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FILE NO. 333-21237
THIS DOCUMENT IS BEING FILED
PURSUANT TO RULE 424(b)(3)
PROSPECTUS
AON CAPITAL A
OFFER TO EXCHANGE ITS 8.205% CAPITAL SECURITIES WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 FOR ANY AND ALL OF ITS OUTSTANDING 8.205%
CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY) FULLY AND UNCONDITIONALLY
GUARANTEED, AS DESCRIBED HEREIN, BY AON CORPORATION
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON MAY 5, 1997, UNLESS EXTENDED.
Aon Capital A, a trust created 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
$800,000,000 aggregate Liquidation Amount of its 8.205% 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 under "Available Information") of which this Prospectus
constitutes a part, for a like aggregate Liquidation Amount of its outstanding
8.205% Capital Securities (the "Old Capital Securities"), of which
$800,000,000 aggregate Liquidation Amount is outstanding. Pursuant to the
Exchange Offer, Aon Corporation, a Delaware corporation (the "Company" or
"Aon"), will exchange its guarantee of the payment of Distributions and
payments on liquidation or redemption of the Old Capital Securities (the "Old
Guarantee") for a like guarantee of the New Capital Securities (the "New
Guarantee") and all of its 8.205% Junior Subordinated Deferrable Interest
Debentures (the "Old Junior Subordinated Debentures"), of which $824,000,000
aggregate principal amount is outstanding, for a like aggregate principal
amount of its 8.205% Junior Subordinated Deferrable Interest Debentures (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 forms and terms of the New Securities are identical in all material
respects to the respective forms and 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 provide for
any increase in the Distribution rate thereon and (iii) the New Junior
Subordinated Debentures will not provide for any increase in the interest rate
thereon. See "Description of Securities" and "Description of Old Securities."
The New Capital Securities are being offered for exchange, and the New
Guarantee and New Junior Subordinated Debentures will be exchanged, in order
to satisfy certain obligations of the Company and the Trust under three
Registration Rights Agreements, each dated as of January 13, 1997
(collectively, the "Registration Rights Agreement"), among the Company, the
Trust and the Initial Purchasers (as defined herein). In the event that the
Exchange Offer is consummated, any Old Capital Securities that remain
outstanding 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 Amended and Restated
Trust Agreement of the Trust. In the event the Exchange Offer is consummated,
(i) the New Guarantee will apply to any Old Capital Securities that remain
outstanding and to any New Capital Securities issued in the Exchange Offer,
(ii) the Old Junior Subordinated Debentures will be retired and canceled and
(iii) the New Junior Subordinated Debentures will be issued to The Bank of New
York, as Property Trustee under the Trust.
(continued on next page)
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SEE "RISK FACTORS" COMMENCING ON PAGE 18 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY HOLDERS WHO TENDER OLD CAPITAL SECURITIES IN THE EXCHANGE
OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESEN-
TATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is March 28, 1997.
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Old Capital Securities may be tendered for exchange on or prior to 5:00 p.m.,
New York City time, on May 5, 1997 (such time on such date being hereinafter
called the "Expiration Date"), unless the Exchange Offer is extended by the
Company and 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 conditions which may be waived by the Company and
the Trust in their reasonable discretion and to the terms and provisions of the
Registration Rights Agreement. Old Capital Securities may be tendered for
exchange in whole or in part having a Liquidation Amount of not less than
$100,000 (100 Old Capital Securities) or any integral multiple of $1,000
Liquidation Amount (1 Old Capital Security) in excess thereof. The Company has
agreed to pay all expenses of the Trust, including expenses related to the
Exchange Offer. See "The Exchange Offer--Fees and Expenses." Each New Capital
Security will accumulate Distributions from the most recent Distribution Date
(as defined in "Description of Securities--Description of Capital Securities--
Distributions") on the Old Capital Securities surrendered in exchange for such
New Capital Securities or, if no Distributions have been paid or provided for
on such Old Capital Securities, from January 1, 1997. As a result, holders of
Old Capital Securities that are accepted for exchange will not receive
accumulated Distributions on such Old Capital Securities for any period from
and after the most recent Distribution Date on such Old Capital Securities or,
if no Distributions have been paid or provided for on such Old Capital
Securities, from and after January 1, 1997, and such holders will be deemed to
have waived the right to receive any Distributions on such Old Capital
Securities.
Neither the Company nor the Trust will receive any cash or other 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 From the Sale of Old Capital Securities" and "Plan of Distribution."
As the context may require, unless expressly stated otherwise, (i) "Capital
Securities" means the Old Capital Securities and, in the event the Exchange
Offer is consummated, the New Capital Securities, (ii) "Junior Subordinated
Debentures" means the Old Junior Subordinated Debentures and, in the event the
Exchange Offer is consummated, the New Junior Subordinated Debentures, (iii)
"Guarantee" means the Old Guarantee and, in the event the Exchange Offer is
consummated, the New Guarantee and (iv) "Securities" means the Old Securities
and, in the event the Exchange Offer is consummated, the New Securities. In
addition, as used herein, (i) the "Indenture" means the Junior Subordinated
Indenture dated as of January 13, 1997, as amended and supplemented from time
to time, between the Company and The Bank of New York, as trustee (the
"Debenture Trustee"), (ii) the "Trust Agreement" means the Amended and Restated
Trust Agreement dated as of January 13, 1997 relating to the Trust among the
Company, as Depositor, The Bank of New York, as Property Trustee (the "Property
Trustee"), The Bank of New York (Delaware), as Delaware Trustee (the "Delaware
Trustee"), the Administrative Trustees named therein (the "Administrative
Trustees" and, collectively with the Property Trustee and Delaware Trustee, the
"Issuer Trustees") and the holders, from time to time, of the Capital
Securities, (iii) the "Guarantee Agreement" means the Capital Securities
Guarantee Agreement dated as of January 13, 1997 (the "Old Guarantee
Agreement") between the Company and The Bank of New York, as trustee (the
"Guarantee Trustee"), and, in the event the Exchange Offer is consummated, the
Capital Securities Guarantee Agreement to be entered into between the Company
and the Guarantee Trustee (the "New Guarantee Agreement") relating to the Old
Guarantee and the New Guarantee, respectively, and (iv) the "Expense Agreement"
means the Agreement as to Expenses and Liabilities dated as of January 13, 1997
between the Company and the Trust.
The Capital Securities represent undivided beneficial interests in the assets
of the Trust. The Company is the owner of all of the beneficial interests
represented by common securities of the Trust (the "Common Securities" and,
collectively with the Capital Securities, the "Trust Securities"). The Bank of
New York is the Property Trustee. The Trust exists for the purpose of issuing
the Trust Securities and investing the proceeds thereof in the Junior
Subordinated Debentures. The Junior Subordinated Debentures mature on January
1, 2027
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(the "Stated Maturity"). The Capital Securities have a preference under
certain circumstances with respect to cash distributions and amounts payable
on liquidation, redemption or otherwise over the Common Securities. See
"Description of Securities--Description of Capital Securities--Subordination
of Common Securities."
Holders of Capital Securities are entitled to receive preferential
cumulative cash distributions and the holder of the Common Securities is
entitled to receive cumulative cash distributions arising from the payment of
interest on the Junior Subordinated Debentures accumulating from January 1,
1997 and payable semi-annually in arrears on the 1st day of January and July
of each year, commencing July 1, 1997, at the annual rate of 8.205% of the
Liquidation Amount of $1,000 per Capital Security and at the annual rate of
8.205% of the Liquidation Amount of $1,000 per Common Security
("Distributions"). The Company has the right 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
deferral period (each, an "Extension Period"), provided that no Extension
Period may extend beyond the Stated Maturity or any earlier prepayment date.
At any time following the termination of any Extension Period and the payment
of all amounts then due, the Company may elect to begin a new Extension
Period, subject to the foregoing requirements. If interest payments on the
Junior Subordinated Debentures are so deferred, Distributions on the Capital
Securities and on the Common Securities will also be deferred and the Company
will not be permitted, subject to certain exceptions described herein, to
declare or pay any cash distributions with respect to the Company's capital
stock (which includes common and preferred stock) or to make any payment with
respect to debt securities of the Company that rank on a parity with or junior
to the Junior Subordinated Debentures. During an Extension Period, interest on
the Junior Subordinated Debentures will continue to accrue (and the amount of
Distributions to which holders of the Capital Securities are entitled will
accumulate) at the rate of 8.205% per annum, compounded semi-annually, and
holders of Capital Securities will be required to accrue interest income for
United States federal income tax purposes. See "Description of Securities--
Description of Junior Subordinated Debentures--Option to Defer Interest
Payments" and "Certain Federal Income Tax Consequences--Interest Income and
Original Issue Discount."
The Company has, through the Guarantee, the Guarantee Agreement, the Trust
Agreement, the Junior Subordinated Debentures, the Indenture and the Expense
Agreement, taken together, fully, irrevocably and unconditionally guaranteed
on a subordinated basis all of the Trust's obligations under the Old Capital
Securities and the New Capital Securities. The combined operation of these
documents provides a full, irrevocable and unconditional guarantee of the
Trust's obligations under the Old Capital Securities and the New Capital
Securities. See "Relationship Among the Capital Securities, the Junior
Subordinated Debentures, the Guarantee and the Expense Agreement--Full and
Unconditional Guarantee." The Guarantee of the Company guarantees the payment
of Distributions and payments on liquidation or redemption of the Capital
Securities, but only in each case to the extent of funds held by the Trust, as
described herein. See "Description of Securities--Description of Guarantee."
If the Company does not make interest payments on the Junior Subordinated
Debentures held by the Trust, the Trust will have insufficient funds to pay
Distributions on the Capital Securities. The Guarantee does not cover payment
of Distributions when the Trust does not have sufficient funds to pay such
Distributions. In the event of a Debenture Event of Default (as defined in
"Description of Securities--Description of Junior Subordinated Debentures--
Debenture Events of Default") under the Indenture, a holder of Capital
Securities may institute a legal proceeding directly against the Company to
enforce payment of such Distributions to such holder. See "Description of
Securities--Description of Junior Subordinated Debentures--Enforcement of
Certain Rights By Holders of Capital Securities." The obligations of the
Company under the Guarantee and the Junior Subordinated Debentures are
unsecured and are subordinate and junior in right of payment to all Senior
Indebtedness (as defined in "Description of Securities--Description of Junior
Subordinated Debentures--Subordination") of the Company. Senior Indebtedness
of the Company includes existing and future senior debt, senior subordinated
debt and subordinated debt of the Company. As of December 31, 1996, there was
approximately $735 million of Senior Indebtedness of the Company outstanding.
The Capital Securities are subject to mandatory redemption in whole but not
in part (i) at the Stated Maturity 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") and (ii) contemporaneously with the optional prepayment by
the Company of the Junior Subordinated
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Debentures upon the occurrence and continuation of a Tax Event or an
Investment Company Event (each as defined in "Risk Factors--Tax Event or
Investment Company Event Redemption") at a redemption price equal to the Event
Prepayment Price (as defined below) (the "Event Redemption Price"). The
Maturity Redemption Price and the Event Redemption Price may be referred to
herein as the "Redemption Price." See "Description of Securities--Description
of Capital Securities--Redemption." The Junior Subordinated Debentures are
prepayable prior to the Stated Maturity at the option of the Company at any
time, in whole but not in part, upon the occurrence and continuation of a Tax
Event or an Investment Company Event at the Event Prepayment Price equal to
the greater of (a) 100% of the principal amount thereof or (b) as determined
by the Quotation Agent (as defined in "Description of Securities--Description
of Junior Subordinated Debentures--Tax Event or Investment Company Event
Prepayment"), the sum of the present value of 100% of the principal amount
that would be payable on January 1, 2027, together with the present values of
scheduled payments of interest from the prepayment date to January 1, 2027, in
each case, 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 in "Description of Securities--Description of Junior
Subordinated Debentures--Tax Event or Investment Company Event Prepayment"),
plus, in each case, accrued interest thereon to but excluding the date of
prepayment. The Event Prepayment Price may also be referred to herein as the
"Prepayment Price." See "Description of Securities--Description of Junior
Subordinated Debentures" and "--Tax Event or Investment Company Event
Prepayment."
The Company has the right to terminate the Trust at any time and, after
satisfaction of liabilities to creditors of the Trust as required by
applicable laws, cause the Junior Subordinated Debentures to be distributed to
the holders of the Capital Securities in liquidation of the Trust subject to
the Company having received an opinion of counsel to the effect that such
distribution will not be a taxable event to holders of Capital Securities. See
"Description of Securities--Capital Securities--Liquidation of the Trust and
Distribution of Junior Subordinated Debentures" and "Certain Federal Income
Tax Consequences--Distribution of Junior Subordinated Debentures to Holders of
Capital Securities."
The Trust is making the Exchange Offer for the 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.
