<PAGE>
PROSPECTUS
This filing is made pursuant to Rule 424(b)(3)
File No. 333-20871
W.R. BERKLEY CAPITAL TRUST
OFFER TO EXCHANGE ITS
8.197% CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
8.197% CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
W.R. BERKLEY CORPORATION
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON JUNE 4, 1997, UNLESS EXTENDED
------------------------
W.R. Berkley Capital Trust, a statutory business trust formed under the laws
of the State of Delaware (the "Trust"), hereby offers, upon the terms and
subject to the conditions set forth in this Prospectus (as the same may be
amended or supplemented from time to time, the "Prospectus") and in the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange up to $210,000,000 aggregate Liquidation Amount of its
8.197% Capital Securities (the "New Capital Securities") which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement (as defined herein) of which this
Prospectus constitutes a part, for a like Liquidation Amount of its outstanding
8.197% Capital Securities (the "Old Capital Securities"), of which $210,000,000
aggregate Liquidation Amount is outstanding. Pursuant to the Exchange Offer,
W.R. Berkley Corporation, a Delaware corporation (the "Corporation"), is also
offering to exchange (i) its guarantee of payments of cash distributions and
payments on liquidation of the Trust or redemption of the Old Capital Securities
(the "Old Guarantee") for a like guarantee in respect of the New Capital
Securities (the "New Guarantee") and (ii) all of its 8.197% Junior Subordinated
Deferrable Interest Debentures due December 15, 2045 (the "Old Junior
Subordinated Debentures") for a like aggregate principal amount of its 8.197%
Junior Subordinated Deferrable Interest Debentures due December 15, 2045 (the
"New Junior Subordinated Debentures"), which New Guarantee and New Junior
Subordinated Debentures also have been registered under the Securities Act. The
Old Capital Securities, the Old Guarantee and the Old Junior Subordinated
Debentures are collectively referred to herein as the "Old Securities" and the
New Capital Securities, the New Guarantee and the New Junior Subordinated
Debentures are collectively referred to herein as the "New Securities."
The terms of the New Securities are identical in all material respects to
the respective terms of the Old Securities, except that (i) the New Securities
have been registered under the Securities Act and therefore will not be subject
to certain restrictions on transfer applicable to the Old Securities, (ii) the
New Capital Securities will not contain the $100,000 minimum Liquidation Amount
transfer restriction, (iii) the New Capital Securities will not provide for any
increase in the Distribution rate thereon, (iv) the New Junior Subordinated
Debentures will not contain the $100,000 minimum principal amount transfer
restriction and (v) the New Junior Subordinated Debentures will not provide for
any increase in the interest rate thereon. See "Description of New Securities"
and "Description of Old Securities." The New Capital Securities are being
offered for exchange in order to satisfy certain obligations of the Corporation
and the Trust under the Registration Rights Agreement dated as of December 20,
1996 (the "Registration Rights Agreement") among the Corporation, the Trust and
the Initial Purchasers (as defined herein). In the event that the Exchange Offer
is consummated, any Old Capital Securities which remain outstanding after
consummation of the Exchange Offer and the New Capital Securities issued in the
Exchange Offer will vote together as a single class for purposes of determining
whether holders of the requisite percentage in outstanding Liquidation Amount
thereof have taken certain actions or exercised certain rights under the Trust
Agreement (as defined herein).
(CONTINUED ON THE FOLLOWING PAGE)
This Prospectus and the Letter of Transmittal are first being mailed to all
holders of Old Capital Securities on May 5, 1997.
SEE "RISK FACTORS" COMMENCING ON PAGE 14 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY HOLDERS IN DECIDING WHETHER TO TENDER OLD CAPITAL SECURITIES IN
THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
<PAGE>
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is May 5, 1997.
<PAGE>
(CONTINUED FROM THE PREVIOUS PAGE)
The New Capital Securities and the Old Capital Securities (collectively, the
"Capital Securities") represent beneficial interests in the assets of the Trust.
The Corporation is the owner of all of the beneficial interests represented by
common securities of the Trust (the "Common Securities," and together with the
Capital Securities, the "Trust Securities"). The Bank of New York is the
Property Trustee of the Trust. The Trust exists for the sole purpose of issuing
the Trust Securities and investing the proceeds thereof in the Junior
Subordinated Debentures (as defined herein). The Junior Subordinated Debentures
will mature on December 15, 2045 (the "Stated Maturity Date"). The Capital
Securities will have a preference over the Common Securities under certain
circumstances with respect to cash distributions and amounts payable on
liquidation, redemption or otherwise. See "Description of New Securities
Description of New Capital Securities Subordination of Common Securities."
As more fully described herein, the Corporation has entered into several
contractual undertakings which, the Corporation believes, taken together,
guarantee to the holders of the Capital Securities a full and unconditional
right to enforce the payment of the distributions with respect to the Capital
Securities, the payment of the redemption price upon redemption of the Capital
Securities and the payment of the Liquidation Amount with respect to the Capital
Securities upon liquidation of the Trust. See "Risk Factors--Rights Under the
Guarantee; Direct Action For Payment." Those contractual arrangements include
the Corporation's obligations under (i) the Guarantee, (ii) the Trust Agreement,
(iii) the Junior Subordinated Debentures and (iv) the Indenture. As used herein,
(i) the "Indenture" means the Indenture, dated as of December 20, 1996, as
amended and supplemented from time to time, between the Corporation and The Bank
of New York, as Debenture Trustee (the "Debenture Trustee"), (ii) the "Trust
Agreement" means the Amended and Restated Declaration of Trust relating to the
Trust, dated as of December 20, 1996, among the Corporation, as Sponsor, The
Bank of New York as Property Trustee (the "Property Trustee"), The Bank of New
York (Delaware), as Delaware Trustee (the "Delaware Trustee"), and the
Administrative Trustees named therein (collectively, with the Property Trustee
and the Delaware Trustee, the "Issuer Trustees"). In addition, as the context
may require, unless otherwise expressly stated, (i) the term "Capital
Securities" includes the Old Capital Securities and the New Capital Securities,
(ii) the term "Trust Securities" includes the Capital Securities and the Common
Securities, (iii) the term "Junior Subordinated Debentures" includes the Old
Junior Subordinated Debentures and the New Junior Subordinated Debentures and
(iv) the term "Guarantee" includes the Old Guarantee and the New Guarantee.
Holders of the New Capital Securities will be entitled to receive
preferential cumulative cash distributions arising from the payment of interest
on the Junior Subordinated Debentures, accruing from December 20, 1996, and
payable semi-annually in arrears on June 15 and December 15 of each year,
commencing June 15, 1997, at the annual rate of 8.197% of the Liquidation Amount
of $1,000 per New Capital Security ("Distributions"). The Corporation will have
the right to defer payments of interest on the Junior Subordinated Debentures at
any time and from time to time for a period not exceeding 10 consecutive
semi-annual periods with respect to each deferral period (each, an "Extension
Period"), provided that no Extension Period may extend beyond the Stated
Maturity Date. Upon the termination of any such Extension Period and the payment
of all amounts then due, the Corporation may elect to begin a new Extension
Period, subject to the requirements set forth in the Indenture. If and for so
long as interest payments on the Junior Subordinated Debentures are so deferred,
Distributions on the Trust Securities will also be deferred and the Corporation
will not be permitted, subject to certain exceptions described herein, to
declare or pay any cash distributions with respect to the Corporation's capital
stock (which includes common and preferred stock) or to make any payment with
respect to debt securities of the Corporation that rank PARI PASSU with or
junior to the Junior Subordinated Debentures. During an Extension Period,
interest on the Junior Subordinated Debentures will continue to accrue (and the
amount of Distributions to which holders of the Trust Securities are entitled
will accumulate) at the rate of 8.197% per annum, compounded semi-annually, and
holders of Trust Securities will be required to accrue interest income for
United States federal income tax purposes. See "Description of New Securities
Description of
2
<PAGE>
(CONTINUED FROM THE PREVIOUS PAGE)
New Junior Subordinated Debentures Option to Extend Interest Payment Date" and
"Certain United States Federal Income Tax Considerations Interest Income and
Original Issue Discount."
------------------------
Through the Guarantee, the guarantee agreement of the Corporation relating
to the Common Securities (the "Common Guarantee"), the Trust Agreement, the
Junior Subordinated Debentures and the Indenture, taken together, the
Corporation has guaranteed or will guarantee, as the case may be, fully,
irrevocably and unconditionally, all of the Trust's obligations under the Trust
Securities. See "Relationship Among the New Capital Securities, the Trust
Agreement, the New Junior Subordinated Debentures and the New Guarantee--Full
and Unconditional Guarantee." The Old Guarantee and the Common Guarantee
guarantees, and the New Guarantee will guarantee, payments of Distributions and
payments on liquidation or redemption of the Trust Securities, but in each case
only to the extent that the Trust holds funds on hand legally available therefor
and has failed to make such payments, as described herein. See "Description of
New Securities--Description of New Guarantee." If the Corporation fails to make
a required payment on the Junior Subordinated Debentures, the Trust will not
have sufficient funds to make the related payments, including Distributions, on
the Trust Securities. The Guarantee and the Common Guarantee will not cover any
such payment when the Trust does not have sufficient funds on hand legally
available therefor. In such event, a holder of Capital Securities may institute
a legal proceeding directly against the Corporation to enforce its rights in
respect of such payment. See "Description of New Securities--Description of New
Junior Subordinated Debentures--Enforcement of Certain Rights By Holders of New
Capital Securities." The obligations of the Corporation under the Guarantee, the
Common Guarantee and the Junior Subordinated Debentures will be subordinate and
junior in right of payment to all Senior Indebtedness (as defined in
"Description of New Securities--Description of New Junior
Subordinated--Debentures Subordination").
The Trust Securities will be subject to mandatory redemption in a Like
Amount (as defined herein), (i) in whole but not in part, on the Stated Maturity
Date upon repayment of the Junior Subordinated Debentures at a redemption price
equal to the principal amount of, plus accrued interest on, the Junior
Subordinated Debentures (the "Maturity Redemption Price"), (ii) in whole but not
in part, at any time, contemporaneously with the optional prepayment of the
Junior Subordinated Debentures, upon the occurrence and continuation of a
Special Event (as defined herein) at a redemption price equal to the Special
Event Prepayment Price (as defined below) (the "Special Event Redemption
Price"), and (iii) in whole or in part, on or after December 15, 2006,
contemporaneously with the optional prepayment by the Corporation of the Junior
Subordinated Debentures, at a redemption price equal to the Optional Prepayment
Price (as defined below) (the "Optional Redemption Price"). Any of the Maturity
Redemption Price, the Special Event Redemption Price and the Optional Redemption
Price may be referred to herein as the "Redemption Price." See "Description of
- --ew Securities]Description of New Capital Securities--Redemption." The Junior
Subordinated Debentures will be prepayable prior to the Stated Maturity Date at
the option of the Corporation (i) on or after December 15, 2006, in whole or in
part, at a prepayment price (the "Optional Prepayment Price") equal to the
principal amount thereof outstanding, plus accrued interest thereon to the date
of prepayment, or (ii) at any time, in whole but not in part, upon the
occurrence and continuation of a Special Event, at a prepayment price (the
"Special Event Prepayment Price") equal to the greater of (a) 100% of the
principal amount thereof or (b) the sum, as determined by a Quotation Agent (as
defined herein), of the present values of the remaining scheduled payments of
principal and interest thereon to December 15, 2006, the first date on which the
Junior Subordinated Debentures are subject to optional prepayment, discounted to
the prepayment date on a semi-annual basis (assuming a 360-day year consisting
of twelve 30-day months) at the Adjusted Treasury Rate (as defined herein) plus,
in either case, accrued interest thereon to the date of prepayment. Either of
the Optional Prepayment Price or the Special Event Prepayment Price may be
referred to herein as the "Prepayment Price." See "Description of New
Securities--Description of New Junior Subordinated Debentures-- Optional
Prepayment" and "--Special Event Prepayment."
3
<PAGE>
(CONTINUED FROM THE PREVIOUS PAGE)
The Corporation will have the right at any time to terminate the Trust and
cause a Like Amount of the Junior Subordinated Debentures to be distributed to
the holders of the Trust Securities in liquidation of the Trust, subject to the
Corporation having received an opinion of counsel to the effect that such
distribution will not be a taxable event to holders of Capital Securities.
Unless the Junior Subordinated Debentures are distributed to the holders of the
Trust Securities, in the event of a liquidation of the Trust as described
herein, after satisfaction of liabilities to creditors of the Trust as required
by applicable law, the holders of the Capital Securities generally will be
entitled to receive a Liquidation Amount of $1,000 per Capital Security plus
accumulated Distributions thereon to the date of payment. See "Description of
New Securities--Description of New Capital Securities--Liquidation of the Trust
and Distribution of Junior Subordinated Debentures."
------------------------
The Trust is making the Exchange Offer of the New Capital Securities in
reliance on the position of the staff of the Division of Corporation Finance of
the Securities and Exchange Commission (the "Commission") as set forth in
certain interpretive letters addressed to third parties in other transactions.
However, neither the Corporation nor the Trust has sought its own interpretive
letter and there can be no assurance that the staff of the Division of
Corporation Finance of the Commission would make a similar determination with
respect to the Exchange Offer as it has in such interpretive letters to third
parties. Based on these interpretations by the staff of the Division of
Corporation Finance of the Commission, and subject to the two immediately
following sentences, the Corporation and the Trust believe that New Capital
Securities issued pursuant to this Exchange Offer in exchange for Old Capital
Securities may be offered for resale, resold and otherwise transferred by a
holder thereof (other than a holder who is a broker-dealer) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Capital Securities are acquired in the
ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such New Capital Securities. However, any holder of Old Capital Securities who
is an "affiliate" of the Corporation or the Trust or who intends to participate
in the Exchange Offer for the purpose of distributing New Capital Securities, or
any broker-dealer who purchased Old Capital Securities from the Trust to resell
pursuant to Rule 144A under the Securities Act ("Rule 144A") or any other
available exemption under the Securities Act, (a) will not be able to rely on
the interpretations of the staff of the Division of Corporation Finance of the
Commission set forth in the above-mentioned interpretive letters, (b) will not
be permitted or entitled to tender such Old Capital Securities in the Exchange
Offer and (c) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or other transfer
of such Old Capital Securities unless such sale is made pursuant to an exemption
from such requirements. In addition, as described below, if any broker-dealer
holds Old Capital Securities acquired for its own account as a result of
market-making or other trading activities and exchanges such Old Capital
Securities for New Capital Securities, then such broker-dealer must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resales of such New Capital Securities.
Each holder of Old Capital Securities who wishes to exchange Old Capital
Securities for New Capital Securities in the Exchange Offer will be required to
represent that (i) it is not an "affiliate" of the Corporation or the Trust,
(ii) any New Capital Securities to be received by it are being acquired in the
ordinary course of its business, (iii) it has no arrangement or understanding
with any person to participate in a distribution (within the meaning of the
Securities Act) of such New Capital Securities and (iv) if such holder is not a
broker-dealer, such holder is not engaged in, and does not intend to engage in,
a distribution (within the meaning of the Securities Act) of such New Capital
Securities. In addition, the Corporation and the Trust may require such holder,
as a condition to such holder's eligibility to participate in the Exchange
Offer, to furnish to the Corporation and the Trust (or an agent thereof) in
writing information as to the number of "beneficial owners" (within the meaning
of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) on behalf
of whom such holder holds the Capital Securities to be exchanged in the Exchange
Offer. Each broker-dealer that receives New Capital Securities for its own
account pursuant to the Exchange Offer must acknowledge that it acquired the Old
Capital Securities
4
<PAGE>
(CONTINUED FROM THE PREVIOUS PAGE)
for its own account as the result of market-making activities or other trading
activities and must agree that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Capital Securities. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. Based on the
position taken by the staff of the Division of Corporation Finance of the
Commission in the interpretive letters referred to above, the Corporation and
the Trust believe that broker-dealers who acquired Old Capital Securities for
their own accounts, as a result of market-making activities or other trading
activities ("Participating Broker-Dealers"), may fulfill their prospectus
delivery requirements with respect to the New Capital Securities received upon
exchange of such Old Capital Securities (other than Old Capital Securities which
represent an unsold allotment from the original sale of the Old Capital
Securities) with a prospectus meeting the requirements of the Securities Act,
which may be the prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to the resale of
such New Capital Securities. Accordingly, this Prospectus, as it may be amended
or supplemented from time to time, may be used by a Participating Broker-Dealer
during the period referred to below in connection with resales of New Capital
Securities received in exchange for Old Capital Securities where such Old
Capital Securities were acquired by such Participating Broker-Dealer for its own
account as a result of market-making or other trading activities. Subject to
certain provisions set forth in the Registration Rights Agreement, the
Corporation and the Trust have agreed that this Prospectus, as it may be amended
or supplemented from time to time, may be used by a Participating Broker-Dealer
in connection with resales of such New Capital Securities for a period ending
90-days after the Expiration Date (as defined herein) (subject to extension
under certain limited circumstances described below) or, if earlier, when all
such New Capital Securities have been disposed of by such Participating
Broker-Dealer. See "Plan of Distribution." However, a Participating
Broker-Dealer who intends to use this Prospectus in connection with the resale
of New Capital Securities received in exchange for Old Capital Securities
pursuant to the Exchange Offer must notify the Corporation or the Trust, or
cause the Corporation or the Trust to be notified, on or prior to the Expiration
Date, that it is a Participating Broker-Dealer. Such notice may be given in the
space provided for that purpose in the Letter of Transmittal or may be delivered
to the Exchange Agent at one of the addresses set forth herein under "The
Exchange Offer--Exchange Agent." Any Participating Broker-Dealer who is an
"affiliate" of the Corporation or the Trust may not rely on such interpretive
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
See "The Exchange Offer Resales--of New Capital Securities."
In that regard, each Participating Broker-Dealer who surrenders Old Capital
Securities pursuant to the Exchange Offer will be deemed to have agreed, by
execution of the Letter of Transmittal, that, upon receipt of notice from the
Corporation or the Trust of the occurrence of any event or the discovery of any
fact which makes any statement contained or incorporated by reference in this
Prospectus untrue in any material respect or which causes this Prospectus to
omit to state a material fact necessary in order to make the statements
contained or incorporated by reference herein, in light of the circumstances
under which they were made, not misleading or of the occurrence of certain other
events specified in the Registration Rights Agreement, such Participating
Broker-Dealer will suspend the sale of New Capital Securities (or the New
Guarantee or the New Junior Subordinated Debentures, as applicable) pursuant to
this Prospectus until the Corporation or the Trust has amended or supplemented
this Prospectus to correct such misstatement or omission and has furnished
copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Corporation or the Trust has given notice that the sale of
the New Capital Securities (or the New Guarantee or the New Junior Subordinated
Debentures, as applicable) may be resumed, as the case may be. If the
Corporation or the Trust gives such notice to suspend the sale of the New
Capital Securities (or the New Guarantee or the New Junior Subordinated
Debentures, as applicable), it shall extend the 90-day period referred to above
during which Participating Broker-Dealers are entitled to use this Prospectus in
connection with the resale of New Capital Securities by the number of days
during the period from and including the date of the giving of such notice to
and including the date when Participating Broker-Dealers shall have received
copies of the amended or supplemented Prospectus
5
<PAGE>
(CONTINUED FROM THE PREVIOUS PAGE)
necessary to permit resales of the New Capital Securities or to and including
the date on which the Corporation or the Trust has given notice that the sale of
New Capital Securities (or the New Guarantee or the New Junior Subordinated
Debentures, as applicable) may be resumed, as the case may be.
Prior to the Exchange Offer, there has been only a limited secondary market
and no public market for the Old Capital Securities. The New Capital Securities
will be a new issue of securities for which there currently is no market.
Although the Initial Purchasers have informed the Corporation and the Trust that
they each currently intend to make a market in the New Capital Securities, they
are not obligated to do so, and any such market making may be discontinued at
any time without notice. Accordingly, there can be no assurance as to the
development or liquidity of any market for the New Capital Securities. The
Corporation and the Trust currently do not intend to apply for listing of the
New Capital Securities on any securities exchange or for quotation through the
Nasdaq Stock Market.
Any Old Capital Securities not tendered and accepted in the Exchange Offer
will remain outstanding and will be entitled to all the same rights and will be
subject to the same limitations applicable thereto under the Trust Agreement
(except for those rights which terminate upon consummation of the Exchange
Offer). Following consummation of the Exchange Offer, the holders of Old Capital
Securities will continue to be subject to all of the existing restrictions upon
transfer thereof and neither the Corporation nor the Trust will have any further
obligation to such holders (other than under certain limited circumstances) to
provide for registration under the Securities Act of the Old Capital Securities
held by them. To the extent that Old Capital Securities are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered Old
Capital Securities could be adversely affected. See "Risk Factors--Consequences
of a Failure to Exchange Old Capital Securities."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD CAPITAL SECURITIES ARE URGED TO READ THIS PROSPECTUS
AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO
TENDER THEIR OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER.
Old Capital Securities may be tendered for exchange on or prior to 5:00
p.m., New York City time, on June 4, 1997 (such time on such date being
hereinafter called the "Expiration Date"), unless the Exchange Offer is extended
by the Corporation or the Trust (in which case the term "Expiration Date" shall
mean the latest date and time to which the Exchange Offer is extended). Tenders
of Old Capital Securities may be withdrawn at any time on or prior to the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
Liquidation Amount of Old Capital Securities being tendered for exchange.
However, the Exchange Offer is subject to certain events and conditions which
may be waived by the Corporation or the Trust and to the terms and provisions of
the Registration Rights Agreement. Old Capital Securities may be tendered in
whole or in part having an aggregate Liquidation Amount of not less than
$100,000 (100 Capital Securities) or any integral multiple of $1,000 Liquidation
Amount (one Capital Security) in excess thereof. The Corporation will pay all
fees, expenses, debts and obligations (other than the Trust Securities) related
to the Trust and the offering and exchange of the Capital Securities and will
pay, directly or indirectly, all ongoing costs, expenses and liabilities of the
Trust. See "The Exchange Offer--Fees and Expenses." Holders of the Old Capital
Securities whose Old Capital Securities are accepted for exchange will not
receive Distributions on such Old Capital Securities and will be deemed to have
waived the right to receive any Distributions on such Old Capital Securities
accumulated from and after December 20, 1996. See "The Exchange
Offer--Distributions on New Capital Securities."
Neither the Corporation nor the Trust will receive any cash proceeds from
the issuance of the New Capital Securities offered hereby. No dealer-manager is
being used in connection with this Exchange Offer. See "Use of Proceeds" and
"Plan of Distribution."
------------------------
6
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THIS EXCHANGE
OFFER AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE CORPORATION OR THE TRUST. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE CORPORATION OR THE TRUST SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR ANYONE TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information........................................................................................ 7
Incorporation of Certain Documents by Reference.............................................................. 8
Summary...................................................................................................... 9
Risk Factors................................................................................................. 15
W.R. Berkley Corporation..................................................................................... 21
Use of Proceeds.............................................................................................. 21
Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends................................... 21
Accounting Treatment......................................................................................... 22
Capitalization............................................................................................... 22
Summary Financial Data....................................................................................... 23
W.R. Berkley Capital Trust................................................................................... 24
The Exchange Offer........................................................................................... 25
Description of New Securities................................................................................ 35
Description of Old Securities................................................................................ 55
Relationship Among the New Capital Securities, the Trust Agreement, the New Junior Subordinated Debentures
and the New Guarantee...................................................................................... 55
Certain United States Federal Income Tax Considerations...................................................... 57
ERISA Considerations......................................................................................... 60
Plan of Distribution......................................................................................... 61
Validity of New Securities................................................................................... 62
Experts...................................................................................................... 62
</TABLE>
AVAILABLE INFORMATION
The Corporation is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, 13th Floor, Suite
1300, New York, New York 10048 and Suite 1400, Citicorp Center, 14th Floor, 500
West Madison Street, Chicago, Illinois 60661. Copies of such material can also
be obtained at prescribed rates by writing to the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C.
