any, specified in the
relevant document on the date of such failure if the effect of
such failure, event or condition is to cause such indebtedness to
be declared to be due and payable prior to its stated maturity,
or such Contingent Obligation to become payable or cash
collateral in respect thereof to be demanded.
7. CONFIRMATION OF OTHER TERMS AND CONDITIONS OF THE AGREEMENT. Except as
specifically provided in this Amendment, all other terms, conditions and
covenants of the Agreement unaffected by this Amendment shall remain unchanged
and shall continue in full force and effect and the Borrower hereby covenants
and agrees to perform and observe all terms, covenants and agreements provided
for in the Agreement, as hereby amended.
IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as of
the date first hereinabove written.
BANK: BORROWER:
SANWA BANK CALIFORNIA ZENITH NATIONAL INSURANCE CORP.
By: /s/ Dirk A. Price By: /s/ Stanley R. Zax
------------------------------- -------------------------------------
Dirk A. Price, Vice President Stanley R. Zax, President & Chairman
3
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ZENITH NATIONAL INSURANCE CORP.
---------------------
INDENTURE
Dated as of July 30, 1998
---------------------
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Trustee
---------------------
8.55% Subordinated Deferrable
Interest Debentures Due 2028
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I Definitions and Other Provisions of General Application.... 3
SECTION 1.01. Definitions................................................ 3
SECTION 1.02. Compliance Certificates and Opinions....................... 16
SECTION 1.03. Form of Documents Delivered to Trustee..................... 16
SECTION 1.04. Acts of Holders; Record Dates.............................. 17
SECTION 1.05. Notices, Etc., to the Trustee and the Company.............. 20
SECTION 1.06. Notice to Holders; Waiver.................................. 20
SECTION 1.07. Conflict with Trust Indenture Act.......................... 21
SECTION 1.08. Effect of Headings and Table of Contents................... 21
SECTION 1.09. Successors and Assigns..................................... 21
SECTION 1.10. Separability Clause........................................ 21
SECTION 1.11. Benefits of Indenture...................................... 21
SECTION 1.12. Governing Law.............................................. 22
SECTION 1.13. Legal Holidays............................................. 22
ARTICLE II Security Forms............................................. 22
SECTION 2.01. Forms Generally............................................ 22
ARTICLE III The Securities............................................. 23
SECTION 3.01. Title and Terms............................................ 23
SECTION 3.02. Denominations.............................................. 25
SECTION 3.03. Execution, Authentication, Delivery and Dating............. 25
SECTION 3.04. Temporary Securities....................................... 26
SECTION 3.05. Registration, Registration of Transfer and Exchange........ 26
SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Securities........... 28
SECTION 3.07. Payment of Interest; Interest Rights Preserved............. 29
SECTION 3.08. Persons Deemed Owners...................................... 30
SECTION 3.09. Cancellation............................................... 31
i
<PAGE>
SECTION 3.10. Right of Set Off........................................... 31
SECTION 3.11. CUSIP Numbers.............................................. 31
SECTION 3.12. Deferral of Interest Payments; Notice of Deferral.......... 32
SECTION 3.13. Paying Agent and Security Registrar........................ 33
SECTION 3.14. Global Debenture........................................... 33
SECTION 3.15. Agreed Tax Treatment....................................... 35
SECTION 3.16. Legends.................................................... 36
SECTION 3.17. Transfer and Exchange...................................... 36
ARTICLE IV Satisfaction and Discharge................................. 38
SECTION 4.01. Satisfaction and Discharge of Indenture.................... 38
SECTION 4.02. Applications of Trust Money................................ 40
ARTICLE V Remedies................................................... 40
SECTION 5.01. Events of Default.......................................... 40
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment......... 42
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement
by Trustee................................................. 44
SECTION 5.04. Trustee May File Proofs of Claim........................... 44
SECTION 5.05. Trustee May Enforce Claims Without Possession of
Securities................................................. 45
SECTION 5.06. Application of Money Collected............................. 45
SECTION 5.07. Limitation on Suits........................................ 46
SECTION 5.08. Unconditional Right of Holders to Receive Principal
and Interest............................................... 47
SECTION 5.09. Restoration of Rights and Remedies......................... 47
SECTION 5.10. Rights and Remedies Cumulative............................. 47
SECTION 5.11. Delay or Omission Not Waiver............................... 48
SECTION 5.12. Control by Holders......................................... 48
SECTION 5.13. Waiver of Past Defaults.................................... 48
SECTION 5.14. Undertaking for Costs...................................... 49
SECTION 5.15. Waiver of Stay or Extension Laws........................... 49
SECTION 5.16. Enforcement by Holders of Capital Securities............... 50
ARTICLE VI The Trustee................................................ 50
SECTION 6.01. Certain Duties and Responsibilities........................ 50
SECTION 6.02. Notice of Defaults......................................... 51
SECTION 6.03. Certain Rights of Trustee.................................. 51
ii
<PAGE>
SECTION 6.04. Not Responsible for Recitals or Issuance of Securities..... 53
SECTION 6.05. May Hold Securities........................................ 53
SECTION 6.06. Money Held in Trust........................................ 53
SECTION 6.07. Compensation and Reimbursement............................. 53
SECTION 6.08. Disqualification; Conflicting Interests.................... 54
SECTION 6.09. Corporate Trustee Required; Eligibility.................... 54
SECTION 6.10. Resignation and Removal; Appointment of Successor.......... 54
SECTION 6.11. Acceptance of Appointment by Successor..................... 56
SECTION 6.12. Merger, Conversion, Consolidation or Succession to
Business................................................... 57
SECTION 6.13. Preferential Collection of Claims Against Company.......... 57
ARTICLE VII Holders' Lists and Reports by Trustee and Company.......... 58
SECTION 7.01. Company to Furnish Trustee Names and Addresses of Holders.. 58
SECTION 7.02. Preservation of Information; Communications to Holders..... 58
SECTION 7.03. Reports by Trustee......................................... 59
SECTION 7.04. Reports by Company......................................... 59
SECTION 7.05. Tax Reporting.............................................. 60
ARTICLE VIII Consolidation, Merger, Conveyance, Transfer or Lease....... 60
SECTION 8.01. Company May Consolidate, Etc., Only on Certain Terms....... 60
SECTION 8.02. Successor Substituted...................................... 62
ARTICLE IX Supplemental Indentures.................................... 62
SECTION 9.01. Supplemental Indentures Without Consent of Holders......... 62
SECTION 9.02. Supplemental Indentures with Consent of Holders............ 63
SECTION 9.03. Execution of Supplemental Indentures....................... 65
iii
<PAGE>
SECTION 9.04. Effect of Supplemental Indentures.......................... 65
SECTION 9.05. Reference in Securities to Supplemental Indentures......... 65
ARTICLE X Covenants; Representations and Warranties.................. 66
SECTION 10.01. Payment of Principal and Interest.......................... 66
SECTION 10.02. Maintenance of Office or Agency............................ 66
SECTION 10.03. Money for Security Payments to Be Held in Trust............ 67
SECTION 10.04. Statement by Officers as to Default........................ 68
SECTION 10.05. Limitation on Dividends; Transactions with Affiliates;
Covenants as to the Trust.................................. 68
SECTION 10.06. Payment of Expenses of the Trust........................... 69
ARTICLE XI Redemption of Securities................................... 71
SECTION 11.01. Right of Redemption........................................ 71
SECTION 11.02. Applicability of Article................................... 71
SECTION 11.03. Election to Redeem; Notice to Trustee...................... 71
SECTION 11.04. Selection by Trustee of Securities to Be Redeemed.......... 71
SECTION 11.05. Notice of Redemption....................................... 72
SECTION 11.06. Deposit of Redemption Price................................ 73
SECTION 11.07. Securities Payable on Redemption Date...................... 73
SECTION 11.08. Securities Redeemed in Part................................ 74
SECTION 11.09. Optional Redemption........................................ 74
SECTION 11.10. Special Event Redemption................................... 75
ARTICLE XII Subordination of Securities................................ 76
SECTION 12.01. Agreement to Subordinate................................... 76
SECTION 12.02. Default on Senior Indebtedness............................. 76
SECTION 12.03. Liquidation; Dissolution; Bankruptcy....................... 77
SECTION 12.04. Subrogation................................................ 79
SECTION 12.05. Trustee to Effectuate Subordination........................ 80
SECTION 12.06. Notice by the Company...................................... 80
SECTION 12.07. Rights of the Trustee: Holders of Senior Indebtedness...... 82
SECTION 12.08. Subordination May Not Be Impaired.......................... 82
</TABLE>
iv
<PAGE>
INDENTURE, dated as of July 30, 1998, between ZENITH
NATIONAL INSURANCE CORP., a corporation duly organized and
existing under the laws of the State of Delaware (herein
called the "Company"), and Norwest Bank Minnesota, National
Association, as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
WHEREAS Zenith National Insurance Capital Trust I, a Delaware
business trust (the "Trust"), formed under the Amended and Restated
Declaration of Trust among the Company, as Sponsor, Norwest Bank Minnesota,
National Association, as property trustee (the "Property Trustee"), and
Wilmington Trust Company, a Delaware banking corporation, as Delaware trustee
(the "Delaware Trustee"), and Stanley R. Zax and Fredricka Taubitz, as
Regular Trustees (the "Regular Trustees"), dated as of July 30, 1998 (the
"Declaration"), pursuant to the Purchase Agreement (the "Purchase Agreement")
dated July 27, 1998, among the Company, the Trust and the Purchasers named
therein, will issue and sell up to $75,000,000 aggregate liquidation amount
of its 8.55% Capital Securities (the "Capital Securities") with a liquidation
amount of $1,000 per Capital Security, having an aggregate liquidation amount
with respect to the assets of the Trust of $75,000,000;
WHEREAS the trustees of the Trust, on behalf of the Trust, will
execute and deliver to the Company Common Securities evidencing an ownership
interest in the Trust, registered in the name of the Company, in an aggregate
amount equal to at least three percent (3%) of the capitalization of the
Trust, equivalent to 2,320 Common Securities, with a liquidation amount of
$1,000 per Common Security, having an aggregate liquidation amount with
respect to the assets of the Trust of $2,320,000 (the "Common Securities");
WHEREAS the Trust will use the proceeds from the sale of the
Capital Securities and the Common Securities to purchase
<PAGE>
from the Company, Securities (as defined below) in an aggregate principal
amount of $77,320,000;
WHEREAS the Company is guaranteeing the payment of distributions on
the Capital Securities, and payment of the Redemption Price or Special Event
Redemption Price, as applicable (each as defined herein) and payments on
liquidation of the Trust with respect to the Capital Securities, to the
extent provided in the Capital Securities Guarantee Agreement (the
"Guarantee") between the Company and Norwest Bank Minnesota, National
Association, as Capital Securities Guarantee Trustee, for the benefit of the
holders of the Capital Securities from time to time;
WHEREAS the Company has duly authorized the creation of and issue
of its 8.55% Subordinated Deferrable Interest Debentures due 2028 (the
"Securities"), of substantially the tenor and amount hereinafter set forth
and to provide therefor the Company has duly authorized the execution and
delivery of this Indenture; and
WHEREAS all things necessary to make the Securities, when executed
by the Company and authenticated and delivered hereunder and duly issued by
the Company, the valid obligations of the Company, and to make this Indenture
a valid agreement of the Company, in accordance with the terms of the
Securities and this Indenture, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders (as defined herein) thereof, it is mutually agreed,
for the equal and proportionate benefit of all Holders of the Securities, as
follows:
2
<PAGE>
ARTICLE I
DEFINITIONS AND OTHER
PROVISIONS OF GENERAL APPLICATION
SECTION 1.01. DEFINITIONS. For all purposes of this Indenture,
except as otherwise expressly provided or unless the context otherwise
requires:
(1) the terms defined in this Article have the meanings assigned
to them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with United States generally
accepted accounting principles; and
(4) the words "herein", "hereof" and "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any
particular article, section or other subdivision.
"Act", when used with respect to any Holder, has the meaning
specified in Section 1.04.
"Additional Payments" means Compounded Interest and Additional
Interest, if any.
"Additional Interest" has the meaning specified in Section 3.01.
"Adjusted Treasury Rate" means, with respect to any redemption
date, the rate per annum equal to (i) the yield, under the heading which
represents the average for the immediately prior week, appearing in the most
recently published statistical release designated "H.15 (519)" or any
successor publication which is published weekly by the Federal Reserve Board
and which
3
<PAGE>
establishes yields on actively traded United States Treasury securities
adjusted to constant maturity under the caption "Treasury Constant
Maturities," for the maturity corresponding to the Remaining Life (if no
maturity is within three months before or after the Remaining Life, yields
for the two published maturities most closely corresponding to the Remaining
Life shall be interpolated and the Adjusted Treasury Rate shall be
interpolated or extrapolated from such yields on a straight-line basis,
rounding to the nearest month) or (ii) if such release (or any successor
release) is not published during the week preceding the calculation date or
does not contain such yields, the rate per annum equal to the semi-annual
equivalent yield to maturity of the Comparable Treasury Issue, calculated
using a price for the Comparable Treasury issue (expressed as a percentage of
its principal amount) equal to the Comparable Treasury Price for such
redemption date, in each case calculated on the third Business Day preceding
the redemption date, plus in each case .25%.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent" means any Registrar, Security Registrar, Paying Agent or
co-registrar.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
secretary or an assistant secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of
such certification, and delivered to the Trustee.
4
<PAGE>
"Business Day" means any day other than a Saturday or a Sunday or a
day on which banking institutions in Los Angeles, California, New York, New
York or Minneapolis, Minnesota are authorized or required by law or executive
order to remain closed.
"Capital Securities" has the meaning specified in the Recitals to
this instrument.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934,
or, if at any time after the execution of this instrument such Commission is
not existing and performing the duties now assigned to it, then the body
performing such duties at such time.
"Common Securities" has the meaning specified in the Recitals to
this instrument.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or
order signed in the name of the Company by its chairman of the Board of
Directors, its vice chairman of the Board of Directors, its president or a
vice president, and by its treasurer, an assistant treasurer, its secretary
or an assistant secretary, and delivered to the Trustee.
"Comparable Treasury Issue" means the United States Treasury
security selected by the Quotation Agent as having a maturity comparable to
the Remaining Life of the Securities to be prepaid that would be utilized, at
the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
Remaining Life of the Securities to be prepaid. If no United States Treasury
security has a maturity which is within a period from three months before to
three months after a maturity
5
<PAGE>
corresponding to the Remaining Life of the Securities to be prepaid, the two
most closely corresponding United States Treasury securities shall be used as
the Comparable Treasury Issue, and the Adjusted Treasury Rate shall be
interpolated or extrapolated on a straight-line basis, rounding to the
nearest month using such securities.
"Comparable Treasury Price" means, with respect to any prepayment
date, (i) the average of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) on the
third Business Day preceding such prepayment date, as set forth in the daily
statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for
U.S. Government Securities" or (ii) if such release (or any successor
release) is not published or does not contain such prices on such Business
Day, (A) the average of the five Reference Treasury Dealer Quotations for
such prepayment date, after excluding the highest and lowest of such
Reference Treasury Dealer Quotations, or (B) if the Trustee obtains fewer
than three such Reference Treasury Dealer Quotations, the average of all such
quotations.
"Compounded Interest" has the meaning specified in Section 3.12.
"Corporate Trust Office" means the principal office of the Trustee
in Minneapolis, Minnesota, at which at any particular time its corporate
trust business shall be administered and which at the date of this Indenture
is Sixth & Marquette, Minneapolis, Minnesota 55479-0069 Attn: Corporate Trust
Administration.
"Declaration" has the meaning specified in the Recitals of this
instrument.
"Defaulted Interest" has the meaning specified in Section 3.07.
"Deferral Period" has the meaning specified in Section 3.12.
6
<PAGE>
"Delaware Trustee" has the meaning given it in the Recitals of this
instrument.
"Depositary" has the meaning specified in the Declaration.
"Dissolution Event" shall mean the liquidation of the Trust
pursuant to the Declaration, and the distribution of the Securities held by
the Property Trustee to the holders of the Trust Securities issued by the
Trust PRO RATA in accordance with the Declaration.
"Event of Default" has the meaning specified in Section 5.01.
"Expiration Date" has the meaning specified in Section 1.04(d).
"Global Debenture" has the meaning specified in Section 3.14.
"Guarantee" has the meaning specified in the Recitals to this
instrument.
"Holder" means a Person in whose name a Security is registered in
the Security Register.
"Indenture" means this instrument as originally executed or as it
may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions
hereof, including, for all purposes of this instrument and any such
supplemental indenture, the provisions of the Trust Indenture Act that are
deemed to be a part of and govern this instrument and any such supplemental
indenture, respectively.
"Interest Payment Date" has the meaning specified in Section 3.01.
"Investment Company Event" means the receipt by the Company and the
Trust of an opinion of counsel experienced in
7
<PAGE>
such matters, who shall not be an officer or employee of the Company or its
Affiliates, to the effect that, as a result of the occurrence of a change in
law or regulation or change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority (a "Change in 1940 Act Law"), the Trust is or will be considered an
investment company that is required to be registered under the Investment
Company Act of 1940, as amended, which Change in 1940 Act Law becomes
effective on or after the date of original issuance of the Capital Securities.
"Make-Whole Premium" has the meaning specified in Section 11.09.
"Maturity", when used with respect to any Security, means the date
on which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity Date or by declaration of
acceleration, call for redemption or otherwise.
"90 Day Period" has the meaning specified in Section 11.10.
"Non Book-Entry Capital Securities" has the meaning specified in
Section 3.14.
"Officers' Certificate" means a certificate signed by the chairman
of the Board of Directors, the vice chairman of the Board of Directors, the
president or a vice president, and by the treasurer, an assistant treasurer,
the secretary or an assistant secretary of the Company, and delivered to the
Trustee. One of the officers signing an Officers' Certificate given pursuant
to Section 10.04 shall be the principal executive, financial or accounting
officer of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be reasonably acceptable to the
Trustee.
"Outstanding", when used with respect to Securities, means, as of
the date of determination, all Securities there-
8
<PAGE>
tofore authenticated and delivered under this Indenture, EXCEPT: (i)
Securities theretofore canceled by the Trustee or delivered to the Trustee
for cancellation; (ii) Securities for which payment or redemption money in
the necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and segregated in
trust by the Company (if the Company shall act as its own Paying Agent) for
the Holders of such Securities; PROVIDED, that if such Securities are to be
redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been made;
and (iii) Securities which have been paid pursuant to Section 3.06, or in
exchange for or in lieu of which other Securities have been authenticated and
delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser in
whose hands such Securities are valid obligations of the Company; PROVIDED,
FURTHER, that in determining whether the Holders of the requisite aggregate
principal amount of the Securities then Outstanding have given any request,
demand, authorization, direction, notice, consent or waiver hereunder,
Securities owned by the Sponsor, any Trustee or any Affiliate of the Sponsor
or any Trustee shall be disregarded and deemed not to be outstanding, except
that (a) in determining whether any Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Securities which such Trustee knows to be so owned shall be so
disregarded and (b) the foregoing shall not apply at any time when all of the
outstanding Securities are owned by the Sponsor, one or more of the Trustees
and/or any such Affiliate. Securities so owned which have been pledged in
good faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Regular Trustees the pledgee's right so to act with
respect to such Securities and that the pledgee is not the Sponsor or any
Affiliate of the Sponsor.
"Paying Agent" means any Person authorized by the Company to pay
the principal of or interest on any Securities on behalf of the Company.
9
<PAGE>
"Person" means any individual, corporation, company, partnership,
joint venture, association, joint-stock company, nominee, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that
evidenced by such particular Security; and, for the purposes of this
definition, any Security authenticated and delivered under Section 3.06 in
exchange for or in lieu of a mutilated, destroyed, lost or stolen Security
shall be deemed to evidence the same debt as the mutilated, destroyed, lost
or stolen Security.
"Property Trustee" has the meaning specified in the Recitals to
this instrument.
"Purchase Agreement" has the meaning specified in the Recitals to
this instrument.
"Purchasers" with respect to the Capital Securities means Credit
Suisse First Boston Corporation, BancAmerica Robertson Stephens and
Donaldson, Lufkin & Jenrette Securities Corporation.
"Quotation Agent" means the Reference Treasury Dealer appointed by
the Company.
"Redemption Date", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price" has the meaning specified in Section 11.09.
"Reference Treasury Dealer" means each of: (i) Credit Suisse First
Boston Corporation, BancAmerica Roberston Stephens and Donaldson, Lufkin &
Jenrette Securities Corporation and their respective successors; PROVIDED,
HOWEVER, that if any of the foregoing shall cease to be a primary U.S.
Government Securities dealer in New York City (a "Primary Treasury Dealer"),
the
10
<PAGE>
Company shall substitute therefor another Primary Treasury Dealer; and (ii)
any other Primary Treasury Dealer selected by the Trustee after consultation
with the Company.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any prepayment date, the average, as determined
by the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New
York City time, on the third Business Day preceding such prepayment date.
"Regular Record Date" has the meaning specified in Section 3.01.
"Regular Trustee" has the meaning specified in the Recitals to this
instrument.
"Remaining Life" has the meaning specified in Section 11.09.
"Responsible Officer", when used with respect to the Trustee, means
the chairman or any vice-chairman of the board of directors, the chairman or
any vice-chairman of the executive committee of the board of directors, the
chairman of the trust committee, the president, any vice president, any
assistant vice president, the treasurer, any assistant treasurer, any trust
officer or assistant trust officer, the controller or any assistant
controller or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above-designated officers
and also means, with respect to an particular corporate trust matter, any
other officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Restricted Security" shall mean Securities that bear or are
required to bear the Securities Act legends set forth in Exhibit A-1 hereto.
11
<PAGE>
"Rule 144A" shall mean Rule 144A under the Securities Act, as such
Rule may be amended from time to time, or under any similar rule or
regulation hereafter adopted by the Commission.
"Securities" has the meaning specified in the Recitals to this
instrument.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 3.05.
"Senior Indebtedness" means, in respect of the Company, (i) the
principal, premium, if any, and interest in respect of (A) indebtedness of
the Company for money borrowed and (B) indebtedness evidenced by securities,
debentures, bonds or other similar instruments issued by the Company, (ii)
all capital lease obligations of the Company, (iii) all obligations of the
Company issued or assumed as the deferred purchase price of property, all
conditional sale obligations of the Company and all obligations of the
Company under any title retention agreement (but excluding trade accounts
payable arising in the ordinary course of business), (iv) all obligations of
the Company for the reimbursement of any letter of credit, banker's
acceptance, security purchase facility or similar credit transaction, (v) all
obligations of the type referred to in clauses (i) through (iv) above of
other persons for the payment of which the Company is responsible or liable
as obligor, guarantor or otherwise, (vi) all obligations of the type referred
to in clauses (i) though (v) above of other persons secured by any lien on
any property or asset of the Company (whether or not such obligation is
assumed by the Company), except for (1) any such indebtedness that is by its
terms subordinated to or PARI PASSU with the Securities and (2) any
indebtedness (including all other debt securities) initially issued to any
other trust, or a trustee of such trust, partnership or other entity
affiliated with the Company that is, directly or indirectly, a financing
vehicle of the Company (a "Financing Entity") in connection with the issuance
by such Financing Entity of preferred securities or other similar securities
and (vii) interest accruing subsequent to events of bankruptcy of the Company
and its subsidiaries at the rate provided for in the documentation governing
such Senior Indebtedness, whether or not such interest is an allowed claim
12
<PAGE>
enforceable against the debtor in a bankruptcy case under relevant bankruptcy
law.
"Significant Subsidiary" means a Subsidiary, including its
Subsidiaries, which meets any of the following conditions (in each case
determined in accordance with United States generally accepted accounting
principles): (i) the Company's and its other Subsidiaries' investment in and
advances to the Subsidiary exceed ten percent of the total assets of the
Company and its Subsidiaries consolidated as of the end of the most recently
completed fiscal year; (ii) the Company's and its other Subsidiaries'
proportionate share of the total assets (after inter-company eliminations) of
the Subsidiary exceeds 10 percent of the total assets of the Company and its
Subsidiaries consolidated as of the end of the most recently completed fiscal
year; or (iii) the Company's and its other Subsidiaries' equity interest in
the income from continuing operations before income taxes, extraordinary
items and cumulative effect of a change in accounting principles of the
Subsidiary exceed ten percent of such income of the Company and its
Subsidiaries consolidated for the most recently completed fiscal year.
"Special Event" means a Tax Event or an Investment Company Event.
"Special Event Adjusted Treasury Rate" means, with respect to any
redemption date, the rate per annum equal to (i) the yield, under the heading
which represents the average for the immediately prior week, appearing in the
most recently published statistical release designated "H.15 (519)" or any
successor publication which is published weekly by the Federal Reserve Board
and which establishes yields on actively traded United States Treasury
securities adjusted to constant maturity under the caption "Treasury Constant
Maturities," for the maturity corresponding to the Remaining Life (if no
maturity is within three months before or after the Remaining Life, yields
for the two published maturities most closely corresponding to the Remaining
Life shall be determined and the Adjusted Treasury Rate shall be interpolated
or extrapolated from such yields on a straight-line basis, rounding to the
nearest month) or (ii) if such release (or any successor release) is not
published during
13
<PAGE>
the week preceding the calculation date or does not contain such yields, the
rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, calculated using a price for the Comparable
Treasury issue (expressed as a percentage of its principal amount) equal to
the Comparable Treasury Price for such redemption date, in each case
calculated on the third Business Day preceding the redemption date, plus in
each case (a) 2.375% if such redemption date occurs on or prior to August 1,
1999 and (b) .50% in all other cases.
"Special Event Make-Whole Premium" has the meaning specified in
Section 11.10.
"Special Event Redemption Price" has the meaning specified in
Section 11.10.
"Special Record Date" for the payment of any defaulted Interest
means a date fixed by the Trustee pursuant to Section 3.07.
"Stated Maturity Date", when used with respect to any Security or
any installment of principal thereof or interest thereon, means the date
specified in such Security as the fixed date on which the principal, together
with any accrued and unpaid interest (including Compounded Interest), of such
Security or such installment of interest is due and payable (whether the
initial such date or if pursuant to Section 3.01 the Company elects to change
or extend the Stated Maturity Date, such later date as is chosen by the
Company pursuant to Section 3.01).
"Subsidiary" of any Person means (i) a corporation more than 50% of
the outstanding Voting Stock of which is owned, directly or indirectly, by
such Person or by such Person and one or more Subsidiaries thereof or (ii)
any other Person (other than a corporation) in which such Person, or one or
more other Subsidiaries of such Person or such Person and one or more other
Subsidiaries thereof, directly or indirectly, has at least a majority
ownership and power to direct the policies, management and affairs thereof.
14
<PAGE>
"Tax Event" means the receipt by the Company and the Trust of an
opinion of a nationally recognized independent tax counsel 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 other relevant political subdivision or
taxing authority, or as a result of any official administrative written decision
or 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 original issuance of the Capital
Securities, there is more than an insubstantial risk that (i) the 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 Securities,
(ii) interest payable by the Company on the Securities is not, or within 90 days
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 Trust is, or will be
within 90 days of the date of the opinion, subject to more than a DE MINIMIS
amount of other taxes, duties or other governmental charges.
"Trust" has the meaning specified in the Recitals to this instrument.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force at the date as of which this instrument was executed; PROVIDED, HOWEVER,
that in the event the Trust Indenture Act of 1939 is amended after such date,
"Trust Indenture Act" means, to the extent required by any such amendment, the
Trust Indenture Act of 1939 as so amended.
"Trust Securities" means Common Securities and Capital Securities.
15
<PAGE>
SECTION 1.02. COMPLIANCE CERTIFICATES AND OPINIONS. Upon any
application or request by the Company to the Trustee to take any action under
any provision of this Indenture, the Company shall furnish to the Trustee
such certificates and opinions as may be required under the Trust Indenture
Act or reasonably requested by the Trustee in connection with such
application or request. Each such certificate or opinion shall be given in
the form of an Officers' Certificate, if to be given by an officer of the
Company, or an Opinion of Counsel, if to be given by counsel, and shall
comply with the applicable requirements of the Trust Indenture Act and any
other applicable requirement set forth in this Indenture.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made or caused to be made such examination or investigation as is necessary
to enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 1.03. FORM OF DOCUMENTS DELIVERED TO TRUSTEE. In any case
where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters
be certified by, or covered by the opinion of, only one such Person, or that
they be so cer-
16
<PAGE>
tified or covered by only one document, but one such Person may certify or
give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an
opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an Officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.04. ACTS OF HOLDERS; RECORD DATES. (a) Any request,
demand, authorization, direction, notice, consent, waiver or other action
provided by this Indenture to be given to or taken by Holders may be embodied
in and evidenced by one or more instruments of substantially similar tenor
signed by such Holders in person or by an agent duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments is or are delivered to the
Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or
of a writing appointing any such agent shall be sufficient for any purpose of
this Indenture and (subject to
17
<PAGE>
Section 6.01) shall be conclusive in favor of the Trustee and the Company, if
made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee or the Company, as the case may be, deems
sufficient.
(c) The Company may, in the circumstances permitted by the Trust
Indenture Act, fix any day as the record date for the purpose of determining the
Holders of Outstanding Securities entitled to give, make or take any request,
demand, authorization, direction, notice, consent, waiver or other action, or to
vote on any action, authorized or permitted to be given or taken by Holders. If
not set by the Company prior to the first solicitation of a Holder made by any
Person in respect of any such action, or, in the case of any such vote, prior to
such vote, the record date for any such action or vote shall be the 30th day
(or, if later, the date of the most recent list of Holders required to be
provided pursuant to Section 7.01) prior to such first solicitation or vote, as
the case may be. With regard to any record date, only the Holders on such date
(or their duly designated proxies) shall be entitled to give or take, or vote
on, the relevant action.
(d) The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to join in the giving
or making of (i) any notice of default, (ii) any declaration of acceleration
referred to in Section 5.02, (iii) any request to institute proceedings referred
to in Section 5.07(2) or (iv) any direction referred to in Section 5.12. If any
record date is set pursuant to this para-
18
<PAGE>
graph, the Holders of Outstanding Securities on such record date, and no
other Holders, shall be entitled to join in such notice, declaration, request
or direction, whether or not such Holders remain Holders after such record
date; PROVIDED, that no such action shall be effective hereunder unless taken
on or prior to the date (the "Expiration Date") set by the Trustee by which
any such determination shall be made by Holders of the requisite principal
amount of Outstanding Securities on such record date. Nothing in this
paragraph shall be construed to prevent the Trustee from setting a new record
date for any action for which a record date has previously been set pursuant
to this paragraph (whereupon the record date previously set shall
automatically and with no action by any Person be canceled and of no effect),
and nothing in this paragraph shall be construed to render ineffective any
action taken by Holders of the requisite principal amount of Outstanding
Securities of the date such action is taken. Promptly after any record date
is set pursuant to this paragraph, the Trustee, at the Company's expense,
shall cause notice of such record date, the proposed action by Holders and
the applicable Expiration Date to be given to the Company in writing and to
each Holder of Securities in the manner set forth in Section 1.06.
(e) The ownership of Securities shall be proved by the Security
Register.
(f) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
(g) Without limiting the foregoing, a Holder entitled hereunder to
give or take any such action with regard to any particular Security may do so
with regard to all or any part of the principal amount of such Security or by
one or more duly appointed agents each of which may do so pursuant to such
19
<PAGE>
appointment with regard to all or any different part of such principal amount.
SECTION 1.05. NOTICES, ETC., TO THE TRUSTEE AND THE COMPANY. Any
request, demand, authorization, direction, notice, consent, waiver or Act of
Holders or other document provided or permitted by this Indenture to be made
upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: Corporate
Trust Administration, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of this instrument or at any other address previously
furnished in writing to the Trustee by the Company.
SECTION 1.06. NOTICE TO HOLDERS; WAIVER. Where this Indenture
provides for notice to Holders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class postage prepaid, to each Holder affected by such
event, at such Holder's address as it appears in the Security Register, not
later than the latest date (if any), and not earlier than the earliest date
(if any), prescribed for the giving of such notice. In any case where notice
to Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Any notice when
mailed to a Holder in the aforesaid manner shall be conclusively deemed to
have been received by such Holder whether or not actually received by such
Holder. Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice.
20
<PAGE>
Waivers of notice by Holders shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Regular
Trustees shall constitute sufficient notification for every purpose hereunder.
SECTION 1.07. CONFLICT WITH TRUST INDENTURE ACT. This Indenture
is not required to and will not be qualified under the Trust Indenture Act.
However, this Indenture is intended to comply with the requirements of
Sections 310 through 317, inclusive, of the Trust Indenture Act and such
provisions are specifically incorporated herein. If any provision hereof
limits, qualifies or conflicts with a provision of the Trust Indenture Act
specifically incorporated herein, then the provisions of this Indenture shall
control; provided that any penalties under the Trust Indenture Act relating
to noncompliance shall not be applicable to this Indenture.
SECTION 1.08. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The
article and section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 1.09. SUCCESSORS AND ASSIGNS. All covenants and
agreements in this Indenture by the Company and the Trustee shall bind each
of their respective successors and assigns, whether so expressed or not.
SECTION 1.10. SEPARABILITY CLAUSE. In case any provision in this
Indenture or in the Securities shall be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby.
SECTION 1.11. BENEFITS OF INDENTURE. Nothing in this Indenture or
in the Securities, express or implied, shall give to any Person, other than
the parties hereto and their successors
21
<PAGE>
hereunder, the holders of Senior Indebtedness (to the extent provided
herein), the holders of Capital Securities (to the extent provided herein)
and the Holders of Securities, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
SECTION 1.12. GOVERNING LAW. THIS INDENTURE AND THE SECURITIES
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
SECTION 1.13. LEGAL HOLIDAYS. In any case where any Interest
Payment Date, Redemption Date or Stated Maturity Date of any Security shall
not be a Business Day, then (notwithstanding any other provision of this
Indenture or of the Securities) payment of interest or principal or
conversion of the Securities need not be made on such date, but may be made
on the next succeeding Business Day (except that, if such Business Day is in
the next succeeding calendar year, such Interest Payment Date, Redemption
Date or Stated Maturity Date, as the case may be, shall be the immediately
preceding Business Day) with the same force and effect as if made on the
Interest Payment Date or Redemption Date, or at the Stated Maturity Date or
on such last day for conversion; PROVIDED, that no interest shall accrue for
the period from and after such Interest Payment Date, Redemption Date or
Stated Maturity Date, as the case may be.
ARTICLE II
SECURITY FORMS
SECTION 2.01. FORMS GENERALLY. The Securities and the Trustee's
certificates of authentication shall be substantially in the form of Exhibit A-1
which is hereby incorporated in and expressly made a part of this Indenture. The
Securities may have notations, legends or endorsements required by law, stock
exchange rule, agreements to which the Company is subject, if any, or usage
(provided that any such notation, legend or endorsement is in a form acceptable
to the Company). The Company shall furnish any such legend not contained in
Exhibit A-1 to the
22
<PAGE>
Trustee in writing. Each Security shall be dated the date of its
authentication. The terms and provisions of the Securities set forth in
Exhibit A-1 are part of the terms of this Indenture and to the extent
applicable, the Company and the Trustee, by their execution and delivery of
this Indenture, expressly agree to such terms and provisions and to be bound
thereby.
The definitive Securities shall be typewritten or printed,
lithographed or engraved or produced by any combination of these methods or
may be produced in any other manner permitted by the rules of any securities
exchange on which the Securities may be listed, all as determined by the
officers executing such Securities, as evidenced by their execution of such
Securities.
ARTICLE III
THE SECURITIES
SECTION 3.01. TITLE AND TERMS. The aggregate principal amount of
Securities that may be authenticated and delivered under this Indenture is
limited to $77,320,000 (except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other Securities
pursuant to Section 3.04, 3.05, 3.06, 9.05, or 11.08), which amount shall be as
set forth in the Company Order for the authentication and delivery of the
Securities pursuant to Section 3.03 hereof.
The Securities shall be known and designated as the "8.55%
Subordinated Deferrable Interest Debentures due 2028" of the Company. Their
initial Stated Maturity Date shall be August 1, 2028. They shall bear
interest at the rate of 8.55% per annum, from July 30, 1998 or from the most
recent Interest Payment Date (as defined below) to which interest has been
paid or duly provided for, as the case may be, payable semi-annually (subject
to deferral as set forth herein), in arrears, on February 1 and August 1
(each an "Interest Payment Date") of each year, commencing February 1, 1999
until the principal thereof is paid or made available for payment, and they
shall be paid to the Person in whose name the Security is registered at the
close of
23
<PAGE>
business on the regular record date for such interest installment, which
shall be the close of business on the date which is the fifteenth day of the
month immediately preceding the month in which the Interest Payment Date
occurs (the "Regular Record Date"). Interest will compound semi-annually and
will accrue to the extent permitted by law at the rate of 8.55% per annum on
any interest installment not paid when due or during an extension of an
interest payment period as set forth in Section 3.12 hereof.
The amount of interest payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months, and, for any period of less
than a full calendar month, the number of days elapsed in such month.
If at any time the Trust is required to pay any additional taxes,
duties or other governmental charges of whatever nature (other than withholding
taxes) imposed by the United States or any other taxing authority, then, in any
case, the Company will pay as additional interest on the Securities ("Additional
Interest"), such additional amounts as may be necessary in order that the net
amounts received and retained by the Trust after paying any such taxes, duties,
assessments and other governmental charges will be not less than the amounts the
Trust would have received had no such taxes, duties, assessments or other
governmental charges been imposed.
The principal of and interest on the Securities shall be payable at
the office or agency of the Company in the United States maintained for such
purpose and at any other office or agency maintained by the Company for such
purpose in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; PROVIDED,
HOWEVER, that at the option of the Company, payment of interest may be made by
check mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register.
The Securities shall be redeemable as provided in Article XI hereof.
24
<PAGE>
The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article XII hereof.
SECTION 3.02. DENOMINATIONS. The Securities shall be issuable
only in registered form without coupons and only in denominations of
principal amount of $100,000 (before giving effect to any partial redemption)
and integral multiples of $1,000 above $100,000.
SECTION 3.03. EXECUTION, AUTHENTICATION, DELIVERY AND DATING. The
Securities shall be executed on behalf of the Company by its chairman of the
Board of Directors, its vice chairman of the Board of Directors, its
president or one of its vice presidents, under its corporate seal reproduced
thereon attested by its secretary or one of its assistant secretaries. The
signature of any of these officers on the Securities may be manual or
facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and make available for delivery such
Securities as provided in this Indenture and not otherwise.
No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder.
25
<PAGE>
SECTION 3.04. TEMPORARY SECURITIES. Pending the preparation of
definitive Securities, the Company may execute, and upon Company Order the
Trustee shall authenticate and deliver, temporary Securities which are
printed, lithographed, typewritten, mimeographed or otherwise produced, in
any authorized denomination, substantially of the tenor of the definitive
Securities in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Securities may determine, as evidenced by their execution of
such Securities.
Except in the case of temporary Securities in global form, each of
which shall be exchanged in accordance with the provisions thereof, if temporary
Securities are issued, the Company will cause definitive Securities to be
prepared without unreasonable delay. After the preparation of definitive
Securities, the temporary Securities shall be exchangeable for definitive
Securities upon surrender of the temporary Securities at any office or agency of
the Company designated pursuant to Section 10.02, without charge to the Holder.
Upon surrender for cancellation of any one or more temporary Securities, the
Company shall execute and the Trustee shall authenticate and make available for
delivery in exchange therefor a like principal amount of definitive Securities
of authorized denominations. Until so exchanged the temporary Securities shall
in all respects be entitled to the same benefits under this Indenture as
definitive Securities.
SECTION 3.05. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
(a) GENERAL. The Company shall cause to be kept at the Corporate Trust
Office of the Trustee a register (the register maintained in such office and
in any other office or agency designated pursuant to Section 10.02 being
herein sometimes collectively referred to as the "Security Register") in
which, subject to such reasonable regulations as it may prescribe, the
Company shall provide for the registration of Securities and of transfers of
Securities. The Trustee is hereby appointed "Security Registrar" for the
purpose of registering securities and transfers of Securities as herein
provided.
26
<PAGE>
Subject to Section 3.17 herein, upon surrender for registration of
transfer of any Security (except a Security in global form) at an office or
agency of the Company designated pursuant to Section 10.02 for such purpose, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities of
any authorized denominations and of a like aggregate principal amount.
At the option of the Holder, Securities (except a Security in global
form) may be exchanged for other Securities of any authorized denominations and
of a like aggregate principal amount, upon surrender of the Securities to be
exchanged at such office or agency. Whenever any Securities are so surrendered
for exchange, the Company shall execute, and the Trustee shall authenticate and
make available for delivery, the Securities which the Holder making the exchange
is entitled to receive.
All Securities issued upon registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 3.04, 9.05 or 11.08 not involving any transfer.
Neither the Company nor the Trustee shall be required (i) in the case
of a partial redemption of the Securities, to
27
<PAGE>
issue, register the transfer of or exchange any Security during a period
beginning at the opening of business 15 days before the day of the mailing of
a notice of redemption of Securities selected for redemption under Section
11.04 and ending at the close of business on the day of such mailing and (ii)
to register the transfer of or any Security so selected for redemption in
whole or in part, except the unredeemed portion of any Security being
redeemed in part.
SECTION 3.06. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If any mutilated Security is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Security of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Security
and (ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of the
notice to the Company or the Trustee that such Security has been acquired by a
bona fide purchaser, the Company shall execute and the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustees) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Security shall
28
<PAGE>
constitute an original contractual obligation of the Company, whether or not
the mutilated, destroyed, lost or stolen Security shall be at any time
enforceable by anyone, and shall be entitled to all the benefits of this
Indenture equally and proportionately with any and all other Securities duly
issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.07. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the
Holder on the relevant Regular Record Date by virtue of having been such
Holder, and such Defaulted Interest may be paid by the Company, at its
election in each case, as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which shall
be fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Security and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee for such deposit prior to the date
of the proposed payment, such money when deposited to be held in trust for
the benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more
29
<PAGE>
than 15 days and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the Trustee of
the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date and, in the name and at the
expense of the Company, shall cause notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor to be
mailed, first-class postage prepaid, to each Holder at his address as it
appears in the Security Register, not less than 10 days prior to such
Security Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been so mailed,
such Defaulted Interest shall be paid to the Persons in whose names the
Securities (or their respective Predecessor Securities) are registered
at the close of business on such Special Record Date and shall no longer
be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and, if so
listed, upon such notice as may be required by such exchange (or as may be
required by the Trustee if the Securities are not listed), if, after notice
given by the Company to the Trustee of the proposed payment pursuant to
this clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue (including, in each such case, Compounded Interest),
which were carried by such other security.
SECTION 3.08. PERSONS DEEMED OWNERS. Prior to due presentment of
a Security for registration of transfer, the Company, the Trustee and any
agent of the Company or the Trustee may treat the Person in whose name such
Security is registered as the owner of such Security for the purpose of
receiving payment of principal of and (subject to Section 3.07) interest
(including
30
<PAGE>
Compounded Interest) on such Security and for all other purposes whatsoever,
whether or not such Security be overdue, and neither the Company, the Trustee
nor any agent of the Company or the Trustee shall be affected by notice to
the contrary.
SECTION 3.09. CANCELLATION. All Securities surrendered for
payment, redemption, registration of transfer or exchange or conversion
shall, if surrendered to any Person other than the Trustee, be delivered to
the Trustee and shall be promptly canceled by it. The Company may at any
time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company may have acquired in
any manner whatsoever, and all Securities so delivered shall be promptly
canceled by the Trustee. No Securities shall be authenticated in lieu of or
in exchange for any Securities canceled as provided in this Section, except
as expressly permitted by this Indenture. All canceled Securities held by
the Trustee shall be disposed of as directed by a Company Order; PROVIDED,
HOWEVER, that the Trustee shall not be required to destroy the certificates
representing such canceled Securities.
SECTION 3.10. RIGHT OF SET OFF. Notwithstanding anything to the
contrary in this Indenture, the Company shall have the right to set off any
payment it is otherwise required to make hereunder to the extent the Company
has theretofore made, or is concurrently on the date of such payment making,
a payment in respect of such required payment under the Guarantee.
SECTION 3.11. CUSIP NUMBERS. The Company in issuing the
Securities may use "CUSIP" numbers (if then generally in use), and, if so,
the Trustee shall use "CUSIP" numbers in notices of redemption as a
convenience to Holders; PROVIDED, that any such notice may state that no
representation is made as to the correctness of such numbers either as
printed on the Securities or as contained in any notice of a redemption and
that reliance may be placed only on the other identification numbers printed
on the Securities, and any such redemption shall not be affected by any
defect in or omission of such numbers. The Company shall notify the Trustee
in writing promptly of any change in the CUSIP numbers.
31
<PAGE>
SECTION 3.12. DEFERRAL OF INTEREST PAYMENTS; NOTICE OF DEFERRAL.
(a) The Company shall have the right, at any time during the term of the
Securities, from time to time, so long as no Event of Default (or an event
which would be an Event of Default with the giving of required notice or the
passage of time) has occurred and is continuing, to defer payments of
interest for successive periods not exceeding 10 consecutive semi-annual
periods and not extending beyond the Stated Maturity Date (each such period,
a "Deferral Period"). To the extent permitted by applicable law, interest,
the payment of which has been deferred because of the deferral of the
interest payment period pursuant to this Section 3.12, will bear interest
thereon at 8.55% compounded semi-annually for each semi-annual period of the
Deferral Period ("Compounded Interest"). At the end of each Deferral Period,
the Company shall pay all interest and Additional Payments then accrued and
unpaid on the Securities that shall be payable to the Holders of the
Securities in whose names the Securities are registered in the Security
Register on the first Regular Record Date after the end of the Deferral
Period. Before the termination of any Deferral Period, the Company may
further extend such period, so long as no Event of Default (or an event which
would be an Event of Default with the giving of required notice or the
passage of time) has occurred and is continuing; PROVIDED, that such period
together with all such further extensions thereof shall not exceed 10
consecutive semi-annual periods or extend beyond the Stated Maturity Date of
the Securities. Upon the termination of any Deferral Period and upon the
payment of all interest and Additional Payments then due, the Company may
commence a new Deferral Period, subject to the foregoing requirements. No
interest shall be due and payable during an Deferral Period except at the end
thereof.
(b) If the Property Trustee is the sole holder of the Securities,
the Company shall give the Holder of the Securities and the Trustee notice of
its selection of a Deferral Period at least one Business Day prior to the
earlier of (i) the Interest Payment Date or (ii) the date the Trust is
required to give notice to any automated or exchange quotation system or
other applicable self-regulatory organization or to holders of the Capital
Securities of the record date or the date such
32
<PAGE>
distributions are payable, but in any event not less than ten Business Days
prior to such record date.
(c) If the Property Trustee is not the sole holder of the
Securities, the Company shall give the Holders of the Securities and the
Trustee notice of its selection of a Deferral Period at least ten Business
Days prior to the earlier of (i) the Interest Payment Date or (ii) the date
the Trust is required to give notice to any applicable self-regulatory
organization or to Holders of the Securities on the record date or the date
such distributions are payable, but in any event not less than two Business
Days prior to such record date.
(d) The semi-annual period in which any notice is given pursuant
to paragraphs (b) and (c) hereof shall be counted as one of the 10
semi-annual periods permitted in the maximum Deferral Period permitted under
paragraph (a) hereof.
SECTION 3.13. PAYING AGENT AND SECURITY REGISTRAR. The Trustee
will initially act as Paying Agent and Security Registrar. The Company may
change any Paying Agent, Security Registrar or co-registrar without prior
notice. The Company will notify the Trustee upon any such change. The
Company or any of its Affiliates may act in any such capacity.
SECTION 3.14. GLOBAL DEBENTURE. (a) In connection with a
distribution of the Securities to Holders of the Trust Securities pursuant to
the Declaration:
(i) The Securities in certificated form to be distributed to the
holders of Capital Securities may be presented to the Trustee by the
Property Trustee in exchange for a global Security in an aggregate
principal amount equal to the aggregate principal amount of all Outstanding
Securities (a "Global Debenture"), to be registered in the name of the
Depositary, or its nominee, and delivered by the Trustee to the Depositary
for crediting to the accounts of its participants pursuant to the
instructions of the Regular Trustees (as defined in the Declaration). The
Company upon any such presentation shall execute a Global Debenture in such
aggregate principal amount and deliver the same to the
33
<PAGE>
Trustee for authentication and delivery in accordance with this Indenture.
Payments on the Securities issued as a Global Debenture will be made in
accordance with Section 4.02.
(ii) If any Capital Securities are held in non book-entry
certificated form, the Securities in certificated form may be presented to
the Trustee by the Property Trustee and any Capital Security certificate
which represents Capital Securities other than Capital Securities held by
the Depositary or its nominee ("Non Book-Entry Capital Securities") will be
deemed to represent beneficial interests in Securities presented to the
Trustee by the Property Trustee having an aggregate principal amount equal
to the aggregate principal amount of the Non Book-Entry Capital Securities
until such Capital Security certificates are presented to the Security
Registrar for transfer or reissuance at which time such Capital Security
certificates will be canceled and a Debenture, registered in the name of
the holder of the Capital Security certificate or the transferee of the
holder of such Capital Security certificates, as the case may be, with an
aggregate principal amount of, with an interest rate identical to the
distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid distributions, on the Capital Security certificate canceled, will be
executed by the Company and delivered to the Trustee for authentication and
delivery in accordance with this Indenture. On issuance of such
Securities, Securities with an equivalent aggregate principal amount that
were presented by the Property Trustee to the Trustee will be deemed to
have been canceled.
(b) Unless and until it is exchanged for Securities in registered
certificate form, a Global Debenture may be transferred, in whole but not in
part, only by the Depositary to a nominee of the Depositary or by a nominee of
the Depositary to the Depositary or another nominee of the Depositary or by the
Depositary or any such nominee to a successor Depositary selected or approved by
the Company or a nominee of such successor Depositary.
34
<PAGE>
(c) If at any time the Depositary for the Securities notifies the
Company that it is unwilling or unable to continue as Depositary for the
Securities or if at any time the Depositary for the Securities shall no longer
be registered or in good standing as a clearing agency under the Securities
Exchange Act of 1934, as amended, or other applicable statute or regulation, at
a time at which the Depositary is required to be so registered to act as
Depositary for the Securities, and a successor Depositary is not appointed by
the Company within 90 days after the Company receives such notice or becomes
aware of such condition, as the case may be, the Company will execute, and,
subject to this Indenture, the Trustee, upon written notice from the Company,
will authenticate and deliver the Securities in definitive registered form
without coupons, in authorized denominations, and in the aggregate principal
amount equal to the principal amount of the Global Debenture in exchange for
such Global Debenture. In addition, the Company, in its sole discretion, may at
any time determine that the Securities shall no longer be represented by a
Global Debenture. In such event the Company will execute, and subject to this
Indenture, the Trustee, upon receipt of an Officers' Certificate evidencing such
determination by the Company, will authenticate and deliver the Securities in
definitive registered form without coupons, in authorized denominations and in
aggregate principal amount equal to the principal amount of the Global Debenture
in exchange for such Global Debenture. Upon the exchange of the Global
Debenture for such Debentures in definitive registered form without coupons, in
authorized denominations, the Global Debenture shall be canceled by the Trustee.
Such Securities in definitive registered form issued in exchange for the Global
Debenture shall be registered in such names and in such authorized denominations
as the Depositary, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee in writing. The Trustee
shall deliver such registered certificated Securities in definitive form in
exchange for the Global Debenture to the Depositary for delivery to the Persons
in whose names such Securities are so registered.
SECTION 3.15. AGREED TAX TREATMENT. Each Security issued
hereunder shall provide that the Company and, by its acceptance of a Security
or a beneficial interest therein, the
35
<PAGE>
Holder of, and any Person that acquires a beneficial interest in, such
Security agree to treat such Security as indebtedness for United States
federal, state and local tax purposes.
SECTION 3.16. LEGENDS. Except as determined by the Company in
accordance with applicable law, each Security shall bear the applicable
legends relating to restrictions on transfer pursuant to Section 3.17 of this
Indenture and to the securities laws in substantially the form set forth on
Exhibit A-1 hereto.
SECTION 3.17. TRANSFER AND EXCHANGE. (a) The Securities may not
be transferred except in compliance with the legend contained in Exhibit A-1
unless otherwise determined by the Company in accordance with applicable law.
The Securities may be transferred only in blocks having a principal amount
(before giving effect to any partial redemption) of not less than $100,000.
Any such transfer of the Securities in a block having a principal amount
(before giving effect to any partial redemption) of less than $100,000 shall
be deemed to be void and of no legal effect whatsoever. Any such transferee
shall be deemed not to be holder of such Securities for any purpose,
including but not limited to the receipt of payment on such Securities, and
such transferee shall be deemed to have no interest whatsoever in such
Securities. Prior to any distribution of the Securities following a
Dissolution Event, the Company and the Trustee shall enter into a
supplemental indenture pursuant to Section 9.01 to provide for the transfer
restrictions and procedures with respect to the Securities substantially
similar to those contained in the Declaration to the extent applicable in the
circumstances existing at such time.
(b) Upon surrender for registration of transfer of any Security at
the office or agency of the Company maintained for the purpose pursuant to
Section 3.05, the Company shall execute, and the Trustee shall authenticate
and deliver, in the name of the designated transferee or transferees, one or
more new Securities of the same series, of any authorized denominations and
of a like aggregate principal amount.
At the option of the Holder, Securities of any series may be
exchanged for other Securities of the same series, of any
36
<PAGE>
authorized denominations and of a like aggregate principal amount, upon
surrender of the Securities to be exchanged at such office or agency.
Whenever any Securities are so surrendered for exchange, the Company shall
execute, and the Trustee shall authenticate and deliver, the Securities which
the holder making the exchange is entitled to receive.
Every Security presented or surrendered for registration of
transfer or exchange shall (if so required by the Company or the Trustee) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
holder thereof or his attorney duly authorized in writing.
All Non Book-Entry Capital Securities and Global Debentures issued
upon any registration of transfer or exchange of Non Book-Entry Capital
Securities or Global Debentures shall be the valid obligations of the
Company, evidencing the same debt, and entitled to the same benefits under
this Indenture, as the Non Book-Entry Capital Securities or Global Debentures
surrendered upon such registration of transfer or exchange.
No service charge shall be made to a holder for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient
to cover any transfer tax or similar governmental charge payable in
connection therewith.
Each Holder agrees to indemnify the Company and the Trustee against
any liability that may result from the transfer, exchange or assignment of
such Holder's Security in violation of any provision of this Indenture and/or
applicable United States federal or state securities law.
The Trustee shall have no obligation or duty to monitor, determine
or inquire as to compliance with any restriction on transfer imposed under
this Indenture or under applicable law with respect to any transfer of any
interest in any Security (including any transfers between or among Depositary
participants or beneficial owners of interests in any Global Debenture) other
than to require delivery of such certificates and other documentation or
evidence as are expressly required by,
37
<PAGE>
and to do so if and when expressly required by the terms of, this Indenture,
and to examine the same to determine substantial compliance as to form with
the express requirements hereof.
The Company shall not be required to (i) issue, register the
transfer of or exchange Securities during a period beginning at the opening
of business 15 days before the day of mailing of a notice of redemption or
any notice of selection of Securities for redemption under Article XI hereof
and ending at the close of business on the day of such mailing; or (ii)
register the transfer of or exchange any Security so selected for redemption
in whole or in part, except the unredeemed portion of any Security being
redeemed in part.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.01. SATISFACTION AND DISCHARGE OF INDENTURE. This
Indenture shall cease to be of further effect (except as to any surviving
rights of registration of transfer or exchange of Securities herein expressly
provided for), and the Trustee, upon a Company Request and at the expense of
the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered
(other than (i) Securities which have been mutilated, destroyed, lost
or stolen and which have been replaced or paid as provided in Section
3.06 and (ii) Securities for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust, as
provided in Section 10.03) have been delivered to the Trustee for
cancellation; or
38
<PAGE>
(B) all such Securities not theretofore delivered to the Trustee
for cancellation
(i) have become due and payable, or
(ii) will become due and payable at the Stated Maturity
Date within one year, or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at the
expense, of the Company
and the Company, in the case of (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee as trust funds in
trust for the purpose an amount sufficient to pay and discharge the
entire indebtedness on such Securities not theretofore delivered to
the Trustee for cancellation, for principal and interest and
Additional Payments, if any, to the date of such deposit (in the case
of Securities which have become due and payable) or to the Stated
Maturity Date or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officer's Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.07 and, if money
shall have been deposited with the Trustee pursuant to subclause (B) of
clause (1) of this Section, the obligations of the Trustee under Section 4.02
and the last paragraph of Section 10.03 shall survive.
39
<PAGE>
SECTION 4.02. APPLICATIONS OF TRUST MONEY. Subject to the
provisions of the last paragraph of Section 10.03, all money deposited with
the Trustee pursuant to Section 4.01 shall be held in trust and applied by
it, in accordance with the provisions of the Securities and this Indenture,
to the payment, either directly or through any Paying Agent (including the
Company acting as its own Paying Agent) as the Trustee may determine, to the
Persons entitled thereto, of the principal and interest (or premium, if any)
for whose payment such money has been deposited with the Trustee.