Based on these interpretations by the staff of the Division of Corporation
Finance, and subject to the conditions described herein, the Company and the
Trust believe that a holder of Old Capital Securities (other than a holder who
is (a) a broker-dealer who purchased the Old Capital Securities directly from
the Trust to resell pursuant to Rule 144A under the Securities Act ("Rule
144A") or any other available exemption under the Securities Act, (b) a person
participating in the distribution of the Old Capital Securities or (c) a
person who is an "affiliate" of the Company or the Trust) who exchanges Old
Capital Securities in the Exchange Offer for New Capital Securities and then
resells such New Capital Securities will be viewed by the staff no differently
than a non-affiliated purchaser of registered securities who purchases such
securities in a registered primary offering of securities and, after
completion of such registered offering, may resell the New Capital Securities
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. Subject to the conditions described
herein, the Company and the Trust also believe that a broker-dealer may
participate in the Exchange Offer with respect to Old Capital Securities
acquired for its own account as a result of market-making activities or other
trading activities, provided that in connection with any resales of New
Capital Securities received in exchange for such Old Capital Securities, such
broker-dealer delivers a prospectus meeting the requirements of the Securities
Act, which may be this Prospectus. See "Exchange Offer--Resales of New Capital
Securities" and "Plan of Distribution."
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 Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co.,
the initial purchasers of the Old Capital Securities (the "Initial
Purchasers"), have advised the Company and the Trust that they currently
intend to make a market in the New Capital Securities, the Initial Purchasers
are not obligated to do
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so, and any market-making activity with respect to the New Capital Securities
may be interrupted or discontinued at any time without notice. Accordingly, no
assurance can be given that an active public or other market will develop for
the New capital Securities or as to the liquidity of or the trading market for
the New Capital Securities. The Company and the Trust will not apply for
listing of the New Capital Securities on any securities exchange or for
quotation through the National Association of Securities Dealers Automated
Quotation System.
Any Old Capital Securities not tendered and accepted in the Exchange Offer
will remain outstanding and will be entitled to 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 any Old
Capital Securities that remain outstanding will continue to be subject to all
of the existing restrictions upon transfer thereof and neither the Company 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.
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FOR NORTH CAROLINA INVESTORS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA
(THE "NORTH CAROLINA INSURANCE COMMISSIONER") NOR HAS THE NORTH CAROLINA
INSURANCE COMMISSIONER RULED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
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THE NEW CAPITAL SECURITIES WILL BE ISSUED, AND MAY BE TRANSFERRED, ONLY IN
BLOCKS HAVING A LIQUIDATION AMOUNT OF NOT LESS THAN $100,000 (100 NEW CAPITAL
SECURITIES). ANY TRANSFER, SALE OR OTHER DISPOSITION OF NEW CAPITAL SECURITIES
IN A BLOCK HAVING A LIQUIDATION AMOUNT OF LESS THAN $100,000 SHALL BE DEEMED
TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH TRANSFEREE SHALL BE
DEEMED NOT TO BE THE HOLDER OF SUCH NEW CAPITAL SECURITIES FOR ANY PURPOSE,
INCLUDING BUT NOT LIMITED TO THE RECEIPT OF DISTRIBUTIONS ON SUCH NEW CAPITAL
SECURITIES, AND SUCH TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER
IN SUCH NEW CAPITAL SECURITIES.
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AVAILABLE INFORMATION
The Company 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
450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commission located at 7 World Trade Center, Suite 1300, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, 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. 20549. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov. In addition, such reports, proxy statements and other
information can be inspected at the offices of the New York Stock Exchange on
which certain of the Company's securities are listed.
No separate financial statements of the Trust have been included herein. The
Company 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 "Aon Capital A" and "Description of
Securities." In addition, the Company does not expect that the Trust will file
reports under the Exchange Act with the Commission.
In connection therewith, the Company represents the following:
(i) the Capital Securities will be presented on the consolidated balance
sheets of the Company as a separate line item entitled "Company-obligated
Mandatorily Redeemable Preferred Capital Securities of Subsidiary Trust
holding solely the Company's Securities";
(ii) a footnote to the consolidated financial statements of the Company
will disclose that the sole asset of the Trust is $824,000,000 aggregate
principal amount of the Company's 8.205% Junior Subordinated Deferrable
Interest Debentures due January 1, 2027; and
(iii) it will include in an audited footnote to the consolidated
financial statements of the Company disclosure that (x) the Trust is wholly
owned; (y) the sole asset of the Trust is $824,000,000 aggregate principal
amount of the Company's 8.205% Junior Subordinated Deferrable Interest
Debentures due January 1, 2027; and (z) the back-up guarantees, in the
aggregate, provide a full and unconditional guarantee of the Trust's
obligations under the Capital Securities.
This Prospectus constitutes a part of a registration statement on Form S-4,
as amended (the "Registration Statement") filed by the Company 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
Company 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 Company hereby incorporates by reference in this Prospectus the
following reports filed with the Commission pursuant to Section 13 of the
Exchange Act:
(a) the Company's Annual Report on Form 10-K for the year ended December
31, 1996; and
(b) the Company's Current Report on Form 8-K dated January 15, 1997.
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All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus 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
hereof from the date of filing of such documents.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
AON CORPORATION, 123 NORTH WACKER DRIVE, CHICAGO, ILLINOIS 60606, TELEPHONE:
(312) 701-3000, ATTENTION: TREASURER. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY APRIL 28, 1997.
Any statement contained 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 deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such 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.
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus or incorporated by reference
herein.
AON CAPITAL A
The Trust is a statutory business trust, created under Delaware law pursuant
to the filing of a certificate of trust with the Delaware Secretary of State,
which is governed by the Trust Agreement. The Trust's business and affairs are
conducted by the Issuer Trustees: The Bank of New York, as Property Trustee,
The Bank of New York (Delaware), as Delaware Trustee, and three individual
Administrative Trustees who are employees or officers of or affiliated with the
Company. The Trust exists for the exclusive purposes of (i) issuing and selling
the Trust Securities, (ii) using the proceeds from the sale of the Common
Securities and Old Capital Securities to acquire the Old Junior Subordinated
Debentures, (iii) exchanging the Old Junior Subordinated Debentures for New
Junior Subordinated Debentures in the Exchange Offer pursuant to the Indenture
and (iv) engaging in only those other activities necessary, convenient or
incidental thereto (such as registering the transfer of Capital Securities).
Accordingly, the Junior Subordinated Debentures will be the sole assets of the
Trust, and payments by the Company under the Junior Subordinated Debentures and
the Expense Agreement will be the sole revenues of the Trust. All of the Common
Securities are owned by the Company.
The principal executive office of the Trust is c/o Aon Corporation, 123 N.
Wacker Drive, Chicago, Illinois 60606-1700, and its telephone number is (312)
701-3000.
AON CORPORATION
Aon Corporation (the "Company") is an insurance services holding company that
comprises a family of insurance brokerage, consulting and consumer insurance
companies. Through its insurance brokerage operations, the Company offers
commercial insurance brokerage, alternative risk solutions, risk management,
employee benefit and human resources consulting and managing general
underwriting services. In addition, the Company's insurance underwriting
businesses provide a variety of insurance products, including accident and
health coverage, traditional life insurance, extended warranties and credit
insurance. The Company's revenues were $3.5 billion in 1995 and $3.9 billion in
1996. Based on 1995 insurance brokerage and consulting revenues and without
giving effect to the acquisition of Alexander & Alexander Services Inc.
("A&A"), management believes that the Company is the second largest insurance
brokerage company in the world.
The principal executive offices of the Company are located at 123 N. Wacker
Drive, Chicago, Illinois 60606-1700, and its telephone number is (312) 701-
3000.
ACQUISITION OF ALEXANDER & ALEXANDER
On January 15, 1997, Subsidiary Corporation, Inc. ("Purchaser"), a wholly
owned subsidiary of the Company, consummated its cash tender offer (the
"Offer") for all the outstanding shares of Common Stock, par value $1.00 per
share (the "Common Stock"), and associated preferred stock purchase rights
(collectively, the "Shares"), of A&A at a price of $17.50 net cash per Share.
Pursuant to the Offer, Purchaser acquired approximately 44,293,552 Shares, or
97% of the outstanding Shares. All Shares validly tendered and not withdrawn
before expiration of the Offer at 12:00 midnight, New York City time, on
January 14, 1997, were accepted for payment, including approximately 1,846,882
Shares tendered pursuant to guaranteed delivery
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procedures. The Offer was made pursuant to the Agreement and Plan of Merger,
dated December 11, 1996, as amended (the "Merger Agreement"), among the
Company, Purchaser and A&A. On February 20, 1997, the stockholders of A&A
approved the merger of Purchaser into A&A (the "Merger"), and the Merger was
effected promptly thereafter. Pursuant to the Merger, all remaining Shares
(other than stock of A&A owned by A&A, the Company or any of their respective
subsidiaries) were converted into the right to receive $17.50 cash per Share.
On December 11, 1996, the Company and American International Group, Inc.
("AIG") entered into the Stock Purchase and Sale Agreement ("Stock Purchase and
Sale Agreement"). Pursuant to the Stock Purchase and Sale Agreement, the
Company agreed to buy and AIG agreed to sell for $317.5 million, plus accrued
dividends, all outstanding shares of 8% Series B Cumulative Convertible
Preferred Stock, par value $1.00 per share (the "Series B Preferred Stock"), of
A&A. On January 17, 1997, the Company purchased all 4,846,232 shares of Series
B Preferred Stock. Each share of Series B Preferred Stock is currently
convertible into approximately 2.94 shares of Class D Common Stock of A&A,
which Class D Common Stock is exchangeable for Common Stock on a share-for-
share basis.
Purchaser's payment of approximately $775 million for the aggregate purchase
price of the Shares purchased by Purchaser in the Offer was funded with capital
contributions to Purchaser by the Company. The Company derived the funds
necessary for such capital contribution and the funds necessary to purchase the
Series B Preferred Stock from cash on hand, the proceeds from the sale of
commercial paper and fixed maturities and the proceeds of the sale of the Old
Capital Securities. See "Pro Forma Consolidated Financial Information."
A&A is an insurance holding company which, through its subsidiaries, provides
professional risk management consulting, insurance brokerage and human resource
management consulting on a global basis. A&A's revenues were $1.3 billion in
1995 and $1.0 billion for the nine-month period ended September 30, 1996. Based
on 1995 revenues, management of the Company believes that A&A is the fourth
largest brokerage company in the world. Since 1994, A&A has engaged in a
significant restructuring of its operations and, for the nine months ended
September 30, 1996, A&A reported net income of $47.7 million, a 41.7% decrease
from its net income of $81.9 million for the same period in the previous year.
THE EXCHANGE OFFER
The Exchange Offer..........
Up to $800,000,000 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
having a Liquidation Amount of not less than
$100,000 (100 Old Capital Securities) or any in-
tegral multiple of $1,000 Liquidation Amount (1
Old Capital Security) in excess thereof. The Com-
pany and the Trust are making the Exchange Offer
in order to satisfy their obligations under the
Registration Rights Agreement relating to the Old
Securities. For a description of the procedures
for tendering Old Capital Securities, see "The
Exchange Offer--Procedures for Tendering Old Cap-
ital Securities."
Expiration Date.............
5:00 p.m., New York City time, on May 5, 1997
(such time on such date being hereinafter called
the "Expiration Date") unless the Exchange Offer
is extended by the Company and the Trust (in
which case the term "Expiration Date" shall mean
the latest date and time to which the Exchange
Offer is extended). See "The Exchange Offer--Ex-
piration Date; Extensions; Amendments."
9
<PAGE>
Conditions to the Exchange
Offer...................... The Exchange Offer is subject to certain condi-
tions which may be waived by the Company and the
Trust in their reasonable discretion and to the
terms and conditions of the Registration Rights
Agreement. The Exchange Offer is not conditioned
upon any minimum Liquidation Amount of Old Capi-
tal Securities being tendered for exchange. See
"The Exchange Offer--Conditions to the Exchange
Offer."
The Company and the Trust expressly reserve the
right, 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 been accepted for ex-
change) if the Company or the Trust determines,
in its reasonable discretion, that any of the
conditions referred to under "The Exchange Of-
fer--Conditions to the Exchange Offer" have oc-
curred or exist or have not been satisfied, (iii)
to extend the Expiration Date and retain all Old
Capital Securities tendered pursuant to the Ex-
change Offer, subject, however, to the right of
holders of Old Capital Securities to withdraw
their tendered Old Capital Securities, and (iv)
to waive any condition or otherwise amend the
terms of the Exchange Offer in any respect. See
"The Exchange Offer--Expiration Date; Extensions;
Amendments."
Procedures for Tendering
Old Capital Securities.....
Brokers, dealers, commercial banks, trust compa-
nies and other nominees who hold Old Capital Se-
curities through The Depository Trust Company
("DTC") may effect tenders by book-entry transfer
in accordance with DTC's Automated Tender Offer
Program ("ATOP"). Holders of such Old Capital Se-
curities 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. In
order for Old Capital Securities to be tendered
by a means other than by book-entry transfer, a
Letter of Transmittal must be completed and
signed in accordance with the instructions con-
tained therein. The Letter of Transmittal and any
other documents required by the Letter of Trans-
mittal must be delivered to The Bank of New York
(the "Exchange Agent") by mail, facsimile, hand
delivery or overnight carrier and either such Old
Capital Securities must be delivered to the Ex-
change Agent or specified procedures for guaran-
teed delivery must be complied with. See "The Ex-
change Offer--Procedures for Tendering Old
Capital Securities."
Letters of Transmittal, certificates for Old Cap-
ital Securities and any other documents required
by the Letter of Transmittal should not be deliv-
ered to the Company or the Trust. Such documents
should only be delivered to the Exchange Agent.