7
<PAGE>
20549. Such information may also be accessed electronically by means of the
Commission's home page on the Internet (http://www.sec.gov.).
No separate financial statements of the Trust have been included herein. The
Corporation and the Trust do not consider that such financial statements would
be material to holders of the Capital Securities because the Trust is a newly
formed special purpose entity, has no operating history or independent
operations and is not engaged in and does not propose to engage in any activity
other than holding as trust assets the Junior Subordinated Debentures and
issuing the Trust Securities. See "W.R. Berkley Capital Trust" and "Description
of New Securities." In addition, the Corporation does not expect that the Trust
will file reports under the Exchange Act with the Commission.
This Prospectus constitutes a part of a registration statement on Form S-4
(the "Registration Statement") filed by the Corporation and the Trust with the
Commission under the Securities Act. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission, and
reference is hereby made to the Registration Statement and to the exhibits
relating thereto for further information with respect to the Corporation, the
Trust and the New Securities. Any statements contained herein concerning the
provisions of any document are not necessarily complete, and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Corporation's Annual Report on Form 10-K for the year ended December 31,
1996, filed by the Corporation with the Commission, is incorporated into this
Prospectus by reference.
All documents subsequently filed by the Corporation pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to
the termination of the offering of the New Securities offered hereby shall be
deemed to be incorporated by reference into this Prospectus and to be a part of
this Prospectus from the date of filing of such document. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
As used herein, the terms "Prospectus" and "herein" mean this Prospectus
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein do not purport to be complete, and
where reference is made to the particular provisions of such contract or other
document, such provisions are qualified in all respects by reference to all of
the provisions of such contract or other document. The Corporation will provide
without charge to any person to whom this Prospectus is delivered, on the
written or oral request of such person, a copy of any or all of the foregoing
documents incorporated by reference herein (other than exhibits not specifically
incorporated by reference into the texts of such documents). Requests for such
documents should be directed to: Robert S. Gorin, Senior Vice President, General
Counsel and Secretary, W.R. Berkley Corporation, 165 Mason Street, P.O. Box
2518, Greenwich, Connecticut 06836-2518. Telephone requests may be directed to
(203) 629-3026.
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROSPECTUS. REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED IN ITS
ENTIRETY BY, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING
THE NOTES THERETO, CONTAINED ELSEWHERE IN THIS PROSPECTUS.
W.R. BERKLEY CAPITAL TRUST
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) the Trust Agreement executed by the Corporation, as Sponsor, The Bank of
New York, as Property Trustee, and The Bank of New York (Delaware), as Delaware
Trustee, and the three individual Administrative Trustees named therein, and
(ii) the filing of a certificate of trust with the Delaware Secretary of State
on December 11, 1996. The Trust's business and affairs are conducted by the
Issuer Trustees: the Property Trustee, the Delaware Trustee and the three
individual Administrative Trustees who are employees or officers of or
affiliated with the Corporation. The Trust exists for the exclusive purposes of
(i) issuing and selling the Trust Securities, (ii) using the proceeds from the
sale of the Trust Securities to acquire the Junior Subordinated Debentures
issued by the Corporation and (iii) engaging in only those other activities
necessary, advisable or incidental thereto (such as registering the transfer of
the Trust Securities). Accordingly, the Junior Subordinated Debentures will be
the sole assets of the Trust, and payments under the Junior Subordinated
Debentures will be the sole revenues of the Trust. All of the Common Securities
are owned by the Corporation.
W.R. BERKLEY CORPORATION
W.R. Berkley Corporation is an insurance holding company which, through its
subsidiaries, presently operates in all segments of the property casualty
insurance business: regional property casualty insurance; reinsurance (conducted
through Signet Star Holdings, Inc.); specialty lines of insurance (including
excess and surplus lines and commercial transportation); alternative markets
(including the management of alternative insurance market mechanisms); and
international (conducted through Berkley International, LLC). The Corporation
was founded on the concept that a group of autonomous regional and specialty
insurance entities could compete effectively in selected markets within a very
large industry. Decentralized controls allows each subsidiary to respond to
local or specialty market conditions while capitalizing on the effectiveness of
centralized investment and reinsurance management, and actuarial, financial and
legal staff support.
The Corporation's regional insurance operations are conducted primarily in
the midwest, southern and northeast sections of the United States. The
reinsurance operations, specialty insurance and alternative markets are
conducted nationwide. The international operations are conducted primarily in
Argentina.
THE EXCHANGE OFFER
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The Exchange Offer........... Up to $210,000,000 aggregate Liquidation Amount of New
Capital Securities are being offered in exchange for a like
aggregate Liquidation Amount of Old Capital Securities. Old
Capital Securities may be tendered for exchange in whole or
in part in a Liquidation Amount of $100,000 (100 Capital
Securities) or any integral multiple of $1,000 (one Capital
Security) in excess thereof. The Corporation and the Trust
are making the Exchange Offer in order to satisfy their
obligations under the Registration Rights Agreement relating
to the Old Capital Securities. For a description of the
procedures for tendering Old Capital Securities, see "The
Exchange Offer--Procedures for Tendering Old Capital
Securities."
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Expiration Date.............. 5:00 p.m., New York City time, on June 4, 1997, unless the
Exchange Offer is extended by the Corporation or the Trust
(in which case the Expiration Date will be the latest date
and time to which the Exchange Offer is extended). See "The
Exchange Offer--Terms of the Exchange Offer."
Conditions to the Exchange
Offer...................... The Exchange Offer is subject to certain conditions, which
may be waived by the Corporation and the Trust in their sole
discretion. The Exchange Offer is not conditioned upon any
minimum Liquidation Amount of Old Capital Securities being
tendered. See "The Exchange Offer--Conditions to the
Exchange Offer."
Offer........................ The Corporation and the Trust reserve the right in their
sole and absolute discretion, subject to applicable law, at
any time and from time to time, (i) to delay the acceptance
of the Old Capital Securities for exchange, (ii) to
terminate the Exchange Offer if certain specified conditions
have not been satisfied, (iii) to extend the Expiration Date
of the Exchange Offer and retain all Old Capital Securities
tendered pursuant to the Exchange Offer, subject, however,
to the right of holders of Old Capital Securities to
withdraw their tendered Old Capital Securities, or (iv) to
waive any condition or otherwise amend the terms of the
Exchange Offer in any respect. See "The Exchange
Offer--Terms of the Exchange Offer."
Withdrawal Rights............ Tenders of Old Capital Securities may be withdrawn at any
time on or prior to the Expiration Date by delivering a
written notice of such withdrawal to the Exchange Agent in
conformity with certain procedures set forth below under
"The Exchange Offer--Withdrawal Rights."
Procedures for Tendering Old
Capital Securities......... Tendering holders of Old Capital Securities must complete
and sign a Letter of Transmittal in accordance with the
instructions contained therein and forward the same by mail,
facsimile or hand delivery, together with any other required
documents, to the Exchange Agent, either with the Old
Capital Securities to be tendered or in compliance with the
specified procedures for guaranteed delivery of Old Capital
Securities. Certain brokers, dealers, commercial banks,
trust companies and other nominees may also effect tenders
by an Agent's Message (defined herein) in case of book-entry
delivery to the Exchange Agent prior to the Expiration Date.
Holders of Old Capital Securities registered in the name of
a broker, dealer, commercial bank, trust company or other
nominee are urged to contact such person promptly if they
wish to tender Old Capital Securities pursuant to the
Exchange Offer. See "The Exchange Offer--Procedures for
Tendering Old Capital Securities."
Letters of Transmittal and certificates representing Old
Capital Securities should not be sent to the Corporation or
the Trust. Such documents should only be sent to the
Exchange Agent.
Resales of New Capital
Securities................. The Corporation and the Trust are making the Exchange Offer
in reliance on the position of the staff of the Division of
Corporation
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Finance of the Commission as set forth in certain
interpretive letters addressed to third parties in other
transactions. However, neither the Corporation nor the Trust
has sought its own interpretive letter and there can be no
assurance that the staff of the Division of Corporation
Finance of the Commission would make a similar determination
with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these
interpretations by the staff of the Division of Corporation
Finance of the Commission, and subject to the two
immediately following sentences, the Corporation and the
Trust believe that New Capital Securities issued pursuant to
this Exchange Offer in exchange for Old Capital Securities
may be offered for resale, resold and otherwise transferred
by a holder thereof (other than a holder who is a
broker-dealer) without further compliance with the
registration and prospectus delivery requirements of the
Securities Act, provided that such New Capital Securities
are acquired in the ordinary course of such holder's
business and that such holder is not participating, and has
no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the
Securities Act) of such New Capital Securities. However, any
holder of Old Capital Securities who is an "affiliate" of
the Corporation or the Trust or who intends to participate
in the Exchange Offer for the purpose of distributing the
New Capital Securities, or any broker-dealer who purchased
the Old Capital Securities from the Trust to resell pursuant
to Rule 144A or any other available exemption under the
Securities Act, (a) will not be able to rely on the
interpretations of the staff of the Division of Corporation
Finance of the Commission set forth in the above-mentioned
interpretive letters, (b) will not be permitted or entitled
to tender such Old Capital Securities in the Exchange Offer
and (c) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection
with any sale or other transfer of such Old Capital
Securities unless such sale is made pursuant to an exemption
from such requirements. In addition, as described below, if
any broker-dealer holds Old Capital Securities acquired for
its own account as a result of market-making or other
trading activities and exchanges such Old Capital Securities
for New Capital Securities, then such broker-dealer must
deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of such New
Capital Securities.
Each holder of Old Capital Securities who wishes to exchange
Old Capital Securities for New Capital Securities in the
Exchange Offer will be required to represent that (i) it is
not an "affiliate" of the Corporation or the Trust, (ii) any
New Capital Securities to be received by it are being
acquired in the ordinary course of its business, (iii) it
has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the
Securities Act) of such New Capital Securities, and (iv) if
such holder is not a broker-dealer, such holder is not
engaged in, and does not intend to engage in, a distribution
(within the meaning of the Securities Act) of such New
Capital Securities. Each broker-dealer that receives New
Capital Securities for its own account pursuant to the
Exchange Offer must
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acknowledge that it acquired the Old Capital Securities for
its own account as the result of market-making activities or
other trading activities and must agree that it will deliver
a prospectus meeting the requirements of the Securities Act
in connection with any resale of such New Capital
Securities. The Letter of Transmittal states that, by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
Based on the position taken by the staff of the Division of
Corporation Finance of the Commission in the interpretive
letters referred to above, the Corporation and the Trust
believe that Participating Broker-Dealers who acquired Old
Capital Securities for their own accounts as a result of
market-making activities or other trading activities may
fulfill their prospectus delivery requirements with respect
to the New Capital Securities received upon exchange of such
Old Capital Securities (other than Old Capital Securities
which represent an unsold allotment from the original sale
of the Old Capital Securities) with a prospectus meeting the
requirements of the Securities Act, which may be the
prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with
respect to the resale of such New Capital Securities.
Accordingly, this Prospectus, as it may be amended or
supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of
New Capital Securities received in exchange for Old Capital
Securities where such Old Capital Securities were acquired
by such Participating Broker-Dealer for its own account as a
result of market-making or other trading activities. Subject
to certain provisions set forth in the Registration Rights
Agreement and to the limitations described below under "The
Exchange Offer--Resales of New Capital Securities," the
Corporation and the Trust have agreed that this Prospectus,
as it may be amended or supplemented from time to time, may
be used by a Participating Broker-Dealer in connection with
resales of such New Capital Securities for a period ending
90-days after the Expiration Date (subject to extension
under certain limited circumstances) or, if earlier, when
all such New Capital Securities have been disposed of by
such Participating Broker-Dealer. See "Plan of
Distribution." Any Participating Broker-Dealer who is an
"affiliate" of the Corporation or the Trust may not rely on
such interpretive letters and must comply with the
registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
See "The Exchange Offer--Resales of New Capital Secu-
rities."
Exchange Agent............... The exchange agent with respect to the Exchange Offer is The
Bank of New York (the "Exchange Agent"). The addresses, and
telephone and facsimile numbers, of the Exchange Agent are
set forth in "The Exchange Offer--Exchange Agent" and in the
Letter of Transmittal.
Use of Proceeds.............. Neither the Corporation nor the Trust will receive any cash
proceeds from the issuance of the New Capital Securities
offered hereby. See "Use of Proceeds."
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Certain United States Federal
Income Tax Considerations;
ERISA Considerations....... Holders of Old Capital Securities should review the
information set forth under "Certain United States Federal
Income Tax Considerations" and "ERISA Considerations" prior
to tendering Old Capital Securities in the Exchange Offer.
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THE NEW CAPITAL SECURITIES
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Securities Offered........... Up to $210,000,000 aggregate Liquidation Amount of the
Trust's New Capital Securities which have been registered
under the Securities Act (Liquidation Amount $1,000 per New
Capital Security). The New Capital Securities will be issued
and the Old Capital Securities were issued under the Trust
Agreement. The New Capital Securities and any Old Capital
Securities which remain outstanding after consummation of
the Exchange Offer will vote together as a single class for
purposes of determining whether holders of the requisite
percentage in outstanding Liquidation Amount thereof have
taken certain actions or exercised certain rights under the
Trust Agreement. See "Description of New
Securities--Description of New Capital Securities--Voting
Rights; Amendment of the Trust Agreement." The terms of the
New Capital Securities are identical in all material
respects to the terms of the Old Capital Securities, except
that the New Capital Securities have been registered under
the Securities Act and will not be subject to the $100,000
minimum Liquidation Amount transfer restriction and certain
other restrictions on transfer applicable to the Old Capital
Securities and will not provide for any increase in the
Distribution rate thereon. See "The Exchange Offer--Purpose
of the Exchange Offer," "Description of New Securities" and
"Description of Old Securities."
Distribution Dates........... June 15 and December 15 of each year, commencing June 15,
1997.
Extension Periods............ Distributions on the New Capital Securities will be deferred
for the duration of any Extension Period elected by the
Corporation with respect to the payment of interest on the
New Junior Subordinated Debentures. No Extension Period will
exceed 10 consecutive semi-annual periods or extend beyond
the Stated Maturity Date. See "Description of New
Securities--Description of New Junior Subordinated
Debentures--Option to Extend Interest Payment Date" and
"Certain United States Federal Income Tax
Considerations--Interest Income and Original Issue
Discount."
Ranking...................... The New Capital Securities will rank PARI PASSU, and
payments thereon will be made PRO RATA, with the Old Capital
Securities and the Common Securities except as described
under "Description of New Securities--Description of New
Capital Securities-Subordination of Common Securities." The
New Junior Subordinated Debentures will rank PARI PASSU with
the Old Junior Subordinated Debentures and all other junior
subordinated debentures to be issued by the Corporation
(collectively, with the Old Junior Subordinated Debentures,
the "Other Debentures") and sold (if at all) to other trusts
to be established by
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the Corporation (if any), in each case similar to the Trust
(the "Other Trusts"), and will be unsecured and subordinate
and junior in right of payment to all Senior Indebtedness to
the extent and in the manner set forth in the Indenture. At
December 31, 1996, the aggregate principal amount of
outstanding Senior Indebtedness was approximately $390
million. See "Description of New Securities--Description of
New Junior Subordinated Debentures." The New Guarantee will
rank PARI PASSU with the Old Guarantee and all other
guarantees (if any) to be issued by the Corporation with
respect to capital securities (if any) to be issued by Other
Trusts (collectively, with the Old Guarantee, the "Other
Guarantees") and will constitute an unsecured obligation of
the Corporation and will rank subordinate and junior in
right of payment to all Senior Indebtedness to the extent
and in the manner set forth in the Guarantee Agreement. See
"Description of New Securities--Description of New
Guarantee."
Redemption................... The Trust Securities are subject to mandatory redemption in
a Like Amount, (i) in whole but not in part, on the Stated
Maturity Date upon repayment of the Junior Subordinated
Debentures, (ii) in whole but not in part, at any time
contemporaneously with the optional prepayment of the Junior
Subordinated Debentures by the Corporation upon the
occurrence and continuation of a Special Event and (iii) in
whole or in part, at any time on or after December 15, 2006
contemporaneously with the optional prepayment by the
Corporation of the Junior Subordinated Debentures, in each
case at the applicable Redemption Price. See "Description of
New Securities--Description of New Capital
Securities--Redemption."
Rating....................... The New Capital Securities are expected to be rated "BBB+"
by Standard & Poor's Ratings Services and "a3" by Moody's
Investors Service, Inc.
Absence of Market for the New
Capital Securities......... The New Capital Securities will be a new issue of securities
for which there currently is no market. Although Donaldson,
Lufkin & Jenrette Securities Corporation, Goldman, Sachs &
Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated,
the initial purchasers of the Old Capital Securities (the
"Initial Purchasers"), have informed the Corporation and the
Trust that they each currently intend to make a market in
the New Capital Securities, they are not obligated to do so,
and any such market making may be discontinued at any time
without notice. Accordingly, there can be no assurance as to
the development or liquidity of any market for the New
Capital Securities. The Trust and the Corporation do not
intend to apply for listing of the New Capital Securities on
any securities exchange or for quotation through the Nasdaq
Stock Market. See "Plan of Distribution."
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RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING FACTORS IN CONNECTION
WITH THE EXCHANGE OFFER AND THE NEW CAPITAL SECURITIES OFFERED HEREBY.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES
The obligations of the Corporation under the Guarantee issued for the
benefit of the holders of Capital Securities, as well as under the Junior
Subordinated Debentures, will be unsecured and rank subordinate and junior in
right of payment to all Senior Indebtedness. In addition, in the case of a
bankruptcy or insolvency proceeding, the Corporation's obligations under the
Guarantee will also rank subordinate and junior in right of payment to all
liabilities (other than Other Guarantees) of the Corporation. At September 30,
1996, the aggregate principal amount of outstanding Senior Indebtedness was
approximately $390 million. Because the Corporation is a holding company, the
right of the Corporation to participate in any distribution of assets of any
subsidiary upon such subsidiary's liquidation or reorganization or otherwise
(and thus the ability of holders of the Capital Securities to benefit indirectly
from such distribution) is subject to the prior claims of creditors of that
subsidiary, except to the extent that the Corporation may itself be recognized
as a creditor of that subsidiary. Accordingly, the Junior Subordinated
Debentures will be effectively subordinated to all existing and future
liabilities of the Corporation's subsidiaries, and holders of Junior
Subordinated Debentures should look only to the assets of the Corporation for
payments on the Junior Subordinated Debentures. In addition, since many of the
Corporation's subsidiaries are insurance companies subject to regulatory control
by various state insurance departments, the ability of such subsidiaries to pay
dividends to the Corporation without prior regulatory approval is limited by
applicable laws and regulations. None of the Indenture, the Guarantee or the
Trust Agreement places any limitation on the amount of secured or unsecured
debt, including Senior Indebtedness, that may be incurred by the Corporation.
See "Description of New Securities--Description of New Guarantee--Status of New
Guarantee" and "--Description of New Junior Subordinated Debentures--
Subordination."
The ability of the Trust to pay amounts due on the Capital Securities is
solely dependent upon the Corporation making payments on the Junior Subordinated
Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSIDERATIONS
So long as no Debenture Event of Default (as defined herein) shall have
occurred and be continuing, the Corporation will have the right under the
Indenture to defer payments of interest on the Junior Subordinated Debentures at
any time or from time to time for a period not exceeding 10 consecutive semi-
annual periods with respect to each Extension Period, provided that no Extension
Period may extend beyond the Stated Maturity Date. As a consequence of any such
deferral, semi-annual Distributions on the Capital Securities by the Trust will
be deferred (and the amount of Distributions to which holders of the Capital
Securities are entitled will accumulate additional Distributions thereon at the
rate of 8.197% per annum, compounded semi-annually, but not exceeding the
interest rate then accruing on the Junior Subordinated Debentures) from the
relevant payment date for such Distributions during any such Extension Period.
Prior to the termination of any such Extension Period, the Corporation may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 10 consecutive semi-annual periods or to
extend beyond the Stated Maturity Date. Upon the termination of any Extension
Period and the payment of all interest then accrued and unpaid on the Junior
Subordinated Debentures (together with interest thereon at the annual rate of
8.197%, compounded semi-annually, to the extent permitted by applicable law),
the Corporation may elect to begin a new Extension Period, subject to the above
requirements. There is no limitation on the number of times that the Corporation
may
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elect to begin an Extension Period. See "Description of New
Securities--Description of New Capital Securities--Distributions" and
"--Description of New Junior Subordinated Debentures--Option to Extend Interest
Payment Date."
Should the Corporation exercise its right to defer payments of interest on
the Junior Subordinated Debentures, each holder of Trust Securities will be
required to accrue income (as original issue discount ("OID")) in respect of the
deferred stated interest allocable to its Trust Securities for United States
federal income tax purposes, which will be allocated but not distributed to
holders of Trust Securities. As a result, each such holder of Capital Securities
will recognize income for United States federal income tax purposes in advance
of the receipt of cash and will not receive the cash related to such income from
the Trust if the holder disposes of the Capital Securities prior to the record
date for the payment of Distributions thereafter. See "Certain United States
Federal Income Tax Considerations--Interest Income and Original Issue Discount"
and "--Sales of Capital Securities."
Should the Corporation elect to exercise its right to defer payments of
interest on the Junior Subordinated Debentures in the future, the market price
of the Capital Securities is likely to be affected. A holder that disposes of
its Capital Securities during an Extension Period, therefore, might not receive
the same return on its investment as a holder that continues to hold its Capital
Securities. In addition, merely as a result of the existence of the
Corporation's right to defer payments of interest on the Junior Subordinated
Debentures, the market price of the Capital Securities may be more volatile than
the market prices of other securities on which OID accrues and that are not
subject to such deferrals.
CONDITIONAL RIGHT TO ADVANCE MATURITY AND SPECIAL EVENT REDEMPTION
If a Tax Event (as defined below) occurs, then the Corporation will have the
right (i) prior to the termination of the Trust, to advance the Stated Maturity
Date of the Junior Subordinated Debentures to the minimum extent required, but
not less than 30 years from the date of original issuance thereof, or (ii) to
terminate the Trust (if not previously terminated) and advance the Stated
Maturity Date of the Junior Subordinated Debentures to the minimum extent
required, but not less than 40 years from the date of original issuance thereof,
in each case such that in the opinion of counsel to the Corporation experienced
in such matters, after advancing the maturity date, interest paid on the Junior
Subordinated Debentures will be deductible for federal income tax purposes (the
action referred to in either clause (i) or (ii) above being referred to herein
as a "Tax Event Maturity Advancement").
If a Tax Event occurs and in the opinion of counsel to the Corporation
experienced in such matters, there would in all cases, after effecting a Tax
Event Maturity Advancement, be more than an insubstantial risk that an Adverse
Tax Consequence (as defined below) would continue to exist, or, if an Investment
Company Event (as defined below) occurs, then the Corporation will have the
right, within 90 days following the occurrence of such Tax Event or Investment
Company Event, as the case may be, to redeem the Junior Subordinated Debentures
in whole (but not in part) in the manner set forth under "Description of New
Securities--Description of New Junior Subordinated Debentures--Conditional Right
to Advance Maturity and Special Event Prepayment," and therefore to cause a
mandatory redemption of the Capital Securities prior to the Stated Maturity Date
(the circumstances under which the Corporation has the right to so redeem the
Junior Subordinated Debentures in connection with a Tax Event being referred to
herein as a "Conditional Tax Redemption Event"). Each of a Conditional Tax
Redemption Event or an Investment Company Event is sometimes referred to herein
as a "Special Event."