ARTICLE V
REMEDIES
SECTION 5.01. EVENTS OF DEFAULT. "Event of Default," wherever
used herein, means any one of the following events that has occurred and is
continuing (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article XII or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of any interest upon any Security,
including any Compounded Interest in respect thereof, when it becomes due
and payable, and continuance of such default for a period of 30 days;
PROVIDED, that a valid extension of the Deferral Period by the Company
pursuant to this Indenture shall not constitute a default in the payment of
interest for this purpose; or
(2) default in the payment of the principal of (or premium, if any,
on) any Security when due whether at the Stated Maturity Date, upon
redemption, by declaration of acceleration or otherwise; or
(3) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a default in whose
performance or whose breach is
40
<PAGE>
elsewhere in this Section specifically dealt with), and continuance of
such default or breach for a period of 90 days after there has been
given, by registered or certified mail, to the Company by the Trustee or
to the Company and the Trustee by the Holders of at least 25% in
principal amount of the Outstanding Securities, a written notice
specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder; or
(4) entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under any applicable
federal or state bankruptcy, insolvency, reorganization or other similar
law or (B) a decree or order adjudging the Company or any Significant
Subsidiary a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition of
or in respect of the Company or any Significant Subsidiary under any
applicable federal or state law, or appointing a custodian, receiver,
liquidator, assignee, trustee, rehabilitator, sequestrator or other similar
official of the Company, or any Significant Subsidiary or ordering the
winding up or liquidation of the Company's or any Significant Subsidiary's
affairs, and the continuance of any such decree or order for relief or any
such other decree or order unstayed and in effect for a period of 60
consecutive days; or
(5) the commencement by the Company or any Significant Subsidiary of
a voluntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or of any other
case or proceeding to be adjudicated as bankrupt or insolvent, or the
consent by the Company or any Significant Subsidiary or to the entry of a
decree or order for relief in respect of itself in an involuntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against the Company or any
Significant Subsidiary, or the filing by the
41
<PAGE>
Company or any Significant Subsidiary of a petition or answer or consent
seeking reorganization or relief under any applicable federal or state
law, or the consent by the Company or any Significant Subsidiary to the
filing of such petition or to the appointment of or taking possession by
a custodian, receiver, liquidator, assignee, trustee, rehabilitator,
sequestrator or other similar official of the Company or any Significant
Subsidiary or of substantially all of the property of the Company or any
Significant Subsidiary, or the making by the Company or any Significant
Subsidiary of an assignment for the benefit of creditors, or the
admission by the Company or any Significant Subsidiary in writing of its
inability to pay its debts generally as they become due, or the taking
of corporate action by the Company or any Significant Subsidiary in
furtherance of any such action; or
(6) the voluntary or involuntary dissolution, winding up or
termination of the Trust, except in connection with (i) the distribution of
Securities to holders of Capital Securities in liquidation or redemption of
their interests in the Trust, (ii) the redemption of all of the outstanding
Capital Securities of the Trust or (iii) certain mergers, consolidations or
amalgamations, each as permitted by the Declaration.
SECTION 5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default occurs and is continuing, then and in every such case,
the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities may declare the principal of all the Securities and
any other amounts payable hereunder (including any Additional Interest) to be
due and payable immediately, by a notice in writing to the Company (and to
the Trustee if given by Holders); PROVIDED, that, if the Property Trustee is
the sole Holder of the Securities and if upon an Event of Default, the
Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities fail to declare the principal of all the Securities to
be due and payable, the holders of at least 25% in aggregate liquidation
amount of Capital Securities then outstanding shall have such right by a
notice in writing to the Company and the Trustee; and upon any
42
<PAGE>
such declaration such principal and all accrued interest shall become due and
payable; PROVIDED, that the payment of principal, premium, if any, and
interest on such Securities shall remain subordinated to the extent provided
in Article XII. If an Event of Default specified in any one of clauses (4),
(5) or (6) of Section 5.01 occurs, all unpaid principal and accrued interest
on the Outstanding Securities shall become and be immediately due and payable
without any declaration or other act on the part of the Trustee, the Property
Trustee, any Holder or any holder of Capital Securities.
At any time after such a declaration of acceleration has been made
and before a judgment or decree for payment of the money due has been
obtained by the Trustee as provided in this Article hereinafter, the Holders
of a majority in aggregate principal amount of the Outstanding Securities, by
written notice to the Company and the Trustee, may rescind and annul such
declaration and its consequences if:
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest (including all Additional Payments) on
all Securities,
(B) the principal of any Securities which have become due
otherwise than by such declaration of acceleration and interest
thereon at the rate borne by the Securities, and applicable premium,
if any, and
(C) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
and
(2) all Events of Default, other than the non-payment of the
principal of Securities which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 5.13.
43
<PAGE>
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
SECTION 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT
BY TRUSTEE. The Company covenants that if
(1) default is made in the payment of any interest (including any
Additional Payments) on any Security when such interest becomes due and
payable and such default continues for a period of 30 days, or
(2) default is made in the payment of the principal or premium, if
any, of any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of
the Holders of such Securities, the whole amount then due and payable on such
Securities for principal, premium, if any, and interest (including any
Additional Payments) and, to the extent that payment thereof shall be legally
enforceable, interest on any overdue principal or premium, if any, and on any
overdue interest (including any Additional Payments), at the rate borne by
the Securities, and, in addition thereto, all amounts owing to the Trustee
under Section 6.07.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of
the Holders by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid
of the exercise of any power granted herein, or to enforce any other proper
remedy.
SECTION 5.04. TRUSTEE MAY FILE PROOFS OF CLAIM. In case of any
judicial proceeding relative to the Company (or any other obligor upon the
Securities), its property or its creditors, the Trustee shall be entitled and
empowered, by intervention in such proceeding or otherwise, to take any and
all actions authorized under the Trust Indenture Act in order to have claims
of the Holders and the Trustee allowed in any such proceeding. In
particular, the Trustee shall be authorized to
44
<PAGE>
collect and receive any moneys or other property payable or deliverable on
any such claims and to distribute the same; and any custodian, receiver,
assignee, trustee, liquidator, sequestrator or other similar official in any
such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to
the making of such payments directly to the Holders, to pay to the Trustee
any amount due it, and any predecessor Trustee, under Section 6.07.
No provision of this Indenture shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt an behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting
the Securities or the rights of any Holder thereof or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
SECTION 5.05. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
SECURITIES. All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the
possession of any of the Securities or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name as trustee of an express trust, and
any recovery of judgment shall, after provision for the payment of all the
amounts owing to the Trustee and any predecessor Trustee under Section 6.07
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, be for the ratable benefit of the Holders of
the Securities in respect of which such judgment has been recovered.
SECTION 5.06. APPLICATION OF MONEY COLLECTED. Subject to Article
XII, any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee
and, in case of the distribution of such money on account of principal or
interest (including any Additional Payments), upon presentation of the
Securities and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
45
<PAGE>
FIRST: To the payment of all amounts due the Trustee and any
predecessor Trustee under Section 6.07;
SECOND: To the payment of the amounts then due and unpaid for
principal and premium, if any, (including any Additional Payments) on the
Securities in respect of which or for the benefit of which such money has
been collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for principal
and premium, if any, and interest (including any Additional Payments)
respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
SECTION 5.07. LIMITATION ON SUITS. Subject to Section 5.08, no
Holder of any Security shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment
of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of not less than 25% in aggregate principal amount of
the Outstanding Securities shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day
46
<PAGE>
period by the Holders of a majority in principal amount of the Outstanding
Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders, or to obtain or to seek to obtain priority or preference over any
other Holders or to enforce any right under this Indenture, except in the
manner herein provided and for the equal and ratable benefit of all the
Holders.
SECTION 5.08. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL
AND INTEREST. Notwithstanding any other provision in this Indenture, the
Holder of any Security shall have the right, which is absolute and
unconditional, to receive payment of the principal of and (subject to Section
3.07) interest (including any Additional Payments) and premium, if any, on
such Security on the respective Stated Maturities expressed in such Security
(or, in the case of redemption, on the Redemption Date) and to institute suit
for the enforcement of any such payment, and such rights shall not be
impaired without the consent of such Holder. If the Property Trustee is the
sole Holder of the Securities, any holder of the Capital Securities shall
have the right to institute suit on behalf of the Trust for the enforcement
of any such payment.
SECTION 5.09. RESTORATION OF RIGHTS AND REMEDIES. If the Trustee
or any Holder has instituted any proceeding to enforce any right or remedy
under this Indenture and such proceeding has been discontinued or abandoned
for any reason, or has been determined adversely to the Trustee or to such
Holder, then and in every such case, subject to any determination in such
proceeding, the Company, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as
though no such proceeding had been instituted.
SECTION 5.10. RIGHTS AND REMEDIES CUMULATIVE. Except as otherwise
provided with respect to the replacement or payment
47
<PAGE>
of mutilated, destroyed, lost or stolen Securities in the last paragraph of
Section 3.06, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or
remedy.
SECTION 5.11. DELAY OR OMISSION NOT WAIVER. No delay or omission
of the Trustee or of any Holder of any Security to exercise any right or
remedy accruing upon any Event of Default shall impair any such right or
remedy or constitute a waiver of any such Event of Default or an acquiescence
therein. Every right and remedy given by this Article or by law to the
Trustee or to the Holders may be exercised from time to time, and as often as
may be deemed expedient, by the Trustee or by the Holders, as the case may be.
SECTION 5.12. CONTROL BY HOLDERS. The Holders of a majority in
principal amount of the Outstanding Securities shall have the right to direct
the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee; PROVIDED, that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture; and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 5.13. WAIVER OF PAST DEFAULTS. Subject to Section 9.02
hereof, the Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities
waive any past default hereunder and its consequences, except a default
48
<PAGE>
(1) in the payment of the principal of, premium, if any, or interest
(including any Additional Payments) on any Security (unless such default
has been cured and a sum sufficient to make all such payments due otherwise
than by acceleration has been deposited with the Trustee); or
(2) in respect of a covenant or provision hereof which under Article
IX cannot be modified or amended without the consent of the Holder of each
Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
SECTION 5.14. UNDERTAKING FOR COSTS. In any suit for the
enforcement of any right or remedy under this Indenture, or in any suit
against the Trustee for any action taken, suffered or omitted by it as
Trustee, a court may require any party litigant in such suit to file an
undertaking to pay the costs of such suit, and may assess costs against any
such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; PROVIDED, that neither this Section nor the Trust Indenture
Act shall be deemed to authorize any court to require such an undertaking or
to make such an assessment in any suit instituted by the Company or the
Trustee or in any suit for the enforcement of the right to receive the
principal of and interest (including any Additional Payments) and premium, if
any, on any Security.
SECTION 5.15. WAIVER OF STAY OR EXTENSION LAWS. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law wherever enacted, now or
at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law and covenants that it will not hinder, delay or impede the execution of
any power herein granted to the Trustee, but will
49
<PAGE>
suffer and permit the execution of every such power as though no such law had
been enacted.
SECTION 5.16. ENFORCEMENT BY HOLDERS OF CAPITAL SECURITIES.
Notwithstanding anything to the contrary contained herein and in addition to
any other rights of the holders of the Capital Securities provided herein or
in the Declaration, if the Property Trustee fails to enforce its rights under
the Securities, the holders of at least 25% of the liquidation amount of the
outstanding Capital Securities may institute any legal proceeding directly
against the Company to enforce the Property Trustee's rights, as Holder of
the Securities, without first instituting any legal proceeding against the
Property Trustee or any other Person. Notwithstanding the foregoing, if an
Event of Default as defined in the Declaration has occurred and is continuing
and such event is attributable to the failure of the Company to pay interest
or principal on the Securities issued to the Trust on the date such interest
or principal is otherwise payable, then a holder of Capital Securities may
institute a proceeding directly against the Company for enforcement of
payment to the holder of the Capital Securities of the principal of or
interest on the Securities on or after the respective due dates specified in
the Securities (taking into account any Deferral Period).
ARTICLE VI
THE TRUSTEE
SECTION 6.01. CERTAIN DUTIES AND RESPONSIBILITIES. (a) Except
during the continuance of an Event of Default, the Trustee undertakes to
perform such duties and only such duties as are specifically set forth in
this Indenture, and no implied covenants or obligations shall be read into
this Indenture against the Trustee.
(b) In case an Event of Default has occurred and is continuing,
the Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would
50
<PAGE>
exercise or use under the circumstances in the conduct of his own affairs.
(c) Notwithstanding the foregoing, (i) the duties and
responsibilities of the Trustee shall be as provided by the sections of the
Trust Indenture Act specifically incorporated herein and (ii) no provision of
this Indenture shall require the Trustee to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers, if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured
to it. Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
SECTION 6.02. NOTICE OF DEFAULTS. The Trustee shall give the
Holders notice of any default hereunder as and to the extent provided by the
Trust Indenture Act. For the purpose of this Section, the term "default"
means any event which is, or after notice or lapse of time or both would
become, an Event of Default.
SECTION 6.03. CERTAIN RIGHTS OF TRUSTEE. Subject to the provisions
of Section 6.01:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
51
<PAGE>
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel of its choice and the advice
of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may take such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to reasonable examination of the books, records and
premises of the Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with the due care
by it hereunder; and
52
<PAGE>
(h) the Trustee shall not be liable for any action taken, suffered,
or omitted to be taken by it in good faith, without negligence or willful
misconduct, and reasonably believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture.
SECTION 6.04. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
SECURITIES. The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of
this Indenture or of the securities. The Trustee shall not be accountable
for the use or application by the Company of the Securities or the proceeds
thereof.
SECTION 6.05. MAY HOLD SECURITIES. The Trustee, any Paying Agent,
any Security Registrar or any other agent of the Company, in its individual
or any other capacity, may become the owner or pledgee of Securities and,
subject to Sections 6.08 and 6.13, may otherwise deal with the Company with
the same rights it would have if it were not Trustee, Paying Agent, Security
Registrar, or such other agent.
SECTION 6.06. MONEY HELD IN TRUST. Money held by the Trustee in
trust hereunder need not be segregated from other funds except to the extent
required by law. The Trustee shall be under no liability for interest on any
money received by it hereunder except as otherwise agreed with the Company.
SECTION 6.07. COMPENSATION AND REIMBURSEMENT. The Company, in its
capacity as borrower with respect to the Securities, agrees:
(1) to pay to the Trustee from time to time such reasonable
compensation as the Company and the Trustee shall from time to time agree
in writing for all services rendered by it hereunder (which compensation
shall not be limited by any provision of law in regard to the compensation
of a trustee of an express trust);
53
<PAGE>
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, fees, disbursements
and advances incurred or made by the Trustee in accordance with any
provision of this Indenture (including the reasonable compensation and the
expenses and disbursements of its agents and counsel), except any such
expense, disbursement or advance as may be attributable to its negligence
or bad faith; and
(3) to indemnify the Trustee and any predecessor Trustee for, and to
hold it harmless against, any loss, liability or expense incurred without
negligence or bad faith on its part, arising out of or in connection with
the acceptance or administration of this trust, including the costs and
expenses of defending itself against any claim or liability in connection
with the exercise or performance of any of its powers or duties hereunder.
SECTION 6.08. DISQUALIFICATION; CONFLICTING INTERESTS. If the
Trustee has or shall acquire a conflicting interest within the meaning of the
Trust Indenture Act, the Trustee shall either eliminate such interest or
resign, to the extent and in the manner provided by the Trust Indenture Act
and this Indenture.
SECTION 6.09. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. There shall
at all times be a Trustee hereunder which shall be a Person that is eligible
pursuant to the Trust Indenture Act to act as such and has a combined capital
and surplus of at least $50,000,000 and has a Corporate Trust Office in the
United States of America. If such Person publishes reports of condition at
least annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purpose of this Section, the combined
capital and surplus of such Person shall be deemed to be its combined capital
and surplus as set forth in its most recent report of condition so published.
If at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, It shall resign immediately in the manner and
with the effect hereinafter specified in this Article.
SECTION 6.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no
54
<PAGE>
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee under
Section 6.11.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders
of a majority in principal amount of the Outstanding Securities, delivered to
the Trustee and to the Company. If an instrument of acceptance by a
successor Trustee shall not have been delivered to the Trustee within 30 days
after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 6.08 after written
request therefor by the Company or by any Holder who has been a bona fide
Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 6.09 and
shall fail to resign after written request therefor by the Company or by
any such Holder,
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company may remove the Trustee, or (ii)
subject to Section 5.14, any Holder who has been a bona
55
<PAGE>
fide Holder of a Security for at least six months may, on behalf of himself
and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause,
the Company, by a Board Resolution, shall promptly appoint a successor
Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so
appointed by the Company or the Holders and accepted appointment in the
manner hereinafter provided, any Holder who has been a bona fide Holder of a
Security for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Company shall give written notice of each resignation and
each removal of the Trustee and each appointment of a successor Trustee to
all Holders in the manner provided in Section 1.06. Each notice shall
include the name of the successor Trustee and the address of its Corporate
Trust Office.
SECTION 6.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. Every
successor Trustee appointed hereunder shall execute, acknowledge and deliver
to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act,
deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; PROVIDED, that on request of the Company
or the successor Trustee, such retiring Trustee shall, upon payment of its
charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall
duly
56
<PAGE>
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder. Upon request of any such successor
Trustee, the Company shall execute any and all instruments required to more
fully and certainly vest in and confirm to such successor Trustee all such
rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 6.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS. Any Person into which the Trustee may be merged or converted or
with which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
Person succeeding to all or substantially all the corporate trust business of
the Trustee, shall be the successor of the Trustee hereunder, provided such
Person shall be otherwise qualified and eligible under this Article, without
the execution or filing of any paper or any further act on the part of any of
the parties hereto. In the case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
SECTION 6.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
If and when the Trustee shall be or become a creditor of the Company (or any
other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims
against the Company (or any such other obligor).
57
<PAGE>
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 7.01. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
HOLDERS. The Company will furnish or cause to be furnished to the Trustee
(a) semi-annually, not later than January 15 and July 15 in each
year, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of the date not more than 15 days
prior to the delivery thereof, and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the
time such list is furnished;
EXCLUDING from any such list names and addresses received by the Trustee in
its capacity as Security Registrar.
SECTION 7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO
HOLDERS. (a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders contained in the
most recent list furnished to the Trustee as provided in Section 7.01 and the
names and addresses of Holders received by the Trustee in its capacity as
Security Registrar. The Trustee may destroy any list furnished to it as
provided in Section 7.01 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any agent of either of
58
<PAGE>
them shall be held accountable by reason of any disclosure of information as
to names and addresses of Holders made pursuant to the Trust Indenture Act.
SECTION 7.03. REPORTS BY TRUSTEE. (a) Within 60 days after
August 1 of each year, commencing August 1, 1999, the Trustee shall transmit
by first-class mail to Holders such reports concerning the Trustee and its
actions under this Indenture as may be required pursuant to the Trust
Indenture Act in the manner provided pursuant thereto.
(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange
upon which the Securities are listed, if any, with the Company. The Company
will notify the Trustee when the Securities are listed on any stock exchange.
SECTION 7.04. REPORTS BY COMPANY. (a) The Company covenants and
agrees to file with the Trustee, within 15 days after the date on which the
Company is required to file the same with the Commission, copies of the
annual reports and of the information, documents and other reports (or copies
of such portions of any of the foregoing as the Commission may from time to
time by rules and regulations prescribe) which the Company may be required to
file with the Commission pursuant to Section 13 or Section 15(d) of the
Exchange Act; or, if the Company is not required to file information,
documents or reports pursuant to either of such Sections, then to file with
the Trustee such of the supplementary and periodic information, documents and
reports which may be required pursuant to Section 13 of the Exchange Act in
respect of a security listed and registered on a national securities exchange
as may be prescribed from time to time in such rules and regulations.
(b) The Company covenants and agrees to file with the Trustee and
the Commission, in accordance with the rules and regulations prescribed from
time to time by the Commission, such additional information, documents and
reports with respect to compliance by the Company with the conditions and
covenants provided for in this Indenture as may be required from time to time
by such rules and regulations.
59
<PAGE>
(c) The Company covenants and agrees to transmit by mail to all
Holders of Securities, as the names and addresses of such Holders appear upon
the Security Register, within 30 days after the filing thereof with the
Trustee, such summaries of any information, documents and reports required to
be filed by the Company pursuant to subsections (a) and (b) of this Section
7.04 as may be required by rules and regulations prescribed from time to time
by the Commission.
(d) Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein
or determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
(e) So long as is required for an offer or sale of the Securities
to qualify for an exemption under Rule 144A under the Securities Act, the
Company shall, upon request, provide the information required by clause
(d)(4) thereunder to each Holder and to each beneficial owner and prospective
purchaser of Securities identified by any holder of Restricted Securities,
unless such information is furnished to the Commission pursuant to Section 13
or 15(d) of the Exchange Act.
SECTION 7.05. TAX REPORTING. The Company shall provide to the
Trustee on a timely basis such information as the Trustee requires to enable
the Trustee to prepare and file any form required to be submitted by the
Company with the Internal Revenue Service and the Holders relating to
original issue discount, including, without limitation, Form 1099-OID or any
successor form.
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 8.01. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN
TERMS. The Company shall not consolidate with or merge
60
<PAGE>
with or into any other Person or, directly or indirectly, convey, transfer or
lease all or substantially all of its properties and assets on a consolidated
basis to any Person, unless:
(1) in case the Company shall consolidate with or merge with or into
another Person or convey, transfer or lease all or substantially all of its
properties and assets on a consolidated basis to any Person, the Person
formed by such consolidation or into which the Company is merged or the
Person which acquires by conveyance, transfer or lease all or substantially
all of the properties and assets of the Company on a consolidated basis
shall be a corporation, partnership or trust, shall be organized and
validly existing under the laws of the United States of America, any State
thereof or the District of Columbia and shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the Trustee, in
form reasonably satisfactory to the Trustee, the due and punctual payment
of the principal of and interest (including any Additional Payments) on all
the Securities and the performance or observance of every covenant of this
Indenture on the part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction and treating
any indebtedness which becomes an obligation of the Company or a Subsidiary
as a result of such transaction as having been incurred by the Company or
such Subsidiary at the time of such transaction, no Event of Default, and
no event which, after notice or lapse of time or both, would become an
Event of Default, shall have happened and be continuing;
(3) such consolidation or merger or conveyance, transfer or lease of
assets of the Company is permitted under, and does not give rise to any
breach or violation of, the Declaration or the Guarantee; and
(4) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease and, if a supplemental indenture is required
in con-
61
<PAGE>
nection with such transaction, such supplemental indenture, comply
with this Article and that all conditions precedent herein provided for
relating to such transaction have been complied with.
SECTION 8.02. SUCCESSOR SUBSTITUTED. Upon any consolidation of
the Company with, or merger of the Company into, any other Person or any
conveyance, transfer or lease of all or substantially all the properties and
assets of the Company on a consolidated basis in accordance with Section
8.01, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, transfer or lease is made
shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein, and thereafter, except
in the case of a lease, the predecessor Person shall be relieved of all
obligations and covenants under this Indenture and the Securities.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee for any of the following purposes:
(1) to evidence the succession or another Person to the Company and
the assumption by any such successor of the covenants of the Company herein
and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Company; or
(3) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any
62
<PAGE>
other provision herein, or to make any other provisions with respect
to matters or questions arising under this Indenture which shall not
be inconsistent with the provisions of this Indenture; PROVIDED, that
such action pursuant to this clause (3) shall not adversely affect the
interest of the Holders of the Securities or, so long as any of the
Capital Securities shall remain outstanding, the holders of the
Capital Securities; or
(4) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust
Indenture Act; or
(5) to make any other change that does not adversely affect the
rights of any Holder or any holder of Capital Securities (so long as any
are outstanding)
SECTION 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in principal
amount of the outstanding Securities, by Act of said Holders delivered to the
Company and the Trustee, the Company, when authorized by a Board Resolution,
and the Trustee may enter into an indenture or indentures supplemental hereto
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or of modifying in any
manner the rights of the Holders under this Indenture; PROVIDED, HOWEVER,
that no such supplemental indenture shall, without the consent of the Holder
of each Outstanding Security affected thereby,
(1) extend the Stated Maturity Date of the principal of, or any
installment of interest (including any Additional Payments) or premium, if
any, on, any Security, or reduce the principal amount thereof, or reduce
the rate or extend the time for payment of interest thereon, or reduce any
premium payable upon the redemption thereof, or change the place of payment
where, or the coin or currency in which, any Security or interest or
premium, if any, thereon is payable, or impair the right to institute suit
for the enforcement of any such payment on or after the Stated Maturity
Date thereof (or, in the case of redemption, on or
63
<PAGE>
after the Redemption Date), or modify the provisions of this Indenture
with respect to the subordination of the Securities in a manner
adverse to the Holders,
(2) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences provided for in this Indenture,
or
(3) modify any of the provisions of this Section or Section 5.13,
except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security affected thereby.
Notwithstanding anything to the contrary in this Indenture or the
Declaration, if the Property Trustee is the sole holder of the Securities, so
long as any of the Capital Securities remains outstanding, no amendment shall
be made that adversely affects the holders of such Capital Securities, and no
termination of this Indenture shall occur, and no waiver of any Event of
Default or compliance with any covenant under this Indenture shall be
effective, without the prior consent of the holders of the percentage of the
aggregate liquidation amount of such Capital Securities then outstanding
which is at least equal to the percentage of aggregate principal amount of
the Outstanding Securities as shall be required under this Indenture to
effect any such amendment, termination or waiver.
It shall not be necessary for any Act of Holders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Persons entitled to consent to any
indenture supplemental hereto. If a record date is fixed, the Holders on such
record date, or their duly des-
64
<PAGE>
ignated proxies, and only such Persons, shall be entitled to consent to such
supplemental indenture, whether or not such Holders remain Holders after such
record date; PROVIDED, that unless such consent shall have become effective
by virtue of the requisite percentage having been obtained prior to the date
which is 90 days after such record date, any such consent previously given
shall automatically and without further action by any Holder be canceled and
of no further effect.
SECTION 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing,
or accepting the additional trusts created by, any supplemental indenture
permitted by this Article or the modifications thereby of the trusts created
by this Indenture, the Trustee shall be entitled to receive, and (subject to
Section 6.01) shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
SECTION 9.04. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the
execution of any supplemental indenture under this Article, this Indenture
shall be modified in accordance therewith, and such supplemental indenture
shall form a part of this Indenture for all purposes; and every Holder of
Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby. No such supplemental indenture shall directly or
indirectly modify the provisions of Article XII in any manner which might
terminate or impair the rights of the Senior Indebtedness pursuant to such
subordination provisions.
SECTION 9.05. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so
determine, new Securities so modified as to conform, in the opinion of the
Trustee and the Company, to any such supplemental indenture may
65
<PAGE>
be prepared and executed by the Company and authenticated and delivered by
the Trustee in exchange for Outstanding Securities.
ARTICLE X
COVENANTS; REPRESENTATIONS AND WARRANTIES
SECTION 10.01. PAYMENT OF PRINCIPAL AND INTEREST. The Company
will duly and punctually pay the principal of and interest on the Securities
in accordance with the terms of the Securities and this Indenture.
SECTION 10.02. MAINTENANCE OF OFFICE OR AGENCY. The Company will
maintain in the United States an office or agency where Securities may be
presented or surrendered for payment, where Securities may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Securities and this Indenture may be served.
The Company will give prompt written notice to the Trustee of the location,
and any change in the location, of such office or agency. If at any time the
Company shall fail to maintain any such required office or agency or shall
fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, and the Company hereby appoints the Trustee as its
agent to receive all such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in the United States) where the Securities may be
presented or surrendered for any or all such purposes and may from time to
time rescind such designations; PROVIDED, HOWEVER, that no such designation
or rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in the United States for such purposes. The
Company will give prompt written notice to the Trustee of any such
designation or rescission and of any change in the location of any such other
office or agency.
66
<PAGE>
SECTION 10.03. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent, it will, on or
before each due date of the principal of or interest on any of the
Securities, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal or interest so
becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided and will promptly notify the Trustee of its
action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will,
prior to each due date of the principal or interest on any Securities,
deposit with a Paying Agent a sum sufficient to pay the principal, premium,
if any, or interest so becoming due, such sum to be held as provided by the
Trust Indenture Act, and (unless such Paying Agent is the Trustee) the
Company will promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will (i) comply with the provisions of the Trust Indenture
Act applicable to it as a Paying Agent and (ii) during the continuance of any
default by the Company (or any other obligor upon the Securities) in the
making of any payment in respect of the Securities, upon the written request
of the Trustee, forthwith pay to the Trustee all sums held in trust by such
Paying Agent as such.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay,
or by Company Order direct any Paying Agent to pay, to the Trustee all sums
held in trust by the Company or such Paying Agent, such sums to be held by
the Trustee upon the same trusts as those upon which such sums were held by
the Company or such Paying Agent; and, upon such payment by any Paying Agent
to the Trustee, such Paying Agent shall be released from all further
liability with respect to such money.
67
<PAGE>
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of or interest
or premium, if any, on any Security and remaining unclaimed for two years
after such principal or interest or premium, if any, has become due and
payable shall be paid to the Company on Company Request, or (if then held by
the Company) shall be discharged from such trust; and the Holder of any such
Security shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease.
SECTION 10.04. STATEMENT BY OFFICERS AS TO DEFAULT. The Company
will deliver to the Trustee and the Property Trustee, within 120 days after
the end of each fiscal year of the Company ending after the date hereof, an
Officers' Certificate, stating whether or not to the best knowledge of the
signers thereof the Company is in default in the performance and observance
of any of the material terms, provisions and conditions of this Indenture
(without regard to any period of grace or requirement of notice provided
hereunder) and, if the Company shall be in default, specifying all such
defaults and the nature and status thereof of which they may have knowledge.
SECTION 10.05. LIMITATION ON DIVIDENDS; TRANSACTIONS WITH
AFFILIATES; COVENANTS AS TO THE TRUST. (a) If (i) there shall have occurred
any event that with the giving of notice or the lapse of time or both, would
constitute an Event of Default hereunder, (ii) the Company shall be in
default with respect to its payment of any obligations under the Guarantee or
(iii) the Company shall have given notice of its selection of a Deferral
Period as provided herein and such period, or any extension thereof, shall be
continuing, the Company (A) shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock, (B) shall not
make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities issued by the Company that rank PARI
PASSU with or junior to the Securities, and (C) shall not make any guarantee
payments with respect to the
68
<PAGE>
foregoing (other than (1) dividends or distribution in shares of, or options,
warrants or rights to subscribe for or purchase shares of, common stock of
the Company; (2) 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; (3) payments under the Guarantee; (4) as a result of
a reclassification of the Company's capital stock or the exchange or the
conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock; (5) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged; and (6) purchases of common stock in connection with
the satisfaction by the Company of its obligations (including purchases
related to the issuance of common stock or rights) under any of the Company's
benefit plans for its and its subsidiaries' directors, officers or employees
or any of the Company's dividend reinvestment plans).
(b) The Company also covenants and agrees (i) that it shall
directly maintain 100% ownership of the Common Securities of the Trust;
PROVIDED, HOWEVER, that any permitted successor of the Company hereunder may
succeed to the Company's ownership of such Common Securities and (ii) that it
shall use its reasonable efforts, consistent with the terms and provisions of
the Declaration, to cause the Trust (x) to remain a statutory business trust,
except in connection with the distribution of the Securities to the holders
of the Trust Securities in liquidation of the Trust, the redemption of all of
the Trust Securities of the Trust, or certain mergers, consolidations or
amalgamations, each as permitted by the Declaration, and (y) to otherwise
continue to be classified as a grantor trust for United States federal income
tax purposes.
SECTION 10.06. PAYMENT OF EXPENSES OF THE TRUST. In connection
with the offering, sale and issuance of the Securities to the Property
Trustee in connection with the sale of the Trust Securities by the Trust, the
Company, in its capacity as borrower with respect to the Securities, shall:
69
<PAGE>
(a) pay for all costs, fees and expenses relating to the offering,
sale and issuance of the Securities, including commissions or other
compensation to the Purchasers payable pursuant to the Purchase Agreement
and compensation of the Trustee under this Indenture in accordance with the
provisions of Section 6.07 of this Indenture;
(b) be responsible for and pay for all debts and obligations (other
than with respect to the Trust Securities) of the Trust, pay for all costs
and expenses of the Trust (including, but not limited to, costs and
expenses relating to the organization of the Trust, the offering, sale and
issuance of the Trust Securities (including commissions or other
compensation to, and indemnification of, the Purchasers in connection
therewith), the fees and expenses of the Property Trustee and the Delaware
Trustee, the costs and expenses relating to the operation of the Trust,
including without limitation, costs and expenses of accountants, attorneys,
statistical or bookkeeping services, expenses for printing and engraving
and computing or accounting equipment, paying agent(s), registrar(s),
transfer agent(s), duplicating, travel and telephone and other
telecommunications expenses and costs and expenses incurred in connection
with the acquisition, financing, and disposition of Trust assets);
(c) be primarily liable for any indemnification obligations arising
with respect to the Declaration; and
(d) pay any and all taxes (other than United States withholding taxes
attributable to the Trust or its assets) and all liabilities, costs and
expenses with respect to such taxes of the Trust.
70
<PAGE>
ARTICLE XI
REDEMPTION OF SECURITIES
SECTION 11.01. RIGHT OF REDEMPTION. The Securities may be
redeemed at the election of the Company, (a) as a whole or in part, at any
time or from time to time, at the Redemption Price set forth in Section 11.09
below and (b) in certain circumstances upon the occurrence of a Special Event
at the Special Event Redemption Price set forth in Section 11.10 below.
SECTION 11.02. APPLICABILITY OF ARTICLE. Redemption of Securities
at the election of the Company, as permitted by Section 11.01, shall be made
in accordance with this Article.
SECTION 11.03. ELECTION TO REDEEM; NOTICE TO TRUSTEE. The
election of the Company to redeem Securities pursuant to Section 11.01 shall
be evidenced by a Board Resolution. In case of any redemption at the
election of the Company, the Company shall, at least 60 days and no more than
90 days prior to the Redemption Date fixed by the Company, notify the Trustee
in writing of such Redemption Date and of the principal amount of Securities
to be redeemed and provide a copy of the notice of redemption given to
Holders of Securities to be redeemed pursuant to Section 11.05.
SECTION 11.04. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.
If less than all the Securities are to be redeemed (unless such redemption
affects only a single Security), the particular Securities to be redeemed
shall be selected not more than 60 days prior to the Redemption Date by the
Trustee, from the Outstanding Securities not previously called for
redemption, by such method (including, without limitation, pro rata or by
lot) as the Trustee shall deem fair and appropriate.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption as aforesaid and, in case of any
Securities selected for partial redemption as aforesaid, the principal amount
thereof to be redeemed.
71
<PAGE>
The provisions of the two preceding paragraphs shall not apply with
respect to any redemption affecting only a single Security, whether such
Security is to be redeemed in whole or in part. In the case of any such
redemption in part, the unredeemed portion of the principal amount of the
Security shall be in an authorized denomination (which shall not be less than
the minimum authorized denomination) for such Security.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall
relate, in the case of any Securities redeemed or to be redeemed only in
part, to the portion of the principal amount of such Securities which has
been or is to be redeemed.
SECTION 11.05. NOTICE OF REDEMPTION. Notice of redemption shall
be given by first-class mail, postage prepaid mailed not less than 30 nor
more than 60 days prior to the Redemption Date, to each Holder of Securities
to be redeemed, at such Holder's address appearing in the Security Register.
All notices of redemption shall identify the Securities to be
redeemed (including, if relevant, CUSIP or ISIN number) and shall state:
(1) the Redemption Date,
(2) the Redemption Price (or Special Event Redemption Price in the
case of a redemption pursuant to a Special Event),
(3) that on the Redemption Date the Redemption Price (or Special
Event Redemption Price in the case of a redemption pursuant to a Special
Event) will become due and payable upon each such Security to be redeemed
and that interest thereon will cease to accrue on and after said date, and
(4) the place or places where such Securities are to be surrendered
for payment of the Redemption Price (or Special Event Redemption Price in
the case of a redemption pursuant to a Special Event).
72
<PAGE>
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 11.06. DEPOSIT OF REDEMPTION PRICE. Prior to any
Redemption Date, the Company shall deposit with the Trustee or with a Paying
Agent (or, if the Company is acting as its own Paying Agent, segregate and
hold in trust as provided in Section 10.03) an amount of money sufficient to
pay the Redemption Price (or Special Event Redemption Price in the case of a
redemption pursuant to a Special Event) of, and (except if the Redemption
Date shall be an Interest Payment Date) accrued interest on, all the
Securities which are to be redeemed on that date.
SECTION 11.07. SECURITIES PAYABLE ON REDEMPTION DATE. Notice of
redemption having been given as aforesaid, the Securities so to be redeemed
shall, on the Redemption Date, become due and payable at the Redemption Price
(or Special Event Redemption Price in the case of a redemption pursuant to a
Special Event) therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price (or Special
Event Redemption Price in the case of a redemption pursuant to a Special
Event) and accrued interest) such Securities shall cease to bear interest.
Upon surrender of any such Security for redemption in accordance with said
notice, such Security shall be paid by the Company at the Redemption Price
(or Special Event Redemption Price in the case of a redemption pursuant to a
Special Event), together with accrued interest (including Additional
Payments, if any) to the Redemption Date; PROVIDED, HOWEVER, that
installments of interest whose Stated Maturity Date is on or prior to the
Redemption Date shall be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such at the close of business on
the relevant Record Dates according to the terms and the provisions of
Section 3.07.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal shall,
73
<PAGE>
until paid, bear interest from the Redemption Date at the rate borne by the
Security.
SECTION 11.08. SECURITIES REDEEMED IN PART. In the event of any
redemption in part, the Company shall not be required to (i) issue, register
the transfer of or exchange any Security during a period beginning at the
opening of business 15 days before any selection for redemption of Securities
and ending at the close of business on the earliest date in which the
relevant notice of redemption is deemed to have been given to all Holders of
Securities to be so redeemed and (ii) register the transfer of or exchange
any Securities so selected for redemption, in whole or in part, except for
the unredeemed portion of any Securities being redeemed in part.
Any Security which is to be redeemed only in part shall be
surrendered at a place of payment therefor (with, if the Company or the
Trustee so requires, due endorsement by, or a written instrument of transfer
in form satisfactory to the Company and the Trustee duly executed by, the
Holder thereof or his attorney duly authorized in writing), and the Company
shall execute, and the Trustee shall authenticate and make available for
delivery to the Holder of such Security without service charge, a new
Security or Securities, of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.
SECTION 11.09. OPTIONAL REDEMPTION. (a) Subject to the
provisions of this Article XI, the Company shall have the right to redeem the
Securities, in whole or in part, at any time or from time to time, after the
issuance of the Capital Securities, at a redemption price equal to 100% of
the principal amount of Securities to be redeemed plus the Make-Whole
Premium, if any, plus any accrued and unpaid interest thereon (including
Compounded Interest, if any) and Additional Interest, if any, to the date of
such redemption (collectively, the "Redemption Price"). The Make-Whole
Premium means the excess, if any, of (x) the sum, as determined by a
Quotation Agent, of the present values of (i) the scheduled payment at the
Stated Maturity Date of the principal amount to be redeemed plus (ii)
scheduled
74
<PAGE>
payments of interest on such principal amount (including any Compounded
Interest) from the redemption date to the Stated Maturity Date (the
"Remaining Life"), in each case discounted to the redemption date on a
semi-annual basis (assuming a 360-day year consisting of twelve 30-day
months) at the Adjusted Treasury Rate, over (y) 100% of the principal amount
of Securities to be redeemed. Any redemption pursuant to this paragraph will
be made upon not less than 30 days nor more than 60 days notice to the Holder
of the Securities, at the Redemption Price. The Redemption Price shall be
paid prior to 1:00 p.m., New York time, on the date of such redemption or at
such earlier time as the Company determines and specifies in the notice of
redemption; PROVIDED, that, the Company shall deposit with the Trustee an
amount sufficient to pay the Redemption Price by 11:00 a.m., New York time,
on the date such Redemption Price is to be paid.
(b) If a partial redemption of the Securities would result in the
delisting of the Capital Securities issued by the Trust from any national
securities exchange or other organization on which the Capital Securities are
listed, the Company shall not be permitted to effect such partial redemption
and may only redeem the Securities in whole.
(c) The Company may not redeem fewer than all of the Outstanding
Securities unless all accrued and unpaid interest (including Additional
Payments) on the Securities has been paid as of the Interest Payment Date
next preceding the Redemption Date.
SECTION 11.10. SPECIAL EVENT REDEMPTION. If a Special Event has
occurred and is continuing, then, notwithstanding Section 11.09(a), the
Company shall have the right upon not less than 30 days nor more than 60 days
notice to the Holders of the Securities to redeem the Securities in whole
(but not in part) at anytime within 90 days after such Special Event (the "90
Day Period"), at a redemption price equal to the Special Event Redemption
Price which shall be computed in the same manner as the Redemption Price,
except that the Make-Whole Premium shall be calculated using the Special
Event Adjusted Treasury Rate rather than the Adjusted Treasury Rate (the
"Special Event Make-Whole Premium"). The Special Event Redemption Price
shall be paid
75
<PAGE>
prior to 1:00 p.m., New York time, on the date of such redemption or such
earlier time as the Company determines; PROVIDED, that, the Company shall
deposit with the Trustee an amount sufficient to pay the Special Event
Redemption Price by 11:00 a.m., New York time, on the date such Special Event
Redemption Price is to be paid.
ARTICLE XII
SUBORDINATION OF SECURITIES
SECTION 12.01. AGREEMENT TO SUBORDINATE. The Company covenants
and agrees, and each Holder of Securities by such Holder's acceptance thereof
likewise covenants and agrees, that all Securities shall be issued subject to
the provisions of this Article XII; and each Holder of a security, whether
upon original issue or upon transfer or assignment thereof, accepts and
agrees to be bound by such provisions. The payment by the Company of the
principal of, premium, if any, and interest (including Additional Payments)
on all Securities issued hereunder shall, to the extent and in the manner
hereinafter set forth, be subordinated and junior in right of payment to the
prior payment in full of all Senior Indebtedness, whether outstanding at the
date of this Indenture or thereafter incurred; PROVIDED, HOWEVER, that no
provision of this Article XII shall prevent the occurrence of any default or
Event of Default hereunder.
SECTION 12.02. DEFAULT ON SENIOR INDEBTEDNESS. In the event and
during the continuation of any default by the Company in the payment of
principal, premium, interest or any other payment due on any Senior
Indebtedness continuing beyond the period of grace, if any, specified in the
instrument evidencing such Senior Indebtedness, unless and until such default
shall have been cured or waived or shall have ceased to exist, and in the
event that the maturity of any Senior Indebtedness has been accelerated
because of a default, then no payment shall be made by the Company with
respect to the principal of (including redemption payments), premium, if any,
or interest on the Securities.
76
<PAGE>
In the event that, notwithstanding the foregoing, any payment shall
be received by the Trustee when such payment prohibited by the preceding
paragraph of this Section 12.02, such payment shall be held in trust for the
benefit of, and shall be paid over or delivered to, the holders of Senior
Indebtedness or their respective representatives or to the trustee or
trustees under any indenture pursuant to which any of such Senior
Indebtedness may have been issued, as their respective interests may appear
but only to the extent that the holders of the Senior Indebtedness (or their
representative or representatives or a trustee) notify the Trustee in writing
within 90 days of such payment of the amounts then due and owing on the
Senior Indebtedness and only the amount specified in such notice to the
Trustee shall be paid to the holders of Senior Indebtedness.
SECTION 12.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any
payment by the Company or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, to creditors upon any
dissolution or winding up or liquidation or reorganization of the Company,
whether voluntary or involuntary, or in bankruptcy, insolvency, receivership
or other proceedings, all amounts (including principal, premium, if any, and
interest) due or to become due upon all Senior Indebtedness shall first be
paid in full, or payment thereof provided for in money in accordance with
their terms, before any payment is made on account of the principal (and
premium, if any) or interest on the Securities; and upon any such dissolution
or winding up or liquidation or reorganization, any payment by the Company,
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities, to which the Holders of the Securities or the
Trustee would be entitled, except for the provisions of this Article XII,
shall be paid by the Company or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other Person making such payment or
distribution, or by the Holders of the Securities or by the Trustee under
this Indenture if received by them or it, directly to the holders of Senior
Indebtedness (pro rata to such holders on the basis of the respective amounts
of Senior Indebtedness held by such holders, as calculated by the Company) or
their representative or representatives, or to the trustee or trustees under
any indenture pursuant to which any instruments evidencing
77
<PAGE>
such Senior Indebtedness may have been issued, as their respective interests
may appear, to the extent necessary to pay such Senior Indebtedness in full,
in money or money's worth, after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness, before any
payment or distribution is made to the Holders of Securities or to the
Trustee.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in
cash, property or securities, prohibited by the foregoing, shall be received
by the Trustee or the Holders of the Securities before all Senior
Indebtedness is paid in full, or provision is made for such payment in money
in accordance with its terms, such payment or distribution shall be held in
trust for the benefit of and shall be paid over or delivered to the holders
of Senior Indebtedness or their representative or representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing such Senior Indebtedness may have been issued, and their
respective interests may appear, as calculated by the Company, for
application to the payment of all Senior Indebtedness remaining unpaid to the
extent necessary to pay such Senior Indebtedness in full in money in
accordance with its terms, after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness.
For purposes of this Article XII, the words, "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinated at least to the extent provided in this
Article XII with respect to the Securities to the payment of all Senior
Indebtedness which may at the time be outstanding; PROVIDED, that (i) such
Senior Indebtedness is assumed by the new corporation, if any, resulting from
any such reorganization or readjustment, and (ii) the rights of the holders
of such Senior Indebtedness are not, without the consent of such holders,
altered by such reorganization or readjustment. The consolidation of the
Company with, or the merger of the Company with or into, another Person
78
<PAGE>
or the liquidation or dissolution of the Company following the conveyance,
transfer or lease of all or substantially all its properties and assets on a
consolidated basis to another Person upon the terms and conditions provided
for in Article VIII hereof shall not be deemed a dissolution, winding up,
liquidation or reorganization for the purposes of this Section 12.03 if such
other Person shall, as a part of such consolidation, merger, conveyance,
transfer or lease, comply with the conditions stated in Article VIII hereof.
Nothing in Section 12.02 or in this Section 12.03 shall apply to claims of,
or payments to, the Trustee under or pursuant to Section 6.07 hereof.
SECTION 12.04. SUBROGATION. Subject to the payment in full of all
Senior Indebtedness, the rights of the Holders of the Securities shall be
subrogated to the rights of the holders of such Senior Indebtedness to
receive payments or distributions of cash, property or securities of the
Company, as the case may be, applicable to such Senior Indebtedness until the
principal of (and premium, if any) and interest on the Securities shall be
paid in full; and, for the purposes of such subrogation, no payments or
distributions to the holders of such Senior Indebtedness of any cash,
property or securities to which the Holders of the Securities or the Trustee
would be entitled except for the provisions of this Article XII, to or for
the benefit of the holders of such Senior Indebtedness by Holders of the
Securities or the Trustee, shall, as between the Company, its creditors other
than holders of Senior Indebtedness, and the Holders of the Securities, be
deemed to be a payment by the Company to or on account of such Senior
Indebtedness. It is understood that the provisions of this Article XII are
and are intended solely for the purposes of defining the relative rights of
the Holders of the Securities, on the one hand, and the holders of such
Senior Indebtedness on the other hand.
Nothing contained in this Article XII or elsewhere in this
Indenture or in the Securities is intended to or shall impair, as between the
Company, its creditors other than the holders of Senior Indebtedness, and the
Holders of the Securities, the obligation of the Company, which is absolute
and unconditional, to pay to the Holders of the Securities the principal of
(and premium, if any) and interest on the Securities
79
<PAGE>
as and when the same shall become due and payable in accordance with their
terms, or is intended to or shall affect the relative rights of the Holders
of the Securities and creditors of the Company, as the case may be, other
than the holders of Senior Indebtedness, nor shall anything herein or therein
prevent the Trustee or the Holder of any Security from exercising all
remedies otherwise permitted by applicable law upon default under this
Indenture, subject to the rights, if any, under this Article XII of the
holders of such Senior Indebtedness in respect of cash, property or
securities of the Company, as the case may be, received upon the exercise of
any such remedy.
Upon any payment or distribution of assets of the Company referred
to in this Article XII, the Trustee, subject to the provisions of Sections
6.01 and 6.03, and the Holders of the Securities, shall be entitled to rely
upon any order or decree made by any court of competent liquidation in which
such dissolution, winding up, liquidation or reorganization proceedings are
pending, or a certificate of the receiver, trustee in bankruptcy, liquidation
trustee, agent or other Person making such payment or distribution, delivered
to the Trustee or to the Holders of the Securities, for the purposes of
ascertaining the Persons entitled to participate in such distribution, the
holders of the Senior Indebtedness and other indebtedness of the Company, as
the case may be, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to this
Article XII.
SECTION 12.05. TRUSTEE TO EFFECTUATE SUBORDINATION. Each Holder
of Securities by such Holder's acceptance thereof authorizes and directs the
Trustee on such Holder's behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article XII and
appoints the Trustee as such Holder's attorney-in-fact for any and all such
purposes.
SECTION 12.06. NOTICE BY THE COMPANY. The Company shall give
prompt written notice to a Responsible Officer of the Trustee of any fact
known to the Company which would prohibit the making of any payment of monies
to or by the Trustee in respect of the Securities pursuant to the provisions
of this Article XII.
80
<PAGE>
Notwithstanding the provisions of this Article XII or any other provision of
this Indenture, the Trustee shall not be charged with knowledge of the
existence of any facts which would prohibit the making of any payment of
monies to or by the Trustee in respect of the Securities pursuant to the
provisions of this Article XII, unless and until a Responsible Officer of the
Trustee shall have received written notice thereof at the Corporate Trust
Office of the Trustee from the Company or a holder or holders of Senior
Indebtedness or from any trustee therefor; and, before the receipt of any
such written notice, the Trustee, subject to the provisions of Section 6.03
hereof, shall be entitled in all respects to assume that no such facts exist;
PROVIDED, HOWEVER, that if the Trustee shall not have received the notice
provided for in this Section 12.06 at least two Business Days prior to the
date upon which by the terms hereof any money may become payable for any
purpose (including, without limitation, the payment of the principal of (and
premium, if any) or interest on any Security), then, anything herein
contained to the contrary notwithstanding, the Trustee shall have full power
and authority to receive such monies and to apply the same to the purposes
for which they were received, and shall not be affected by any notice to the
contrary which may be received by it within two Business Days prior to such
date.
The Trustee, subject to the provisions of Sections 6.01 and 6.03,
shall be entitled to rely on the delivery to it of a written notice by a
Person representing himself to be a holder of Senior Indebtedness (or a
trustee on behalf of such holder) to establish that such notice has been
given by a holder of such Senior Indebtedness or a trustee on behalf of any
such holder or holders. In the event that the Trustee determines in good
faith that further evidence is required with respect to the right of any
Person as a holder of Senior Indebtedness to participate in any payment or
distribution pursuant to this Article XII, the Trustee may request such
Person to furnish evidence to the reasonable satisfaction of the Trustee as
to the amount of Senior Indebtedness held by such Person, the extent to which
such Person is entitled to participate in such payment or distribution and
any other facts pertinent to the right of such Person under this Article XII,
and, if such evidence is not furnished, the Trustee
81
<PAGE>
may defer any payment to such Person pending judicial determination as to the
right of such Person to receive such payment.
SECTION 12.07. RIGHTS OF THE TRUSTEE: HOLDERS OF SENIOR
INDEBTEDNESS. The Trustee in its individual capacity shall be entitled to
all the rights set forth in this Article XII in respect of any Senior
Indebtedness at any time held by it, to the same extent as any other holder
of Senior Indebtedness, and nothing in this Indenture shall deprive the
Trustee of any of its rights as such holder.
With respect to the holders of Senior Indebtedness of the Company,
the Trustee undertakes to perform or to observe only such of its covenants
and obligations as are set forth in this Article XII, and no implied
covenants or obligations with respect to the holders of such Senior
Indebtedness shall be read into this Indenture against the Trustee. The
Trustee shall not be deemed to owe any fiduciary duty to the holders of such
Senior Indebtedness and, subject to the provisions of Section 6.03, the
Trustee shall not be liable to any holder of such Senior Indebtedness if it
shall pay over or deliver to Holders of Securities, the Company or any other
Person money or assets to which any holder of such Senior Indebtedness shall
be entitled by virtue of this Article XII or otherwise.
SECTION 12.08. SUBORDINATION MAY NOT BE IMPAIRED. No right of any
present or future holder of any Senior Indebtedness to enforce subordination
as herein provided shall at any time in any way be prejudiced or impaired by
any act or failure to act on the part of the Company or by any act or failure
to act, in good faith, by any such Holders or by any noncompliance by the
Company with the terms provisions and covenants of this Indenture, regardless
of any knowledge thereof which any such holder may have or otherwise be
charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness may, at any time and from time
to time, without the consent of or notice to the Trustee or the Holders of
the Securities, without incurring responsibility to the Holders of the
Securities and without impairing or releasing the subordination provided in
this
82
<PAGE>
Article XII or the obligations hereunder of the Holders of the Securities to
the holders of Senior Indebtedness, do any one or more of the following: (i)
change the manner, place or terms of payment or extend the time of payment
of, or renew or alter, such Senior Indebtedness, or otherwise amend or
supplement in any manner such Senior Indebtedness or any instrument
evidencing the same or any agreement under which such Senior Indebtedness is
outstanding; (ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing such Senior Indebtedness; (iii)
release any Person liable in any manner for the collection of such Senior
Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Company and any other person.
___________________________
This instrument may be executed in any number of counterparts, each
of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
83
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed, and their respective corporate seals to be hereunto
affixed and attested, all as of the day and year first above written.
ZENITH NATIONAL INSURANCE CORP.
By: /s/ Stanley R. Zax
-------------------------------
Stanley R. Zax
Chairman and President
Attest:
/s/ John J. Tickner
- ----------------------------
John J. Tickner, Secretary
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as
Indenture Trustee
By: /s/ Jane Y. Schweiger
----------------------------
Jane Y. Schweiger
Corporate Trust Officer
Attest:
/s/ [illegible]
- ----------------------------
<PAGE>
EXHIBIT A-1
FORM OF SECURITY
[FORM OF FACE OF SECURITY]
[IF THE DEBENTURE IS TO BE A GLOBAL DEBENTURE INSERT - This Debenture
is a Global Debenture within the meaning of the Indenture hereinafter referred
to and is registered in the name of Norwest Bank Minnesota, National Association
("Norwest") or a nominee of Norwest. This Debenture is exchangeable for
Debentures registered in the name of a person other than Norwest or its nominee
only in the limited circumstances described in the Indenture and no transfer of
this Debenture (other than a transfer of this Debenture as a whole by Norwest to
a nominee of Norwest or by a nominee of Norwest to Norwest or another nominee of
Norwest) may be registered except in limited circumstances.
Unless this Debenture certificate is presented by an authorized
representative of Norwest to the Trust or its agent for registration of
transfer, exchange or payment, and any Debenture certificate issued is
registered in the name of Cede & Co. or such other name as requested by an
authorized representative of Norwest (and any payment hereon is made to Cede &
Co. or to such other entity as is requested by an authorized representative of
Norwest), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an
interest herein].
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS OR ANY
OTHER APPLICABLE SECURITIES LAW. NEITHER THIS DEBENTURE NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
<PAGE>
THE HOLDER OF THIS DEBENTURE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER THIS DEBENTURE ONLY (A) TO THE COMPANY, (B) PURSUANT
TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) SO LONG AS THIS DEBENTURE IS ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 or 904
UNDER THE SECURITIES ACT, (E) PURSUANT TO AN EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF APPLICABLE) OR (F) PURSUANT TO
ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE
SECURITIES ACT, SUBJECT TO THE RIGHT OF THE TRUST AND THE COMPANY PRIOR TO ANY
SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (E) OR (F) TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM AND (ii) IN EACH OF CASES (B) THROUGH (F) IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM
THIS DEBENTURE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND.
THE HOLDER OF THIS DEBENTURE BY ITS ACCEPTANCE HEREOF ALSO AGREES,
REPRESENTS AND WARRANTS THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN
SUBJECT TO THE "PROHIBITED TRANSACTIONS" PROVISIONS OF SECTION 406 OF THE
EMPLOYMENT RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA") OR
SECTION 4975 OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED ("THE CODE")
AND IS NOT USING THE ASSETS OF ANY SUCH PLAN TO ACQUIRE THIS DEBENTURE OR
(ii) THE ACQUISITION AND HOLDING OF THIS DEBENTURE BY IT IS NOT PROHIBITED BY
EITHER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE, OR IS EXEMPT FROM ANY
SUCH PROHIBITION BY APPLICATION OF A STATUTORY, REGULATORY OR ADMINISTRATIVE
EXEMPTION.
THIS DEBENTURE WILL BE ISSUED, AND MAY BE TRANSFERRED, ONLY IN BLOCKS
HAVING A PRINCIPAL AMOUNT (BEFORE GIVING EFFECT TO ANY PARTIAL REDEMPTION) OF
NOT LESS THAN $100,000. ANY TRANSFER,
2
<PAGE>
SALE OR OTHER DISPOSITION OF THE DEBENTURES IN A BLOCK HAVING A PRINCIPAL
AMOUNT (BEFORE GIVING EFFECT TO ANY PARTIAL REDEMPTION)OF LESS THAN $100,000
SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH
TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF SUCH DEBENTURES FOR ANY
PURPOSE, INCLUDING BUT NOT LIMITED TO THE RECEIPT OF DISTRIBUTIONS ON SUCH
DEBENTURES, AND SUCH TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST
WHATSOEVER IN SUCH DEBENTURES.