Questions regarding how to tender and requests
for information should be directed to the Ex-
change Agent. See "The Exchange Offer--Exchange
Agent."
10
<PAGE>
Withdrawal Rights........... Tenders of Old Capital Securities may be with-
drawn at any time on or prior to the Expiration
Date by delivering a written notice of such with-
drawal to the Exchange Agent in conformity with
certain procedures set forth below under "The Ex-
change Offer--Withdrawal Rights."
Resales of New Capital
Securities.................
Based on certain interpretations by the staff of
the Division of Corporation Finance of the Com-
mission, and subject to the conditions described
herein, the Company and the Trust believe that a
holder of Old Capital Securities (other than a
holder who is (a) a broker-dealer who purchased
the Old Capital Securities directly from the
Trust to resell pursuant to Rule 144A or any
other available exemption under the Securities
Act, (b) a person participating in the distribu-
tion of the Old Capital Securities or (c) a per-
son who is an "affiliate" of the Company or the
Trust) who exchanges Old Capital Securities in
the Exchange Offer for New Capital Securities and
then resells such New Capital Securities will be
viewed by the staff no differently than a non-af-
filiated purchaser of registered securities who
purchases such securities in a registered primary
offering of securities and, after completion of
such registered offering, may resell the New Cap-
ital Securities without further compliance with
the registration and prospectus delivery require-
ments of the Securities Act, provided that such
New Capital Securities are acquired in the ordi-
nary course of such holder's business and that
such holder is not participating, and has no ar-
rangement or understanding with any person to
participate, in a distribution (within the mean-
ing of the Securities Act) of such New Capital
Securities. Any holder of Old Capital Securities
who uses the Exchange Offer to participate in a
distribution of the New Capital Securities to be
acquired in the Exchange Offer, any broker-dealer
who receives New Capital Securities in exchange
for Old Capital Securities that were purchased
directly from the Trust to resell pursuant to
Rule 144A or any other available exemption under
the Securities Act, any person participating in
the distribution of the Old Capital Securities
who receives New Capital Securities in the Ex-
change Offer and any "affiliate" of the Company
or the Trust who receives New Capital Securities
in the Exchange Offer (a) will not be able to
rely on the interpretations of the staff of the
Division of Corporation Finance set forth in the
above-described interpretive letters and (b) must
comply with the registration and prospectus de-
livery requirements of the Securities Act in con-
nection with any sale or other transfer of such
New Capital Securities, unless such sale is made
pursuant to an exemption from such requirements.
Any such resale transaction must be made by de-
livery of a prospectus containing the selling
securityholder information required by the rules
of the Commission under the Securities Act. See
"The Exchange Offer--Resales of the New Capital
Securities."
Each holder (including any broker-dealer) of Old
Capital Securities who wishes to exchange Old
Capital Securities for New Capital
11
<PAGE>
Securities in the Exchange Offer will be required
to represent that (i) it is not an "affiliate" of
the Company or the Trust, (ii) any New Capital
Securities to be received by it are being ac-
quired 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) such holder
is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Se-
curities Act) of such New Capital Securities. The
Letter of Transmittal contains the foregoing rep-
resentations.
A broker-dealer who holds Old Capital Securities
for its own account as a result of market-making
activities or other trading activities and who
receives New Capital Securities in exchange for
such Old Capital Securities pursuant to the Ex-
change Offer may be deemed to be an "underwriter"
within the meaning of the Securities Act and will
be required to deliver a prospectus meeting the
requirements of the Securities Act in connection
with any resale of such New Capital Securities.
Based upon the position taken by the staff of the
Division of Corporation Finance of the Commission
in the interpretive letters referred to above,
the Company and the Trust believe that a broker-
dealer may participate in the Exchange Offer with
respect to Old Capital Securities acquired for
its own account as a result of market-making ac-
tivities or other trading activities (a "Partici-
pating Broker-Dealer"), provided that in connec-
tion with any resales of New Capital Securities
received in exchange for such Old Capital Securi-
ties, such broker-dealer delivers a prospectus
meeting the requirements of the Securities Act,
which may be the prospectus prepared for an ex-
change offer so long as it contains a description
of the plan of distribution with respect to the
resale of such New Capital Securities. According-
ly, the Company and the Trust will require each
broker-dealer who tenders, pursuant to the Ex-
change Offer, Old Capital Securities that were
acquired for its own account as the result of
market-making activities or other trading activi-
ties to acknowledge that it will deliver a pro-
spectus meeting the requirements of the Securi-
ties Act in connection with any resale of New
Capital Securities received in exchange for such
Old Capital Securities pursuant to the Exchange
Offer. The Letter of Transmittal contains the
foregoing acknowledgement. A Participating Bro-
ker-Dealer may fulfill its prospectus delivery
requirement in connection with resales of New
Capital Securities received in exchange for Old
Capital Securities that were acquired by such
Participating Broker-Dealer for its own account
as a result of market-making activities or other
trading activities with this Prospectus, as it
may be amended or supplemented from time to time,
during the 90-day period referred to below. Sub-
ject to certain provisions set forth in the Reg-
istration Rights Agreement and to the limitations
described under "The Exchange Offer--Resale of
New Capital Securities," the Company and the
Trust have agreed that this Prospectus, as it may
be amended or supplemented from time to time, may
be
12
<PAGE>
used by a Participating Broker-Dealer in connec-
tion with resales of such New Capital Securities
for a period ending 90 days after the Expiration
Date or, if earlier, when all such New Capital
Securities have been disposed of by such Partici-
pating Broker-Dealer. See "Plan of Distribution"
and "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 or de-
livery of an Agent's Message (as defined under
"The Exchange Offer--Acceptance for Exchange and
Issuance of New Capital Securities") in lieu
thereof, that, upon receipt of notice from the
Company or the Trust of the occurrence of any
event or the discovery of any fact which makes
any statement contained or incorporated by refer-
ence 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 Par-
ticipating Broker-Dealer will suspend the sale of
New Capital Securities (or the New Guarantee or
the New Junior Subordinated Debentures, as appli-
cable) pursuant to this Prospectus until the Com-
pany 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 Company or the Trust has
given notice that the sale of the New Capital Se-
curities (or the New Guarantee or the New Junior
Subordinated Debentures, as applicable) may be
resumed, as the case may be. See "The Exchange
Offer--Resales of New Capital Securities."
Exchange Agent.............. The Exchange Agent is The Bank of New York. The
addresses and telephone and facsimile numbers of
the Exchange Agent are set forth in "The Exchange
Offer--Exchange Agent" and in the Letter of
Transmittal.
Use of Proceeds.............
Neither the Company nor the Trust will receive
any cash or other proceeds from the issuance of
the New Capital Securities offered hereby. See
"Use of Proceeds From the Sale of Old Capital Se-
curities."
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.
13
<PAGE>
THE CAPITAL SECURITIES
Securities Offered.......... Up to $800,000,000 aggregate Liquidation Amount
of the Trust's 8.205% Capital Securities which
have been registered under the Securities Act
(Liquidation Amount $1,000 per 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 that remain outstand-
ing after consummation of the Exchange Offer will
constitute a single series of Capital Securities
under the Trust Agreement and, accordingly, will
vote together as a single class for purposes of
determining whether holders of the requisite per-
centage in outstanding Liquidation Amount thereof
have taken certain actions or exercised certain
rights under the Trust Agreement. See "Descrip-
tion of Securities--Description of Capital Secu-
rities--General." The forms and terms of the New
Securities are identical in all material respects
to the respective forms and terms of the Old Se-
curities, except that (i) the New Securities have
been registered under the Securities Act and
therefore are not subject to certain restrictions
on transfer applicable to the Old Securities,
(ii) the New Capital Securities will not provide
for any increase in the Distribution rate thereon
and (iii) the New Junior Subordinated Debentures
will not provide for any increase in the interest
rate thereon. Accordingly, as the context may re-
quire, unless expressly stated otherwise, (i)
"Capital Securities" means the Old Capital Secu-
rities and, in the event the Exchange Offer is
consummated, the New Capital Securities, (ii)
"Junior Subordinated Debentures" means the Old
Junior Subordinated Debentures and, in the event
the Exchange Offer is consummated, the New Junior
Subordinated Debentures, (iii) "Guarantee" means
the Old Guarantee and, in the event the Exchange
Offer is consummated, the New Guarantee and (iv)
"Securities" means the Old Securities and, in the
event the Exchange Offer is consummated, the New
Securities. See "The Exchange Offer--Purpose of
the Exchange Offer," "Description of Securities"
and "Description of Old Securities."
Distribution Dates.......... January 1 and July 1 of each year, commencing
July 1, 1997.
Extension Periods........... Distributions on Capital Securities will be de-
ferred for the duration of any Extension Period
elected by the Company with respect to the pay-
ment of interest on the Junior Subordinated De-
bentures. No Extension Period will exceed 10 con-
secutive semi-annual periods or extend beyond the
Stated Maturity or any earlier prepayment date.
See "Description of Securities--Description of
Junior Subordinated Debentures--Option to Defer
Interest Payments" and "Certain Federal Income
Tax Consequences--Interest Income and Original
Issue Discount."
Ranking..................... The Capital Securities rank on a parity, and pay-
ments thereon will be made pro rata, with the
Common Securities except as described under "De-
scription of Securities--Description of Capital
Securities
14
<PAGE>
--Subordination of Common Securities." The Junior
Subordinated Debentures rank on a parity with all
other junior subordinated debentures which may be
issued by the Company with substantially similar
subordination terms ("Other Debentures") and
which may be issued and sold (if at all) to other
trusts to be established by the Company (if any)
("Other Trusts"), and are unsecured and subordi-
nate and junior in right of payment to all Senior
Indebtedness to the extent and in the manner set
forth in the Indenture. Senior Indebtedness of
the Company includes existing and future senior
debt, senior subordinated debt and subordinated
debt of the Company. As of December 31, 1996,
there was approximately $735 million of Senior
Indebtedness of the Company outstanding. See "De-
scription of Securities--Description of Junior
Subordinated Debentures." The Guarantee ranks on
a parity with all other guarantees (if any),
which may be issued by the Company with respect
to capital securities (if any), to be issued by
Other Trusts ("Other Guarantees") and will con-
stitute an unsecured obligation of the Company
and will rank subordinate and junior in right of
payment to all liabilities of the Company to the
extent and in the manner set forth in the Guaran-
tee Agreement. See "Description of Securities--
Description of Guarantee."
Redemption.................. The Capital Securities are subject to mandatory
redemption in whole but not in part (i) at the
Stated Maturity upon repayment of the Junior Sub-
ordinated Debentures and (ii) contemporaneously
with the optional prepayment by the Company of
the Junior Subordinated Debentures upon the oc-
currence and continuation of a Tax Event or an
Investment Company Event, in each case at the ap-
plicable Redemption Price. See "Description of
Securities--Description of Capital Securities--
Redemption."
Rating...................... The Capital Securities have not been rated by
Standard & Poor's Ratings Services ("S&P") or by
Moody's Investors Services, Inc. ("Moody's"). On
February 4, 1997, S&P announced that the pre-
ferred stock of the Company was downgraded from
"AA-" to "A" and that the Company was removed
from CreditWatch (where it had been placed fol-
lowing the Company's announcement that it had en-
tered into the Merger Agreement with A&A). The
preferred stock of the Company is currently rated
"a3" by Moody's.
Transfer Restrictions....... The New Capital Securities will be issued, and
may be transferred, only in blocks having a Liq-
uidation Amount of not less than $100,000 (100
New Capital Securities). See "Description of Se-
curities--Description of Capital Securities--Re-
strictions on Transfer." Any transfer, sale or
other disposition of Capital Securities in a
block having a Liquidation Amount of less than
$100,000 shall be deemed to be void and of no le-
gal effect whatsoever.
15
<PAGE>
Absence of Market for the
Capital Securities......... The New Capital Securities will be a new issue of
securities for which there currently is no mar-
ket. Although the Initial Purchasers have advised
the Company and the Trust that they currently in-
tend to make a market in the New Capital Securi-
ties, the Initial Purchasers are not obligated to
do so, and any market-making activity with re-
spect to the New Capital Securities may be inter-
rupted or discontinued at any time without no-
tice. Accordingly, no assurance can be given that
an active public or other market will develop for
the New Capital Securities or as to the liquidity
of or the trading market for the New Capital Se-
curities. The Company and the Trust will not ap-
ply for listing of the New Capital Securities on
any securities exchange or for quotation through
the National Association of Securities Dealers
Automated Quotation System.
For additional information regarding the New Securities, see "Description of
Securities" and "Certain Federal Income Tax Consequences."
RISK FACTORS
Holders tendering Old Capital Securities in the Exchange Offer should
carefully consider the matters set forth under "Risk Factors" beginning on page
18.