A "Tax Event" means the receipt by the Corporation and the Trust of an
opinion of counsel to the Corporation experienced in such matters to the effect
that, as a result of any amendment to, or change (including any announced
prospective change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or therein, or
as a result of any administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of
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the Old Capital Securities under the Trust Agreement, or as a result of a final
determination, as evidenced by the execution of a Form 870 AD, arising from an
audit or examination by the Internal Revenue Service, 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 Junior Subordinated Debentures, (ii) interest
payable by the Corporation on the Junior Subordinated Debentures is not, or
within 90 days of such opinion, will not be, deductible by the Corporation, 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 such opinion, subject to more
than a DE MINIMIS amount of other taxes, duties or other governmental charges
(each of the circumstances referred to in clauses (i), (ii) and (iii) being
referred to herein as an "Adverse Tax Consequence"). See "--Possible Tax Laws
Affecting the Capital Securities" for a discussion of certain legislative
proposals that, if adopted, could give rise to a Tax Event.
An "Investment Company Event" means that the Corporation shall have received
an opinion of an independent counsel experienced in practice under the
Investment Company Act of 1940, as amended (the "Investment Company Act"), to
the effect that, as a result of the occurrence of a change in law or regulation
or a change in interpretation or application of law or regulation by any
legislative body, court, governmental agency or regulatory authority (a "Change
in Investment Company Act Law"), there is more than insubstantial risk that the
Trust is or will be considered an "investment company" which is required to be
registered under the Investment Company Act, which Change in Investment Company
Act Law becomes effective on or after December 20, 1996.
POSSIBLE TAX LAWS AFFECTING THE CAPITAL SECURITIES
On February 6, 1997, as part of President Clinton's Budget Proposal for
Fiscal Year 1998, the Treasury Department proposed legislation (the "Proposed
Legislation") which would, among other things, generally deny corporate issuers
a deduction for interest in respect of certain debt obligations, if such debt
obligations have a maximum term in excess of 15 years and are not shown as
indebtedness on the issuer's applicable consolidated balance sheet. In addition,
the Proposed Legislation would generally deny corporate issuers a deduction for
interest in respect of certain debt obligations having a weighted average
maturity of more than 40 years. The Proposed Legislation would be effective for
instruments issued on or after the date of the first committee action.
Therefore, under the effective date guidance contained in the Proposed
Legislation, such legislation would not apply to the Junior Subordinated
Debentures. There can be no assurance, however, that the effective date guidance
contained in the Proposed Legislation will be incorporated into the Proposed
Legislation, if enacted, or that other legislation enacted after the date hereof
will not otherwise adversely affect the ability of the Corporation to deduct the
interest payable on the Junior Subordinated Debentures. Such a change could give
rise to a Tax Event, which may permit the Corporation to cause a redemption of
the Trust Securities at the Special Event Redemption Price by electing to prepay
the Junior Subordinated Debentures at the Special Event Prepayment Price. See
"Description of New Securities--Description of New Capital
Securities--Conditional Right to Advance Maturity and Special Event Redemption"
and "Description of New Securities--Description of New Junior Subordinated
Debentures--Conditional Right to Advance Maturity and Special Event Prepayment."
See also "Certain United States Federal Income Tax Consequences--Proposed Tax
Legislation."
POSSIBLE ADVERSE EFFECT ON MARKET PRICES
There can be no assurance as to the market prices for Capital Securities or
Junior Subordinated Debentures distributed to the holders of Capital Securities
if a termination of the Trust were to occur. Accordingly, the Capital Securities
or the Junior Subordinated Debentures may trade at a discount from the price
that the investor paid to purchase the Old Capital Securities. Because holders
of Capital Securities may receive Junior Subordinated Debentures in liquidation
of the Trust and because Distributions are otherwise limited to payments on the
Junior Subordinated Debentures, prospective purchasers of
17
<PAGE>
New Capital Securities are also making an investment decision with regard to the
New Junior Subordinated Debentures and should carefully review all the
information regarding the New Junior Subordinated Debentures contained herein.
See "Description of New Securities--Description of New Junior Subordinated
Debentures."
RIGHTS UNDER THE GUARANTEE; DIRECT ACTION FOR PAYMENT
The Bank of New York will act as Guarantee Trustee and will hold the
Guarantee for the benefit of the holders of the Capital Securities. The Bank of
New York will also act as Property Trustee and as Debenture Trustee under the
Indenture. The Bank of New York (Delaware) will act as Delaware Trustee under
the Trust Agreement. The Old Guarantee guarantees, and the New Guarantee will
guarantee, as the case may be, to the holders of the Capital Securities the
following payments, to the extent not paid by the Trust: (i) any accumulated and
unpaid Distributions required to be paid on the Capital Securities, to the
extent that the Trust has funds on hand legally available therefor at such time,
(ii) the applicable Redemption Price with respect to any Capital Securities
called for redemption, to the extent that the Trust has funds on hand legally
available therefor at such time, and (iii) upon a voluntary or involuntary
termination and liquidation of the Trust (unless the Junior Subordinated
Debentures are distributed to holders of the Capital Securities), the lesser of
(a) the aggregate of the Liquidation Amount and all accumulated and unpaid
Distributions to the date of payment, to the extent that the Trust has funds on
hand legally available therefor at such time and (b) the amount of assets of the
Trust remaining available for distribution to holders of the Capital Securities
upon a termination and liquidation of the Trust.
The holders of a majority in Liquidation Amount of the Capital Securities
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of the
Guarantee or to direct the exercise of any trust power conferred upon the
Guarantee Trustee. Any holder of the Capital Securities may institute a legal
proceeding directly against the Corporation to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Trust, the
Guarantee Trustee or any other person or entity. If the Corporation defaults on
its obligation to pay amounts payable under the Junior Subordinated Debentures,
the Trust will not have sufficient funds for the payment of Distributions or
amounts payable on liquidation of the Trust or redemption of the Capital
Securities or otherwise, and, in such event, holders of the Capital Securities
will not be able to rely upon the Guarantee for payment of such amounts.
Instead, in the event a Debenture Event of Default shall have occurred and be
continuing and such event is attributable to the failure of the Corporation to
pay principal of (or premium, if any) or interest on the Junior Subordinated
Debentures on the payment date on which such payment is due and payable, then a
holder of Capital Securities may institute a legal proceeding directly against
the Corporation for enforcement of payment to such holder of the principal of
(or premium, if any) or interest on such Junior Subordinated Debentures having a
principal amount equal to the Liquidation Amount of the Capital Securities of
such holder (a "Direct Action"). Notwithstanding any payments made to a holder
of Capital Securities by the Corporation in connection with a Direct Action, the
Corporation shall remain obligated to pay the principal of (and premium, if any)
and interest on the Junior Subordinated Debentures, and the Corporation shall be
subrogated to the rights of the holder of such Capital Securities with respect
to payments on the Capital Securities to the extent of any payments made by the
Corporation to such holder in any Direct Action. Except as described herein,
holders of Capital Securities will not be able to exercise directly any other
remedy available to the holders of the Junior Subordinated Debentures or to
assert directly any other rights in respect of the Junior Subordinated
Debentures. See "Description of New Securities--Description of New Junior
Subordinated Debentures--Enforcement of Certain Rights by Holders of Capital
Securities," "--Description of New Junior Subordinated Debentures--Debenture
Events of Default" and "-- Description of New Guarantee." The Trust Agreement
provides that each holder of Capital Securities by acceptance thereof agrees to
the provisions of the Indenture.
18
<PAGE>
LIMITED VOTING RIGHTS
Holders of Capital Securities will generally have limited voting rights
relating only to the modification of the Capital Securities, the dissolution,
termination or liquidation of the Trust, and the exercise of the Trust's rights
as holder of Junior Subordinated Debentures. Holders of Capital Securities will
not be entitled to vote to appoint, remove or replace the Property Trustee or
the Delaware Trustee, and such voting rights are vested exclusively in the
holder of the Common Securities except upon the occurrence of certain events
described herein. The Property Trustee, the Administrative Trustees and the
Corporation may amend the Trust Agreement without the consent of holders of
Capital Securities to ensure that the Trust will be classified for United States
federal income tax purposes as a grantor trust even if such action adversely
affects the interests of such holders. See "Description of New
Securities--Description of New Capital Securities--Voting Rights; Amendment of
the Trust Agreement" and "--Removal of Issuer Trustees."
CONSEQUENCES OF A FAILURE TO EXCHANGE OLD CAPITAL SECURITIES
The Old Capital Securities have not been registered under the Securities Act
or any state securities laws and therefore may not be offered, sold or otherwise
transferred except in compliance with the registration requirements of the
Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions. Old Capital
Securities which remain outstanding after consummation of the Exchange Offer
will continue to bear a legend reflecting such restrictions on transfer. In
addition, upon consummation of the Exchange Offer, holders of Old Capital
Securities which remain outstanding will not be entitled to any rights to have
such Old Capital Securities registered under the Securities Act or to any
similar rights under the Registration Rights Agreement (subject to certain
limited exceptions). The Corporation and the Trust do not intend to register
under the Securities Act any Old Capital Securities which remain outstanding
after consummation of the Exchange Offer (subject to such limited exceptions, if
applicable). To the extent that Old Capital Securities are tendered and accepted
in the Exchange Offer, a holder's ability to sell untendered Old Capital
Securities could be adversely affected.
The New Capital Securities and any Old Capital Securities which remain
outstanding after consummation of the Exchange Offer will vote together as a
single class for purposes of determining whether holders of the requisite
percentage in outstanding Liquidation Amount thereof have taken certain actions
or exercised certain rights under the Trust Agreement. See "Description of New
Securities--Description of New Capital Securities--Voting Rights; Amendment of
the Trust Agreement."
The Old Capital Securities provide, among other things, that, if a
registration statement relating to the Exchange Offer has not been filed by May
19, 1997 and declared effective by June 18, 1997, the Distribution rate borne by
the Old Capital Securities commencing on June 19, 1997 will increase by 0.25%
per annum until the Exchange Offer is consummated. Upon consummation of the
Exchange Offer, holders of Old Capital Securities will not be entitled to any
increase in the Distribution rate thereon or any further registration rights
under the Registration Rights Agreement, except under limited circumstances. See
"Description of Old Capital Securities."
ABSENCE OF PUBLIC MARKET
The Old Capital Securities were issued to, and the Corporation believes such
securities are currently owned by, a relatively small number of beneficial
owners. The Old Capital Securities have not been registered under the Securities
Act and will be subject to restrictions on transferability if they are not
exchanged for the New Capital Securities. Although the New Capital Securities
may be resold or otherwise transferred by the holders (who are not affiliates of
the Corporation or the Trust) without compliance with the registration
requirements under the Securities Act, they will constitute a new issue of
securities with no established trading market. Old Capital Securities may be
transferred by the holders thereof only in blocks
19
<PAGE>
having a Liquidation Amount of not less than $100,000 (100 Old Capital
Securities). New Capital Securities may be transferred by the holders thereof in
blocks having a Liquidation Amount of $1,000 (one New Capital Security) or
integral multiples thereof. The Corporation and the Trust have been advised by
the Initial Purchasers that the Initial Purchasers presently intend to make a
market in the New Capital Securities. However, the Initial Purchasers are not
obligated to do so and any market-making activity with respect to the New
Capital Securities may be discontinued at any time without notice. In addition,
such market-making activity will be subject to the limits imposed by the
Securities Act and the Exchange Act and may be limited during the Exchange
Offer. Accordingly, no assurance can be given that an active public or other
market will develop for the New Capital Securities or the Old Capital Securities
or as to the liquidity of or the trading market for the New Capital Securities
or the Old Capital Securities. If an active public market does not develop, the
market price and liquidity of the New Capital Securities may be adversely
affected.
If a public trading market develops for the New Capital Securities, future
trading prices will depend on many factors, including, among other things,
prevailing interest rates, the Corporation's results and the market for similar
securities. Depending on prevailing interest rates, the market for similar
securities and other factors, including the financial condition of the
Corporation, the New Capital Securities may trade at a discount.
Notwithstanding the registration of the New Capital Securities in the
Exchange Offer, holders who are "affiliates" (as defined under Rule 405 of the
Securities Act) of the Corporation or the Trust may publicly offer for sale or
resell the New Capital Securities only in compliance with the provisions of Rule
144 under the Securities Act.
Each broker-dealer that receives New Capital Securities for its own account
in exchange for Old Capital Securities, where such Old Capital Securities were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Capital Securities. See "Plan of
Distribution."
EXCHANGE OFFER PROCEDURES
Issuance of the New Capital Securities in exchange for Old Capital
Securities pursuant to the Exchange Offer will be made only after a timely
receipt by the Trust of such Old Capital Securities, a properly completed and
duly executed Letter of Transmittal and all other required documents. Therefore,
holders of the Old Capital Securities desiring to tender such Old Capital
Securities in exchange for New Capital Securities should allow sufficient time
to ensure timely delivery. Neither the Corporation nor the Trust is under any
duty to give notification of defects or irregularities with respect to the
tenders of Old Capital Securities for exchange.
20
<PAGE>
W.R. BERKLEY CORPORATION
W.R. Berkley Corporation is an insurance holding company which, through its
subsidiaries, presently operates in all segments of the property casualty
insurance business: regional property casualty insurance; reinsurance (conducted
through Signet Star Holdings, Inc.); specialty lines of insurance (including
excess and surplus lines and commercial transportation); alternative markets
(including the management of alternative insurance market mechanisms); and
international (conducted through Berkley International, LLC). The Corporation
was founded on the concept that a group of autonomous regional and specialty
insurance entities could compete effectively in selected markets within a very
large industry. Decentralized control allows each subsidiary to respond to local
or specialty market conditions while capitalizing on the effectiveness of
centralized investment and reinsurance management, and actuarial, financial and
legal staff support.
The Corporation's regional insurance operations are conducted primarily in
the midwest, southern and northeast sections of the United States. The
reinsurance operations, specialty insurance and alternative markets are
conducted nationwide. The international operations are conducted primarily in
Argentina.
USE OF PROCEEDS
Neither the Corporation nor the Trust will receive any cash proceeds from
the issuance of the New Capital Securities offered hereby. In consideration for
issuing the New Capital Securities in exchange for the Old Capital Securities as
described in this Prospectus, the Trust will receive Old Capital Securities in
like Liquidation Amount. The Old Capital Securities surrendered in exchange for
the New Capital Securities will be retired and canceled.
The proceeds to the Trust (without giving effect to expenses of the offering
payable by the Corporation) from the offering of the Old Capital Securities was
$210,000,000. All of the proceeds from the sale of the Old Capital Securities
was invested by the Trust in the Junior Subordinated Debentures. Approximately
$40,000,000 of the net proceeds from the sale of the Old Junior Subordinated
Debentures was used to redeem the Corporation's Series B Cumulative Redeemable
Preferred Stock. The Corporation intends that approximately $150,000,000 of the
net proceeds from the sale of the Old Junior Subordinated Debentures will be
used to redeem the Corporation's 7 3/8% Series A Cumulative Redeemable Preferred
Stock (which is redeemable on or after January 24, 1999) and any remainder of
such net proceeds will be used for general corporate purposes. Pending such
application by the Corporation, such net proceeds may be temporarily invested in
short-term interest-bearing securities.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
The following table sets forth the historical ratios of earnings to combined
fixed charges and preferred stock dividends of the Corporation for the periods
indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 1995 1994 1993 1992
- ----------- ----- ----- ----- -----
2.8 2.4 1.6 3.2 3.6
</TABLE>
The ratios of earnings to combined fixed charges and preferred stock
dividends represent the number of times fixed charges (interest, debt expense
and preferred stock dividends and one-third of all rent and related costs,
considered to represent an appropriate interest factor, charged to income) are
covered by income before income taxes and cumulative effect of change in
accounting principle, extraordinary credits and fixed charges (other than
capitalized interest).
21
<PAGE>
ACCOUNTING TREATMENT
The financial statements of the Trust will be reflected in the Corporation's
consolidated financial statements. Future consolidated financial statements of
the Corporation will include (i) the presentation of the Capital Securities as a
separate line item on its balance sheet as "Company-obligated mandatorily
redeemable capital securities of the subsidiary trust holding solely Junior
Subordinated Debentures of the Corporation" and (ii) a footnote to the
Corporation's financial statements indicating that the sole assets of the Trust
are $210,000,000 aggregate principal amount of 8.197% Junior Subordinated
Debentures due December 15, 2045 and (iii) an audited footnote to the
Corporation's financial statements that (a) the Trust is wholly owned by the
Corporation, (b) its sole assets are the $210,000,000 aggregate principal amount
of 8.197% Junior Subordinated Debentures due December 15, 2045 issued by the
Corporation and (c) that the Guarantee, when taken together with the
Corporation's obligations under the Trust Agreement, the Junior Subordinated
Debentures and the Indenture, including its obligations to pay costs, expenses,
debts and liabilities of the Trust (other than with respect to the Trust
Securities), provide a full and unconditional guarantee of the Trust's
obligations under the Capital Securities. The Corporation will record
Distributions payable on the Capital Securities as an expense in its
consolidated statement of earnings.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Corporation as of December 31, 1996, as adjusted to give effect to the issuance
of the Old Securities and the application of the proceeds thereof. The following
data should be read in conjunction with the financial information included in
the Corporation's 1996 Annual Report on Form 10-K, which is incorporated herein
by reference. See "Incorporation of Certain Documents by Reference." The
issuance of the New Securities in the Exchange Offer will have no effect on the
capitalization of the Corporation.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
ACTUAL
(AUDITED) AS ADJUSTED
------------ ------------
<S> <C> <C>
Long-term debt.............................................................. $ 390,104 $ 390,104
Company-obligated mandatorily redeemable capital securities of a subsidiary
trust holding solely 8.197% Junior Subordinated Debentures of the
Corporation due December 15, 2045(1)...................................... 207,901 207,901
Stockholders' equity:
Preferred stock, par value $.10 per share:
Authorized 5,000,000 shares:
7 3/8% Series A Cumulative Redeemable Preferred Stock
930,807 shares issued and outstanding............................... 93 93
Common stock, par value $.20 per share:
Authorized 40,000,000 shares, issued and outstanding, net of treasury
shares, 19,635,976 shares............................................. 4,854 4,854
Additional paid-in capital................................................ 471,492 471,492
Retained earnings......................................................... 490,338 490,338
Net unrealized investment gains, net of taxes............................. 31,075 31,075
Treasury stock, at cost, 4,633,402 shares................................. (118,120) (118,120)
------------ ------------
879,732 879,732
------------ ------------
$ 1,477,737 $ 1,477,737
------------ ------------
------------ ------------
</TABLE>
- ------------------------
(1) Reflects the Old Capital Securities. The Trust is a subsidiary of the
Corporation and used the proceeds from the sale of the Old Capital
Securities, for which the New Capital Securities are hereby being offered,
to purchase $210,000,000 aggregate principal amount of 8.197% Junior
Subordinated Debentures due December 15, 2045 issued by the Corporation. The
Junior Subordinated Debentures are the sole assets of the Trust.
22
<PAGE>
SUMMARY FINANCIAL DATA
The summary below should be read in connection with the financial
information included in the Corporation's 1996 Annual Report on Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(AMOUNT IN THOUSANDS EXCEPT PER SHARE DATA)
Net premiums written.......................................... $1,052,511 $ 860,421 $ 717,933 $ 537,646 $ 417,678
Net premiums earned........................................... 981,221 803,336 655,038 501,433 416,003
Net investment income......................................... 164,490 137,332 109,683 92,773 91,629
Management fees and commissions............................... 69,246 68,457 64,536 54,027 54,734
Realized investment gains (losses)............................ 7,437 10,357 (170) 23,523 3,356
Other income.................................................. 2,772 2,461 1,703 1,550 1,478
Total revenues................................................ 1,225,166 1,021,943 830,790 673,306 567,200
Interest expense.............................................. 31,963 28,209 27,601 25,275 19,266
Income before Federal income taxes............................ 115,049 82,747 30,774 61,364 54,521
Federal income tax (expense) benefit.......................... (25,102) (17,554) 1,552 (9,181) (8,041)
Income before minority interest and change in accounting...... 89,947 65,193 32,326 52,183 46,480
Minority interest............................................. 316 (4,311) 2,768 (596) --
Cumulative effect of change in accounting principle........... -- -- -- -- 5,902
Net income before preferred dividends......................... 90,263 60,882 35,094 51,587 52,382
Preferred dividends........................................... 13,909 11,062 10,356 -- --
Net income attributable to common stockholders................ 76,354 49,820 24,738 51,587 52,382
Data per common share:
Income before change in accounting.......................... 3.84 2.86 1.44 2.87 2.59
Net income.................................................. 3.84 2.86 1.44 2.87 2.92
Stockholders' equity(1)..................................... 37.69 35.39 26.68 30.36 26.33
Cash dividends declared..................................... $ .52 $ .48 $ .44 $ .40 $ .36
Weighted average shares outstanding........................... 19,861 17,414 17,182 17,946 17,942
Investments(1)................................................ 2,938,190 2,588,346 1,901,715 1,748,702 1,396,082
Total assets.................................................. 4,073,264 3,618,684 3,582,291 3,337,705 1,953,294
Reserves for losses and loss expenses......................... 1,782,703 1,660,020 2,070,886 2,016,348 995,247
Long-term Debt................................................ 390,104 290,981 290,798 290,633 205,001
Company-obligated mandatorily redeemable capital securites of
a subsidiary trust holding solely 8.197% Junior Subordinated
Debentures of the Corporation due December 15, 2045(2)...... 207,901 -- -- -- --
Stockholder's equity(1)....................................... 879,732 929,815 597,601 526,281 474,396
</TABLE>
- ------------------------
(1) Investments and stockholders' equity reflect the adoption of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," as of
December 31, 1993. Included in the calculation of common stockholders'
equity per share are unrealized investments gains (losses), net of federal
income taxes, of $31,075,000, $48,450,000, ($33,973,000) and $36,450,000 as
of December 31, 1996, 1995, 1994 and 1993, respectively.
(2) Reflects the Old Capital Securities. The Trust is a subsidiary of the
Corporation and used the proceeds from the sale of the Old Capital
Securities, for which the New Capital Securities are hereby being offered,
to purchase $210,000,000 aggregate principal amount of 8.197% Junior
Subordinated Debentures due December 15, 2045 issued by the Corporation. The
Junior Subordinated Debentures are the sole assets of the Trust.