8.55% Subordinated
Deferrable Interest Debenture due 2028
No. $
CUSIP No.
ZENITH NATIONAL INSURANCE CORP., a corporation duly organized and
existing under the laws of the State of Delaware (herein called the "Company",
which term includes any successor corporation under the Indenture hereinafter
referred to), pursuant to an indenture, dated as of July 30, 1998 (the
"Indenture") and for value received, hereby promises to pay to ,
or registered assigns, the principal sum [indicated on Schedule A-1 hereof(1)]
[of ______________________ Dollars ($_________)(2)] on _______, ____.
Interest Payment Dates: February 1 and August 1, commencing February 1, 1999
Regular Record Dates: the close of business on the fifteenth day of the
month next preceding the month in which the Interest
Payment Date occurs, commencing January 15, 1999
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further
- ---------------
(1) To be used for Global Debenture.
(2) To be used for Certificated Debentures.
3
<PAGE>
provisions shall for all purposes have the same effect as if set forth at
this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
signed manually or by facsimile by its duly authorized officers and a facsimile
of its corporate seal to be affixed hereto or imprinted hereon.
Dated:
ZENITH NATIONAL INSURANCE CORP.
By:
----------------------------
Name:
Title:
By:
----------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned
Indenture.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as Trustee
By:
----------------------------
Authorized Signatory
5
<PAGE>
[FORM OF REVERSE OF SECURITY]
ZENITH NATIONAL INSURANCE CORP.
8.55% Subordinated
Deferrable Interest Debenture due 2028(1)
1. INTEREST. Zenith National Insurance Corp., a Delaware
corporation (the "Company"), is the issuer of this 8.55% Subordinated
Deferrable Interest Debenture due 2028 (the "Security") limited in aggregate
principal amount to $77,320,000, issued under the Indenture hereinafter
referred to. The Company promises to pay interest on the Security in cash
from July 30, 1998 or from the most recent interest payment date to which
interest has been paid or duly provided for, semi-annually (subject to
deferral for up to 10 consecutive semi-annual periods as described in Section
3 hereof) in arrears on February 1 and August 1 of each year (each such date,
an "Interest Payment Date"), commencing February 1, 1999, at the rate of
8.55% per annum PLUS Additional Payments, if any, until the principal hereof
shall have become due and payable.
The amount of interest payable for any period will be computed on
the basis of twelve 30-day months and a 360-day year and, for any period of
less than a full calendar month, the number of days elapsed in such month.
To the extent lawful, the Company shall pay interest (including post-petition
interest in any proceeding under any bankruptcy or similar law) on overdue
installments of interest (without regard to any applicable grace period) at
the rate borne by the Securities, compounded semi-annually.
- ------------------
1. All terms used in this Security which are defined in the Indenture or in
the Declaration referred to therein shall have the meanings assigned to them
in the Indenture or the Declaration, as each is defined herein, as the case
may be.
<PAGE>
Any interest paid on this Security shall be increased to the extent
necessary to pay Additional Payments as set forth in this Security.
2. ADDITIONAL INTEREST. The Company shall pay to Zenith National
Insurance Capital Trust I (and its permitted successors or assigns under the
Declaration) (the "Trust") the Additional Interest.
3. EXTENSION OF INTEREST PAYMENT PERIOD. So long as no Event of
Default (or an event which would be an Event of Default with the giving of
required notice or the passage of time) has occurred and is continuing, the
Company shall have the right, at any time during the term of this Security,
from time to time to defer payments of interest by deferring the interest
payment period of such Security for up to 10 consecutive semi-annual periods
(each a "Deferral Period"). To the extent permitted by applicable law,
interest, the payment of which has been deferred because of the deferral of
the interest payment period pursuant to Section 3.12 of the Indenture, will
bear interest thereon at 8.55% compounded semi-annually for each semi-annual
period of the Deferral Period ("Compounded Interest"). At the end of the
Deferral Period, the Company shall pay all interest then accrued and unpaid
on the Securities including any Compounded Interest that shall be payable to
the Holders of the Securities in whose names the Securities are registered in
the Security Register on the first Regular Record Date (as defined herein)
after the end of the Deferral Period. Before the termination of any Deferral
Period, the Company may further extend such period so long as no Event of
Default (or an event which would be an Event of Default with the giving of
required notice or the passage of time) has occurred and is continuing;
PROVIDED, that such period together with all such further extensions thereof
shall not exceed 10 consecutive semi-annual periods or extend beyond the
Maturity of the Security. Upon the termination of any Deferral Period and
upon the payment of all interest and Additional Payments, if any, then due,
the Company may commence a new Deferral Period, subject to the foregoing
requirements. No interest shall be due and payable during a Deferral Period
except at the end thereof.
2
<PAGE>
If the Property Trustee is the sole holder of the Security, the
Company shall give the Holder of the Security and the Trustee notice of its
selection of a Deferral Period at least one Business Day prior to the earlier of
(i) the Interest Payment Date or (ii) the date the Trust is required to give
notice to any applicable self-regulatory organization or to holders of the
Capital Securities on the record date or the date such distributions are
payable, but in any event not less than ten Business Days prior to such record
date.
If the Property Trustee is not the sole holder of the Securities, the
Company shall give the Holders of this Security and the Trustee notice of its
selection of a Deferral Period at least ten Business Days prior to the earlier
of (i) the Interest Payment Date or (ii) the date the Trust is required to give
notice to any applicable self-regulatory organization or to holders of the
Securities on the record date or the date such distributions are payable, but in
any event not less than two Business Days prior to such record date.
The semi-annual period in which any notice is given pursuant to the
second and third paragraphs of this Section 3 shall be counted as one of the 10
semi-annual periods permitted in the maximum Deferral Period permitted under the
first paragraph of this Section 3.
4. METHOD OF PAYMENT. The interest so payable, and punctually paid
or duly provided for, on any Interest Payment Date will, as provided in the
Indenture, be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest installment, which shall be the close of business
on the fifteenth day of the month next preceding the month in which the Interest
Payment Date occurs (the "Regular Record Date"), commencing January 15, 1999.
Any such interest not so punctually paid or duly provided for shall forthwith
cease to be payable to the Holder on such Regular Record Date and may either be
paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall
3
<PAGE>
be given to Holders of Securities not less than ten days prior to
such Special Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in said Indenture.
Payment of the principal of and interest on this Security will be made
at the office or agency of the Company maintained for that purpose, in such coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; PROVIDED, HOWEVER, that, at the
option of the Company payment of interest may be made by check mailed to the
address of the person entitled thereto as such address shall appear in the
Security Register or by wire transfer to such account at such bank as shall have
been notified to the Trustee and the Company by the Person entitled thereto.
5. PAYING AGENT AND SECURITY REGISTRAR. The Trustee will act as
Paying Agent and Security Registrar. The Company may change any Paying Agent,
Security Registrar or co-registrar without prior notice. The company will
notify the Trustee upon any such change. The Company or any of its Affiliates
may act in any such capacity.
6. INDENTURE. The Company issued the Security under an indenture,
dated as of July 30, 1998 (the "Indenture") between the Company and Norwest Bank
Minnesota, National Association, as Trustee (herein called the "Trustee", which
term includes any successor trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement of
the respective rights, limitations of rights, duties and immunities thereunder
of the Trustee, the Company and the Holders of the Securities, and of the terms
upon which the Securities are, and are to be, authenticated and delivered. The
terms of the Securities, including those provisions of the Trust Indenture Act
of 1939 (15 U.S. Code Sections 77aaa-77bbbb) ("TIA") specifically incorporated
into the Indenture. The Securities are subject to, and qualified by, all such
terms, certain of which are summarized hereon, and holders are referred to the
Indenture
4
<PAGE>
and the TIA for a statement of such terms. The Securities are
unsecured general obligations of the Company limited to $77,320,000 in the
aggregate principal amount and subordinated in right of payment to all existing
and future Senior Indebtedness of the Company. No reference herein to the
Indenture and no provision of this Security or of the Indenture shall alter or
impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of and interest on this Security at the times, place and rate,
and in the coin or currency, herein prescribed or to convert this Security as
provided in the Indenture.
7. OPTIONAL REDEMPTION. Subject to the applicable provisions of
the Indenture, the Company shall have the right to redeem the Securities, in
whole or in part, at any time or from time to time, after the issuance of the
Capital Securities, at the Redemption Price (which Redemption Price includes
the Make-Whole Premium).
8. REDEMPTION UPON SPECIAL EVENT. The Securities are subject to
redemption in whole (but not in part) at any time within 90 days of a Special
Event, if such Special Event shall occur and be continuing and certain other
conditions specified in the Indenture are met, at a redemption price equal to
the Special Event Redemption Price.
9. NOTICE OF REDEMPTION. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the Redemption Date to each
Holder of the Securities to be redeemed at his address of record. In the event
of a redemption of less than all of the Securities, the Securities will be
chosen for redemption by the Trustee in accordance with the Indenture. Subject
to the applicable provisions of the Indenture, on and after the Redemption Date,
interest ceases to accrue on the Securities or portions of them called for
redemption.
If this Security is redeemed subsequent to a Regular Record Date with
respect to any Interest Payment Date specified above and on or prior to such
Interest Payment Date, then any accrued interest will be paid to the person in
whose name this
5
<PAGE>
Security is registered at the close of business on such record
date.
10. MANDATORY REDEMPTION. The Securities will mature on August 1,
2028. Upon the repayment of the Securities, whether at maturity or upon
acceleration or earlier redemption or otherwise, the proceeds from such
repayment or payment (including, without limitation, any Make-Whole Premium or
Special Event Make-Whole Premium) shall simultaneously be applied to redeem
Trust Securities having an aggregate liquidation amount of the Securities so
repaid or redeemed at the applicable redemption price together with accrued and
unpaid distributions through the date of redemption; PROVIDED, that holders of
the Trust Securities shall be given not less than 30 nor more than 60 days
notice of such redemption.
11. SUBORDINATION. The payment of the principal of, interest on or
any other amounts due on the Securities is subordinated in right of payment to
all existing and future Senior Indebtedness (as defined below) of the Company,
as described in the Indenture. Each holder, by accepting a Security, agrees to
such subordination and authorizes and directs the Trustee on its behalf to take
such action as may be necessary or appropriate to effectuate the subordination
so provided and appoints the Trustee as its attorney-in-fact for such purpose.
Senior Indebtedness shall mean in respect of the Company (i) the
principal, premium, if any, and interest in respect of (A) indebtedness of the
Company for money borrowed and (B) indebtedness evidenced by securities,
debentures, bonds or other similar instruments issued by the Company, (ii) all
capital lease obligations of the Company, (iii) all obligations of the Company
issued or assumed as the deferred purchase price of property, all conditional
sale obligations of the Company and all obligations of the Company under any
title retention agreement (but excluding trade accounts payable arising in the
ordinary course of business), (iv) all obligations of the Company of the
reimbursement of any letter of credit, banker's acceptance, security purchase
facility or similar credit transaction, (v) all obligations of the type referred
to in clauses (i) through (iv) above of other persons for the payment of which
the Company is
6
<PAGE>
responsible or liable as obligor, guarantor or otherwise, (vi) all
obligations of the type referred to in clauses (i) through (v) above of other
persons secured by any lien on any property or asset of the Company (whether
or not such obligation is assumed by the Company), except for (1) any such
indebtedness that is by its terms subordinated to or PARI PASSU with the
Securities and (2) any indebtedness (including all other debt securities and
guarantees in respect of those debt securities) initially issued to any other
trust, or a trustee of such trust, partnership, or other entity affiliated
with the Company that is, directly or indirectly, a financing vehicle of the
Company (a "Financing Entity") in connection with the issuance by such
Financing Entity of preferred securities or other similar securities and
(vii) interest accruing subsequent to events of bankruptcy of the Company and
its subsidiaries at the rate provided for in the documentation governing such
Senior Indebtedness, whether or not such interest is an allowed claim
enforceable against the debtor in a bankruptcy case under relevant bankruptcy
law.
12. REGISTRATION, TRANSFER, EXCHANGE AND DENOMINATIONS. As provided
in the Indenture and subject to certain limitations therein set forth, the
transfer of this Security is registrable in the Security Register, upon
surrender of this Security for registration of transfer at the office or agency
of the Company, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.
The Securities are issuable only in registered form without coupons in
minimum denominations of $100,000 in principal amount (before giving effect to
any partial redemption) and any integral multiple of $1,000 above $100,000
thereof. No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith. Prior to
due presentment of this Security for registration of transfer, the Company, the
Trustee and any
7
<PAGE>
agent of the Company or the Trustee may treat the Person in whose name this
Security is registered as the owner hereof for all purposes, whether or not
this Security be overdue, and neither the Company, the Trustee nor any such
agent shall be affected by notice to the contrary. In the event of
redemption or conversion of this Security in part only, a new Security or
Securities for the unredeemed or unconverted portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.
13. PERSONS DEEMED OWNERS. Except as provided in Section 3 hereof,
the registered Holder of a Security may be treated as its owner for all
purposes.
14. UNCLAIMED MONEY. If money for the payment of principal or
interest remains unclaimed for two years, the Trustee and the Paying Agent shall
pay the money back to the Company at its written request. After that, holders
of Securities entitled to the money must look to the Company for payment unless
an abandoned property law designates another Person and all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
15. DEFAULTS AND REMEDIES. The Securities shall be subject to the
Events of Default as set forth in Section 5.01 of the Indenture. Subject to
certain limitations in the Indenture, if an Event of Default occurs and is
continuing, the Trustee by notice to the Company or the Holders of at least 25%
in aggregate principal amount of the then outstanding Securities by notice to
the Company and the Trustee may declare all the principal of all of the
Securities and any other amounts payable under the Indenture to be due and
payable immediately; PROVIDED, that, if the Property Trustee is the sole Holder
of the Security and if, upon an Event of Default, the Trustee or the Holders of
not less than 25% in aggregate principal amount of the then outstanding
Securities fail to declare the principal of all the Securities to be immediately
due and payable, the holders of at least 25% in aggregate liquidation amount of
Capital Securities then outstanding shall have such right by a notice in writing
to the Company and the Trustee; and upon any such declaration such principal and
all accrued interest shall become immediately due and payable; PROVIDED, that
the payment of principal, premium, if
8
<PAGE>
any, and interest on such Securities shall remain subordinated to the extent
provided in the Indenture.
The holders of a majority in principal amount of the Securities then
outstanding by written notice to the Company and the Trustee may rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default have been cured or
waived except nonpayment of principal or interest that has become due solely
because of the acceleration. Holders may not enforce the Indenture or the
Securities except as provided in the Indenture. Subject to certain limitations,
holders of a majority in principal amount of the then outstanding Securities
issued under the Indenture may direct the Trustee in its exercise of any trust
or power. The Company must furnish annually compliance certificates to the
Trustee and the Property Trustee. The above description of Events of Default
and remedies is qualified by reference to, and subject in its entirety by, the
more complete description thereof contained in the Indenture.
16. AMENDMENTS, SUPPLEMENTS AND WAIVERS. The Indenture permits,
subject to the rights of holders of Capital Securities set forth therein and in
the Declaration and with certain other exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Securities at the time
outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities at the
time outstanding, on behalf of the Holders of all the Securities, subject to the
right of the holders of the Capital Securities set forth therein and in the
Declaration, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holder of this Security shall be conclusive
and binding upon such Holder and upon all future Holders of this Security and of
any Security issued upon the registration of transfer hereof or in exchange
therefor or in lieu hereof, whether or not notation of such
9
<PAGE>
consent or waiver is made upon this Security. The above description of
amendments, supplements and waivers is qualified by reference to, and subject
in its entirety by the more complete description thereof contained in the
Indenture.
17. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee, in its
individual or any other capacity may become the owner or pledgee of the
Securities and may otherwise deal with the Company or an Affiliate with the same
rights it would have, as if it were not Trustee, subject to certain limitations
provided for in the Indenture. Any Agent may do the same with like rights.
18. NO RECOURSE AGAINST OTHERS. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Holder of the Securities by accepting a Security waives and
releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
19. GOVERNING LAW. THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL
GOVERN THE INDENTURE AND THE SECURITIES WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES.
20. AUTHENTICATION. The Securities shall not be valid until
authenticated by the manual signature of an authorized officer of the Trustee or
an authenticating agent.
21. ABBREVIATIONS. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A
(= Uniform Gifts to Minors Act).
22. AGREED TAX TREATMENT. The Company and, by its acceptance of this
Security or a beneficial interest therein, the Holder of, and any Person that
acquires a beneficial interest in, this Security agree to treat this Security as
indebtedness for United States federal, state and local tax purposes.
10
<PAGE>
The Company will furnish to any Holder of the Securities upon written
request and without charge a copy of the Indenture. Request may be made to:
Zenith National Insurance Corp.
21255 Califa Street
Woodland Hills, California 91367-5021
Attention of: Chief Financial Officer
11
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
(I) or (we) assign and transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
---------------------------------------------------------
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Your Signature:
---------------------------------------------
(Sign exactly as your name appears on the
other side of this Security)
Date:
------------------------------------------------------
Signature Guarantee: (2)
-----------------------------------
- -------------------
2. Signature must be guaranteed by a commercial bank, trust company or member
firm of the New York Stock Exchange.
12
<PAGE>
SCHEDULE A
The initial principal amount of this Global Debenture shall be
$77,320,000. The following increases or decreases in the principal amount of
this Global Debenture have been made:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Principal
Amount of increase Amount of this
in Principal Amount Amount of Global Signature of
of this Global decrease in Debenture authorized
Debenture including Principal Security officer of
upon exercise of Amount of following such Trustee or
over-allotment this Global decrease or Securities
Date Made option Debenture increase Custodian
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
- -------------------------------------------------------------------------------
CAPITAL SECURITIES GUARANTEE AGREEMENT
Between
ZENITH NATIONAL INSURANCE CORP.
(As Guarantor)
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(As Capital Securities Guarantee Trustee)
Dated as of July 30, 1998
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
Definitions and Interpretation
SECTION 1.01. Definitions and Interpretation................................... 2
ARTICLE II
Trust Indenture Act
SECTION 2.01. Trust Indenture Act; Application................................. 6
SECTION 2.02. Lists of Holders of Securities................................... 7
SECTION 2.03. Reports by the Capital Securities Guarantee Trustee.............. 7
SECTION 2.04. Periodic Reports to Capital Securities Guarantee Trustee......... 8
SECTION 2.05. Evidence of Compliance with Conditions Precedent................. 8
SECTION 2.06. Events of Default; Waiver........................................ 8
SECTION 2.07. Event of Default; Notice......................................... 8
SECTION 2.08. Conflicting Interests............................................ 9
ARTICLE III
Powers, Duties and Rights of Capital Securities Guarantee Trustee
SECTION 3.01. Powers and Duties of the Capital Securities Guarantee Trustee.... 9
SECTION 3.02. Certain Rights of Capital Securities Guarantee Trustee........... 12
SECTION 3.03. Not Responsible for Recitals or Issuance of Guarantee............ 15
i
<PAGE>
ARTICLE IV
Capital Securities Guarantee Trustee
SECTION 4.01. Capital Securities Guarantee Trustee; Eligibility................ 16
SECTION 4.02. Appointment, Removal and Resignation of Capital Securities
Guarantee Trustee................................................ 17
ARTICLE V
Guarantee
SECTION 5.01. Guarantee........................................................ 19
SECTION 5.02. Subordination.................................................... 19
SECTION 5.03. Waiver of Notice and Demand...................................... 19
SECTION 5.04. Obligations Not Affected......................................... 19
SECTION 5.05. Rights of Holders................................................ 21
SECTION 5.06. Guarantee of Payment............................................. 21
SECTION 5.07. Subrogation...................................................... 22
SECTION 5.08. Independent Obligations.......................................... 22
ARTICLE VI
Limitation of Transactions; Subordination
SECTION 6.01. Limitations of Transactions...................................... 22
SECTION 6.02. Ranking.......................................................... 23
ARTICLE VII
Termination
SECTION 7.01. Termination...................................................... 24
ii
<PAGE>
ARTICLE VIII
Indemnification
SECTION 8.01. Exculpation...................................................... 24
SECTION 8.02. Indemnification.................................................. 25
SECTION 8.03. Compensation and Expenses of Capital Securities Guarantee
Trustee.......................................................... 26
ARTICLE IX
Miscellaneous
SECTION 9.01. Successors and Assigns........................................... 27
SECTION 9.02. Amendments....................................................... 27
SECTION 9.03. Notices.......................................................... 27
SECTION 9.04. Benefit.......................................................... 29
SECTION 9.05. Governing Law.................................................... 29
</TABLE>
iii
<PAGE>
THIS CAPITAL SECURITIES GUARANTEE AGREEMENT ("Capital Securities
Guarantee"), dated as of July 30, 1998 is executed and delivered by ZENITH
NATIONAL INSURANCE CORP., a Delaware corporation (the "Guarantor"), and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as trustee (the "Capital
Securities Guarantee Trustee"), for the benefit of the Holders (as defined
herein) from time to time of the Capital Securities (as defined herein) of
ZENITH NATIONAL INSURANCE CAPITAL TRUST I, a Delaware statutory business
trust (the "Issuer").
WHEREAS, pursuant to an Amended and Restated Declaration of Trust
(the "Declaration"), dated as of July 30, 1998, among the individual trustees
of the Issuer named therein, the Guarantor, as Sponsor, Norwest Bank
Minnesota, National Association, as Property Trustee, and Wilmington Trust
Company, as Delaware Trustee, for the benefit of the Holders from time to
time of undivided beneficial interests in the assets of the Issuer, the
Issuer is issuing on the date hereof 75,000 Capital Securities having an
aggregate stated liquidation amount of $75,000,000, designated the 8.55%
Capital Securities (the "Capital Securities"); and
WHEREAS as an incentive for the Covered Persons to purchase the
Capital Securities, the Guarantor desires irrevocably and unconditionally to
agree, to the extent set forth in this Capital Securities Guarantee, to pay
to the Holders of the Capital Securities the Guarantee Payments (as defined
herein) and to make certain other payments on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of
Capital Securities, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Capital Securities
Guarantee for the benefit of the Holders.
<PAGE>
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.01. DEFINITIONS AND INTERPRETATION. In this Capital
Securities Guarantee, unless the context otherwise requires:
(a) capitalized terms used in this Capital Securities Guarantee but
not defined in the preamble above have the respective meanings assigned to
them in this Section 1.01;
(b) a term defined anywhere in this Capital Securities Guarantee has
the same meaning throughout;
(c) all references to "the Capital Securities Guarantee" or "this
Guarantee" are to this Capital Securities Guarantee as modified,
supplemented or amended from time to time;
(d) all references in this Capital Securities Guarantee to Articles
and Sections are to Articles and Sections of this Capital Securities
Guarantee unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning
when used in this Capital Securities Guarantee unless otherwise defined in
this Capital Securities Guarantee or unless the context otherwise requires;
and
(f) a reference to the singular includes the plural and vice versa.
"AFFILIATE" has the same meaning as given to that term in Rule 405 of
the Securities Act of 1933, as amended, or any successor rule thereunder.
2
<PAGE>
"CAPITAL SECURITIES GUARANTEE TRUSTEE" means Norwest Bank Minnesota,
National Association until a Successor Capital Securities Guarantee Trustee has
been appointed and has accepted such appointment pursuant to the terms of this
Capital Securities Guarantee and thereafter means each such Successor Capital
Securities Guarantee Trustee.
"COMMON SECURITIES" means the common securities representing common
undivided beneficial interest in the assets of the Issuer.
"COVERED PERSON" means any Holder or beneficial owner of Capital
Securities.
"DEBENTURES" means the series of subordinated debt securities of the
Guarantor designated the 8.55% Subordinated Deferrable Interest Debentures Due
2028 held by the Property Trustee of the Issuer.
"DECLARATION" has the meaning set forth in the recitals hereto.
"EVENT OF DEFAULT" has the meaning set forth in Section 2.06 hereof.
"GUARANTEE PAYMENTS" means the following payments or distributions,
without duplication, with respect to the Capital Securities, to the extent not
paid or made by or on behalf of the Issuer: (i) any accrued and unpaid
Distributions (as defined in the Declaration) that are required to be paid on
such Capital Securities to the extent the Issuer shall have funds legally
available therefor, (ii) the amount payable upon redemption to the extent the
Issuer has funds legally available therefor, with respect to any Capital
Securities called for redemption by the Issuer, and (iii) upon a voluntary or
involuntary dissolution, winding-up or termination of the Issuer (other than in
connection with the distribution of Debentures to the Holders in exchange for
Capital Securities as provided in
3
<PAGE>
the Declaration), the lesser of (a) the aggregate of the liquidation amount
and all accrued and unpaid Distributions on the Capital Securities to the
date of payment, to the extent the Issuer shall have funds legally available
therefor, and (b) the amount of assets of the Issuer remaining available for
distribution to Holders upon liquidation of the Issuer (in either case, the
"Liquidation Distribution"). If an event of default under the Indenture has
occurred and is continuing, the rights of holders of the Common Securities to
receive payments as provided in the Declaration are subordinated to the
rights of Holders of Capital Securities to receive Guarantee payments.
"HOLDER" means any holder, as registered on the books and records
of the Issuer of any Capital Securities; PROVIDED, HOWEVER, that, in
determining whether the holders of the requisite percentage of Capital
Securities have given any request, notice, consent or waiver hereunder,
"Holder" shall not include the Guarantor or any Affiliate of the Guarantor.
"INDEMNIFIED PERSON" means the Capital Securities Guarantee
Trustee, any Affiliate of the Capital Securities Guarantee Trustee, or any
officers, directors, shareholders, members, partners, employees,
representatives or agents of the Capital Securities Guarantee Trustee.
"INDENTURE" means the Indenture dated as of July 30, 1998, among
the Guarantor (the "Debenture Issuer") and Norwest Bank Minnesota, National
Association, as trustee, and any indenture supplemental thereto pursuant to
which the Debentures are to be issued to the Property Trustee of the Issuer.
"LIQUIDATION DISTRIBUTION" has the meaning set forth in the
definition of "Guarantee Payments" herein.
"MAJORITY IN LIQUIDATION AMOUNT OF THE CAPITAL SECURITIES" means,
except as provided in the terms of the Capital Securities and the
Declaration, Holder(s) of Capital
4
<PAGE>
Securities, voting separately as a class, representing more than 50% of the
aggregate liquidation amount of all Capital Securities then outstanding.
"OFFICERS' CERTIFICATE" means, with respect to any Person, a
certificate signed by the chairman of the board, president or a vice
president, and by the treasurer, an assistant treasurer, the controller, the
secretary or an assistant secretary of such Person, and delivered to the
Capital Securities Guarantee Trustee. Any Officers' Certificate delivered
with respect to compliance with a condition or covenant provided for in this
Capital Securities Guarantee shall include:
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers'
Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"PERSON" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated organization or
association, or government or any agency or political subdivision thereof, or
any other entity of whatever nature.
5
<PAGE>
"RESPONSIBLE OFFICER" means, with respect to the Capital Securities
Guarantee Trustee, the chairman of the board of directors, the president, any
vice-president, any assistant vice-president, the secretary, any assistant
secretary, the treasurer, any assistant treasurer, any trust officer or
assistant trust officer or any other officer of the Capital Securities
Guarantee Trustee customarily performing functions similar to those performed
by any of the above designated officers and also means, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of that officer's knowledge of and familiarity with the
particular subject.
"SUCCESSOR CAPITAL SECURITIES GUARANTEE TRUSTEE" means a successor
Capital Securities Guarantee Trustee possessing the qualifications to act as
Capital Securities Guarantee Trustee under Section 4.01. Any entity that
engages in a merger, combination or consolidation with, or acquires all or
substantially all of the corporate trust business of, a Capital Securities
Guarantee Trustee shall be a Successor Capital Securities Guarantee Trustee.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as
amended.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.01. TRUST INDENTURE ACT; APPLICATION. This Capital
Securities Guarantee is not required to and will not be qualified under the
Trust Indenture Act. However, this Capital Securities Gurantee is intended
to comply with the requirements of Sections 310 through 317, inclusive, of
the Trust Indenture Act and such provisions are specifically incorporated
herein. If any provision hereof limits, qualifies or conflicts with a
provision of the Trust Indenture Act specifically incorporated herein, then
the provisions of this Capital Securites Guarantee
6
<PAGE>
shall control; provided that any penalties under the Trust Indenture Act
relating to noncompliance shall not be applicable to this Capital Securities
Guarantee, the Guarantor or the Capital Securities Guarantee Trustee.
SECTION 2.02. LISTS OF HOLDERS OF SECURITIES. (a) The Guarantor
shall provide the Capital Securities Guarantee Trustee (i) within 14 days
after each record date for the payment of Distributions (as defined in the
Declaration), a list, in such form as the Capital Securities Guarantee
Trustee may reasonably require, of the names and addresses of the Holders of
the Capital Securities ("List of Holders") as of such date; PROVIDED that the
Guarantor shall not be obligated to provide such List of Holders at any time
the List of Holders does not differ from the most recent List of Holders
given to the Capital Securities Guarantee Trustee by the Guarantor, and (ii)
at any other time, within 30 days of receipt by the Guarantor of a written
request for a List of Holders as of a date no more than 14 days before such
List of Holders is given to the Capital Securities Guarantee Trustee. The
Capital Securities Guarantee Trustee may destroy any List of Holders
previously given to it on receipt of a new List of Holders.
(b) The Capital Securities Guarantee Trustee shall comply with its
obligations under Sections 311(a), 311(b) and 312(b) of the Trust Indenture
Act.
SECTION 2.03. REPORTS BY THE CAPITAL SECURITIES GUARANTEE TRUSTEE.
Within 60 days after August 1 of each year, commencing August 1, 1999, the
Capital Securities Guarantee Trustee shall provide to the Holders of the
Capital Securities such reports as are required by Section 313 of the Trust
Indenture Act, if any, in the form and in the manner provided by Section 313
of the Trust Indenture Act. The Capital Securities Guarantee Trustee shall
also comply with the requirements of Section 313(d) of the Trust Indenture
Act.
7
<PAGE>
SECTION 2.04. PERIODIC REPORTS TO CAPITAL SECURITIES GUARANTEE
TRUSTEE. The Guarantor shall provide to the Capital Securities Guarantee
Trustee and the Holders such documents, reports and information as required
by Section 314 (if any) and the compliance certificate required by Section
314 of the Trust Indenture Act in the form, in the manner and at the times
required by Section 314 of the Trust Indenture Act.
SECTION 2.05. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
The Guarantor shall provide to the Capital Securities Guarantee Trustee such
evidence of compliance with any conditions precedent, if any, provided for in
this Capital Securities Guarantee which relate to any of the matters set
forth in Section 314(c) of the Trust Indenture Act. Any certificate or
opinion required to be given by an officer pursuant to Section 314(c)(1) may
be given in the form of an Officers' Certificate.
SECTION 2.06. EVENTS OF DEFAULT; WAIVER. An event of default
under this Capital Securities Guarantee will occur upon the failure of the
Guarantor to perform any of its payment or other obligations hereunder (an
"Event of Default"); PROVIDED, HOWEVER, that, other than with respect to a
default on any payment under this Capital Securities Guarantee, the Guarantor
shall have received notice of default and shall not have cured such default
within 90 days after receipt of such notice. The Holders of a Majority in
liquidation amount of the Capital Securities may, by vote, on behalf of the
Holders of all of the Capital Securities, waive any past Event of Default and
its consequences. Upon such waiver, any such Event of Default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have
been cured, for every purpose of this Capital Securities Guarantee, but no
such waiver shall extend to any subsequent or other default or Event of
Default or impair any right consequent therefrom.
SECTION 2.07. EVENT OF DEFAULT; NOTICE. (a) The Capital
Securities Guarantee Trustee shall, within 90 days
8
<PAGE>
after the occurrence of an Event of Default, transmit by mail, first class
postage prepaid, to the Holders of the Capital Securities, notices of all
Events of Default known to the Capital Securities Guarantee Trustee, unless
such defaults have been cured before the giving of such notice; PROVIDED that
except in the case of a default in the payment of a Guarantee Payment, the
Capital Securities Guarantee Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee, or
a trust committee of directors and/or Responsible Officers of the Capital
Securities Guarantee Trustee in good faith determines that the withholding of
such notice is in the interests of the Holders of the Capital Securities.
(b) The Capital Securities Guarantee Trustee shall not be deemed
to have knowledge of any Event of Default except any Event of Default as to
which the Capital Securities Guarantee Trustee shall have received written
notice or a Responsible Officer charged with the administration of the
Declaration shall have obtained written notice of such Event of Default.
SECTION 2.08. CONFLICTING INTERESTS. The Declaration shall be
deemed to be specifically described in this Capital Securities Guarantee for
the purposes of clause (i) of the first proviso contained in Section 310(b)
of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 3.01. POWERS AND DUTIES OF THE CAPITAL SECURITIES
GUARANTEE TRUSTEE. (a) This Capital Securities Guarantee shall be held by
the Capital Securities Guarantee Trustee for the benefit of the Holders of
the Capital Securities, and the Capital Securities Guarantee Trustee shall
not transfer this Capital Securities Guarantee to any
9
<PAGE>
Person except a Holder of Capital Securities exercising his or her rights
pursuant to Section 5.05(d) or to a Successor Capital Securities Guarantee
Trustee on acceptance by such Successor Capital Securities Guarantee Trustee
of its appointment to act as Successor Capital Securities Guarantee Trustee.
The right, title and interest of the Capital Securities Guarantee Trustee
shall automatically vest in any Successor Capital Securities Guarantee
Trustee, and such vesting and cessation of title shall be effective whether
or not conveyancing documents have been executed and delivered pursuant to
the appointment of such Successor Capital Securities Guarantee Trustee.
(b) If an Event of Default has occurred and is continuing, the
Capital Securities Guarantee Trustee shall enforce this Capital Securities
Guarantee for the benefit of the Holders of the Capital Securities.
(c) The Capital Securities Guarantee Trustee, before the
occurrence of any Event of Default and after the curing of all Events of
Default that may have occurred, shall undertake to perform only such duties
as are specifically set forth in this Capital Securities Guarantee, and no
implied covenants shall be read into this Capital Securities Guarantee
against the Capital Securities Guarantee Trustee. In case an Event of
Default has occurred (that has not been cured or waived pursuant to Section
2.06), the Capital Securities Guarantee Trustee shall exercise such of the
rights and powers vested in it by this Capital Securities Guarantee, and use
the same degree of care and skill in its exercise thereof, as a prudent
person would exercise or use under the circumstances in the conduct of his or
her own affairs.
(d) No provision of this Capital Securities Guarantee shall be
construed to relieve the Capital Securities Guarantee Trustee from liability
for its own negligent action, its own negligent failure to act, or its own
willful misconduct, except that:
10
<PAGE>
(i) prior to the occurrence of any Event of Default and
after the curing or waiving of all such Events of Default that may have
occurred:
(A) the duties and obligations of the Capital Securities
Guarantee Trustee shall be determined solely by the express
provisions of this Capital Securities Guarantee, and the Capital
Securities Guarantee Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set
forth in this Capital Securities Guarantee, and no implied
covenants or obligations shall be read into this Capital Securities
Guarantee against the Capital Securities Guarantee Trustee; and
(B) in the absence of bad faith on the part of the Capital
Securities Guarantee Trustee, the Capital Securities Guarantee
Trustee may conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Capital Securities
Guarantee Trustee and conforming to the requirements of this
Capital Securities Guarantee; but in the case of any such
certificates or opinions that by any provision hereof are
specifically required to be furnished to the Capital Securities
Guarantee Trustee, the Capital Securities Guarantee Trustee shall
be under a duty to examine the same to determine whether or not
they conform to the requirements of this Capital Securities
Guarantee;
(ii) the Capital Securities Guarantee Trustee shall not be
liable for any error of judgment made in good faith by a Responsible
Officer of the Capital Securities Guarantee Trustee, unless it shall be
proved that the Capital Securities Guarantee Trustee was
11
<PAGE>
negligent in ascertaining the pertinent facts upon which such judgment
was made;
(iii) the Capital Securities Guarantee Trustee shall not be
liable with respect to any action taken or omitted to be taken by it in
good faith in accordance with the direction of the Holders of not less
than a Majority in liquidation amount of the Capital Securities,
relating to the time, method and place of conducting any proceeding for
any remedy available to the Capital Securities Guarantee Trustee, or
exercising any trust or power conferred upon the Capital Securities
Guarantee Trustee under this Capital Securities Guarantee; and
(iv) no provision of this Capital Securities Guarantee shall
require the Capital Securities Guarantee Trustee to expend or risk its
own funds or otherwise incur personal financial liability in the
performance of any of its duties or in the exercise of any of its rights
or powers, if the Capital Securities Guarantee Trustee shall have
reasonable grounds for believing that the repayment of such funds or
liability is not reasonably assured to it under the terms of this
Capital Securities Guarantee or adequate indemnity against such risk or
liability is not reasonably assured to it.
SECTION 3.02. CERTAIN RIGHTS OF CAPITAL SECURITIES GUARANTEE
TRUSTEE. (a) Subject to the provisions of Section 3.01:
(i) the Capital Securities Guarantee Trustee may rely and
shall be fully protected in acting or refraining from acting upon any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be
genuine
12
<PAGE>
and to have been signed, sent or presented by the proper party or
parties;
(ii) any direction or act of the Guarantor contemplated by
this Capital Securities Guarantee shall be sufficiently evidenced by an
Officers' Certificate;
(iii) whenever, in the administration of this Capital
Securities Guarantee, the Capital Securities Guarantee Trustee shall
deem it desirable that a matter be proved or established before taking,
suffering or omitting any action hereunder, the Capital Securities
Guarantee Trustee (unless other evidence is herein specifically
prescribed) may, in the absence of bad faith on its part, request and
rely upon an Officers' Certificate which, upon receipt of such request,
shall be promptly delivered by the Guarantor;
(iv) the Capital Securities Guarantee Trustee shall have no
duty to see to any recording, filing or registration of any instrument
(or any rerecording, refiling or registration thereof);
(v) the Capital Securities Guarantee Trustee may consult
with legal counsel of its selection, and the written advice or opinion
of such legal counsel with respect to legal matters shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted to be taken by it hereunder in good faith and in
accordance with such advice or opinion. Such legal counsel may be legal
counsel to the Guarantor or any of its Affiliates and may include any of
the Guarantor's employees. The Capital Securities Guarantee Trustee
shall have the right at any time to seek instructions concerning the
administration of this Capital Securities Guarantee from any court of
competent jurisdiction;
(vi) the Capital Securities Guarantee Trustee shall be under
no obligation to exercise any of the
13
<PAGE>
rights or powers vested in it by this Capital Securities Guarantee at
the request or direction of any Holder, unless such Holder shall have
provided to the Capital Securities Guarantee Trustee such adequate
security and indemnity as would satisfy a reasonable person in the
position of the Capital Securities Guarantee Trustee, against the costs,
expenses (including reasonable attorneys' fees and expenses) and
liabilities that might be incurred by it in complying with such request
or direction, including such reasonable advances as may be requested by
the Capital Securities Guarantee Trustee; PROVIDED that nothing
contained in this Section 3.02(a)(vi) shall be taken to relieve the
Capital Securities Guarantee Trustee, upon the occurrence of an Event of
Default, of its obligation to exercise the rights and powers vested in
it by this Capital Securities Guarantee;
(vii) the Capital Securities Guarantee Trustee shall not be
bound to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond debenture, note, other evidence
of indebtedness or other paper or document, but the Capital Securities
Guarantee Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit;
(viii) the Capital Securities Guarantee Trustee may execute
any of the trusts or powers hereunder or perform any duties hereunder
either directly or by or through agents or attorneys, and the Capital
Securities Guarantee Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due
care by it hereunder;
(ix) any action taken by the Capital Securities Guarantee
Trustee or its agents hereunder shall bind the Holders of the Capital
Securities, and the
14
<PAGE>
signature of the Capital Securities Guarantee Trustee or its agents
alone shall be sufficient and effective to perform any such action; it
being understood that no third party shall be required to inquire as to
the authority of the Capital Securities Guarantee Trustee to so act or
as to its compliance with any of the terms and provisions of this
Capital Securities Guarantee, both of which shall be conclusively
evidenced by the Capital Securities Guarantee Trustee's or its agent's
taking such action; and
(x) whenever in the administration of this Capital
Securities Guarantee the Capital Securities Guarantee Trustee shall deem
it desirable to receive instructions with respect to enforcing any
remedy or right or taking any other action hereunder, the Capital
Securities Guarantee Trustee (i) may request written instructions from
the Holders of the Capital Securities or, other than with respect to
enforcing any remedy or right or taking any action related thereto, the
Guarantor, (ii) may refrain from enforcing such remedy or right or
taking such other action until such written instructions are received,
and (iii) shall be protected in acting in accordance with such written
instructions.
(b) No provision of this Capital Securities Guarantee shall be
deemed to impose any duty or obligation on the Capital Securities Guarantee
Trustee to perform any act or acts or exercise any right, power, duty or
obligation conferred or imposed on it, in any jurisdiction in which it shall
be illegal, or in which the Capital Securities Guarantee Trustee shall be
unqualified or incompetent in accordance with applicable law, to perform any
such act or acts or to exercise any such right, power, duty or obligation.
No permissive power or authority available to the Capital Securities
Guarantee Trustee shall be construed to be a duty.
SECTION 3.03. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
GUARANTEE. The recitals contained in this
15
<PAGE>
Capital Securities Guarantee shall be taken as the statements of the
Guarantor, and the Capital Securities Guarantee Trustee does not assume any
responsibility for their correctness. The Capital Securities Guarantee
Trustee makes no representations as to the validity or sufficiency of this
Capital Securities Guarantee.
ARTICLE IV
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 4.01. CAPITAL SECURITIES GUARANTEE TRUSTEE; ELIGIBILITY.
(a) There shall at all times be a Capital Securities Guarantee Trustee which
shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under the
laws of the United States of America or any State or Territory thereof
or of the District of Columbia, or a corporation or Person permitted by
the Securities and Exchange Commission to act as an institutional
trustee under the Trust Indenture Act, authorized under such laws to
exercise corporate trust powers, having a combined capital and surplus
of at least 50 Million U.S. Dollars (U.S.$50,000,000), and subject to
supervision or examination by Federal, State, Territorial or District of
Columbia authority. If such corporation publishes reports of condition
at least annually, pursuant to law or to the requirements of the
supervising or examining authority referred to above, then, for the
purposes of this Section 4.01(a)(ii), the combined capital and surplus
of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published.
(b) If at any time the Capital Securities Guarantee Trustee shall
cease to be eligible to so act under
16
<PAGE>
Section 4.01(a), the Capital Securities Guarantee Trustee shall immediately
resign in the manner and with the effect set out in Section 4.02(c).
(c) If the Capital Securities Guarantee Trustee has or shall
acquire any "conflicting interest" within the meaning of Section 3.10(b) of
the Trust Indenture Act, the Capital Securities Guarantee Trustee and
Guarantor shall in all respects comply with the provisions of Section 3.10(b)
of the Trust Indenture Act.
SECTION 4.02. APPOINTMENT, REMOVAL AND RESIGNATION OF CAPITAL
SECURITIES GUARANTEE TRUSTEE. (a) Subject to Section 4.02(b), the Capital
Securities Guarantee Trustee may be appointed or removed without cause at any
time by the Guarantor, except that, if an Event of Default shall have
occurred and be continuing, the Capital Securities Guarantee Trustee may be
removed only by the vote of Holders of a Majority in liquidation amount of
the Capital Securities voting as a class at a meeting of Holders of Capital
Securities.
(b) The Capital Securities Guarantee Trustee shall not be removed
in accordance with Section 4.02(a) until a Successor Capital Securities
Guarantee Trustee has been appointed and has accepted such appointment by
written instrument executed by each Successor Capital Securities Guarantee
Trustee and delivered to the Guarantor.
(c) The Capital Securities Guarantee Trustee appointed to office
shall hold office until a Successor Capital Securities Guarantee Trustee
shall have been appointed or until its removal or resignation. The Capital
Securities Guarantee Trustee may resign from office (without need for prior
or subsequent accounting) by an instrument in writing executed by the Capital
Securities Guarantee Trustee and delivered to the Guarantor, which
resignation shall not take effect until a Successor Capital Securities
Guarantee Trustee has been appointed and has accepted such appointment by
instrument in writing executed by such Successor Capital
17
<PAGE>
Securities Guarantee Trustee and delivered to the Guarantor and the resigning
Capital Securities Guarantee Trustee.
(d) If no Successor Capital Securities Guarantee Trustee shall
have been appointed and accepted appointment as provided in this Section 4.02
within 60 days after delivery to the Guarantor of an instrument of removal or
resignation, the Capital Securities Guarantee Trustee resigning or being
removed may petition any court of competent jurisdiction for appointment of a
Successor Capital Securities Guarantee Trustee. Such court may thereupon,
after prescribing such notice, if any, as it may deem proper, appoint a
Successor Capital Securities Guarantee Trustee.
(e) No Capital Securities Guarantee Trustee shall be liable for
the acts or omissions to act of any Successor Capital Securities Guarantee
Trustee. No Successor Capital Securities Guarantee Trustee shall be liable
for the acts or omissions to act of any predecessor Capital Securities
Guarantee Trustee.
(f) Upon termination of this Capital Securities Guarantee or
resignation of the Capital Securities Guarantee Trustee pursuant to this
Section 4.02, the Guarantor shall pay to the Capital Securities Guarantee
Trustee all amounts accrued and owing to the Capital Securities Guarantee
Trustee on the date of such termination, removal or resignation.
(g) The Capital Securities Guarantee Trustee may engage in any
merger, conversion, consolidation or sale of all or substantially all of its
corporate trust business, provided that the Successor Capital Securities
Guarantee Trustee shall be otherwise qualified and eligible under this
Capital Securities Guarantee Agreement.
18
<PAGE>
ARTICLE V
GUARANTEE
SECTION 5.01. GUARANTEE. The Guarantor irrevocably and
unconditionally agrees to pay in full to the Holders the Guarantee Payments
(without duplication of amounts theretofore paid by or on behalf of the
Issuer), as and when due, regardless of any defense, right of setoff or
counterclaim that the Issuer may have or assert. The Guarantor's obligation
to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by the Guarantor to the Holders or by causing the Issuer to
pay such amounts to the Holders.
SECTION 5.02. SUBORDINATION. If an Event of Default (as defined
in the Indenture), has occurred and is continuing, the rights of Holders of
the Common Securities to receive payments as provided in the Declaration are
subordinated to the rights of Holders of Capital Securities to receive
Guarantee Payments under this Capital Securities Guarantee.
SECTION 5.03. WAIVER OF NOTICE AND DEMAND. The Guarantor hereby
waives notice of acceptance of this Capital Securities Guarantee and of any
liability to which it applies or may apply, presentment, demand for payment,
any right to require a proceeding first against the Issuer or any other
Person before proceeding against the Guarantor, protest, notice of
nonpayment, notice of dishonor, notice of redemption and all other notices
and demands.
SECTION 5.04. OBLIGATIONS NOT AFFECTED. The obligations,
covenants, agreements and duties of the Guarantor under this Capital
Securities Guarantee shall in no way be affected or impaired by reason of the
happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of
the performance or observance by the Issuer of
19
<PAGE>
any express or implied agreement, covenant, term or condition relating to the
Capital Securities to be performed or observed by the Issuer;
(b) the deferral of payment by the Issuer of all or any portion of
the Distributions, the amount payable upon redemption, the Liquidation
Distribution or any other sums payable under the terms of the Capital
Securities or the extension of time for the performance of any other
obligation under, arising out of, or in connection with, the Capital
Securities (other than a deferral of payment of Distributions, the amount
payable upon redemption, Liquidation Distribution or other sum payable that
results from the extension of any interest payment period on the Debentures
permitted by the Indenture);
(c) any failure, omission, delay or lack of diligence on the part
of the Holders to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Holders pursuant to the terms of the Capital
Securities, or any action on the part of the Issuer granting indulgence or
extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of
any collateral, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition or
readjustment of debt of, or other similar proceedings affecting, the Issuer
or any of the assets of the Issuer;
(e) any invalidity of, or defect or deficiency in the Capital
Securities;
(f) the settlement or compromise of any obligation guaranteed
hereby or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a guarantor, it being
the intent of this Section 5.04 that the obligations of the Guarantor
hereunder
20
<PAGE>
shall be absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders or any other Person to
give notice to, or obtain consent of, the Guarantor with respect to the
happening of any of the foregoing.
SECTION 5.05. RIGHTS OF HOLDERS. The Guarantor expressly
acknowledges that:
(a) This Capital Securities Guarantee will be deposited with the
Capital Securities Guarantee Trustee to be held for the benefit of the
Holders.
(b) The Capital Securities Guarantee Trustee has the right to
enforce this Capital Securities Guarantee on behalf of the Holders.
(c) The Holders of a Majority in liquidation amount of the Capital
Securities have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Capital Securities Guarantee
Trustee in respect of this Capital Securities Guarantee or exercising any
power conferred upon the Capital Securities Guarantee Trustee under this
Capital Securities Guarantee.
(d) Any Holder of Capital Securities may institute a legal
proceeding directly against the Guarantor to enforce its rights under this
Capital Securities Guarantee, without first instituting a legal proceeding
against the Issuer, the Capital Securities Guarantee Trustee or any other
Person.
SECTION 5.06. GUARANTEE OF PAYMENT. This Capital Securities
Guarantee creates a guarantee of payment and not of collection. The Capital
Securities Guarantee will not be discharged except by payment of the
Guarantee Payments in full (without duplication of amounts theretofore paid
by the
21
<PAGE>
Issuer) or upon distribution of Debentures to Holders as provided in the
Declaration.
SECTION 5.07. SUBROGATION. The Guarantor shall be subrogated to
all (if any) rights of the Holders of Capital Securities against the Issuer
in respect of any amounts paid to such Holders by the Guarantor under this
Capital Securities Guarantee; PROVIDED, HOWEVER, that the Guarantor shall not
(except to the extent required by mandatory provisions of law) be entitled to
enforce or exercise any right that it may acquire by way of subrogation or
any indemnity, reimbursement or other agreement, in all cases as a result of
payment under this Capital Securities Guarantee, if, at the time of any such
payment, any amounts are due and unpaid under this Capital Securities
Guarantee. If any amount shall be paid to the Guarantor in violation of the
preceding sentence, the Guarantor agrees to hold such amount in trust for the
Holders and to pay over such amount to the Holders.
SECTION 5.08. INDEPENDENT OBLIGATIONS. The Guarantor acknowledges
that its obligations hereunder are independent of the obligations of the
Issuer with respect to the Capital Securities, and that the Guarantor shall
be liable as principal and as debtor hereunder to make Guarantee Payments
pursuant to the terms of this Capital Securities Guarantee notwithstanding
the occurrence of any event referred to in subsections (a) through (g),
inclusive, of Section 5.04 hereof.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.01. LIMITATIONS OF TRANSACTIONS. If (a) an Event of
Default (as defined in the Indenture) shall have occurred and be continuing,
(b) the Debentures are held by the Property Trustee, and the Guarantor shall
be in default with respect to its payment of any obligations under
22
<PAGE>
this Capital Securities Guarantee or (c) the Guarantor shall have given
notice of its election of the exercise of its right to defer the interest
payment period pursuant to the Indenture and any such deferral shall be
continuing, (i) the Guarantor shall not declare or pay any dividend on, or
make any distribution with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock, (ii) the
Guarantor shall not make any payment of interest, principal or premium, if
any, on or repay, repurchase or redeem any debt securities issued by the
Guarantor which rank PARI PASSU with or junior to the Debentures and (iii)
shall not make any guarantee payments with respect to the foregoing (other
than (A) dividends or distributions in shares of, or options, warrants,
rights to subscribe for or purchase shares of, common stock of the Guarantor,
(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 Capital Securities Guarantee, (D) as a result
of a reclassification of the Guarantor's capital stock or the exchange or the
conversion of one class or series of the Guarantor's capital stock for
another class or series of the Guarantor's capital stock, (E) the purchase of
fractional interests in shares of the Guarantor's capital stock pursuant to
the conversion or exchange provisions of such capital stock or the security
being converted or exchanged and (F) purchases of the Guarantor's common
stock in connection with the satisfaction by the Guarantor of its obligations
(including purchases related to the issuance of such common stock or rights)
under any of the Guarantor's benefit plans for its and its subsidiaries'
directors, officers or employees or any of the Guarantor's dividend
reinvestment plans).
SECTION 6.02. RANKING. This Capital Securities Guarantee will
constitute an unsecured obligation of the Guarantor and will rank (i)
subordinate and junior in right of payment to all other liabilities of the
Guarantor, except any liabilities that may be made PARI PASSU expressly by
23
<PAGE>
their terms, (ii) PARI PASSU with the most senior preferred or preference
stock now or hereafter issued by the Guarantor and with any guarantee now or
hereafter entered into by the Guarantor in respect of any preferred or
preference stock or preferred security of any Affiliate of the Guarantor, and
(iii) senior to the Guarantor's common stock.
ARTICLE VII
TERMINATION
SECTION 7.01. TERMINATION. This Capital Securities Guarantee
shall terminate upon (i) full payment of the amount payable upon redemption
of all Capital Securities, (ii) the distribution of the Debentures to the
Holders of all of the Capital Securities or (iii) full payment of the amounts
payable in accordance with the Declaration upon liquidation of the Issuer.
Notwithstanding the foregoing, this Capital Securities Guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any Holder of Capital Securities must restore payment of any sums paid
under the Capital Securities or under this Capital Securities Guarantee.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01. EXCULPATION. (a) No Indemnified Person shall be
liable, responsible, or accountable in damages or otherwise to the Guarantor
or any Covered Person for any loss, damage or claim incurred by reason of any
act or omission performed or omitted by such Indemnified Person in good faith
in accordance with this Capital Securities Guarantee and in a manner that
such Indemnified Person reasonably believed to be within the scope of the
authority conferred on such Indemnified Person by this Capital Securities
Guarantee or by law, except that an Indemnified
24
<PAGE>
Person shall be liable for any such loss, damage or claim incurred by reason
of such Indemnified Person's negligence or willful misconduct with respect to
such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in
good faith upon the records of the Guarantor and upon such information,
opinions, reports or statements presented to the Guarantor by any Person as
to matters the Indemnified Person reasonably believes are within such other
Person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Guarantor, including information,
opinions, reports or statements as to the value and amount of the assets,
liabilities, profits, losses, or any other facts pertinent to the existence
and amount of assets from which Distributions to Holders of Capital
Securities might properly be paid.
SECTION 8.02. INDEMNIFICATION. (a) The Guarantor agrees to
indemnify each Indemnified Person for, and to hold each Indemnified Person
harmless against, any and all loss, liability or expense including taxes
(other than taxes based on the income of such Indemnified Person) incurred
without negligence or bad faith on its part, arising out of or in connection
with the acceptance or administration of the trust or trusts hereunder,
including the costs and expenses (including reasonable legal fees and
expenses) of defending itself against or investigating any claim or liability
in connection with the exercise or performance of any of its powers or duties
hereunder. The obligation to indemnify as set forth in this Section 8.02
shall survive the termination of this Capital Securities Guarantee.
(b) To the fullest extent permitted by applicable law, expenses
(including reasonable legal fees and expenses) incurred by an Indemnified
Person in defending any claim, demand, action, suit or proceeding shall, from
time to time, be advanced by the Guarantor prior to the final disposition of
such claim, demand, action, suit or proceeding upon
25
<PAGE>
receipt by the Guarantor of an undertaking by or on behalf of the Indemnified
Person to repay such amount if it shall be determined that the Indemnified
Person is not entitled to be indemnified as authorized in Section 8.02(a).
(c) No Indemnified Person shall claim or exact any lien or charge
on any Guarantee Payments as a result of any amount due to it under this
Capital Securities Guarantee.
SECTION 8.03. COMPENSATION AND EXPENSES OF CAPITAL SECURITIES
GUARANTEE TRUSTEE. The Guarantor covenants and agrees to pay to the Capital
Securities Guarantee Trustee from time to time, and the Capital Securities
Guarantee Trustee shall be entitled to, such compensation as shall be agreed
to in writing between the Guarantor and the Capital Securities Guarantee
Trustee (which shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust), and the Guarantor will pay or
reimburse the Capital Securities Guarantee Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by the
Capital Securities Guarantee Trustee in accordance with any of the provisions
of this Capital Securities Guarantee (including the reasonable compensation
and the expenses and disbursements of its counsel and of all persons not
regularly in its employ) except any such expense, disbursement or advance as
may arise from the Capital Securities Guarantee Trustee's negligence or bad
faith. The Guarantor also covenants to indemnify each of the Capital
Securities Guarantee Trustee (and its officers, agents, directors and
employees) for, and to hold it harmless against, any and all loss, damage,
claim, liability or expense including taxes (other than taxes based on the
income of the Capital Securities Guarantee Trustee) incurred without
negligence or bad faith on the part of the Capital Securities Guarantee
Trustee and arising out of or in connection with the acceptance or
administration of this Capital Securities Guarantee, including the costs and
26
<PAGE>
expenses of defending itself against any claim of liability in the premises.