16
<PAGE>
SELECTED FINANCIAL DATA
AON CORPORATION
CONSOLIDATED SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial data for Aon for
each of the five years in the period ended December 31, 1996. The data for each
of the five years in the period ended December 31, 1996 have been derived from
the audited financial statements and the notes thereto, and should be read in
conjunction with, the audited consolidated financial statements and other
financial information contained in Aon's Annual Report on Form 10-K for the
year ended December 31, 1996, incorporated by reference herein. See also
"Available Information" and "Incorporation of Certain Documents By Reference."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Brokerage commissions and fees. $ 1,919 $ 1,651 $ 1,389 $ 1,190 $ 714
Premiums earned................ 1,527 1,427 1,322 1,278 1,275
Net investment income.......... 384 329 257 227 223
Realized investment gains...... 8 13 19 30 24
Other income................... 50 46 54 46 42
------- ------- ------- ------- -------
Total revenue................ $ 3,888 $ 3,466 $ 3,041 $ 2,771 $ 2,278
======= ======= ======= ======= =======
Income from continuing opera-
tions......................... $ 292 $ 304 $ 269 $ 228 $ 134
Income from discontinued opera-
tions......................... 43 99 91 96 72
------- ------- ------- ------- -------
Net income..................... $ 335 $ 403 $ 360 $ 324 $ 127
======= ======= ======= ======= =======
BALANCE SHEET DATA
Total assets................... $13,723 $19,736 $17,922 $16,279 $14,290
======= ======= ======= ======= =======
Liabilities and Stockholders'
Equity
Policy liabilities............ $ 4,360 $ 9,556 $ 9,310 $ 8,776 $ 7,759
Notes payable................. 521 554 561 594 556
General liabilities........... 5,959 6,902 5,744 4,621 3,871
------- ------- ------- ------- -------
Total liabilities............ 10,840 17,012 15,615 13,991 12,186
Redeemable preferred stock.... 50 50 50 -- --
Stockholders' equity.......... 2,833 2,674 2,257 2,288 2,104
------- ------- ------- ------- -------
Total liabilities and
stockholders' equity.......... $13,723 $19,736 $17,922 $16,279 $14,290
======= ======= ======= ======= =======
PER SHARE DATA*
Income from continuing opera-
tions......................... $ 1.65 $ 1.71 $ 1.52 $ 1.27 $ 0.83
Net income..................... 1.91 2.32 2.09 1.87 0.78
Stockholders' equity........... 16.21 1.52 12.20 12.63 11.65
Dividends paid on Common Stock. 0.95 0.89 0.84 0.79 0.74
Market price at year end....... 41.375 33.25 21.375 21.50 24.00
</TABLE>
- --------
* Per share data have been restated to reflect the 3 for 2 stock split
approved by the Company's board of directors on March 21, 1997 payable on
May 14, 1997 to stockholders of record as of the close of business on May 1,
1997.
17
<PAGE>
RISK FACTORS
Holders tendering Old Capital Securities in the Exchange Offer should
carefully review the information contained elsewhere in this Prospectus and
should particularly consider the matters set forth below. The forms and terms
of the New Securities are identical in all material respects to the respective
forms and 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 provide for any increase in the Distribution
rate thereon and (iii) the New Junior Subordinated Debentures will not provide
for any increase in the interest rate thereon. Accordingly, as the context may
require, unless expressly stated otherwise, (i) "Capital Securities" means the
Old Capital Securities and, in the event the Exchange Offer is consummated,
the New Capital Securities, (ii) "Junior Subordinated Debentures" means the
Old Junior Subordinated Debentures and, in the event the Exchange Offer is
consummated, the New Junior Subordinated Debentures, (iii) "Guarantee" means
the Old Guarantee and, in the event the Exchange Offer is consummated, the New
Guarantee and (iv) "Securities" means the Old Securities and, in the event the
Exchange Offer is consummated, the New Securities.
RANKING OF OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR SUBORDINATED
DEBENTURES
The obligations of the Company under the Junior Subordinated Debentures are
unsecured and rank subordinate and junior in right of payment to all Senior
Indebtedness of the Company. The obligations of the Company under the
Guarantee are unsecured and rank subordinate and junior in right of payment to
all liabilities of the Company, including obligations under the Junior
Subordinated Debentures, other than any liabilities which expressly by their
terms are made pari passu with or subordinate to the obligations of the
Company under the Guarantee. At December 31, 1996, the aggregate outstanding
Senior Indebtedness of the Company was approximately $735 million. 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 Company. See "Description of Securities--Description of
Guarantee--Status of the Guarantee" and "Description of Securities--
Description of Junior Subordinated Debentures--Subordination." Since the
Company is a holding company, the right of the Company to participate in any
distribution of assets of any subsidiary upon such subsidiary's liquidation or
reorganization or otherwise (and thus the ability of holders of Capital
Securities to benefit indirectly from such distribution) is subject to the
prior claims of creditors of that subsidiary, except to the extent that the
Company may itself be a creditor of that subsidiary. Claims on the Company's
subsidiaries by creditors other than the Company include long-term debt and
certain other short-term borrowings. Accordingly, the Junior Subordinated
Debentures and the Company's obligations under the Guarantee will be
effectively subordinated to all existing and future liabilities of the
Company's subsidiaries, and holders of Junior Subordinated Debentures and
claimants under the Guarantee should look only to the assets of the Company
for payments on the Junior Subordinated Debentures or the Guarantee.
The ability of the Trust to pay amounts due on the Capital Securities is
solely dependent upon the Company making payments on the Junior Subordinated
Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
So long as no Debenture Event of Default has occurred or is continuing, the
Company has the right under the Indenture to defer the payment of interest on
the Junior Subordinated Debentures at any time or from time to time for a
period not exceeding 10 consecutive semi-annual periods, during which
Extension Period the Company has the right to make partial payments of
interest on any Interest Payment Date. No Extension Period may extend beyond
the Stated Maturity or any earlier prepayment date. As a consequence of any
such deferral, semi-annual Distributions on the Capital Securities by the
Trust will be deferred during any Extension Period. Distributions to which
holders of the Capital Securities are entitled will accumulate additional
Distributions thereon ("Additional Distributions") at the rate of 8.205% per
annum, compounded semi-annually from the relevant payment date for such
Distributions, but not exceeding the interest rate then accruing on the Junior
Subordinated Debentures.
18
<PAGE>
During any such Extension Period, the Company may not, and may not permit
any subsidiary of the Company to (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of the Company's capital stock (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 Company
(including Other Debentures) that rank on a parity with or junior to the
Junior Subordinated Debentures or make any guarantee payments with respect to
any guarantee by the Company of the debt securities of any subsidiary of the
Company (including Other Guarantees) if such guarantee ranks on a parity with
or junior to the Junior Subordinated Debentures (other than (a) dividends or
distributions in common stock of the Company, (b) any declaration of a
dividend in connection with the implementation of a stockholders' rights plan,
or the issuance of capital stock under any such plan, or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under the
Guarantee and (d) purchases of common stock related to the issuance of common
stock or rights under any of the Company's benefit plans for its directors,
officers, employees, consultants or advisers). Prior to the termination of any
such Extension Period, the Company 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 or any
earlier prepayment date. At any time following the termination of any
Extension Period and the payment of all amounts then due, the Company may
elect to begin a new Extension Period, subject to the foregoing requirements.
There is no limitation on the number of times that the Company may elect to
begin an Extension Period. See "Description of Securities--Description of
Capital Securities--Distributions" and "Description of Securities--Description
of Junior Subordinated Debentures--Option to Defer Interest Payments."
Should an Extension Period occur, a holder of Capital Securities will
continue to accrue income for United States federal income tax purposes (in
the form of original issue discount) in respect of its pro rata share of the
Junior Subordinated Debentures held by the Trust. As a result, a holder of
Capital Securities will include such income in gross income for United States
federal income tax purposes in advance of the receipt of cash, and will not
receive the cash related to such income from the Trust if the holder disposes
of the Capital Securities prior to the record date for the payment of
Distributions. See "Certain Federal Income Tax Consequences--Interest Income
and Original Issue Discount" and "--Sales or Redemptions of Capital
Securities."
The Company has no present intention of exercising its right to defer
payments of interest. However, should the Company elect to exercise such right
in the future, the market price of the Capital Securities is likely to be
affected. A holder that disposes of any Capital Securities during an Extension
Period, therefore, might not receive the same return on its investment as a
holder that continues to hold its Capital Securities. In addition, as a result
of the existence of the Company's right to defer interest payments, the market
price of the Capital Securities (which represent undivided beneficial
interests in the assets of the Trust) may be more volatile than the market
prices of other securities on which original issue discount accrues that are
not subject to such deferrals.
TAX EVENT OR INVESTMENT COMPANY EVENT REDEMPTION
Upon the occurrence and continuation of a Tax Event or an Investment Company
Event, the Company has the right to prepay the Junior Subordinated Debentures
in whole (but not in part) within 90 days of the occurrence of such Tax Event
or Investment Company Event and therefore cause a mandatory redemption of all
Capital Securities at the Event Redemption Price. See "Description of
Securities--Description of Capital Securities--Redemption."
A "Tax Event" means the receipt by the Company and the Trust of an opinion
of counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after January 13, 1997,
there is more than an insubstantial risk that (i) the Trust is, or will be
within 90 days after 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
19
<PAGE>
payable by the Company on the Junior Subordinated Debentures is not, or within
90 days after the date of such opinion, will not be, deductible by the
Company, in whole or in part, for United States federal income tax purposes or
(iii) the Trust is, or will be within 90 days after the date of such opinion,
subject to more than a de minimis amount of other taxes, duties, assessments
or other governmental charges.
See "--Possible Tax Law Changes Affecting the Capital Securities" for a
discussion of certain legislative proposals that, if adopted, could give rise
to a Tax Event, which may permit the Company to cause a redemption of all
Capital Securities prior to January 1, 2027.
An "Investment Company Event" means the receipt by the Trust of an opinion
of counsel experienced in such matters to the effect that, as a result of the
occurrence of a change in law or regulation or change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in 1940 Act Law"), the Trust is or
will be considered an investment company that is required to be registered
under the Investment Company Act of 1940, as amended, which Change in 1940 Act
Law becomes effective on or after January 13, 1997.
EXCHANGE OF JUNIOR SUBORDINATED DEBENTURES FOR CAPITAL SECURITIES
The Company has the right to terminate the Trust at any time and, after
satisfaction of liabilities to creditors as required by applicable law, cause
the Junior Subordinated Debentures to be distributed to the holders of the
Capital Securities in liquidation of the Trust. The exercise of such right is
subject to the Company having received an opinion of counsel to the effect
that such distribution will not be a taxable event to holders of Capital
Securities for United States federal income tax purposes. See "Description of
Securities--Description of Capital Securities--Liquidation of the Trust and
Distribution of Junior Subordinated Debentures."
RIGHTS UNDER THE GUARANTEE
The Bank of New York acts as the Guarantee Trustee and will hold the New
Guarantee for the benefit of the holders of all Capital Securities. The Bank
of New York also acts as Debenture Trustee for the Junior Subordinated
Debentures and as Property Trustee under the Trust Agreement and its affiliate
The Bank of New York (Delaware) acts as Delaware Trustee under the Trust
Agreement. The Guarantee guarantees to the holders of the Capital Securities
the following payments, to the extent not paid by or on behalf of the Trust:
(i) any accumulated and unpaid Distributions required to be paid on the
Capital Securities, to the extent the Trust has funds on hand available
therefor at such time, (ii) the applicable Redemption Price with respect to
Capital Securities called for redemption, to the extent the Trust has funds on
hand available therefor at such time and (iii) upon a voluntary or involuntary
termination, dissolution, winding-up or 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
accumulated and unpaid Distributions on the Capital Securities to the date of
payment, to the extent the Trust has funds on hand available therefor at such
time, and (b) the amount of assets of the Trust remaining available for
distribution to holders of the Capital Securities in liquidation of the Trust.
ENFORCEMENT RIGHTS OF HOLDERS OF CAPITAL SECURITIES
The holders of not less than a majority in aggregate Liquidation Amount of
the Capital Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee Agreement. Any holder
of Capital Securities may institute a legal proceeding directly against the
Company to enforce its rights under the Guarantee, without first instituting a
proceeding against the Trust, the Guarantee Trustee or any other person or
entity. If the Company were to default on its obligation to pay amounts
payable under the Junior Subordinated Debentures, the Trust would lack funds
for the payment of Distributions or amounts payable on redemption of the
Capital Securities or otherwise, and, in such event, holders of the Capital
Securities would not be able to rely upon the Guarantee for payment of
20
<PAGE>
such amounts. Instead, in the event a Debenture Event of Default shall have
occurred and be continuing and such event is attributable to the failure of
the Company to pay interest on or principal of the Junior Subordinated
Debentures on the payment date on which such payment is due and payable, then
a holder of Capital Securities may institute a suit directly against the
Company for enforcement of payment to such holder of the principal of or
interest on such Junior Subordinated Debentures having a principal amount
equal to the aggregate Liquidation Amount of the Capital Securities of such
holder (a "Direct Action"). Notwithstanding any payments made to a holder of
Capital Securities by the Company in connection with a Direct Action, the
Company shall remain obligated to pay the principal of and interest on the
Junior Subordinated Debentures, and the Company 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 Company 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 assert
directly any other rights in respect of the Junior Subordinated Debentures.