23
<PAGE>
W.R. BERKLEY CAPITAL TRUST
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) the Trust Agreement executed by the Corporation, as Sponsor, The Bank of
New York, as Property Trustee, The Bank of New York (Delaware), as Delaware
Trustee, and the three Administrative Trustees named therein, and (ii) the
filing of a certificate of trust with the Delaware Secretary of State on
December 11, 1996. The Trust exists for the exclusive purposes of (i) issuing
and selling the Trust Securities, (ii) using the proceeds from the sale of the
Trust Securities to acquire the Junior Subordinated Debentures and (iii)
engaging in only those other activities necessary, advisable or incidental
thereto (such as registering the transfer of the Trust Securities). Accordingly,
the Junior Subordinated Debentures will be the sole assets of the Trust, and
payments under the Junior Subordinated Debentures will be the sole revenues of
the Trust. All of the Common Securities are owned by the Corporation. The Common
Securities will rank PARI PASSU, and payments will be made thereon PRO RATA,
with the Capital Securities, except that upon the occurrence and continuance of
an event of default under the Trust Agreement (an "Event of Default") resulting
from a Debenture Event of Default, the rights of the Corporation as holder of
the Common Securities to payments in respect of Distributions and payments upon
liquidation, redemption or otherwise will be subordinated to the rights of the
holders of the Capital Securities. See "Description of New Securities--
Description of New Capital Securities--Subordination of Common Securities." The
Corporation has acquired Common Securities in a Liquidation Amount equal to at
least 3% of the total capital of the Trust. The Trust has a term of 50 years,
but may terminate earlier as provided in the Trust Agreement. The Trust's
business and affairs are conducted by its trustees, each appointed by the
Corporation as holder of the Common Securities. The trustees for the Trust are
The Bank of New York, as the Property Trustee (the "Property Trustee"), The Bank
of New York (Delaware), as the Delaware Trustee (the "Delaware Trustee"), and
three individual trustees (the "Administrative Trustees") who are employees or
officers of or affiliated with the Corporation (collectively, the "Issuer
Trustees"). The Bank of New York, as Property Trustee, will act as sole
indenture trustee under the Trust Agreement. The Bank of New York will also act
as indenture trustee under the Guarantee and the Indenture. See "Description of
New Securities-- Description of New Junior Subordinated Debentures" and
"--Description of New Guarantee." The holder of the Common Securities of the
Trust or, if an Event of Default under the Trust Agreement has occurred and is
continuing, the holders of a majority in Liquidation Amount of the Capital
Securities will be entitled to appoint, remove or replace the Property Trustee
and/or the Delaware Trustee. In no event will the holders of the Capital
Securities have the right to vote to appoint, remove or replace the
Administrative Trustees; such voting rights will be vested exclusively in the
holder of the Common Securities. The duties and obligations of each Issuer
Trustee are governed by the Trust Agreement. The Corporation will pay all fees,
expenses, debts and obligations (other than the Trust Securities) related to the
Trust and the offering and exchange of the Capital Securities and will pay,
directly or indirectly, all ongoing costs, expenses and liabilities of the
Trust. The principal executive office of the Trust is c/o W.R. Berkley
Corporation, 165 Mason Street, P.O. Box 2518, Greenwich, Connecticut 06836-2518.
24
<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Old Capital Securities, the Corporation
and the Trust entered into the Registration Rights Agreement with the Initial
Purchasers, pursuant to which the Corporation and the Trust agreed to file and
to use their reasonable efforts to cause to become effective with the Commission
a registration statement with respect to the exchange of the Old Capital
Securities for capital securities with terms identical in all material respects
to the terms of the Old Capital Securities. A copy of the Registration Rights
Agreement has been filed as an Exhibit to the Registration Statement of which
this Prospectus is a part.
The Exchange Offer is being made to satisfy the contractual obligations of
the Corporation and the Trust under the Registration Rights Agreement. The form
and terms of the New Capital Securities are the same as the form and terms of
the Old Capital Securities except that the New Capital Securities have been
registered under the Securities Act and will not be subject to the $100,000
minimum Liquidation Amount transfer restriction and certain other restrictions
on transfer applicable to the Old Capital Securities and will not provide for
any increase in the Distribution rate thereon. In that regard, the Old Capital
Securities provide, among other things, that, if a registration statement
relating to the Exchange Offer has not been filed by May 19, 1997 and declared
effective by June 18, 1997, the Distribution rate borne by the Old Capital
Securities commencing on June 19, 1997 will increase by 0.25% per annum until
the Exchange Offer is consummated. Upon consummation of the Exchange Offer,
holders of Old Capital Securities will not be entitled to any increase in the
Distribution rate thereon or any further registration rights under the
Registration Rights Agreement, except under limited circumstances. See "Risk
Factors--Consequences of a Failure to Exchange Old Capital Securities" and
"Description of Old Securities."
The Exchange Offer is not being made to, nor will the Trust accept tenders
for exchange from, holders of Old Capital Securities in any jurisdiction in
which the Exchange Offer or the acceptance thereof would not be in compliance
with the securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to the
Exchange Offer means any person in whose name the Old Capital Securities are
registered on the books of the Trust or any other person who has obtained a
properly completed bond power from the registered holder, or any person whose
Old Capital Securities are held of record by The Depository Trust Company
("DTC") who desires to deliver such Old Capital Securities by book-entry
transfer at DTC.
Pursuant to the Exchange Offer, the Corporation will exchange as soon as
practicable after the date hereof, the Old Guarantee for the New Guarantee and
the Old Junior Subordinated Debentures, in an amount corresponding to the Old
Capital Securities accepted for exchange, for a like aggregate principal amount
of the New Junior Subordinated Debentures. The New Guarantee and New Junior
Subordinated Debentures have been registered under the Securities Act.
TERMS OF THE EXCHANGE OFFER
The Trust hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to $210,000,000 aggregate Liquidation Amount of New Capital
Securities for a like aggregate Liquidation Amount of Old Capital Securities
properly tendered on or prior to the Expiration Date and not properly withdrawn
in accordance with the procedures described below. The Trust will issue,
promptly after the Expiration Date, an aggregate Liquidation Amount of up to
$210,000,000 of New Capital Securities in exchange for a like principal amount
of outstanding Old Capital Securities tendered and accepted in connection with
the Exchange Offer. Holders may tender their Old Capital Securities in whole or
in part in a Liquidation Amount of not less than $100,000 (100 Capital
Securities) or any integral multiple of $1,000 Liquidation Amount (one Capital
Security) in excess thereof.
25
<PAGE>
The Exchange Offer is not conditioned upon any minimum Liquidation Amount of
Old Capital Securities being tendered. As of the date of this Prospectus,
$210,000,000 aggregate Liquidation Amount of the Old Capital Securities is
outstanding.
Holders of Old Capital Securities do not have any appraisal or dissenters'
rights in connection with the Exchange Offer. Old Capital Securities which are
not tendered for or are tendered but not accepted in connection with the
Exchange Offer will remain outstanding and be entitled to the benefits of the
Trust Agreement, but will not be entitled to any further registration rights
under the Registration Rights Agreement, except under limited circumstances. See
"Risk Factors--Consequences of a Failure to Exchange Old Capital Securities" and
"Description of Old Securities."
If any tendered Old Capital Securities are not accepted for exchange because
of an invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Capital Securities will be
returned, without expense, to the tendering holder thereof promptly after the
Expiration Date.
Holders who tender Old Capital Securities in connection with the Exchange
Offer will not be required to pay brokerage commissions or fees or, subject to
the instructions in the Letter of Transmittal, transfer taxes with respect to
the exchange of Old Capital Securities in connection with the Exchange Offer.
The Corporation will pay all charges and expenses, other than certain applicable
taxes described below, in connection with the Exchange Offer. See "--Fees and
Expenses."
NEITHER THE CORPORATION, THE BOARD OF DIRECTORS OF THE CORPORATION NOR ANY
ISSUER TRUSTEE OF THE TRUST MAKES ANY RECOMMENDATION TO HOLDERS OF OLD CAPITAL
SECURITIES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION
OF THEIR OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO
ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF OLD CAPITAL
SECURITIES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE
EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD CAPITAL SECURITIES TO
TENDER BASED ON SUCH HOLDERS OWN FINANCIAL POSITION AND REQUIREMENTS.
The term "Expiration Date" means 5:00 p.m., New York City time, on June 4,
1997 unless the Exchange Offer is extended by the Corporation or the Trust (in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended).
The Corporation and the Trust expressly reserve the right in their
reasonable discretion, subject to applicable law, at any time and from time to
time, (i) to delay the acceptance of the Old Capital Securities for exchange,
(ii) to terminate the Exchange Offer (whether or not any Old Capital Securities
have theretofore been accepted for exchange) if the Trust determines, in its
reasonable discretion, that any of the events or conditions referred to under
"--Conditions to the Exchange Offer" have occurred or exist or have not been
satisfied, (iii) to extend the Expiration Date of the Exchange Offer and retain
all Old Capital Securities tendered pursuant to the Exchange Offer, subject,
however, to the right of holders of Old Capital Securities to withdraw their
tendered Old Capital Securities as described under "--Withdrawal Rights" and
(iv) to waive any condition or otherwise amend the terms of the Exchange Offer
in any respect. If the Exchange Offer is amended in a manner determined by the
Corporation and the Trust to constitute a material change, or if the Corporation
and the Trust waive a material condition of the Exchange Offer, the Corporation
and the Trust will promptly disclose such amendment or waiver by means of a
prospectus supplement that will be distributed to the holders of the Old Capital
Securities. If any facts or events arise which constitute a fundamental change
in the information set forth herein or if any material changes or material
additions are made to the plan of distribution described herein, the Corporation
and the Trust will file a post-effective amendment to the Registration Statement
setting forth the applicable information and will distribute an amended
prospectus to the holders of the Old Capital Securities. At the time that such
prospectus supplement or amended prospectus is first given to holders of Old
Capital
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Securities, the Exchange Offer is scheduled to expire at any time earlier than
the expiration of a period ending on the tenth business day from, and including,
the date that such prospectus supplement or amended prospectus is first so
given, then the Exchange Offer will be extended until the expiration of such
period of ten business days.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and by
making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which the Corporation and the Trust may choose to make any public
announcement and subject to applicable law, the Corporation and the Trust shall
have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by issuing a release to an appropriate news
agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW CAPITAL SECURITIES
Upon the terms and subject to the conditions of the Exchange Offer, the
Trust will exchange, and will issue to the Exchange Agent, New Capital
Securities for Old Capital Securities validly tendered and not withdrawn
promptly after the Expiration Date.
In all cases, delivery of New Capital Securities in exchange for Old Capital
Securities tendered and accepted for exchange pursuant to the Exchange Offer
will be made only after timely receipt by the Exchange Agent of (i) Old Capital
Securities or a book-entry confirmation of a book-entry transfer of Old Capital
Securities into the Exchange Agent's account at DTC, (ii) the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees, or, in the case of a participant in the
book-entry transfer facility system, an Agent's Message and (iii) any other
documents required by the Letter of Transmittal.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of Old Capital Securities into the Exchange Agent's account
at DTC.
Subject to the terms and conditions of the Exchange Offer, the Trust will be
deemed to have accepted for exchange, and thereby exchanged, Old Capital
Securities validly tendered and not withdrawn as, if and when the Trust gives
oral or written notice to the Exchange Agent of the Trust's acceptance of such
Old Capital Securities for exchange pursuant to the Exchange Offer. The Exchange
Agent will act as agent for the Trust for the purpose of receiving tenders of
Old Capital Securities, Letters of Transmittal and related documents, and as
agent for tendering holders for the purpose of receiving Old Capital Securities,
Letters of Transmittal and related documents and transmitting New Capital
Securities to validly tendering holders. Such exchange will be made promptly
after the Expiration Date. If, for any reason whatsoever, acceptance for
exchange or the exchange of any Old Capital Securities tendered pursuant to the
Exchange Offer is delayed (whether before or after the Trust's acceptance for
exchange of Old Capital Securities) or the Trust extends the Exchange Offer or
is unable to accept for exchange or exchange Old Capital Securities tendered
pursuant to the Exchange Offer, then, without prejudice to the Trust's rights
set forth herein, the Exchange Agent may, nevertheless, on behalf of the Trust
and subject to Rule 14e-1(c) under the Exchange Act, retain tendered Old Capital
Securities and such Old Capital Securities may not be withdrawn except to the
extent tendering holders are entitled to withdrawal rights as described under
"--Withdrawal Rights."
Pursuant to the Letter of Transmittal, a holder of Old Capital Securities
will warrant and agree in the Letter of Transmittal that it has full power and
authority to tender, exchange, sell, assign and transfer Old Capital Securities,
that the Trust will acquire good, marketable and unencumbered title to the
tendered Old Capital Securities, free and clear of all liens, restrictions,
charges and encumbrances, and the Old Capital Securities tendered for exchange
are not subject to any adverse claims or proxies. The holder also will warrant
and agree that it will, upon request, execute and deliver any additional
documents deemed by
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the Trust or the Exchange Agent to be necessary or desirable to complete the
exchange, sale, assignment and transfer of the Old Capital Securities tendered
pursuant to the Exchange Offer.
PROCEDURES FOR TENDERING OLD CAPITAL SECURITIES
VALID TENDER. Except as set forth below, in order for Old Capital
Securities to be validly tendered pursuant to the Exchange Offer, a properly
completed and duly executed Letter of Transmittal (or facsimile thereof), with
any required signature guarantees and any other required documents, or an
Agent's Message in case of book-entry delivery as described below, must be
received by the Exchange Agent at one of its addresses set forth under
"--Exchange Agent," and either (i) tendered Old Capital Securities must be
received by the Exchange Agent, or (ii) such Old Capital Securities must be
tendered pursuant to the procedures for book-entry transfer set forth below and
a book-entry confirmation must be received by the Exchange Agent, in each case
on or prior to the Expiration Date, or (iii) the guaranteed delivery procedures
set forth below must be complied with.
If less than all of the Old Capital Securities are tendered, a tendering
holder should fill in the amount of Old Capital Securities being tendered in the
appropriate box on the Letter of Transmittal. The entire amount of Old Capital
Securities delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER,
AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE, IS RECOMMENDED. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
BOOK-ENTRY TRANSFER. The Exchange Agent will establish an account with
respect to the Old Capital Securities at DTC for purposes of the Exchange Offer
within two business days after the date of this Prospectus. Any financial
institution that is a participant in DTC's book-entry transfer facility system
may make a book-entry delivery of the Old Capital Securities by causing DTC to
transfer such Old Capital Securities into the Exchange Agent's account at DTC in
accordance with DTC's procedures for transfers. Except in the case of a
participant in the book-entry transfer facility system who transfers the Old
Capital Securities by an Agent's Message, delivery of Old Capital Securities
effected through book-entry transfer into the Exchange Agent's account at DTC
requires that the Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees and any
other required documents, must in any case be delivered to and received by the
Exchange Agent at its address set forth under "--Exchange Agent" on or prior to
the Expiration Date, or the guaranteed delivery procedure set forth below must
be complied with. A holder who is a participant in the book-entry transfer
facility system and transfers the Old Capital Securities by an Agent's Message
need not transmit the Letter of Transmittal to the Exchange Agent to consummate
the exchange.
The term "Agent's Message" means a message transmitted through electronic
means by a book-entry transfer facility to and received by the Exchange Agent
and forming a part of a book-entry confirmation, which states that DTC has
received an express acknowledgment from the participant tendering the Old
Capital Securities that such participant has received and agrees to be bound by
the Letter of Transmittal and/or the Notice of Guaranteed Delivery (as discussed
below), where applicable.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
SIGNATURE GUARANTEES. Certificates for the Old Capital Securities need not
be endorsed and signature guarantees on the Letter of Transmittal are
unnecessary unless (a) a certificate for the Old Capital
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Securities is registered in a name other than that of the person surrendering
the certificate or (b) such holder completes the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" in the Letter of Transmittal.
In the case of (a) or (b) above, such certificates for Old Capital Securities
must be duly endorsed or accompanied by a properly executed bond power, with the
endorsement or signature on the bond power and on the Letter of Transmittal
guaranteed by a firm or other entity identified in Rule 17Ad-15 under the
Exchange Act as an "eligible guarantor institution," including (as such terms
are defined therein): (i) a bank; (ii) a broker, dealer, municipal securities
broker or dealer or government securities broker or dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
clearing agency; or (v) a savings association that is a participant in a
Securities Transfer Association (an "Eligible Institution"), unless surrendered
on behalf of such Eligible Institution. See Instruction 1 to the Letter of
Transmittal.
GUARANTEED DELIVERY. If a holder desires to tender Old Capital Securities
pursuant to the Exchange Offer and the certificates for such Old Capital
Securities are not immediately available or time will not permit all required
documents to reach the Exchange Agent on or prior to the Expiration Date, or the
procedure for book-entry transfer cannot be completed on a timely basis, such
Old Capital Securities may nevertheless be tendered, provided that all of the
following guaranteed delivery procedures are complied with:
(a) such tenders are made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form accompanying the Letter of Transmittal,
or, in the case of a participant in the book-entry transfer facility system,
an Agent's Message, is received by the Exchange Agent, as provided below, on
or prior to the Expiration Date; and
(c) the certificates (or a book-entry confirmation) representing all
tendered Old Capital Securities, in proper form for transfer, together with
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees and any other documents
required by the Letter of Transmittal, or, in the case of a participant in
the book-entry transfer facility system, an Agent's Message, are received by
the Exchange Agent within three New York Stock Exchange trading days after
the date of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by facsimile or mailed to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of New Capital
Securities in exchange for Old Capital Securities tendered and accepted for
exchange pursuant to the Exchange Offer will in all cases be made only after
timely receipt by the Exchange Agent of Old Capital Securities, or of a
book-entry confirmation with respect to such Old Capital Securities, and a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), together with any required signature guarantees and any other
documents required by the Letter of Transmittal, or, in the case of a
participant in the book-entry transfer facility system, an Agent's Message.
Accordingly, the delivery of New Capital Securities might not be made to all
tendering holders at the same time and will depend upon when Old Capital
Securities, book-entry confirmations with respect to Old Capital Securities and
other required documents are received by the Exchange Agent.
The Trust's acceptance for exchange of Old Capital Securities tendered
pursuant to any of the procedures described above will constitute a binding
agreement between the tendering holder and the Trust upon the terms and subject
to the conditions of the Exchange Offer.
DETERMINATION OF VALIDITY. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered Old Capital Securities will be determined by the Corporation and
the Trust, in their sole discretion, whose determination shall be final and
binding on
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all parties. The Corporation and the Trust reserve the absolute right, in their
sole and absolute discretion, to reject any and all tenders determined by them
not to be in proper form or the acceptance of which, or exchange for, may, in
the opinion of counsel to the Corporation and the Trust, be unlawful. The
Corporation and the Trust also reserve the absolute right, subject to applicable
law, to waive any of the conditions of the Exchange Offer as set forth under
"--Conditions to the Exchange Offer" or any condition or irregularity in any
tender of Old Capital Securities of any particular holder whether or not similar
conditions or irregularities are waived in the case of other holders.
The interpretation by the Corporation and the Trust of the terms and
conditions of the Exchange Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding. No tender of Old Capital
Securities will be deemed to have been validly made until all irregularities
with respect to such tender have been cured or waived. Neither the Corporation,
the Trust, any affiliates or assigns of the Corporation or the Trust, the
Exchange Agent nor any other person shall be under any duty to give any
notification of any irregularities in tenders or incur any liability for failure
to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney, or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, such person
should so indicate when signing, and unless waived by the Corporation and the
Trust, proper evidence satisfactory to the Corporation and the Trust, in their
sole discretion, of such person's authority to so act must be submitted.
A beneficial owner of Old Capital Securities that are held by or registered
in the name of a broker, dealer, commercial bank, trust company or other nominee
or custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the Exchange Offer.
RESALES OF NEW CAPITAL SECURITIES
The Trust is making the Exchange Offer for the New Capital Securities in
reliance on the position of the staff of the Division of Corporation Finance of
the Commission as set forth in certain interpretive letters addressed to third
parties in other transactions. However, neither the Corporation nor the Trust
sought its own interpretive letter and there can be no assurance that the staff
of the Division of Corporation Finance of the Commission would make a similar
determination with respect to the Exchange Offer as it has in such interpretive
letters to third parties. Based on these interpretations by the staff of the
Division of Corporation Finance of the Commission, and subject to the two
immediately following sentences, the Corporation and the Trust believe that New
Capital Securities issued pursuant to the Exchange Offer in exchange for Old
Capital Securities may be offered for resale, resold and otherwise transferred
by a holder thereof (other than a holder who is a broker-dealer) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Capital Securities are acquired in the
ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such New Capital Securities. However, any holder of Old Capital Securities who
is an "affiliate" of the Corporation or the Trust or who intends to participate
in the Exchange Offer for the purpose of distributing New Capital Securities, or
any broker-dealer who purchased Old Capital Securities from the Trust to resell
pursuant to Rule 144A or any other available exemption under the Securities Act,
(a) will not be able to rely on the interpretations of the staff of the Division
of Corporation Finance of the Commission set forth in the above-mentioned
interpretive letters, (b) will not be permitted or entitled to tender such Old
Capital Securities in the Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Old Capital Securities unless
such sale is made pursuant to an exemption from such requirements. In addition,
as described below, if any broker-dealer holds Old Capital Securities acquired
for its own account as a result of market-making or other trading activities and
exchanges such Old Capital Securities for New Capital Securities, then such
broker-dealer must deliver a
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prospectus meeting the requirements of the Securities Act in connection with any
resales of such New Capital Securities.
Each holder of Old Capital Securities who wishes to exchange Old Capital
Securities for New Capital Securities in the Exchange Offer will be required to
represent that (i) it is not an "affiliate" of the Corporation or the Trust,
(ii) any New Capital Securities to be received by it are being acquired in the
ordinary course of its business, (iii) it has no arrangement or understanding
with any person to participate in a distribution (within the meaning of the
Securities Act) of such New Capital Securities, and (iv) if such holder is not a
broker-dealer, such holder is not engaged in, and does not intend to engage in,
a distribution (within the meaning of the Securities Act) of such New Capital
Securities. In addition, the Corporation and the Trust may require such holder,
as a condition to such holder's eligibility to participate in the Exchange
Offer, to furnish to the Corporation and the Trust (or an agent thereof) in
writing information as to the number of "beneficial owners" (within the meaning
of Rule 13d-3 under the Exchange Act) on behalf of whom such holder holds the
Old Capital Securities to be exchanged in the Exchange Offer. Each broker-dealer
that receives New Capital Securities for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Old Capital Securities for
its own account as the result of market-making activities or other trading
activities and must agree that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Capital Securities. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. Based on the
position taken by the staff of the Division of Corporation Finance of the
Commission in the interpretive letters referred to above, the Corporation and
the Trust believe that Participating Broker-Dealers who acquired Old Capital
Securities for their own accounts as a result of market-making activities or
other trading activities may fulfill their prospectus delivery requirements with
respect to the New Capital Securities received upon exchange of such Old Capital
Securities (other than Old Capital Securities which represent an unsold
allotment from the original sale of the Old Capital Securities) with a
prospectus meeting the requirements of the Securities Act, which may be the
prospectus prepared for an exchange offer so long as it contains a description
of the plan of distribution with respect to the resale of such New Capital
Securities. Accordingly, this Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating Broker-Dealer during the
period referred to below in connection with resales of New Capital Securities
received in exchange for Old Capital Securities where such Old Capital
Securities were acquired by such Participating Broker-Dealer for its own account
as a result of market-making or other trading activities. Subject to certain
provisions set forth in the Registration Rights Agreement, the Corporation and
the Trust have agreed that this Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating Broker-Dealer in connection
with resales of such New Capital Securities for a period ending 90-days after
the Expiration Date (subject to extension under certain limited circumstances
described below) or, if earlier, when all such New Capital Securities have been
disposed of by such Participating Broker-Dealer. See "Plan of Distribution."
However, a Participating Broker-Dealer who intends to use this Prospectus in
connection with the resale of New Capital Securities received in exchange for
Old Capital Securities pursuant to the Exchange Offer must notify the
Corporation or the Trust, or cause the Corporation or the Trust to be notified,
on or prior to the Expiration Date, that it is a Participating Broker-Dealer.
Such notice may be given in the space provided for that purpose in the Letter of
Transmittal or may be delivered to the Exchange Agent at one of the addresses
set forth herein under "--Exchange Agent." Any Participating Broker-Dealer who
is an "affiliate" of the Corporation or the Trust may not rely on such
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
In that regard, each Participating Broker-Dealer who surrenders Old Capital
Securities pursuant to the Exchange Offer will be deemed to have agreed, by
execution of the Letter of Transmittal, that, upon receipt of notice from the
Corporation or the Trust of the occurrence of any event or the discovery of any
fact which makes any statement contained or incorporated by reference in this
Prospectus untrue in any
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material respect or which causes this Prospectus to omit to state a material
fact necessary in order to make the statements contained or incorporated by
reference herein, in light of the circumstances under which they were made, not
misleading or of the occurrence of certain other events specified in the
Registration Rights Agreement, such Participating Broker-Dealer will suspend the
sale of New Capital Securities (or the New Guarantee or the New Junior
Subordinated Debentures, as applicable) pursuant to this Prospectus until the
Corporation or the Trust has amended or supplemented this Prospectus to correct
such misstatement or omission and has furnished copies of the amended or
supplemented Prospectus to such Participating Broker-Dealer or the Corporation
or the Trust has given notice that the sale of the New Capital Securities (or
the New Guarantee or the New Junior Subordinated Debentures, as applicable) may
be resumed, as the case may be. If the Corporation or the Trust gives such
notice to suspend the sale of the New Capital Securities (or the New Guarantee
or the New Junior Subordinated Debentures, as applicable), it shall extend the
90-day period referred to above during which Participating Broker-Dealers are
entitled to use this Prospectus in connection with the resale of New Capital
Securities by the number of days during the period from and including the date
of the giving of such notice to and including the date when Participating
Broker-Dealers shall have received copies of the amended or supplemented
Prospectus necessary to permit resales of the New Capital Securities or to and
including the date on which the Corporation or the Trust has given notice that
the sale of New Capital Securities (or the New Guarantee or the New Junior
Subordinated Debentures, as applicable) may be resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Capital Securities may
be withdrawn at any time on or prior to the Expiration Date.