The provisions of this Article shall survive the termination of
this Capital Securities Guarantee.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. SUCCESSORS AND ASSIGNS. All guarantees and
agreements contained in this Capital Securities Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of the Guarantor
and shall inure to the benefit of the Holders of the Capital Securities then
outstanding. Except in connection with any merger or consolidation of the
Guarantor with or into another entity as permitted by the Indenture or any
sale, transfer or lease of the Guarantor's assets to another entity as
permitted by the Indenture, the Guarantor may not assign its rights or
delegate its obligations under the Capital Securities Guarantee without the
prior approval of the Holders of at least 66 2/3% of the aggregate
liquidation amount of the Capital Securities then outstanding.
SECTION 9.02. AMENDMENTS. Except with respect to any changes that
do not adversely affect the rights of Holders (in which case no consent of
Holders will be required), this Capital Securities Guarantee may only be
amended with the prior approval of the Holders of at least 66 2/3% in
liquidation amount of all the outstanding Capital Securities. The provisions
of Section 12.2 of the Declaration with respect to meetings of Holders of the
Capital Securities apply to the giving of such approval.
SECTION 9.03. NOTICES. All notices provided for in this Capital
Securities Guarantee shall be in writing, duly signed by the party giving
such notice, and shall be
27
<PAGE>
delivered, telecopied or mailed by first-class mail, as follows:
(a) If given to the Capital Securities Guarantee Trustee, at the
Capital Securities Guarantee Trustee's mailing address set forth below (or
such other address as the Capital Securities Guarantee Trustee may give
notice of to the Holders of the Capital Securities and to the Guarantor):
Norwest Bank Minnesota, National Association
Sixth & Marquette
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Administration,
Zenith National Capital Trust I
Telecopy No.: (612) 667-9825
(b) If given to the Guarantor, at the Guarantor's mailing address
set forth below (or such other address as the Guarantor may give notice of to
the Holders of the Capital Securities and the Capital Securities Guarantee
Trustee):
Zenith National Insurance Corp.
21255 Califa Street
Woodland Hills, California 91367-5021
Attention: Chairman and President
Telecopy No.: (813)713-0177
(c) If given to any Holder of Capital Securities, at the address
set forth on the books and records of the Issuer.
All such notices shall be deemed to have been given when received
in person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused
28
<PAGE>
delivery or cannot be delivered because of a changed address of which no
notice was given, such notice or other document shall be deemed to have been
delivered on the date of such refusal or inability to deliver.
SECTION 9.04. BENEFIT. This Capital Securities Guarantee is
solely for the benefit of the Holders of the Capital Securities and, subject
to Section 3.01(a), is not separately transferable from the Capital
Securities.
SECTION 9.05. GOVERNING LAW. THIS CAPITAL SECURITIES GUARANTEE
SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
29
<PAGE>
THIS CAPITAL SECURITIES GUARANTEE is executed as of the day and year
first above written.
ZENITH NATIONAL INSURANCE CORP.,
as Guarantor
By: /s/ Stanley R. Zax
-----------------------------
Stanley R. Zax
Chairman and President
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Capital Securities
Guarantee Trustee
By: /s/ Jane Y. Schweiger
-----------------------------------
Jane Y. Schweiger
Corporate Trust Officer
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
ZENITH NATIONAL INSURANCE CAPITAL TRUST I
Dated as of July 30, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I Interpretation and Definitions................................. 2
SECTION 1.1. Definitions.................................................... 2
ARTICLE II Trust Indenture Act............................................ 9
SECTION 2.1. Trust Indenture Act; Application............................... 9
SECTION 2.2. Lists of Holders of Securities................................. 9
SECTION 2.3. Reports by the Property Trustee................................ 10
SECTION 2.4. Periodic Reports to Property Trustee........................... 10
SECTION 2.5. Evidence of Compliance with Conditions Precedent............... 10
SECTION 2.6. Events of Default; Waiver...................................... 10
SECTION 2.7. Event of Default; Notice....................................... 12
ARTICLE III Organization................................................... 13
SECTION 3.1. Name........................................................... 13
SECTION 3.2. Office......................................................... 13
SECTION 3.3. Purpose........................................................ 13
SECTION 3.4. Authority...................................................... 13
SECTION 3.5. Title to Property of the Trust................................. 14
SECTION 3.6. Powers and Duties of the Regular Trustees...................... 14
SECTION 3.7. Prohibition of Actions by the Trust and the Trustees........... 17
SECTION 3.8. Powers and Duties of the Property Trustee...................... 18
SECTION 3.9. Certain Duties and Responsibilities of the Property Trustee.... 20
SECTION 3.10. Certain Rights of Property Trustee............................. 22
SECTION 3.11. Delaware Trustee............................................... 24
SECTION 3.12. Execution of Documents......................................... 24
SECTION 3.13. Not Responsible for Recitals or Issuance of Securities......... 24
SECTION 3.14. Duration of Trust.............................................. 25
SECTION 3.15. Mergers........................................................ 25
i
<PAGE>
ARTICLE IV Sponsor........................................................ 27
SECTION 4.1. Sponsor's Purchase of Common Securities........................ 27
SECTION 4.2. Responsibilities of the Sponsor................................ 27
ARTICLE V Trustees....................................................... 27
SECTION 5.1. Number of Trustees............................................. 27
SECTION 5.2. Delaware Trustee............................................... 28
SECTION 5.3. Property Trustee; Eligibility.................................. 28
SECTION 5.4. Qualifications of Regular Trustees............................. 29
SECTION 5.5. Initial Trustees............................................... 29
SECTION 5.6. Appointment, Removal and Resignation of Trustees............... 30
SECTION 5.7. Vacancies Among Trustees....................................... 31
SECTION 5.8. Effect of Vacancies............................................ 32
SECTION 5.9. Meetings....................................................... 32
SECTION 5.10. Delegation of Power............................................ 32
SECTION 5.11. Merger, Conversion, Consolidation or Succession to Business.... 33
ARTICLE VI Distributions.................................................. 33
SECTION 6.1. Distributions.................................................. 33
ARTICLE VII Issuance of Securities......................................... 34
SECTION 7.1. General Provisions Regarding Securities........................ 34
SECTION 7.2. Execution and Authentication................................... 34
SECTION 7.3. Book-Entry Capital Securities Certificates; Definitive
Capital Securities Certificates; Common Securities
Certificate.................................................... 35
SECTION 7.4. Registrar and Paying Agent..................................... 38
SECTION 7.5. Paying Agent to Hold Money in Trust............................ 38
SECTION 7.6. Replacement Securities......................................... 39
SECTION 7.7. Outstanding Capital Securities................................. 39
SECTION 7.8. Capital Securities in Treasury................................. 39
SECTION 7.9. Temporary Certificates......................................... 40
SECTION 7.10. Cancellation................................................... 41
ii
<PAGE>
SECTION 7.11. CUSIP Numbers.................................................. 41
ARTICLE VIII Termination of Trust........................................... 41
SECTION 8.1. Termination of Trust........................................... 41
ARTICLE IX Transfer of Interests.......................................... 43
SECTION 9.1. Transfer of Securities......................................... 43
SECTION 9.2. Transfer Procedures and Restrictions........................... 43
SECTION 9.3. Deemed Security Holders........................................ 51
SECTION 9.4. Book Entry Interests........................................... 52
SECTION 9.5. Notices to Depositary.......................................... 52
SECTION 9.6. Appointment of Successor Depositary............................ 52
ARTICLE X Limitation of Liability ofHolders of Securities, Trustees
or Others...................................................... 53
SECTION 10.1. Liability...................................................... 53
SECTION 10.2. Exculpation.................................................... 53
SECTION 10.3. Fiduciary Duty................................................. 54
SECTION 10.4. Indemnification................................................ 55
SECTION 10.5. Outside Businesses............................................. 55
ARTICLE XI Accounting..................................................... 56
SECTION 11.1. Fiscal Year.................................................... 56
SECTION 11.2. Certain Accounting Matters..................................... 56
SECTION 11.3. Banking........................................................ 56
SECTION 11.4. Withholding.................................................... 57
ARTICLE XII Amendments and Meetings........................................ 57
SECTION 12.1. Amendments..................................................... 57
SECTION 12.2. Meetings of the Holders of Securities; Action by
Written Consent................................................ 59
iii
<PAGE>
ARTICLE XIII Representations of Delaware Trustee............................ 61
SECTION 13.1. Representations and Warranties of Delaware Trustee............. 61
ARTICLE XIV Representations of Property Trustee............................ 62
SECTION 14.1. Representations and Warranties of Property Trustee............. 62
ARTICLE XV Miscellaneous.................................................. 63
SECTION 15.1. Notices........................................................ 63
SECTION 15.2. Governing Law.................................................. 65
SECTION 15.3. Intention of the Parties....................................... 65
SECTION 15.4. Headings....................................................... 65
SECTION 15.5. Successors and Assigns......................................... 65
SECTION 15.6. Partial Enforceability......................................... 65
SECTION 15.7. Counterparts................................................... 65
iv
<PAGE>
ANNEX I TERMS OF 8.55% CAPITAL SECURITIES 8.55% COMMON SECURITIES
EXHIBIT A - FORM OF 144A GLOBAL SECURITY
EXHIBIT B - FORM OF REGULATION S GLOBAL SECURITY
EXHIBIT C - FORM OF DEFINITIVE CAPITAL SECURITY
EXHIBIT D - FORM OF CERTIFICATE EVIDENCING COMMON SECURITIES
EXHIBIT E - FORM OF LETTER TO BE DELIVERED BY INSTITUTIONAL ACCREDITED
INVESTORS
EXHIBIT F - FORM OF TRANSFER CERTIFICATE-- REGULATION S GLOBAL SECURITY
OR INSTITUTIONAL ACCREDITED INVESTORS DEFINITIVE TO 144A
GLOBAL SECURITY
EXHIBIT G - FORM OF TRANSFER CERTIFICATE--144A GLOBAL SECURITY OR
INSTITUTIONAL ACCREDITED INVESTORS DEFINITIVE TO REGULATION S
GLOBAL SECURITY
</TABLE>
v
<PAGE>
AMENDED AND RESTATED DECLARATION OF TRUST
OF
ZENITH NATIONAL INSURANCE CAPITAL TRUST I
July 30, 1998
AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") dated and
effective as of July 30, 1998, by the undersigned trustees (together with all
other persons from time to time duly appointed and serving as trustees in
accordance with the provisions of this Declaration, the "Trustees"), Zenith
National Insurance Corp., a Delaware corporation, as trust sponsor (the
"Sponsor"), and by the holders, from time to time, of undivided beneficial
interests in the Trust issued pursuant to the Declaration;
WHEREAS, the Trustees and the Sponsor established a trust (the
"Trust") under the Business Trust Act (as hereinafter defined) pursuant to a
Declaration of Trust dated as of June 30, 1998 (the "Original Declaration"),
and a Certificate of Trust filed with the Secretary of State of the State of
Delaware on June 30, 1998, for the sole purpose of issuing and selling
certain securities representing undivided beneficial interests in the assets
of the Trust, investing the proceeds thereof in certain Debentures of the
Debenture Issuer (as hereinafter defined) and making Distributions (as
hereinafter defined);
WHEREAS, as of the date hereof, no interests in the Trust have been
issued; and
WHEREAS, all of the Trustees and the Sponsor, by this Declaration,
amend and restate each and every term and provision of the Original
Declaration;
NOW, THEREFORE, it being the intention of the parties hereto to
continue the Trust as a business trust under the Business Trust Act and that
this Declaration constitute the governing instrument of such business trust,
the Trustees declare that all assets contributed to the Trust will be held in
trust for the benefit of the holders, from time to time, of the securities
representing undivided beneficial interests in the assets of the Trust issued
hereunder, subject to the provisions of this Declaration.
<PAGE>
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1. DEFINITIONS. Unless the context otherwise requires:
(a) Capitalized terms used in this Declaration but not defined in
the preamble above have the respective meanings assigned to them in this
Section 1.1;
(b) a term defined anywhere in this Declaration has the same
meaning throughout;
(c) all references to "the Declaration" or "this Declaration" are
to this Declaration as modified, supplemented or amended from time to time;
(d) all references in this Declaration to Articles and Sections
and Exhibits are to Articles and Sections of and Exhibits to this Declaration
unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning
when used in this Declaration unless otherwise defined in this Declaration or
unless the context otherwise requires; and
(f) a reference to the singular includes the plural and vice versa.
"AFFILIATE" has the same meaning as given to that term in Rule 405
of the Securities Act or any successor rule thereunder.
"AGENT" means any Registrar, Paying Agent or co-registrar.
"AUTHORIZED OFFICER" of a Person means any Person that is
authorized to bind such Person.
"BENEFICIARIES" has the meaning set forth in Section 4.3(a).
"BOOK ENTRY INTEREST" means a beneficial interest in a Global
Certificate, ownership and transfers of which shall be maintained and made
through book entries by a Depositary as described in Section 7.3.
2
<PAGE>
"BUSINESS DAY" means any day other than a day on which banking
institutions in Los Angeles, California, New York, New York or Minneapolis,
Minnesota are authorized or required by law to close.
"BUSINESS TRUST ACT" means Chapter 38 of Title 12 of the Delaware
Code, 12 Del. Code Section 3801 ET SEQ., as it may be amended from time to
time.
"CAPITAL SECURITIES" has the meaning specified in Section 7.1(a).
"CAPITAL SECURITIES GUARANTEE" means the guarantee agreement to be
dated as of July 30, 1998, between the Sponsor and Norwest Bank Minnesota,
National Association, as Guarantee Trustee, in respect to the Capital
Securities.
"CAPITAL SECURITY BENEFICIAL OWNER" means, with respect to a Book
Entry Interest, a Person who is the beneficial owner of such Book Entry
Interest, as reflected on the books of the Depositary, or on the books of a
Person maintaining an account with such Depositary (directly as a Participant
or as an indirect participant, in each case in accordance with the rules of
such Depositary).
"CEDEL" means Cedel Bank, societe anonyme.
"CERTIFICATE" means a certificate in global or definitive form
representing a Common Security or a Capital Security.
"CLOSING DATE" means the Closing Date as defined in the Purchase
Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the United States Securities and Exchange
Commission or any successor thereto.
"COMMON SECURITIES" has the meaning specified in Section 7.1(a).
"COVERED PERSON" means: (a) any officer, director, shareholder,
partner, member, representative, employee or agent of (i) the Trust or (ii)
the Trust's Affiliates; and (b) any Holder of Securities.
"DEBENTURE ISSUER" means Zenith National Insurance Corp., as issuer
of the Debentures.
3
<PAGE>
"DEBENTURES" means the series of 8.55% Subordinated Deferrable
Interest Debentures due 2028 to be issued by the Debenture Issuer under the
Indenture to be held by the Property Trustee.
"DEFINITIVE CAPITAL SECURITIES" means the Capital Securities in
definitive form issued by the Trust, a specimen certificate for such Capital
Securities being attached hereto as Exhibit C.
"DELAWARE TRUSTEE" has the meaning set forth in Section 5.2.
"DEPOSITARY" means The Depository Trust Company, the initial
depositary, or any replacement depositary or successor to any of the
foregoing.
"DISTRIBUTION" means a distribution payable to Holders of
Securities in accordance with Section 6.1.
"EUROCLEAR" means the Euroclear System.
"EVENT OF DEFAULT" in respect of the Securities means an Event of
Default (as defined in the Indenture) in respect of the Debentures or a
default by the Sponsor under the Capital Securities Guarantee, which has
occurred and is continuing.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor legislation.
"GLOBAL CAPITAL SECURITY" has the meaning set forth in Section
7.3(b).
"HOLDER" means a Person in whose name a Certificate representing a
Security is registered, such Person being a beneficial owner within the
meaning of the Business Trust Act.
"INDEMNIFIED PERSON" means (a) any Trustee; (b) any Affiliate of
any Trustee; (c) any officers, directors, shareholders, members, partners,
employees, representatives or agents of any Trustee; or (d) any employee or
agent of the Trust or its Affiliates.
"INDENTURE" means the Indenture dated as of July 30, 1998, between
the Debenture Issuer and Norwest Bank Minnesota, National Association, as
trustee, and any indenture supplemental thereto pursuant to which the
Debentures are to be issued.
4
<PAGE>
"INDENTURE TRUSTEE" means Norwest Bank Minnesota, National
Association, as trustee under the Indenture until a successor is appointed
thereunder, and thereafter means such successor trustee.
"INSTITUTIONAL ACCREDITED INVESTOR" means an institutional investor
that is an "accredited investor" within the meaning of Rule 501(a)(1), (2),
(3) or (7) under the Securities Act.
"INVESTMENT COMPANY" means an investment company as defined in the
Investment Company Act.
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940,
as amended from time to time, or any successor legislation.
"LEGAL ACTION" has the meaning set forth in Section 3.6(g).
"LIST OF HOLDERS" has the meaning set forth in Section 2.2(a).
"MAJORITY IN LIQUIDATION AMOUNT" means, except as otherwise
provided in the terms of the Capital Securities, Holder(s) of outstanding
Securities voting together as a single class or, as the context may require,
Holders of outstanding Capital Securities or Holders of outstanding Common
Securities voting separately as a class, who are the record owners of more
than 50% of the aggregate liquidation amount of all outstanding Securities,
Capital Securities and/or Common Securities, as the case may be.
"OBLIGATIONS" means any costs, expenses or liabilities of the
Trust, other than obligations of the Trust to pay to Holders of any
Securities or other similar interests in the Trust the amounts due such
Holders pursuant to the terms of the Securities or such other similar
interests, as the case may be.
"OFFERING CIRCULAR" has the meaning set forth in Section 3.6(b)(i).
"OFFICERS' CERTIFICATE" means, with respect to any Person, a
certificate signed by two Authorized Officers of such Person. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Declaration shall include:
(a) a statement that each officer signing the Officers'
Certificate has read the covenant or condition and the definition relating
thereto;
5
<PAGE>
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers'
Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"PARTICIPANT" means a member of, or participant in, the Depositary.
"PAYING AGENT" has the meaning specified in Section 7.4.
"PERSON" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock,
limited liability company, trust, unincorporated association, or government
or any agency or political subdivision thereof, or any other entity of
whatever nature.
"PROPERTY TRUSTEE" means the Trustee meeting the eligibility
requirements set forth in Section 5.3.
"PROPERTY ACCOUNT" has the meaning set forth in Section 3.8(c).
"PURCHASE AGREEMENT" means the Purchase Agreement, dated July 27,
1998, among the Sponsor, the Trust and Credit Suisse First Boston
Corporation, BancAmerica Robertson Stephens and Donaldson, Lufkin & Jenrette
Securities Corporation.
"QIB" means a qualified institutional buyer as defined in Rule 144A.
"QUORUM" means a majority of the Regular Trustees or, if there are
only two Regular Trustees, both of them.
"REGISTRAR" has the meaning set forth in Section 7.4.
"REGULAR TRUSTEE" means any Trustee other than the Property Trustee
and the Delaware Trustee.
6
<PAGE>
"REGULATION S" means Regulation S under the Securities Act or any
successor provision thereto, as the same may be amended from time to time.
"REGULATION S CAPITAL SECURITIES" has the meaning set forth in
Section 7.3(b).
"RESPONSIBLE OFFICER" means, with respect to the Property Trustee,
any vice-president, any assistant vice-president, the treasurer, any
assistant treasurer, any trust officer or assistant trust officer or any
other officer in Corporate Trust Administration of the Property Trustee
customarily performing functions similar to those performed by any of the
above designated officers and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of that officer's knowledge of and familiarity with the particular
subject.
"RESTRICTED DEFINITIVE CAPITAL SECURITIES" has the meaning set
forth in Section 7.3(c).
"RESTRICTED CAPITAL SECURITY" means a Capital Security required by
Section 9.2 to contain a Restricted Securities Legend.
"RESTRICTED PERIOD" means the period of 40 consecutive days
beginning on and including the later of (x) the day on which the offering of
the Capital Securities commences or (y) the Closing Date.
"RESTRICTED SECURITIES LEGEND" has the meaning set forth in Section
9.2(h).
"RULE 144" means Rule 144 under the Securities Act, as such rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission.
"RULE 144A" means Rule 144A under the Securities Act, as such rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission.
"RULE 144A CAPITAL SECURITIES" has the meaning set forth in Section
7.3(a).
"RULE 144(k)" means Rule 144(k) as promulgated under the Securities
Act, or any successor provision thereto, as the same may be amended from time
to time.
7
<PAGE>
"RULE 3a-5" means Rule 3a-5 under the Investment Company Act, or
any successor rule or regulation.
"SECURITIES" means the Common Securities and the Capital Securities.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"66-2/3% IN LIQUIDATION AMOUNT" means, except as otherwise provided
in the terms of the Capital Securities, Holders of outstanding Securities
voting as a single class or, as the context may require, Holders of
outstanding Capital Securities or Holder(s) of outstanding Common Securities
voting separately as a class, representing at least 66-2/3% of the aggregate
liquidation amount of all outstanding Securities, Capital Securities and/or
Common Securities, as the case may be.
"SPECIAL EVENT" has the meaning set forth in the Indenture.
"SPONSOR" means Zenith National Insurance Corp., a Delaware
corporation, or any successor entity in a merger, consolidation or
amalgamation, in its capacity as sponsor of the Trust.
"SUPER MAJORITY" has the meaning set forth in Section 2.6(a)(ii).
"10% IN LIQUIDATION AMOUNT" means, except as otherwise provided in
the terms of the Capital Securities, Holders of outstanding Securities voting
together as a single class or, as the context may require, Holders of
outstanding Capital Securities or Holders of outstanding Common Securities,
voting separately as a class, representing 10% of the aggregate liquidation
amount of all outstanding Securities, Capital Securities and/or Common
Securities, as the case may be.
"TERMS" has the meaning set forth in Section 7.1(a).
"TREASURY REGULATIONS" means the income tax regulations, including
temporary and proposed regulations, promulgated under the Code by the United
States Treasury, as such regulations may be amended from time to time
(including corresponding provisions to succeeding regulations).
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as
amended from time to time.
8
<PAGE>
"TRUSTEE" or "TRUSTEES" means each Person who has signed this
Declaration as a trustee, so long as such Person shall continue in office in
accordance with the terms hereof, and all other Persons who may from time to
time be duly appointed, qualified and serving as Trustees in accordance with
the provisions hereof, and references herein to a Trustee or the Trustees
shall refer to such Person or Persons solely in their capacity as trustees
hereunder.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1. TRUST INDENTURE ACT; APPLICATION. (a) This
Declaration is not required to and will not be qualified under the Trust
Indenture Act. However, this Declaration is intended to comply with the
requirements of Sections 310 through 317, inclusive, of the Trust Indenture
Act and such provisions are specifically incorporated herein. If any
provision hereof limits, qualifies or conflicts with a provision of the Trust
Indenture Act specifically incorporated herein, then the provisions of this
Declaration shall control; provided that any penalties under the Trust
Indenture Act relating to noncompliance shall not be applicable to this
Declaration.
(b) The Property Trustee shall be the only Trustee which is a
trustee for the purposes of the Trust Indenture Act.
(c) The application of the Trust Indenture Act to this Declaration
shall not affect the nature of the Securities as equity securities
representing undivided beneficial interests in the assets of the Trust.
SECTION 2.2. LISTS OF HOLDERS OF SECURITIES. (a) Each of the
Sponsor and the Regular Trustees on behalf of the Trust shall provide the
Property Trustee (i) within 14 days after each record date for payment of
Distributions, a list, in such form as the Property Trustee may reasonably
require, of the names and addresses of the Holders of the Securities ("List
of Holders") as of such record date; PROVIDED THAT neither the Sponsor nor
the Regular Trustees on behalf of the Trust shall be obligated to provide
such List of Holders at any time the List of Holders does not differ from the
most recent List of Holders given to the Property Trustee by the Sponsor and
the Regular Trustees on behalf of the Trust, and (ii) a List of Holders at
any other time, within 30 days of receipt by the Trust of a written request
for a List of Holders as of a date no more than 14 days before such List of
Holders is given to the Property Trustee. The Property Trustee shall
preserve, in as current a form as is reasonably practicable, all information
contained in
9
<PAGE>
Lists of Holders given to it or which it receives in its capacity as Paying
Agent (if acting in such capacity); PROVIDED THAT the Property Trustee may
destroy any List of Holders previously given to it on receipt of a new List
of Holders.
(b) The Property Trustee shall comply with its obligations under
Sections 311(a), 312(b) and 312(b) of the Trust Indenture Act.
SECTION 2.3. REPORTS BY THE PROPERTY TRUSTEE. Within 60 days
after May 15 of each year, the Property Trustee shall provide to the Holders
of the Capital Securities such reports as are required by Section 313 of the
Trust Indenture Act, if any, in the form and in the manner provided by
Section 313 of the Trust Indenture Act. The Property Trustee shall also
comply with the requirements of Section 313(d) of the Trust Indenture Act.
SECTION 2.4. PERIODIC REPORTS TO PROPERTY TRUSTEE. Each of the
Sponsor and the Regular Trustees on behalf of the Trust shall provide to the
Property Trustee such documents, reports and information as required by
Section 314 of the Trust Indenture Act (if any) and the compliance
certificate required by Section 314 of the Trust Indenture Act in the form,
in the manner and at the times required by Section 314 of the Trust Indenture
Act.
SECTION 2.5. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
Each of the Sponsor and the Regular Trustees on behalf of the Trust shall
provide to the Property Trustee such evidence of compliance with any
conditions precedent, if any, provided for in this Declaration that relate to
any of the matters set forth in Section 314(c) of the Trust Indenture Act.
Any certificate or opinion required to be given by an officer pursuant to
Section 314(c)(1) may be given in the form of an Officers' Certificate.
SECTION 2.6. EVENTS OF DEFAULT; WAIVER. (a) The Holders of a
Majority in liquidation amount of Capital Securities may, by vote, on behalf
of the Holders of all of the Capital Securities, waive any past Event of
Default in respect of the Capital Securities and its consequences; PROVIDED
THAT, if the underlying Event of Default under the Indenture:
(i) is not waivable under the Indenture, the Event of Default
under the Declaration shall also not be waivable; or
(ii) requires the consent or vote of greater than a majority in
principal amount of the holders of the Debentures (a "Super Majority") to
be waived under the Indenture, the Event of Default under the Declaration
may only be waived by the vote of the Holders of at least the proportion in
liquidation amount of the
10
<PAGE>
Capital Securities that the relevant Super Majority represents of the
aggregate principal amount of the Debentures outstanding.
Upon such waiver, any such default shall cease to exist, and any Event of
Default with respect to the Capital Securities arising therefrom shall be
deemed to have been cured, for every purpose of this Declaration, but no such
waiver shall extend to any subsequent or other default or an Event of Default
with respect to the Capital Securities or impair any right consequent
thereon. Any waiver by the Holders of the Capital Securities of an Event of
Default with respect to the Capital Securities shall also be deemed to
constitute a waiver by the Holders of the Common Securities of any such Event
of Default with respect to the Common Securities for all purpose of this
Declaration without any further act, vote, or consent of the Holders of the
Securities.
(b) The Holders of a Majority in liquidation amount of the Common
Securities may, by vote, on behalf of the Holders of all of the Common
Securities, waive any past Event of Default with respect to the Common
Securities and its consequences; PROVIDED THAT, if the underlying Event of
Default under the Indenture:
(i) is not waivable under the Indenture, except where the Holders of
the Common Securities are deemed to have waived such Event of Default under
the Declaration as provided below in this Section 2.6(b), the Event of
Default under the Declaration shall also not be waivable; or
(ii) requires the consent or vote of a Super Majority to be waived,
except where the Holders of the Common Securities are deemed to have waived
such Event of Default under the Declaration as provided below in this
Section 2.6(b), the Event of Default under the Declaration may only be
waived by the vote of the Holders of at least the proportion in liquidation
preference of the Common Securities that the relevant Super Majority
represents of the aggregate principal amount of the Debentures outstanding;
PROVIDED, FURTHER, that each Holder of Common Securities will be deemed to
have waived any such Event of Default and all Events of Default with respect
to the Common Securities and its consequences until the effects of all Events
of Default with respect to the Capital Securities have been cured, waived or
otherwise eliminated, and until such Events of Default have been so cured,
waived or otherwise eliminated, the Property Trustee will be deemed to be
acting solely on behalf of the Holders of the Capital Securities and only the
Holders of the Capital Securities will have the right to direct the Property
Trustee in accordance with the terms of the Securities, this Declaration and
the Indenture. Subject to the foregoing provisions of this Section 2.6(b),
upon such waiver,
11
<PAGE>
any such default shall cease to exist and any Event of Default with respect
to the Common Securities arising therefrom shall be deemed to have been cured
for every purpose of this Declaration, but no such waiver shall extend to any
subsequent or other default or Event of Default with respect to the Common
Securities or impair any right consequent thereon.
(c) A waiver of an Event of Default under the Indenture by the
Property Trustee at the direction of the Holders of the Capital Securities,
constitutes a waiver of the corresponding Event of Default under this
Declaration. The foregoing provisions of this Section 2.6(c) shall be in lieu
of Section 316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B)
of the Trust Indenture Act is hereby expressly excluded from this Declaration
and the Securities.
SECTION 2.7. EVENT OF DEFAULT; NOTICE. (a) The Property Trustee
shall, within 90 days after the occurrence of an Event of Default, transmit
by certified mail, return receipt requested, or by overnight courier, to the
Holders of the Securities, notices of all defaults with respect to the
Securities actually known to the Property Trustee, unless such defaults have
been cured before the giving of such notice (the term "defaults" for the
purposes of this Section 2.7(a) being hereby defined to be an Event of
Default as defined in the Indenture not including any periods of grace
provided for therein and irrespective of the giving of any notice provided
therein); PROVIDED THAT, except for a default in the payment of principal of
(or premium, if any) or interest on any of the Debentures, the Property
Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee, or a trust committee of
directors and/or Responsible Officers of the Property Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders of the Securities.
(b) The Property Trustee shall not be deemed to have knowledge of
any default unless a Responsible Officer has actual knowledge of or has
received written notice of such default.
12
<PAGE>
ARTICLE III
ORGANIZATION
SECTION 3.1. NAME. The Trust is named Zenith National Insurance
Capital Trust I, as such name may be modified from time to time by the
Regular Trustees following written notice to the Holders of Securities. The
Trust's activities may be conducted under the name of the Trust or any other
name deemed advisable by the Regular Trustees.
SECTION 3.2. OFFICE. The address of the principal office of the
Trust is c/o Zenith National Insurance Corp., 21255 Califa Street, Woodland
Hills, California 91367 Attention: Chief Financial Officer. On ten Business
Days written notice to the Holders of Securities, the Regular Trustees may
designate another principal office.
SECTION 3.3. PURPOSE. The exclusive purposes and functions of the
Trust are (a) to issue and sell Securities and use the proceeds from such
sale to acquire the Debentures, (b) make Distributions to the Holders of the
Capital Securities and Common Securities and (c) except as otherwise limited
herein, to engage in only those other activities necessary or incidental
thereto. The Trust shall not borrow money, issue debt or reinvest profits
derived from investments, pledge any of its assets, or otherwise undertake
(or permit to be undertaken) any activity that would cause the Trust not to
be classified for United States federal income tax purposes as a grantor
trust.
The Trust will be classified as a grantor trust for United States
federal income tax purposes under Subpart E of Subchapter J of the Code,
pursuant to which the owners of the Capital Securities and the Common
Securities will be the owners of the Trust for United States federal income
tax purposes, and such owners will include directly in their gross income the
income, gain, deduction or loss of the Trust as if the Trust did not exist.
The Trustees, the Sponsor and the Capital Security Beneficial Owners of the
Capital Securities and Common Securities (by their acceptance of such
Securities) agree not to take any position for United States federal income
tax purposes which is contrary to the classification of the Trust as a
grantor trust.
SECTION 3.4. AUTHORITY. Subject to the limitations provided in
this Declaration and to the specific duties of the Property Trustee, the
Regular Trustees shall have exclusive and complete authority to carry out the
purposes of the Trust. An action taken by the Regular Trustees in accordance
with their powers shall constitute the act of and serve to bind the Trust and
an action taken by the Property Trustee in accordance with its powers shall
constitute the act of and serve to bind the Trust. In dealing with the
13
<PAGE>
Trustees acting on behalf of the Trust, no person shall be required to
inquire into the authority of the Trustees to bind the Trust. Persons
dealing with the Trust are entitled to rely conclusively on the power and
authority of the Trustees as set forth in this Declaration.
SECTION 3.5. TITLE TO PROPERTY OF THE TRUST. Except as provided
in Section 3.8 with respect to the Debentures and the Property Account or as
otherwise provided in this Declaration, legal title to all assets of the
Trust shall be vested in the Trust. The Holders shall not have legal title
to any part of the assets of the Trust, but shall have an undivided
beneficial interest in the assets of the Trust.
SECTION 3.6. POWERS AND DUTIES OF THE REGULAR TRUSTEES. The
Regular Trustees shall have the exclusive power, duty and authority to cause
the Trust to engage in the following activities:
(a) to issue and sell the Capital Securities and Common Securities
in accordance with this Declaration; PROVIDED, HOWEVER, that the Trust may
issue no more than one series of Capital Securities and no more than one
series of Common Securities; and PROVIDED, FURTHER, that there shall be no
interests in the Trust other than the Securities, and the issuance of
Securities shall be limited to the one-time simultaneous issuance of both
Capital Securities and Common Securities on the Closing Date;
(b) in connection with the issue and sale of the Capital
Securities, at the direction of the Sponsor, to:
(i) execute, if necessary, a confidential offering circular (the
"Offering Circular") in preliminary and final form, and any supplements
thereto, prepared by the Sponsor, in relation to the offering and sale of
Capital Securities to QIBs in reliance on Rule 144A under the Securities
Act and to Institutional Accredited Investors);
(ii) execute and file any documents prepared by the Sponsor, or take
any acts determined by the Sponsor to be necessary in order to qualify or
register all or part of the Capital Securities in any state or foreign
jurisdiction in which the Sponsor has determined to qualify or register
such Capital Securities for sale;
(iii) to execute and deliver letters, documents, or instruments
with the Depositary relating to the Capital Securities; and
14
<PAGE>
(iv) execute and enter into agreements related to the Purchase
Agreement providing for the sale of the Capital Securities and consummate
the transactions contemplated thereby;
(c) to acquire the Debentures with the proceeds of the sale of the
Capital Securities and the Common Securities; PROVIDED, HOWEVER, that the
Regular Trustees shall cause title to the Debentures to be held of record in the
name of the Property Trustee for the benefit of the Holders of the Capital
Securities and the Holders of the Common Securities;
(d) to give the Sponsor and the Property Trustee prompt written
notice of the occurrence of a Special Event;
(e) to establish a record date with respect to all actions to be
taken hereunder that require a record date be established, including and with
respect to, for the purposes of Section 316(c) of the Trust Indenture Act,
Distributions, voting rights, redemptions and exchanges, and to issue relevant
notices to the Holders of Capital Securities and Holders of Common Securities as
to such actions and applicable record dates;
(f) to take all action, and perform such duties as may be required of
the Regular Trustees pursuant to the terms of the Securities (set forth in Annex
I hereto and made a part hereof);
(g) to bring or defend, pay, collect, compromise, arbitrate, resort
to legal action, or otherwise adjust claims or demands of or against the Trust
("Legal Action"), unless pursuant to Section 3.8(e), the Property Trustee has
the exclusive power to bring such Legal Action;
(h) to employ or otherwise engage employees and agents (as may be
designated as officers with titles) and managers, contractors, advisors and
consultants, and pay reasonable compensation for such services;
(i) to cause the Trust to comply with the Trust's obligations under
this Declaration;
(j) to give the certificate required by Section 314(a)(4) of the
Trust Indenture Act to the Property Trustee, which certificate may be executed
by any Regular Trustee;
15
<PAGE>
(k) to incur expenses that are necessary or incidental to carry out
any of the purposes of the Trust;
(l) to act as, or appoint another Person to act as, Registrar and
transfer agent for the Securities;
(m) to give prompt written notice to the Holders of the Securities of
any notice received from the Sponsor of its election to defer payments of
interest on the Debentures by deferring the interest payments under the
Indenture;
(n) to execute all documents or instruments, perform all duties and
powers, and do all things for and on behalf of the Trust in all matters
necessary or incidental to the foregoing;
(o) to take all action that may be necessary or appropriate for the
preservation and the confirmation of the Trust's valid existence, rights,
franchises and privileges as a statutory business trust under the laws of the
State of Delaware and of each other jurisdiction in which such existence is
necessary to protect the limited liability of the Holders of the Capital
Securities or to enable the Trust to effect the purposes for which the Trust was
created;
(p) to take any action, not inconsistent with this Declaration or
with applicable law, that the Regular Trustees determine in their discretion to
be necessary or desirable in carrying out the activities of the Trust as set out
in this Section 3.6, including, but not limited to:
(i) causing the Trust not to be deemed to be an Investment Company
required to be registered under the Investment Company Act;
(ii) causing the Trust to be classified for United States federal
income tax purposes as a grantor trust; and
(iii) cooperating with the Debenture Issuer to ensure that the
Debentures will be treated as indebtedness of the Debenture Issuer for
United States federal income tax purposes;
PROVIDED THAT such action does not adversely affect the interests of Holders;
and
(q) to take all action necessary to cause all applicable tax returns
and tax information reports that are required to be filed with respect to the
Trust, or delivered
16
<PAGE>
to the Holders of the Securities, as the case may be, to be duly prepared,
filed or delivered by the Regular Trustees, as the case may be, on behalf of
the Trust.
The Regular Trustees shall exercise the powers set forth in this
Section 3.6 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and the Regular Trustees shall not take any
action that is inconsistent with the purposes and functions of the Trust set
forth in Section 3.3.
Subject to this Section 3.6, the Regular Trustees shall have none of
the powers or the authority of the Property Trustee set forth in Section 3.8.
SECTION 3.7. PROHIBITION OF ACTIONS BY THE TRUST AND THE TRUSTEES.
(a) The Trust shall not, and the Trustees (including the Property Trustee)
shall not, engage in any activity other than as required or authorized by
this Declaration. In particular, the Trust shall not and the Trustees
(including the Property Trustee) shall not cause the Trust to:
(i) invest any proceeds received by the Trust from holding the
Debentures, but shall distribute all such proceeds to Holders of Securities
pursuant to the terms of this Declaration and of the Securities;
(ii) acquire any assets other than as expressly provided herein;
(iii) possess Trust property for other than a Trust purpose;
(iv) make any loans or incur any indebtedness other than loans
represented by the Debentures;
(v) possess any power or otherwise act in such a way as to vary the
Trust assets or the terms of the Securities in any way whatsoever;
(vi) issue any securities or other evidences of beneficial ownership
of, or beneficial interest in, the Trust other than the Securities; or
(vii) other than as provided in this Declaration or Annex I hereto,
(A) direct the time, method and place of exercising any trust or power
conferred upon the Indenture Trustee with respect to the Debentures, (B)
waive any past default that is not waivable under Section 5.13 of the
Indenture, (C) exercise any right to rescind or annul any declaration
that the principal of all the Debentures shall be due and payable, or (D)
consent to any amendment, modification or termination
17
<PAGE>
of the Indenture or the Debentures where such consent shall be required
unless the Trust shall have received an opinion of a nationally
recognized independent tax counsel experienced in such matters to the
effect that such modification will not cause more than an insubstantial
risk that for United States federal income tax purposes the Trust will be
classified as other than a grantor trust.
SECTION 3.8. POWERS AND DUTIES OF THE PROPERTY TRUSTEE. (a)
The legal title to the Debentures shall be owned by and held of record in
the name of the Property Trustee in trust for the benefit of the Holders
of the Securities. The right, title and interest of the Property Trustee
to the Debentures shall vest automatically in each Person who may
hereafter be appointed as Property Trustee in accordance with Section
5.6. Such vesting and cessation of title shall be effective whether or
not conveyancing documents with regard to the Debentures have been
executed and delivered.
(b) The Property Trustee shall not transfer its right, title and
interest in the Debentures to the Regular Trustees or to the Delaware Trustee
(if the Property Trustee does not also act as Delaware Trustee).
(c) The Property Trustee shall:
(i) establish and maintain a segregated non-interest bearing trust
account (the "Property Account") in the name of and under the exclusive
control of the Property Trustee on behalf of the Holders of the Securities
and, upon the receipt of payments of funds made in respect of the
Debentures held by the Property Trustee, deposit such funds into the
Property Account and make payments to the Holders of the Capital Securities
and Holders of the Common Securities from the Property Account in
accordance with Section 6.1. Funds in the Property Account shall be held
uninvested until disbursed in accordance with this Declaration.
(ii) engage in such ministerial activities as so directed and as
shall be necessary or appropriate to effect the redemption of the Capital
Securities and the Common Securities to the extent the Debentures are
redeemed or mature; and
(iii) upon written notice of distribution issued by the Regular
Trustees in accordance with the terms of the Securities, engage in such
ministerial activities as so directed as shall be necessary or appropriate
to effect the distribution of the Debentures to Holders of Securities
pursuant to the terms of the Securities.
18
<PAGE>
(d) The Property Trustee shall take all actions and perform such
duties as may be specifically required of the Property Trustee pursuant to the
terms of the Securities (set forth in Annex I hereto and made a part hereof).
(e) The Property Trustee shall take any Legal Action which arises out
of or in connection with an Event of Default or the Property Trustee's duties
and obligations under this Declaration.
(f) The Property Trustee shall not resign as a Trustee unless either:
(i) the Trust has been completely liquidated and the proceeds of the
liquidation distributed to the Holders of Securities pursuant to the terms
of the Securities; or
(ii) a Successor Property Trustee has been appointed and has accepted
that appointment in accordance with Section 5.6.
(g) The Property Trustee shall have the legal power to exercise all
of the rights, powers and privileges of a holder of Debentures under the
Indenture and, if an Event of Default occurs and is continuing, the Property
Trustee shall, for the benefit of Holders of the Securities, enforce its rights
as holder of the Debentures subject to the rights of the Holders pursuant to the
terms of such Securities.
(h) The Property Trustee will act as Paying Agent and Registrar to
pay Distributions, redemption payments or liquidation payments on behalf of the
Trust with respect to all Securities and any such Paying Agent and Registrar
shall comply with Section 317(b) of the Trust Indenture Act. Any Paying Agent
or Registrar may be removed by the Property Trustee at any time and a successor
Paying Agent or Registrar or additional Paying Agents or Registrars may be
appointed at any time by the Property Trustee.
(i) Subject to this Section 3.8, the Property Trustee shall have none
of the duties, liabilities, powers or the authority of the Regular Trustees set
forth in Section 3.6.
The Property Trustee must exercise the powers set forth in this
Section 3.8 in a manner that is consistent with the purpose and functions of
the Trust set out in Section 3.3, and the Property Trustee shall not take any
action that is inconsistent with the purposes and functions of the Trust set
out in Section 3.3.
19
<PAGE>
SECTION 3.9. CERTAIN DUTIES AND RESPONSIBILITIES OF THE PROPERTY
TRUSTEE. (a) The Property Trustee, before the occurrence of any Event of
Default and after the curing of all Events of Default that any have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Declaration and no implied covenants shall be read into this Declaration
against the Property Trustee. In case an Event of Default has occurred (that
has not been cured or waived pursuant to Section 2.6), the Property Trustee
shall exercise such of the rights and powers vested in it by this
Declaration, and use the same degree of care and skill in their exercise, as
a prudent person would exercise or use under the circumstances in the conduct
of his or her own affairs.
(b) No provision of this Declaration shall be construed to relieve
the Property Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Property Trustee shall be
determined solely by the express provisions of this Declaration and
the Property Trustee shall not be liable except for the performance of
such duties and obligations as are specifically set forth in this
Declaration, and no implied covenants or obligations shall be read
into this Declaration against the Property Trustee; and
(B) in the absence of bad faith on the part of the Property
Trustee, the Property Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Property
Trustee and conforming to the requirements of this Declaration;
provided that in the case of any such certificates or opinions that by
any provision hereof are specifically required to be furnished to the
Property Trustee, the Property Trustee shall be under a duty to
examine the same to determine whether or not they conform to the
requirements of this Declaration;
(ii) the Property Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Property
Trustee, unless it shall be proved that the Property Trustee was negligent
in ascertaining the pertinent facts;
20
<PAGE>
(iii) the Property Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of not less than a Majority in liquidation
amount of the Securities or a Super Majority, as applicable, relating to
the time, method and place of conducting any proceeding for any remedy
available to the Property Trustee, or exercising any power conferred upon
the Property Trustee under this Declaration;
(iv) no provision of this Declaration shall require the Property
Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that the repayment of such funds or liability is not
reasonably assured to it under the terms of this Declaration or adequate
indemnity against such risk or liability is not reasonably assured to it;
(v) the Property Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the Debentures and the
Property Account shall be to deal with such property in a similar manner as
the Property Trustee deals with similar property for its own account,
subject to the protections and limitations on liability afforded to the
Property Trustee under this Declaration and the Trust Indenture Act;
(vi) the Property Trustee shall have no duty or liability for or
with respect to the value, genuineness, existence or sufficiency of the
Debentures or the payment of any taxes or assessments levied thereon or in
connection therewith;
(vii) the Property Trustee shall not be liable for any interest on
any money received by it except as it may otherwise agree with the Sponsor.
Money held by the Property Trustee need not be segregated from other funds
held by it except in relation to the Property Account maintained by the
Property Trustee pursuant to Section 3.6(c)(i) and except to the extent
otherwise required by law; and
(viii) the Property Trustee shall not be responsible for monitoring
the compliance by the Delaware Trustee, the Regular Trustees or the Sponsor
with their respective duties under this Declaration, nor shall the Property
Trustee be liable for the default or misconduct of the Delaware Trustee,
the Regular Trustees or the Sponsor.
21
<PAGE>
SECTION 3.10. CERTAIN RIGHTS OF PROPERTY TRUSTEE. (a) Subject to
the provisions of Section 3.9:
(i) the Property Trustee may rely and shall be fully protected in
acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document believed by it to be genuine and to have been
signed, sent or presented by the proper party or parties;
(ii) any direction or act of the Sponsor or the Regular Trustees
contemplated by this Declaration shall be sufficiently evidenced by an
Officers' Certificate;
(iii) whenever in the administration of this Declaration, the
Property Trustee shall deem it desirable that a matter be proved or
established before taking, suffering or omitting any action hereunder, the
Property Trustee (unless other evidence is herein specifically prescribed)
may, in the absence of bad faith on its part, request and rely upon an
Officers' Certificate which, upon receipt of such request, shall be
promptly delivered by the Sponsor or the Regular Trustees;
(iv) the Property Trustee shall have no duty to see to any
recording, filing or registration of any instrument (including any
financing or continuation statement or any filing under tax or securities
laws) or any rerecording, refiling or registration thereof;
(v) the Property Trustee may consult with counsel of its choice or
other experts and the advice or opinion of such counsel and experts with
respect to legal matters or advice within the scope of such experts' area
of expertise shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder in good
faith and in accordance with such advice or opinion. Such counsel may be
counsel to the Sponsor or any of its Affiliates, and such counsel may be an
employee of the Sponsor or its Affiliates. The Property Trustee shall have
the right at any time to seek instructions concerning the administration of
this Declaration from any court of competent jurisdiction;
(vi) the Property Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Declaration at the request
or direction of any Holder, unless such Holder shall have provided to the
Property Trustee adequate security and indemnity, which would satisfy a
reasonable person in the
22
<PAGE>
position of the Property Trustee, against the costs, expenses (including
its reasonable attorneys' fees and expenses) and liabilities that might
be incurred by it in complying with such request or direction, including
such reasonable advances as may be requested in writing by the Property
Trustee; provided that nothing contained in this Section 3.10(a)(vi)
shall be taken to relieve the Property Trustee, upon the occurrence of an
Event of Default, of its obligation to exercise the rights and powers
vested in it by this Declaration;
(vii) the Property Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, security, bond, debenture, note, other evidence
of indebtedness or other paper or document, but the Property Trustee, in
its discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit;
(viii) the Property Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Property Trustee shall not be responsible for
any misconduct or negligence on the part of any agent or attorney appointed
with due care by it hereunder;
(ix) any action taken by the Property Trustee or its agents
hereunder shall bind the Trust and the Holders of the Securities, and the
signature of the Property Trustee or its agents alone shall be sufficient
and effective to perform any such action and no third party shall be
required to inquire as to the authority of the Property Trustee to so act
or as to its compliance with any of the terms and provisions of this
Declaration, both of which shall be conclusively evidenced by the Property
Trustee or its agent taking such action;
(x) whenever in the administration of this Declaration the Property
Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder, the
Property Trustee (i) may request instructions from the Holders of the
Securities which instructions may only be given by the Holders of the same
proportion in liquidation amount of the Securities as would be entitled to
direct the Property Trustee under the terms of the Securities in respect of
such remedy, right or action, (ii) may refrain from enforcing such remedy,
right or taking such other action until such instructions are received, and
(iii) shall be protected in acting in accordance with such instructions;
23
<PAGE>
(xi) except as otherwise expressly provided by this Declaration, the
Property Trustee shall not be under any obligation to take any action that
is discretionary under the provisions of this Declaration; and
(xii) the Property Trustee shall not be liable for any action
taken, suffered, or omitted to be taken by it in good faith and reasonably
believed by it to be authorized or within the discretion or rights or
powers conferred upon it by this Declaration.
(b) No provision of this Declaration shall be deemed to impose any
duty or obligation on the Property Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Property Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, or to exercise any right, power, duty or
obligation. No permissive power or authority available to the Property Trustee
shall be construed to be a duty.
SECTION 3.11. DELAWARE TRUSTEE. (a) Notwithstanding any other
provision of this Declaration other than Section 5.2 and except as provided
below in this Section 3.11, the Delaware Trustee shall not be entitled to
exercise any powers, nor shall the Delaware Trustee have any of the duties
and responsibilities of the Regular Trustees or the Property Trustee
described in this Declaration. Except as set forth in Section 5.2, the
Delaware Trustee shall be a Trustee for the sole and limited purpose of
fulfilling the requirements of Section 3807 of the Business Trust Act and is
entitled only to such powers as are necessary to fulfill such requirements,
including the power to sign the Certificate of Trust.
(b) The Delaware Trustee shall not be responsible for monitoring the
compliance by the Property Trustee, the Regular Trustees or the Sponsor with
their respective duties under this Declaration, nor shall the Delaware Trustee
be liable for any default or misconduct of the Property Trustee, the Regular
Trustees, or the Sponsor.
SECTION 3.12. EXECUTION OF DOCUMENTS. Unless otherwise determined
by the Regular Trustees, and except as otherwise required by the Business
Trust Act, any Regular Trustee is authorized to execute on behalf of the
Trust any documents that the Regular Trustees have the power and authority to
execute pursuant to Section 3.6.
SECTION 3.13. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
SECURITIES. The recitals contained in this Declaration and the Securities
shall be taken as the statements of the Sponsor, and the Trustees do not
assume any responsibility for their
24
<PAGE>
correctness. The Trustees make no representations as to the value or condition
of the property of the Trust or any part thereof. The Trustees make no
representations as to the validity or sufficiency of this Declaration or the
Securities.
SECTION 3.14. DURATION OF TRUST. The Trust, unless terminated
pursuant to the provisions of Article VIII hereof, shall exist until June 30,
2038.
SECTION 3.15. MERGERS. (a) The Trust may not consolidate,
amalgamate, merge with or into, or be replaced by, or convey, transfer or
lease its properties and assets substantially as an entirety to any
corporation or other entity or person, except as described in Section 3.15(b)
and (c).
(b) The Trust may, with the consent of a majority of the Regular
Trustees and without the consent of the Holders of Securities or the Delaware
Trustee or the Property Trustee, consolidate, amalgamate, merge with or into or
be replaced by a trust organized as such under the laws of any state or the
District of Columbia; PROVIDED THAT:
(i) if the Trust is not the surviving entity, the entity (the
"Successor Entity") either:
(A) expressly assumes all of the obligations of the Trust under
the Securities; or
(B) substitutes for the Securities other securities having
substantially the same terms as the Capital Securities or the Common
Securities, as the case may be (the "Successor Securities"), as long
as the Successor Securities rank, with respect to participation in the
profits and distributions or in the assets of the Successor Entity at
least as high as the Capital Securities or the Common Securities, as
the case may be, rank with respect to participation in the profits and
dividends or in the assets of the Trust;
(ii) the Debenture Issuer expressly acknowledges such Successor
Entity as the Holder of the Debentures;
(iii) the Capital Securities or any Successor Securities are
listed, or any Successor Securities will be listed upon notification of
issuance, on any national securities exchange or with any other
organization on which the Capital Securities (including any Successor
Securities) are then listed or quoted;
25
<PAGE>
(iv) such merger, consolidation, amalgamation or replacement does
not cause the Capital Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization;
(v) such merger, consolidation, amalgamation or replacement does
not adversely affect the powers, preferences and other special rights of
the Holders of the Capital Securities (including any Successor Securities)
in any material respect;
(vi) such Successor Entity has a purpose substantially identical to
that of the Trust;
(vii) prior to such merger, consolidation, amalgamation or
replacement, the Sponsor has received an opinion of a nationally recognized
independent counsel (reasonably acceptable to the Property Trustee) to the
Trust experienced in such matters to the effect that:
(A) the Successor Entity will be treated as a grantor trust for
United States federal income tax purposes;
(B) following such merger, consolidation, amalgamation or
replacement, neither the Sponsor nor the Successor Entity will be
required to register as an Investment Company; and
(C) such merger, consolidation, amalgamation or replacement will
not adversely affect the rights, preferences and privileges of the
Holders of the Securities (including any Successor Securities) in any
material respect; and
(viii) the Sponsor provides a guarantee to the Holders of the
Successor Securities with respect to the Successor Entity having
substantially the same terms as the Capital Securities Guarantee.
(c) Notwithstanding Section 3.15(b), the Trust shall not, except with
the consent of Holders of 100% in liquidation amount of the Common Securities,
merge with or into, consolidate, amalgamate, or be replaced by any other entity
or permit any other entity to merge with or into, consolidate, amalgamate, or
replace it, if such merger, consolidation, amalgamation or replacement would
cause the Trust or Successor Entity to be classified as other than a grantor
trust for United States federal income tax purposes.
26
<PAGE>
ARTICLE IV
SPONSOR
SECTION 4.1. SPONSOR'S PURCHASE OF COMMON SECURITIES. On the
Closing Date the Sponsor will purchase an amount of Common Securities issued
by the Trust such that the aggregate liquidation amount of such Common
Securities purchased by the Sponsor shall at such date equal at least 3% of
the total capital of the Trust.
SECTION 4.2. RESPONSIBILITIES OF THE SPONSOR. In connection with the
issuance and sale of the Capital Securities, the Sponsor shall have the
exclusive right and responsibility to engage in the following activities:
(a) to prepare the Offering Circular including any amendments or
supplements thereto;
(b) to determine the states and foreign jurisdictions in which to
take appropriate action to qualify or register for sale all or part of the
Capital Securities and to do any and all such acts, other than actions which
must be taken by the Trust, and advise the Trust of actions it must take, and
prepare for execution and filing any documents to be executed and filed by the
Trust, as the Sponsor deems necessary or advisable in order to comply with the
applicable law of any such states and foreign jurisdictions; and
(c) to negotiate the terms of and to execute and deliver a Purchase
Agreement and other related agreements providing for the sale of the Capital
Securities.
ARTICLE V
TRUSTEES
SECTION 5.1. NUMBER OF TRUSTEES. The number of Trustees shall
initially be four (4), and:
(a) at any time before the issuance of any Securities, the Sponsor
may, by written instrument, increase or decrease the number of Trustees; and
(b) after the issuance of any Securities, the number of Trustees may
be increased or decreased by vote of the Holders of a Majority in liquidation
amount of the
27
<PAGE>
Common Securities voting as a class at a meeting of the Holders of the Common
Securities;
PROVIDED THAT, if the Property Trustee does not also act as Delaware Trustee,
the number of Trustees shall be at least four (4).
SECTION 5.2. DELAWARE TRUSTEE. As required by the Business Trust
Act, one Trustee (the "Delaware Trustee") shall be a natural person who is a
resident of the State of Delaware or an entity which has its principal place
of business in the State of Delaware, and otherwise meets the requirements of
Section 3807 of the Business Trust Act; PROVIDED THAT, if the Property
Trustee has its principal place of business in the State of Delaware and
otherwise meets the requirements of Section 3807 of the Business Trust Act,
then the Property Trustee shall also be the Delaware Trustee and Section 3.11
shall have no application.
SECTION 5.3. PROPERTY TRUSTEE; ELIGIBILITY. (a) There shall at
all times be one Trustee which shall act as Property Trustee which shall:
(i) not be an Affiliate of the Sponsor; and
(ii) be a corporation organized and doing business under the laws of
the United States of America or any state or territory thereof or of the
District of Columbia, or a corporation or Person permitted by the
Commission to act as an institutional trustee under the Trust Indenture
Act, authorized under such laws to exercise corporate trust powers, having
a combined capital and surplus of at least 50 Million U.S. Dollars
($50,000,000), and subject to supervision or examination by federal, state,
territorial or District of Columbia authority. If such corporation
publishes reports of conditions at least annually, pursuant to law or to
the requirements of the supervising or examining authority referred to
above, then, for the purposes of this Section 5.3(a)(ii), the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of conditions so
published.
(b) If at any time the Property Trustee shall cease to be eligible to
so act under Section 5.3(a), the Property Trustee shall immediately resign in
the manner and with the effect as set forth in Section 5.6(c).