See "Description of Securities--Description of Junior Subordinated
Debentures--Enforcement of Certain Rights by Holders of Capital Securities,"
"Description of Securities--Description of Junior Subordinated Debentures--
Debenture Events of Default" and "Description of Securities--Description of
Guarantee." The Trust Agreement provides that each holder of Capital
Securities by acceptance thereof agrees to the provisions of the Guarantee
Agreement and the Indenture.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Capital Securities, primarily
because (i) the aggregate principal amount of the Junior Subordinated
Debentures will be equal to the sum of the aggregate Liquidation Amount or
Redemption Price, as applicable, of the Capital Securities and Common
Securities; (ii) the interest rate and interest and other payment dates on the
Junior Subordinated Debentures will match the Distribution rate and
Distribution and other payment dates for the Trust Securities; (iii) under the
Expense Agreement, the Company 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 further
provides that the Trust will not engage in any activity that is not consistent
with the limited purposes thereof. If and to the extent that the Company does
not make payments on the Junior Subordinated Debentures or as required by the
Expense Agreement, the Trust will not pay Distributions or other amounts due
on the Capital Securities. The Guarantee does not cover payments of
Distributions when the Trust does not have sufficient funds to pay such
Distributions.
LIMITED VOTING RIGHTS
Holders of Capital Securities will generally have limited voting rights
relating only to the modification of the Capital Securities and the exercise
of the Trust's rights as holder of Junior Subordinated Debentures. Holders of
Capital Securities will have limited authority to vote to remove or replace
the Issuer Trustees. The Property Trustee, the Administrative Trustees and the
Company 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 provided that such
action does not adversely affect the interests of such holders. See
"Description of Securities--Description of Capital Securities--Voting Rights;
Amendment of the Trust Agreement" and "Description of Securities--Description
of Capital Securities--Removal of Issuer Trustees; Appointment of Successors."
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
21
<PAGE>
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 Company 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. In addition, although the Old Capital Securities
have been designated for trading in the Private Offerings, Resale and Trading
through Automatic Linkages ("PORTAL") market, to the extent that Old Capital
Securities are tendered and accepted in connection with the Exchange Offer,
any trading market for Old Capital Securities which remain outstanding after
the Exchange Offer could be adversely affected.
The New Capital Securities and any Old Capital Securities which remain
outstanding after consummation of the Exchange Offer will constitute a single
series of Capital Securities under the Trust Agreement and, accordingly, 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.
The Old Capital Securities provide that, if the Exchange Offer is not
consummated by August 11, 1997, the Distribution rate borne by the Old Capital
Securities will increase by 0.25% per annum commencing on August 12, 1997,
until the Exchange Offer is consummated. See "Description of Old Capital
Securities." Following consummation of the Exchange Offer, neither the Old
Capital Securities nor the New Capital Securities will be entitled to any
increase in the Distribution rate thereon.
ABSENCE OF PUBLIC MARKET
The Old Capital Securities were issued to, and the Company believes 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
continue to be subject to restrictions on transferability to the extent that
they are not exchanged for New Capital Securities. Although the New Capital
Securities will generally be permitted to be resold or otherwise transferred
by the holders (who are not affiliates of the Company 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.
Capital Securities may be transferred by the holders thereof only in blocks
having a Liquidation Amount of not less than $100,000 (100 Capital
Securities). The Company and the Trust have been advised by the Initial
Purchasers that the Initial Purchasers currently 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 interrupted or 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 of such securities will depend on many factors, including,
among other things, prevailing interest rates, results of operations 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 Company, the New Capital Securities may trade at a discount.
22
<PAGE>
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 Company 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
Subject to the conditions set forth under "The Exchange Offer--Conditions to
the Exchange Offer," 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)
certificates for 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, including an Agent's Message (as defined under "The Exchange
Offer--Acceptance for Exchange and Issuance of New Capital Securities") if the
tendering holder does not deliver a Letter of Transmittal, (ii) a completed
and signed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, or, in the case of a book-entry transfer, an Agent's
Message in lieu of the Letter of Transmittal, and (iii) any other documents
required by the Letter of Transmittal. Therefore, holders of 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 Company nor the Trust is under a duty to give notification of
defects or irregularities with respect to the tenders of Old Capital
Securities for exchange.
POSSIBLE TAX LAW CHANGES AFFECTING THE CAPITAL SECURITIES
On February 6, 1997, President Clinton's budget proposal for fiscal year
1998 was released. Included in the budget proposal is a provision which, if
enacted, would generally treat instruments such as the Junior Subordinated
Debentures as equity for United States federal income tax purposes if the
instruments (i) have a maximum term of more than 15 years and (ii) are not
shown as indebtedness on the separate balance sheet of the issuer. The
provision is proposed to be effective generally for instruments issued on or
after the date of first committee action by Congress. As of the date hereof,
no such action has been taken. If the provision applied to the Junior
Subordinated Debentures, among other things, the Company would be unable to
deduct interest on the Junior Subordinated Debentures for United States
federal income tax purposes. A similar provision was included in President
Clinton's budget proposal for fiscal year 1997, but the 104th Congress
adjourned without taking action on such provision. There can be no assurance
that the current budget provision or future legislative proposals, future
regulations or official administrative pronouncements or future judicial
decisions will not affect the ability of the Company to deduct interest on the
Junior Subordinated Debentures. Such a change could give rise to a Tax Event,
which may permit the Company to cause a redemption of the Capital Securities.
See "Description of Securities--Description of Capital Securities--Redemption"
and "Certain Federal Income Tax Consequences--Possible Tax Law Changes."
USE OF PROCEEDS FROM THE SALE OF THE OLD CAPITAL SECURITIES
Neither the Company nor the Trust will receive any cash or other proceeds
from the issuance of the New Capital Securities offered hereby. In
consideration for issuing the New Capital Securities in exchange for 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
cancelled.
23
<PAGE>
The proceeds to the Trust from the offering of the Old Capital Securities
was approximately $800,000,000. All of the proceeds from the sale of Old
Capital Securities were invested by the Trust in Old Junior Subordinated
Debentures. The net proceeds from the sale of the Old Junior Subordinated
Debentures were used by the Company to finance, in part, the acquisition of
Common Stock of A&A and the purchase by the Company of the Series B Preferred
Stock. See "Acquisition of Alexander & Alexander." The Company paid or
reimbursed the Trust for the expenses associated with the offering of the Old
Capital Securities and the compensation to the Initial Purchasers.
AON CAPITAL A
Aon Capital A is a statutory business trust, created under Delaware law
pursuant to the filing of a certificate of trust with the Delaware Secretary
of State, which is governed by the Trust Agreement. The Trust exists for the
exclusive purposes of (i) issuing and selling the Trust Securities, (ii) using
the proceeds from the sale of Common Securities and the Old Capital Securities
to acquire the Old Junior Subordinated Debentures, (iii) exchanging the Old
Junior Subordinated Debentures for New Junior Subordinated Debentures in the
Exchange Offer pursuant to the Indenture and (iv) engaging in only those other
activities necessary, convenient or incidental thereto (such as registering
the transfer of Capital Securities). Accordingly, the Junior Subordinated
Debentures will be the sole assets of the Trust and payments by the Company
under the Junior Subordinated Debentures and the Expense Agreement will be the
sole revenues of the Trust. All of the Common Securities are owned by the
Company. The Common Securities rank on a parity, and payments are made thereon
pro rata, with the Capital Securities except that upon the occurrence and
continuance of an event of default under the Trust Agreement resulting from a
Debenture Event of Default, the rights of the Company as holder of the Common
Securities to payment in respect of Distributions and payments upon
liquidation, redemption or otherwise will be subordinated to the rights of the
holders of the Capital Securities. See "Description of Securities--Description
of Capital Securities--Subordination of Common Securities." The Company owns
Common Securities in an aggregate liquidation amount equal to 3% of the
outstanding Capital Securities.
The Trust has a term of approximately 31 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 Company as holder of the
Common Securities. Under the Trust Agreement, the trustees for the Trust are
The Bank of New York, as the Property Trustee, The Bank of New York
(Delaware), as the Delaware Trustee, and three individual Administrative
Trustees who are employees or officers of or affiliated with the Company
(collectively, the "Issuer Trustees"). The Bank of New York also acts as
trustee under the Indenture and the Old Guarantee Agreement and will act as
trustee under the New Guarantee Agreement. See "Description of Securities--
Description of Guarantee" and "Description of Securities--Description of
Junior Subordinated Debentures." The duties and obligations of each Issuer
Trustee are governed by the Trust Agreement. The Company will pay all fees and
expenses related to the Trust, the offering of the Old Capital Securities and
this Exchange Offer and will pay, directly or indirectly, all ongoing costs,
expenses and liabilities of the Trust.
Pursuant to the Expense Agreement, the Company has irrevocably and
unconditionally guaranteed to each person or entity to whom the Trust becomes
indebted or liable, the full payment of any costs, expenses or liabilities of
the Trust, other than obligations of the Trust to pay to the holders of any
Capital Securities or other similar interests in the Trust of the amounts due
such holders pursuant to the terms of the Capital Securities or such other
similar interests, as the case may be.
The principal executive office of the Trust is c/o Aon Corporation, 123 N.
Wacker Drive, Chicago, Illinois 60606-1700, and its telephone number is (312)
701-3000.
24
<PAGE>
AON CORPORATION
The Company is an insurance services holding company that comprises a family
of insurance brokerage, consulting and consumer insurance companies. Through
its insurance brokerage operations, the Company offers commercial insurance
brokerage, alternative risk solutions, risk management, employee benefit and
human resources consulting and managing general underwriting services. In
addition, the Company's insurance underwriting businesses provide a variety of
insurance products, including accident and health coverage, traditional life
insurance, extended warranties and credit insurance. The Company's revenues
were $3.5 billion in 1995 and $3.9 billion in 1996. Based on 1995 insurance
brokerage and consulting revenues and without giving effect to the acquisition
of A&A, management believes that the Company is the second largest insurance
brokerage company in the world.
The principal executive offices of the Company are located at 123 N. Wacker
Drive, Chicago, Illinois 60606-1700, and its telephone number is (312) 701-
3000.
ACQUISITION OF ALEXANDER & ALEXANDER
On January 15, 1997, Purchaser, a wholly owned subsidiary of the Company,
consummated the Offer for all the outstanding Shares of A&A at a price of
$17.50 net cash per Share. Pursuant to the Offer, Purchaser acquired
approximately 44,293,552 Shares, or 97% of the outstanding Shares. All Shares
validly tendered and not withdrawn before expiration of the Offer at 12:00
midnight, New York City time, on January 14, 1997, were accepted for payment,
including approximately 1,846,882 Shares tendered pursuant to guaranteed
delivery procedures. The Offer was made pursuant to the Merger Agreement among
the Company, Purchaser and A&A. On February 20, 1997, the stockholders of A&A
approved the Merger of Purchaser into A&A, and the Merger was effected
promptly thereafter. Pursuant to the Merger, all remaining Shares (other than
stock of A&A owned by A&A, the Company or any of their respective
subsidiaries) were converted into the right to receive $17.50 cash per Share.
On December 11, 1996, the Company and AIG entered into the Stock Purchase
and Sale Agreement. Pursuant to the Stock Purchase and Sale Agreement, the
Company agreed to buy and AIG agreed to sell for $317.5 million, plus accrued
dividends, all outstanding shares of 8% Series B Preferred Stock, par value
$1.00 of A&A. On January 17, 1997, the Company purchased all 4,846,232 shares
of Series B Preferred Stock. Each share of Series B Preferred Stock is
currently convertible into approximately 2.94 shares of Class D Common Stock,
which Class D Common Stock is exchangeable for Common Stock on a share-for-
share basis.
Purchaser's payment of approximately $775 million for the aggregate purchase
price of the Shares purchased by Purchaser in the Offer was funded with
capital contributions to Purchaser by the Company. The Company derived the
funds necessary for such capital contribution and the funds necessary to
purchase the Series B Preferred Stock from cash on hand, the proceeds from the
sale of commercial paper and fixed maturities and the proceeds of the sale of
the Old Capital Securities. See "Pro Forma Consolidated Financial
Information."
A&A is an insurance holding company which, through its subsidiaries,
provides professional risk management consulting, insurance brokerage and
human resource management consulting on a global basis. A&A's revenues were
$1.3 billion in 1995 and $1.0 billion for the nine-month period ended
September 30, 1996. Based on 1995 revenues, management of the Company believes
that A&A is the fourth largest brokerage company in the world. Since 1994, A&A
has engaged in a significant restructuring of its operations and, for the nine
months ended September 30, 1996, A&A reported net income of $47.7 million, a
41.7% decrease from its net income of $81.9 million for the same period in the
previous year.
25
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information for the
Company is based on historical financial statements of the Company and of A&A.
The audited consolidated financial statements of the Company for the year
ended December 31, 1995 are contained in the Company's Annual Report on Form
10-K for the year ended December 31, 1996, incorporated by reference herein,
and the unaudited consolidated financial statements of the Company for the
nine months ended September 30, 1996 are contained in the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996, which has been
filed with the Commission. The historical financial statements of A&A are
contained in the Company's Current Report on Form 8-K dated January 15, 1997,
incorporated by reference herein. The unaudited pro forma condensed
consolidated statement of financial position at September 30, 1996 has been
prepared as if the acquisition of A&A and the issuance of the Capital
Securities and other financing had been consummated on September 30, 1996, and
the unaudited pro forma condensed consolidated statements of income for the
year ended December 31, 1995 and the nine months ended September 30, 1996 have
been prepared as if the acquisition of A&A and the issuance of the Capital
Securities and other financing had been consummated on January 1, 1995.
Unaudited pro forma financial data do not purport to be indicative of either
the future results of operations or the results of operations that would have
occurred if these transactions had been consummated on the indicated dates.