In order for a withdrawal to be effective, a written or facsimile
transmission of such notice of withdrawal must be timely received by the
Exchange Agent at one of its addresses set forth under "--Exchange Agent" on or
prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Old Capital Securities to be withdrawn, the
aggregate principal amount of Old Capital Securities to be withdrawn, and (if
certificates for such Old Capital Securities have been tendered) the name of the
registered holder of the Old Capital Securities as set forth on the Old Capital
Securities, if different from that of the person who tendered such Old Capital
Securities. If Old Capital Securities have been delivered or otherwise
identified to the Exchange Agent, then prior to the physical release of such Old
Capital Securities, the tendering holder must submit the serial numbers shown on
the particular Old Capital Securities to be withdrawn and the signature on the
notice of withdrawal must be guaranteed by an Eligible Institution, except in
the case of Old Capital Securities tendered for the account of an Eligible
Institution. If Old Capital Securities have been tendered pursuant to the
procedures for book-entry transfer set forth in "--Procedures for Tendering Old
Capital Securities," the notice of withdrawal must specify the name and number
of the account at DTC to be credited with the withdrawal of Old Capital
Securities, in which case a notice of withdrawal will be effective if delivered
to the Exchange Agent by written or facsimile transmission. Withdrawals of
tenders of Old Capital Securities may not be rescinded. Old Capital Securities
properly withdrawn will not be deemed validly tendered for purposes of the
Exchange Offer, but may be retendered at any subsequent time on or prior to the
Expiration Date by following any of the procedures described above under
"--Procedures for Tendering Old Capital Securities."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Trust, in its sole
discretion, whose determination shall be final and binding on all parties.
Neither the Corporation, the Trust, any affiliates or assigns of the Corporation
or the Trust, the Exchange Agent nor any other person shall be under any duty to
give any notification of any irregularities in any notice of withdrawal or incur
any liability for failure to give any such notification. Any Old Capital
Securities which have been tendered but which are withdrawn will be returned to
the holder thereof promptly after withdrawal.
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DISTRIBUTIONS ON NEW CAPITAL SECURITIES
Holders of Old Capital Securities whose Old Capital Securities are accepted
for exchange will not receive Distributions on such Old Capital Securities and
will be deemed to have waived the right to receive any Distributions on such Old
Capital Securities accumulated from and after December 20, 1996. Accordingly,
holders of New Capital Securities as of the record date for the payment of
Distributions on June 15, 1997 will be entitled to receive Distributions
accumulated from and after December 20, 1996.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any extension
of the Exchange Offer, the Corporation and the Trust will not be required to
accept for exchange, or to exchange, any Old Capital Securities for any New
Capital Securities, and, as described below, may terminate the Exchange Offer
(whether or not any Old Capital Securities have theretofore been accepted for
exchange) if any of the following conditions have occurred or exists or have not
been satisfied:
(a) there shall occur a change in the current interpretation by the
staff of the Commission which permits the New Capital Securities issued
pursuant to the Exchange Offer in exchange for Old Capital Securities to be
offered for resale, resold and otherwise transferred by holders thereof
(other than broker-dealers and any such holder which is an "affiliate" of
the Corporation or the Trust within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act provided that such New Capital
Securities are acquired in the ordinary course of such holders' business and
such holders have no arrangement or understanding with any person to
participate in the distribution of such New Capital Securities; or
(b) any law, statute, rule or regulation shall have been adopted or
enacted which, in the judgment of the Corporation or the Trust, would
reasonably be expected to impair its ability to proceed with the Exchange
Offer; or
(c) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration
Statement or proceedings shall have been initiated or, to the knowledge of
the Corporation or the Trust, threatened for that purpose or any
governmental approval has not been obtained, which approval the Corporation
or the Trust shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Corporation or the Trust determines in its reasonable discretion that
any of the foregoing events or conditions has occurred or exists or has not been
satisfied, it may, subject to applicable law, terminate the Exchange Offer
(whether or not any Old Capital Securities have theretofore been accepted for
exchange) or may waive any such condition or otherwise amend the terms of the
Exchange Offer in any respect. If such waiver or amendment constitutes a
material change to the Exchange Offer, the Corporation or the Trust will
promptly disclose such waiver or amendment by means of a prospectus supplement
that will be distributed to the registered holders of the Old Capital
Securities. If such waiver or amendment constitutes a fundamental change to the
Exchange Offer, the Corporation and the Trust will file a post-effective
amendment to the Registration Statement setting forth the applicable information
and will distribute an amended prospectus to the holders of the Old Capital
Securities. At the time that such prospectus supplement or amended prospectus is
first given to holders of Old Capital Securities, the Exchange Offer is
scheduled to expire at any time earlier than the expiration of a period ending
on the tenth business day from, and including, the date that such prospectus
supplement or amended prospectus is first so given, then the Exchange Offer will
be extended until the expiration of such period of ten business days.
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EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Delivery of the Letters of Transmittal and any other required documents,
questions, requests for assistance, and requests for additional copies of this
Prospectus or of the Letter of Transmittal should be directed to the Exchange
Agent, by registered or certified mail or by hand or overnight delivery, as
follows:
The Bank of New York
101 Barclay Street, Floor 7 East
New York, New York 10286
Attention: Arwen Gibbons
Reorganization Section
CONFIRM BY TELEPHONE:
(212) 815-5920
FACSIMILE TRANSMISSIONS:
(ELIGIBLE INSTITUTIONS ONLY)
(212) 815-6339
Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.
FEES AND EXPENSES
The Corporation has agreed to pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith. The Corporation will also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus
and related documents to the beneficial owners of Old Capital Securities, and in
handling or tendering for their customers.
Holders who tender their Old Capital Securities for exchange will not be
obligated to pay any transfer taxes in connection therewith. If, however, New
Capital Securities are to be delivered to, or are to be issued in the name of,
any person other than the registered holder of the Old Capital Securities
tendered, or if a transfer tax is imposed for any reason other than the exchange
of Old Capital Securities in connection with the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered holder or any
other persons) will be payable by the tendering holder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted with the Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering holder.
Neither the Corporation nor the Trust will make any payment to brokers,
dealers or other nominees soliciting acceptances of the Exchange Offer.
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DESCRIPTION OF NEW SECURITIES
DESCRIPTION OF NEW CAPITAL SECURITIES
Pursuant to the terms of the Trust Agreement, the Trust has issued the Old
Capital Securities and the Common Securities and will issue the New Capital
Securities. The New Capital Securities will represent preferred beneficial
interests in the Trust and the holders of the New Capital Securities and the Old
Capital Securities will be entitled to a preference over the Common Securities
in certain circumstances with respect to Distributions and amounts payable on
redemption of the Trust Securities or liquidation of the Trust. See
"--Subordination of Common Securities." The Trust Agreement has been qualified
under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
This summary of the material provisions of the New Securities and the Trust
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Trust Agreement,
including the definitions therein of certain terms.
GENERAL. The Capital Securities (including the Old Capital Securities and
the New Capital Securities) are limited to $210,000,000 aggregate Liquidation
Amount at any one time outstanding. The Capital Securities will rank PARI PASSU,
and payments will be made thereon PRO RATA, with the Old Capital Securities and
the Common Securities except as described under "--Subordination of Common
Securities." Legal title to the Junior Subordinated Debentures will be held by
the Property Trustee in trust for the benefit of the holders of the Capital
Securities and the Common Securities. The New Guarantee will be a guarantee on a
subordinated basis but will not guarantee payment of Distributions or amounts
payable on redemption of the New Capital Securities or on liquidation of the
Trust when the Trust does not have funds on hand legally available for such
payments. See "--Description of New Guarantee."
DISTRIBUTIONS. Distributions on the New Capital Securities will be
cumulative, will accumulate from December 20, 1996 and will be payable
semi-annually in arrears on June 15 and December 15 of each year, commencing
June 15, 1997, at the annual rate of 8.197% of the Liquidation Amount to the
holders of the New Capital Securities on the relevant record dates. The record
dates will be the first day of the month in which the relevant Distribution Date
(as defined below) falls. The amount of Distributions payable for any period
will be computed on the basis of a 360-day year of twelve 30-day months. In the
event that any date on which Distributions are payable on the New Capital
Securities is not a Business Day (as defined below), 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 to any such delay), in
each case with the same force and effect as if made on such date (each date on
which Distributions are payable in accordance with the foregoing, a
"Distribution Date"). A "Business Day" shall mean any day other than a Saturday
or a Sunday, or a day on which banking institutions in The City of New York are
authorized or required by law or executive order to remain closed.
So long as no Debenture Event of Default shall have occurred and be
continuing, the Corporation will have the right under the Indenture to defer the
payment of interest on the New Junior Subordinated Debentures at any time or
from time to time for a period not exceeding 10 consecutive semi-annual periods
with respect to each Extension Period, provided that no Extension Period may
extend beyond the Stated Maturity Date. Upon any such election, semi-annual
Distributions on the New Capital Securities will be deferred by the Trust during
any such Extension Period. Distributions to which holders of the New Capital
Securities are entitled during any such Extension Period will accumulate
additional Distributions thereon at the rate per annum of 8.197% thereof,
compounded semi-annually from the relevant Distribution Date, but not exceeding
the interest rate then accruing on the New Junior Subordinated Debentures. The
term "Distributions," as used herein, shall include any such additional
Distributions.
Prior to the termination of any such Extension Period, the Corporation may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 10 consecutive semi-annual periods or to
extend beyond the Stated Maturity Date. Upon the termination of any such
Extension Period and the payment of all amounts then due, and subject to the
foregoing
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limitations, the Corporation may elect to begin a new Extension Period. The
Corporation must give the Property Trustee, the Administrative Trustees and the
Debenture Trustee notice of its election of any such Extension Period at least
five Business Days prior to the earlier of (i) the date the Distributions on the
New Capital Securities would have been payable except for the election to begin
such Extension Period or (ii) the date the Administrative Trustees are required
to give notice to any securities exchange or to holders of such New Capital
Securities of the record date or the date such Distributions are payable but in
any event not less than five Business Days prior to such record date. There is
no limitation on the number of times that the Corporation may elect to begin an
Extension Period. See "--Description of New Junior Subordinated
Debentures--Option to Extend Interest Payment Period" and "Certain United States
Federal Income Tax Considerations--Interest Income and Original Issue Discount."
During any such Extension Period, the Corporation may not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Corporation'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 Corporation (including Other Debentures) that rank
PARI PASSU with or junior in right of payment to the New Junior Subordinated
Debentures or (iii) make any guarantee payments with respect to any guarantee by
the Corporation of the debt securities of any subsidiary of the Corporation
(including Other Guarantees) if such guarantee ranks PARI PASSU with or junior
in right of payment to the New Junior Subordinated 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 Corporation, (b) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (c)
payments under the Guarantee, (d) as a result of a reclassification of the
Corporation's capital stock or the exchange or conversion of one class, or
series of the Corporation's capital stock for another class or series of the
Corporation's capital stock, (e) the purchase of fractional interests in shares
of the Corporation'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 related to the issuance of common stock or
rights under any of the Corporation's benefit plans for its directors, officers
or employees or any of the Corporation's dividend reinvestment plans).
Although the Corporation may in the future exercise its option to defer
payments of interest on the New Junior Subordinated Debentures, the Corporation
has no such current intention.
The revenue of the Trust available for distribution to holders of the
Capital Securities will be limited to payments under the New Junior Subordinated
Debentures in which the Trust will invest the proceeds from the issuance and
sale of the Trust Securities. See "--Description of New Junior Subordinated
Debentures--General." If the Corporation does not make interest payments on the
New Junior Subordinated Debentures, the Property Trustee will not have funds
available to pay Distributions on the New Capital Securities. The payment of
Distributions (if and to the extent the Trust has funds on hand legally
available for the payment of such Distributions) will be guaranteed by the
Corporation on a limited basis as set forth herein under "--Description of New
Guarantee."
CONDITIONAL RIGHT TO ADVANCE MATURITY AND SPECIAL EVENT REDEMPTION. If a
Tax Event (as defined below) occurs, then the Corporation will have the right
(i) prior to the termination of the Trust, to advance the Stated Maturity Date
of the New Junior Subordinated Debentures to the minimum extent required, but
not less than 30 years from the date of original issuance thereof, or (ii) to
terminate the Trust (if not previously terminated) and advance the Stated
Maturity Date of the New Junior Subordinated Debentures to the minimum extent
required, but not less than 40 years from the date of original issuance thereof,
in each case such that in the opinion of counsel to the Corporation experienced
in such matters, after advancing the maturity date, interest paid on the New
Junior Subordinated Debentures will be deductible for federal income tax
purposes (the action referred to in either clause (i) or (ii) above being
referred to as a "Tax Event Maturity Advancement").
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If a Tax Event occurs and in the opinion of counsel to the Corporation
experienced in such matters, there would be in all cases, after effecting a Tax
Event Maturity Advancement, be more than an insubstantial risk that an Adverse
Tax Consequence (as defined below) would continue to exist, or, if an Investment
Company Event (as defined in "--Description of New Junior Subordinated
Debentures-- Conditional Right to Advance Maturity and Special Event
Prepayment") occurs, then the Corporation shall have the right, within 90 days
following the occurrence of such Tax Event or Investment Company Event, as the
case may be, to redeem the New Junior Subordinated Debentures in whole (but not
in part) in the manner and at the price determined as set forth under
"--Description of New Junior Subordinated Debentures--Conditional Right to
Advance Maturity and Special Event Prepayment," and therefore to cause a
mandatory redemption of the Capital Securities prior to the Stated Maturity Date
(the circumstances under which the Corporation has the right to so redeem the
New Junior Subordinated Debentures in connection with a Tax Event being referred
to herein as a "Conditional Tax Redemption Event"). Each of a Conditional Tax
Redemption Event or an Investment Company Event are sometimes referred to herein
as a "Special Event."
A "Tax Event" means the receipt by the Corporation and the Trust of an
opinion of counsel to the Corporation experienced in such matters to the effect
that, as a result of any amendment to, or change (including any announced
prospective change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or therein, or
as a result of any administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of the Old Capital Securities under the Trust Agreement, or as a
result of a final determination, as evidenced by the execution of a Form 870 AD,
arising from an audit or examination by the Internal Revenue Service, 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 New Junior Subordinated Debentures,
(ii) interest payable by the Corporation on the New Junior Subordinated
Debentures is not, or within 90 days of such opinion, will not be, deductible by
the Corporation, 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 such
opinion, subject to more than a DE MINIMIS amount of other taxes, duties or
other governmental charges (each of the circumstances referred to in clauses
(i), (ii) and (iii) being referred to herein as an "Adverse Tax Consequence").
REDEMPTION. Upon the repayment on the Stated Maturity Date or prepayment
prior to the Stated Maturity Date of the New Junior Subordinated Debentures, the
proceeds from such repayment or prepayment shall be applied by the Property
Trustee to redeem a Like Amount (as defined below) of the New Capital
Securities, upon not less than 30 nor more than 60 days notice of a date of
redemption (the "Redemption Date"), at the applicable Redemption Price, which
shall be equal to (i) in the case of the repayment of the New Junior
Subordinated Debentures on the Stated Maturity Date, the Maturity Redemption
Price (equal to the principal of, and accrued interest on, the New Junior
Subordinated Debentures), (ii) in the case of the optional prepayment of the New
Junior Subordinated Debentures upon the occurrence and continuation of a Special
Event, the Special Event Redemption Price (equal to the Special Event Prepayment
Price in respect of the New Junior Subordinated Debentures) and (iii) in the
case of the optional prepayment of the New Junior Subordinated Debentures other
than as contemplated in clause (ii) above, the Optional Redemption Price (equal
to the Optional Prepayment Price in respect of the New Junior Subordinated
Debentures). See "--Description of New Junior Subordinated Debentures--Optional
Prepayment" and "--Conditional Right to Advance Maturity and Special Event
Prepayment."
"Like Amount" means (i) with respect to a redemption of the Trust
Securities, Trust Securities having a Liquidation Amount equal to the principal
amount of Junior Subordinated Debentures to be paid in accordance with their
terms and (ii) with respect to a distribution of Junior Subordinated Debentures
upon the liquidation of the Trust, Junior Subordinated Debentures having a
principal amount equal to the
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Liquidation Amount of the Trust Securities of the holder to whom such Junior
Subordinated Debentures are distributed.
The Corporation will have the option to prepay the New Junior Subordinated
Debentures, (i) in whole or in part, on or after December 15, 2006, at the
applicable Optional Prepayment Price and (ii) in whole but not in part, at any
time, upon the occurrence of a Special Event, at the Special Event Prepayment
Price.
LIQUIDATION OF THE TRUST AND DISTRIBUTION OF NEW JUNIOR SUBORDINATED
DEBENTURES. The Corporation will have the right at any time to dissolve the
Trust and cause the New Junior Subordinated Debentures to be distributed to the
holders of the New Capital Securities in liquidation of the Trust. Such right is
subject to the Corporation having received an opinion of counsel to the effect
that such distribution will not be a taxable event to holders of New Capital
Securities.
The Trust shall automatically dissolve upon the first to occur of: (i)
certain events of bankruptcy, dissolution or liquidation of the Corporation;
(ii) the distribution of a Like Amount of the Junior Subordinated Debentures to
the holders of the Trust Securities, if the Corporation, as Sponsor, has given
written direction to the Property Trustee to terminate the Trust (which
direction is optional and, except as described above, wholly within the
discretion of the Corporation, as Sponsor); (iii) redemption of all of the Trust
Securities in accordance with their terms; (iv) expiration of the term of the
Trust; and (v) the entry of an order for the dissolution of the Trust by a court
of competent jurisdiction.
If a dissolution occurs as described in clause (i), (ii), (iv) or (v) above,
the Trust shall be liquidated by the Issuer Trustees as expeditiously as the
Issuer Trustees determine to be possible by distributing, after satisfaction of
liabilities to creditors of the Trust as provided by applicable law, to the
holders of the New Capital Securities a Like Amount of the New Junior
Subordinated Debentures, unless such distribution is determined by the Property
Trustee not to be practicable, in which event such holders will be entitled to
receive out of the assets of the Trust legally available for distribution to
holders, after satisfaction of liabilities to creditors of the Trust as provided
by applicable law, an amount equal to the aggregate of the Liquidation Amount
plus accumulated and unpaid Distributions thereon to the date of payment (such
amount being the "Liquidation Distribution"). If such Liquidation Distribution
can be paid only in part because the Trust has insufficient assets on hand
legally available to pay in full the aggregate Liquidation Distribution, then
the amounts payable directly by the Trust on the Capital Securities and the
Common Securities shall be paid on a PRO RATA basis, except that if a Debenture
Event of Default has occurred and is continuing, the Capital Securities shall
have a priority over the Common Securities. See "--Subordination of Common
Securities." If an early dissolution occurs as described in clause (v) above,
the New Junior Subordinated Debentures will be subject to optional prepayment,
in whole but not in part, on or after December 15, 2006.
If the Corporation elects not to prepay the Junior Subordinated Debentures
prior to maturity in accordance with their terms and either elects not to or is
unable to liquidate the Trust and distribute the Junior Subordinated Debentures
to holders of the Trust Securities, the Trust Securities will remain outstanding
until the repayment of the Junior Subordinated Debentures on the Stated Maturity
Date.
After the liquidation date is fixed for any distribution of Junior
Subordinated Debentures to holders of the Trust Securities, (i) the Trust
Securities will no longer be deemed to be outstanding, (ii) each registered
global certificate, if any, representing Trust Securities and held by DTC or its
nominee will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution and (iii) any certificates representing New Capital Securities not
held by DTC or its nominee will be deemed to represent New Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of such
Trust Securities, and bearing accrued and unpaid interest in an amount equal to
the accumulated and unpaid Distributions on such Trust Securities until such
certificates are presented to the Administrative Trustees or their agent for
cancellation,
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whereupon the Corporation will issue to such holder, and the Debenture Trustee
will authenticate, a certificate representing such New Junior Subordinated
Debentures.
There can be no assurance as to the market prices for the New Capital
Securities or the New Junior Subordinated Debentures that may be distributed in
exchange for the New Capital Securities if a dissolution and liquidation of the
Trust were to occur. Accordingly, the New Capital Securities that an investor
may purchase, or the New Junior Subordinated Debentures that the investor may
receive on dissolution and liquidation of the Trust, may trade at a discount to
the price that the investor paid to purchase the Capital Securities.
REDEMPTION PROCEDURES. If applicable, New Capital Securities shall be
redeemed at the applicable Redemption Price with the proceeds from the
contemporaneous repayment or prepayment of the New Junior Subordinated
Debentures. Any redemption of Trust Securities shall be made and the applicable
Redemption Price shall be payable on the Redemption Date only to the extent that
the Trust has funds legally available for the payment of such applicable
Redemption Price. See also "--Subordination of Common Securities."
If the Trust gives a notice of redemption in respect of the New Capital
Securities, then, by 12:00 noon, New York City time, on the Redemption Date, to
the extent funds are legally available, with respect to the New Capital
Securities held by DTC or its nominees, the Property Trustee will deposit
irrevocably with DTC funds sufficient to pay the applicable Redemption Price.
See "--Form, Denomination, Book-Entry Procedures and Transfer." With respect to
the New Capital Securities held in certificated form, the Property Trustee, to
the extent funds are legally available, will irrevocably deposit with the paying
agent for the New Capital Securities funds sufficient to pay the applicable
Redemption Price and will give such paying agent irrevocable instructions and
authority to pay the applicable Redemption Price to the holders thereof upon
surrender of their certificates evidencing the New Capital Securities. See
"--Payment and Paying Agency." Notwithstanding the foregoing, Distributions
payable on or prior to the Redemption Date shall be payable to the holders of
such New Capital Securities on the relevant record dates for the related
Distribution Dates. If notice of redemption shall have been given and funds
deposited as required, then upon the date of such deposit, all rights of the
holders of the New Capital Securities will cease, except the right of the
holders of the New Capital Securities to receive the applicable Redemption
Price, but without interest on such Redemption Price, and the New Capital
Securities will cease to be outstanding. In the event that any Redemption Date
of New Capital Securities is not a Business Day, then the applicable Redemption
Price payable on such date will be paid on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay), in each case with the same force and effect as if made on such date. In
the event that payment of the applicable Redemption Price is improperly withheld
or refused and not paid either by the Trust or by the Corporation pursuant to
the New Guarantee as described under "--Description of New Guarantee,"
Distributions on New Capital Securities will continue to accumulate at the then
applicable rate, from the Redemption Date originally established by the Trust to
the date such applicable Redemption Price is actually paid, in which case the
actual payment date will be the Redemption Date for purposes of calculating the
applicable Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), the Corporation or its subsidiaries may at any time and
from time to time purchase outstanding Capital Securities by tender, in the open
market or by private agreement.