(c) If the Property Trustee has or shall acquire any "conflicting
interests" within the meaning of Section 310(b) of the Trust Indenture Act, the
Property Trustee and the Holder of the Common Securities (as if it were the
obliger referred to in Section 310(b)
28
<PAGE>
of the Trust Indenture Act) shall in all respects comply with the provisions
of Section 320(b) of the Trust Indenture Act.
(d) The Capital Securities Guarantee shall be deemed to be
specifically described in this Declaration for purposes of clause (i) of the
first provision contained in Section 310(b) of the Trust Indenture Act.
SECTION 5.4. QUALIFICATIONS OF REGULAR TRUSTEES. Each Regular
Trustee shall be either a natural person who is at least 21 years of age or a
legal entity that shall act through one or more Authorized Officers.
SECTION 5.5. INITIAL TRUSTEES. The initial Regular Trustees shall
be:
Stanley R. Zax
c/o Zenith National Insurance Corp.
21255 Califa Street
Woodland Hills, California 91367-5021
Fredricka Taubitz
c/o Zenith National Insurance Corp.
21255 Califa Street
Woodland Hills, California 91367-5021
The initial Delaware Trustee shall be:
WILMINGTON TRUST COMPANY
1100 North Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Administration,
Zenith National Insurance Capital Trust I
The initial Property Trustee shall be:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Sixth & Marquette
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Administration,
Zenith National Insurance Capital Trust I
29
<PAGE>
SECTION 5.6. APPOINTMENT, REMOVAL AND RESIGNATION OF TRUSTEES.
(a) Subject to Section 5.6(b), Trustees may be appointed or removed without
cause at any time:
(i) until the issuance of any Securities, by written instrument
executed by the Sponsor; and
(ii) after the issuance of any Securities, by vote of the Holders of a
Majority in liquidation amount of the Common Securities voting as a class
at a meeting of the Holders of the Common Securities; PROVIDED, HOWEVER,
that if an Event of Default shall have occurred and be continuing, the
Property Trustee and Delaware Trustee may be removed only by the vote of
Holders of a Majority in liquidation amount of the Capital Securities
voting as a class at a meeting of Holders of Capital Securities.
(b) The Trustee that acts as Property Trustee shall not be removed in
accordance with Section 5.6(a) until a successor Property Trustee (the
"Successor Property Trustee") has been appointed and has accepted such
appointment by written instrument executed by such Successor Property Trustee
and delivered to the Regular Trustees and the Sponsor.
(c) The Trustee that acts as Delaware Trustee shall not be removed in
accordance with Section 5.6(a) until a successor Trustee possessing the
qualifications to act as Delaware Trustee under Sections 5.2 and 5.4 (a
"Successor Delaware Trustee") has been appointed and has accepted such
appointment by written instrument executed by such Successor Delaware Trustee
and delivered to the Regular Trustees, the Sponsor and to the Delaware Trustee
being removed.
(d) A Trustee appointed to office shall hold office until his
successor shall have been appointed or until his death (or dissolution or
liquidation or other similar event in the case of a Trustee who is other than a
natural person), removal or resignation. Any Trustee may resign from office
(without need for prior or subsequent accounting) by an instrument in writing
signed by the Trustee and delivered to the Sponsor and the Trust, which
resignation shall take effect upon such delivery or upon such later date as is
specified therein; PROVIDED, HOWEVER, that:
30
<PAGE>
(i) No such resignation of the Trustee that acts as the Property
Trustee shall be effective:
(A) until a Successor Property Trustee has been appointed and
has accepted such appointment by instrument executed by such Successor
Property Trustee and delivered to the Trust, the Sponsor and the
resigning Property Trustee; or
(B) until the assets of the Trust have been completely
liquidated and the proceeds thereof distributed to the Holders of the
Securities; and
(ii) No such resignation of the Trustee that acts as the Delaware
Trustee shall be effective until a Successor Delaware Trustee has been
appointed and has accepted such appointment by instrument executed by such
Successor Delaware Trustee and delivered to the Trust, the Sponsor and the
resigning Delaware Trustee.
(e) The Holders of the Common Securities shall use their best efforts
to promptly appoint a Successor Property Trustee or Successor Delaware Trustee,
as the case may be, if the Property Trustee or the Delaware Trustee delivers an
instrument of resignation in accordance with this Section 5.6.
(f) If no Successor Property Trustee or Successor Delaware Trustee
shall have been appointed and accepted appointment as provided in this Section
5.6 within 60 days after delivery to the Sponsor and the Trust of an instrument
of resignation or removal, the Property Trustee or Delaware Trustee resigning or
being removed, as applicable, may petition any court of competent jurisdiction
for appointment of a Successor Property Trustee or Successor Delaware Trustee.
Such court may thereupon, after prescribing such notice, if any, as it may deem
proper and prescribe, appoint a Successor Property Trustee or Successor Delaware
Trustee, as the case may be.
(g) No Property Trustee or Delaware Trustee shall be liable for the
acts or omissions to act of any Successor Property Trustee or Successor Delaware
Trustee, as the case may be. No Successor Property Trustee or Successor
Delaware Trustee shall be liable for the acts or omissions of a predecessor
Property Trustee or Delaware Trustee, as the case may be.
SECTION 5.7. VACANCIES AMONG TRUSTEES. If a Trustee ceases to hold
office for any reason and the number of Trustees is not reduced pursuant to
Section 5.1,
31
<PAGE>
or if the number of Trustees is increased pursuant to Section 5.1, a vacancy
shall occur. A resolution certifying the existence of such vacancy by a
majority of the Regular Trustees (or, so long as there are only two Regular
Trustees, by both of the Regular Trustees) shall be conclusive evidence of
the existence of such vacancy. The vacancy shall be filled with a Trustee
appointed in accordance with Section 5.6.
SECTION 5.8. EFFECT OF VACANCIES. The death, resignation,
retirement, removal, bankruptcy, dissolution, liquidation, incompetence or
incapacity to perform the duties of a Trustee shall not operate to annul the
Trust. Whenever a vacancy in the number of Regular Trustees shall occur,
until such vacancy in filled by the appointment of a Regular Trustee in
accordance with Section 5.6, the Regular Trustees in office, regardless of
their number, shall have all the powers granted to the Regular Trustees and
shall discharge all the duties imposed upon the Regular Trustees by this
Declaration.
SECTION 5.9. MEETINGS. Meetings of the Regular Trustees shall be
held from time to time upon the call of any Regular Trustee. Regular
meetings of the Regular Trustees may be held at a time and place fixed by
resolution of the Regular Trustees. Notice of any in-person meetings of the
Regular Trustees shall be hand delivered or otherwise delivered in writing
(including by facsimile, with a hard copy by overnight courier) not less than
48 hours before such meeting. Notice of any telephonic meetings of the
Regular Trustees or any committee thereof shall be hand delivered or
otherwise delivered in writing (including by facsimile, with a hard copy by
overnight courier) not less than 24 hours before a meeting. Notices shall
contain a brief statement of the time, place and anticipated purposes of the
meeting. The presence (whether in person or by telephone) of a Regular
Trustee at a meeting shall constitute a waiver of notice of such meeting
except where a Regular Trustee attends a meeting for the express purpose of
objecting to the transaction of any activity on the ground that the meeting
has not been lawfully called or convened. Unless provided otherwise in this
Declaration, any action of the Regular Trustees may be taken at a meeting by
vote of a majority of the Regular Trustees present or, so long as there are
only two Regular Trustees, by both of the Regular Trustees (whether in person
or by telephone) and eligible to vote with respect to such matter, provided
that a Quorum is present, or without a meeting by the unanimous written
consent of the Regular Trustees.
SECTION 5.10. DELEGATION OF POWER. (a) Any Regular Trustee may,
by power of attorney consistent with applicable law, delegate to any other
natural person over the age of 21 his or her power for the purpose of
executing any documents contemplated in Section 3.6, including any
registration statement or amendment thereto filed with the Commission, or
making any other governmental filing; and
32
<PAGE>
(b) the Regular Trustees shall have power to delegate from time to
time to such of their number or to officers of the Trust the doing of such
things and the execution of such instruments either in the name of the Trust or
the names of the Regular Trustees or otherwise as the Regular Trustees may deem
expedient, to the extent such delegation is not prohibited by applicable law or
contrary to the provisions of the Trust, as set forth herein.
SECTION 5.11. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS. Any corporation into which the Property Trustee or the Delaware
Trustee, as the case may be, may be merged or converted or with which either
may be consolidated, or any corporation resulting from any merger, conversion
or consolidation to which the Property Trustee or the Delaware Trustee, as
the case may be, shall be a party, or any corporation succeeding to all or
substantially all the corporate trust business of the Property Trustee or the
Delaware Trustee, as the case may be, shall be the successor of the Property
Trustee or the Delaware Trustee, as the case may be, hereunder provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part
of any of the parties hereto.
ARTICLE VI
DISTRIBUTIONS
SECTION 6.1. DISTRIBUTIONS. Holders shall receive Distributions
(as defined below) in accordance with the applicable terms of the relevant
Holder's Securities (set forth in Annex I and Exhibits A, B, C and D hereto
and incorporated herein by reference). Distributions shall be made on the
Capital Securities and the Common Securities in accordance with the
preferences set forth in their respective terms. If and to the extent that
the Debenture Issuer makes a payment of interest (including Compounded
Interest (as defined in the Indenture) and Additional Interest (as defined in
the Indenture)), premium and principal on the Debentures held by the Property
Trustee (the amount of any such payment being a "Payment Amount"), the
Property Trustee shall and is directed, to the extent funds are available
legally for that purpose, to make a distribution (a "Distribution") of the
Payment Amount to Holders.
33
<PAGE>
ARTICLE VII
ISSUANCE OF SECURITIES
SECTION 7.1. GENERAL PROVISIONS REGARDING SECURITIES. (a) The
Regular Trustees shall on behalf of the Trust issue one class of preferred
securities, representing undivided beneficial interests in the assets of the
Trust (the "Capital Securities"), having such terms (the "Terms") as are set
forth in Annex I, and one class of common securities, representing undivided
beneficial interests in the assets of the Trust (the "Common Securities"),
having such terms as are set forth in Annex I. The Trust shall issue no
securities or interests in the assets of the Trust other than the Capital
Securities and the Common Securities. The Trust shall issue no Securities in
bearer form.
(b) The consideration received by the Trust for the issuance of the
Securities shall constitute a contribution to the capital of the Trust and shall
not constitute a loan to the Trust.
(c) Upon issuance of the Securities as provided in this Declaration,
the Securities so issued shall be deemed to be validly issued, fully paid and
non-assessable, subject to Section 10.1 with respect to the Common Securities.
(d) Every Person, by virtue of having become a Holder or a Capital
Security Beneficial Owner in accordance with the terms of this Declaration,
shall be deemed to have expressly assented and agreed to the terms of, and shall
be bound by, this Declaration.
SECTION 7.2. EXECUTION AND AUTHENTICATION. (a) The Securities shall
be signed on behalf of the Trust by one Regular Trustee. In case any Regular
Trustee of the Trust who shall have signed any of the Securities shall cease
to be such Regular Trustee before the Securities so signed shall be delivered
by the Trust, such Securities nevertheless may be delivered as though the
person who signed such Securities had not ceased to be such Regular Trustee;
and any Securities may be signed on behalf of the Trust by such persons who,
at the actual date of execution of such Security, shall be the Regular
Trustees of the Trust, although at the date of the execution and delivery of
the Declaration any such person was not such a Regular Trustee.
(b) One Regular Trustee shall sign the Capital Securities for the
Trust by manual or facsimile signature. Unless otherwise determined by the
Trust, such signature shall, in the case of Common Securities, be a manual
signature.
34
<PAGE>
A Capital Security shall not be valid until authenticated by the
manual signature of an authorized officer of the Property Trustee. The
signature shall be conclusive evidence that the Capital Security has been
authenticated under this Declaration.
Upon a written order of the Trust signed by one Regular Trustee, the
Property Trustee shall authenticate the Capital Securities for original
issuance. The aggregate number of Capital Securities outstanding at any time
shall not exceed the number set forth in the Terms in Annex I hereto except as
provided in Section 7.6.
The Property Trustee may appoint an authenticating agent acceptable to
the Trust to authenticate Capital Securities. An authenticating agent may
authenticate Capital Securities whenever the Property Trustee may do so. Each
reference in this Declaration to authentication by the Property Trustee includes
authentication by such agent. An authenticating agent has the same rights as
the Property Trustee to deal with the Company or an Affiliate.
SECTION 7.3. BOOK-ENTRY CAPITAL SECURITIES CERTIFICATES;
DEFINITIVE CAPITAL SECURITIES CERTIFICATES; COMMON SECURITIES CERTIFICATE.
The Capital Securities and the Property Trustee's certificate of
authentication shall be substantially in the forms of Exhibits A, B and C, as
applicable, and the Common Securities shall be substantially in the form of
Exhibit D, each of which is hereby incorporated in and expressly made a part
of this Declaration. Certificates representing the Securities may be
printed, lithographed or engraved or may be produced in any other manner as
is reasonably acceptable to the Regular Trustees, as evidenced by their
execution thereof. The Securities may have letters, CUSIP or other numbers,
notations, or other marks of identification or designation and such legends
or endorsements required by law, stock exchange rule, agreements to which the
Trust is subject, if any, or usage (provided that any such notation, legend
or endorsement is in a form acceptable to the Trust). The Trust at the
direction of the Sponsor shall furnish any such legend not contained in the
forms thereof attached as Exhibits A, B, C and D to the Property Trustee in
writing. Each Capital Security shall be dated the date of its
authentication. The terms and provisions of the Securities set forth in
Annex I and the forms of Securities set forth in Exhibits A, B, C and D are
part of the terms of this Declaration and to the extent applicable, the
Property Trustee and the Sponsor, by their execution and delivery of this
Declaration, expressly agree to such terms and provisions and to be bound
thereby.
(a) Capital Securities offered and sold in reliance on Rule 144A
shall be issued initially in the form of one or more permanent global Capital
Securities, substantially in the form of Exhibit A hereto ("Rule 144A Capital
Securities"), deposited
35
<PAGE>
with the Depositary or the Property Trustee as custodian for the Depositary.
Transfers of beneficial interests in Rule 144A Capital Securities will be
subject to the restrictions on transfer contained in the Restricted
Securities Legend set forth in Exhibit A hereto. Transfers of beneficial
interests in Rule 144A Capital Securities will be made in accordance with the
standing instructions and procedures of the Depositary.
(b) Capital Securities offered and sold in offshore transactions
in reliance on Regulation S shall be issued initially in the form of one or
more permanent global Capital Securities, substantially in the form of
Exhibit B hereto ("Regulation S Capital Securities" and, together with the
Rule 144A Capital Securities, the "Global Capital Securities"), deposited
with the Depositary or the Property Trustee as custodian for the Depositary.
Prior to the expiration of the Restricted Period, interests in Regulation S
Capital Securities may only be held by Depositary Participants in the name of
a nominee of Euroclear and Cedel and transfers of beneficial interests will
be subject to the restrictions on transfer contained in the Restricted
Securities Legend set forth in Exhibit B hereto. After the expiration of the
Restricted Period, transfers of beneficial interests in Regulation S Capital
Securities will not be subject to any restrictions other than the
restrictions contained in Section 9.2(l). After the expiration of the
Restricted Period, beneficial interests in Regulation S Capital Securities
may be held by Depositary Participants other than in the name of a nominee of
Euroclear and Cedel. Transfers of beneficial interests in Regulation S
Capital Securities will be made in accordance with the standing instructions
and procedures of the Depositary and, prior to the expiration of the
Restricted Period, Euroclear and Cedel.
(c) Capital Securities offered and sold to Institutional
Accredited Investors in reliance on Regulation D under the Securities Act
shall be issued initially in the form of one or more Definitive Capital
Securities, substantially in the form of Exhibit C hereto, upon receipt by
the Property Trustee of a written letter in the form of Exhibit E (and/or
such other certificates, legal opinions or other information as the Sponsor
may reasonably request to confirm that such transfer is exempt from the
registration of the Securities Act). Transfers of Definitive Capital
Securities will be subject to the restrictions on transfer contained in the
Restricted Securities Legend set forth in Exhibit C hereto and the
requirements contained in Section 9.2(d) ("Restricted Definitive Capital
Securities").
(d) If (i) the Sponsor advises the Regular Trustees in writing
that the Depositary is no longer willing or able to properly discharge its
responsibilities with respect to the Capital Securities Certificates, and the
Sponsor is unable to locate a qualified successor, (ii) the Sponsor at its
option advises the Regular Trustees in writing that it elects to terminate
the book-entry system through the Depositary or (iii) after the
36
<PAGE>
occurrence of an Event of Default, Capital Security Beneficial Owners
representing beneficial interests aggregating at least a Majority in
liquidation amount of the Securities advise the Depositary in writing that
the continuation of a book-entry system through the Depositary is no longer
in the best interest of the Capital Security Beneficial Owners, then the
Depositary shall notify all Capital Security Beneficial Owners and the
Regular Trustees of the occurrence of any such event and of the availability
of the Definitive Capital Securities Certificates to Capital Security
Beneficial Owners requesting the same. If the Depositary elects to
discontinue its services as securities depositary with respect to the Capital
Securities, the Regular Trustees may, in their sole discretion, appoint a
successor Depositary with respect to such Capital Securities. Upon surrender
to the Regular Trustees of the Global Capital Security or Certificates by the
Depositary, accompanied by registration instructions, the Regular Trustees,
or any one of them, shall execute the Definitive Capital Securities
Certificates in accordance with the instructions of the Depositary. Neither
the Registrar nor the Trustees shall be liable for any delay in delivery of
such instructions and may conclusively rely on, and shall be protected in
relying on, such instructions. Upon the issuance of Definitive Capital
Securities Certificates, the Trustees shall recognize the Holders of the
Definitive Capital Securities Certificates as Holders. The Definitive
Capital Securities Certificates shall be printed, lithographed or engraved or
may be produced in any other manner as is reasonably acceptable to the
Regular Trustees, as evidenced by the execution thereof by the Regular
Trustees or any one of them.
(e) The Restricted Securities Legend shall be removed upon the
request of any Holder after the expiration of (i) with respect to Capital
Securities initially resold in reliance on Regulation S, the Restricted
Period or (ii) with respect to Capital Securities initially resold to
Institutional Accredited Investors or QIBs, the holding period applicable to
sales of the Capital Securities under Rule 144(k) under the Securities Act
or, in any case, such earlier time as a transfer of such Capital Securities
is made pursuant to an effective registration statement under the Securities
Act.
(f) Members of, or Participants in, the Depositary shall have no
rights under this Declaration with respect to any Global Capital Security
held on their behalf by the Depositary or by the Property Trustee as the
custodian of the Depositary or under such Global Capital Security, and the
Depositary may be treated by the Trust, the Property Trustee, the Regular
Trustees and the Delaware Trustee and any agent of the Trust, the Property
Trustee, the Regular Trustees and the Delaware Trustee as the absolute owner
of such Global Capital Security for all purposes whatsoever. Notwithstanding
the foregoing, nothing herein shall prevent the Trust, the Property Trustee
or any agent of the Trust or the Property Trustee from giving effect to any
written certification, proxy or other authorization furnished by the
Depositary or impair,
37
<PAGE>
as between the Depositary and its Participants, the operation of customary
practices of such Depositary governing the exercise of the rights of a
Capital Security Beneficial Owner in any Global Capital Security.
(g) So long as is required for an offer or sale of the Capital
Securities to qualify for an exemption under Rule 144A under the Securities
Act, the Sponsor shall, upon request, provide the information required by
clause (d)(4) thereunder to each Holder and to each Capital Security
Beneficial Owner and prospective purchaser of Capital Securities identified
by any holder of Restricted Capital Securities, unless such information is
furnished to the Commission pursuant to Section 13 or 15(d) of the Exchange
Act.
SECTION 7.4. REGISTRAR AND PAYING AGENT. The Trust shall
maintain, either directly or through an agent, in the Borough of Manhattan,
the City of New York (i) an office or agency where Capital Securities may be
presented for registration of transfer or for exchange ("Registrar"), and
(ii) an office or agency where Capital Securities may be presented for
payment ("Paying Agent"). The Registrar shall keep a register of the Capital
Securities and of their transfer and exchange. The Trust may appoint the
Registrar and the Paying Agent and may appoint one or more co-registrars and
one or more additional paying agents in such other locations as it shall
determine. The term "Paying Agent" includes any additional paying agent.
The Trust may change any Paying Agent, Registrar or co-registrar without
prior notice to any Holder. The Trust shall notify the Property Trustee of
the name and address of any Agent not a party to this Declaration. If the
Trust fails to appoint or maintain another entity as Registrar or Paying
Agent, the Property Trustee shall act as such. The Trust or any of its
Affiliates may act as Paying Agent or Registrar. The Trust shall act as
Paying Agent, Registrar and co-registrar for the Common Securities.
The Trust initially appoints the Property Trustee as Registrar and
Paying Agent for the Capital Securities.
SECTION 7.5. PAYING AGENT TO HOLD MONEY IN TRUST. The Trust shall
require each Paying Agent other than the Property Trustee to agree in writing
that the Paying Agent will hold in trust for the benefit of Holders or the
Property Trustee all money held by the Paying Agent for the payment of the
liquidation amount or Distributions on Securities, and will notify the
Property Trustee if there are insufficient funds. While any such
insufficiency continues, the Property Trustee may require a Paying Agent to
pay all money held by it to the Property Trustee. The Trust at any time may
require a Paying Agent to pay all money held by it to the Property Trustee
and to account for any money disbursed by it. Upon payment over to the
Property Trustee, the
38
<PAGE>
Paying Agent (if other than the Trust or an Affiliate of the Trust) shall
have no further liability for the money. If the Trust or the Sponsor or an
Affiliate of the Trust or the Sponsor acts as Paying Agent, it shall
segregate and hold in a separate trust fund for the benefit of the Holders
all money held by it as Paying Agent.
SECTION 7.6. REPLACEMENT SECURITIES. If the Holder of a Security
claims that the Security has been mutilated, lost, destroyed or wrongfully
taken or if such Security is mutilated and is surrendered to the Trust or in
the case of the Capital Securities to the Property Trustee, the Trust shall
issue and the Property Trustee shall authenticate a replacement Security if
the Property Trustee's and the Trust's reasonable requirements, as the case
may be, are met. If required by the Property Trustee or the Trust, such
Holder shall provide an indemnity bond sufficient in the judgment of the
Property Trustee and the Trust to protect the Trustees, the Property Trustee,
the Sponsor or any authenticating agent from any loss which any of them may
suffer if a Security is replaced. The Trust may charge such Holder for its
expenses in replacing a Security.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Sponsor in its discretion
may, instead of issuing a new Security, pay such Security.
SECTION 7.7. OUTSTANDING CAPITAL SECURITIES. The Capital
Securities outstanding at any time are all the Capital Securities
authenticated by the Property Trustee except for those canceled by it, those
delivered to it for cancellation, and those described in this Section as not
outstanding.
If a Capital Security is replaced, paid or purchased pursuant to
Section 7.6 hereof, it ceases to be outstanding unless the Property Trustee
receives proof satisfactory to it that the replaced, paid or purchased
Capital Security is held by a bona fide purchaser.
If Capital Securities are considered paid in accordance with the
terms of this Declaration, they cease to be outstanding and interest on them
ceases to accrue.
A Capital Security does not cease to be outstanding because one of
the Trust, the Sponsor or an Affiliate of the Sponsor holds the Security.
SECTION 7.8. CAPITAL SECURITIES IN TREASURY. In determining
whether the Holders of the required amount of Securities have concurred in
any direction, waiver or consent, Capital Securities owned by the Trust, the
Sponsor or an Affiliate of the Sponsor, as the case may be, shall be
disregarded and deemed not to be outstanding,
39
<PAGE>
except that for the purposes of determining whether the Property Trustee
shall be fully protected in relying on any such direction, waiver or consent,
only Securities which the Property Trustee knows are so owned shall be so
disregarded.
SECTION 7.9. TEMPORARY CERTIFICATES. (a) Until definitive
Certificates are ready for delivery, the Trust may prepare and, in the case
of the Capital Securities, the Property Trustee shall authenticate temporary
Certificates. Temporary Certificate shall be substantially in the form of
definitive Certificates but may have variations that the Trust considers
appropriate for temporary Certificates. Without unreasonable delay, the
Trust shall prepare and, in the case of the Capital Securities, the Property
Trustee shall authenticate definitive Certificates in exchange for temporary
Certificates.
(b) A Global Capital Security deposited with the Depositary or
with the Property Trustee as custodian for the Depositary pursuant to Section
7.3 shall be transferred to the beneficial owners thereof in the form of
certificated Capital Securities only if such transfer complies with Section
9.2 and (i) the Depositary notifies the Sponsor that it is unwilling or
unable to continue as Depositary for such Global Capital Security or if at
any time such Depositary ceases to be a "clearing agency" registered under
the Exchange Act and a successor depositary is not appointed by the Sponsor
within 90 days of such notice, (ii) an Event of Default has occurred and is
continuing, or (iii) any of the events set forth in Section 7.3(d) occurs and
is continuing.
(c) Any Global Capital Security that is transferable to the
beneficial owners thereof in the form of certificated Capital Securities
pursuant to this Section 7.9 shall be surrendered by the Depositary to the
Property Trustee to be so transferred, in whole or from time to time in part,
without charge, and the Property Trustee shall authenticate and deliver, upon
such transfer of each portion of such Global Capital Security, an equal
aggregate liquidation amount of Securities of authorized denominations in the
form of certificated Securities. Any portion of a Global Capital Security
transferred pursuant to this Section shall be registered in such names as the
Depositary shall direct.
Any Capital Security in the form of certificated Capital Securities
delivered in exchange for an interest in the Restricted Capital Security
shall, except as otherwise provided by Section 7.3 and 9.1, bear the
Restricted Securities Legend set forth in Exhibit C hereto.
(d) Subject to the provisions of Sections 7.9(c) and 12.2(b)(ii),
the registered holder of a Global Capital Security may grant proxies and
otherwise authorize any person, including Participants and persons that may
hold interests through
40
<PAGE>
Participants, to take any action which a holder is entitled to take under
this Declaration or the Securities.
(e) In the event of the occurrence of any of the events specified
in Section 7.9(b), the Trust will promptly make available to the Property
Trustee a reasonable supply of certificated Securities in definitive, fully
registered form without interest coupons.
SECTION 7.10. CANCELLATION. The Trust at any time may deliver
Capital Securities to the Property Trustee for cancellation. The Registrar
and Paying Agent shall forward to the Property Trustee any Capital Securities
surrendered to them for registration of transfer, redemption, exchange or
payment. The Property Trustee shall promptly cancel all Capital Securities,
surrendered for registration of transfer, redemption, payment, replacement or
cancellation and shall dispose of canceled Capital Securities as the Trust
directs. The Trust may not issue new Capital Securities to replace Capital
Securities that it has paid or that have been delivered to the Property
Trustee for cancellation.
SECTION 7.11. CUSIP NUMBERS. The Trust in issuing the Capital
Securities may use "CUSIP" numbers (if then generally in use), and, if so,
the Property Trustee shall use "CUSIP" numbers in notices of redemption as a
convenience to Holders of Capital Securities; PROVIDED that any such notice
may state that no representation is made as to the correctness of such
numbers either as printed on the Capital Securities or as contained in any
notice of a redemption and that reliance may be placed only on the
identification numbers printed on the Capital Securities, and any such
redemption shall not be affected by any defect in or omission of such
numbers. The Sponsor will promptly notify the Property Trustee of any change
in the "CUSIP" numbers.
ARTICLE VIII
TERMINATION OF TRUST
SECTION 8.1. TERMINATION OF TRUST.
(a) The Trust shall terminate upon the earliest to occur of the
following:
(i) the bankruptcy of the Holder of the Common Securities or the
Sponsor;
41
<PAGE>
(ii) the filing of a certificate of dissolution or its equivalent
with respect to the Holder of the Common Securities or the Sponsor;
the filing of a certificate of cancellation with respect to the Trust or
the revocation of the charter of the Holder of the Common Securities or
the Sponsor and the expiration of 90 days after the date of revocation
without a reinstatement thereof;
(iii) the entry of a decree of judicial dissolution of the Holder
of the Common Securities or the Sponsor;
(iv) the distribution, upon the terms and subject to the
conditions set forth in Annex I, of an aggregate principal amount of
Debentures with an aggregate principal amount equal to the aggregate
liquidation amount of, with an interest rate identical to the
Distribution rate of, and accrued and unpaid interest equal to accrued
and unpaid Distributions on, the Securities; PROVIDED, HOWEVER, that
such distribution is conditioned on the receipt of an opinion of
independent tax counsel experienced in such matters to the effect that
the Holders of the Securities will not recognize any gain or loss for
United States federal income tax purposes as a result of the dissolution
of the Trust and such distribution of Debentures;
(v) the redemption of the Securities upon the final maturity of
the Debentures (or earlier redemption of all outstanding Debentures) and
the amounts necessary for redemption thereof having been paid to the
Holders in accordance with the terms of the Securities;
(vi) the expiration of the term of the Trust as provided in
Section 3.14; and
(vii) the entry of an order for the dissolution of the Trust by a
court of competent jurisdiction.
(b) In addition to the termination events set forth in Section
8.1(a), the Trust may be voluntarily terminated by the Sponsor at any time,
upon payment of the amount of cash, or distribution of the Debentures, as set
forth in Annex I.
(c) As soon as is practicable after the occurrence of an event
referred to in Section 8.1(a), (1) the Regular Trustees and/or the Property
Trustee, as liquidator of the Trust, shall comply with the provisions in
Section 3808(e) of the Business Trust Act, and (2) the Regular Trustees shall
file a certificate of cancellation with the Secretary of State of the State
of Delaware.
42
<PAGE>
(d) The provisions of Section 3.9 and Article X shall survive the
termination of the Trust.
ARTICLE IX
TRANSFER OF INTERESTS
SECTION 9.1. TRANSFER OF SECURITIES. (a) Securities may only be
transferred, in whole or in part, in accordance with the terms and conditions
set forth in this Declaration and in the terms of the Securities. Any
transfer or purported transfer of any Security not made in accordance with
this Declaration shall be null and void.
(b) Subject to this Article IX, Capital Securities may only be
transferred, in whole or in part, in accordance with the terms and conditions
set forth in this Declaration. To the fullest extent permitted by law, any
transfer or purported transfer of any security not made in accordance with
this Declaration shall be null and void.
(c) The Sponsor may not transfer the Common Securities; provided,
however, that any permitted successor of the Sponsor under the Indenture may
succeed to the Sponsor's ownership of the Common Securities.
(d) The Registrar shall provide for the registration of Securities
and of the transfer of Securities, which will be effected without charge, but
only upon payment (with such indemnity as the Registrar may require) in
respect of any tax or other governmental charges that may be imposed in
relation to it. Upon surrender for registration of transfer of any
Securities, the Registrar shall cause one or more new Securities to be issued
in the name of the designated transferee or transferees. Every Security
surrendered for registration of transfer shall be accompanied by a written
instrument of transfer in form satisfactory to the Registrar duly executed by
the Holder or such Holder's attorney, duly authorized in writing. Each
Security surrendered for registration of transfer shall be canceled by the
Property Trustee. A transferee of a Security shall be entitled to the rights
and subject to the obligations of a Holder hereunder upon the receipt by such
transferee of a Security. By acceptance of a Security, each transferee shall
be deemed to have agreed to be bound by this Declaration.
SECTION 9.2. TRANSFER PROCEDURES AND RESTRICTIONS. (a) Except as
provided in Section 7.3(c), so long as the Capital Securities are eligible
for book-entry settlement in the Depositary or unless otherwise required by
law, all Capital Securities
43
<PAGE>
that are so eligible will be represented by one or more Global Capital
Securities Certificates deposited with the Depositary or the Property Trustee
as custodian for the Depositary, by, or on behalf of, the Trust. No Capital
Security Beneficial Owner of a Certificate evidencing a Global Capital
Security will receive a Certificate evidencing a Definitive Capital Security
representing such Capital Security Beneficial Owner's interest in the Capital
Securities, except as provided in Section 7.9(b)(ii) above and Section 9.2(f)
below; provided, however, that, with respect to any Capital Security in
global form, the Sponsor shall request and the Trust shall issue a Definitive
Capital Securities Certificate upon any transfer of a beneficial interest in
such Capital Security to the Company or an Affiliate of the Company and no
Definitive Capital Securities Certificate, or portion thereof, in respect of
which the Company or an Affiliate of the Company held any beneficial interest
shall be resold, retransferred or included in any Global Capital Security
until such Capital Security is freely tradeable in accordance with Rule
144(k) or pursuant to an effective registration statement under the
Securities Act.
(b) Rule 144A Capital Securities shall initially be registered in
the name of a nominee of the Depositary and Regulation S Capital Securities
shall initially be registered in the name of a nominee of the Depositary for
the direct or indirect accounts of Euroclear and Cedel.
(c) Transfers of interests in Capital Securities between any Rule
144A Capital Security and any Regulation S Capital Security will be made in
accordance with this Declaration (including Section 9.2 (d) (iii) and (iv) ,
as applicable) and in accordance with the standing instructions and
procedures of the Depositary. The Property Trustee shall make appropriate
endorsements to reflect increases or decreases in the amount of such Global
Capital Securities.
(d) With respect to all or part of the Capital Securities, unless
and until the first day on which such Capital Securities (other than Capital
Securities acquired by the Trust or the Sponsor or any Affiliates thereof)
may be sold pursuant to Rule 144(k):
(i) DEFINITIVE TO DEFINITIVE TRANSFERS. Any transfer of a
Definitive Capital Security shall be registered on the securities
register only upon receipt by the Property Trustee of the Certificate
evidencing such Definitive Capital Security accompanied by a duly
completed and executed assignment in the form attached to Exhibit C and,
in the case of a transfer to an Institutional Accredited Investor, upon
receipt by the Property Trustee of a written certificate in the form of
Exhibit E (and/or such other certificates, legal opinions or other
information as
44
<PAGE>
the Sponsor may reasonably request to confirm that such transfer is
exempt from registration under the Securities Act);
(ii) DEFINITIVE INTO A GLOBAL CAPITAL SECURITY. So long as
Capital Securities are eligible for book-entry settlement with the
Depositary or unless otherwise required by law, upon any transfer of
such Definitive Capital Securities to a QIB in accordance with Rule 144A
or to a non-U.S. Person in accordance with Regulation S, and upon
receipt of the Certificate evidencing such Definitive Capital Securities
being so transferred accompanied by (i) a duly completed and executed
assignment in the form attached to Exhibit C and (ii) (x) in the case of
a transferee taking delivery in the form of a beneficial interest in a
Rule 144A Capital Security, a written certificate in the form of Exhibit
F or (y) in the case of a transferee taking delivery in the form of a
beneficial interest in a Regulation S Capital Security, a written
certificate in the form of Exhibit G, the Property Trustee on behalf of
the Trust shall make an endorsement on any Rule 144A Capital Security or
any Regulation S Capital Security, as the case may be, to reflect an
increase in such Global Capital Security and the Property Trustee, on
behalf of the Trust, shall cancel such Definitive Capital Securities
Certificate.
(iii) RULE 144A CAPITAL SECURITY INTO REGULATION S CAPITAL
SECURITY. Any transfer in accordance with Rule 903 or 904 of Regulation
S of a beneficial interest in a Rule 144A Capital Security shall be
reflected by an increase in the Regulation S Capital Security and a
corresponding decrease in the Rule 144A Capital Security only upon
receipt by the Property Trustee of a written certificate in the form of
Exhibit G (or such other certifications, legal opinions or other
information as the Sponsor may reasonably require to confirm that such
transfer is being made pursuant to Rule 903 or 904); and
(iv) REGULATION S CAPITAL SECURITY INTO RULE 144A CAPITAL
SECURITY. Any transfer of a beneficial interest in a Regulation S
Capital Security to a transferee that takes delivery in the form of a
beneficial interest in the Rule 144A Capital Security shall be reflected
by an increase in the Rule 144A Capital Security and a corresponding
decrease in the Regulation S Capital Security and, prior to the
expiration of the Restricted Period, only upon receipt by the Property
Trustee of a written certificate in the form of Exhibit F (or such other
certifications, legal opinions or other information as the Sponsor may
reasonably require).
(e) Any Global Capital Security may be endorsed with or have
incorporated in the text thereof such legends or recitals or changes not
inconsistent with
45
<PAGE>
the provisions of this Declaration as may be required by the Depositary, by
any national securities exchange or by the National Association of Securities
Dealers, Inc. in order for the Capital Securities to be tradeable on any
market developed for trading of securities pursuant to Rule 144A or required
to comply with any applicable law or any regulation thereunder or with the
rules and regulations of any securities exchange upon which the Capital
Securities may be listed or traded (subject to applicable principles of
federal securities laws) or to conform with any usage with respect thereto,
or to indicate any special limitations or restrictions to which any
particular Capital Securities are subject.
(f) Notwithstanding any other provisions of this Declaration
(other than the provisions set forth in this Section 9.2(f)), a Global
Capital Security may not be exchanged in whole or in part for Definitive
Capital Securities Certificates, and no transfer of a Global Capital Security
may be registered, in the name of any Person other than the Depositary or a
nominee thereof unless (i) such Depositary (A) has notified the Property
Trustee and the Sponsor that it is unwilling or unable to continue as
Depositary for such Global Capital Security or (B) has ceased to be a
clearing agency registered as such under the Exchange Act and no successor
Depositary has been appointed by the Sponsor within 90 days after its receipt
of such notice or its becoming aware of such cessation of registration, (ii)
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 Declaration, with respect to such Capital Security or (iii) the
Sponsor in its sole discretion instructs the Property Trustee to exchange
such Global Capital Security for Definitive Capital Securities Certificates.
(g) [intentionally omitted]
(h) LEGEND.
(i) Except as permitted by the following paragraph (ii), each
Capital Security certificate evidencing the Global Capital Securities
and the Definitive Capital Securities (and all Capital Securities issued
in exchange therefor or substitution thereof) shall bear a legend (the
"Restricted Securities Legend") in substantially the following form:
THIS CAPITAL SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER
THIS CAPITAL SECURITY NOR ANY INTEREST OR
46
<PAGE>
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT
TO, SUCH REGISTRATION.
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF AGREES
TO OFFER, SELL OR OTHERWISE TRANSFER THIS CAPITAL SECURITY ONLY (A)
TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS
BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS
THIS CAPITAL SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A
UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) IN AN OFFSHORE
TRANSACTION IN ACCORDANCE WITH RULE 903 OR 904 UNDER THE SECURITIES
ACT, (E) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 UNDER THE SECURITIES ACT (IF APPLICABLE) OR (F) PURSUANT
TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
UNDER THE SECURITIES ACT, SUBJECT TO THE RIGHT OF THE TRUST AND THE
COMPANY PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO
CLAUSE (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF
THEM AND (ii) IN EACH OF CASES (B) THROUGH (F) IN ACCORDANCE WITH
ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.
SUCH HOLDER FURTHER AGREES THAT IT WILL
47
<PAGE>
DELIVER TO EACH PERSON TO WHOM THIS CAPITAL SECURITY IS TRANSFERRED
A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF ALSO
AGREES, REPRESENTS AND WARRANTS THAT EITHER (i) IT IS NOT AN
EMPLOYEE BENEFIT PLAN SUBJECT TO THE "PROHIBITED TRANSACTIONS"
PROVISIONS OF SECTION 406 OF THE EMPLOYMENT RETIREMENT INCOME
SECURITY ACT OF 1974, AS AMENDED ("ERISA") OR SECTION 4975 OF THE
U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED ("THE CODE") AND IS
NOT USING THE ASSETS OF ANY SUCH PLAN TO ACQUIRE THIS CAPITAL
SECURITY OR (ii) THE ACQUISITION AND HOLDING OF THIS CAPITAL
SECURITY BY IT IS NOT PROHIBITED BY EITHER SECTION 406 OF ERISA OR
SECTION 4975 OF THE CODE, OR IS EXEMPT FROM ANY SUCH PROHIBITION BY
APPLICATION OF A STATUTORY, REGULATORY OR ADMINISTRATIVE EXEMPTION.
(ii) Upon any sale or transfer of a Restricted Capital Security
(including any Restricted Capital Security represented by a Global Capital
Security) pursuant to Rule 144 under the Securities Act:
(A) in the case of any Restricted Capital Security that is a
Definitive Capital Security, the Registrar shall permit the Holder
thereof to exchange such Restricted Capital Security for a Definitive
Capital Security that does not bear the Restricted Securities Legend
and rescind any restriction on the transfer of such Restricted Capital
Security; and
(B) in the case of any Restricted Capital Security that is
represented by a Global Capital Security, the Registrar shall permit
the Holder of such Global Capital Security to exchange such Global
Capital Security for another Global Capital Security that does not
bear the Restricted Securities Legend.
(i) CANCELLATION OR ADJUSTMENT OF GLOBAL CAPITAL SECURITY. At
such time as all beneficial interests in a Global Capital Security have
either been exchanged
48
<PAGE>
for Definitive Capital Securities to the extent permitted by this Declaration
or redeemed, repurchased or canceled in accordance with the terms of this
Declaration, such Global Capital Security shall be returned by the Depositary
to the Property Trustee for cancellation or retained and canceled by the
Property Trustee. At any time prior to such cancellation, if any beneficial
interest in a Global Capital Security is exchanged for Definitive Capital
Securities, Capital Securities represented by such Global Capital Security
shall be reduced and an adjustment shall be made on the books and records of
the Property Trustee (if it is then the Registrar for such Global Capital
Security) with respect to such Global Capital Security, by the Property
Trustee or the Registrar, to reflect such reduction.
(j) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF CAPITAL
SECURITIES.
(i) To permit registrations of transfers and exchanges, a
Regular Trustee on behalf of the Trust shall execute and the Property
Trustee shall authenticate Definitive Capital Securities and Global
Capital Securities at the Registrar's or co-Registrar's request in
accordance with the terms of this Declaration.
(ii) Registrations of transfers or exchanges will be effected
without charge, but only upon payment (with such indemnity as the Trust
or the Sponsor may require) in respect of any tax or other governmental
charge that may be imposed in relation to it.
(iii) The Registrar or co-Registrar shall not be required to
register the transfer of or exchange of (a) Capital Securities during a
period beginning at the opening of business 15 days before the day of
mailing of a notice of redemption or any notice of selection of Capital
Securities for redemption and ending at the close of business on the day
of such mailing; or (b) any Capital Security so selected for redemption
in whole or in part, except the unredeemed portion of any Capital
Security being redeemed in part.
(iv) Prior to the due presentation for registration of transfer
of any Capital Security, the Trust, the Property Trustee, the Paying
Agent, the Registrar or any co-Registrar may deem and treat the person
in whose name a Capital Security is registered as the absolute owner of
such Capital Security for the purpose of receiving Distributions on such
Capital Security and for all other purposes whatsoever, and none of the
Trust, the Property Trustee, the Paying
49
<PAGE>
Agent, the Registrar or any co-Registrar shall be affected by notice to
the contrary.
(v) All Capital Securities issued upon any transfer or exchange
pursuant to the terms of this Declaration shall evidence the same
security and shall be entitled to the same benefits under this
Declaration as the Capital Securities surrendered upon such transfer or
exchange.
(k) NO OBLIGATION OF THE PROPERTY TRUSTEE.
(i) The Property Trustee shall have no responsibility or
obligation to any beneficial owner of a Global Capital Security, a
Participant in the Depositary or other Person with respect to the
accuracy of the records of the Depositary or its nominee or of any
Participant thereof, with respect to any ownership interest in the
Capital Securities or with respect to the delivery to any participant,
beneficial owner or other Person (other than the Depositary) of any
notice (including any notice of redemption) or the payment of any
amount, under or with respect to such Capital Securities. All notices
and communications to be given to the Holders and all payments to be
made to Holders under the Capital Securities shall be given or made only
to or upon the order of the registered Holders (which shall be the
Depositary or its nominee in the case of a Global Capital Security).
The rights of beneficial owners in any Global Capital Security shall be
exercised only through the Depositary subject to the applicable rules
and procedures of the Depositary. The Property Trustee may conclusively
rely and shall be fully protected in relying upon information furnished
by the Depositary or any agent thereof with respect to its Participants
and any beneficial owners.
(ii) The Property Trustee and Registrar shall have no obligation
or duty to monitor, determine or inquire as to compliance with any
restrictions on transfer imposed under this Declaration or under
applicable law with respect to any transfer of any interest in any
Capital Security (including any transfer between or among Participants
or beneficial owners in any Global Capital Security) other than to
require delivery of such certificates and other documentation or
evidence as are expressly required by, and to do so if and when
expressly required by, the terms of this Declaration, and to examine the
same to determine substantial compliance as to form with the express
requirements hereof.
(l) MINIMUM TRANSFERS. The Capital Securities will be issued, and
may be transferred, only in blocks having a liquidation amount (before giving
effect to
50
<PAGE>
any partial redemption) of not less than $100,000 (100 Capital Securities).
Any transfer, sale or other disposition of the Capital Securities in a block
having a liquidation amount (before giving effect to any partial redemption)
of less than $100,000 shall be deemed to be void and of no legal effect
whatsoever. Any such transferee shall be deemed not to be the Holder of such
Capital Securities for any purpose, including but not limited to the receipt
of Distributions on such Capital Securities, and such transferee shall be
deemed to have no interest whatsoever in such Capital Securities. All
Capital Securities will bear the following legend:
THIS CAPITAL SECURITY WILL BE ISSUED, AND MAY BE
TRANSFERRED, ONLY IN BLOCKS HAVING A LIQUIDATION AMOUNT
(BEFORE GIVING EFFECT TO ANY PARTIAL REDEMPTION) OF NOT LESS
THAN $100,000 (100 CAPITAL SECURITIES). ANY TRANSFER, SALE
OR OTHER DISPOSITION OF THE CAPITAL SECURITIES IN A BLOCK
HAVING A LIQUIDATION AMOUNT (BEFORE GIVING EFFECT TO ANY
PARTIAL REDEMPTION) OF LESS THAN $100,000 SHALL BE DEEMED TO
BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH
TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF SUCH
CAPITAL SECURITIES FOR ANY PURPOSE, INCLUDING BUT NOT
LIMITED TO THE RECEIPT OF DISTRIBUTIONS ON SUCH CAPITAL
SECURITIES, AND SUCH TRANSFEREE SHALL BE DEEMED TO HAVE NO
INTEREST WHATSOEVER IN SUCH CAPITAL SECURITIES.
SECTION 9.3. DEEMED SECURITY HOLDERS. The Trustees may treat the
Person in whose name any Security shall be registered on the books and
records of the Trust as the sole owner of such Security for purposes of
receiving Distributions and for all other purposes whatsoever and,
accordingly, shall not be bound to recognize any equitable or other claim to
or interest in such Security on the part of any Person, whether or not the
Trust shall have actual or other notice thereof.
Rule 144A Capital Securities shall initially be registered in the name of a
nominee of the Depositary and Regulation S Capital Securities shall initially
be registered in the name of a nominee of the Depositary for the direct or
indirect accounts of Euroclear and Cedel.
51
<PAGE>
SECTION 9.4. BOOK ENTRY INTERESTS. Global Capital Securities
shall initially be registered on the books and records of the Trust in the
name of Cede & Co., the nominee of the Depositary, and no Capital Security
Beneficial Owner will receive a Definitive Capital Security Certificate
representing such Capital Security Beneficial Owner's interests in such
Global Capital Securities, except as provided in Section 9.2. Unless and
until definitive, fully registered Capital Securities certificates have been
issued to the Capital Security Beneficial Owners pursuant to Section 9.2 and
Section 7.9:
(a) the provisions of this Section 9.4 shall be in full force and
effect;
(b) the Trust and the Trustees shall be entitled to deal with the
Depositary for all purposes of this Declaration (including the payment of
Distributions on the Global Capital Securities and receiving approvals, votes
or consents hereunder) as the holder of the Capital Securities and the sole
Holder of the Global Certificates and shall have no obligation to the Capital
Security Beneficial Owners;
(c) to the extent that the provisions of this Section 9.4 conflict
with any other provisions of this Declaration, the provisions of this Section
9.4 shall control; and
(d) the rights of the Capital Security Beneficial Owners shall be
exercised only through the Depositary and shall be limited to those
established by law and agreements between such Capital Security Beneficial
Owners and the Depositary and/or the Participants and receive and transmit
payments of Distributions on the Global Certificates to such Participants.
The Depositary will make book entry transfers among the Participants.
SECTION 9.5. NOTICES TO DEPOSITARY. Whenever a notice or other
communication to the Capital Security Holders is required under this
Declaration, the Trustees shall give all such notices and communications
specified herein to be given to the Holders of Global Capital Securities to
the Depositary, and shall have no notice obligations to the Capital Security
Beneficial Owners.
SECTION 9.6. APPOINTMENT OF SUCCESSOR DEPOSITARY. If any
Depositary elects to discontinue its services as securities depositary with
respect to the Capital Securities, the Regular Trustees may, in their sole
discretion, appoint a successor Depositary with respect to such Capital
Securities.
52
<PAGE>
ARTICLE X
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 10.1. LIABILITY. (a) Except as expressly set forth in
this Declaration, the Capital Securities Guarantee and the terms of the
Securities, the Sponsor shall not be:
(i) personally liable for the return of any portion of the
capital contributions (or any return thereon) of the Holders of the
Securities which shall be made solely from assets of the Trust; and
(ii) required to pay to the Trust or to any Holder of Securities
any deficit upon dissolution of the Trust or otherwise.
(b) The Holder of the Common Securities shall be liable for all of
the debts and obligations of the Trust (other than with respect to the
Securities) to the extent not satisfied out of the Trust's assets.
(c) Pursuant to Section 3803(a) of the Business Trust Act, the
Holders of the Capital Securities shall be entitled to the same limitation of
personal liability extended to stockholders of private corporations for
profit organized under the General Corporation Law of the State of Delaware.
SECTION 10.2. EXCULPATION. (a) No Indemnified Person shall be
liable, responsible or accountable in damages or otherwise to the Trust or
any Covered Person for any loss, damage or claim incurred by reason of any
act or omission performed or omitted by such Indemnified Person in good faith
on behalf of the Trust and in a manner such Indemnified Person reasonably
believed to be within the scope of the authority conferred on such
Indemnified Person by the Declaration or by law, except that an Indemnified
Person shall be liable for any such loss, damage or claim incurred by reason
of such Indemnified Person's negligence or willful misconduct with respect to
such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in
good faith upon the records of the Trust and upon such information, opinions,
reports or statements presented to the Trust by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and
53
<PAGE>
who has been selected with reasonable care by or on behalf of the Trust,
including information, opinions, reports or statements as to the value and
amount of the assets, liabilities, profits, losses, or any other facts
pertinent to the existence and amount of assets from which Distributions to
Holders of Securities might properly be paid.
SECTION 10.3. FIDUCIARY DUTY. (a) To the extent that, at law or
in equity, an Indemnified Person has duties (including fiduciary duties) and
liabilities relating thereto to the Trust or to any other Covered Person, an
Indemnified Person acting under this Declaration shall not be liable to the
Trust or to any other Covered Person for its good faith reliance on the
provisions of this Declaration. The provisions of this Declaration, to the
extent that they restrict the duties and liabilities of an Indemnified Person
otherwise existing at law or in equity (other than the duties imposed on the
Property Trustee under the Trust Indenture Act), are agreed by the parties
hereto to replace such other duties and liabilities of such Indemnified
Person.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises between an
Indemnified Person and any Covered Person; or
(ii) whenever this Declaration or any other agreement
contemplated herein or therein provides that an Indemnified Person shall
act in a manner that is, or provides terms that are, fair and reasonable
to the Trust or any Holder of Securities,
the Indemnified Person shall resolve such conflict of interest, take such
action or provide such terms, considering in each case the relative interest
of each party (including its own interest) to such conflict, agreement,
transaction or situation and the benefits and burdens relating to such
interests, any customary or accepted industry practices, and any applicable
generally accepted accounting practices or principles. In the absence of bad
faith by the Indemnified Person, the resolution, action or term so made,
taken or provided by the Indemnified Person shall not constitute a breach of
this Declaration or any other agreement contemplated herein or of any duty or
obligation of the Indemnified Person at law or in equity or otherwise.
(c) Whenever in this Declaration an Indemnified Person is
permitted or required to make a decision:
(i) in its "discretion" or under a grant of similar authority,
the Indemnified Person shall be entitled to consider such interests and
factors as it
54
<PAGE>
desires, including its own interests, and shall have no duty or
obligation to give any consideration to any interest of or factors
affecting the Trust or any other Person; or
(ii) in its "good faith" or under another express standard, the
Indemnified Person shall act under such express standard and shall not
be subject to any other or different standard imposed by this
Declaration or by applicable law.
SECTION 10.4. INDEMNIFICATION. (a) To the fullest extent
permitted by applicable law, the Sponsor shall indemnify and hold harmless
each Indemnified Person from and against any loss, damage, liability, tax,
penalty, expense or claim of any kind or nature whatsoever incurred by such
Indemnified Person by reason of the creation, operation or termination of the
Trust or any act or omission performed or omitted by such Indemnified Person
in good faith on behalf of the Trust and in a manner such Indemnified Person
reasonably believed to be within the scope of authority conferred on such
Indemnified Person by this Declaration, except that no Indemnified Person
shall be entitled to be indemnified in respect of any loss, damage or claim
incurred by such Indemnified Person by reason of its own negligence or
willful misconduct with respect to such acts or omissions.
(b) To the fullest extent permitted by applicable law, expenses
(including reasonable legal fees and expenses) incurred by an Indemnified
Person in defending any claim, demand, action, suit or proceeding shall, from
time to time, be advanced by the Sponsor prior to the final disposition of
such claim, demand, action, suit or proceeding upon receipt by the Sponsor of
an undertaking by or on behalf of the Indemnified Person to repay such amount
if it shall be determined that the Indemnified Person is not entitled to be
indemnified as authorized in Section 10.4(a). The indemnification shall
survive the termination of this Declaration.
SECTION 10.5. OUTSIDE BUSINESSES. Any Covered Person, the
Sponsor, the Delaware Trustee and the Property Trustee may engage in or
possess an interest in other business ventures of any nature or description,
independently or with others, similar or dissimilar to the business of the
Trust, and the Trust and the Holders of Securities shall have no rights by
virtue of this Declaration in and to such independent ventures or the income
or profits derived therefrom and the pursuit of any such venture, even if
competitive with the business of the Trust, shall not be deemed wrongful or
improper. No Covered Person, the Sponsor, the Delaware Trustee, or the
Property Trustee shall be obligated to present any particular investment or
other opportunity to the Trust even if such opportunity is of a character
that, if presented to the Trust, could be taken by the
55
<PAGE>
Trust, and any Covered Person, the Sponsor, the Delaware Trustee and the
Property Trustee shall have the right to take for its own account
(individually or as a partner or fiduciary) or to recommend to others any
such particular investment or other opportunity. Any Covered Person, the
Delaware Trustee and the Property Trustee may engage or be interested in any
financial or other transaction with the Sponsor or any Affiliate of the
Sponsor, or may act as depositary for, trustee or agent for, or act on any
committee or body of holders of, securities or other obligations of the
Sponsor or its Affiliates.
ARTICLE XI
ACCOUNTING
SECTION 11.1. FISCAL YEAR. The fiscal year ("Fiscal Year") of the
Trust shall be the calendar year, or such other year as is required by the
Code.
SECTION 11.2. CERTAIN ACCOUNTING MATTERS. (a) At all times
during the existence of the Trust, the Regular Trustees shall keep, or cause
to be kept, full books of account, records and supporting documents, which
shall reflect in reasonable detail, each transaction of the Trust. The books
of account shall be maintained on the accrual method of accounting, in
accordance with United States generally accepted accounting principles,
consistently applied. The Trust shall use the accrual method of accounting
for United States federal income tax purposes.
(b) The Regular Trustees shall cause to be duly prepared and
delivered to each of the Holders of Securities, any annual United States
federal income tax information statement required by the Code, containing
such information with regard to the Securities held by each Holder as is
required by the Code and the Treasury Regulations. Notwithstanding any right
under the Code to deliver any such statement at a later date, the Regular
Trustees shall endeavor to deliver all such statements within 30 days after
the end of each Fiscal Year of the Trust.
(c) The Regular Trustees shall cause to be duly prepared and filed
with the appropriate taxing authority, an annual United States federal income
tax return, on a Form 1041 or such other form required by United States
federal income tax law, and any other annual income tax returns required to
be filed by the Regular Trustees on behalf of the Trust with any state or
local taxing authority.
SECTION 11.3. BANKING. The Trust shall maintain one or more bank
accounts in the name and for the sole benefit of the Trust; PROVIDED,
HOWEVER, that all
56
<PAGE>
payments of funds in respect of the Debentures held by the Property Trustee
shall be made directly to the Property Account and no other funds of the
Trust shall be deposited in the Property Account. The sole signatories for
such accounts shall be designated by the Regular Trustees; PROVIDED, HOWEVER,
that the Property Trustee shall designate the signatories for the Property
Account.
SECTION 11.4. WITHHOLDING. The Trust and the Regular Trustees
shall comply with all withholding requirements under United States federal,
state and local law. The Trust shall request, and the Holders shall provide
to the Trust, such forms or certificates as are necessary to establish an
exemption from withholding with respect to each Holder or underlying
beneficial owner, and any representations and forms as shall reasonably be
requested by the Trust to assist it in determining the extent of, and in
fulfilling, its withholding obligations. The Regular Trustees shall file
required forms with the applicable jurisdictions and, unless an exemption
from withholding is properly established by a Holder or underlying beneficial
owner, shall remit amounts withheld with respect to the Holder or underlying
beneficial owner to applicable jurisdictions. To the extent that the Trust
is required to withhold and pay over any amounts to any authority with
respect to distributions or allocations to any Holder or underlying
beneficial owner, the amount withheld shall be deemed to be a distribution in
the amount of the withholding to the Holder or underlying beneficial owner.