The pro forma adjustments are based upon available information and certain
assumptions that the Company believes to be reasonable.
26
<PAGE>
AON CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS OF SEPTEMBER 30, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------
ALEXANDER
AON & PRO FORMA PRO FORMA
CORPORATION ALEXANDER ADJUSTMENTS CONSOLIDATED(1)
----------- --------- ----------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities avail-
able for sale........... $ 2,707.4 $ -- $(200.0)(1) $ 2,507.4
Equity securities........ 821.3 -- -- 821.3
Short-term investments... 1,174.2 286.1 -- 1,460.3
Other investments........ 219.6 21.4 -- 241.0
Cash..................... 226.4 758.2 (100.0)(1) 884.6
Brokerage and other re-
ceivables............... 3,920.2 1,200.7 -- 5,120.9
Intangible assets includ-
ing goodwill............ 1,393.4 221.2 850.5 (2) 2,465.1
Assets held under special
contracts............... 305.9 -- -- 305.9
Other assets............. 1,458.6 434.4 -- 1,893.0
--------- -------- ------- ---------
Total Assets......... $12,227.0 $2,922.0 $ 550.5 $15,699.5
========= ======== ======= =========
LIABILITIES AND STOCKHOLD-
ERS' EQUITY
Total policy liabilities. $ 3,795.2 $ -- $ -- $ 3,795.2
Insurance premiums pay-
able.................... 3,394.1 1,775.9 -- 5,170.0
Short term borrowings.... 59.6 21.5 153.0 (1) 234.1
Notes payable and debt
guarantee of employee
stock ownership plan.... 522.9 142.4 -- 665.3
Liabilities held under
special contracts....... 305.9 -- -- 305.9
Other liabilities........ 1,381.2 519.7 60.0 (2) 1,960.9
--------- -------- ------- ---------
Total Liabilities.... 9,458.9 2,459.5 213.0 12,131.4
--------- -------- ------- ---------
Redeemable Preferred Stock. 50.0 -- -- 50.0
Company-obligated
Mandatorily Redeemable
Preferred Capital Securi-
ties of Subsidiary Trust
holding solely the
Company's Securities (3).. -- -- 800.0 (1) 800.0
STOCKHOLDERS' EQUITY
Preferred stock
8% cumulative perpetual
preferred stock....... 5.5 -- -- 5.5
6.25% cumulative
convertible
exchangeable preferred
stock................. 2.1 -- -- 2.1
Series A Preferred
Stock................. -- 2.3 (2.3)(4) --
Series B Preferred
Stock................. -- 4.8 (4.8)(5) --
Common stock............. 111.5 43.4 (43.4) 111.5
Paid-in additional capi-
tal..................... 454.1 666.7 (666.7) 454.1
Retained earnings and
other less treasury
stock................... 2,144.9 (254.7) 254.7 2,144.9
--------- -------- ------- ---------
Total Stockholders'
Equity.............. 2,718.1 462.5 (462.5)(2) 2,718.1
--------- -------- ------- ---------
Total Liabilities and
Stockholders' Equi-
ty.................. $12,227.0 $2,922.0 $ 550.5 $15,699.5
========= ======== ======= =========
</TABLE>
See accompanying notes.
27
<PAGE>
AON CORPORATION
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF FINANCIAL POSITION
AS OF SEPTEMBER 30, 1996
1. Reflects the acquisition of A&A at a price of $1,253 million and funding
sources for the acquisition as follows (in millions):
<TABLE>
<S> <C>
Sale of fixed maturities........................................ $ 200.0
Issuance of commercial paper.................................... 153.0
Issuance of Capital Securities.................................. 800.0
A&A cash used to finance transaction............................ 100.0
--------
Purchase Price................................................ $1,253.0
========
</TABLE>
The effect of Aon's acquisition of the Bain Hogg Group plc ("Bain Hogg") on
October 18, 1996 is not included. The purchase price was $260 million. Bain
Hogg's total assets as of September 30, 1996 were approximately $1.0 billion.
2. Assumes that Aon's purchase price allocation resulted in additional
goodwill of $850.5 million which was calculated as follows (in millions):
<TABLE>
<S> <C>
Purchase price.................................................. $1,253.0
A&A stockholders' equity........................................ (462.5)
Purchase related liabilities net of tax......................... 60.0
--------
Goodwill........................................................ $ 850.5
========
</TABLE>
3. The sole asset of the Trust Subsidiary is $824,000,000 principal amount
of the Company's 8.205% Junior Subordinated Deferrable Interest Debentures due
January 1, 2027.
4. Assumes that all of the Series A Preferred Stock was converted to cash at
a cost of $121 million to Aon.
5. Reflects the purchase by Aon of all of the Series B Preferred Stock for
$318 million.
28
<PAGE>
AON CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
------------------------
ALEXANDER
AON & PRO FORMA PRO FORMA
CORPORATION ALEXANDER ADJUSTMENTS CONSOLIDATED(1)
----------- --------- ----------- ---------------
<S> <C> <C> <C> <C>
REVENUE
Brokerage commissions
and fees............. $1,651.3(2) $1,219.5 $ -- $2,870.8
Premiums earned....... 1,426.5 -- -- 1,426.5
Net investment income. 329.4 82.1 (20.3)(3) 391.2
Realized investment
gains................ 13.1 -- -- 13.1
Other income.......... 45.4(2) 32.7 -- 78.1
-------- -------- ------ --------
Total Revenue....... 3,465.7 1,334.3 (20.3) 4,779.7
-------- -------- ------ --------
BENEFITS AND EXPENSES
Commissions and gen-
eral expenses........ 1,982.3 1,147.4 -- 3,129.7
Benefits to policy-
holders.............. 698.5 -- -- 698.5
Interest expense...... 37.3 18.6 8.2 (4) 64.1
Amortization of de-
ferred policy acqui-
sition costs......... 207.5 -- -- 207.5
Amortization of intan-
gible assets......... 82.1 12.3 34.1 (5) 128.5
-------- -------- ------ --------
Total Benefits and
Expenses........... 3,007.7 1,178.3 42.3 4,228.3
-------- -------- ------ --------
INCOME FROM CONTINUING
OPERATIONS BEFORE IN-
COME TAX AND MINORITY
INTEREST............... 458.0 156.0 (62.6) 551.4
Provision for income
tax (benefit)........ 154.3 60.9 (10.6)(6) 204.6
-------- -------- ------ --------
INCOME FROM CONTINUING
OPERATIONS BEFORE MI-
NORITY INTEREST........ 303.7 95.1 (52.0) 346.8
Minority interest, in-
cluding subsidiary dis-
tributions............. -- (5.7) (41.3)(7) (47.0)
-------- -------- ------ --------
INCOME FROM CONTINUING
OPERATIONS.............. 303.7 89.4(8) (93.3) 299.8
Preferred stock divi-
dends.................. (24.7) (25.4) 25.4 (9) (24.7)
-------- -------- ------ --------
INCOME FROM CONTINUING
OPERATIONS ATTRIBUTABLE
TO COMMON STOCKHOLDERS. $ 279.0 $ 64.0 $(67.9) $ 275.1
======== ======== ====== ========
Income from continuing
operations per share
attributable to common
stockholders........... $ 1.71(10) $ 1.69(10)
Average common and com-
mon equivalent shares
outstanding............ 163.1(10) 163.1(10)
</TABLE>
See accompanying notes.
29
<PAGE>
AON CORPORATION
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
1. Reflects the acquisition of A&A at a price of $1,253 million and funding
sources for the acquisition as follows (in millions):
<TABLE>
<S> <C>
Sale of fixed maturities........................................ $ 200.0
Issuance of commercial paper.................................... 153.0
Issuance of Capital Securities.................................. 800.0
A&A cash used to finance transaction............................ 100.0
--------
Purchase Price.................................................. $1,253.0
========
</TABLE>
The effect of Aon's acquisition of Bain Hogg on October 18, 1996 is not
included. The purchase price was $260 million. Bain Hogg's revenue and pretax
income for the year ended December 31, 1995 were $333 million and $33 million,
respectively.
The unaudited pro forma condensed consolidated statement of income does not
include the potential effect of one-time restructuring charges which
management of Aon expects to be incurred in the next twelve months in the
range of $100 to $150 million related to the A&A and Bain Hogg acquisitions.
This statement also does not include any anticipated cost savings that may be
realized as a result of the restructuring. Management of Aon estimates cost
savings related to the A&A and Bain Hogg acquisitions should be in excess of
$100 million annually.
2. Certain historical amounts have been reclassified to conform to the
presentation for the nine months ended September 30, 1996.
3. Reflects foregone investment income on cash of $100 million at an assumed
rate of 5.35% held by A&A and on fixed maturities of $200 million at an
assumed rate of 7.5% held by Aon.
4. Reflects interest expense on $153 million of commercial paper at an
assumed rate of 5.35%.
5. Assumes Aon amortizes intangible assets over a 25 year period.
6. Assumes an effective tax rate of 37% on the pro forma adjustments
excluding amortization of intangible assets.
7. Reflects Distributions on the Capital Securities of $65.6 million net of
a tax benefit of $24.3 million.
8. Includes non-recurring revenues of $30.4 million ($20.1 million after
tax) related to A&A's sale of certain operations and non-recurring
restructuring and special charges of $17.6 million.
9. Reflects elimination of the dividends on the Series A Preferred Stock and
the Series B Preferred Stock.
10. Per share and average shares outstanding data have been restated to
reflect the 3 for 2 stock split approved by the Company's board of directors
on March 21, 1997 payable on May 14, 1997 to stockholders of record as of the
close of business on May 1, 1997.
30
<PAGE>
AON CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
(MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------
ALEXANDER
AON & PRO FORMA PRO FORMA
CORPORATION ALEXANDER ADJUSTMENTS CONSOLIDATED(1)
----------- --------- ----------- ---------------
<S> <C> <C> <C> <C>
REVENUE
Brokerage commissions
and fees............. $1,368.0 $920.6 $ -- $2,288.6
Premiums earned....... 1,141.4 -- -- 1,141.4
Net investment income. 269.7 57.4 (15.2)(2) 311.9
Realized investment
income............... 3.1 -- -- 3.1
Other income.......... 36.6 0.6 -- 37.2
-------- ------ ------ --------
Total Revenue....... 2,818.8 978.6 (15.2) 3,782.2
-------- ------ ------ --------
BENEFITS AND EXPENSES
Commissions and gen-
eral expenses........ 1,621.4 867.4 -- 2,488.8
Benefits to policy-
holders.............. 582.1 -- -- 582.1
Interest expense...... 28.4 11.8 6.1 (3) 46.3
Amortization of de-
ferred policy acqui-
sition costs......... 156.4 -- -- 156.4
Amortization of intan-
gible assets......... 55.6 11.7 25.5 (4) 92.8
-------- ------ ------ --------
Total Benefits and
Expenses........... 2,443.9 890.9 31.6 3,366.4
-------- ------ ------ --------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAX AND MINORITY
INTEREST............... 374.9 87.7 (46.8) 415.8
Provision for income
tax (benefit)........ 129.3 35.0 (7.9)(5) 156.4
-------- ------ ------ --------
INCOME FROM CONTINUING
OPERATIONS BEFORE MI-
NORITY INTEREST........ 245.6 52.7 (38.9) 259.4
Minority interest, in-
cluding subsidiary dis-
tributions............. -- (5.0) (31.0)(6) (36.0)
-------- ------ ------ --------
INCOME FROM CONTINUING
OPERATIONS............. 245.6 47.7 (69.9) 223.4
Preferred stock divi-
dends.................. (15.2) (19.9) 19.9 (7) (15.2)
-------- ------ ------ --------
INCOME FROM CONTINUING
OPERATIONS ATTRIBUTABLE
TO COMMON STOCKHOLDERS. $ 230.4 $ 27.8 $(50.0) $ 208.2
======== ====== ====== ========
Income from continuing
operations per share
attributable to common
stockholders........... $ 1.41(8) $ 1.27(8)
Average common and
common equivalent
shares outstanding..... 164.6(8) 164.6(8)
</TABLE>
See accompanying notes.
31
<PAGE>
AON CORPORATION
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
1. Reflects the acquisition of A&A at a price of $1,253 million and funding
sources for the acquisition as follows (in millions):
<TABLE>
<S> <C>
Sale of fixed maturities........................................ $ 200.0
Issuance of commercial paper.................................... 153.0
Issuance of Capital Securities.................................. 800.0
A&A cash used to finance transaction............................ 100.0
--------
Purchase Price................................................ $1,253.0
========
</TABLE>
The effect of Aon's acquisition of Bain Hogg on October 18, 1996 is not
included. The purchase price was $260 million. Bain Hogg's revenue and pretax
income for the nine months ended September 30, 1996 were $245 million and $16
million, respectively.
The unaudited pro forma condensed consolidated statement of income does not
include the potential effect of one-time restructuring charges which
management of Aon expects to be incurred in the next twelve months in the
range of $100 to $150 million related to the A&A and Bain Hogg acquisitions.
This statement also does not include any anticipated cost savings that may be
realized as a result of restructuring. Management of Aon estimates cost
savings related to the A&A and Bain Hogg acquisitions should be in excess of
$100 million annually.