Notice of any redemption will be mailed at least 30-days but not more than
60-days prior to the Redemption Date to each holder of Trust Securities at its
registered address. Unless the Corporation defaults in payment of the applicable
Prepayment Price on, or in the repayment of, the Junior Subordinated Debentures,
on and after the Redemption Date Distributions will cease to accrue on the Trust
Securities called for redemption.
SUBORDINATION OF COMMON SECURITIES. Payment of Distributions on, and the
Redemption Price of, the Capital Securities and the Common Securities, as
applicable, shall be made PRO RATA based on the
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Liquidation Amount of the Capital Securities and the Common Securities;
provided, however, that if on any Distribution Date or Redemption Date a
Debenture Event of Default shall have occurred and be continuing, no payment of
any Distribution on, or applicable Redemption Price of, any of the Common
Securities, and no other payment on account of the redemption, liquidation or
other acquisition of the Common Securities, shall be made unless payment in full
in cash of all accumulated and unpaid Distributions on all of the outstanding
Capital Securities for all Distribution periods terminating on or prior thereto,
or in the case of payment of the applicable Redemption Price the full amount of
such Redemption Price, 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 Redemption Price of, the Capital
Securities then due and payable.
In the case of any Event of Default, the Corporation as holder of the Common
Securities will be deemed to have waived any right to act with respect to such
Event of Default until the effect of such Event of Default shall have been
cured, waived or otherwise eliminated. Until any such Event of Default has been
so cured, waived or otherwise eliminated, the Property Trustee shall act solely
on behalf of the holders of the Capital Securities and not on behalf of the
Corporation as holder of the Common Securities, and only the holders of the
Capital Securities will have the right to direct the Property Trustee to act on
their behalf.
EVENTS OF DEFAULT; NOTICE. The occurrence of a Debenture Event of Default
(see "Description of New Junior Subordinated Debentures Debenture Events of
Default") constitutes an "Event of Default" under the Trust Agreement.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the Capital Securities, the
Administrative Trustees and the Corporation, as Sponsor, unless such Event of
Default shall have been cured or waived. The Corporation, as Sponsor, and the
Administrative Trustees are required to file annually with the Property Trustee
a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the Capital
Securities shall have a preference over the Common Securities as described under
"--Liquidation of the Trust and Distribution of New Junior Subordinated
Debentures" and "--Subordination of Common Securities."
REMOVAL OF ISSUER TRUSTEES. Unless a Debenture Event of Default shall have
occurred and be continuing, any Issuer Trustee may be removed at any time by the
holder of the Common Securities. If a Debenture Event of Default has occurred
and is continuing, the Property Trustee and the Delaware Trustee may be removed
at such time by the holders of a majority in Liquidation Amount of the
outstanding Capital Securities. In no event will the holders of the Capital
Securities have the right to vote to appoint, remove or replace the
Administrative Trustees, which voting rights are vested exclusively in the
Corporation as the holder of the Common Securities. No resignation or removal of
an Issuer Trustee and no appointment of a successor trustee shall be effective
until the acceptance of appointment by the successor trustee in accordance with
the provisions of the Trust Agreement.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES. Any corporation into which the
Property Trustee, the Delaware Trustee or any Administrative Trustee that is not
a natural person may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which such Issuer Trustee shall be a party, or any corporation
succeeding to all or substantially all the corporate trust business of such
Issuer Trustee, shall be the successor of such Issuer Trustee under the Trust
Agreement, provided such corporation shall be otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST. The
Trust may not merge with or into, consolidate, amalgamate, or be replaced by, or
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to any corporation or other Person, except as
described below.
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The Trust may, at the request of the Corporation, as Sponsor, with the consent
of the Administrative Trustees but without the consent of the Property Trustee,
the Delaware Trustee or the holders of the Capital Securities, merge with or
into, consolidate, amalgamate, or be replaced by or convey, transfer or lease
its properties and assets as an entirety or substantially as an entirety to a
trust organized as such under the laws of any State; provided, that (i) such
successor entity either (a) expressly assumes all of the obligations of the
Trust with respect to the Capital Securities or (b) substitutes for the Capital
Securities other securities having substantially the same terms as the Capital
Securities (the "Successor Securities") so long as the Successor Securities rank
the same as the Capital Securities rank in priority with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii) the
Corporation expressly appoints a trustee of such successor entity possessing the
same powers and duties as the Property Trustee with respect to the Junior
Subordinated Debentures, (iii) the Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on any
national securities exchange or other organization on which Capital Securities
are then listed, if any, (iv) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not cause the Capital Securities
(including any Successor Securities) to be downgraded by any nationally
recognized statistical rating organization, (v) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Capital
Securities (including any Successor Securities) in any material respect, (vi)
such successor entity has a purpose identical to that of the Trust, (vii) prior
to such merger, consolidation, amalgamation, replacement, conveyance, transfer
or lease, the Corporation has received an opinion from independent counsel to
the Trust experienced in such matters to the effect that (a) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
adversely affect the rights, preferences and privileges of the holders of the
Capital Securities (including any Successor Securities) in any material respect,
and (b) following such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, neither the Trust nor such successor entity will
be required to register as an investment company under the Investment Company
Act and (viii) the Corporation or any permitted successor or assignee owns all
of the common securities of such successor entity and guarantees the obligations
of such successor entity under the Successor Securities at least to the extent
provided by the Guarantee. Notwithstanding the foregoing, the Trust shall not,
except with the consent of holders of 100% in Liquidation Amount of the Trust
Securities, consolidate, amalgamate, merge with or into, or be replaced by or
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger, replacement, conveyance, transfer or lease
would cause the Trust or the successor entity not to be classified as a grantor
trust for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT. Except as provided below
and under "--Mergers, Consolidations, Amalgamations or Replacements of the
Trust" and "--Description of New Guarantee-- Amendments and Assignment" and as
otherwise required by law and the Trust Agreement, the holders of the New
Capital Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the Corporation, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Trust Securities (i) to cure any ambiguity, correct or supplement
any provisions in the Trust Agreement that may be inconsistent with any other
provision, or to make any other provisions with respect to matters or questions
arising under the Trust Agreement, which shall not be inconsistent with the
other provisions of the Trust Agreement, or (ii) to modify, eliminate or add to
any provisions of the Trust Agreement to such extent as shall be necessary to
ensure that the Trust will be classified for United States federal income tax
purposes as a grantor trust at all times that any Trust Securities are
outstanding or to ensure that the Trust will not be required to register as an
"investment company" under the Investment Company Act; PROVIDED, HOWEVER, that
in the case of clause (i), such action shall not adversely affect in any
material respect the interests of the holders of the Trust Securities, and any
amendments of the Trust Agreement shall become effective when notice thereof is
sent to the holders of the Trust Securities. The Trust Agreement may be amended
by
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the Issuer Trustees and the Corporation (i) with the consent of holders
representing a majority (based upon Liquidation Amount) of the outstanding Trust
Securities, and (ii) upon receipt by the Issuer Trustees of an opinion of
counsel to the effect that such amendment or the exercise of any power granted
to the Issuer Trustees in accordance with such amendment will not affect the
Trust's status as a grantor trust for United States federal income tax purposes
or the Trust's exemption from status as an "investment company" under the
Investment Company Act, provided that, without the consent of each holder of
Trust Securities, the Trust Agreement may not be amended to (i) change the
amount or timing of any Distribution on the Trust Securities or otherwise
adversely affect the amount of any Distribution required to be made in respect
of the Trust Securities as of a specified date or (ii) restrict the right of a
holder of Trust Securities to institute suit for the enforcement of any such
payment on or after such date; it being understood that the New Capital
Securities and any Old Capital Securities which remain outstanding after
consummation of the Exchange Offer will vote together as a single class for
purposes of determining whether holders of the requisite percentage in
outstanding Liquidation Amount thereof have taken certain actions or exercised
certain rights under the Trust Agreement.
So long as any Junior Subordinated Debentures are held by the Property
Trustee for the benefit of the holders of the Trust Securities, the Issuer
Trustees shall not (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee, or execute any
trust or power conferred on such Property Trustee with respect to the Junior
Subordinated Debentures, (ii) waive certain past defaults under the Indenture,
(iii) exercise any right to rescind or annul a declaration of acceleration of
the maturity of the principal of the Junior Subordinated Debentures or (iv)
consent to any amendment, modification or termination of the Indenture or the
Junior Subordinated Debentures, where such consent shall be required, without,
in each case, obtaining the prior approval of the holders of a majority in
Liquidation Amount of all outstanding Capital Securities; PROVIDED, HOWEVER,
that where a consent under the Indenture would require the consent of each
holder of Junior Subordinated Debentures affected thereby, no such consent shall
be given by the Property Trustee without the prior approval of each holder of
the Capital Securities. The Issuer Trustees shall not revoke any action
previously authorized or approved by a vote of the holders of the Capital
Securities except by subsequent vote of such holders. The Property Trustee shall
notify each holder of Capital Securities of any notice of default with respect
to the Junior Subordinated Debentures. In addition to obtaining the foregoing
approvals of such holders of the Capital Securities, prior to taking any of the
foregoing actions, the Issuer Trustees shall obtain an opinion of counsel
experienced in such matters to the effect that the Trust will not be classified
as an association taxable as a corporation for United States federal income tax
purposes on account of such action.
Any required approval of holders of New Capital Securities may be given at a
meeting of such holders convened for such purpose or pursuant to written
consent. The Property Trustee will cause a notice of any meeting at which
holders of New Capital Securities are entitled to vote, or of any matter upon
which action by written consent of such holders is to be taken, to be given to
each holder of record of New Capital Securities in the manner set forth in the
Trust Agreement.
No vote or consent of the holders of New Capital Securities will be required
for the Trust to redeem and cancel the New Capital Securities in accordance with
the Trust Agreement.
Notwithstanding that holders of the 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 Corporation, the Issuer Trustees or any
affiliate of the Corporation or any Issuer Trustee, shall, for purposes of such
vote or consent, be treated as if they were not outstanding.
FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER. The New Capital
Securities initially will be represented by one or more Capital Securities
certificates in registered, global form (collectively, the "Global Capital
Securities"). The Global Capital Securities will be deposited upon issuance with
the Property Trustee as custodian for DTC, in New York, New York, and registered
in the name of DTC or its
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nominee, in each case for credit to an account of a direct or indirect
participant in DTC as described below.
Except as set forth below, the Global Capital Securities may be transferred,
in whole and not in part, only to another nominee of DTC or to a successor of
DTC or its nominee. Beneficial interests in the Global Capital Securities may
not be exchanged for Capital Securities in certificated form except in the
limited circumstances described below.
DTC has advised the Trust and the Corporation that DTC is a limited purpose
trust company created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants. The Participants
include securities brokers and dealers (including the Initial Purchasers),
banks, trust companies, clearing corporations and certain other organizations.
Access to DTC's system is also available to other entities such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interest and transfer of ownership interest
of each actual purchaser of each security held by or on behalf of DTC are
recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Trust and the Corporation that, pursuant to
procedures established by it, (i) upon deposit of the Global Capital Securities,
DTC will credit the accounts of Participants with portions of the Liquidation
Amount of the Global Capital Securities and (ii) ownership of such interests in
the Global Capital Securities will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC (with respect
to the Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interests in the Global Capital
Securities).
Except as described below, owners of beneficial interests in the Global
Capital Securities will not have Capital Securities registered in their name,
will not receive physical delivery of Capital Securities in certificated form
and will not be considered the registered owners or holders thereof under the
Trust Agreement for any purpose.
Payments in respect of the Global Capital Security registered in the name of
DTC or its nominee will be payable by the Property Trustee to DTC in its
capacity as the registered holder under the Trust Agreement. Under the terms of
the Trust Agreement, the Property Trustee will treat the persons in whose names
the Capital Securities, including the Global Capital Securities, are registered
as the owners thereof for the purpose of receiving such payments and for any and
all other purposes whatsoever. Consequently, neither the Property Trustee nor
any agent thereof has or will have any responsibility or liability for (i) any
aspect of DTC's records or any Participant's or Indirect Participant's records
relating to or payments made on account of beneficial interests in the Global
Capital Securities, or for maintaining, supervising or reviewing any of DTC's
records or any Participant's or Indirect Participant's records relating to the
beneficial interests in the Global Capital Securities or (ii) any other matter
relating to the actions and practices of DTC or any of its Participants or
Indirect Participants. DTC has advised the Trust and the Corporation that its
current practice, upon receipt of any payment in respect of securities such as
the Capital Securities, is to credit the accounts of the relevant Participants
with the payment on the payment date, in amounts proportionate to their
respective holdings in Liquidation Amount of beneficial interests in the
relevant security as shown on the records of DTC unless DTC has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of New
Capital Securities will be governed by standing instructions and customary
practices and will be the responsibility of the Participants or the Indirect
Participants and will not be the responsibility of DTC, the Property Trustee,
the Trust or the Corporation. Neither the Trust or the Corporation nor the
Property Trustee will be liable for any delay by DTC or any of its Participants
in identifying the beneficial owners of the New Capital Securities, and the
Trust, the Corporation and the
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Property Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Beneficial interests in the Global Capital Securities will trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will therefore settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its participants.
DTC has advised the Trust and the Corporation that it will take any action
permitted to be taken by a holder of New Capital Securities only at the
direction of one or more Participants to whose account with DTC interests in the
Global Capital Securities are credited and only in respect of such portion of
the Liquidation Amount of the New Capital Securities as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the Trust Agreement, DTC reserves the right to
exchange the Global Capital Securities for New Capital Securities in
certificated form and to distribute such New Capital Securities to its
Participants.
The information in this section concerning DTC and its book-entry system has
been obtained from sources that the Trust and the Corporation believe to be
reliable, but neither the Trust nor the Corporation takes responsibility for the
accuracy thereof.
A Global Capital Security is exchangeable for New Capital Securities in
registered certificated form if (i) DTC (x) notifies the Trust that it is
unwilling or unable to continue as Depositary for the Global Capital Security
and the Trust thereupon fails to appoint a successor Depositary within 90-days
or (y) has ceased to be a clearing agency registered under the Exchange Act,
(ii) the Corporation in its sole discretion elects to cause the issuance of the
New Capital Securities in certificated form or (iii) there shall have occurred
and be continuing an Event of Default or any event which after notice or lapse
of time or both would be an Event of Default under the Trust Agreement. In
addition, beneficial interests in a Global Capital Security may be exchanged for
certificated New Capital Securities upon request but only upon at least 20-days
prior written notice given to the Property Trustee by or on behalf of DTC in
accordance with customary procedures. In all cases, certificated New Capital
Securities delivered in exchange for any Global Capital Security or beneficial
interests therein will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the Depositary (in accordance with
its customary procedures), unless the Property Trustee determines otherwise in
compliance with applicable law.
PAYMENT AND PAYING AGENCY. Payments in respect of the New Capital
Securities held in global form shall be made to the Depositary, which shall
credit the relevant accounts at the Depositary on the applicable Distribution
Dates or in respect of the New Capital Securities that are not held by the
Depositary, such payments shall be made by check mailed to the address of the
holder entitled thereto as such address shall appear on the register. The paying
agent (the "Paying Agent") shall initially be the Property Trustee and any
co-paying agent chosen by the Property Trustee and acceptable to the
Administrative Trustees and the Corporation. The Paying Agent shall be permitted
to resign as Paying Agent upon 30 days written notice to the Property Trustee
and the Corporation. In the event that the Property Trustee shall no longer be
the Paying Agent, the Administrative Trustees shall appoint a successor (which
shall be a bank or trust company acceptable to the Administrative Trustees and
the Corporation) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT. The Property Trustee will act as registrar
and transfer agent for the New Capital Securities.
Registration of transfers of the New Capital Securities will be effected
without charge by or on behalf of the Trust, but upon payment of any tax or
other governmental charges that may be imposed in connection with any transfer
or exchange. The Trust will not be required to register or cause to be
registered the transfer of the New Capital Securities after they have been
called for redemption.
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INFORMATION CONCERNING THE PROPERTY TRUSTEE. The Property Trustee, other
than during the occurrence and continuance of an Event of Default, undertakes to
perform only such duties as are specifically set forth in the Trust Agreement
and, after such Event of Default, must exercise the same degree of care and
skill as a prudent person would exercise or use in the conduct of his or her own
affairs. Subject to this provision, the Property Trustee is under no obligation
to exercise any of the powers vested in it by the Trust Agreement at the request
of any holder of Trust Securities unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be incurred thereby. If
no Event of Default has occurred and is continuing and the Property Trustee is
required to decide between alternative causes of action, construe ambiguous
provisions in the Trust Agreement or is unsure of the application of any
provision of the Trust Agreement, and the matter is not one on which holders of
the Capital Securities or the Common Securities are entitled under the Trust
Agreement to vote, then the Property Trustee shall take such action as is
directed by the Corporation and if not so directed, shall take such action as it
deems advisable and in the best interests of the holders of the Trust Securities
and will have no liability except for its own bad faith, negligence or willful
misconduct.
MISCELLANEOUS. The Administrative Trustees are authorized and directed to
conduct the affairs of and to operate the Trust in such a way that the Trust
will not be deemed to be an "investment company" required to be registered under
the Investment Company Act or classified as an association taxable as a
corporation for United States federal income tax purposes and so that the Junior
Subordinated Debentures will be treated as indebtedness of the Corporation for
United States federal income tax purposes. In this connection, the Corporation
and the Administrative Trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust of the Trust or the
Trust Agreement, that the Corporation and the Administrative Trustees determine
in their discretion to be necessary or desirable for such purposes, as long as
such action does not materially adversely affect the interests of the holders of
the Trust Securities.
Holders of the Trust Securities have no preemptive or similar rights.
The Trust may not borrow money, issue debt, execute mortgages or pledge any
of its assets.
DESCRIPTION OF NEW JUNIOR SUBORDINATED DEBENTURES
The Old Junior Subordinated Debentures were issued and the New Junior
Subordinated Debentures will be issued as separate series under the Indenture.
The Indenture has been qualified under the Trust Indenture Act. This summary of
certain terms and provisions of the Junior Subordinated Debentures and the
Indenture does not purport to be complete, and where reference is made to
particular provisions of the Indenture, such provisions, including the
definitions of certain terms, some of which are not otherwise defined herein,
are qualified in their entirety by reference to all of the provisions of the
Indenture and those terms made a part of the Indenture by the Trust Indenture
Act.
GENERAL. Concurrently with the issuance of the Old Capital Securities, the
Trust invested the proceeds thereof, together with the consideration paid by the
Corporation for the Common Securities, in Old Junior Subordinated Debentures
issued by the Corporation. Pursuant to the Exchange Offer, the Corporation will
exchange the Old Junior Subordinated Debentures, in an amount corresponding to
the Old Capital Securities accepted for exchange, for a like aggregate principal
amount of the New Junior Subordinated Debentures as soon as practicable after
the date hereof.
The New Junior Subordinated Debentures will bear interest at the annual rate
of 8.197% of the principal amount thereof, payable semi-annually in arrears on
June 15 and December 15 of each year (each, an "Interest Payment Date"),
commencing June 15, 1997, to the person in whose name each New Junior
Subordinated Debenture is registered, subject to certain exceptions, at the
close of business on the first day of the month in which the relevant payment
date falls. It is anticipated that, until the liquidation, if any, of the Trust,
each New Junior Subordinated Debenture will be held in the name of the Property
Trustee in trust for the benefit of the holders of the Trust Securities. The
amount of interest payable for
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any period will be computed on the basis of a 360-day year of twelve 30-day
months. In the event that any date on which interest is payable on the New
Junior Subordinated Debentures is not a Business Day, then payment of the
interest payable on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay), in each case with the same force and effect as if made the date such
payment was originally payable. Accrued interest that is not paid on the
applicable Interest Payment Date will bear additional interest on the amount
thereof (to the extent permitted by law) at the rate per annum of 8.197%
thereof, compounded semi-annually. The term "interest", as used herein, shall
include semi-annual interest payments, interest on semi-annual interest payments
not paid on the applicable Interest Payment Date and Additional Sums (as defined
below), as applicable.
The New Junior Subordinated Debentures will mature on December 15, 2045 (the
"Stated Maturity Date"). The New Junior Subordinated Debentures will rank PARI
PASSU with the Old Junior Subordinated Debentures and with all Other Debentures
and will be unsecured and subordinate and junior in right of payment to the
extent and in the manner set forth in the Indenture to all Senior Indebtedness.
See "-- Subordination." Because the Corporation is a holding company, the right
of the Corporation to participate in any distribution of assets of any
subsidiary upon such subsidiary's liquidation or reorganization or otherwise
(and thus the ability of holders of the Capital Securities to benefit indirectly
from such distribution), is subject to the prior claims of creditors of the
subsidiary, except to the extent the Corporation may itself be recognized as a
creditor of that subsidiary. Accordingly, the New Junior Subordinated Debentures
will be effectively subordinated to all existing and future liabilities of the
Corporation's subsidiaries, and holders of New Junior Subordinated Debentures
should look only to the assets of the Corporation for payments on the New Junior
Subordinated Debentures. In addition, since many of the Corporation's
subsidiaries are insurance companies subject to regulatory control by various
state insurance departments, the ability of such subsidiaries to pay dividends
to the Corporation without prior regulatory approval is limited by applicable
laws and regulations. The Indenture does not limit the incurrence or issuance of
other secured or unsecured debt of the Corporation, including Senior
Indebtedness. See "--Subordination."
FORM, REGISTRATION AND TRANSFER. If the New Junior Subordinated Debentures
are distributed to holders of the Trust Securities, such New Junior Subordinated
Debentures may be represented by one or more global certificates registered in
the name of Cede & Co. as the nominee of DTC. The depositary arrangements for
such New Junior Subordinated Debentures are expected to be substantially similar
to those in effect for the New Capital Securities. For a description of DTC and
the terms of the depositary arrangements relating to payments, transfers, voting
rights, redemptions and other notices and other matters, see "--Description of
New Capital Securities--Form, Denomination, Book-Entry Procedures and Transfer."
PAYMENT AND PAYING AGENTS. Payment of principal of and any interest on New
Junior Subordinated Debentures will be made at the office of the Debenture
Trustee in The City of New York or at the office of such Paying Agent or Paying
Agents as the Corporation may designate from time to time, except that at the
option of the Corporation payment of any interest may be made, except in the
case of New Junior Subordinated Debentures in global form, (i) by check mailed
to the address of the Person entitled thereto as such address shall appear in
the register for the New Junior Subordinated Debentures or (ii) by transfer to
an account maintained by the Person entitled thereto as specified in such
register, provided that proper transfer instructions have been received by the
relevant Record Date. Payment of any interest on any New Junior Subordinated
Debenture will be made to the Person in whose name such New Junior Subordinated
Debenture is registered at the close of business on the Record Date for such
interest, except in the case of defaulted interest. The Corporation may at any
time designate additional Paying Agents or rescind the designation of any Paying
Agent; however, the Corporation will at all times be required to maintain a
Paying Agent in each Place of Payment for the New Junior Subordinated
Debentures.
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Any moneys deposited with the Debenture Trustee or any Paying Agent, or then
held by the Corporation in trust, for the payment of the principal of or
interest on any New Junior Subordinated Debenture and remaining unclaimed for
two years after such principal or interest has become due and payable shall, at
the request of the Corporation, be repaid to the Corporation and the holder of
such New Junior Subordinated Debenture shall thereafter look, as a general
unsecured creditor, only to the Corporation for payment thereof.
OPTION TO EXTEND INTEREST PAYMENT DATE. So long as no Debenture Event of
Default has occurred and is continuing, the Corporation will have the right
under the Indenture at any time during the term of the New Junior Subordinated
Debentures to defer the payment of interest at any time or from time to time for
a period not exceeding 10 consecutive semi-annual periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity Date. At the end of such Extension Period, the Corporation must pay all
interest then accrued and unpaid (together with interest thereon at the annual
rate of 8.197%, compounded semi-annually, to the extent permitted by applicable
law). During an Extension Period, interest will continue to accrue and holders
of New Junior Subordinated Debentures (and holders of the Trust Securities while
Trust Securities are outstanding) will be required to accrue interest income for
United States federal income tax purposes prior to the receipt of cash
attributable to such income. See "Certain United States Federal Income Tax
Considerations--Interest Income and Original Issue Discount."