In the event of any claimed over-withholding, Holders shall be limited to an
action against the applicable jurisdiction. If the amount required to be
withheld was not withheld from actual Distributions made, the Trust may
reduce subsequent Distributions by the amount of such withholding.
ARTICLE XII
AMENDMENTS AND MEETINGS
SECTION 12.1. AMENDMENTS. (a) Except as otherwise provided in
this Declaration or by any applicable terms of the Securities, this
Declaration may only be amended by a written instrument approved and executed
by:
(i) the Regular Trustees (or, if there are more than two Regular
Trustees, a majority of the Regular Trustees);
(ii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Property Trustee, the Property Trustee;
and
57
<PAGE>
(iii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Delaware Trustee, the Delaware Trustee;
(b) no amendment shall be made, and any such purported amendment
shall be void and ineffective:
(i) unless, in the case of any proposed amendment, the Property
Trustee shall have first received an Officers' Certificate from each of
the Trust and the Sponsor that such amendment is permitted by, and
conforms to, the terms of this Declaration (including the terms of the
Securities);
(ii) unless, in the case of any proposed amendment which affects
the rights, powers, duties, obligations or immunities of the Property
Trustee, the Property Trustee shall have first received:
(A) an Officers' Certificate from each of the Trust and the
Sponsor that such amendment is permitted by, and conforms to, the
terms of this Declaration (including the terms of the Securities); and
(B) an opinion of counsel (who may be counsel to the Sponsor or
the Trust) that such amendment is permitted by, and conforms to, the
terms of this Declaration (including the terms of the Securities); and
(iii) to the extent the result of such amendment would be to:
(A) cause the Trust to fail to continue to be classified for
purposes of United States federal income taxation as a grantor trust;
(B) reduce or otherwise adversely affect the powers of the
Property Trustee in contravention of the Trust Indenture Act; or
(C) cause the Trust to be deemed to be an Investment Company
required to be registered under the Investment Company Act;
(c) at such time after the Trust has issued any Securities that
remain outstanding, any amendment that would adversely affect the rights,
privileges or preferences of any Holder of Securities may be effected only
with such additional requirements as may be set forth in the terms of such
Securities;
58
<PAGE>
(d) this Section 12.1 shall not be amended without the consent of
all of the Holders of the Securities;
(e) Article IV shall not be amended without the consent of the
Holders of a Majority in liquidation amount of the Common Securities;
(f) the rights of the holders of the Common Securities under
Article V to increase or decrease the number of, and appoint and remove
Trustees shall not be amended without the consent of the Holders of a
Majority in liquidation amount of the Common Securities; and
(g) notwithstanding Section 12.1(c), this Declaration may be
amended without the consent of the Holders of the Securities to:
(i) cure any ambiguity;
(ii) correct or supplement any provision in this Declaration
that may be defective or inconsistent with any other provision of this
Declaration;
(iii) add to the covenants, restrictions or obligations of the
Sponsor;
(iv) conform to any change in Rule 3a-5 under the Investment
Company Act or written change in interpretation or application of Rule
3a-5 under the Investment Company Act by any legislative body, court,
government agency or regulatory authority which amendment does not have
a material adverse effect on the rights, preferences or privileges of
the Holders; and
(v) to modify, eliminate or add to any provisions to such extent
as shall be necessary to ensure that the Trust will be classified for
United States federal income tax purposes as a grantor trust at all
times that any Securities are outstanding which amendment does not have
an adverse effect on the rights, preferences or privileges of the
Holders.
SECTION 12.2. MEETINGS OF THE HOLDERS OF SECURITIES; ACTION BY
WRITTEN CONSENT. (a) Meetings of the Holders of any class of Securities may
be called at any time by the Regular Trustees (or as provided in the terms of
the Securities) to consider and act on any matter on which Holders of such
class of Securities are entitled to act under the terms of this Declaration,
the terms of the Securities or the rules of any stock exchange on which the
Capital Securities are listed or admitted for trading. The Regular Trustees
shall call a meeting of the Holders of such class if directed to do so by the
59
<PAGE>
Holders of at least 10% in liquidation amount of such class of Securities.
Such direction shall be given by delivering to the Regular Trustees one or
more requests in a writing stating that the signing Holders of Securities
wish to call a meeting and indicating the general or specific purpose for
which the meeting is to be called. Any Holders of Securities calling a
meeting shall specify in writing the Certificates held by the Holders of
Securities exercising the right to call a meeting and only those Securities
represented by the Certificates so specified shall be counted for purposes of
determining whether the required percentage set forth in the second sentence
of this paragraph has been met.
(b) Except to the extent otherwise provided in the terms of the
Securities, the following provisions shall apply to meetings of Holders of
Securities:
(i) notice of any such meeting shall be given to all the Holders
of Securities having a right to vote thereat at least 7 days and not
more than 60 days before the date of such meeting. Whenever a vote,
consent or approval of the Holders of Securities is permitted or
required under this Declaration or the rules of any stock exchange on
which the Capital Securities are listed or admitted for trading, such
vote, consent or approval may be given at a meeting of the Holders of
Securities. Any action that may be taken at a meeting of the Holders of
Securities may be taken without a meeting if a consent in writing
setting forth the action so taken is signed by the Holders of Securities
owning not less than the minimum aggregate liquidation amount of
Securities that would be necessary to authorize or take such action at a
meeting at which all Holders of Securities having a right to vote
thereon were present and voting. Prompt notice of the taking of action
without a meeting shall be given to the Holders of Securities entitled
to vote who have not consented in writing. The Regular Trustees may
specify that any written ballot submitted to the Security Holders for
the purpose of taking any action without a meeting shall be returned to
the Trust within the time specified by the Regular Trustees;
(ii) each Holder of a Security may authorize any Person to act
for it by proxy on all matters in which a Holder of Securities is
entitled to participate, including waiving notice of any meeting, or
voting or participating at a meeting. No proxy shall be valid after the
expiration of 11 months from the date thereof unless otherwise provided
in the proxy. Every proxy shall be revocable at the pleasure of the
Holder of Securities executing it. Except as otherwise provided herein,
all matters relating to the giving, voting or validity of proxies shall
be governed by the General Corporation Law of the State of Delaware
relating to proxies, and judicial interpretations thereunder, as if the
Trust were a Delaware
60
<PAGE>
corporation and the Holders of the Securities were stockholders of a
Delaware corporation;
(iii) each meeting of the Holders of the Securities shall be
conducted by the Regular Trustees or by such other Person that the
Regular Trustees may designate; and
(iv) unless the Business Trust Act, this Declaration, the terms
of the Securities or the listing rules of any stock exchange on which
the Capital Securities are then listed or trading, provide otherwise,
the Regular Trustees, in their sole discretion, shall establish all
other provisions relating to meetings of Holders of Securities,
including notice of the time, place or purpose of any meeting at which
any matter is to be voted on by any Holders of Securities, waiver of any
such notice, action by consent without a meeting, the establishment of a
record date, quorum requirements, voting in person or by proxy or any
other matter with respect to the exercise of any such right to vote.
ARTICLE XIII
REPRESENTATIONS OF DELAWARE TRUSTEE
SECTION 13.1. REPRESENTATIONS AND WARRANTIES OF DELAWARE TRUSTEE.
The Trustee that acts as initial Delaware Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration and
at the Closing Date, and each Successor Delaware Trustee represents and
warrants to the Trust and the Sponsor at the time of the Successor Delaware
Trustee's acceptance of its appointment as Delaware Trustee that:
(a) The Delaware Trustee is a banking corporation with trust
powers, duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization, with trust power and authority to
execute and deliver, and to carry out and perform its obligations under the
terms of, the Declaration.
(b) The execution, delivery and performance by the Delaware
Trustee of this Declaration has been duly authorized by all necessary
corporate action on the part of the Delaware Trustee. This Declaration has
been duly executed and delivered by the Delaware Trustee, and, assuming the
due authorization, execution and delivery of the Declaration by the other
parties hereto, constitutes a legal, valid and binding obligation
61
<PAGE>
of the Delaware Trustee, enforceable against it in accordance with its terms,
subject to applicable bankruptcy, reorganization, moratorium, insolvency, and
other similar laws affecting creditors' rights generally and to general
principles of equity and the discretion of the court (regardless of whether
the enforcement of such remedies is considered in a proceeding in equity or
at law).
(c) The execution, delivery and performance of this Declaration by
the Delaware Trustee does not conflict with or constitute a breach of the
certificate of incorporation or By-laws of the Delaware Trustee.
(d) No consent, approval or authorization of, or registration with
or notice to, any state or Federal banking authority is required for the
execution, delivery or performance by the Delaware Trustee, of this
Declaration.
(e) The Delaware Trustee is an entity which has its principal
place of business in the State of Delaware and meets the eligibility criteria
set forth in Section 5.2.
(f) The Delaware Trustee has been authorized to perform its
obligations under the Certificate of Trust and this Declaration.
ARTICLE XIV
REPRESENTATIONS OF PROPERTY TRUSTEE
SECTION 14.1. REPRESENTATIONS AND WARRANTIES OF PROPERTY TRUSTEE.
The Trustee that acts as initial Property Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration and
at the Closing Date, and each Successor Property Trustee represents and
warrants to the Trust and the Sponsor at the time of the Successor Property
Trustee's acceptance of its appointment as Property Trustee that:
(a) The Property Trustee is a banking corporation with trust
powers, duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization, with trust power and authority to
execute and deliver, and to carry out and perform its obligations under the
terms of, the Declaration.
(b) The execution, delivery and performance by the Property
Trustee of this Declaration has been duly authorized by all necessary
corporate action on the part
62
<PAGE>
of the Property Trustee. This Declaration has been duly executed and
delivered by the Property Trustee, and, assuming the due authorization,
execution and delivery of the Declaration by the other parties hereto,
constitutes a legal, valid and binding obligation of the Property Trustee,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, reorganization, moratorium, insolvency, and other similar laws
affecting creditors' rights generally and to general principles of equity and
the discretion of the court (regardless of whether the enforcement of such
remedies is considered in a proceeding in equity or at law).
(c) The execution, delivery and performance of this Declaration by
the Property Trustee does not conflict with or constitute a breach of the
certificate of incorporation or By-laws of the Property Trustee.
(d) No consent, approval or authorization of, or registration with
or notice to, any state or Federal banking authority is required for the
execution, delivery or performance by the Property Trustee, of this
Declaration.
(e) The Property Trustee is an entity which meets the eligibility
criteria under Section 5.3(a) to serve as Property Trustee.
(f) The Property Trustee has been authorized to perform its
obligations under the Certificate of Trust and this Declaration.
ARTICLE XV
MISCELLANEOUS
SECTION 15.1. NOTICES. All notices provided for in this
Declaration shall be in writing, duly signed by the party giving such notice,
and shall be delivered, telecopied or mailed by certified mail, return
receipt requested, or overnight courier, as follows:
(a) If given to the Trust, in care of the Regular Trustees at the
Trust's mailing address set forth below (or such other address as the Trust
may give notice of to the Holders of the Securities):
c/o Zenith National Insurance Corp.
21255 Califa Street
Woodland Hills, California 91367-5021
Attention: Chief Financial Officer
63
<PAGE>
(b) If given to the Property Trustee, at the mailing address set
forth below (or such other address as the Property Trustee may give notice of
to the Holders of the Securities):
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Sixth & Marquette
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Administration,
Zenith National Insurance Capital Trust I
(c) If given to the Holder of the Common Securities, at the
mailing address of the Sponsor set forth below (or such other address as the
Holder of the Common Securities may give notice to the Trust):
c/o Zenith National Insurance Corp.
21255 Califa Street
Woodland Hills, California 91367-5021
Attention: Chief Financial Officer
(d) If given to the Delaware Trustee, at the mailing address set
forth below (or such other address as the Delaware Trustee may give notice to
the Trust):
WILMINGTON TRUST COMPANY
1100 North Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Administration,
Zenith National Insurance Capital Trust I
(e) If given to the Regular Trustee, at the mailing address set
forth below (or such other address as the Regular Trustee may give notice to
the Trust):
STANLEY R. ZAX
Zenith National Insurance Corp.
21255 Califa Street
Woodland Hills, California 91367-5021
FREDRICKA TAUBITZ
Zenith National Insurance Corp.
21255 Califa Street
Woodland Hills, California 91367-5021
64
<PAGE>
(f) If given to any other Holder, at the address set forth on the
books and records of the Trust or the Registrar, as applicable.
All such notices shall be deemed to have been given when received
in person, telecopied with receipt confirmed, or mailed by certified mail,
return receipt requested, or mailed by overnight courier except that, if a
notice or other document is refused delivery or cannot be delivered because
of a changed address of which no notice was given, such notice or other
document shall be deemed to have been delivered on the date of such refusal
or inability to deliver.
SECTION 15.2. GOVERNING LAW. This Declaration and the rights of
the parties hereunder shall be governed by and interpreted in accordance with
the laws of the State of Delaware and all rights and remedies shall be
governed by such laws, without regard to conflicts of laws principles.
SECTION 15.3. INTENTION OF THE PARTIES. It is the intention of
the parties hereto that the Trust be classified for United States federal
income tax purposes as a grantor trust. The provisions of this Declaration
shall be interpreted to further this intention of the parties.
SECTION 15.4. HEADINGS. Headings contained in this Declaration are
inserted for convenience of reference only and do not affect the
interpretation of this Declaration or any provision hereof.
SECTION 15.5. SUCCESSORS AND ASSIGNS. Whenever in this
Declaration any of the parties hereto is named or referred to, the successors
and assigns of such party shall be deemed to be included, and all covenants
and agreements in this Declaration by the Sponsor and the Trustees shall bind
and inure to the benefit of their respective successors and assigns, whether
so expressed.
SECTION 15.6. PARTIAL ENFORCEABILITY. If any provision of this
Declaration, or the application of such provision to any Person or
circumstance, shall be held invalid, the remainder of this Declaration, or
the application of such provision to persons or circumstances other than
those to which it is held invalid, shall not be affected thereby.
SECTION 15.7. COUNTERPARTS. This Declaration may contain more
than one counterpart of the signature page and this Declaration may be
executed by the affixing of the signature of each of the Trustees to one of
such counterpart signature pages. All of such counterpart signature pages
shall be read as though one, and they shall
65
<PAGE>
have the same force and effect as though all of the signers had signed a
single signature page.
66
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused these presents to be
executed as of the day and year first above written.
ZENITH NATIONAL INSURANCE
CORP., as Sponsor
By: /s/ Stanley R. Zax
------------------------------------
Name: Stanley R. Zax
Title: Chairman and President
WILMINGTON TRUST COMPANY,
not in its individual capacity but
solely as Delaware Trustee
By: /s/ Patricia A. Evans
------------------------------------
Name: Patricia A. Evans
Title: Financial Services Officer
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
not in its individual capacity but
solely as Property Trustee
By: /s/ Jane Y. Schweiger
------------------------------------
Name: Jane Y. Schweiger
Title: Corporate Trust Officer
/s/ Stanley R. Zax
---------------------------------------
STANLEY R. ZAX
not in his individual capacity but
solely as Regular Trustee
/s/ Fredricka Taubitz
---------------------------------------
FREDRICKA TAUBITZ
not in her individual capacity but
solely as Regular Trustee
<PAGE>
ANNEX I
TERMS OF
8.55% CAPITAL SECURITIES
8.55% COMMON SECURITIES
Pursuant to Section 7.1 of the Amended and Restated Declaration of
Trust, dated as of July 30, 1998 (as amended from time to time, the
"Declaration"), the designation, rights, privileges, restrictions, preferences
and other terms and provisions of the Capital Securities and the Common
Securities are set out below (each capitalized term used but not defined herein
has the meaning set forth in the Declaration):
1. DESIGNATION AND NUMBER.
(a) "Capital Securities." 75,000 Capital Securities of the Trust with an
aggregate liquidation amount with respect to the assets of the Trust
of $75 Million Dollars ($75,000,000), and a liquidation amount with
respect to the assets of the Trust of $1,000 per Capital Security, are
hereby designated for the purposes of identification only as "8.55%
Capital Securities (Liquidation Amount $1,000 per Capital Security)"
(the "Capital Securities"). The Capital Security Certificates
evidencing the Capital Securities shall be substantially in the forms
attached hereto as EXHIBIT A, EXHIBIT B and EXHIBIT C, as applicable,
with such changes and additions thereto or deletions therefrom as may
be required by ordinary usage, custom or practice or to conform to the
rules of any stock exchange or other organization, if any, on which
the Capital Securities are listed.
(b) "Common Securities." 2,320 Common Securities of the Trust with an
aggregate liquidation amount with respect to the assets of the Trust
of Two Million Three Hundred Twenty Thousand Dollars ($2,320,000), and
a liquidation amount with respect to the assets of Trust of $1,000 per
Common Security, are hereby designated for the purposes of
identification only as "8.55% Common Securities (Liquidation Amount
$1,000 per Common Security)" (the "Common Securities"). The Common
Securities Certificates evidencing the Common Securities shall be
substantially in the form attached hereto as EXHIBIT D, with such
changes and additions thereto or deletions therefrom as may be
required by ordinary usage, custom or practice.
1
<PAGE>
2. DISTRIBUTIONS.
(a) Distributions payable on each Security will be fixed at a rate per
annum of 8.55% (the "Coupon Rate") of the liquidation amount of $1,000
per Security, such rate being the rate of interest payable on the
Debentures to be held by the Property Trustee. Distributions not
currently made will bear interest thereon compounded semi-annually at
the Coupon Rate (to the extent permitted by applicable law). The term
"Distributions" as used herein includes such cash distributions and
any such interest payable unless otherwise stated. A Distribution is
payable only to the extent that payments are made in respect of the
Debentures held by the Property Trustee and to the extent the Property
Trustee has funds legally available therefor. The amount of
Distributions payable for any period will be computed for any full
semi-annual Distribution period on the basis of a 360-day year of
twelve 30-day months, and for any period of less than a full calendar
month the number of days elapsed in such month.
(b) Distributions on the Securities will be cumulative, will accrue
from the date of original issuance and will be payable
semi-annually in arrears, on the following dates, which dates
correspond to the interest payment dates on the Debentures:
February 1 and August 1 of each year, commencing on February 1,
1999, except as otherwise described below. So long as no Event of
Default (or an event which would be an Event of Default with the
giving of required notice or the passage of time) has occurred and
is continuing, the Sponsor has the right under the Indenture to
defer payments of interest by deferring the interest payment period
from time to time on the Debentures for a period not exceeding 10
consecutive semi-annual periods (each an "Deferral Period") and, as
a consequence of such deferral, Distributions will also be
deferred. Despite such deferral, semi-annual Distributions will
continue to accrue with interest thereon (to the extent permitted
by applicable law) at the Coupon Rate compounded semi-annually
during any such Deferral Period. Prior to the termination of any
such Deferral Period, the Sponsor may further extend such Deferral
Period so long as no Event of Default (or an event which would be
an Event of Default with the giving of required notice or the
passage of time) has occurred and is continuing; PROVIDED THAT such
Deferral Period together with all such previous and further
deferrals thereof may not exceed 10 consecutive semi-annual periods
or extend beyond the maturity (whether at the stated maturity or by
declaration of acceleration, call for redemption or otherwise) of
the Debentures under the Indenture.
2
<PAGE>
Payments of accrued Distributions will be payable to Holders as
they appear on the books and records of the Trust on the first
record date after the end of the Deferral Period. Upon the
termination of any Deferral Period and the payment of all amounts
then due, the Sponsor may commence a new Deferral Period, subject
to the above requirements. During any such Deferral Period, the
Debenture Issuer may not (i) declare or pay any dividends on
distributions with respect to, or redeem, purchase acquire, or make
a liquidation payment with respect to, any of the Debenture
Issuer's capital stock (which includes common and preferred stock)
or (ii) make any payment of principal of or premium, if any, or
interest on or repay, repurchase or redeem any debt securities of
the Debenture Issuer that rank PARI PASSU with or junior in right
of payment to the Debentures or (iii) make any guarantee payments
with respect to any guarantee by the Debenture Issuer of any
securities of any subsidiary of the Debenture Issuer if such
guarantee ranks PARI PASSU with or junior in right of payment to
the Debentures (other than (a) dividends or distributions in shares
of, or options, warrants or rights to subscribe for or purchase
shares of, common stock of the Debenture Issuer, (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 Capital
Securities Guarantee, (d) as a result of a reclassification of the
Debenture Issuer's capital stock or the exchange or conversion of
one class or series of the Debenture Issuer's capital stock for
another class or series of the Debenture Issuer's capital stock,
(e) the purchase of fractional interests in shares of the Debenture
Issuer's capital stock, pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or
exchanged and (f) purchases of common stock of the Debenture Issuer
in connection with the satisfaction by the Debenture Issuer of its
obligations (including purchases related to the issuance of such
common stock or rights) under any of the Debenture Issuer's benefit
plans for its and its subsidiaries' directors, officers or
employees or any of the Debenture Issuer's dividend reinvestment
plans). Despite such deferral, Distributions will continue to
accumulate with additional Distributions thereon (to the extent
permitted by applicable law at a rate no greater than the rate at
which interest is then accruing on the Debentures) at the Coupon
Rate compounded semi-annually during any such Deferral Period.
Prior to the termination of any such Deferral Period, the Debenture
Issuer may further defer payments of interest by further extending
such Deferral Period; PROVIDED THAT such
3
<PAGE>
Deferral Period, together with all such previous and further
deferrals within such Deferral Period, may not exceed 10
consecutive semi-annual periods, including the first semi-annual
period during such Deferral Period, or extend beyond the Stated
Maturity Date of the Debentures. Upon the termination of any
Deferral Period and the payment of all amounts then due, the
Debenture Issuer may commence a new Deferral Period, subject to the
above requirements.
(c) Distributions on the Securities will be payable to the Holders thereof
as they appear on the books and records of the Trust on the relevant
record dates. The relevant record dates shall be the fifteenth day of
the month next preceding the month in which the relevant payment date
falls, except as otherwise described in this Annex I to the
Declaration. Subject to any applicable laws and regulations and the
provisions of the Declaration, each such payment in respect to Capital
Securities being held in book-entry form through The Depository Trust
Company (the "Depositary") will be made by the Trust to the
Depositary. Payment of Distributions to the Depositary is the
responsibility of the Trust, disbursement of such payments to
Depositary Participants is the responsibility of the Depositary, and
disbursement of such payments to the Capital Security Beneficial Owner
is the responsibility of Depositary Participants. The relevant record
dates for the Common Securities shall be the same record dates as for
the Capital Securities. Distributions payable on any Securities that
are not punctually paid on any Distribution payment date, as a result
of the Sponsor having failed to make payment under the Debentures,
will cease to be payable to the Person in whose name such Securities
are registered on the relevant record date, and such distributions on
Securities will instead be payable to the Persons in whose name such
Securities are registered on the special record date or other
specified date determined in accordance with the Indenture. If any
date on which Distributions are payable on the Securities is not a
Business Day, then payment of the Distribution payable on such date
will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay)
except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business
Day in each case with the same force and effect as if made on such
date.
(d) In the event that there is any money or other property held by or for
the Trust that is not accounted for in the Declaration, such property
shall be
4
<PAGE>
distributed Pro Rata (as defined herein) among the Holders of
the Securities.
3. LIQUIDATION DISTRIBUTION UPON DISSOLUTION.
In the event of any voluntary or involuntary dissolution, winding-up
or termination of the Trust (including without limitation pursuant to Section
8.1(b) of the Declaration), the Holders of the Securities on the date of the
dissolution, winding-up or termination, as the case may be, will be entitled to
receive out of the assets of the Trust legally available for distribution to
Holders of Securities after satisfaction of liabilities of creditors of the
Trust as provided by applicable law, an amount equal to the aggregate of the
liquidation amount of $1,000 per Security plus any additional amount payable
upon redemption of the Debentures as a result of the Make-Whole Premium or
Special Event Make-Whole Premium (as such terms are defined in the Indenture),
as applicable, and accrued and unpaid Distributions thereon to the date of
payment (such amount being the "Liquidation Distribution"), unless, in
connection with such dissolution, winding-up or termination, Debentures in an
aggregate principal amount equal to the aggregate liquidation amount of such
Securities, with an interest rate identical to the Coupon Rate of, and bearing
accrued and unpaid interest in an amount equal to the accrued and unpaid
Distributions on, such Securities, shall be distributed on a Pro Rata basis to
the Holders of the Securities in exchange for such Securities as provided in
this Paragraph 3.
If, upon any such dissolution, winding-up or termination, the
Liquidation Distribution can be paid only in part because the Trust has
insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by the Trust on the Securities
shall be paid on a Pro Rata basis in accordance with paragraph 8.
If a termination of the Trust occurs as described in clause (i), (ii),
(iii), (vi) or (vii) of Section 8.1(a) of the Declaration, the Trust shall be
liquidated by the Regular Trustees as expeditiously as the Regular Trustees
determine to be possible by distributing, after satisfaction of liabilities to
creditors of the Trust as provided by applicable law, to each holder of the
Capital Securities, Debentures with an aggregate principal amount equal to the
aggregate liquidation amount of, with an interest rate identical to the Coupon
Rate of, and accrued and unpaid
5
<PAGE>
interest equal to accrued and unpaid Distributions on, the Capital
Securities. In addition, at any time the Sponsor has the right to terminate
the Trust and, after satisfaction of the liabilities to creditors of the
Trust as provided by applicable law, cause Debentures with an aggregate
principal amount of, with an interest rate identical to the Coupon Rate of,
and accrued and unpaid interest equal to accrued and unpaid Distributions on,
the outstanding Securities, to be distributed to the Holders of the
Securities in liquidation of the Trust.
The distribution of Debentures upon any dissolution of the Trust is
conditioned upon the receipt by the Regular Trustees of an opinion of
nationally recognized independent tax counsel experienced in such matters to
the effect that the Holders of the Securities will not recognize any gain or
loss for United States federal income tax purposes as a result of such
dissolution of the Trust and distribution of Debentures.
After the date fixed for any distribution of Debentures (including
pursuant to a Special Event as set forth in paragraph 4(c) below): (i) the
Securities will no longer be deemed to be outstanding, (ii) the Depositary or
its nominee (or any successor Depositary or its nominee), as Holder of
Capital Securities represented by global certificates, will receive a
registered global certificate or certificates representing the Debentures to
be delivered upon such distribution and (iii) any certificates representing
Securities, except for certificates representing Capital Securities held by
the Depositary or its nominee (or any successor Depositary or its nominee),
will be deemed to represent Debentures with an aggregate principal amount
equal to the aggregate liquidation amount of, with an interest rate identical
to the Coupon Rate of, and accrued and unpaid interest equal to accrued and
unpaid Distributions on, such Securities until such certificates are
presented to the Sponsor or its agent for transfer or reissuance.
If, in connection with any dissolution, winding-up or termination of
the Trust, Debentures are distributed to Holders of the Securities as provided
in this paragraph 3, the procedures set forth in paragraph 4(e) will be
applicable thereto.
4. REDEMPTION AND DISTRIBUTION.
(a) Upon the repayment or payment of the Debentures in whole or in part,
whether at maturity or upon redemption or otherwise, the proceeds from
such repayment or redemption shall be simultaneously applied to redeem
Securities having an aggregate liquidation amount equal to the
aggregate principal amount of the Debentures so repaid or redeemed at
the redemption price per Security of 100% of the liquidation amount of
the Security to be redeemed, plus the Make-Whole Premium (as defined
in the Indenture) or Special Event Make-Whole Premium (as defined in
the Indenture), if any, together with accrued and unpaid Distributions
thereon through the date of the redemption, payable in cash. Holders
will be given not less than 30 nor more than 60 days' notice of such
redemption.
6
<PAGE>
(b) If fewer than all the outstanding Securities are to be so redeemed,
the Common Securities and the Capital Securities will be redeemed Pro
Rata and the Capital Securities to be redeemed will be as described in
Paragraph 4(e)(ii) below.
(c) [intentionally omitted]
(d) The Securities will not be redeemed unless all accrued and unpaid
Distributions have been paid on all Securities for all semi-annual
Distribution periods terminating on or before the date of redemption.
(e) (i) Notice of any redemption of, or notice of distribution of
Debentures in exchange for the Securities (a
"Redemption/Distribution Notice") will be given by the Trust by
mail to each Holder of Securities to be redeemed or exchanged not
fewer than 30 nor more than 60 days before the date fixed for
redemption or exchange thereof which, in the case of a
redemption, will be the date fixed for redemption of the
Debentures. For purposes of the calculation of the date of
redemption or exchange and the dates on which notices are given
pursuant to this paragraph 4(e)(i), a Redemption/Distribution
Notice shall be deemed to be given on the day such notice is
first mailed by first-class mail, postage prepaid, to Holders of
Securities. Each Redemption/Distribution Notice shall be
addressed to the Holders of Securities at the address of each
such Holder appearing in the books and records of the Trust. No
defect in the Redemption/Distribution Notice or in the mailing of
either thereof with respect to any Holder shall affect the
validity of the redemption or exchange proceedings with respect
to any other Holder.
(ii) In the event that fewer than all the outstanding Securities are
to be redeemed, the Securities to be redeemed shall be redeemed
Pro Rata from each Holder of Capital Securities, it being
understood that, in respect of Capital Securities registered in
the name of and held of record by the Depositary (or any
successor Depositary) or any nominee, the distribution of the
proceeds of such redemption will be made to each Depositary
Participant (or Person on whose behalf such nominee holds such
Securities) in accordance with the procedures applied by such
agency or nominee.
7
<PAGE>
(iii) If Securities are to be redeemed and the Trust gives a
Redemption/Distribution Notice, which notice may only be issued
if the Debentures are redeemed as set out in this paragraph 4
(which notice will be irrevocable), then (A) with respect to
Capital Securities held in book-entry form, by 1:00 p.m., New
York City time, on the redemption date, provided that the Sponsor
has paid the Property Trustee a sufficient amount of cash in
connection with the related redemption or maturity of the
Debentures, the Property Trustee will deposit irrevocably with
the Depositary (or successor Depositary) funds sufficient to pay
the amount payable on redemption with respect to such Capital
Securities and will give the Depositary irrevocable instructions
and authority to pay the amount payable on redemption to the
Capital Security Beneficial Owner, and (B) with respect to
Capital Securities issued in certificated form and Common
Securities, provided that the Sponsor has paid the Property
Trustee a sufficient amount of cash in connection with the
related redemption or maturity of the Debentures, the Property
Trustee will irrevocably deposit with the Paying Agent funds
sufficient to pay the amount payable on redemption to the Holders
of such Securities upon surrender of their certificates. If a
Redemption/Distribution Notice shall have been given and funds
deposited as required, then on the date of such deposit, all
rights of Holders of such Securities so called for redemption
will cease, except the right of the Holders of such Securities to
receive the redemption price, but without interest on such
redemption price. Neither the Regular Trustees nor the Trust
shall be required to register or cause to be registered the
transfer of any Securities that have been so called for
redemption. If any date fixed for redemption of Securities is
not a Business Day, then payment of the amount payable on such
date will be made on the next succeeding day that is a Business
Day (without any interest or other payment in respect of any such
delay) except that, if such Business Day falls in the next
calendar year, such payment will be made on the immediately
preceding Business Day, in each case with the same force and
effect as if made on such date fixed for redemption. If payment
of the redemption price in respect of any Securities is
improperly withheld or refused and not paid either by the Trust
or by the Sponsor as guarantor pursuant to the Capital Securities
Guarantee, Distributions on such Securities will continue to
accrue at the then applicable rate, from the original
8
<PAGE>
redemption date to the date of payment, in which case the
actual payment date will be considered the date fixed for
redemption for purposes of calculating the amount payable upon
redemption (other than for purposes of calculating any
premium).
(iv) Redemption/Distribution Notices shall be sent by the Regular
Trustees on behalf of the Trust to (A) in the case of Capital
Securities held in book-entry form, the Depositary and, in the
case of Securities held in certificated form, the Holders of such
certificates and (B) in respect of the Common Securities, the
Holder thereof.
(v) Subject to the foregoing and applicable law (including, without
limitation, United States federal securities laws), the Sponsor
or any of its subsidiaries may at any time and from time to time
purchase outstanding Capital Securities by tender, in the open
market or by private agreement.
5. VOTING RIGHTS - CAPITAL SECURITIES.
(a) Except as provided in this Annex I, in the Business Trust Act and as
otherwise required by law, the Declaration and the Indenture, the
Holders of the Capital Securities will have no voting rights.
(b) The Holders of the Capital Securities shall have the rights with
respect to the enforcement of payment of principal, premium, if any,
and interest on the Debentures as are set forth herein, in the
Declaration or in the Indenture.
Subject to the requirements set forth in this paragraph, the Holders
of a Majority in liquidation amount of the Capital Securities, voting
separately as a class may direct the time, method, and place of
conducting any proceeding for any remedy available to the Property
Trustee, or direct the exercise of any power conferred upon the
Property Trustee under the Declaration, including the right to direct
the Property Trustee, as holder of the Debentures, to (i) direct the
time, method, place of conducting any proceeding for any remedy
available to the Indenture Trustee, or exercising any trust or power
conferred on the Indenture Trustee with respect to the Debentures,
(ii) waive any past default and its consequences that is waivable
under Section 5.13 of the Indenture or otherwise, (iii)
9
<PAGE>
exercise any right to rescind or annul a declaration that the
principal of all the Debentures shall be due and payable or (iv)
consent to any amendment, modification or termination of the
Indenture or the Debentures, where such consent shall be required;
PROVIDED, HOWEVER, that, where a consent under the Indenture would
require the consent or act of the Holders of greater than a
majority of the Holders in principal amount of Debentures (a "Super
Majority"), the Property Trustee may only give such consent or take
such action at the direction of the Holders of at least the
proportion in liquidation amount of the Capital Securities which
the relevant Super Majority represents of the aggregate principal
amount of the Debentures outstanding. The Property Trustee shall
not, and none of the other Trustees shall in any event, revoke any
action previously authorized or approved by a vote of the Holders
of the Capital Securities, except by a subsequent vote of the
Holders of the Capital Securities. Other than with respect to
directing the time, method and place of conducting any remedy
available to the Property Trustee as set forth above, the Property
Trustee shall not take any action in accordance with the directions
of the Holders of the Capital Securities under this paragraph
unless the Property Trustee has obtained an opinion of tax counsel
to the effect that, as a result of such action, the Trust will not
fail to be classified as a grantor trust for United States federal
income tax purposes.
If the Property Trustee is the sole holder of the Debentures, any
Holder of the Capital Securities shall have the right, to the fullest
extent permitted by applicable law, to institute suit on behalf of the
Trust for the enforcement of the right to receive payment of the
principal of and interest, and premium, if any, on the Debentures when
due. In addition, the Holders of at least 25% in aggregate
liquidation amount of Capital Securities outstanding shall be
entitled, to the fullest extent permitted by applicable law, to
institute any other proceeding in the event the Indenture Trustee or
the Property Trustee fails to do so in accordance with the terms of
the Indenture.
If an Event of Default shall have occurred and be continuing, the
Holders of a Majority in liquidation amount of the Capital Securities,
voting as a class at a meeting of Holders of Capital Securities, shall
have the exclusive right to remove the Property Trustee.
10
<PAGE>
In addition to any other rights of the Holders provided herein or in
the Declaration, if the Property Trustee fails to enforce its rights,
as holder of the Debentures, under the Indenture, any Holder of
Capital Securities may, to the fullest extent permitted by applicable
law, institute a legal proceeding directly against the Sponsor, to
enforce the rights of the Property Trustee, as holder of the
Debentures, under the Indenture, without first instituting any legal
proceeding against the Property Trustee or any other Person.
Notwithstanding the foregoing, if an Event of Default in respect of
the Securities has occurred and is continuing and such event is
attributable to the failure of the Sponsor to pay interest or
principal on the Debentures issued to the Trust on the date such
interest or principal is otherwise payable, then a Holder of Capital
Securities may institute a proceeding directly against the Sponsor for
enforcement of payment to the Holder of the Capital Securities of the
principal of or interest on the Debentures on or after the respective
due dates specified in the Debentures (taking into account any
Deferral Period).
Any approval or direction of Holders of Capital Securities may be
given at a separate meeting of Holders of Capital Securities convened
for such purpose, at a meeting of all of the Holders of Securities in
the Trust or pursuant to written consent. The Regular Trustees will
cause a notice of any meeting at which Holders of Capital Securities
are entitled to vote, or of any matter upon which action by written
consent of such Holders is to be taken, to be mailed to each Holder of
record of Capital Securities. Each such notice will include a
statement setting forth the following information: (i) the date of
such meeting or the date by which such action is to be taken, (ii) a
description of any resolution proposed for adoption at such meeting on
which such Holders are entitled to vote or of such matter upon which
written consent is sought and (iii) instructions for the delivery of
proxies or consents.
No vote or consent of the Holders of the Capital Securities will be
required for the Trust to redeem and cancel Capital Securities or to
distribute the Debentures in accordance with the Declaration and the
terms of the Securities.
Notwithstanding that Holders of Capital Securities are entitled to
vote or consent under any of the circumstances described above, any of
the Capital Securities that are owned by the Sponsor or any Affiliate
of the
11
<PAGE>
Sponsor shall not be entitled to vote or consent and shall, for
purposes of such vote or consent, be treated as if they were not
outstanding.
6. VOTING RIGHTS - COMMON SECURITIES.
(a) Except as provided in this Annex I, in the Business Trust Act and as
otherwise required by law and the Declaration, the Holders of the
Common Securities will have no voting rights.
(b) The Holders of the Common Securities are entitled, in accordance with
and subject to Article V of the Declaration, to vote to appoint,
remove or replace any Trustee.
(c) Subject to Section 2.6 of the Declaration and only after the Event of
Default with respect to the Capital Securities has been cured, waived,
or otherwise eliminated and subject to the requirements of the second
to last sentence of this paragraph, the Holders of the Majority in
liquidation amount of the Common Securities, voting separately as a
class, may direct the time, method, and place of conducting any
proceeding for any remedy available to the Property Trustee, or
exercising any power conferred upon the Property Trustee under the
Declaration, including (i) directing the time, method, place of
conducting any proceeding for any remedy available to the Indenture
Trustee, or exercising any power conferred on the Indenture Trustee
with respect to the Debentures, (ii) waiving any past default and its
consequences that is waivable under Section 5.13 of the Indenture,
(iii) exercising any right to rescind or annul a declaration that the
principal of all the Debentures shall be due and payable; or
(iv) consenting to any amendment, modification or termination of the
Indenture or the Debentures, where such consent shall be required;
PROVIDED THAT, where a consent or action under the Indenture would
require the consent or act of the Holders of greater than a majority
in principal amount of Debentures (a "Super Majority"), the Property
Trustee may only give such consent or take such action at the
direction of the Holders of at least the same proportion in
liquidation amount of the Common Securities which the relevant Super
Majority represents of the aggregate principal amount of the
Debentures outstanding. The Property Trustee shall not revoke any
action previously authorized or approved by a vote of the Holders of
the Capital Securities, except by a subsequent vote of the Holders of
the Capital Securities. Other than with respect to directing the
time, method and place of conducting any remedy available
12
<PAGE>
to the Property Trustee or the Indenture Trustee as set forth
above, the Property Trustee shall not take any action in accordance
with the directions of the Holders of the Common Securities under
this paragraph unless the Property Trustee has obtained an opinion
of tax counsel to the effect that, as a result of such action the
Trust will not fail to be classified as a grantor trust for United
States federal income tax purposes. If the Property Trustee fails
to enforce its rights, as holder of the Debentures, under the
Indenture, any Holder of Common Securities may, institute a legal
proceeding directly against the Sponsor, to enforce the Property
Trustee's rights, as holder of the Debentures, under the Indenture,
without first instituting any legal proceeding against the Property
Trustee or any other Person.
Any approval or direction of Holders of Common Securities may be given
at a separate meeting of Holders of Common Securities convened for
such purpose, at a meeting of all of the Holders of Securities in the
Trust or pursuant to written consent. The Regular Trustees will cause
a notice of any meeting at which Holders of Common Securities are
entitled to vote, or of any matter upon which action by written
consent of such Holders is to be taken, to be mailed to each Holder of
record of Common Securities. Each such notice will include a
statement setting forth (i) the date of such meeting or the date by
which such action is to be taken, (ii) a description of any resolution
proposed for adoption at such meeting on which such Holders are
entitled to vote or of such matter upon which written consent is
sought and (iii) instructions for the delivery of proxies or consents.
No vote or consent of the Holders of the Common Securities will be
required for the Trust to redeem and cancel Common Securities or to
distribute the Debentures in accordance with the Declaration and the
terms of the Securities.
7. AMENDMENTS TO DECLARATION AND INDENTURE.
(a) In addition to any requirements under Section 12.1 of the Declaration,
if any proposed amendment to the Declaration provides for, or the
Regular Trustees otherwise propose to effect, (i) any action that
would adversely affect the powers, preferences or special rights of
the Securities, whether by way of amendment to the Declaration or
otherwise, or (ii) the dissolution, winding-up or termination of the
Trust, other than as described in Section 8.1 of the Declaration, then
the Holders of
13
<PAGE>
outstanding Securities as a class, will be entitled to vote on such
amendment or proposal (but not on any other amendment or proposal)
and such amendment or proposal shall not be effective except (a)
with the approval of the Holders of at least 66-2/3% in liquidation
amount of the Securities, voting together as a single class and (b)
upon receipt by the Regular Trustees of an opinion of a nationally
recognized independent counsel experienced in such matters to the
effect that such amendment or the exercise of any power granted to
the Regular Trustees in accordance with such amendment will not
affect the Trust's status as a grantor trust for United States
federal income tax purposes or the Trust's exemption from the
status of an "investment company" under the Investment Company Act;
PROVIDED, HOWEVER, if any amendment or proposal referred to in
clause (i) above would adversely affect only the Capital Securities
or only the Common Securities, then only the affected class will be
entitled to vote on such amendment or proposal and such amendment
or proposal shall not be effective except with the approval of
66-2/3% in liquidation amount of such class of Securities.
(b) In the event the consent of the Property Trustee as the holder of the
Debentures is required under the Indenture with respect to any
amendment, modification or termination of the Indenture or the
Debentures, the Property Trustee shall request the direction of the
Holders of the Securities with respect to such amendment, modification
or termination and shall vote with respect to such amendment,
modification or termination as directed by a Majority in liquidation
amount of the Securities voting together as a single class; PROVIDED,
HOWEVER, that where a consent under the Indenture would require the
consent of the holders of more than a majority of the aggregate
principal amount of the Debentures, the Property Trustee may only give
such consent at the direction of the Holders of at least the same
proportion in aggregate stated liquidation amount of the Securities;
PROVIDED, HOWEVER, that the Property Trustee shall not take any action
in accordance with the directions of the Holders of the Securities
under this paragraph unless the Property Trustee has obtained an
opinion of tax counsel to the effect that for the purposes of United
States federal income tax the Trust will not be classified as other
than a grantor trust on account of such action.
14
<PAGE>
8. PRO RATA.
A reference in these terms of the Securities to any payment,
distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder
of Securities according to the aggregate liquidation amount of the Securities
held by the relevant Holder in relation to the aggregate liquidation amount of
all Securities outstanding unless, on any distribution date or redemption date
an Event of Default under the Declaration has occurred and is continuing, in
which case no payment of any distribution on, or amount payable upon redemption
of, any Common Security, and no other payment on account of the redemption,
liquidation or other acquisition of Common Securities, shall be made unless
payment in full in cash of all accumulated and unpaid Distributions on all
outstanding Capital Securities for all Distribution periods terminating on or
prior thereto, or in the case of payment of the amount payable upon redemption
of the Capital Securities, the full amount of such amount in respect of all
outstanding Capital Securities shall have been made or provided for, and all
funds available to the Property Trustee shall first be applied to the payment in
full in cash of all Distributions on, or the amount payable upon redemption of
Capital Securities then due and payable.
9. RANKING.
The Capital Securities rank PARI PASSU with, and payment thereon shall
be made Pro Rata with, the Common Securities except that, where an Event of
Default occurs and is continuing under the Indenture, the rights of Holders of
the Common Securities to payment in respect of Distributions and payments upon
liquidation, redemption and otherwise are subordinated to the rights to payment
of the Holders of the Capital Securities.
10. ACCEPTANCE OF CAPITAL SECURITIES GUARANTEE AND INDENTURE.
Each Holder of Capital Securities and Common Securities and each
Capital Security Beneficial Owner, by the acceptance thereof, agrees to the
provisions of the Capital Securities Guarantee, respectively, including the
subordination provisions therein and to the provisions of the Indenture,
including the subordination provisions therein, and which includes, among other
things, provisions relating to certain rights of the Holders of the Capital
Securities all as set forth therein.
11. NO PREEMPTIVE RIGHTS.
The Holders of the Securities shall have no preemptive rights to
subscribe for any additional Securities.
15
<PAGE>
12. MISCELLANEOUS.
These terms constitute a part of the Declaration.
The Sponsor will provide a copy of the Declaration, the Capital
Securities Guarantee, and the Indenture to a Capital Security Beneficial Owner
without charge on written request to the Sponsor at its principal place of
business.
16
<PAGE>
EXHIBIT A
FORM OF RULE 144A GLOBAL SECURITY
THIS CAPITAL SECURITY IS A RULE 144A GLOBAL SECURITY WITHIN THE
MEANING OF THE DECLARATION HEREINAFTER REFERRED TO AND IS REGISTERED IN THE
NAME OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (THE
"DEPOSITARY"), OR A NOMINEE OF THE DEPOSITARY. THIS CAPITAL SECURITY IS
EXCHANGEABLE FOR CAPITAL SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER
THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE DECLARATION AND NO TRANSFER OF THIS CAPITAL SECURITY (OTHER
THAN A TRANSFER OF THIS CAPITAL SECURITY AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY
OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED
CIRCUMSTANCES.
UNLESS THIS CAPITAL SECURITY IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITARY (55 WATER STREET, NEW YORK, NEW YORK) TO
THE TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CAPITAL SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITARY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
THIS CAPITAL SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS
OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS CAPITAL SECURITY NOR
ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT
TO, SUCH REGISTRATION.
<PAGE>
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF AGREES
TO OFFER, SELL OR OTHERWISE TRANSFER THIS CAPITAL SECURITY ONLY (A) TO ZENITH
NATIONAL INSURANCE CORP. (THE "COMPANY"), (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO
LONG AS THIS CAPITAL SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A
UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS
A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO
WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A, (D) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR 904 UNDER
THE SECURITIES ACT, (E) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED
BY RULE 144 UNDER THE SECURITIES ACT (IF APPLICABLE) OR (F) PURSUANT TO ANY
OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE
SECURITIES ACT, SUBJECT TO THE RIGHT OF THE TRUST AND THE COMPANY PRIOR TO
ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (E) OR (F) TO REQUIRE
THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER
INFORMATION SATISFACTORY TO EACH OF THEM AND (ii) IN EACH OF CASES (B)
THROUGH (F) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS CAPITAL SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND.
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF ALSO
AGREES, REPRESENTS AND WARRANTS THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT
PLAN SUBJECT TO THE "PROHIBITED TRANSACTIONS" PROVISIONS OF SECTION 406 OF
THE EMPLOYMENT RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")
OR SECTION 4975 OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED ("THE
CODE"), AND IS NOT USING THE ASSETS OF ANY SUCH PLAN TO ACQUIRE THIS CAPITAL
SECURITY OR (ii) THE ACQUISITION AND HOLDING OF THIS CAPITAL SECURITY BY IT
IS NOT PROHIBITED BY EITHER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE,
OR IS EXEMPT FROM ANY SUCH PROHIBITION BY APPLICATION OF A STATUTORY,
REGULATORY OR ADMINISTRATIVE EXEMPTION.
A-2
<PAGE>
THIS CAPITAL SECURITY WILL BE ISSUED, AND MAY BE TRANSFERRED, ONLY
IN BLOCKS HAVING A LIQUIDATION AMOUNT (BEFORE GIVING EFFECT TO ANY PARTIAL
REDEMPTION) OF NOT LESS THAN $100,000 (100 CAPITAL SECURITIES). ANY
TRANSFER, SALE OR OTHER DISPOSITION OF THE CAPITAL SECURITIES IN A BLOCK
HAVING A LIQUIDATION AMOUNT (BEFORE GIVING EFFECT TO ANY PARTIAL REDEMPTION)
OF LESS THAN $100,000 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT
WHATSOEVER. ANY SUCH TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF SUCH
CAPITAL SECURITIES FOR ANY PURPOSE, INCLUDING BUT NOT LIMITED TO THE RECEIPT
OF DISTRIBUTIONS ON SUCH CAPITAL SECURITIES, AND SUCH TRANSFEREE SHALL BE
DEEMED TO HAVE NO INTEREST WHATSOEVER IN SUCH CAPITAL SECURITIES.
A-3
<PAGE>
Certificate number Number of Capital Securities
CUSIP NO.
Certificate Evidencing Capital Securities
of
ZENITH NATIONAL INSURANCE CAPITAL TRUST I
8.55% Capital Securities
(Liquidation Amount $1,000 per Capital Security)
ZENITH NATIONAL INSURANCE CAPITAL TRUST I, a statutory business trust
formed under the laws of the State of Delaware (the "Trust"), hereby certifies
that ________________ (the "Holder") is the registered owner of preferred
securities of the Trust representing preferred undivided beneficial interests in
the assets of the Trust designated the 8.55% Capital Securities (Liquidation
Amount $1,000 per Security) (the "Capital Securities"). The Capital Securities
are transferable on the books and records of the Trust, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer. The designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Capital Securities represented
hereby are in all respects subject to the provisions of the Amended and Restated
Declaration of Trust of the Trust dated as of July 30, 1998, as the same may be
amended from time to time (the "Declaration"), including the designation of the
terms of the Capital Securities as set forth in Annex I to the Declaration.
Capitalized terms used herein but not defined shall have the meaning given them
in the Declaration. The Holder is entitled to the benefits of the Capital
Securities Guarantee to the extent provided therein. The Sponsor will provide a
copy of the Declaration, the Capital Security Guarantee and the Indenture to a
Holder without charge upon written request to the Sponsor at its principal place
of business.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder. By its acceptance of
this certificate representing Capital Securities or a beneficial interest in
such Capital Securities, the owner of, and any person that acquires a
beneficial interest in, such Capital Securities agrees to treat the
Debentures described in the Declaration as indebtedness and the Capital
Securities as evidence of indirect beneficial ownership in such indebtedness
for tax purposes.
A-4
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this certificate this _____
day of _____, 1998.
ZENITH NATIONAL INSURANCE CAPITAL TRUST I
By:________________________________
Stanley R. Zax
Regular Trustee
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Capital Securities referred to in the within-mentioned
Declaration.
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Property Trustee
By:__________________________
Authorized Signatory
A-5
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Capital Security will be fixed at a
rate per annum of 8.55% (the "Coupon Rate") of the liquidation amount of
$1,000 per Capital Security, such rate being the rate of interest payable on
the Debentures to be held by the Property Trustee. Distributions not
currently made will bear interest thereon compounded semi-annually at the
Coupon Rate (to the extent permitted by applicable law). The term
"Distributions" as used herein includes such cash distributions and any such
interest payable unless otherwise stated. A Distribution is payable only to
the extent that payments are made in respect of the Debentures held by the
Property Trustee and to the extent the Property Trustee has funds legally
available therefor. The amount of Distributions payable for any period will
be computed for any full semi-annual Distribution period on the basis of a
360-day year of twelve 30-day months, and for any period of less than a full
calendar month the number of days elapsed in such month.
Distributions on the Capital Securities will be cumulative, will
accrue from the date of original issuance and will be payable semi-annually in
arrears, on the following dates, which dates correspond to the interest payment
dates on the Debentures: February 1 and August 1 of each year, commencing on
February 1, 1999, except as otherwise described below. So long as no Event of
Default (or an event which would be an Event of Default with the giving of
required notice or the passage of time) has occurred and is continuing, the
Debenture Issuer has the right under the Indenture to defer payments of interest
by deferring the interest payment period from time to time on the Debentures for
a period not exceeding 10 consecutive semi-annual periods (each a "Deferral
Period") and, as a consequence of such deferral, Distributions will also be
deferred. Despite such deferral, semi-annual Distributions will continue to
accrue with interest thereon (to the extent permitted by applicable law) at the
Coupon Rate compounded semi-annually during any such Deferral Period. Prior to
the termination of any such Deferral Period, the Debenture Issuer may further
extend such Deferral Period so long as no Event of Default (or an event which
would be an Event of Default with the giving of required notice or the passage
of time) has occurred and is continuing; PROVIDED THAT such Deferral Period
together with all such previous and further deferrals thereof may not exceed 10
consecutive semi-annual periods or extend beyond the maturity (whether at the
stated maturity or by declaration of acceleration, call for redemption or
otherwise) of the Debentures under the Indenture. Payments of accrued
Distributions will be payable to Holders as they appear on the books and records
of the Trust on the first record date after the end of the Deferral Period.
Upon the termination of any Deferral Period and the payment of all amounts then
due, the Debenture Issuer may commence a new Deferral Period, subject to the
above requirements.
The Capital Securities shall be redeemable as provided in the
Declaration.
A-6
<PAGE>
SCHEDULE I
RULE 144A GLOBAL SECURITY
The initial number of Capital Securities evidenced by this 144A Global
Security is _________.
CHANGES TO NUMBER OF CAPITAL SECURITIES EVIDENCED
BY RULE 144A GLOBAL SECURITY
<TABLE>
<CAPTION>
Number of Capital Securities
by which this Rule 144A
Global Security is to be Remaining Capital
Date Reduced or Increased, and Securities Represented Notation Made
Reason for Reduction or by this Rule 144A Global By
Increase Security
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
A-7
<PAGE>
EXHIBIT B
FORM OF REGULATION S GLOBAL SECURITY
THIS CAPITAL SECURITY IS A REGULATION S GLOBAL SECURITY WITHIN THE
MEANING OF THE DECLARATION HEREINAFTER REFERRED TO AND IS REGISTERED IN THE
NAME OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (THE
"DEPOSITARY"), OR A NOMINEE OF THE DEPOSITARY. THIS CAPITAL SECURITY IS
EXCHANGEABLE FOR CAPITAL SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER
THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE DECLARATION AND NO TRANSFER OF THIS CAPITAL SECURITY (OTHER
THAN A TRANSFER OF THIS CAPITAL SECURITY AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY
OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED
CIRCUMSTANCES.
UNLESS THIS CAPITAL SECURITY IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITARY (55 WATER STREET, NEW YORK, NEW YORK) TO
THE TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CAPITAL SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITARY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
THIS CAPITAL SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS
OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS CAPITAL SECURITY NOR
ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT
TO, SUCH REGISTRATION.
<PAGE>
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF AGREES
TO OFFER, SELL OR OTHERWISE TRANSFER THIS CAPITAL SECURITY ONLY (A) TO ZENITH
NATIONAL INSURANCE CORP. (THE "COMPANY"), (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO
LONG AS THIS CAPITAL SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A
UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS
A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO
WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A, (D) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR 904 UNDER
THE SECURITIES ACT, (E) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED
BY RULE 144 UNDER THE SECURITIES ACT (IF APPLICABLE) OR (F) PURSUANT TO ANY
OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE
SECURITIES ACT, SUBJECT TO THE RIGHT OF THE TRUST AND THE COMPANY PRIOR TO
ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (E) OR (F) TO REQUIRE
THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER
INFORMATION SATISFACTORY TO EACH OF THEM AND (ii) IN EACH OF CASES (B)
THROUGH (F) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS CAPITAL SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND.
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF ALSO
AGREES, REPRESENTS AND WARRANTS THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT
PLAN SUBJECT TO THE "PROHIBITED TRANSACTIONS" PROVISIONS OF SECTION 406 OF
THE EMPLOYMENT RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")
OR SECTION 4975 OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED ("THE
CODE"), AND IS NOT USING THE ASSETS OF ANY SUCH PLAN TO ACQUIRE THIS CAPITAL
SECURITY OR (ii) THE ACQUISITION AND HOLDING OF THIS CAPITAL SECURITY BY IT
IS NOT PROHIBITED BY EITHER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE,
OR IS EXEMPT FROM ANY SUCH PROHIBITION BY APPLICATION OF A STATUTORY,
REGULATORY OR ADMINISTRATIVE EXEMPTION.
B-2
<PAGE>
THIS CAPITAL SECURITY WILL BE ISSUED, AND MAY BE TRANSFERRED, ONLY
IN BLOCKS HAVING A LIQUIDATION AMOUNT (BEFORE GIVING EFFECT TO ANY PARTIAL
REDEMPTION) OF NOT LESS THAN $100,000 (100 CAPITAL SECURITIES). ANY
TRANSFER, SALE OR OTHER DISPOSITION OF THE CAPITAL SECURITIES IN A BLOCK
HAVING A LIQUIDATION AMOUNT (BEFORE GIVING EFFECT TO ANY PARTIAL REDEMPTION)
OF LESS THAN $100,000 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT
WHATSOEVER. ANY SUCH TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF SUCH
CAPITAL SECURITIES FOR ANY PURPOSE, INCLUDING BUT NOT LIMITED TO THE RECEIPT
OF DISTRIBUTIONS ON SUCH CAPITAL SECURITIES, AND SUCH TRANSFEREE SHALL BE
DEEMED TO HAVE NO INTEREST WHATSOEVER IN SUCH CAPITAL SECURITIES.