2. Reflects foregone investment income on cash of $100 million held by A&A
at an assumed rate of 5.35% and on fixed maturities of $200 million held by
Aon at an assumed rate of 7.5%.
3. Reflects interest expense on $153 million of commercial paper at an
assumed rate of 5.35%.
4. Assumes that Aon amortizes intangible assets over a 25 year period.
5. Assumes an effective tax rate of 37% on the pro forma adjustments
excluding amortization of intangible assets.
6. Reflects Distributions on the Capital Securities of $49.2 million net of
a tax benefit of $18.2 million.
7. Reflects elimination of the dividends on the Series A Preferred Stock and
the Series B Preferred Stock.
8. Per share and average shares outstanding data have been restated to
reflect the 3 for 2 stock split approved by the Company's board of directors
on March 21, 1997 payable on May 14, 1997 to stockholders of record as of the
close of business on May 1, 1997.
32
<PAGE>
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth Aon's historical ratios of Earnings to Fixed
Charges for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratios of Earnings to Fixed Charges.................... 6.7 6.6 5.9 5.4 3.6
</TABLE>
The following table sets forth Aon's pro forma ratios of Earnings to Fixed
Charges for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Pro Forma Ratios of Earnings to Fixed Charges (1)... 4.1 3.7
Supplemental Pro Forma Ratios of Earnings to Fixed
Charges (2)........................................ 3.5 3.4
</TABLE>
- --------
(1) Gives effect to the increase in Fixed Charges as a result of the issuance
of the Capital Securities.
(2) Gives effect to the increase in Fixed Charges as a result of the issuance
of the Capital Securities and the acquisition of A&A as reflected in the
pro forma condensed consolidated statements of income. The supplemental
pro forma ratios exclude any restructuring charges that may be incurred
and any cost savings Aon may realize. See "Pro Forma Consolidated
Financial Information."
For purposes of computing the foregoing ratios: (i) Earnings consist of
income from continuing operations before provision for income taxes and
excluding cumulative effects of accounting changes plus Fixed Charges; and
(ii) Fixed Charges consist of interest on indebtedness, the portion of rental
payments on operating leases estimated to represent an interest component and
interest related to the Company's guarantees of the debt of its Employee Stock
Ownership Plan.
33
<PAGE>
ACCOUNTING TREATMENT FOR THE TRUST
For financial reporting purposes, the Trust is treated as a subsidiary of
the Company and, accordingly, the accounts of the Trust are included in the
consolidated financial statements of the Company. The Capital Securities will
be presented as a separate line item in the consolidated balance sheet of the
Company and appropriate disclosures about the Capital Securities, the
Guarantee and the Junior Subordinated Debentures will be included in the notes
to the consolidated financial statements. For financial reporting purposes,
the Company will record Distributions payable on the Capital Securities as a
charge in the consolidated statement of income.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the Old Capital Securities, the Company and
the Trust entered into the Registration Rights Agreement with the Initial
Purchasers, pursuant to which the Company and the Trust agreed to file and to
use their reasonable best 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 Company and the Trust under the Registration Rights Agreement. The forms
and terms of the New Capital Securities are identical in all material respect
to the forms and terms of the Old Capital Securities, except that the New
Capital Securities have been registered under the Securities Act and therefore
will not be subject to certain 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 the Exchange Offer is not consummated by August 11, 1997, the
Distribution rate borne by the Old Capital Securities commencing on August 12,
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
Capital Securities."
The Exchange Offer is not being made to, nor will the Trust or the Company
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 Company or any other person who has obtained a
properly completed bond power from the registered holder, or any person who
beneficially owns Old Capital Securities which are held of record by DTC who
desires to deliver such Old Capital Securities by book-entry transfer into the
Exchange Agent's account at DTC, or any person who beneficially owns Old
Capital Securities which are held of record by a nominee other than DTC (or
its nominee).
Pursuant to the Exchange Offer, the Company will exchange as soon as
practicable after the date hereof, the Old Guarantee for the New Guarantee and
all of the Old Junior Subordinated Debentures, of which $824,000,000 aggregate
principal amount is outstanding, 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
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 $800,000,000 aggregate Liquidation Amount of New
34
<PAGE>
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 $800,000,000 of New Capital Securities in exchange for a like
aggregate Liquidation Amount of outstanding Old Capital Securities tendered
and accepted in connection with the Exchange Offer. Holders may tender their
Old Capital Securities for exchange in whole or in part having a Liquidation
Amount of not less than $100,000 (100 Old Capital Securities) or any integral
multiple of $1,000 (1 Old Capital Security) in excess thereof.
The Exchange Offer is not conditioned upon any minimum Liquidation Amount of
Old Capital Securities being tendered. As of the date of this Prospectus,
$800,000,000 aggregate Liquidation Amount of 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 remain 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 transfer taxes with respect to the exchange of Old Capital Securities
in connection with the Exchange Offer, except under those circumstances
described in the Letter of Transmittal. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE TRUSTEES 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 LIQUIDATION AMOUNT OF OLD CAPITAL SECURITIES TO
TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND
CONSULTING WITH THEIR ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION
AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on May 5,
1997 unless the Exchange Offer is extended by the Company and the Trust (in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended).
The Company and the Trust expressly reserve the right, 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 been accepted for exchange) if the
Company or the Trust determines, in its reasonable discretion, that any of the
conditions referred to under "--Conditions to the Exchange Offer" have
occurred or exist or have not been satisfied, (iii) to extend the Expiration
Date 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 Company and the Trust to constitute a material
35
<PAGE>
change, or if the Company and the Trust waive a material condition of the
Exchange Offer, the Company and the Trust will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered holders of the Old Capital Securities, and the Company and the
Trust will extend the Exchange Offer to the extent required by Rule 14e-1
under the Exchange Act. If the Company or the Trust becomes aware of any
material information with respect to the Exchange Offer, including the plan of
distribution, not previously disclosed in this Prospectus or any material
change to such information in this Prospectus, the Company and the Trust will
promptly file a post-effective amendment to the Registration Statement. In
such event, the Company and the Trust will extend the Exchange Offer to the
extent required by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and
by making a public announcement thereof, and such announcement in the case of
an extension will be made no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date. Without
limiting the manner in which the Company and the Trust may choose to make any
public announcement and subject to applicable law, the Company 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 New Capital Securities for Old Capital Securities validly
tendered and not withdrawn (pursuant to the withdrawal rights described under
"--Withdrawal Rights") promptly after the Expiration Date.
Subject to the conditions set forth under "--Conditions to the Exchange
Offer," delivery of 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)
certificates for 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, including an Agent's Message if the tendering holder does not
deliver a Letter of Transmittal, (ii) a completed and signed Letter of
Transmittal (or facsimile thereof), with any required signature guarantees,
or, in the case of a book-entry transfer, an Agent's Message in lieu of the
Letter of Transmittal, and (iii) any other documents required by the Letter of
Transmittal. Accordingly, the delivery of New Capital Securities might not be
made to all tendering holders at the same time, and will depend upon when
certificates for Old Capital Securities, book-entry confirmations with respect
to Old Capital Securities and other required documents are received by the
Exchange Agent.
The term "book-entry confirmation" means a timely confirmation of a book-
entry transfer of Old Capital Securities into the Exchange Agent's account at
DTC. See "--Procedures for Tendering Old Capital Securities--Book-Entry
Transfer." The term "Agent's Message" means a message, transmitted by DTC to
and received by the Exchange Agent and forming a part of a book-entry
confirmation, which states that DTC has received an express acknowledgment
from the tendering participant, which acknowledgment states that such
participant has received and agrees to be bound by the Letter of Transmittal
and that the Trust and the Company may enforce such Letter of Transmittal
against such participant.
Subject to the terms and conditions of the Exchange Offer, the Company and
the 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 Company's and
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 Company and
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
which will not be held in global form by DTC or a nominee of DTC to validly
tendering holders. Such exchange will be made promptly after the Expiration
Date. If for any reason whatsoever, acceptance for exchange or the exchange of
any Old Capital Securities tendered pursuant to the Exchange Offer is delayed
(whether before or
36
<PAGE>
after the Company's and the Trust's acceptance for exchange of Old Capital
Securities) or the Company and the Trust extend the Exchange Offer or are
unable to accept for exchange or exchange Old Capital Securities tendered
pursuant to the Exchange Offer, then, without prejudice to the Company's and
the Trust's rights set forth herein, the Exchange Agent may, nevertheless, on
behalf of the Company and 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 an Agent's Message or a Letter of Transmittal, a holder of Old
Capital Securities will represent, warrant and agree in the Letter of
Transmittal that it has full power and authority to tender, exchange, sell,
assign and transfer 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 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 by book-entry transfer, an Agent's Message or a
completed and signed Letter of Transmittal (or facsimile thereof), with any
required signature guarantees, and in either case any other documents required
by the Letter of Transmittal, must be delivered to the Exchange Agent by mail,
facsimile, hand delivery or overnight carrier at one of the Exchange Agent's
addresses set forth under "--Exchange Agent" on or prior to the Expiration
Date and either (i) such Old Capital Securities must be tendered pursuant to
the procedures for book-entry transfer set forth below or (ii) the guaranteed
delivery procedures set forth below must be complied with.
Except as set forth below, in order for Old Capital Securities to be validly
tendered by a means other than by book-entry transfer, a completed and signed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees, and any other documents required by the Letter of Transmittal,
must be delivered to the Exchange Agent by mail, facsimile, hand delivery or
overnight carrier at one of the Exchange Agent's addresses set forth under "--
Exchange Agent" on or prior to the Expiration Date and either (i) such Old
Capital Securities must be delivered to the Exchange Agent on or prior to the
Expiration Date or (ii) the guaranteed delivery procedures set forth below
must be complied with.
If less than all 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 TO BE BY MAIL, THE USE OF REGISTERED MAIL,
RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE
IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE
TIMELY DELIVERY.
Book-Entry Transfer. The Exchange Agent and DTC have confirmed that any
Participant (as defined in "Description of Securities--Description of Capital
Securities--Form, Denomination, Book-Entry Procedures and Transfer--Depositary
Procedures") in DTC's book-entry transfer facility system may utilize DTC's
ATOP procedures to tender Old Capital Securities. 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 Participant may make a book-entry delivery of the Old Capital
Securities by causing DTC to
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transfer such Old Capital Securities into the Exchange Agent's account at DTC
in accordance with DTC's ATOP procedures for transfer. However, although
delivery of Old Capital Securities may be effected through book-entry transfer
into the Exchange Agent's account at DTC, an Agent's Message or a completed
and signed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other documents required by the Letter of
Transmittal, must in any case be delivered to and received by the Exchange
Agent at one of its addresses set forth under "--Exchange Agent" on or prior
to the Expiration Date, or the guaranteed delivery procedure set forth below
must be complied with. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S
PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Signature Guarantees. Certificates for Old Capital Securities need not be
endorsed and signature guarantees on a Letter of Transmittal are unnecessary
unless (a) a certificate for the Old Capital Securities is registered in a
name other than that of the person surrendering the certificate or (b) such
registered 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 Instructions 4 and 7
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 before the Expiration Date, or the
procedures 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:
(i) such tenders are made by or through an Eligible Institution;
(ii) a completed and signed Notice of Guaranteed Delivery, substantially
in the form accompanying the Letter of Transmittal, is delivered to the
Exchange Agent, as provided below, on or prior to Expiration Date; and
(iii) the certificates (or a book-entry confirmation) representing all
tendered Old Capital Securities, in proper form for transfer, together with
a completed and signed Letter of Transmittal (or facsimile thereof) or, in
the case of a book-entry transfer, an Agent's Message in lieu of the Letter
of Transmittal, with any required signature guarantees and any other
documents required by the Letter of Transmittal, are received by the
Exchange Agent within five 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 mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice.
The Company's and 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, the Company 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 Company and
the Trust, in their sole discretion, whose determination shall be final and
binding on all parties. The Company 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 view of counsel to the Company and the Trust, be
unlawful. The Company and the Trust also reserve the right,
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in their reasonable discretion and 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, defect or irregularity in any tender of Old
Capital Securities of any particular holder whether or not similar conditions,
defects or irregularities are waived in the case of other holders.
The Company's and the Trust's interpretation of the terms and conditions of
the Exchange Offer (including the Letter of Transmittal and the instructions
thereto) will be final and binding on all parties. 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 Company,
the Trust, any affiliates or assigns of the Company or the Trust, the Exchange
Agent nor any other person shall be under any duty to give any notification of
any defects or irregularities in tenders or incur any liability for failure to
give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing and, unless waived by the Company
and the Trust, proper evidence satisfactory to the Company 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 Capital Securities in
reliance on the position of the staff of the Division of Corporation Finance
of the Commission as set forth in certain interpretive letters addressed to
third parties in other transactions. However, neither the Company nor the
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, and subject to the conditions
described below, the Company and the Trust believe that a holder of Old
Capital Securities (other than a holder who is (a) a broker-dealer who
purchased the Old Capital Securities directly from the Trust to resell
pursuant to Rule 144A or any other available exemption under the Securities
Act, (b) a person participating in the distribution of the Old Capital
Securities or (c) a person who is an "affiliate" of the Company or the Trust)
who exchanges Old Capital Securities in the Exchange Offer for New Capital
Securities and then resells such New Capital Securities will be viewed by the
staff no differently than a non-affiliated purchaser of registered securities
who purchases such securities in a registered primary offering of securities
and, after completion of such registered offering, may resell the New Capital
Securities 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. Any holder of Old Capital
Securities who uses the Exchange Offer to participate in a distribution of the
New Capital Securities to be acquired in the Exchange Offer, any broker-dealer
who receives New Capital Securities in exchange for Old Capital Securities
that were purchased directly from the Trust to resell pursuant to Rule 144A or
any other available exemption under the Securities Act, any person
participating in the distribution of the Old Capital Securities who receives
New Capital Securities in the Exchange Offer and any "affiliate" of the
Company or the Trust who receives New Capital Securities in the Exchange Offer
(a) will not be able to rely on the interpretations of the staff of the
Division of Corporation Finance set forth in the above-described interpretive
letters and (b) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or other
transfer of such New Capital Securities, unless such sale is made pursuant to
an exemption from such requirements. Any such resale transaction must be made
by delivery of a prospectus containing the selling securityholder information
required by the rules of the Commission under the Securities Act.