During any such Extension Period, the Corporation may not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Corporation's capital stock
(which includes common and preferred stock) or (ii) make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of the Corporation (including any Other Debentures) that rank
PARI PASSU with or junior in right of payment to the New Junior Subordinated
Debentures or (iii) make any guarantee payments with respect to any guarantee by
the Corporation of the debt securities of any subsidiary of the Corporation
(including any Other Guarantees) if such guarantee ranks PARI PASSU with or
junior in right of payment to the New Junior Subordinated 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 Corporation, (b) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (c)
payments under the Guarantee, (d) as a result of a reclassification of the
Corporation's capital stock or the exchange or conversion of one class or series
of the Corporation's capital stock for another class or series of the
Corporation's capital stock, (e) the purchase of fractional interests in shares
of the Corporation'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 related to the issuance of common stock or
rights under any of the Corporation's benefit plans for its directors, officers
or employees or any of the Corporation's dividend reinvestment plans).
Prior to the termination of any such Extension Period, the Corporation may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 10 consecutive semi-annual periods or to
extend beyond the Stated Maturity Date. Upon the termination of any such
Extension Period and the payment of all amounts then due on any Interest Payment
Date, the Corporation may elect to begin a new Extension Period, subject to the
above requirements. No interest shall be due and payable during an Extension
Period, except at the end thereof. The Corporation must give the Property
Trustee, the Administrative Trustees and the Debenture Trustee notice of its
election of any Extension Period (or an extension thereof) at least five
Business Days prior to the earlier of (i) the date the Distributions on the
Trust Securities would have been payable except for the election to begin or
extend such Extension Period or (ii) the date the Administrative Trustees are
required to give notice to any securities exchange or to holders of New Capital
Securities of the record date or the date such Distributions are payable, but in
any event not less than five Business Days prior to such record date. The
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Debenture Trustee shall give notice of the Corporation's election to begin or
extend a new Extension Period to the holders of the Capital Securities. There is
no limitation on the number of times that the Corporation may elect to begin an
Extension Period.
OPTIONAL PREPAYMENT. The New Junior Subordinated Debentures will be
prepayable, in whole or in part, at the option of the Corporation on or after
December 15, 2006, at a prepayment price (the "Optional Prepayment Price") equal
to the outstanding principal amount of the New Junior Subordinated Debentures to
be redeemed, plus accrued interest thereon to the date of prepayment.
CONDITIONAL RIGHT TO ADVANCE MATURITY AND SPECIAL EVENT PREPAYMENT. If a
Tax Event occurs, then the Corporation will have the right (i) prior to the
termination of the Trust, to advance the Stated Maturity Date of the New Junior
Subordinated Debentures to the minimum extent required, but not less than 30
years from the date of original issuance thereof, or (ii) to terminate the Trust
(if not previously terminated) and advance the Stated Maturity Date of the New
Junior Subordinated Debentures to the minimum extent required, but not less than
40 years for the date of original issuance thereof, in each case such that in
the opinion of counsel to the Corporation experienced in such matters, after
advancing the maturity date, interest paid on the New Junior Subordinated
Debentures will be deductible for federal income tax purposes.
If a Special Event (as defined below) shall occur and be continuing, the
Corporation may, at its option, prepay the New Junior Subordinated Debentures in
whole (but not in part) at any time within 90-days of the occurrence of such
Special Event, at a prepayment price (the "Special Event Prepayment Price")
equal to the greater of (i) 100% of the principal amount of such Junior
Subordinated Debentures or (ii) the sum, as determined by a Quotation Agent, of
the present values of the remaining scheduled payments of principal and interest
thereon to December 15, 2006, the first date on which the Junior Subordinated
Debentures are subject to optional prepayment, discounted to the prepayment date
on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day
months) at the Adjusted Treasury Rate, plus, in each case, accrued interest
thereon to the date of prepayment.
A "Special Event" means a Conditional Tax Redemption Event (as defined under
"Description of New Securities--Conditional Right to Advance Maturity and
Special Event Redemption), or an Investment Company Event (as defined below), as
the case may be.
"Investment Company Event" means that the Corporation shall have received an
opinion of an independent counsel experienced in practice under the Investment
Company Act to the effect that, as a result of the occurrence of a change in law
or regulation or a change in interpretation or application of law or regulation
by any legislative body, court, governmental agency or regulatory authority (a
"Change in Investment Company Act Law"), there is more than insubstantial risk
that the Trust is or will be considered an "investment company" which is
required to be registered under the Investment Company Act, which Change in
Investment Company Act Law becomes effective on or after December 20, 1996.
"Adjusted Treasury Rate" means, with respect to any prepayment date, the
rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such prepayment date plus (i) 1.00% if such prepayment date
occurs on or prior to December 15, 1997 and (ii) 0.50% in all other cases.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the remaining
term to the Stated Maturity Date of the New Junior Subordinated Debentures 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 term of the New Junior Subordinated
Debentures.
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Debenture Trustee after consultation with the Corporation. "Reference Treasury
Dealer" means: (i) Donaldson, Lufkin & Jenrette
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Securities Corporation and its successors; PROVIDED, HOWEVER, that if the
foregoing shall cease to be a primary U.S. Government securities dealer in New
York City (a "Primary Treasury Dealer"), the Corporation shall substitute
therefor another Primary Treasury Dealer; and (ii) any other Primary Treasury
Dealer selected by the Debenture Trustee after consultation with the
Corporation.
"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 Reference Treasury Dealer Quotations for such prepayment date, after
excluding the highest and lowest such Reference Treasury Dealer Quotations, or
(B) if the Debenture Trustee obtains fewer than three such Reference Treasury
Dealer Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any prepayment date, the average, as determined by the
Debenture 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 Debenture Trustee by such Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third Business Day preceding such prepayment date.
"Additional Sums" means the additional amounts as may be necessary in order
that the amount of Distributions then due and payable by the Trust on the
outstanding Capital Securities and Common Securities shall not be reduced as a
result of any additional taxes, duties and other governmental charges to which
the Trust has become subject as a result of a Tax Event.
Notice of any prepayment will be mailed at least 30 days but not more than
60-days before the redemption date to each holder of New Junior Subordinated
Debentures to be prepaid at its registered address. Unless the Corporation
defaults in payment of the prepayment price, on and after the prepayment date
interest ceases to accrue on such New Junior Subordinated Debentures called for
prepayment.
If the Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, the Corporation will pay as
additional amounts on the New Junior Subordinated Debentures the Additional
Sums.
RESTRICTIONS ON CERTAIN PAYMENTS. The Corporation will also covenant that
if at any time (1) there shall have occurred any event of which the Corporation
has actual knowledge that (x) is, or with the giving of notice or the lapse of
time, or both, would be, a Debenture Event of Default and (y) in respect of
which the Corporation shall not have taken reasonable steps to cure, (2) the
Corporation shall be in default with respect to its payment of any obligations
under the New Guarantee and the New Junior Subordinated Debentures are held by
the Trust or (3) the Corporation shall have given notice of its election of an
Extension Period as provided in the Indenture and shall not have rescinded such
notice, and such Extension Period, or any extension thereof, shall have
commenced, then the Corporation will not, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Corporation's capital stock (which includes common
and preferred stock) or (ii) make any payment of principal, interest or premium,
if any, on or repay or repurchase or redeem any debt securities of the
Corporation (including Other Debentures) that rank PARI PASSU with or junior in
right of payment to the New Junior Subordinated Debentures or (iii) make any
guarantee payments with respect to any guarantee by the Corporation of the debt
securities of any subsidiary of the Corporation (including under Other
Guarantees) if such guarantee ranks PARI PASSU or junior in right of payment to
the New Junior Subordinated 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 Corporation, (b) any declaration of a
dividend in connection with the implementation of a stockholder's rights plan,
or the issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights
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pursuant thereto, (c) payments under the Guarantee, (d) as a result of a
reclassification of the Corporation's capital stock or the exchange or
conversion of one class or series of the Corporation's capital stock for another
class or series of the Corporation's capital stock, (e) the purchase of
fractional interests in shares of the Corporation'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 related to the
issuance of common stock or rights under any of the Corporation's benefit plans
for its directors, officers or employees or any of the Corporation's dividend
reinvestment plans).
MODIFICATION OF INDENTURE. From time to time the Corporation and the
Debenture Trustee may, without the consent of the holders of Junior Subordinated
Debentures, amend, waive or supplement the Indenture for specified purposes,
including, among other things, curing ambiguities, defects or inconsistencies
(provided that any such action does not materially adversely affect the interest
of the holders of Junior Subordinated Debentures) and qualifying, or maintaining
the qualification of, the Indenture under the Trust Indenture Act. The Indenture
contains provisions permitting the Corporation and the Debenture Trustee, with
the consent of the holders of a majority in principal amount of Junior
Subordinated Debentures, to modify the Indenture in a manner affecting the
rights of the holders of Junior Subordinated Debentures; provided, that no such
modification may, without the consent of the holders of each outstanding Junior
Subordinated Debenture so affected, (i) change the Stated Maturity, or reduce
the principal amount of the Junior Subordinated Debentures or reduce the rate or
extend the time of payment of interest thereon or (ii) reduce the percentage of
principal amount of Junior Subordinated Debentures, the holders of which are
required to consent to any such modification of the Indenture.
DEBENTURE EVENTS OF DEFAULT. The Indenture provides that any one or more of
the following described events with respect to the New Junior Subordinated
Debentures constitutes a "Debenture Event of Default" (whatever the reason for
such Debenture Event of Default and whether it shall be voluntary or involuntary
or be effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body):
(i) failure for 30 days to pay any interest on the New Junior
Subordinated Debentures or any Other Debentures when due (subject to the
deferral of any due date in the case of an Extension Period); or
(ii) failure to pay any principal on the New Junior Subordinated
Debentures or any Other Debentures when due whether at maturity, upon
redemption, by declaration of acceleration of maturity or otherwise; or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Indenture for 90 days after written notice to the
Corporation from the Debenture Trustee or the holders of at least 25% in
aggregate outstanding principal amount of Junior Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Corporation.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Debenture
Trustee. The Debenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Junior Subordinated Debentures may declare
the principal due and payable immediately upon a Debenture Event of Default. The
holders of a majority in aggregate outstanding principal amount of the Junior
Subordinated Debentures may annul such declaration and waive the default if the
default (other than the non-payment of the principal of the Junior Subordinated
Debentures which has become due solely by such acceleration) has been cured and
a sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee.
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The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures affected thereby may, on behalf of the holders of
all the Junior Subordinated Debentures, waive any past default, except a default
in the payment of principal or interest (unless such default has been cured and
a sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee) or
a default in respect of a covenant or provision which under the Indenture cannot
be modified or amended without the consent of the holder of each outstanding
Junior Subordinated Debenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF NEW CAPITAL SECURITIES. If a
Debenture Event of Default shall have occurred and be continuing and shall be
attributable to the failure of the Corporation to pay principal of or interest
on the New Junior Subordinated Debentures on the due date, a holder of New
Capital Securities may institute a Direct Action. The Corporation may not amend
the Indenture to remove the foregoing right to bring a Direct Action without the
prior written consent of the holders of all of the New Capital Securities. If
the right to bring a Direct Action is removed following the Exchange Offer, the
Trust may become subject to the reporting obligations under the Exchange Act.
Notwithstanding any payments made to a holder of New Capital Securities by the
Corporation in connection with a Direct Action, the Corporation shall remain
obligated to pay the principal of or interest on the New Junior Subordinated
Debentures, and the Corporation shall be subrogated to the rights of the holder
of such New Capital Securities with respect to payments on the New Capital
Securities to the extent of any payments made by the Corporation to such holder
in any Direct Action.
The holders of the New Capital Securities will not be able to exercise
directly any remedies, other than those set forth in the preceding paragraph,
available to the holders of the New Junior Subordinated Debentures unless there
shall have been an Event of Default under the Trust Agreement. See "--
Description of New Capital Securities Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS. The Indenture
provides that the Corporation shall not consolidate with or merge into any other
Person or convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to any Person, and no Person shall consolidate with
or merge into the Corporation or convey, transfer or lease its properties and
assets as an entirety or substantially as an entirety to the Corporation,
unless: (i) in case the Corporation consolidates with or merges into another
Person or conveys or transfers its properties and assets substantially as an
entirety to any Person, the successor Person is organized under the laws of the
United States or any State or the District of Columbia, and such successor
Person expressly assumes the Corporation's obligations on the Junior
Subordinated Debentures; (ii) immediately after giving effect thereto, no
Debenture Event of Default, and no event which, after notice or lapse of time or
both, would become a Debenture Event of Default, shall have occurred and be
continuing; and (iii) certain other conditions as prescribed in the Indenture
are met.
The general provisions of the Indenture do not afford holders of the New
Junior Subordinated Debentures protection in the event of a highly leveraged or
other transaction involving the Corporation that may adversely affect holders of
the New Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE. The Indenture provides that when, among other
things, all New Junior Subordinated Debentures not previously delivered to the
Debenture Trustee for cancellation (i) have become due and payable or (ii) will
become due and payable at maturity within one year, and the Corporation deposits
or causes to be deposited with the Debenture Trustee funds, in trust, for the
purpose and in an amount sufficient to pay and discharge the entire indebtedness
on the New Junior Subordinated Debentures not previously delivered to the
Debenture Trustee for cancellation, for the principal and interest to the date
of the deposit or to the Stated Maturity Date, as the case may be, then the
Indenture will cease to be of further effect (except as to the Corporation's
obligations to pay all other sums due pursuant to the Indenture and to provide
the officers' certificates and opinions of counsel described therein), and the
Corporation will be deemed to have satisfied and discharged the Indenture.
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SUBORDINATION. In the Indenture, the Corporation has covenanted and agreed
that any Junior Subordinated Debentures will be subordinate and junior in right
of payment to all Senior Indebtedness to the extent provided in the Indenture.
Upon any payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Corporation, the holders of Senior Indebtedness
will first be entitled to receive payment in full before the holders of Junior
Subordinated Debentures will be entitled to receive or retain any payment in
respect thereof.
In the event of the acceleration of the maturity of Junior Subordinated
Debentures, the holders of all Senior Indebtedness outstanding at the time of
such acceleration will first be entitled to receive payment in full before the
holders of Junior Subordinated Debentures will be entitled to receive or retain
any payment in respect of the Junior Subordinated Debentures.
No payments on account of principal or interest in respect of the Junior
Subordinated Debentures may be made if there shall have occurred and be
continuing a default in any payment with respect to Senior Indebtedness, or an
event of default with respect to any Senior Indebtedness resulting in the
acceleration of the maturity thereof, or if any judicial proceeding shall be
pending with respect to any such default.
"Senior Indebtedness" shall mean all Indebtedness for Money Borrowed,
whether outstanding on the date of execution of the Indenture or thereafter
created, assumed or incurred, unless the terms thereof specifically provide that
it is not superior in right of payment to the Junior Subordinated Debentures,
and any deferrals, renewals or extensions of such Senior Indebtedness.
"Indebtedness for Money Borrowed" shall mean any obligation of, or any
obligation guaranteed by, the Corporation for the repayment of borrowed money,
whether or not evidenced by bonds, debentures, notes or other written
instruments.
By reason of such subordination, in the event of an insolvency, creditors of
the Corporation who are holders of Senior Indebtedness, as well as certain
general creditors of the Corporation, may recover more, ratably, than the
holders of the Junior Subordinated Debentures. Additionally, the Corporation
currently conducts substantially all of its operations through subsidiaries, and
the holders of Junior Subordinated Debentures will be structurally subordinated
to the creditors of the Corporation's subsidiaries. See "Risk Factors--Ranking
of Subordinated Obligations Under the Guarantee and the Junior Subordinated
Debentures."
The Indenture places no limitation on the amount of additional Senior
Indebtedness that may be incurred by the Corporation. The Corporation expects
from time to time to incur additional indebtedness constituting Senior
Indebtedness.
GOVERNING LAW. The Indenture and the New Junior Subordinated Debentures
will be governed by and construed in accordance with the laws of the State of
New York.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE. Following the Exchange Offer
and the qualification of the Indenture under the Trust Indenture Act, the
Debenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Debenture Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of New Junior Subordinated Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The Debenture Trustee is not required to expend
or risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Debenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
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DESCRIPTION OF NEW GUARANTEE
The Old Guarantee was executed and delivered by the Corporation concurrently
with the issuance by the Trust of the Old Capital Securities for the benefit of
the holders from time to time of the Old Capital Securities. As soon as
practicable after the date hereof, the Old Guarantee will be exchanged by the
Corporation for the New Guarantee for the benefit of the holders from time to
time of the New Capital Securities. The New Guarantee has been qualified under
the Trust Indenture Act. This summary of certain provisions of the New Guarantee
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, all of the provisions of the New Guarantee, including the
definitions therein of certain terms, and the Trust Indenture Act. The Guarantee
Trustee will hold the New Guarantee for the benefit of the holders of the New
Capital Securities.
GENERAL. The Corporation will irrevocably agree to pay in full on a
subordinated basis, to the extent set forth herein, the Guarantee Payments (as
defined below) to the holders of the New Capital Securities, as and when due,
regardless of any defense, right of set-off or counterclaim that the Trust may
have or assert other than the defense of payment. The following payments with
respect to the New Capital Securities, to the extent not paid by or on behalf of
the Trust (the "Guarantee Payments"), will be subject to the New Guarantee: (i)
any accumulated and unpaid Distributions required to be paid on New Capital
Securities, to the extent that the Trust has funds on hand legally available
therefor at such time, (ii) the applicable Redemption Price with respect to New
Capital Securities called for redemption, to the extent that the Trust has funds
on hand legally available therefor at such time, or (iii) upon a voluntary or
involuntary termination and liquidation of the Trust, the lesser of (a) the
Liquidation Distribution and (b) the amount of assets of the Trust remaining
available for distribution to holders of New Capital Securities. The
Corporation's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Corporation to the holders of the New
Capital Securities or by causing the Trust to pay such amounts to such holders.
The New Guarantee will rank subordinate and junior in right of payment to
all Senior Indebtedness to the extent provided therein. See "--Status of New
Guarantee". Because the Corporation is a holding company, the right of the
Corporation to participate in any distribution of assets of any subsidiary upon
such subsidiary's liquidation or reorganization or otherwise, is subject to the
prior claims of creditors of that subsidiary, except to the extent the
Corporation may itself be recognized as a creditor of that subsidiary.
Accordingly, the Corporation's obligations under the New Guarantee will be
effectively subordinated to all existing and future liabilities of the
Corporation's subsidiaries, and claimants should look only to the assets of the
Corporation for payments thereunder. See "--Description of New Junior
Subordinated Debentures--General." The New Guarantee does not limit the
incurrence or issuance of other secured or unsecured debt of the Corporation,
including Senior Indebtedness, whether under the Indenture, any other indenture
that the Corporation may enter into in the future or otherwise.
The Corporation will, through the New Guarantee, the Trust Agreement, the
New Junior Subordinated Debentures and the Indenture, taken together, fully,
irrevocably and unconditionally guarantee all of the Trust's obligations under
the New Capital Securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Trust's obligations under the New Capital Securities. See "Relationship Among
the New Capital Securities, the Trust Agreement, the New Junior Subordinated
Debentures and the New Guarantee."
STATUS OF THE NEW GUARANTEE. The New Guarantee will constitute an unsecured
obligation of the Corporation and will rank subordinate and junior in right of
payment to all Senior Indebtedness in the same manner as New Junior Subordinated
Debentures, except in the case of a bankruptcy or insolvency proceeding in
respect of the Corporation, in which case the New Guarantee will rank
subordinate and junior in right of payment to all liabilities (other than Other
Guarantees) of the Corporation.
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The New Guarantee will rank PARI PASSU with the Old Guarantee and with all
Other Guarantees issued by the Corporation. The New Guarantee will constitute a
guarantee of payment and not of collection (I.E., the guaranteed party may
institute a legal proceeding directly against the Corporation to enforce its
rights under the New Guarantee without first instituting a legal proceeding
against any other person or entity). The New Guarantee will be held for the
benefit of the holders of the New Capital Securities. The New Guarantee will not
be discharged except by payment of the Guarantee Payments in full to the extent
not paid by the Trust or upon distribution to the holders of the New Capital
Securities of the New Junior Subordinated Debentures. The Guarantee does not
place a limitation on the amount of additional Senior Indebtedness that may be
incurred by the Corporation. The Corporation expects from time to time to incur
additional indebtedness constituting Senior Indebtedness.
AMENDMENTS AND ASSIGNMENT. Except with respect to any changes that do not
materially adversely affect the rights of holders of the New Capital Securities
(in which case no vote will be required), the New Guarantee may not be amended
without the prior approval of the holders of a majority of the Liquidation
Amount of such outstanding New Capital Securities. The manner of obtaining any
such approval will be as set forth under "--Description of New Capital
Securities--Voting Rights; Amendment of the Trust Agreement." All guarantees and
agreements contained in the Guarantee Agreement shall bind the successors,
assigns, receivers, trustees and representatives of the Corporation and shall
inure to the benefit of the holders of the New Capital Securities then
outstanding.
EVENTS OF DEFAULT. An event of default under the New Guarantee will occur
upon the failure of the Corporation to perform any of its payment or other
obligations thereunder. The holders of a majority in Liquidation Amount of the
New Capital Securities will have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Guarantee Trustee
in respect of the New Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the New Guarantee.
Any holder of the New Capital Securities may institute a legal proceeding
directly against the Corporation to enforce its rights under the New Guarantee
without first instituting a legal proceeding against the Trust, the Guarantee
Trustee or any other person or entity.
The Corporation, as guarantor, will be required to file annually with the
New Guarantee Trustee a certificate as to whether or not the Corporation is in
compliance with all the conditions and covenants applicable to it under the New
Guarantee.
TERMINATION OF THE NEW GUARANTEE. The New Guarantee will terminate and be
of no further force and effect upon full payment of the applicable Redemption
Price of the New Capital Securities, upon full payment of the Liquidation Amount
payable upon liquidation of the Trust or upon distribution of New Junior
Subordinated Debentures to the holders of the New Capital Securities. The New
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of the New Capital Securities must restore payment
of any sums paid under the New Capital Securities or the New Guarantee.
GOVERNING LAW. The New Guarantee will be governed by and construed in
accordance with the laws of the State of New York.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE. The Guarantee Trustee, other
than during the continuance of a default by the Corporation in performance of
the New Guarantee, will undertake to perform only such duties as are
specifically set forth in the Guarantee and, during the continuance of such a
default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Guarantee Trustee will be under no obligation to exercise any of
the powers vested in it by the New Guarantee at the request of any holder of the
New Capital Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby.
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DESCRIPTION OF OLD SECURITIES
The terms of the Old Securities are identical in all materials respects to
the New Securities, except that (i) the Old Securities have not been registered
under the Securities Act and are entitled to certain rights under the
Registration Rights Agreement (which rights will terminate upon consummation of
the Exchange Offer, except under limited circumstances), (ii) the New Capital
Securities will not contain the $100,000 minimum Liquidation Amount transfer
restriction and certain other restrictions on transfer applicable to the Old
Capital Securities, (iii) the New Capital Securities will not provide for any
increase in the Distribution rate thereon, (iv) the New Junior Subordinated
Debentures will not contain the $100,000 minimum principal amount transfer
restriction and (v) the New Junior Subordinated Debentures will not provide for
any increase in the interest rate thereon. The Old Securities provide that, in
the event that a registration statement relating to the Exchange Offer has not
been filed by May 19, 1997 and been declared effective by June 18, 1997, or, in
certain limited circumstances, in the event a shelf registration statement (the
"Shelf Registration Statement") with respect to the resale of the Old Capital
Securities is not declared effective by June 18, 1997, then interest will accrue
(in addition to the stated interest rate on the Old Junior Subordinated
Debentures) at the rate of 0.25% per annum on the principal amount of the Old
Junior Subordinated Debentures and Distributions will accrue (in addition to the
stated Distribution rate on the Old Capital Securities) at the rate of 0.25% per
annum on the Liquidation Amount of the Old Capital Securities, for the period
from the occurrence of such event until such time as such required Exchange
Offer is consummated or any required Shelf Registration Statement is effective.