B-3
<PAGE>
Certificate number Number of Capital Securities
CUSIP NO.
Certificate Evidencing Capital Securities
of
ZENITH NATIONAL INSURANCE CAPITAL TRUST I
8.55% Capital Securities
(Liquidation Amount $1,000 per Capital Security)
ZENITH NATIONAL INSURANCE CAPITAL TRUST I, a statutory business trust
formed under the laws of the State of Delaware (the "Trust"), hereby certifies
that ________________ (the "Holder") is the registered owner of preferred
securities of the Trust representing preferred undivided beneficial interests in
the assets of the Trust designated the 8.55% Capital Securities (Liquidation
Amount $1,000 per Security) (the "Capital Securities"). The Capital Securities
are transferable on the books and records of the Trust, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer. The designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Capital Securities represented
hereby are in all respects subject to the provisions of the Amended and Restated
Declaration of Trust of the Trust dated as of July 30, 1998, as the same may be
amended from time to time (the "Declaration"), including the designation of the
terms of the Capital Securities as set forth in Annex I to the Declaration.
Capitalized terms used herein but not defined shall have the meaning given them
in the Declaration. The Holder is entitled to the benefits of the Capital
Securities Guarantee to the extent provided therein. The Sponsor will provide a
copy of the Declaration, the Capital Security Guarantee and the Indenture to a
Holder without charge upon written request to the Sponsor at its principal place
of business.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder. By its acceptance of
this certificate representing Capital Securities or a beneficial interest in
such Capital Securities, the owner of, and any person that acquires a beneficial
interest in, such Capital Securities agrees to treat the Debentures described in
the Declaration as indebtedness and the Capital Securities as evidence of
indirect beneficial ownership in such indebtedness for tax purposes.
B-4
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this certificate this _____
day of _______, 1998.
ZENITH NATIONAL INSURANCE CAPITAL TRUST I
By:________________________________
Stanley R. Zax
Regular Trustee
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Capital Securities referred to in the within-mentioned
Declaration.
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Property Trustee
By:__________________________
Authorized Signatory
B-5
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Capital Security will be fixed at a rate per
annum of 8.55% (the "Coupon Rate") of the liquidation amount of $1,000 per
Capital Security, such rate being the rate of interest payable on the
Debentures to be held by the Property Trustee. Distributions not currently
made will bear interest thereon compounded semi-annually at the Coupon Rate
(to the extent permitted by applicable law). The term "Distributions" as
used herein includes such cash distributions and any such interest payable
unless otherwise stated. A Distribution is payable only to the extent that
payments are made in respect of the Debentures held by the Property Trustee
and to the extent the Property Trustee has funds legally available therefor.
The amount of Distributions payable for any period will be computed for any
full semi-annual Distribution period on the basis of a 360-day year of twelve
30-day months, and for any period of less than a full calendar month the
number of days elapsed in such month.
Distributions on the Capital Securities will be cumulative, will
accrue from the date of original issuance and will be payable semi-annually
in arrears, on the following dates, which dates correspond to the interest
payment dates on the Debentures: February 1 and August 1 of each year,
commencing on February 1, 1999, except as otherwise described below. So long
as no Event of Default (or an event which would be an Event of Default with
the giving of required notice or the passage of time) has occurred and is
continuing, the Debenture Issuer has the right under the Indenture to defer
payments of interest by deferring the interest payment period from time to
time on the Debentures for a period not exceeding 10 consecutive semi-annual
periods (each a "Deferral Period") and, as a consequence of such deferral,
Distributions will also be deferred. Despite such deferral, semi-annual
Distributions will continue to accrue with interest thereon (to the extent
permitted by applicable law) at the Coupon Rate compounded semi-annually
during any such Deferral Period. Prior to the termination of any such
Deferral Period, the Debenture Issuer may further extend such Deferral Period
so long as no Event of Default (or an event which would be an Event of
Default with the giving of required notice or the passage of time) has
occurred and is continuing; PROVIDED THAT such Deferral Period together with
all such previous and further deferrals thereof may not exceed 10 consecutive
semi-annual periods or extend beyond the maturity (whether at the stated
maturity or by declaration of acceleration, call for redemption or otherwise)
of the Debentures under the Indenture. Payments of accrued Distributions
will be payable to Holders as they appear on the books and records of the
Trust on the first record date after the end of the Deferral Period. Upon the
termination of any Deferral Period and the payment of all amounts then due,
the Debenture Issuer may commence a new Deferral Period, subject to the above
requirements.
The Capital Securities shall be redeemable as provided in the
Declaration.
B-6
<PAGE>
SCHEDULE I
REGULATION S GLOBAL SECURITY
The initial number of Capital Securities evidenced by this
Regulation S Global Security is _________.
CHANGES TO NUMBER OF CAPITAL SECURITIES EVIDENCED
BY REGULATION S GLOBAL SECURITY
<TABLE>
<CAPTION>
Number of Capital Securities
by which this Rule 144A
Global Security is to be Remaining Capital
Date Reduced or Increased, and Securities Represented Notation Made
Reason for Reduction or by this Rule 144A Global By
Increase Security
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
B-7
<PAGE>
EXHIBIT C
FORM OF DEFINITIVE CAPITAL SECURITY
THIS CAPITAL SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS
OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS CAPITAL SECURITY NOR
ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT
TO, SUCH REGISTRATION.
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF AGREES
TO OFFER, SELL OR OTHERWISE TRANSFER THIS CAPITAL SECURITY ONLY (A) TO ZENITH
NATIONAL INSURANCE CORP. (THE "COMPANY"), (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO
LONG AS THIS CAPITAL SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A
UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS
A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO
WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A, (D) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR 904 UNDER
THE SECURITIES ACT, (E) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED
BY RULE 144 UNDER THE SECURITIES ACT (IF APPLICABLE) OR (F) PURSUANT TO ANY
OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE
SECURITIES ACT, SUBJECT TO THE RIGHT OF THE TRUST AND THE COMPANY PRIOR TO
ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (E) OR (F) TO REQUIRE
THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER
INFORMATION SATISFACTORY TO EACH OF THEM AND (ii) IN EACH OF CASES (B)
THROUGH (F) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS CAPITAL SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND.
C-1
<PAGE>
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF ALSO
AGREES, REPRESENTS AND WARRANTS THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT
PLAN SUBJECT TO THE "PROHIBITED TRANSACTIONS" PROVISIONS OF SECTION 406 OF
THE EMPLOYMENT RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")
OR SECTION 4975 OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED ("THE
CODE"), AND IS NOT USING THE ASSETS OF ANY SUCH PLAN TO ACQUIRE THIS CAPITAL
SECURITY OR (ii) THE ACQUISITION AND HOLDING OF THIS CAPITAL SECURITY BY IT
IS NOT PROHIBITED BY EITHER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE,
OR IS EXEMPT FROM ANY SUCH PROHIBITION BY APPLICATION OF A STATUTORY,
REGULATORY OR ADMINISTRATIVE EXEMPTION.
THIS CAPITAL SECURITY WILL BE ISSUED, AND MAY BE TRANSFERRED, ONLY
IN BLOCKS HAVING A LIQUIDATION AMOUNT (BEFORE GIVING EFFECT TO ANY PARTIAL
REDEMPTION) OF NOT LESS THAN $100,000 (100 CAPITAL SECURITIES). ANY
TRANSFER, SALE OR OTHER DISPOSITION OF THE CAPITAL SECURITIES IN A BLOCK
HAVING A LIQUIDATION AMOUNT (BEFORE GIVING EFFECT TO ANY PARTIAL REDEMPTION)
OF LESS THAN $100,000 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT
WHATSOEVER. ANY SUCH TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF SUCH
CAPITAL SECURITIES FOR ANY PURPOSE, INCLUDING BUT NOT LIMITED TO THE RECEIPT
OF DISTRIBUTIONS ON SUCH CAPITAL SECURITIES, AND SUCH TRANSFEREE SHALL BE
DEEMED TO HAVE NO INTEREST WHATSOEVER IN SUCH CAPITAL SECURITIES.
C-2
<PAGE>
Certificate number Number of Capital Securities
CUSIP NO.
Certificate Evidencing Capital Securities
of
ZENITH NATIONAL INSURANCE CAPITAL TRUST I
8.55% Capital Securities
(Liquidation Amount $1,000 per Capital Security)
ZENITH NATIONAL INSURANCE CAPITAL TRUST I, a statutory business
trust formed under the laws of the State of Delaware (the "Trust"), hereby
certifies that ________________ (the "Holder") is the registered owner of
preferred securities of the Trust representing preferred undivided beneficial
interests in the assets of the Trust designated the 8.55% Capital Securities
(Liquidation Amount $1,000 per Security) (the "Capital Securities"). The
Capital Securities are transferable on the books and records of the Trust, in
person or by a duly authorized attorney, upon surrender of this certificate
duly endorsed and in proper form for transfer. The designation, rights,
privileges, restrictions, preferences and other terms and provisions of the
Capital Securities represented hereby are in all respects subject to the
provisions of the Amended and Restated Declaration of Trust of the Trust
dated as of July 30, 1998, as the same may be amended from time to time (the
"Declaration"), including the designation of the terms of the Capital
Securities as set forth in Annex I to the Declaration. Capitalized terms used
herein but not defined shall have the meaning given them in the Declaration.
The Holder is entitled to the benefits of the Capital Securities Guarantee to
the extent provided therein. The Sponsor will provide a copy of the
Declaration, the Capital Security Guarantee and the Indenture to a Holder
without charge upon written request to the Sponsor at its principal place of
business.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder. By its acceptance of
this certificate representing Capital Securities or a beneficial interest in
such Capital Securities, the owner of, and any person that acquires a
beneficial interest in, such Capital Securities agrees to treat the
Debentures described in the Declaration as indebtedness and the Capital
Securities as evidence of indirect beneficial ownership in such indebtedness
for tax purposes.
C-3
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this certificate this _____
day of _______, 1998.
ZENITH NATIONAL INSURANCE CAPITAL TRUST I
By:__________________________
Stanley R. Zax
Regular Trustee
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Capital Securities referred to in the within-mentioned
Declaration.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as Property Trustee
By:__________________________
Authorized Signatory
C-4
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Capital Security will be fixed at a
rate per annum of 8.55% (the "Coupon Rate") of the stated liquidation amount
of $1,000 per Capital Security, such rate being the rate of interest payable
on the Debentures to be held by the Property Trustee. Distributions not
currently made will bear interest thereon compounded semi-annually at the
Coupon Rate (to the extent permitted by applicable law). The term
"Distributions" as used herein includes such cash distributions and any such
interest payable unless otherwise stated. A Distribution is payable only to
the extent that payments are made in respect of the Debentures held by the
Property Trustee and to the extent the Property Trustee has funds legally
available therefor. The amount of Distributions payable for any period will
be computed for any full semi-annual Distribution period on the basis of a
360-day year of twelve 30-day months, and for any period of less than a full
calendar month the number of days elapsed in such month.
Distributions on the Capital Securities will be cumulative, will
accrue from the date of original issuance and will be payable semi-annually
in arrears, on the following dates, which dates correspond to the interest
payment dates on the Debentures: February 1 and August 1 of each year,
commencing on February 1, 1999, except as otherwise described below. So long
as no Event of Default (or an event which would be an Event of Default with
the giving of required notice or the passage of time) has occurred and is
continuing, the Debenture Issuer has the right under the Indenture to defer
payments of interest by deferring the interest payment period from time to
time on the Debentures for a period not exceeding 10 consecutive semi-annual
periods (each a "Deferral Period") and, as a consequence of such deferral,
Distributions will also be deferred. Despite such deferral, semi-annual
Distributions will continue to accrue with interest thereon (to the extent
permitted by applicable law) at the Coupon Rate compounded semi-annually
during any such Deferral Period. Prior to the termination of any such
Deferral Period, the Debenture Issuer may further extend such Deferral Period
so long as no Event of Default (or an event which would be an Event of
Default with the giving of required notice or the passage of time) has
occurred and is continuing; PROVIDED THAT such Deferral Period together with
all such previous and further deferrals thereof may not exceed 10 consecutive
semi-annual periods or extend beyond the maturity (whether at the stated
maturity or by declaration of acceleration, call for redemption or otherwise)
of the Debentures under the Indenture. Payments of accrued Distributions
will be payable to Holders as they appear on the books and records of the
Trust on the first record date after the end of the Deferral Period. Upon the
termination of any Deferral period and the payment of all amounts then due,
the Debenture Issuer may commence a new Deferral Period, subject to the above
requirements.
The Capital Securities shall be redeemable as provided in the
Declaration.
C-5
<PAGE>
FORM OF ASSIGNMENT
For value received ____________________ hereby sell(s), assign(s) and
transfer(s) unto______________________________________________________________
______________________________________________________________________________
(Please insert social security or other
taxpayer identification number of assignee.)
the within security and hereby irrevocably constitutes and appoints
_______________ attorney to transfer the said security on the books of the
Trust, with full power of substitution in the premises.
In connection with any transfer of the within security occurring prior
to such date as restrictions on the transfer of such security imposed by the
Securities Act of 1933, as amended (the "Securities Act"), and the rules and
regulations thereunder shall be terminated in accordance with the Declaration,
the undersigned confirms that such security is being transferred:
/ / To Zenith National Insurance Corp. or a subsidiary thereof; or
/ / Pursuant to an effective registration statement under the
Securities Act; or
/ / Pursuant to and in compliance with Rule 144A under the Securities
Act;(1) or
/ / To an Institutional Accredited Investor pursuant to and in
compliance with the Securities Act;(2)
/ / Pursuant to and in compliance with Regulation S under the
Securities Act;(1) or
/ / Pursuant to and in compliance with Rule 144 under the Securities
Act;
- --------------------------
1. If the transferee is an Institutional Accredited Investor taking
delivery in the form of a Definitive Capital Securities Certificate,
the undersigned hereby also delivers the certificate in the form of
Exhibit E to the Declaration. or
2. If the transferee is an Institutional Accredited Investor taking
delivery in the form of a Definitive Capital Securities Certificate,
the undersigned hereby also delivers the certificate in the form of
Exhibit E to the Declaration.
C-6
<PAGE>
and unless the box below is checked, the undersigned confirms that such
security is not being transferred to an "affiliate" of the Trust as defined in
Rule 144 under the Securities (an "Affiliate"):
/ / The transferee is an Affiliate of the Trust.
Dated:
-------------------------
--------------------------------------
--------------------------------------
Signature(s)
Signature(s) must be guaranteed by a
commercial bank or trust company or a
member firm of a major stock exchange.
--------------------------------------
Signature Guarantee
NOTICE: The above signatures of the holder(s) hereof must correspond with
the name as written upon the face of this Security in every particular,
without alteration or enlargement or any change whatever.
C-7
<PAGE>
EXHIBIT D
Certificate number Number of Common Securities
Certificate Evidencing Common Securities
of
ZENITH NATIONAL INSURANCE CAPITAL TRUST I
Common Securities
(Liquidation Amount $1,000 per Common Security)
ZENITH NATIONAL INSURANCE CAPITAL TRUST I, a statutory business trust
formed under the laws of the State of Delaware (the "Trust"), hereby certifies
that Zenith National Insurance Corp., a Delaware corporation (the "Holder"), is
the registered owner of __________ Common Securities of the Trust representing
an undivided beneficial interest in the assets of the Trust and designated the
Common Securities (Liquidation Amount $1,000 per common security) (the "Common
Securities"). Subject to the limitations in the Declaration, the Common
Securities are transferable on the books and records of the Trust, in person or
by a duly authorized attorney, upon surrender of this certificate duly endorsed
and in proper form for transfer. The designation, rights, privileges,
restrictions, preferences and other terms and provisions of the Common
Securities represented hereby are issued and in all respects be subject to the
provisions of the Amended and Restated Declaration of Trust of the Trust dated
as of July 30, 1998, as the same may be amended from time to time (the
"Declaration"), including the designation of the terms of the Common Securities
as set forth in Annex I to the Declaration. Capitalized terms used herein but
not defined shall have the meaning given them in the Declaration. The Sponsor
will provide a copy of the Declaration and the Indenture (including any
supplemental indenture) to a Holder without charge upon written request to the
Sponsor at its principal place of business.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder. By its acceptance of
this certificate representing Common Securities or a beneficial interest in such
Common Securities, the owner of, and any person that acquires a beneficial
interest in, such Common Securities agrees to treat the Debentures described in
the Declaration as indebtedness and the Common Securities as evidence of
indirect beneficial ownership in such indebtedness for tax purposes.
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this certificate this _____
day of _______, 1998.
By:___________________________
Stanley R. Zax
Regular Trustee
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Capital Securities referred to in the within-mentioned
Declaration.
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Property Trustee
By:___________________________
Authorized Signatory
D-2
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Common Security will be fixed at a rate
per annum of 8.55% (the "Coupon Rate") of the liquidation amount of $1,000
per Common Security, such rate being the rate of interest payable on the
Debentures to be held by the Property Trustee. Distributions not currently
made will bear interest thereon compounded semi-annually at the Coupon Rate
(to the extent permitted by applicable law). The term "Distributions" as
used herein includes such cash distributions and any such interest payable
unless otherwise stated. A Distribution is payable only to the extent that
payments are made in respect of the Debentures held by the Property Trustee
and to the extent the Property Trustee has funds legally available therefor.
The amount of Distributions payable for any period will be computed for any
full semi-annual Distribution period on the basis of a 360-day year of twelve
30-day months, and for any period of less than a full calendar month the
number of days elapsed in such month.
Distributions on the Common Securities will be cumulative, will
accrue from the date of original issuance and will be payable semi-annually
in arrears, on the following dates, which dates correspond to the interest
payment dates on the Debentures: February 1 and August 1 of each year,
commencing on February 1, 1999, except as otherwise described below. So long
as no Event of Default (or an event which would be an Event of Default with
the giving of required notice or the passage of time) has occurred and is
continuing, the Debenture Issuer has the right under the Indenture to defer
payments of interest by deferring the interest payment period from time to
time on the Debentures for a period not exceeding 10 consecutive periods
(each a "Deferral Period") and, as a consequence of such deferral,
Distributions will also be deferred. Despite such deferral, semi-annual
Distributions will continue to accrue with interest thereon (to the extent
permitted by applicable law) at the Coupon Rate compounded semi-annually
during any such Deferral Period. Prior to the termination of any such
Deferral Period, the Debenture Issuer may further extend such Deferral Period
so long as no Event of Default (or an event which would be an Event of
Default with the giving of required notice or the passage of time) has
occurred and is continuing; PROVIDED THAT such Deferral Period together with
all such previous and further deferrals thereof may not exceed 10 consecutive
semi-annual periods or extend beyond the maturity (whether at the stated
maturity or by declaration of acceleration, call for redemption or otherwise)
of the Debentures under the Indenture. Payments of accrued Distributions
will be payable to Holders as they appear on the books and records of the
Trust on the first record date after the end of the Deferral Period. Upon
the termination of any Deferral Period and the payment of all amounts then
due, the Debenture Issuer may commence a new Deferral Period, subject to the
above requirements.
The Common Securities shall be redeemable as provided in the
Declaration.
D-3
<PAGE>
EXHIBIT E
FORM OF LETTER TO BE DELIVERED
BY INSTITUTIONAL ACCREDITED INVESTORS
Zenith National Insurance Corp.
21255 Califa Street
Woodland Hills, CA 91367-5021
Zenith National Insurance Capital Trust I
21255 Califa Street
Woodland Hills, CA 91367-5021
Ladies and Gentlemen:
We understand that the 8.55 % Capital Securities, Liquidation Amount
$1,000 per Capital Security (the "Capital Securities"), of Zenith National
Insurance Capital Trust I, a Delaware business trust (including the guarantee
(the "Guarantee") of Zenith National Insurance Corp. ("Zenith") executed in
connection therewith), and the 8.55% Subordinated Deferrable Interest
Debentures due 2028 of Zenith (the "Debentures" and, together with the
Capital Securities and the Guarantee, the "Securities") are being offered in
a transaction not involving any public offering within the United States
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"), and that the Securities have not been registered under the Securities
Act, and we agree, on our own behalf and on behalf of each account for which
we acquire any Capital Securities, that if, prior to the expiration of the
holding period applicable to sales of any Security under Rule 144(k) under
the Securities Act, we decide to offer, resell or otherwise transfer such
Security, such Security may be offered, resold or otherwise transferred only
(i) to Zenith or a subsidiary thereof, (ii) pursuant to an effective
registration statement under the Securities Act, (iii) to a person who is a
"qualified institutional buyer" (as defined in Rule 144A under the Securities
Act) in compliance with Rule 144A, (iv) outside the United States in
compliance with Rule 904 under the Securities Act or (v) pursuant to the
exemption from registration provided by Rule 144 under the Securities Act (if
available) and (vi) in each case, in accordance with any applicable
securities laws of the states of the United States or any other applicable
jurisdiction and in accordance with the legends set forth on the Capital
Securities and the Debentures. We further agree to provide any person
purchasing any of the Capital Securities or Debentures from us a notice
advising such purchaser that resales of such Securities are restricted as
stated herein. We understand that any Capital Securities will bear a legend
reflecting the substance of this paragraph.
<PAGE>
We confirm that:
(A) we are an "accredited investor" within the meaning of Rule
501(a)(1), (2) or (3) under the Securities Act or an entity in which all of
the equity owners are accredited investors within the meaning of Rule
501(a)(l), (2) and (3) under the Securities Act (an "Institutional
Accredited Investor");
(B) (A) any purchase of Capital Securities by us will be for our own
account or for the account of one or more other Institutional Accredited
Investors or as fiduciary for the account of one or more trusts, each of
which is an "accredited investor" within the meaning of Rule 501(a)(7)
under the Securities Act and for each of which we exercise sole investment
discretion or (B) we are a "bank," within the meaning of Section 3(a)(2) of
the Securities Act, or a "savings and loan association" or other
institution described in Section 3(a)(5)(A) of the Securities Act that is
acquiring Capital Securities as fiduciary for the account of one or more
institutions for which we exercise sole investment discretion;
(C) in the event that we purchase any Capital Securities, we will
acquire Capital Securities having a liquidation amount (before giving
effect to any partial redemption) of not less than $100,000 for our own
account or for any separate account for which we are acting;
(D) we have such knowledge and experience in financial and business
matters that we are capable of evaluating the merits and risks of an
investment in the Capital Securities;
(E) we are not acquiring Capital Securities with a view to resale or
distribution thereof or with any present intention of offering or selling
Capital Securities, except as permitted above; provided that the
disposition of our property and property of any accounts for which we are
acting as fiduciary shall remain at all times within our control; and
(F) we have had access to such financial and other information and
have been afforded the opportunity to ask such questions of representatives
of Zenith and receive answers thereto, as we deem necessary in connection
with our decision to purchase Capital Securities.
We acknowledge that you and others, including without limitation,
Credit Suisse First Boston Corporation, BancAmerica Robertson Stephens and
Donaldson, Lufkin & Jenrette Securities Corporation, will rely upon our
confirmations, acknowledgments and
E-2
<PAGE>
agreements set forth herein, and we agree to notify you promptly in writing
if any of our representations or warranties herein ceases to be accurate and
complete.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES.
-----------------------------
(Name of Purchaser)
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Address:
----------------------------------
Dated:
---------------------
E-3
<PAGE>
EXHIBIT F
FORM OF TRANSFER CERTIFICATE--
REGULATION S GLOBAL SECURITY OR INSTITUTIONAL
ACCREDITED INVESTORS DEFINITIVE TO 144A GLOBAL SECURITY
Norwest Bank Minnesota, National Association
Sixth & Marquette
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Administration
ZENITH NATIONAL INSURANCE
CAPITAL TRUST I CAPITAL SECURITIES
Reference is hereby made to the Amended and Restated Declaration of
Trust, dated as of July 30, 1998 (the "Declaration"), among Zenith National
Insurance Corp., Norwest Bank Minnesota, National Association, as Property
Trustee, Wilmington Trust Company, as Delaware Trustee, the Regular Trustees
named therein and the holders, from time to time, of undivided beneficial
interests in the assets of Zenith National Insurance Capital Trust I.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Declaration.
This letter relates to ___________________ Capital Securities which
are evidenced by (I) a Regulation S Global Security (CUSIP No. ___________) and
held with the Depositary indirectly or (II) a Definitive Capital Security
Certificate held directly, in either case in the name of [insert name of
transferor] (the "Transferor").
The Transferor has requested a transfer of such beneficial interest in
such Capital Securities to a Person that will take delivery thereof in a
transaction effected pursuant to and in accordance with Rule 144A under the
United States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor does hereby certify that (i) the Transferor's
interest in such Capital Securities is being transferred in accordance with the
transfer restrictions set forth in the Declaration; and (ii) the transferee is a
person who the Transferor reasonably believes is a "qualified institutional
buyer" within the meaning of Rule 144A under the Securities Act, purchasing for
its own account or the account of a qualified institutional buyer in a
transaction meeting the requirements of Rule 144A, in accordance with all
applicable securities laws of the states of the United States and other
jurisdictions.
You, the Trust and each of Credit Suisse First Boston Corporation,
BancAmerica Robertson Stephens and Donaldson, Lufkin & Jenrette Securities
Corporation are entitled
<PAGE>
to rely upon this letter and are irrevocably authorized
to produce this letter or a copy hereof to any interested party in any
administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
Dated:
-----------------------
[Insert Name of Transferor]
By:
------------------------
Name:
Title:
(If the registered owner is a
corporation, partnership or
fiduciary, the title of the
Person signing on behalf of
such registered owner must be
stated.)
F-2
<PAGE>
EXHIBIT G
FORM OF TRANSFER CERTIFICATE--
144A GLOBAL SECURITY OR INSTITUTIONAL ACCREDITED
INVESTORS DEFINITIVE TO REGULATION S GLOBAL SECURITY
Norwest Bank Minnesota, National Association
Sixth & Marquette
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Administration
ZENITH NATIONAL INSURANCE
CAPITAL TRUST I CAPITAL SECURITIES
Reference is hereby made to the Amended and Restated Declaration of
Trust, dated as of July 30, 1998 (the "Declaration"), among Zenith National
Insurance Corp., Norwest Bank Minnesota, National Association, as Property
Trustee, Wilmington Trust Company, as Delaware Trustee, the Regular Trustees
named therein and the holders, from time to time, of undivided beneficial
interests in the assets of Zenith National Insurance Capital Trust I.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Declaration.
This letter relates to _______________________ Capital Securities
which are evidenced by (I) a 144A Global Security (CUSIP No. _______) and held
indirectly with the Depositary or (II) a Definitive Capital Security Certificate
held directly, in either case, in the name of [insert name of transferor] (the
"Transferor").
The Transferor has requested a transfer of such beneficial interest in
such Capital Securities to a Person that will take delivery thereof in a
transaction effected pursuant to and in accordance with Rule 904 under the
United States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor does hereby further certify that the Transferor's
interest in such Capital Securities is being transferred in accordance with the
transfer restrictions set forth in the Declaration and that:
The offer of such Capital Securities was not made to a person in the
United States;
(A) either:
<PAGE>
(i) at the time the buy order was originated, the transferee was
outside the United States or the Transferor and any person acting on
its behalf reasonably believed that the transferee was outside the
United States, or
(ii) the transaction was executed in, or through the facilities
of a designated offshore securities market and neither the Transferor
nor any person acting on its behalf knows that the transaction was
pre-arranged with a buyer in the United States;
(B) no directed selling efforts have been made in contravention of
the requirements of 904(b) of Regulation S, as applicable;
(C) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(D) we have advised the transferee of the transfer restrictions
applicable to such Capital Securities.
You, the Trust and each of Credit Suisse First Boston Corporation,
BancAmerica Robertson Stephens and Donaldson, Lufkin & Jenrette Securities
Corporation are entitled to rely upon this letter and are irrevocably authorized
to produce this letter or a copy hereof to any interested party in any
administrative or legal proceeding or official inquiry with respect to the
matters covered hereby. Terms used in this certificate and not otherwise
defined herein or in the Declaration have the meanings set forth in Regulation S
under the Securities Act.
Dated:
----------------------
[Insert Name of Transferor]
By:
----------------------------
Name:
Title:
(If the registered owner is a
corporation, partnership or
fiduciary, the title of the Person
signing on behalf of such
registered owner must be stated.)
G-2
<PAGE>
$75,000,000
ZENITH NATIONAL INSURANCE CORP.
ZENITH NATIONAL INSURANCE CAPITAL TRUST I
8.55% CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
PURCHASE AGREEMENT
July 27, 1998
CREDIT SUISSE FIRST BOSTON CORPORATION
BANCAMERICA ROBERTSON STEPHENS
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, N.Y. 10010-3629
Ladies & Gentlemen:
1. INTRODUCTORY. Zenith National Insurance Capital Trust I, a statutory
business trust organized under the laws of Delaware (the "Trust"), and Zenith
National Insurance Corp., a Delaware corporation, as sponsor of the Trust and as
Guarantor (the "Company"), propose that the Trust issue and sell $75,000,000
aggregate liquidation
<PAGE>
amount of the Trust's 8.55% Capital Securities (Liquidation Amount $1,000 per
Capital Security) (the "Offered Securities") as set forth below, guaranteed
on a subordinated basis by the Company as to the payment of distributions,
and as to payments on liquidation or redemption, to the extent set forth in a
Capital Securities Guarantee Agreement (the "Guarantee") between the Company
and Norwest Bank Minnesota, National Association, as trustee (the "Guarantee
Trustee"). The Trust is to purchase 8.55% Subordinated Deferrable Interest
Debentures Due 2028 (the "Subordinated Debentures") of the Company to be
issued pursuant to an Indenture (the "Indenture") between the Company and
Norwest Bank Minnesota, National Association, as trustee (the "Indenture
Trustee"). The Trust will purchase these Subordinated Debentures using the
proceeds from the Offered Securities and with an aggregate of $2,320,000 from
the proceeds of the issuance and sale of its common securities (the "Common
Securities") to the Company. This Purchase Agreement, as amended,
supplemented or modified from time to time is referred to herein as "this
Agreement." Credit Suisse First Boston Corporation, BancAmerica Robertson
Stephens and Donaldson, Lufkin & Jenrette Securities Corporation are
collectively referred to in this Agreement as the "Purchasers."
Each of the Trust and the Company jointly and severally hereby
agrees with the several Purchasers that:
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE TRUST. Each
of the Company and the Trust represents and warrants to, and agrees with, the
several Purchasers that:
(a) A preliminary confidential offering circular and a
confidential offering circular relating to the Offered Securities to be
offered by the Purchasers have been prepared by the Company. Such preliminary
confidential offering circular and confidential offering circular, including
the Exchange Act Reports (as defined below) incorporated by reference
therein, as supplemented as of the date of this Agreement and any other
document approved by the Company for use in connection with the contemplated
resale of the Offered Securities are hereinafter collectively referred to as
the "Offering Document." The Offering Document does not include any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. The preceding sentence does not apply
to statements in or omissions from the Offering Document based upon written
information furnished to the Company by any Purchaser through Credit Suisse
First Boston Corporation ("CSFBC") specifically for use therein, it being
understood and agreed that the only such information is that described as
such in Section 7(b) hereof. Except as disclosed in the
2
<PAGE>
Offering Document, the Company's Annual Report on Form 10-K most recently
filed with the Securities and Exchange Commission (the "Commission") and all
subsequent reports (collectively, the "Exchange Act Reports") which have been
filed by the Company with the Commission or sent to stockholders pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange Act") do not
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Such documents,
when they were filed with the Commission, conformed in all material respects
to the requirements of the Exchange Act and the rules and regulations of the
Commission thereunder.
(b) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own its properties and conduct its business
as described in the Offering Document; and the Company is duly qualified to
do business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the conduct of
its business requires such qualification, except to the extent that the
failure to so qualify or be in good standing would not have a material
adverse effect on (i) the condition (financial or other), business,
properties or results of operations of the Company and its subsidiaries taken
as a whole, (ii) the issuance or validity of the Offered Securities, (iii)
the consummation of any of the transactions contemplated by this Agreement or
(iv) the sale of the Offered Securities (a "Material Adverse Effect").
(c) Each significant subsidiary (as such term is defined in Rule
1-02 of Regulation S-X ("Regulation S-X") under the Securities Act of 1933,
as amended (the "Securities Act")) of the Company has been duly incorporated
and is an existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with corporate power and authority to own
its properties and conduct its business as described in the Offering
Document; and each subsidiary of the Company is duly qualified to do business
as a foreign corporation in good standing in all other jurisdictions in which
its ownership or lease of property or the conduct of its business requires
such qualification, except to the extent that the failure to so qualify or be
in good standing would not have a Material Adverse Effect; and all of the
issued and outstanding capital stock of each subsidiary of the Company has
been duly authorized and validly issued and is fully paid and nonassessable
and is owned (directly or through subsidiaries) by the Company free from
liens, claims, encumbrances and defects.
(d) The Offered Securities have been duly authorized in accordance
with the Trust Agreement (as defined below) and, when the Offered Securities
have
3
<PAGE>
been delivered and paid for in accordance with this Agreement on the Closing
Date (as defined below), such Offered Securities will be validly issued and
fully paid and will represent nonassessable beneficial interests in the Trust
and will conform to the description thereof contained in the Offering
Document, and the holders of the Offered Securities (the "Securityholders"),
and the Company, as the holder of the Common Securities, will have no
preemptive rights with respect to the Offered Securities; the Offered
Securities will have the rights set forth in the Amended and Restated
Declaration of Trust, dated as of the Closing Date, among the Company,
Wilmington Trust Company, as "Delaware Trustee," Norwest Bank Minnesota,
National Association, as "Property Trustee" and the Regular Trustees named
therein (together with the Delaware Trustee and the Property Trustee, the
"Trustees") (the "Trust Agreement"), and the terms of the Offered Securities
are valid and binding on the Trust.
(e) The Common Securities have been duly authorized by the Trust
Agreement and, when the Common Securities have been delivered by the Trust
and paid for by the Company as described in the Offering Document, such
Common Securities will be validly issued, fully paid and nonassessable and
will conform in all material respects to the description thereof contained in
the Offering Document; and the holders of the Common Securities and the
Securityholders have no and will have no preemptive rights with respect to
the Common Securities; and on the Closing Date, all of the issued and
outstanding Common Securities of the Trust will be directly owned by the
Company free and clear of any security interest, mortgage, pledge or lien,
encumbrance or claim.
(f) The Trust Agreement has been duly authorized by the Company
and, as of the Closing Date, will have been duly executed and delivered by
the Company and the Regular Trustees, and assuming due authorization,
execution and delivery of the Trust Agreement by the Trustees, the Trust
Agreement will, as of the Closing Date, be a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
except to the extent that enforcement thereof may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization or similar laws affecting
creditors' rights generally (regardless of whether enforcement is considered
in a proceeding at law or in equity) (collectively, the "Enforceability
Exceptions").
(g) The Guarantee has been duly authorized by the Company and, as
of the Closing Date, will have been duly executed and delivered by the
Company and will constitute a valid and binding obligation of the Company,
enforceable against the
4
<PAGE>
Company in accordance with its terms, except to the extent that
enforcement thereof may be limited by the Enforceability Exceptions.
(h) The Indenture has been duly authorized by the Company and, as
of the Closing Date, will have been duly executed and delivered by the
Company and will constitute a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except to the
extent that enforcement thereof may be limited by the Enforceability
Exceptions.
(i) The Subordinated Debentures have been duly authorized by the
Company and, as of the Closing Date, will have been duly executed by the
Company and, when authenticated in the manner provided for in the Indenture
and delivered against payment therefor as described in the Offering Document,
will constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except to the extent that
enforcement thereof may be limited by the Enforceability Exceptions; and the
Subordinated Debentures will be in the form contemplated by, and entitled to
the benefits of, the Indenture.
(j) The Guarantee, the Trust Agreement, the Indenture
(collectively, the "Company Agreements") and the Subordinated Debentures will
conform in all material respects to the descriptions thereof in the Offering
Document.
(k) The offer and sale of the Offered Securities in the manner
contemplated by this Agreement will be exempt from the registration
requirements of the Securities Act by reason of Section 4(2) thereof and Rule
144A and Regulation S thereunder ("Regulation S"); and it is not necessary to
qualify the Company Agreements under the Trust Indenture Act of 1939, as
amended (the "TIA").
(l) The Trust has been duly created and is validly existing as a
statutory business trust in good standing under the Business Trust Act of the
State of Delaware ("Delaware Business Trust Act") with the power and
authority to own its property and conduct its business as described in the
Offering Document, and has conducted and will conduct no business other than
the transactions contemplated by this Agreement and as described in the
Offering Document; the Trust is not a party to or bound by any agreement or
instrument other than this Agreement, the Trust Agreement as in effect on the
Closing Date and the agreements and instruments contemplated by the Trust
Agreement as in effect on the Closing Date and the Offering Document; the
Trust has no liabilities or obligations other than those arising out of the
transactions contemplated by the Trust Agreement as in effect on the Closing
Date, this Agreement
5
<PAGE>
or described in the Offering Document; and the Trust is not a party to or
subject to any action, suit or proceeding of any nature.
(m) Except as disclosed in the Offering Document, there are no
contracts, agreements or understandings between the Trust or the Company and
any person that would give rise to a valid claim against the Trust or the
Company or any Purchaser for a brokerage commission, finder's fee or other
like payment in connection with this offering.
(n) No consent, approval, or order of, or filing with, any
governmental agency or body or court is required for the consummation of the
transactions contemplated by this Agreement in connection with the issuance
and sale of the Offered Securities by the Company and the Trust, except such
as may be required under foreign or state securities laws (including
insurance securities laws).
(o) This Agreement has been duly authorized, executed and
delivered by each of the Trust and the Company.
(p) The execution, delivery and performance of this Agreement, and
the issuance and sale of the Offered Securities and the Common Securities by
the Trust, the purchase of the Subordinated Debentures by the Trust and the
compliance by the Trust with all of the terms and provisions of this
Agreement, will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any statute, rule, regulation
or order of any governmental agency or body or court, domestic or foreign,
having jurisdiction over the Trust or any of its properties, or any agreement
or instrument to which the Trust is a party or by which the Trust is bound or
to which any of the properties of the Trust is subject, or the organizational
documents of the Trust, in each case, except for such breaches, violations or
defaults as would not have a Material Adverse Effect; and the Trust has full
power and authority to authorize, issue and sell the Offered Securities and
the Common Securities, to purchase the Subordinated Debentures and to
consummate the transactions contemplated by this Agreement and the Trust
Agreement, respectively.
(q) The execution, delivery and performance of this Agreement and
the Company Agreements, the issuance by the Company of the Guarantee and the
Subordinated Debentures, and compliance by the Company with all of the terms
and provisions of this Agreement and the Company Agreements, will not result
in a breach or violation of any of the terms and provisions of, or constitute
a default under, any statute, rule, regulation or order of any governmental
agency or body or court, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or
6
<PAGE>
any of their properties, or any agreement or instrument to which the Company
or any such subsidiary is a party or by which the Company or any such
subsidiary is bound or to which any of the properties of the Company or any
such subsidiary is subject, or the certificate of incorporation, as amended,
or the bylaws of the Company or the articles or amended articles of
incorporation and code of regulations or bylaws, as the case may be, of any
such subsidiary, in each case, except for such breaches, violations or
defaults as would not have a Material Adverse Effect; and the Company has
full corporate power and authority to authorize and issue the Guarantee and
the Subordinated Debentures and to consummate the transactions contemplated
by this Agreement and the Company Agreements.
(r) Except as disclosed in the Offering Document, the Trust, the
Company and each of the subsidiaries of the Company have good and marketable
title to all real property and all other property and assets owned by them,
in each case free from liens, encumbrances, claims and defects, except where
the failure to possess such title would not have a Material Adverse Effect;
and except as disclosed in the Offering Document, the Trust, the Company and
each of the subsidiaries of the Company hold any leased real or personal
property under valid and enforceable leases, except where the failure to hold
such property under such leases would not have a Material Adverse Effect.
(s) The Company and its subsidiaries own, possess or can acquire
on reasonable terms, adequate trademarks, service marks, trade names and
other rights to inventions, know-how, patents, copyrights, confidential
information and other intellectual property (collectively, "intellectual
property rights") necessary to conduct the business now operated by them, or
presently employed by them, except where the failure to own or possess such
intellectual property rights or where the inability to acquire such
intellectual property rights on reasonable terms would not have a Material
Adverse Effect, and have not received any notice of infringement of or
conflict with asserted rights of others with respect to any intellectual
property rights that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a Material Adverse
Effect.
(t) The Trust, Company and each of the subsidiaries of the Company
hold all licenses, certificates and permits from governmental authorities
(including, without limitation, insurance licenses from the Insurance
Departments of the various states in which the subsidiaries write insurance
business (the "Insurance Licenses")) which are necessary to the conduct of
their respective businesses, except where the failure to hold such licenses,
certificates or permits would not have a Material Adverse Effect; the
Company's insurance subsidiaries have fulfilled and performed all
7
<PAGE>
obligations necessary to maintain their respective Insurance Licenses, except
where the failure to perform such obligations would not have a Material
Adverse Effect; and no event or events have occurred which may be reasonably
expected to result in any impairment, modification, termination or revocation
of such Insurance Licenses which individually or in the aggregate would have
a Material Adverse Effect.
(u) Except as disclosed in the Offering Document, neither the
Trust, the Company nor any of the subsidiaries of the Company is in violation
of any statute, rule, regulation, decision or order of any governmental
agency or body or court, domestic or foreign, relating to the use, disposal
or release of hazardous or toxic substances or relating to the protection or
restoration of the environment or human exposure to hazardous or toxic
substances (collectively, "environmental laws"), owns or operates any real
property contaminated with any substance that is subject to any environmental
laws, is liable for any off-site disposal or contamination pursuant to any
environmental laws, or is subject to any claim relating to any environmental
laws, which violation, contamination, liability or claim would individually
or in the aggregate have a Material Adverse Effect; and to the Trust's or the
Company's knowledge, there is no pending investigation which might lead to
such a claim.
(v) Except as disclosed in the Offering Document, there are no
pending actions, suits or proceedings (including, without limitation, any
proceeding to revoke or deny renewal of any Insurance License) against or
affecting the Trust, the Company, any of the subsidiaries of the Company or
any of their respective properties that, if determined adversely to the Trust
or Company or any of the subsidiaries of the Company, would individually or
in the aggregate have a Material Adverse Effect; and no such actions, suits
or proceedings (including, without limitation, any proceeding to revoke or
deny renewal of any Insurance License) are, to the Trust's or the Company's
knowledge, threatened or contemplated.
(w) The consolidated financial statements and the notes thereto
included in the Offering Document present fairly in all material respects,
the financial position of the Company and its consolidated subsidiaries as of
the dates shown and their results of operations and cash flows for the
periods shown, and, except as otherwise disclosed in the Offering Document as
being prepared in accordance with the Statutory Accounting Practices (as
hereinafter defined), such financial statements have been prepared in
conformity with the generally accepted accounting principles in the United
States applied on a consistent basis; and the assumptions used in preparing
the pro forma financial statements included in the Offering Document provide
a reasonable basis for presenting the significant effects directly
attributable to the transactions or events described therein, the related pro
forma adjustments give appropriate effect to
8
<PAGE>
those assumptions, and the pro forma columns therein reflect the proper
application of those adjustments in the corresponding historical financial
statement amounts, provided, however, that the Company makes no
representations and warranties with respect to, and specifically disclaims
any responsibility for the accuracy or completeness of, any pro forma
financial data that are based upon or derived from RISCORP Inc.'s
consolidated financial statements.
(x) Except as disclosed in the Offering Document, since the date
of the latest audited financial statements included in the Offering Document
there has been no change, nor any development or event involving a
prospective change, which has had, or would be reasonably be expected to
have, a Material Adverse Effect, and, except as disclosed in or contemplated
by the Offering Document, there has been no dividend or distribution of any
kind declared, paid or made by the Trust or the Company on any class of its
capital stock.
(y) Neither the Company nor the Trust is an open-end investment
company, unit investment trust or face-amount certificate company that is or
is required to be registered under Section 8 of the United States Investment
Company Act of 1940 (the "1940 Act") ; and neither the Company nor the Trust
is and, after giving effect to the offering and sale of the Offered
Securities and the application of the proceeds thereof as described in the
Offering Document, will be an "investment company" as defined in the 1940 Act.
(z) No securities of the same class (within the meaning of Rule
144A(d)(3) under the Securities Act) as the Offered Securities are listed on
any national securities exchange registered under Section 6 of the Exchange
Act or quoted in a U.S. automated inter-dealer quotation system.
(aa) Neither the Company, any of its affiliates nor the Trust, nor
any person acting on their behalf (i) has, within the six-month period prior
to the date hereof, offered or sold in the United States or to any U.S.
person (as such terms are defined in Regulation S) the Offered Securities or
any security of the same class or series as the Offered Securities or (ii)
has offered or will offer or sell the Offered Securities (A) in the United
States by means of any form of general solicitation or general advertising
within the meaning of Rule 502(c) under the Securities Act or (B) with
respect to any such securities sold in reliance on Rule 903 of Regulation S,
by means of any directed selling efforts within the meaning of Rule 902(b) of
Regulation S. The Company, its affiliates and any person acting on its or
their behalf have complied and will comply with the offering restrictions
requirement of Regulation S.
9
<PAGE>
The Company has not entered and will not enter into any contractual
arrangement with respect to the distribution of the Offered Securities except
for this Agreement.
(bb) The Company is subject to Section 13 or 15(d) of the Exchange
Act.
(cc) The statutory financial statements of each of the Company's
insurance subsidiaries, from which certain ratios and other statistical data
contained in the Offering Document have been derived, have for each relevant
period been prepared in accordance with accounting practices and procedures
of the National Association of Insurance Commissioners ("NAIC"), as
prescribed or permitted by the Insurance Departments of the various states in
which such subsidiaries write insurance business (the "Statutory Accounting
Practices"); and such accounting practices have been applied on a consistent
basis throughout the periods involved, except as disclosed in such statutory
financial statements.
(dd) All reserves and other liabilities reflected in the actuarial
opinion filed with the statutory annual statements of each of the Company's
insurance subsidiaries, filed with or submitted to the Insurance Departments
of the various states in which such subsidiaries write insurance business,
for the year ended December 31, 1997 (the "Reserve Liabilities"):
(i) Are computed in all material respects in accordance with
actuarial standards which have been adopted by the Actuarial
Standards Board, consistently applied and are fairly stated,
in accordance with sound actuarial principles;
(ii) Are based in all material respects on actuarial assumptions
which produce reserves at least as great as those called for
in any contract provision as to reserve basis and method,
and are in accordance with all other contract provisions;
(iii) Meet all material requirements of the insurance laws and
duly adopted regulations, in effect at the valuation date,
of the applicable state and are at least as great as the
minimum aggregate amounts required by the insurance laws and
duly adopted regulations, in effect at the valuation date,
of any states in which the Company's insurance subsidiaries
file an actuarial opinion;
10
<PAGE>
(iv) Are computed on the basis of assumptions consistent in all
material respects with those used in computing the
corresponding items in the annual statement of the preceding
year end (except as noted in the supporting memorandum); and
(v) Include provisions for all actuarial reserves and related
annual statement items which are required under the
applicable insurance laws.
Adequate provision for all such Reserve Liabilities has been made in
accordance with the applicable insurance laws to cover the total amount of
all reasonably anticipated matured and unmatured benefits, claims and other
liabilities of the Company's insurance subsidiaries under all insurance
policies under which the Company's insurance subsidiaries had any liability
(including, without limitation, any liability arising under or as a result of
any reinsurance, coinsurance or other similar agreement) on December 31, 1997.
(ee) Each of the Company's insurance subsidiaries has duly and
validly filed or caused to be filed all reports, statements, documents,
registrations, filings or submissions that were required by all applicable
United States federal, state, local or foreign statutes, laws, ordinances,
regulations, rules, codes, orders, permits, other requirements or rules of
law (collectively, the "Laws") to be filed, except where a failure to so file
would not have a Material Adverse Effect; all such filings complied with all
applicable Laws in all respects when filed, except where the failure to so
comply would not have a Material Adverse Effect, and no deficiencies have
been asserted with respect to any such filings which have not been satisfied,
except where such deficiencies would not have a Material Adverse Effect. All
outstanding insurance policies and assumption certificates issued by any of
the Company's insurance subsidiaries and now in force are, to the extent
required under applicable Laws, on forms approved by the insurance regulatory
authority of the jurisdiction where issued and utilize premium rates which,
if required to be filed with or approved by insurance regulatory authorities,
have been so filed or approved, except where the failure to use approved
forms or to file or have approved such premium rates would not have a
Material Adverse Effect, and the premiums charged conform thereto, except
where the failure to conform would not have a Material Adverse Effect.
(ff) Except as set forth in the Offering Document, neither the
Company nor any of the Company's insurance subsidiaries is a party to any
contract with or other undertaking to, or is subject to any governmental
order by, or is a recipient of any presently applicable supervisory letter or
other written communication
11
<PAGE>
of any kind from, any governmental authority which (i) has had a Material
Adverse Effect, (ii) relates materially and adversely to its reserve
adequacy, or its investment or underwriting practices or policies or its
sales practices or policies, or (iii) would reasonably be expected to have a
Material Adverse Effect, nor has the Company or any of the Company's
insurance subsidiaries been notified by any governmental authority that it is
contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such governmental order, contract, undertaking,
letter or other written communication.
(gg) To the Company's knowledge and each of the Company's
insurance subsidiary's knowledge, except as set forth in the Offering
Document, and with respect to all insurance issued, no other party to any
reinsurance, coinsurance or other similar agreement with any of the Company's
insurance subsidiaries is in default thereunder, except for such defaults
that would not reasonably be expected to have a Material Adverse Effect.
3. PURCHASE, SALE AND DELIVERY OF OFFERED SECURITIES. On the basis of
the representations, warranties and agreements herein contained, but subject
to the terms and conditions herein set forth, the Trust and the Company agree
that the Trust shall sell to the Purchasers, and the Purchasers agree,
severally and not jointly, to purchase from the Trust, at a purchase price of
$996.24 per Offered Security plus accumulated distributions from July 30,
1998, if any, on the Closing Date (as hereinafter defined), the respective
liquidation amounts of Offered Securities set forth opposite the names of the
Purchasers in Schedule A hereto.
The Trust will deliver against payment of the purchase price therefor
the Offered Securities to be offered and sold by the Purchasers in reliance
on Regulation S (the "Regulation S Securities") in the form of one or more
permanent global securities in registered form without interest coupons (the
"Regulation S Global Securities") which will be deposited with the Property
Trustee, as custodian for The Depository Trust Company ("DTC") for the
respective accounts of the DTC participants for Morgan Guaranty Trust Company
of New York, Brussels office, as operator of the Euroclear System
("Euroclear"), and Cedel Bank societe anonyme ("Cedel") and registered in the
name of Cede & Co., as nominee for DTC. The Trust will deliver against
payment of the purchase price therefor the Offered Securities to be purchased
by each Purchaser hereunder and to be offered and sold by each Purchaser in
reliance on Rule 144A under the Securities Act (the "144A Securities") in the
form of one permanent global security in definitive form without interest
coupons (the "Restricted Global Securities") deposited with the Property
Trustee, as custodian for the DTC and registered in the name of Cede & Co.,
as nominee for DTC. The Regulation S Global
12
<PAGE>
Securities and the Restricted Global Securities shall be assigned separate
CUSIP numbers. The Restricted Global Securities shall include the legend
regarding restrictions on transfer set forth under "Transfer Restrictions" in
the Offering Document. Until the termination of the restricted period (as
defined in Regulation S) with respect to the offering of the Offered
Securities, interests in the Regulation S Global Securities may only be held
by the DTC participants for Euroclear and Cedel. Interests in any permanent
global Securities will be held only in book-entry form through Euroclear,
Cedel or DTC, as the case may be, except in the limited circumstances
described in the Offering Document.
Payment for the Regulation S Securities and the 144A Securities shall be
made by the Purchasers in Federal (same day) funds by wire transfer to an
account at a bank acceptable to CSFBC drawn to the order of the Trust at 1:00
P.M., (New York time), on July 30, 1998, or at such other time not later than
seven full business days thereafter as CSFBC and the Company determine, such
time being herein referred to as the "Closing Date," against delivery to the
DTC of (i) the Regulation S Global Securities representing all of the
Regulation S Securities for the respective accounts of the DTC participants
for Euroclear and Cedel and (ii) the Restricted Global Securities
representing all of the 144A Securities. The Regulation S Global Securities
and the Restricted Global Securities will be made available for checking at
the above office of Debevoise & Plimpton at least 24 hours prior to the
Closing Date.
Notwithstanding the foregoing, any Offered Securities sold to
Institutional Accredited Investors (as defined in Section 4(c) hereof)
pursuant to Section 4(c) hereof shall be issued in definitive, fully
registered form and shall bear the legend relating thereto set forth under
"Transfer Restrictions" in the Offering Document, but shall be paid for in
the same manner as any Offered Securities to be purchased by the Purchasers
hereunder, and to be offered and sold by them in reliance on Rule 144A under
the Securities Act.
As compensation for the Purchasers' commitments, and in view of the fact
that the proceeds of the sale of the Offered Securities will be used by the
Trust to purchase the Subordinated Debentures of the Company, the Company
will pay CSFBC for the Purchasers' proportionate accounts the sum of $10.00
per Offered Security times the total number of Offered Securities purchased
by the Purchasers on the Closing Date. Such payment will be made on the
Closing Date with respect to the Offered Securities purchased on such Closing
Date.
13
<PAGE>
4. REPRESENTATIONS BY PURCHASERS; RESALE BY PURCHASERS. (a) Each
Purchaser severally represents and warrants to the Company that it is an
"accredited investor" within the meaning of Regulation D under the Securities
Act.
(b) Each Purchaser severally acknowledges that the Offered
Securities have not been registered under the Securities Act and may not be
offered or sold within the United States or to, or for the account or benefit
of, U.S. persons except in accordance with Regulation S or pursuant to an
exemption from the registration requirements of the Securities Act. Each
Purchaser severally represents and agrees that it has offered and sold the
Offered Securities, and will offer and sell the Offered Securities (i) as
part of its distribution at any time and (ii) otherwise until 40 days after
the later of the commencement of the offering and the Closing Date, only in
accordance with Rule 903 of Regulation S or Rule 144A under the Securities
Act ("Rule 144A") or in the case of CSFBC or any other Purchaser authorized
by CSFBC, to a limited number of Institutional Accredited Investors in
accordance with Section 4(c) hereof. Accordingly, neither such Purchaser nor
its affiliates, nor any persons acting on its or their behalf, have engaged
or will engage in any directed selling efforts with respect to the Offered
Securities, and such Purchaser, its affiliates and all persons acting on its
or their behalf have complied and will comply with the offering restrictions
requirement of Regulation S. Each Purchaser severally agrees that, at or
prior to confirmation of sale of the Offered Securities, other than a sale
pursuant to Rule 144A or a sale to an Institutional Accredited Investor in
accordance with Section 4(c) hereof, such Purchaser will have sent to each
distributor, dealer or person receiving remuneration that purchases the
Offered Securities from it during the restricted period a confirmation or
notice to substantially the following effect:
"The Securities covered hereby have not been registered under the U.S.
Securities Act of 1933 (the "Securities Act") and may not be offered or
sold within the United States or to, or for the account or benefit of, U.S.
persons (i) as part of their distribution at any time or (ii) otherwise
until 40 days after the later of the date of the commencement of the
offering and the closing date, except in either case in accordance with
Regulation S (or Rule 144A if available) under the Securities Act. Terms
used above have the meanings given to them by Regulation S."
Terms used in this subsection (b) have the meanings given to them by
Regulation S.
(c) CSFBC and any other Purchaser authorized by CSFBC may offer
and sell Offered Securities in definitive, fully registered form to a limited
number of institutions, each of which is reasonably believed by the
applicable purchaser to be an
14
<PAGE>
"accredited investor" within the meaning of Rule 501(a)(1), (2) or (3) under
the Securities Act or an entity in which all of the equity owners are
accredited investors within the meaning of Rule 501(a)(1), (2) or (3) under
the Securities Act (each, an "Institutional Accredited Investor"); PROVIDED
that each such Institutional Accredited Investor executes and delivers to
such Purchaser and the Trust, prior to the consummation of any sale of
Offered Securities to such Institutional Accredited Investor, a Purchaser's
Letter in substantially the form attached as Annex A to the Offering Document.
(d) Each Purchaser severally agrees that it and each of its
affiliates has not entered and will not enter into any contractual
arrangement with respect to the distribution of the Offered Securities except
for any such arrangements with the other Purchasers or affiliates of the
other Purchasers or with the prior written consent of the Company.
(e) Each Purchaser severally agrees that it and each of its
affiliates will not offer or sell the Offered Securities in the United States
by means of any form of general solicitation or general advertising within
the meaning of Rule 502(c) under the Securities Act, including, but not
limited to (i) any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, or (ii) any seminar or meeting whose attendees have been
invited by any general solicitation or general advertising. Each Purchaser
severally agrees, with respect to resales made in reliance on Rule 144A of
any of the Offered Securities, to deliver either with the confirmation of
such resale or otherwise prior to settlement of such resale a notice to the
effect that the resale of such Offered Securities has been made in reliance
upon the exemption from the registration requirements of the Securities Act
provided by Rule 144A.
(f) Each of the Purchasers severally represents and agrees that
(i) it has not offered or sold and prior to the date six months after the
date of issue of the Offered Securities will not offer or sell any Offered
Securities to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied and will comply
with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the Offered Securities in, from
or otherwise involving the United Kingdom; and (iii) it has only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issue of the
15
<PAGE>
Offered Securities to a person who is of a kind described in Article 11(3) of
the Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1996 or is a person to whom such document may otherwise lawfully be
issued or passed on.
(g) No action has been taken or will be taken by the Purchasers
that would permit (i) a public offering of the Offered Securities or (ii)
possession or distribution of the Offering Document in any country or
jurisdiction where action for that purpose is required. Each Purchaser will
comply with all applicable laws and regulations in each jurisdiction in which
it offers, sells or delivers the Offered Securities or has in its possession
or distributes the Offering Document.
5. CERTAIN AGREEMENTS OF THE TRUST AND THE COMPANY. Each of the Trust
and the Company agrees with the several Purchasers that:
(a) Each of the Trust and the Company will advise CSFBC promptly
of any proposal to amend or supplement the Offering Document and will not
effect such amendment or supplement without CSFBC's consent. If, at any time
prior to the completion of the resale of the Offered Securities by the
Purchasers, any event occurs as a result of which the Offering Document as
then amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, each of the Trust and the Company, as applicable,
promptly will notify CSFBC of such event and promptly will prepare, at its
own expense, an amendment or supplement which will correct such statement or
omission. Neither CSFBC's consent to, nor the Purchasers' delivery to
offerees or investors of, any such amendment or supplement shall constitute a
waiver of any of the conditions set forth in Section 6.
(b) The Trust will furnish to CSFBC copies of the Offering
Document and all amendments and supplements thereto, in each case as soon as
available and in such quantities as CSFBC requests, and the Trust will
furnish to CSFBC on the date hereof four copies of the Offering Document
signed by a duly authorized officer of the Trust. At any time when the
Company is not subject to Section 13 or 15(d) of the Exchange Act, the
Company will promptly furnish or cause to be furnished to CSFBC (and, upon
request, to each of the other Purchasers) and, upon request of holders and
prospective purchasers of the Offered Securities, to such holders and
prospective purchasers, copies of the information required to be delivered to
the Securityholders and prospective purchasers of the Offered Securities
pursuant to Rule 144A(d)(4) under the Securities Act (or any successor
provision thereto) in order
16
<PAGE>
to permit compliance with Rule 144A in connection with resales by such
Securityholders. The Company will pay the expenses of printing and
distributing to the Purchasers all such documents.
(c) The Trust will use its best efforts, in cooperation with the
Purchasers, to arrange for the qualification of the Offered Securities for
sale and the determination of their eligibility for investment under the laws
of such jurisdictions as CSFBC designates and will continue such
qualifications in effect so long as required for the distribution; PROVIDED
HOWEVER, that the Trust shall not be obligated to file any general consent to
service of process or to qualify as a foreign corporation or as a dealer in
securities in any jurisdiction in which it is not so qualified or to subject
itself to taxation in respect of doing business in any jurisdiction in which
it is not otherwise so subject.
(d) During the period of five years hereafter, the Company will
furnish to CSFBC, and, upon request, to each of the other Purchasers, (i) as
soon as practicable after the end of each fiscal year, a copy of its annual
report to stockholders for such year, (ii) as soon as available, a copy of
each report and any definitive proxy or information statement of the Company
filed with the Commission under the Exchange Act or mailed to stockholders,
and (iii) from time to time, such other information as shall be furnished by
the Company to its stockholders generally and as shall be reasonably
requested by CSFBC.
(e) During the period of two years after the Closing Date, the
Trust will, upon request, furnish to CSFBC, each of the other Purchasers and
any holder of Offered Securities a copy of the restrictions on transfer
applicable to the Offered Securities.
(f) During the period of two years after the Closing Date, neither
the Company nor the Trust will, nor will either permit any of its affiliates
(as defined in Rule 144 under the Securities Act) to, resell any of the
Offered Securities that have been reacquired by any of them.
(g) During the period of two years after the Closing Date, neither
the Company nor the Trust will be or become an open-end investment company,
unit investment trust or face-amount certificate company that is or is
required to be registered under Section 8 of the Investment Company Act.
17
<PAGE>
(h) Each of the Company and the Trust will cooperate with CSFBC
and use its reasonable best efforts to permit the Offered Securities to be
eligible for clearance and settlement through the facilities of the DTC.
(i) The Company will pay all expenses incident to the performance
of its and the Trust's obligations under this Agreement, including (i) all
expenses in connection with the execution, issue, authentication, packaging
and initial delivery of the Offered Securities, the preparation of this
Agreement, the Company Agreements, the preparation and printing of the
Offering Document and amendments and supplements thereto and any other
document relating to the issuance, offer, sale and delivery of the Offered
Securities; (ii) the cost of any advertising approved by the Company in
connection with the issue of the Offered Securities; (iii) for any expenses
(including fees and disbursements of counsel) incurred in connection with
qualification of the Offered Securities for sale under the laws of such
jurisdictions in the United States and Canada as CSFBC designates and the
printing of memoranda relating thereto; (iv) for any fees charged by
investment rating agencies for the rating of the Offered Securities; (v) for
any fees and disbursements of the Company's accountants, including any such
fees and disbursements incurred in connection with the preparation of
"comfort" letters pursuant to Section 6(a) and 6(c) hereof; and (vi) for
expenses incurred in distributing preliminary offering circulars and the
Offering Document (including any amendments and supplements thereto) to the
Purchasers. The Company will also pay or reimburse the Purchasers (to the
extent incurred by them) for all travel expenses of the Purchasers and the
Company's officers and employees and any other expenses of the Purchasers and
the Company in connection with attending or hosting meetings with prospective
purchasers of the Offered Securities from the Purchasers.
(j) The Trust and the Company will notify CSFBC of any material
adverse change affecting any of its representations, warranties, agreements
and indemnities herein at any time prior to payment to the Trust on the
Closing Date.
(k) The Company will subscribe for, purchase and pay for the
Common Securities and issue the Guarantee concurrently with the issue and
sale of the Offered Securities as contemplated herein.
(l) The Trust will use the proceeds received by it from the sale
of the Offered Securities, and the Company will use the net proceeds received
by it from the sale of the Subordinated Debentures in the manner specified in
the Offering Document under the caption "Use of Proceeds."
18
<PAGE>
6. CONDITIONS OF THE OBLIGATIONS OF THE PURCHASERS. The obligations of
the several Purchasers to purchase and pay for the Offered Securities on the
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Trust and the Company herein, to the accuracy
of the statements of the Trust's Trustees and the Company's officers made
pursuant to the provisions hereof, to the performance by the Trust or the
Company of its obligations hereunder and to the following additional
conditions precedent:
(a) The Purchasers shall have received a letter, dated the date of
this Agreement, of PricewaterhouseCoopers LLP confirming that they are
independent public accountants with respect to the Company within the meaning
of the Securities Act and the applicable published rules and regulations
thereunder ("Rules and Regulations") and to the effect that:
(i) In their opinion the financial statements examined by them
and included in the Exchange Act Reports comply as to form
in all material respects with the applicable accounting
requirements of the Securities Act and the related published
Rules and Regulations;
(ii) With respect to the quarters ended March 31, 1998 and 1997,
they have:
(a) Performed the procedures (completed on May 14, 1998)
specified by the American Institute of Certified Public
Accountants for a review of interim financial
information, as described in SAS No. 71, INTERIM
FINANCIAL INFORMATION, on the unaudited interim
consolidated financial statements incorporated by
reference in the Offering Document; and
(b) Inquired of certain officials of the Company who have
responsibility for financial and accounting matters
whether such unaudited interim consolidated financial
statements comply as to form in all material respects
with the applicable accounting requirements of the
Exchange Act as it applies to Form 10-Q and the related
rules and regulations adopted by the Commission.
(iii) Nothing came to their attention as a result of the
procedures specified in clause (ii), that caused them to
believe that:
19
<PAGE>
(a) (A) Any material modification should be made to such
unaudited consolidated financial statements for
them to be in conformity with generally accepted
accounting principles.
(B) Such unaudited consolidated financial statements
do not comply as to form in all material respects
with the applicable accounting requirements of the
Exchange Act as it applies to Form 10-Q and the
Rules and Regulations.
(b) (A) At March 31, 1998, there was any change in the
outstanding capital stock of the Company (other
than issuances of common stock upon exercise of
stock options and treasury stock repurchases under
the Company's stock repurchase program), or any
increase in the total consolidated debt of the
Company, as compared with amounts shown in the
December 31, 1997 audited consolidated balance
sheet incorporated by reference in the Offering
Document, except that total consolidated debt
increased by $405,000 and except in each case for
changes, increases or decreases disclosed in the
Offering Document.
(B) For the period from January 1, 1998 to March 31,
1998, the unaudited total revenue and net income
amounts shown in such unaudited consolidated
financial statements were not determined on a
basis substantially consistent with those amounts
shown in the audited consolidated financial
statements for the year ended December 31, 1997,
incorporated by reference in the Offering Document.
(iv) Officials of the Company have advised them that no
consolidated financial statements as of any date or for any
period subsequent to March 31, 1998 are available;
accordingly, the procedures carried out by them with respect
to changes in financial statement items after March 31, 1998
have been, even more limited than those with respect to the
periods referred to in clause (ii). They
20
<PAGE>
have inquired of certain officials of Zenith who have
responsibility for financial and accounting matters
regarding whether at July 27, 1998 there was any change in
capital stock of the Company (other than issuances of common
stock upon exercise of stock options and treasury stock
repurchases under the Company's stock repurchase program),
or any increase in total consolidated debt of the Company,
as compared with amounts shown in the December 31, 1997
audited consolidated balance sheet incorporated by reference
in the Offering Document. On the basis of these inquiries
and their reading of the applicable minutes of the Company,
nothing came to their attention that caused them to believe
that there was any such change, increase or decrease, except
that total consolidated debt increased by $3,579,000 and
except in each case for changes, increases or decreases
disclosed in the Offering Document; and
(v) They have:
(a) Read the unaudited pro forma combined condensed balance
sheet as of December 31, 1997 and the unaudited pro
forma combined condensed statement of operations for
the year ended December 31, 1997 included in the
Company's report on Form 8-K/A, filed June 12, 1998,
and incorporated by reference in the Offering Document.
(b) Inquired of certain officials of the Company, who have
responsibility for financial and accounting matters
about:
(A) the basis of their determination of the pro forma
adjustments; and
(B) whether such unaudited pro forma combined
condensed financial statements comply as to form
in all materials respects with the applicable
accounting requirements of Rule 11-02 of
Regulation S-X.
(c) Proved the arithmetic accuracy of the application of
the pro forma adjustments to the historical amounts in
the
21
<PAGE>
unaudited pro forma combined condensed financial
statements.
(vi) Nothing came to their attention as a result of the
procedures specified in clause (v) that caused them to
believe that the unaudited pro forma combined condensed
financial statements incorporated by reference in the
Offering Document do not comply as to form in all material
respects with the applicable accounting requirements of Rule
11-02 of Regulation S-X or that the pro forma adjustments
have not been properly applied to the historical amounts in
the compilation of those statements.
(vii) They have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial
information contained in the Offering Document and the
Exchange Act Reports (in each case to the extent that such
dollar amounts, percentages and other financial information
are derived from the general accounting records of the
Company and its subsidiaries subject to the internal
controls of the Company's accounting system or are derived
directly from such records by analysis or computation) with
the results obtained from inquiries, a reading of such
general accounting records and other procedures specified in
such letter and have found such dollar amounts, percentages
and other financial information to be in agreement with such
results, except as otherwise specified in such letter.
(b) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (i) a change in U.S. or international
financial, political or economic conditions or currency exchange rates or
exchange controls as would, in the judgment of a majority in interest of the
Purchasers (calculated in accordance with Schedule A hereto), including
CSFBC, be likely to prejudice materially the success of the proposed issue,
sale or distribution of the Offered Securities, whether in the primary market
or in respect of dealings in the secondary market; (ii) any change, or any
development or event involving a prospective change, in the conditions
(financial or other), business, properties or results of operations of the
Trust or the Company or the subsidiaries of the Company which, in the
judgment of a majority in interest of the Purchasers, is material and adverse
and makes it impractical or inadvisable to proceed with the completion of the
offering or sale of and payment for the Offered Securities;
22
<PAGE>
(iii) any downgrading in the rating of any debt securities of the Company by
any "nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Act), or any public announcement that any
such organization has under surveillance, review or watch its rating of any
debt securities of the Company (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating) or any downgrading of the financial and
operating performance of the Company's insurance subsidiaries by A.M. Best
Company that results in the Company's insurance subsidiaries being rated
lower than A+ (Superior); (iv) any suspension or limitation of trading in
securities generally on the New York Stock Exchange, or any setting of
minimum prices for trading on such exchange or system, or any suspension of
trading of any securities of the Trust or the Company on any exchange or in
the over-the-counter market; (v) any banking moratorium declared by U.S.
Federal or New York authorities; or (vi) any outbreak or escalation of major
hostilities in which the United States is involved, any declaration of war by
Congress or any other substantial national or international calamity or
emergency if, in the judgment of a majority in interest of the Purchasers,
the effect of any such outbreak, escalation, declaration, calamity or
emergency makes it impractical or inadvisable to proceed with completion of
the offering or the sale of and payment for the Offered Securities.
(c) The Purchasers shall have received a letter, dated the Closing
Date, of PricewaterhouseCoopers LLP which meets the requirements of
subsection (a) of this Section, except that the specified date referred to in
such subsection will be a date not more than three business days prior to the
Closing Date for the purposes of this subsection.
(d) The Purchasers shall have received an opinion, dated the
Closing Date, of LeBoeuf, Lamb, Greene & MacRae, L.L.P., special counsel for
the Trust and the Company to the effect that:
(i) The Company is an existing corporation in good standing
under the laws of the State of Delaware, with corporate power and
authority to own its properties and conduct its business as described
in the Offering Document.
(ii) The Indenture has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding
instrument of the Company enforceable against the Company in
accordance with its terms, subject to the Enforceability Exceptions.
The Indenture conforms
23
<PAGE>
in all material respects to the description contained in the
Offering Document.
(iii) The Subordinated Debentures have been duly authorized
by the Company, and, when executed by the Company, authenticated by
the Indenture Trustee in the manner provided for in the Indenture
and delivered to, and paid for by the Trust in accordance with the
terms of the Trust Agreement, will constitute valid and binding
obligations of the Company enforceable against the Company in
accordance with their terms, subject to the Enforceability
Exceptions. The Subordinated Debentures conform in all material
respects to the description thereof contained in the Offering
Document.
(iv) The Trust Agreement has been duly authorized, executed
and delivered by the Company.
(v) The Guarantee has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding
instrument of the Company enforceable against the Company in
accordance with its terms, subject to the Enforceability
Exceptions. The Guarantee conforms in all material respects to the
description thereof contained in the Offering Document.
(vi) This Agreement has been duly authorized, executed and
delivered by the Company.
(vii) The statements in the Offering Document under the
headings "Description of the Capital Securities," "Description of
the Guarantee," "Description of the Subordinated Debentures" and
"Effect of Obligations under the Subordinated Debentures, the
Guarantee and the Declaration," insofar as they purport to
constitute summaries of the terms of the documents referred to
therein, fairly summarize the terms of such documents in all
material respects; the statements in the Offering Document under
the heading "United States Federal Income Taxation" are true and
correct in all material respects; and the Trust will be treated as
a grantor trust for U.S. federal income tax purposes.
(viii) It is not necessary in connection with (i) the
offer, sale and delivery of the Offered Securities by the Company
to the Purchasers pursuant to this Agreement or (ii) the resales of
the Offered Securities by
24
<PAGE>
the Purchasers in the manner contemplated by this Agreement, to
register the Offered Securities under the Securities Act or to
qualify the Indenture under the TIA.
(ix) No consent, approval, authorization or order of, or
filing with, any U.S. Federal or state of New York agency or body
or any court is required for the consummation by the Company of the
transactions contemplated by this Agreement in connection with the
issuance or sale of the Offered Securities by the Trust, except
such as have been obtained and made under the General Corporation
Law of Delaware and such as may be required under any state
securities laws (including insurance securities laws).
(x) Neither the Company nor the Trust is an open-end
investment company, unit investment trust or face-amount
certificate company that is or is required to be registered under
Section 8 of the 1940 Act ; and neither the Company nor the Trust
is and, after giving effect to the offering and sale of the Offered
Securities and the application of the proceeds thereof as described
in the Offering Document, will be an "investment company" as
defined in the 1940 Act.
In addition to the matters set forth above, such opinion shall also
include a statement to the effect that such counsel has not checked the
accuracy or completeness of, or otherwise verified, and is not passing upon
and assume no responsibility for the accuracy or completeness of, the
information contained in the Offering Document (except to the limited extent
set forth in Section 6(d)(vii) hereof), and in the course of its review and
discussion of the contents of the Offering Document such counsel participated
in conferences with representatives of the Company, certain officers and
employees of the Company, the independent public accountants of the Company
and the Purchasers and their counsel, and that in the course of such review,
but without independent check or verification, no facts have come to such
counsel's attention which have caused such counsel to believe that the
Offering Document (including the Exchange Act Reports incorporated by
reference therein) (except as to financial statements and related schedules
and other financial and statistical information contained therein, as to
which such counsel expresses no belief), contained on the date hereof or
contain on the Closing Date an untrue statement of a material fact or omitted
or omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
25
<PAGE>
In rendering the foregoing opinions, such counsel may rely as to
matters of fact upon certificates of the Trust's Trustees and officers of the
Company and its subsidiaries, as to matters involving good standing,
authorization to do business and other matters within their knowledge, upon
certificates of public officials, and, as to matters involving the
application of laws of any jurisdiction other than the State of New York or
the United States, upon opinions of local counsel which opinions shall state
that they believe both the Purchasers and such counsel are justified in
relying upon such certificates and opinions.
(e) The Purchasers shall have received an opinion, dated such
Closing Date, from John J. Tickner, Senior Vice President and Secretary of
the Company to the effect that:
(i) The Company is duly qualified to do business as a foreign
corporation in good standing in all jurisdictions in which its
ownership or lease of property or the conduct of its business
requires such qualification, except to the extent that the failure
to so qualify or be in good standing would not have a Material
Adverse Effect.
(ii) Each significant subsidiary (as such term is defined in
Rule 1-02 of Regulation S-X) of the Company has been duly
incorporated and is an existing corporation in good standing under
the laws of the jurisdiction of its incorporation, with corporate
power and authority to own its properties and conduct its business
as described in the Offering Document; and each subsidiary of the
Company is duly qualified to do business as a foreign corporation
in good standing in all other jurisdictions in which its ownership
or lease of property or the conduct of its business requires such
qualification, except to the extent that the failure to so qualify
or be in good standing would not have a Material Adverse Effect.
(iii) The execution, delivery and performance of this
Agreement and the Company Agreements, the issuance by the Company
of the Guarantee and the Subordinated Debentures, and compliance by
the Company with all of the terms and provisions of this Agreement
and the Company Agreements, will not result in a breach or
violation of any of the terms and provisions of, or constitute a
default under, any statute, rule, regulation or order of any
governmental agency or body or court, domestic or foreign, having
jurisdiction over the Company or any of its subsidiaries or any of
their properties, or any agreement or instrument to
26
<PAGE>
which the Company or any such subsidiary is a party or by which the
Company or any such subsidiary is bound or to which any of the
properties of the Company or any such subsidiary is subject, or the
certificate of incorporation, as amended, or the bylaws of the
Company or the articles or amended articles of incorporation and
code of regulations or bylaws, as the case may be, of any such
subsidiary, in each case, except for such breaches, violations or
defaults as would not have a Material Adverse Effect; and the
Company has full corporate power and authority to authorize and
issue the Guarantee and the Subordinated Debentures and to
consummate the transactions contemplated by this Agreement and the
Company Agreements.
(iv) No consent, approval, authorization or order of, or
filing with, any U.S. Federal or state governmental agency or body
or any court is required for the consummation by the Company of the
transactions contemplated by this Agreement in connection with the
issuance or sale of the Offered Securities by the Trust, except
such as have been obtained and made under the General Corporation
Law of Delaware and such as may be required under any state
securities laws (including insurance securities laws).
(v) The Company and each of its subsidiaries hold all
licenses, certificates and permits from all governmental
authorities (including, without limitation, Insurance Licenses)
which are necessary to the conduct of their respective businesses,
except where the failure to hold such licenses, certificates or
permits would not have a Material Adverse Effect; the insurance
subsidiaries of the Company have fulfilled and performed all
obligations necessary to maintain their respective Insurance
Licenses, except where the failure to perform such obligations
would not have a Material Adverse Effect; and no event or events
have occurred which may be reasonably expected to result in any
impairment, modification, termination or revocation of such
Insurance Licenses which individually or the aggregate would have a
Material Adverse Effect.
In rendering the foregoing opinions, such counsel may rely as to
matters of fact upon certificates of the Trust's Trustees and officers of the
Company and its subsidiaries, as to matters involving good standing,
authorization to do business and other matters within their knowledge, upon
certificates of public officials, and, as to matters involving the
application of laws of any jurisdiction other than the State of
27
<PAGE>
California or the United States, upon opinions of local counsel which
opinions shall state that they believe both the Purchasers and such counsel
are justified in relying upon such certificates and opinions.
(f) The Purchasers shall have received an opinion, dated such
Closing Date, of Potter Anderson & Corroon LLP, special Delaware counsel to
the Trust and the Company, to the effect that:
(i) The Trust has been duly created and is validly existing in
good standing as a business trust under the Delaware Business Trust
Act.
(ii) Under the Delaware Business Trust Act and the Trust
Agreement, the Trust has the trust power and authority (a) to own its
properties (including, without limitation, the Subordinated
Debentures) and conduct its business, (b) to execute and deliver, and
to perform its obligations under, the agreements to which it is a
party, and (c) to issue and perform its obligations under the Offered
Securities and Common Securities, all as described in the Trust
Agreement.
(iii) The Trust Agreement constitutes a valid and binding
obligation of the Company and the Trustees, enforceable against the
Company and the Trustees, respectively, in accordance with its terms,
subject to the Enforceability Exceptions.
(iv) Under the Delaware Business Trust Act and the Trust
Agreement, the execution and delivery by the Trust of the agreements
to which it is a party, and the performance by the Trust of its
obligations thereunder, have been duly authorized by all necessary
action on the part of the Trust.
(v) The Offered Securities (a) have been duly authorized by
the Trust Agreement, and (b) once duly and validly issued in
accordance with the Trust Agreement, will represent valid, fully
paid and, subject to the qualifications set forth in clause (viii)
below, non-assessable undivided beneficial interests in the assets
of the Trust.
(vi) Once duly and validly issued in accordance with the Trust
Agreement, the Offered Securities will entitle the Securityholders to
the benefits of the Trust Agreement.
28
<PAGE>
(vii) The Common Securities (a) have been duly authorized by
the Trust Agreement, and (b) once duly and validly issued in
accordance with the Trust Agreement, will represent valid, fully paid
and non-assessable undivided beneficial interests in the assets of the
Trust.
(viii) The Securityholders will be entitled to the same
limitation of personal liability extended to stockholders of private
corporations for profit organized under the General Corporation Law of
the State of Delaware, except that the Securityholders may be
obligated to (a) provide indemnity and/or security in connection with
and pay taxes or governmental charges arising from transfers or
exchanges of certificates representing Offered Securities and the
issuance of replacement certificates representing Offered Securities
to the extent provided in the Trust Agreement, (b) provide security or
indemnity in connection with requests of or directions to the Property
Trustee to exercise its rights and powers under the Trust Agreement,
and (c) provide indemnity in connection with violations of the Trust
Agreement or U.S. Federal or state securities laws arising from
transfers or exchanges of certificates representing Offered Securities
and the issuance of replacement certificates representing Offered
Securities.
(ix) Under the Delaware Business Trust Act and the Trust
Agreement, the issuance of the Offered Securities is not subject to
pre-emptive rights.
(x) No authorization, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory
body of the State of Delaware is required for the issuance and sale
of the Offered Securities or the consummation by the Trust of the
transactions contemplated by the agreements to which it is a party.
(xi) Assuming that the Trust is treated as a grantor trust or
partnership for federal income tax purposes, the Securityholders
(other than those Securityholders who reside or are domiciled in the
State of Delaware) will have no liability for income taxes imposed by
the State of Delaware solely as a result of their participation in the
Trust, and the Trust will not be liable for any income tax imposed by
the State of Delaware.
29
<PAGE>
(xii) The (a) purchase of the Subordinated Debentures by the
Trust, (b) the distribution of the Subordinated Debentures by the
Trust in the circumstances contemplated by the Trust Agreement, and
(c) the execution, delivery and performance by the Trust of the
agreements to which it is a party and the consummation of the
transactions contemplated thereunder, will not conflict with or result
in a breach or violation of any of the terms or provisions of the
Certificate of Trust of the Trust or the Trust Agreement or any
statute, rule or regulation of the State of Delaware or any
governmental agency or body of the State of Delaware having
jurisdiction over the Trust or any of its properties, or, to such
counsel's knowledge, any consent or order of any court.
(g) The Purchasers shall have received on the Closing Date an
opinion (in form and substance reasonably satisfactory to the Purchasers and
their counsel), dated as of the Closing Date, of Potter Anderson & Corroon
LLP, special counsel to the Wilmington Trust Company ("WTC") to the effect
that:
(i) WTC is a Delaware banking corporation, duly formed and
validly existing in good standing under the laws of the State of
Delaware and has all necessary power and authority to execute, deliver
and perform its obligations under the Trust Agreement and to act as
Trustee thereunder.
(ii) The Trust Agreement has been duly executed and when
delivered by WTC, the Trust Agreement will constitute a legal, valid
and binding obligation of WTC enforceable against WTC in accordance
with the terms thereof.
(iii) The execution and delivery of the Trust Agreement by
WTC and the performance by WTC of its obligations thereunder have been
duly authorized by all necessary corporate action of WTC and do not
conflict with or result in a violation of (a) the certificate of
incorporation or bylaws of WTC, (b) any agreement, instrument,
judgment, order or decree known to such counsel to which WTC is a
party or by which it or its assets are bound or (iii) any existing
law, rule or regulation of the State of Delaware, or any existing law,
rule or regulation of the United States of America dealing with WTC's
banking or trust powers.
30
<PAGE>
(iv) Neither the execution nor the delivery by WTC of the
Trust Agreement, nor the compliance by WTC with the terms thereof,
nor the consummation by WTC of any of the transactions contemplated
thereby, requires the consent or approval of, the giving of notice
to, the registration with, or the taking of any other action with
respect to any governmental or regulatory authority or agency of
the United States of America or the State of Delaware, except for
the filing of the Certificate of Trust with the Secretary of State
of the State of Delaware.
(h) The Purchasers shall have received on the Closing Date an
opinion (in form and substance reasonably satisfactory to the Purchasers and
their counsel), dated as of the Closing Date, of senior counsel to the
Norwest Bank Minnesota, National Association ("Norwest") to the effect that:
(i) Norwest has been duly incorporated and is validly
existing as a banking corporation in good standing under the laws
of the jurisdiction of its incorporation;
(ii) Norwest has full corporate power and authority to enter
into and perform its obligations under the Trust Agreement, the
Indenture and the Guarantee; and
(iii) Each of the Trust Agreement, the Indenture and the
Guarantee has been duly authorized, executed and delivered by
Norwest and constitutes a valid and legally binding agreement of
Norwest enforceable against Norwest in accordance with its terms,
subject to the Enforceability Exceptions.
(iv) The execution and delivery by Norwest of the Trust
Agreement, the Indenture and the Guarantee and the performance by
Norwest of its obligations thereunder have been duly authorized by
all necessary corporate action of Norwest and do not conflict with
or result in a violation of (i) the charter documents or bylaws of
Norwest, (ii) any agreement, instrument, judgment, order or decree
known to such counsel to which Norwest is a party or by which it or
its assets are bound or (iii) any existing state or federal law,
rule or regulation applicable to Norwest.
(v) No consent, approval or authorization of, or
registration, declaration or filing with, any court or governmental
agency or body of
31
<PAGE>
the United States of America or the State of Minnesota having
jurisdiction over the trust powers of Norwest is required for the
consummation on the part of Norwest of any of the transactions
contemplated in the Trust Agreement, Indenture or the Guarantee,
except such as have been obtained.
(i) The Purchasers shall have received from Debevoise & Plimpton,
counsel for the Purchasers, such opinion or opinions, dated such Closing
Date, with respect to the organization of the Trust and the incorporation of
the Company, the validity of the Offered Securities delivered on such Closing
Date, the Offering Document and other related matters as the Purchasers may
require, and the Trust and the Company shall have each furnished to such
counsel such documents as they request for the purpose of enabling them to
pass upon such matters. In rendering such opinion, Debevoise & Plimpton may
rely as to matters governed by the laws of the states in which such counsel
is not licensed to practice, upon the opinions of local counsel.
(j) The Purchasers shall have received a certificate, dated such
Closing Date, of a Trustee of the Trust and the President or any
Vice-President and a principal financial or accounting officer of the Company
in which such Trustee or officers, to their knowledge after reasonable
investigation, shall state that the representations and warranties of each of
the Company and the Trust in this Agreement were true and correct when made
and are true and correct at and as of the Closing Date, that each of the
Company and the Trust has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or prior to
the Closing Date, and that, subsequent to the dates of the most recent
financial statements in the Exchange Act Reports there has been no material
adverse change, nor any development or event involving a prospective material
adverse change, in the condition (financial or other), business, properties
or results of operations of the Company and its subsidiaries taken as a whole
except as set forth in or contemplated by the Offering Document or as
described in such certificate.
(k) The Trust Agreement, the Guarantee and the Indenture shall
have been executed and delivered, in each case in a form reasonably
satisfactory to CSFBC.
(l) On the Closing Date, the Offered Securities shall be rated at
least "baa3" by Moody's Investors Service, Inc. and "BBB+" by Standard and
Poor's Ratings Services, a division of The McGraw Hill Companies, Inc. and
the Trust shall have delivered to CSFBC a letter dated the Closing Date, from
each such rating agency, or other evidence satisfactory to CSFBC affirming
that the Offered Securities shall have such ratings.
32
<PAGE>
The Trust and the Company will furnish the Purchasers with such
conformed copies of such opinions, certificates, letters and documents as the
Purchasers may reasonably request. CSFBC may in its sole discretion waive on
behalf of the Purchasers compliance with any conditions to the obligations of
the Purchasers hereunder.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Trust and the Company
will indemnify and hold harmless each Purchaser against any losses, claims,
damages or liabilities, joint or several, to which such Purchaser may become
subject, under the Securities Act or the Exchange Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained or incorporated by reference
in the Offering Document or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and will reimburse each Purchaser for any legal or
other expenses reasonably incurred by such Purchaser in connection with
investigating or defending any such loss, claim, damage, liability or action
as such expenses are incurred; provided, however, that neither the Trust nor
the Company will be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement
or alleged untrue statement in or omission or alleged omission from any of
such documents in reliance upon and in conformity with written information
furnished to the Company by any Purchaser through CSFBC specifically for use
therein, it being understood and agreed that the only such information
consists of the information described as such in subsection (b) below; and
provided, further, that with respect to any untrue statement or alleged
untrue statement in or omission or alleged omission from any preliminary
offering circular which was corrected in the final offering circular, or any
amendment or supplement thereto, the indemnity agreement contained in this
subsection (a) shall not inure to the benefit of any Purchaser that sold the
Offered Securities concerned to the person asserting any such losses, claims,
damages or liabilities, to the extent that such sale was an initial resale by
such Purchaser and any such loss, claim, damage or liability of such
Purchaser results from the fact that there was not sent or given to such
person, at or prior to the written confirmation of the sale of such Offered
Securities to such person, a copy of the Offering Document (exclusive of any
material included therein but not attached thereto) if the Company had
previously furnished copies thereof to such Purchaser in requisite quantity
and on a timely basis to permit such sending.
(b) Each Purchaser will severally and not jointly indemnify and
hold harmless each of the Trust and the Company against any losses, claims,
damages or
33
<PAGE>
liabilities to which the Company may become subject, under the Securities Act
or the Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in the Offering Document, or any amendment or supplement thereto,
or any related preliminary offering circular, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such
Purchaser through CSFBC specifically for use therein, and will reimburse any
legal or other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action
as such expenses are incurred, it being understood and agreed that the only
such information furnished by any Purchaser consists of the following
information in the Offering Document furnished on behalf of each Purchaser:
the last paragraph at the bottom of the cover page concerning the terms of
the offering by the Purchasers, the legend concerning over-allotments and
stabilizing on the inside front cover page and the third sentence of the
second paragraph, the second sentence of the sixth paragraph and the eighth
paragraph under the caption "Plan of Distribution."
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under subsection (a) or (b) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under subsection (a) or (b) above. In case any such
action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to
the indemnifying party), and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened action in respect of which any indemnified party is or
could have been a party and indemnity could have been sought
34
<PAGE>
hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on any
claims that are the subject matter of such action.
(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the
losses, claims, damages or liabilities referred to in subsection (a) or (b)
above (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Purchasers on the
other from the offering of the Offered Securities; or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Trust and
the Company on the one hand and the Purchasers on the other in connection
with the statements or omissions which resulted in such losses, claims,
damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Trust and the Company
on the one hand and the Purchasers on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Trust and the Company bear to the total
compensation received by the Purchasers from the Company under this
Agreement. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by Trust and the Company or the Purchasers and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The amount paid by an
indemnified party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any action or claim which
is the subject of this subsection (d). Notwithstanding the provisions of this
subsection (d), no Purchaser shall be required to contribute any amount in
excess of the amount by which the total price at which the Offered Securities
purchased by it were resold exceeds the amount of any damages which such
Purchaser has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. The Purchasers'
obligations in this subsection (d) to contribute are several in proportion to
their respective purchase obligations and not joint.
(e) The obligations of the Trust and the Company under this
Section shall be in addition to any liability which the Trust and the Company
may otherwise have and shall extend, upon the same terms and conditions, to
each person, if any, who
35
<PAGE>
controls any Purchaser within the meaning of the Securities Act or the
Exchange Act; and the obligations of the Purchasers under this Section shall
be in addition to any liability which the respective Purchasers may otherwise
have and shall extend, upon the same terms and conditions, to each officer
and director of the Company, to each Trustee of the Trust and to each person,
if any, who controls the Trust or the Company within the meaning of the
Securities Act or the Exchange Act.
8. DEFAULT OF PURCHASERS. If any Purchaser or Purchasers default in
their obligations to purchase Offered Securities hereunder on the Closing
Date and the aggregate number of shares of Offered Securities that such
defaulting Purchaser or Purchasers agreed, but failed, to purchase does not
exceed 10% of the total number of Offered Securities that the Purchasers are
obligated to purchase on such Closing Date, CSFBC may make arrangements
satisfactory to the Trust and the Company for the purchase of such Offered
Securities by other persons, including any of the Purchasers, but if no such
arrangements are made by such Closing Date, the non-defaulting Purchasers
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Offered Securities that such defaulting Purchasers
agreed but failed to purchase on such Closing Date. If any Purchaser or
Purchasers so default and the aggregate number of shares of Offered
Securities with respect to which such default or defaults occur exceeds 10%
of the total number of shares of Offered Securities that the Purchasers are
obligated to purchase on such Closing Date and arrangements satisfactory to
CSFBC, the Trust and the Company for the purchase of such Offered Securities
by other persons are not made within 36 hours after such default, this
Agreement will terminate without liability on the part of any non-defaulting
Purchaser, the Trust or the Company, except as provided in Section 9. As
used in this Agreement, the term "Purchaser" includes any person substituted
for a Purchaser under this Section. Nothing herein will relieve a defaulting
Purchaser from liability for its default.
9. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS. The respective
indemnities, agreements, representations, warranties and other statements of
the Trust and its Trustees and the Company and its officers and of the
several Purchasers set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation, or
statement as to the results thereof, made by or on behalf of any Purchaser,
the Trust, the Company or any of their respective representatives, trustees,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated
pursuant to Section 8 or if for any reason the purchase of the Offered
Securities by the Purchasers is not consummated, the Company shall remain
responsible for the expenses to be paid or reimbursed by it pursuant to
Section 5 and
36
<PAGE>
the respective obligations of the Trust, the Company and the Purchasers
pursuant to Section 7 shall remain in effect, and if any Offered Securities
have been purchased hereunder, the representations and warranties in Section
2 and all obligations under Section 5 shall also remain in effect. If the
purchase of the Offered Securities by the Purchasers is not consummated for
any reason other than solely because of the termination of this Agreement
pursuant to Section 8 or the occurrence of any event specified in clause
(iv), (v) or (vi) of Section 6(b), the Company will reimburse the Purchasers
for all out-of-pocket expenses (including fees and disbursements of counsel)
reasonably incurred by them in connection with the offering of the Offered
Securities.
10. NOTICES. All communications hereunder will be in writing and, if
sent to the Purchasers, will be mailed, delivered or telegraphed and
confirmed to the Purchasers, c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment
Banking Department--Transactions Advisory Group, or, if sent to the Trust or
the Company will be mailed, delivered or telegraphed and confirmed to it at
Zenith National Insurance Corp., 21255 Califa Street, Woodland Hills,
California 91367-5021, Attention: President (with a copy to Secretary);
PROVIDED, HOWEVER, that any notice to a Purchaser pursuant to Section 7 will
be mailed, delivered or telegraphed and confirmed to such Purchaser.
11. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the
trustees, officers and directors and controlling persons referred to in
Section 7, and no other person will have any right or obligation hereunder,
except that Securityholders shall be entitled to enforce the agreements for
their benefit contained in the second and third sentences of Section 5(b)
hereof against the Company as if such Securityholders were parties hereto.
12. REPRESENTATION OF PURCHASERS. CSFBC will act for the several
Purchasers in connection with this financing, and any action under this
Agreement taken by the Purchasers jointly or by CSFBC will be binding upon
all the Purchasers.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York, without regard to
principles of conflicts of laws.
37
<PAGE>
Each of the parties hereto hereby submits to the non-exclusive
jurisdiction of the Federal and state courts in the Borough of Manhattan in
The City of New York in any suit or proceeding arising out of or relating to
this Agreement or the transactions contemplated hereby.
38
<PAGE>
If the foregoing is in accordance with the Purchasers' understanding of
our agreement, kindly sign and return to the Trust one of the counterparts
hereof, whereupon it will become a binding agreement among the Trust, the
Company and the several Purchasers in accordance with its terms.
Very truly yours,
ZENITH NATIONAL INSURANCE CAPITAL TRUST I
By: ZENITH NATIONAL INSURANCE CORP.,
its Sponsor
By: /s/ Stanley R. Zax
------------------------------
Name: Stanley R. Zax
Title: Chairman and President
ZENITH NATIONAL INSURANCE CORP.
By: /s/ Stanley R. Zax
---------------------------
Name: Stanley R. Zax
Title: Chairman and President
39
<PAGE>
The foregoing Purchase Agreement
is hereby confirmed and accepted as of
the date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
BANCAMERICA ROBERTSON STEPHENS
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
By CREDIT SUISSE FIRST BOSTON CORPORATION
By /s/ William J. Egan
------------------------------
Name: William J. Egan
Title: Managing Director
40
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Liquidation
Amount of
Purchaser Capital Securities
--------- ------------------
<S> <C>
Credit Suisse First Boston Corporation $45,000,000
BancAmerica Robertson Stephens $15,000,000
Donaldson, Lufkin & Jenrette Securities Corporation $15,000,000
-----------
Total $75,000.000
-----------
-----------
</TABLE>
41
<PAGE>
No. 4270-0003
WORKERS' COMPENSATION
QUOTA SHARE
REINSURANCE AGREEMENT
between
ZENITH INSURANCE COMPANY
and
AMERICAN RE-INSURANCE COMPANY
<PAGE>
No. 4270-0003
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
I APPLICATION OF AGREEMENT 1
II COVER 1
III LIMITS OF COVER 1
IV EXCLUSIONS 2
V DEFINITIONS 3
VI LOSSES AND LOSS ADJUSTMENT
EXPENSES 4
VII PREMIUM 4
VIII CEDING COMMISSION 5
IX REPORTS AND REMITTANCES 6
X WARRANTY 7
XI INSOLVENCY CLAUSE 7
XII ACCESS TO RECORDS 7
XIII RESERVES AND TAXES 8
XIV OFFSET AND SECURITY CLAUSE 8
XV COMMENCEMENT AND
TERMINATION 9
XVI COMMUTATION 9
</TABLE>
<PAGE>
No. 4270-0003
WORKERS' COMPENSATION
QUOTA SHARE
REINSURANCE AGREEMENT
THIS AGREEMENT made and entered into by and between ZENITH INSURANCE COMPANY,
Woodland Hills, California (hereinafter referred to as the "Company") and
AMERICAN RE-INSURANCE COMPANY, Princeton, New Jersey (hereinafter referred
to as the "Reinsurer").
WITNESSETH:
The Reinsurer hereby reinsures the Company to the extent and on the terms and
conditions and subject to the exceptions, exclusions and limitations
hereinafter set forth and nothing hereinafter shall in any manner create any
obligations or establish any rights against the Reinsurer in favor of any
third parties or any persons not parties to this Agreement.
ARTICLE I
APPLICATION OF AGREEMENT
This Agreement applies to all business written by the Company and classified
as Workers Compensation and Employers Liability in the state of Florida,
except as excluded under Article IV herein.
ARTICLE II
COVER
The Company shall cede to the Reinsurer and the Reinsurer shall accept from
the Company a 20% quota share participation of the net retained insurance
liability of the Company, as respects policies in force at 12:01 A.M., April
1, 1998 and new and renewal policies issued thereafter except as excluded in
Article IV, subject to the limitations set forth in Article III.
ARTICLE III
LIMITS OF COVER
A. As respects policies issued by the Company, the Company shall cede to
the Reinsurer and the Reinsurer shall accept from the Company a 20%
quota share participation of the Company's net retained insurance
liability, subject to the limitation set forth in paragraph B., below.
-1-
<PAGE>
No. 4270-0003
B. It is understood and agreed that in no event shall the Reinsurer's
limit of liability exceed its pro rata share of $550,000 per
occurrence after all other inuring reinsurance.
ARTICLE IV
EXCLUSIONS
1. Reinsurance, except for the intracompany pooling arrangement.
This exclusion shall not apply to insureds who do not agree to
the Novation Agreement covering in force workers' compensation
policies from Riscorp Insurance Company and Riscorp Property
and Casualty Insurance Company to Zenith Insurance Company.
2. Risks involving a nuclear facility or nuclear material, spent
fuel or waste as defined in the Nuclear Incident Exclusion
Clause, except for the use of radioactive isotopes.
3. Liability of Company arising by contract, operations of law or
otherwise from its participation or membership, whether
voluntary or involuntary, in any insolvency fund. "Insolvency
Fund" includes any guarantee fund, insolvency fund, plan,
pool, association, fund or other facility which provides for
the assessment of, payment by, or assumption by the company
of a part or the whole of any claim, debt, charge, fee or
other obligations of an insurer, or its successors or assigns,
which has been declared insolvent by any authority having
jurisdiction.
4. Pools, Associations and Syndicates.
5. Construction and maintenance of Caisson or Coffer Dams (except
earth filled Dams).
6. Manufacturing, packaging, handling or shipping of explosives,
explosive substances intended for use as an explosive,
ammunition, fuses, arms or fireworks.
7. Manufacturing, Production and Refining Petroleum or its
products.
8. Professional Sports Teams.
9. Railroad Operations.
10. Oil and Gas drilling, refining, production or manufacturing.
11. Underground Mining.
-2-
<PAGE>
No. 4270-0003
12. Tunneling Operations involving tunnels over 100 feet.
13. Wrecking or Demolition of buildings, structures or vessels
over 5 stories in height.
14. Asbestos, Lead Paint or other toxic substance abatement, when
written as such.
15. Maritime or Jones Act (except for USL&H).
ARTICLE V
DEFINITIONS
A. The term "net retained insurance liability" as used herein means the
remaining portion of the Company's gross liability on the policies
covered hereunder after deducting all excess of loss reinsurance and
all pro rata reinsurance, other than the quota share reinsurance
provided under this Agreement.
B. The term "occurrence" as used herein means each accident or
occurrence or series of accidents or occurrences, arising out of one
event.
C. As respects Occupational or Other Disease under Workers' Compensation
and Employers' Liability policies, a loss for the purpose of this
Agreement shall be deemed to have occurred at the date when
compensability of the employee commenced, or if such date cannot be
definitely determined, the loss as respects such employee affected by
the disease, shall be deemed to have occurred at the date when the
claim became known to the Company, but in no event later than the
last day of employment during the term of the policy or policies of
the Company.
D. In the event more than one employee of the same insured suffers an
Occupational or Other Disease of one specific kind or class during
the same policy year, the resulting losses to the Company shall be
deemed to be from one occurrence and the date of such occurrence for
the purpose of this Agreement shall be the inception date of the last
policy issued by the Company to the employer, prior to the date on
which the first such loss occurred, but within the Agreement year.
The term "Occupational Disease" shall be as defined by applicable
statutes or regulations.
E. The term "Net Written Premium" as used herein means all direct
written premium, less premium ceded for inuring reinsurance, less
return premiums and dividends paid on policies that are written
subject to a loss sensitive dividend plan.
-3-
<PAGE>
No. 4270-0003
F. The term "policies" as used herein means each of the Company's
binders, policies and contracts providing insurance and reinsurance
on the business reinsured under this Agreement.
G. The term "Agreement Year" as used herein shall be each 12 month
period beginning with April 1, 1998.
ARTICLE VI
LOSSES AND LOSS ADJUSTMENT EXPENSES
A. Subject to the provisions of Article III, the Reinsurer, in
proportion to its participation, shall pay to the Company a pro rata
share of sums actually paid by the Company in settlement of losses
under its policies including amounts paid for managed care
arrangements, such as network access fees, bill repricing services
and other usual and customary managed care facilities. However, in
the event of the insolvency of the Company payment of loss for which
the Company is liable shall be made by the Reinsurer to the
liquidator, receiver or statutory successor of the Company in
accordance with the provisions of Article XI of this Agreement.
B. Subject to the provisions of Article III, the Reinsurer shall bear in
proportion to its participation expenses incurred by the Company in
the investigation, adjustment and litigation of all claims under its
policies, excluding the office expenses of the Company and the
salaries and expenses of its officials and employees.
C. The Reinsurer shall benefit pro rata in all salvages, discounts and
other recoveries.
D. The Company has the obligation to investigate and, to the extent that
may be required by the policies reinsured hereunder, defend any claim
affecting this reinsurance and to pursue such claim to final
determination.
ARTICLE VII
PREMIUM
A. Within 30 days following April 1, 1998, the Company shall pay to the
Reinsurer 20% of the Company's unearned premium reserve on its net
retained insurance liability in force at 12:01 A.M., April 1, 1998 on
the Riscorp Insurance Company, Riscorp Property and Casualty
Insurance Company and Zenith Insurance Company business covered
hereunder.
B. The Company shall also pay to the Reinsurer for the reinsurance
provided under this Agreement 20% of the Net Written Premium of the
Company for the new and renewal business covered hereunder, after
deduction of premiums paid for inuring reinsurance.
-4-
<PAGE>
No. 4270-0003
ARTICLE VIII
CEDING COMMISSION
A. The Reinsurer shall make a provisional commission allowance of 35% to
the Company on the premiums ceded under this Agreement. The Company
shall debit the Reinsurer with the provisional commission allowance
in the monthly accounts. The provisional commission shall be subject
to adjustment annually, until all losses have been settled or the
Agreement is commuted, whereupon a final commission adjustment will
be made consistent with the actuarially determined losses. However,
the first adjustment shall be thirty-six months after the end of each
Agreement Year. On all return premiums the Company shall return to
the Reinsurer the provisional commission allowance of 35%.
B. The ultimate commission allowance which the Reinsurer shall make to
the Company shall be in accordance with the following plan and shall
be computed on premiums earned under this Agreement:
<TABLE>
<CAPTION>
IF THE REINSURER'S LOSS RATIO IS: THE ULTIMATE COMMISSION SHALL BE:
-------------------------------------------------------------------------
<S> <C>
77% or higher 29.1% minimum
70% or higher but less than 77% 34.0% less a .7% decrease for
each 1% increase in the
Reinsurer's loss ratio down to a
29.1% commission at an 77%
loss ratio
66% or higher but not exceeding 36% less .5% decrease for each
70% 1% increase in the Reinsurer's
loss ratio down to a 34%
commission at a 70% loss ratio
60% or higher but not exceeding 40.5% less a .75% decrease for
66% each 1% increase in the
Reinsurer's loss ratio down to a
36% commission at a 66% loss
ratio
60% or less 40.5%
</TABLE>
C. The commission allowance which the Reinsurer makes to the Company on
the business transacted under this Agreement includes provision for
all taxes, assessments and any other expenses whatsoever, except loss
adjustment expenses.
-5-
<PAGE>
No. 4270-0003
D. The term "Reinsurer's loss ratio" means the "Reinsurer's losses
incurred" as defined in paragraph E. below, divided by "premiums
earned" as defined in paragraph F. below.
E. The term "Reinsurer's Losses Incurred" as used herein shall be
understood to mean ceded losses (net of salvages, subrogations,
inuring reinsurance and Special Disability Trust Funds recovered) and
allocated loss adjustment expenses paid by the Reinsurer under this
Agreement as of the effective date of calculation, plus the reserve
for ceded losses and allocated loss adjustment expenses outstanding
(including a reserve for incurred but not reported losses) as of the
same date, all as respects losses occurring during the Agreement Year
under consideration on the business covered hereunder.
F. The term "premiums earned" as used herein means the total of the
Reinsurer's net premiums written during the current Agreement Year,
plus the pro rata unearned premium at the close of the preceding
Agreement Year less the pro rata unearned premium at the close of the
current Agreement Year, said pro rata unearned premium to be
calculated on a daily pro rata basis.
G. If the ultimate commission on the premiums earned during the
Agreement Year exceeds the commission already allowed on the premiums
earned, the Reinsurer shall pay the difference to the Company at 36
months after the end of each Agreement Year. If the commission
already allowed on the premiums earned exceeds the ultimate
commission on the premiums earned, the difference shall be refunded
by the Company to the Reinsurer within 30 days.
H. Annual calculation of the ultimate commission shall continue until
all of the Reinsurer's Losses Incurred hereunder have been finally
settled.
I. The ceding commission terms herein are subject to annual
renegotiation at any April 1.
ARTICLE IX
REPORTS AND REMITTANCES
A. The Company shall report monthly net written premiums, collected
premiums, paid loss and allocated loss adjustment expense and the
provisional ceding commission.
B. The Company shall report monthly unearned premium and outstanding
loss reserves including provisions for IBNR. The Company shall also
report its unearned premium reserve at the inception of this
Agreement.
-6-
<PAGE>
No. 4270-0003
C. Within thirty days after the end of each month, collected premiums
less the provisional commission allowance shall be paid by the
Company, and paid Loss and Loss Adjustment Expense shall be paid by
the Reinsurer, subject to the limits provided in Article III.
ARTICLE X
WARRANTY
The Company warrants to the Reinsurer that excess of loss reinsurance excess
of $550,000 per occurrence for its Workers Compensation business shall be
maintained, or so deemed to be in effect and collectible for the duration of
this Agreement and shall inure to the benefit of this Agreement whether
collectible or not.
ARTICLE XI
INSOLVENCY CLAUSE
The reinsurance provided by this Agreement and each and every reinsurance
agreement heretofore or hereafter entered into by and between the parties
hereto shall be payable by the Reinsurer directly to the Company or to its
liquidator, receiver or statutory successor on the basis of the liability of
the Company under the contract or contracts reinsured without diminution
because of the insolvency of the Company. In the event of the insolvency of
the Company, the liquidator or receiver or statutory successor of the Company
shall give written notice of the pendency of each claim against the Company
on a policy or bond reinsured within a reasonable time after such claim is
filed in the insolvency proceeding; and during the pendency of such claim,
the Reinsurer may investigate such claim and interpose, at its own expense,
in the proceeding where such claim is to be adjudicated any defense or
defenses which it may deem available to the Company, its liquidator or
receiver or statutory successor. The expense thus incurred by the Reinsurer
shall be chargeable, subject to court approval, against the Company as part
of the expense of liquidation to the extent of such proportionate share of
the benefit as shall accrue to the Company solely as a result of the defense
undertaken by the Reinsurer. The reinsurance shall be payable as set forth
above except where this Agreement specifically provides for the payment of
reinsurance proceeds to another party in the event of the insolvency of the
Company.
ARTICLE XII
ACCESS TO RECORDS
The Company shall place at the disposal of the Reinsurer and the Reinsurer
shall have the right to inspect, through its authorized representatives, at
all reasonable times during the
-7-
<PAGE>
No. 4270-0003
currency of this Agreement and thereafter, the books, records and papers of
the Company pertaining to the reinsurance provided hereunder and all claims
made in connection therewith.
ARTICLE XIII
RESERVES AND TAXES
A. The Reinsurer shall maintain legal reserves with respect to unearned
premiums and claims hereunder.
B. The Company will be liable for all taxes on premiums reported to the
Reinsurer hereunder and will reimburse the Reinsurer for such premium
taxes where the Reinsurer is required to pay the same.
ARTICLE XIV
OFFSET AND SECURITY CLAUSE
A. Each party hereto has the right, which may be exercised at any time,
to offset any amounts, whether on account of premiums or losses or
otherwise, due from such party to another party under this Agreement
or any other reinsurance agreement heretofore or hereafter entered
into between them, against any amounts, whether on account of
premiums or losses or otherwise due from the latter party to the
former party. The party asserting the right of offset may exercise
this right, whether as assuming or ceding insurer or in both roles in
the relevant agreement or agreements.
B. Each party hereby assigns and pledges to the other party (or to each
other party, if more than one) all of its rights under this Agreement
to receive premium or loss payments at any time from such other party
("Collateral"), to secure its premium or loss obligations to such
other party at any time under this agreement and any other
reinsurance agreement heretofore or hereinafter entered into by and
between them ("Secured Obligations"). If at any time a party is in
default under any Secured Obligation or shall be subject to any
liquidation, rehabilitation, reorganization or conservation
proceeding, each other party shall be entitled in its discretion, to
apply, or to withhold for the purpose of applying in due course, any
Collateral assigned and pledged to it by the former party and
otherwise to realize upon such Collateral as security for such
Secured Obligations.
C. The security interest described herein, and the term "Collateral,"
shall apply to all payments and other proceeds in respect of the
rights assigned and pledged. A party's security interest in
Collateral shall be deemed evidenced only by the counterpart of this
Agreement delivered to such party.
-8-
<PAGE>
No. 4270-0003
D. Each right under this Article is a separate and independent right,
exercisable, without notice or demand, alone or together with other
rights, in the sole election of the party entitled thereto, and no
waiver, delay, or failure to exercise, in respect of any right, shall
constitute a waiver of any other right. The provisions of this
Article shall survive any cancellation or other termination of this
Agreement.
ARTICLE XV
COMMENCEMENT AND TERMINATION
A. This Agreement shall take effect as of 12:01 A.M., April 1, 1998 and
is entered into for an unlimited period but either party may
terminate this Agreement at March 31, 1999 or any subsequent March 31
thereafter, by giving not less than 90 days notice in writing by
certified letter.
B. At termination of this Agreement, the Reinsurer shall be relieved of
all liability hereunder for losses occurring subsequent to the
termination date for which the Reinsurer shall return the unearned
premium, if any, as of the termination date.
C. This Agreement may be renewed and/or extended for successive 12-month
periods at any April 1 on terms to be agreed by the parties hereto.
Either party may notify the other party of its desire to renew or
extend this Agreement by written notice to the other party prior to
any April 1.
ARTICLE XVI
COMMUTATION
Either party may elect to commute the liability of the Reinsurer twelve
months after termination or any time thereafter. Such commutation shall be
effected by a return to the Company of the commuted value (to be actuarially
determined and agreed by the Company and the Reinsurer) of outstanding losses.
-9-
<PAGE>
No. 4270-0003
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed in duplicate this 13th day of October, 1998.
ACCEPTED: 20% PART OF 100%
ZENITH INSURANCE COMPANY
/s/ John J. Tickner
- ----------------------------------
Senior Vice-President
AMERICAN RE-INSURANCE COMPANY
/s/ William P. Franz
----------------------------------
Vice President
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<DEBT-HELD-FOR-SALE> 727,028
<DEBT-CARRYING-VALUE> 38,395
<DEBT-MARKET-VALUE> 40,100
<EQUITIES> 56,099
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,086,849
<CASH> 8,581
<RECOVER-REINSURE> 482,729
<DEFERRED-ACQUISITION> 21,885
<TOTAL-ASSETS> 2,008,059
<POLICY-LOSSES> 1,209,505
<UNEARNED-PREMIUMS> 168,394
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 85,381
0
0
<COMMON> 24,865
<OTHER-SE> 324,578
<TOTAL-LIABILITY-AND-EQUITY> 2,008,059
392,489
<INVESTMENT-INCOME> 42,108
<INVESTMENT-GAINS> 8,338
<OTHER-INCOME> 31,428
<BENEFITS> 280,199
<UNDERWRITING-AMORTIZATION> 74,696
<UNDERWRITING-OTHER> 58,076
<INCOME-PRETAX> 27,820
<INCOME-TAX> 9,620
<INCOME-CONTINUING> 18,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,200
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.06
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