The New Securities are not, and upon consummation of the Exchange Offer the Old
Securities will not be, entitled to any such additional interest or
Distributions. Accordingly, holders of Old Capital Securities should review the
information set forth under "Risk Factors--Certain Consequences of a Failure to
Exchange Old Capital Securities" and "Description of New Securities."
RELATIONSHIP AMONG THE NEW CAPITAL SECURITIES, THE TRUST AGREEMENT,
THE NEW JUNIOR SUBORDINATED DEBENTURES AND THE NEW GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the New Capital
Securities (to the extent the Trust has funds on hand legally available for the
payment of such Distributions) will be irrevocably guaranteed by the Corporation
as and to the extent set forth under "Description of New Securities--
Description of New Guarantee." Taken together, the Corporation's obligations
under the New Junior Subordinated Debentures, the Indenture, the Trust Agreement
and the New Guarantee will provide, in the aggregate, a full, irrevocable and
unconditional guarantee of payments of Distributions and other amounts due on
the New Capital Securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Trust's obligations under the New Capital Securities. If and to the extent that
the Corporation does not make the required payments on the New Junior
Subordinated Debentures, the Trust will not have sufficient funds to make the
related payments, including Distributions, on the New Capital Securities. The
New Guarantee will not cover any such payment when the Trust does not have
sufficient funds on hand legally available therefor. In such event, the remedy
of a holder of New Capital Securities is to institute a Direct Action. The
obligations of the Corporation under the New Guarantee will be subordinate and
junior in right of payment to all Senior Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
New Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the New Capital Securities, primarily
because: (i) the aggregate principal amount or Prepayment Price of the New
Junior Subordinated Debentures will be equal to the sum of the Liquidation
Amount or
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Redemption Price, as applicable, of the New Capital Securities and Common
Securities, (ii) the interest rate and interest and other payment dates on the
New Junior Subordinated Debentures will match the Distribution rate and
Distribution and other payment dates for the Trust Securities; (iii) the
Corporation shall pay for all and any costs, expenses and liabilities of the
Trust except the Trust's obligations to holders of Trust Securities under such
Trust Securities; and (iv) the Trust Agreement provides that the Trust is not
authorized to engage in any activity that is not consistent with the limited
purposes thereof.
ENFORCEMENT RIGHTS OF HOLDERS OF NEW CAPITAL SECURITIES
A holder of any New Capital Security may institute a legal proceeding
directly against the Corporation to enforce its rights under the New Guarantee
without first instituting a legal proceeding against the Guarantee Trustee, the
Trust or any other person or entity.
A default or event of default under any Senior Indebtedness would not
constitute a default or Event of Default under the Trust Agreement. However, in
the event of payment defaults under, or acceleration of, Senior Indebtedness,
the subordination provisions of the Indenture provide that no payments may be
made in respect of the New Junior Subordinated Debentures until such Senior
Indebtedness has been paid in full or any payment default thereunder has been
cured or waived. Failure to make required payments on New Junior Subordinated
Debentures would constitute an Event of Default under the Trust Agreement.
LIMITED PURPOSE OF THE TRUST
The Trust exists for the sole purpose of issuing and selling the Trust
Securities, using the proceeds from the sale of the Trust Securities to acquire
the Junior Subordinated Debentures and engaging in only those other activities
necessary, advisable or incidental thereto. The New Capital Securities will
represent preferred beneficial interests in the Trust. A principal difference
between the rights of a holder of a New Capital Security and a holder of a New
Junior Subordinated Debenture is that a holder of a New Junior Subordinated
Debenture will be entitled to receive from the Corporation the principal amount
of and interest on New Junior Subordinated Debentures held, while a holder of
New Capital Securities is entitled to receive Distributions from the Trust (or,
in certain circumstances, from the Corporation under the New Guarantee) if and
to the extent the Trust has funds on hand legally available for the payment of
such Distributions.
RIGHTS UPON DISSOLUTION
Unless the Junior Subordinated Debentures are distributed to holders of the
Trust Securities, upon any voluntary or involuntary dissolution and liquidation
of the Trust, the holders of the Trust Securities will be entitled to receive,
out of assets held by the Trust, the Liquidation Distribution in cash. See
"Description of New Securities--Description of New Capital
Securities--Liquidation of the Trust and Distribution of New Junior Subordinated
Debentures." Upon any voluntary or involuntary liquidation or bankruptcy of the
Corporation, the Property Trustee, as holder of the New Junior Subordinated
Debentures, would be a subordinated creditor of the Corporation, subordinated in
right of payment to all Senior Indebtedness as set forth in the Indenture, but
entitled to receive payment in full of principal and interest, before any
stockholders of the Corporation receive payments or distributions. Since the
Corporation will be the guarantor under the New Guarantee and will agree to pay
for all costs, expenses and liabilities of the Trust (other than the Trust's
obligations to the holders of its Trust Securities), the positions of a holder
of New Capital Securities and a holder of New Junior Subordinated Debentures
relative to stockholders of the Corporation in the event of liquidation or
bankruptcy of the Corporation are expected to be substantially the same.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
In the opinion of Willkie Farr & Gallagher, counsel to the Corporation and
the Trust ("Tax Counsel"), the following is a summary of certain of the material
United States federal income tax consequences of the purchase, ownership and
disposition of Capital Securities held as capital assets by a holder. This
summary only addresses the tax consequences to a holder that acquired the Old
Capital Securities upon initial issuance at their original offering price. It
does not deal with special classes of holders such as banks, thrifts, real
estate investment trusts, regulated investment companies, insurance companies,
dealers in securities or currencies, tax-exempt investors, or persons that will
hold the Capital Securities as a position in a "straddle," as part of a
"synthetic security" or "hedge," as part of a "conversion transaction" or other
integrated investment, or as other than a capital asset. This summary also does
not address the tax consequences to persons that have a functional currency
other than the U.S. dollar or the tax consequences to stockholders, partners or
beneficiaries of a holder of Capital Securities. Further, it does not include
any description of any alternative minimum tax consequences or the tax laws of
any state or local government or of any foreign government that may be
applicable to the Capital Securities. This summary is based on the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury regulations thereunder
and the administrative and judicial interpretations thereof, as of the date
hereof, all of which are subject to change, possibly on a retroactive basis.
EXCHANGE OF CAPITAL SECURITIES
The exchange of Old Capital Securities for New Capital Securities will not
be a taxable event to holders for United States federal income tax purposes.
Under applicable Treasury Regulations, the exchange of Old Capital Securities
for New Capital Securities pursuant to the Exchange Offer will not be treated as
an "exchange" for United States federal income tax purposes. Accordingly, the
New Capital Securities will have the same issue price as the Old Capital
Securities, and a holder will have the same adjusted tax basis and holding
period in the New Capital Securities as the holder had in the Old Capital
Securities immediately before the exchange.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
In connection with the issuance of the Old Junior Subordinated Debentures,
Tax Counsel has rendered its opinion generally to the effect that, under then
current law and assuming full compliance with the terms of the Indenture (and
certain other documents), and based on certain facts and assumptions contained
in such opinion, the Old Junior Subordinated Debentures will be classified for
United States federal income tax purposes as indebtedness of the Corporation. An
opinion of Tax Counsel, however, is not binding on the Internal Revenue Service
(the "IRS") or the courts. Prospective investors should note that no rulings
have been or are expected to be sought from the IRS with respect to any of these
issues and no assurance can be given that the IRS will not take contrary
positions. Moreover, no assurance can be given that any of the opinions
expressed herein will not be challenged by the IRS or, if challenged, that such
a challenge would not be successful.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Old Capital Securities, Tax Counsel
has rendered its opinion generally to the effect that, under then current law
and assuming full compliance with the terms of the Trust Agreement and the
Indenture (and certain other documents), and based on certain facts and
assumptions contained in such opinion, the Trust will be classified for United
States federal income tax purposes as a grantor trust and not as an association
taxable as a corporation. Accordingly, for United States federal income tax
purposes, each holder of Capital Securities generally will be considered the
owner of an undivided interest in the Junior Subordinated Debentures, and each
holder will be required to
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include in its gross income any interest (or original issue discount ("OID"
accrued) with respect to its allocable share of those Junior Subordinated
Debentures.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under recently issued Treasury regulations (the "Regulations") applicable to
debt instruments issued on or after August 13, 1996, a "remote" contingency that
stated interest will not be timely paid will be ignored in determining whether a
debt instrument is issued with OID. The Corporation believes that the likelihood
of its exercising its option to defer payments of interest is "remote" since
exercising that option would prevent the Corporation from declaring dividends on
any class of its equity securities. Accordingly, the Corporation intends to take
the position, based on the advice of Tax Counsel, that the Junior Subordinated
Debentures will not be considered to be issued with OID and, accordingly, stated
interest on the Junior Subordinated Debentures generally will be taxable to a
holder as ordinary income at the time it is paid or accrued in accordance with
such holder's method of accounting.
Under the Regulations, if the Corporation were to exercise its option to
defer payments of interest, the Junior Subordinated Debentures would at that
time be treated as issued with OID, and all stated interest on the Junior
Subordinated Debentures would thereafter be treated as OID as long as the Junior
Subordinated Debentures remain outstanding. In such event, all of a holder's
taxable interest income with respect to the Junior Subordinated Debentures would
thereafter be accounted for on an economic accrual basis regardless of such
holder's method of tax accounting, and actual distributions of stated interest
would not be reported as taxable income. Consequently, a holder of Capital
Securities would be required to include in gross income OID even though the
Corporation would not make actual cash payments during an Extension Period.
Moreover, under the Regulations, if the option to defer the payment of interest
was determined not to be "remote", the Junior Subordinated Debentures would be
treated as having been originally issued with OID. In such event, all of a
holder's taxable interest income with respect to the Junior Subordinated
Debentures would be accounted for on an economic accrual basis regardless of
such holder's method of tax accounting, and actual distributions of stated
interest would not be reported as taxable income.
The Regulations have not yet been addressed in any rulings or other
interpretations by the IRS, and it is possible that the IRS could take a
position contrary to Tax Counsel's interpretation herein.
Because income on the Capital Securities will constitute interest or OID,
corporate holders of the Capital Securities will not be entitled to a
dividends-received deduction with respect to any income recognized with respect
to the Capital Securities.
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
The Corporation will have the right at any time to liquidate the Trust and
cause the Junior Subordinated Debentures to be distributed to the holders of the
Trust Securities. Under current law, such a distribution, for United States
federal income tax purposes, would be treated as a nontaxable event to each
holder, and each holder would receive an aggregate tax basis in the Junior
Subordinated Debentures equal to such holder's aggregate tax basis in its
Capital Securities. A holder's holding period in the Junior Subordinated
Debentures so received in liquidation of the Trust would include the period
during which the Capital Securities were held by such holder. If, however, the
Trust is characterized for United States federal income tax purposes as an
association taxable as a corporation at the time of its dissolution, the
distribution of the Junior Subordinated Debentures may constitute a taxable
event to holders of Capital Securities and a holder's holding period in Junior
Subordinated Debentures would begin on the date such Junior Subordinated
Debentures were received.
Under certain circumstances described herein (see "Description of New
Securities--Description of New Capital Securities"), the Junior Subordinated
Debentures may be redeemed for cash and the proceeds of such redemption
distributed to holders in redemption of their Capital Securities. Under current
law, such a redemption would, for United States federal income tax purposes,
constitute a taxable
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disposition of the redeemed Capital Securities, and a holder could recognize
gain or loss as if it sold such redeemed Capital Securities for cash. See
"--Sales of Capital Securities."
SALES OF CAPITAL SECURITIES
A holder that sells Capital Securities will recognize gain or loss equal to
the difference between its adjusted tax basis in the Capital Securities and the
amount realized on the sale of such Capital Securities (other than with respect
to accrued and unpaid interest which has not yet been included in income, which
will be treated as ordinary income). A holder's adjusted tax basis in the
Capital Securities generally will be its initial purchase price increased by OID
(if any) previously includible in such holder's gross income to the date of
disposition and decreased by payments (if any) received on the Capital
Securities in respect of OID. Such gain or loss generally will be a capital gain
or loss and generally will be a long-term capital gain or loss if the Capital
Securities have been held for more than one year.
The Capital Securities may trade at a price that does not accurately reflect
the value of accrued but unpaid interest with respect to the underlying Junior
Subordinated Debentures. A holder who uses the accrual method of accounting for
tax purposes (and a cash method holder, if the Junior Subordinated Debentures
are deemed to have been issued with OID) who disposes of his Capital Securities
between record dates for payments of distributions thereon will be required to
include accrued but unpaid interest on the Junior Subordinated Debentures
through the date of disposition in income as ordinary income (I.E., interest or,
possibly, OID), and to add such amount to his adjusted tax basis in his pro rata
share of the underlying Junior Subordinated Debentures deemed disposed of. To
the extent the selling price is less than the holder's adjusted tax basis (which
will include all accrued but unpaid interest) a holder will recognize a capital
loss. Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes.
PROPOSED TAX LEGISLATION
On February 6, 1997, as part of President Clinton's Budget Proposal for
Fiscal Year 1998, the Treasury Department proposed the Proposed Legislation,
which would, among other things, generally deny corporate issuers a deduction
for interest in respect of certain debt obligations, if such debt obligations
have a maximum term in excess of 15 years and are not shown as indebtedness on
the issuer's applicable consolidated balance sheet. In addition, the Proposed
Legislation would generally deny corporate issuers a deduction for interest in
respect of certain debt obligations having a weighted average maturity of more
than 40 years. The Proposed Legislation would be effective for instruments
issued on or after the date of the first committee action. Therefore, under the
effective date guidance contained in the Proposed Legislation, such legislation
would not apply to the Junior Subordinated Debentures. There can be no
assurance, however, that the effective date guidance contained in the Proposed
Legislation will be incorporated into the Proposed Legislation, if enacted, or
that other legislation enacted after the date hereof will not otherwise
adversely affect the ability of the Corporation to deduct the interest payable
on the Junior Subordinated Debentures. Accordingly, there can be no assurance
that a Tax Event will not occur. The occurrence of a Tax Event may result in the
redemption of the Junior Subordinated Debentures for cash, in which event the
holders of the Capital Securities would receive cash in redemption of their
Capital Securities. See "Description of New Securities-- Description of New
Capital Securities--Redemption" and "Description of New Junior Subordinated
Debentures--Conditional Right to Advance Maturity and Special Event Prepayment."
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is not a U.S. Holder
for United States federal income tax purposes. A "U.S. Holder" is a holder of
Capital Securities who or which is a citizen or individual resident (or is
treated as a citizen or individual resident) of the United States for federal
income tax purposes, a corporation or partnership created or organized (or
treated as created or organized for federal income tax purposes) in or
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under the laws of the United States or any political subdivision thereof, or a
trust or estate the income of which is includible in its gross income for
federal income tax purposes without regard to its source. (For taxable years
beginning after December 31, 1996 (or for the immediately preceding taxable
year, if the trustee of a trust so elects), a trust is a U.S. Holder for federal
income tax purposes if, and only if, (i) a court within the United States is
able to exercise primary supervision over the administration of the trust and
(ii) one or more United States trustees have the authority to control all
substantial decisions of the trust.) Under present United States federal income
tax laws: (i) payments by the Trust or any of its paying agents to any holder of
a Capital Security who or which is a United States Alien Holder will not be
subject to United States federal withholding tax; provided that, (a) the
beneficial owner of the Capital Security does not actually or constructively own
10 percent or more of the total combined voting power of all classes of stock of
the Corporation entitled to vote, (b) the beneficial owner of the Capital
Security is not a controlled foreign corporation that is related to the
Corporation through stock ownership, and (c) either (A) the beneficial owner of
the Capital Security certifies to the Trust or its agent, under penalties of
perjury, that it is not a United States holder and provides its name and address
or (B) a securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
(a "Financial Institution"), and holds the Capital Security in such capacity,
certifies to the Trust or its agent, under penalties of perjury, that such
statement has been received from the beneficial owner by it or by a Financial
Institution between it and the beneficial owner and furnishes the Trust or its
agent with a copy thereof; and (ii) a United States Alien Holder of a Capital
Security will not be subject to United States federal withholding tax on any
gain realized upon the sale or other disposition of a Capital Security.
INFORMATION REPORTING TO HOLDERS
Generally, income on the Capital Securities will be reported to holders on
Forms 1099, which forms should be mailed to holders of Capital Securities by
January 31 following each calendar year.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Capital Securities may
be subject to a "backup" withholding tax of 31 percent unless the holder
complies with certain identification requirements. Any withheld amounts will be
allowed as a credit against the holder's United States federal income tax,
provided the required information is provided to the IRS.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
CAPITAL SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL
OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
The Corporation, the obligor with respect to the New Junior Subordinated
Debentures held by the Trust, and its affiliates and the Property Trustee may be
considered a "party in interest" (within the meaning of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) or a "disqualified person"
(within the meaning of Section 4975 of the Code) with respect to many employee
benefit plans ("Plans") that are subject to ERISA and/or Section 4975 of the
Code. Any purchaser proposing to acquire New Capital Securities with assets of
any Plan should consult with its counsel. The purchase and/or holding of New
Capital Securities by or on behalf of a Plan that is subject to the fiduciary
responsibility provisions of ERISA or the prohibited transaction provisions of
Section 4975 of the Code (including individual retirement arrangements and other
plans described in Section 4975(e)(1) of the Code) and with respect to which the
Corporation, the Property Trustee or any affiliate is a service provider
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(or otherwise is a party in interest or a disqualified person) may constitute or
result in a prohibited transaction under ERISA or Section 4975 of the Code,
unless such New Capital Securities are acquired pursuant to and in accordance
with an applicable exemption, such as Prohibited Transaction Class Exemption
("PTCE") 84-14 (an exemption for certain transactions entered into at the
direction of an independent qualified professional asset manager), PTCE 91-38
(an exemption for certain transactions involving bank collective investment
funds), PTCE 90-1 (an exemption for certain transactions involving insurance
company pooled separate accounts), PTCE 95-60 (an exemption for transactions
involving certain insurance company general accounts) or PTCE 95-23 (an
exemption for certain transactions entered into at the direction of an in-house
manager). In addition, as described below, a Plan fiduciary considering the
acquisition of New Capital Securities should be aware that the assets of the
Trust may be considered "plan assets" for ERISA purposes. Therefore, a Plan
fiduciary should consider whether the acquisition of New Capital Securities
could result in a delegation of fiduciary authority to the Property Trustee,
and, if so, whether such a delegation of authority is permissible under the
Plan's governing instrument or any investment management agreement with the
Plan. In making such determination, a Plan fiduciary should note that the
Property Trustee is a U.S. bank qualified to be an investment manager (within
the meaning of section 3(38) of ERISA) to which such a delegation of authority
generally would be permissible under ERISA. Further, prior to an Event of
Default with respect to the New Junior Subordinated Debentures, the Property
Trustee will have only limited custodial and ministerial authority with respect
to Trust assets.
Under the U.S. Department of Labor regulations defining "plan assets" for
ERISA purposes (the "Plan Assets Regulations"), the assets of the Trust will be
considered plan assets of Plans owning New Capital Securities unless the
aggregate investment in New Capital Securities by "benefit plan investors" is
not deemed "significant" or the New Capital Securities qualify as "publicly
offered securities" as defined in such Regulations. For this purpose, equity
participation by benefit plan investors will not be considered "significant" on
any date only if, immediately after the most recent acquisition of New Capital
Securities, the aggregate interest in the New Capital Securities held by benefit
plan investors will be less than 25% of the value of the New Capital Securities.
Although it is possible that the equity participation by benefit plan investors
in New Capital Securities on any date will not be "significant" for purposes of
the Plan Assets Regulations, such result cannot be assured.
The New Capital Securities may qualify as "publicly offered securities"
under the Plan Assets Regulations if at the time of the Exchange Offer they are
"widely held" and "freely transferable." Under the Plan Assets Regulations, a
class of securities is "widely held" only if it is a class that is owned by 100
or more investors independent of the issuer and of one another. Although it is
possible that at the time of the Exchange Offer the New Capital Securities will
be "widely held," such result cannot be assured. Whether a security is "freely
transferable" for purposes of the Plan Assets Regulations is a factual question
to be determined on the basis of all relevant facts and circumstances. If at the
time of the Exchange Offer the New Capital Securities qualify as "publicly
offered securities," the assets of the Trust should not be "plan assets" with
respect to Plans acquiring New Capital Securities. If at the time of the
Exchange Offer the New Capital Securities do not qualify as "publicly offered
securities," the "plan asset" considerations discussed in the preceding
paragraphs could be applicable in connection with the investment by Plans in the
New Capital Securities.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Capital Securities for its own account
in connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Capital Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by Participating Broker-Dealers during the period referred to below in
connection with resales of New Capital Securities received in exchange for Old
Capital Securities if such Old Capital Securities were acquired by such
Participating Broker-Dealers for their own accounts as a result of market-making
activities or other trading activities. The Corporation and the Trust have
agreed that this Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in
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connection with resales of such New Capital Securities for a period ending 90
days after the Expiration Date (subject to extension under certain limited
circumstances described herein) or, if earlier, when all such New Capital
Securities have been disposed of by such Participating Broker-Dealer. However, a
Participating Broker-Dealer who intends to use this Prospectus in connection
with the resale of New Capital Securities received in exchange for Old Capital
Securities pursuant to the Exchange Offer must notify the Corporation or the
Trust, or cause the Corporation or the Trust to be notified, on or prior to the
Expiration Date, that it is a Participating Broker-Dealer. Such notice may be
given in the space provided for that purpose in the Letter of Transmittal or may
be delivered to the Exchange Agent at one of the addresses set forth herein
under "The Exchange Offer--Exchange Agent." See "The Exchange Offer-- Resales of
New Capital Securities."
The Corporation or the Trust will not receive any cash proceeds from the
issuance of the New Capital Securities offered hereby. New Capital Securities
received by broker-dealers for their own accounts in connection with the
Exchange Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the New Capital Securities or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Capital Securities.
Any broker-dealer that resells New Capital Securities that were received by
it for its own account in connection with the Exchange Offer and any broker or
dealer that participates in a distribution of such New Capital Securities may be
deemed to be an "underwriter" within the meaning of the Securities Act, and any
profit on any such resale of New Capital Securities and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
VALIDITY OF NEW SECURITIES
The validity of the New Guarantee and the New Junior Subordinated Debentures
will be passed upon for the Corporation by Willkie Farr & Gallagher, New York,
New York. Certain matters relating to United States federal income tax
considerations will be passed upon for the Corporation by Willkie Farr &
Gallagher, New York, New York. Certain matters of Delaware law relating to the
validity of the New Capital Securities will be passed upon on behalf of the
Trust by Prickett, Jones, Elliott, Kristol & Schnee, special Delaware counsel to
the Trust.
EXPERTS
The financial statements and schedules of W.R. Berkley Corporation and
subsidiaries as of December 31, 1996 and 1995, and for each of the years in the
three year period ended December 31, 1996, and the selected financial data for
each of the years in the five year period ended December 31, 1996, included in
the W.R. Berkley Corporation Annual Report on Form 10-K for the year ended
December 31, 1996, incorporated by reference herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
Such report refers to the Company's adoption of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" on December
31, 1993, and the adoption of SFAS No. 109, "Accounting for Income Taxes" in
1992.
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