Each holder (including any broker-dealer) 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
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"affiliate" of the Company 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) 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. The Letter of Transmittal contains the foregoing
representations. In addition, the Company and the Trust may require a holder,
as a condition to such holder's eligibility to participate in the Exchange
Offer, to furnish to the Company 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 Capital Securities to be exchanged in the Exchange Offer.
A broker-dealer who holds Old Capital Securities for its own account as a
result of market-making activities or other trading activities and who
receives New Capital Securities in exchange for such Old Capital Securities
pursuant to the Exchange Offer may be deemed to be an "underwriter" within the
meaning of the Securities Act and will be required to deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale
of such New Capital Securities. Based upon the position taken by the staff of
the Division of Corporation Finance of the Commission in the interpretive
letters referred to above, the Company and the Trust believe that a broker-
dealer may participate in the Exchange Offer with respect to Old Capital
Securities acquired for its own account as a result of market-making
activities or other trading activities (a "Participating Broker-Dealer"),
provided that in connection with any resales of New Capital Securities
received in exchange for such Old Capital Securities, such broker-dealer
delivers 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, the Company and the Trust will require each
broker-dealer who tenders, pursuant to the Exchange Offer, Old Capital
Securities that were acquired for its own account as the result of market-
making activities or other trading activities to acknowledge that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of New Capital Securities received in exchange for
such Old Capital Securities pursuant to the Exchange Offer. The Letter of
Transmittal contains the foregoing acknowledgment. However, 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. Also based upon the position taken by the
staff of the Division of Corporation Finance of the Commission in the
interpretive letters referred to above, the Company and the Trust believe that
a Participating Broker-Dealer may fulfill its prospectus delivery requirement
in connection with resales of New Capital Securities received in exchange for
Old Capital Securities that were acquired by such Participating Broker-Dealer
for its own account as a result of market-making activities or other trading
activities with this Prospectus, as it may be amended or supplemented from
time to time, during the 90-day period referred to below. Subject to certain
provisions set forth in the Registration Rights Agreement and to the
limitations described herein, the Company 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 or,
if earlier, when all such New Capital Securities have been disposed of by such
Participating Broker-Dealer. See "Plan of Distribution."
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 or delivery of any Agent's Message in
lieu thereof, that, upon receipt of notice from the Company 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 Company 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 Company 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.
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WITHDRAWAL RIGHTS
As set forth below, 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 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 Liquidation 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
certificate for the Old Capital Securities, if different from that of the
person who tendered such Old Capital Securities. If certificates for the Old
Capital Securities have been delivered or otherwise identified to the Exchange
Agent, then prior to the physical release of such certificates for the Old
Capital Securities, the tendering holder must submit the serial numbers shown
on the particular certificates for the 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
withdrawn Old Capital Securities. 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 Company and the
Trust, in their sole discretion, whose determination shall be final and
binding on all parties. Neither the Company, the Trust, any affiliates or
assigns of the Company 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.
DISTRIBUTIONS ON NEW CAPITAL SECURITIES
Each New Capital Security will accumulate Distributions from the most recent
Distribution Date on the Old Capital Securities surrendered in exchange for
such New Capital Securities or, if no Distributions have been paid or provided
for on such Old Capital Securities, from January 1, 1997. As a result, holders
of Old Capital Securities that are accepted for exchange will not receive
accumulated Distributions on such Old Capital Securities for any period from
and after the most recent Distribution Date on such Old Capital Securities or,
if no Distributions have been paid or provided for on such Old Capital
Securities, from and after January 1, 1997, and such holders will be deemed to
have waived the right to receive any Distributions on such Old Capital
Securities.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any extension
of the Exchange Offer, the Company and the Trust will not be required to
accept any Old Capital Securities for exchange or to exchange any New Capital
Securities for any Old Capital Securities, and, as described below, may
terminate the Exchange Offer (whether or not any Old Capital Securities have
been accepted for exchange) or may waive any conditions to or amend the
Exchange Offer, if any of the following conditions have occurred or exists or
have not been satisfied:
(a) there shall occur a change in the current interpretation by the staff
of the Commission which permits the 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 Company
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
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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;
(b) any action or proceeding shall have been instituted or threatened in
any court or by or before any governmental agency or body with respect to
the Exchange Offer which, in the Company's and the Trust's judgment, would
reasonably be expected to impair the ability of the Company or the Trust to
proceed with the Exchange Offer;
(c) any law, statute, rule or regulation shall have been adopted or
enacted which, in the Company's and the Trust's judgment, would reasonably
be expected to impair the ability of the Company or the Trust to proceed
with the Exchange Offer;
(d) trading on the New York Stock Exchange or generally in the United
States over-the-counter market shall have been suspended by order of the
Commission or any other governmental authority which, in the Company's and
the Trust's judgment, would reasonably be expected to impair the ability of
the Company or the Trust to proceed with the Exchange Offer;
(e) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration
Statement or proceedings shall have been initiated or, to the knowledge of
the Company or the Trust, threatened for that purpose, or any governmental
approval has not been obtained, which approval the Company and the Trust
shall, in their reasonable discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby; or
(f) any change, or any development involving a prospective change, in the
business or financial affairs of the Company or any of its subsidiaries has
occurred which, in the reasonable judgment of the Company and the Trust,
might materially impair the ability of the Company or the Trust to proceed
with the Exchange Offer.
If the Company and the Trust determine in their reasonable discretion that
any of the foregoing events or conditions has occurred or exists or has not
been satisfied, the Company and the Trust 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 Company
and the Trust will promptly disclose such waiver by means of a prospectus
supplement that will be distributed to the registered holders of the Old
Capital Securities, and the Company and the Trust will extend the Exchange
Offer to the extent required by Rule 14e-1 under the Exchange Act.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Delivery of a Letter of Transmittal and any other documents required by
the Letter of Transmittal, questions, requests for assistance, and requests
for additional copies of this Prospectus or of a Letter of Transmittal should
be directed to the Exchange Agent as follows:
By Registered or By Facsimile: By Hand/Overnight
Certified Mail: Carrier:
The Bank of New York
The Bank of New York Attn: Enrique Lopez The Bank of New York
101 Barclay Street--7E (212) 571-3080 101 Barclay Street
New York, New York 10286 Corporate Trust Services
Window
Attn: Reorganization (For Eligible
Section Institutions Only) Ground Level
Confirm by Telephone New York, New York 10286
(212) 815-6333 Attn: Reorganization
Section
For Information Call:
(212) 815-6333
Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.
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FEES AND EXPENSES
The Company has agreed to pay all expenses of the Trust, including expenses
related to the Exchange Offer. The Company has agreed to pay the Exchange
Agent reasonable and customary fees for its services and will reimburse it for
its reasonable out-of-pocket expenses in connection therewith. The Company
will also pay brokerage houses and other custodians, nominees and fiduciaries
the reasonable out-of-pocket expenses incurred by them in forwarding copies of
this Prospectus and related documents to the beneficial owners of 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 Company nor the Trust will make any payment to brokers, dealers
or others soliciting acceptances of the Exchange Offer.
DESCRIPTION OF SECURITIES
DESCRIPTION OF CAPITAL SECURITIES
Pursuant to the terms of the Trust Agreement, the Trust has issued Old
Capital Securities and Common Securities and, in the event the Exchange Offer
is consummated, will issue New Capital Securities. New Capital Securities will
represent undivided beneficial interests in the assets of the Trust and the
holders thereof will be entitled to a preference in certain circumstances with
respect to Distributions and amounts payable on redemption of the Trust
Securities or liquidation of the Trust over the Common Securities. See "--
Subordination of Common Securities." The Trust Agreement has been qualified
under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
The forms and terms of the New Capital Securities are identical in all
material respects to the forms and terms of the Old Capital Securities, except
that the New Capital Securities have been registered under the Securities Act
and therefore are not subject to certain restrictions on transfer applicable
to the Old Capital Securities (see "--Restrictions on Transfer and Removal of
Certain Restrictions") and will not provide for any increase in the
Distribution rate thereon. Accordingly, as the context may require, unless
expressly stated otherwise, "Capital Securities" means the Old Capital
Securities and, in the event the Exchange Offer is consummated, the New
Capital Securities. The following is a summary of all material provisions of
the Capital Securities, the Common Securities and the Trust Agreement;
however, the summary 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 $800,000,000 aggregate Liquidation Amount
at any one time outstanding. The Capital Securities rank on a parity, and
payments are made thereon pro rata, with the Common Securities except as
described under "--Subordination of Common Securities." The New Capital
Securities and any Old Capital Securities that remain outstanding after
consummation of the Exchange Offer will constitute a single series of Capital
Securities under the Trust Agreement and, accordingly, 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. Legal title to
the Old Junior Subordinated Debentures is (and legal title to the New Junior
Subordinated Debentures will be) held by the Property Trustee in trust for the
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benefit of the holders of Capital Securities and Common Securities. The New
Guarantee to be executed by the Company for the benefit of the holders of
Capital Securities will be a guarantee on a subordinated basis but will not
guarantee payment of Distributions or amounts payable on redemption of Capital
Securities or on liquidation of the Trust when the Trust does not have funds
on hand available to make such payments. See "Description of Guarantee."
DISTRIBUTIONS
Distributions on the Capital Securities are cumulative, accumulate from
January 1, 1997 and are payable semi-annually in arrears at the annual rate of
8.205% of the Liquidation Amount on January 1 and July 1 of each year,
commencing July 1, 1997, to the holders of the Capital Securities on the
relevant record dates. The record dates are the immediately preceding December
15 and June 15, respectively. The amount of Distributions payable for any
period is 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 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" means any day which is not
a Saturday or Sunday and which is neither a legal holiday nor a day on which
banking institutions in The City of New York are authorized or required by law
or executive order to close or a day on which the principal corporate trust
office of the Property Trustee or the Debenture Trustee is closed for
business.
So long as no Debenture Event of Default has occurred and is continuing, the
Company has the right under the Indenture to defer the payment of interest on
the Junior Subordinated Debentures at any time or from time to time for a
period not exceeding 10 consecutive semi-annual periods, during which
Extension Period the Company has the right to make partial payments of
interest on any Interest Payment Date. No Extension Period may extend beyond
the Stated Maturity or any earlier prepayment date. As a consequence of any
such deferral, semi-annual Distributions on the Capital Securities by the
Trust will be deferred during any such Extension Period. Distributions to
which holders of the Capital Securities are entitled will accumulate
Additional Distributions at the rate of 8.205% per annum, compounded semi-
annually from the relevant payment date for such Distributions, but not
exceeding the interest rate then accruing on the Junior Subordinated
Debentures. The term "Distributions" as used herein shall include any such
Additional Distributions and Additional Tax Sums, if applicable.
During any such Extension Period, the Company may not, and may not permit
any subsidiary of the Company to (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of the Company's capital stock (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 Company
(including Other Debentures) that rank on a parity with or junior to the
Junior Subordinated Debentures or make any guarantee payments with respect to
any guarantee by the Company of the debt securities of any subsidiary of the
Company (including Other Guarantees) if such guarantee ranks on a parity with
or junior to the Junior Subordinated Debentures (other than (a) dividends or
distributions in common stock of the Company, (b) any declaration of a
dividend in connection with the implementation of a stockholders' rights plan,
or the issuance of capital stock under any such plan, or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under the
Guarantee and (d) purchases of common stock related to the issuance of common
stock or rights under any of the Company's benefit plans for its directors,
officers, employees, consultants or advisers).
Prior to the termination of any such Extension Period, the Company 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 or any earlier prepayment date. At any time
following the termination of any such Extension Period and the payment of all
amounts then due, the Company may elect to begin a new Extension Period,
subject to the foregoing requirements. The Company must give the Property
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Trustee and the Debenture Trustee notice of its election to begin or extend
any Extension Period at least five Business Days prior to the earlier of (i)
the next succeeding date the Distributions on the Capital Securities would
have been payable but 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 other applicable self-regulatory
organization or to holders of Capital Securities of the record date or the
date such Distributions are payable, but in any event not fewer than five
Business Days prior to such record date. There is no limitation on the number
of times that the Company may elect to begin an Extension Period. See
"Description of Junior Subordinated Debentures--Option to Defer Interest
Payments" and "Certain Federal Income Tax Consequences--Interest Income and
Original Issue Discount."
The revenue of the Trust available for distribution to holders of the
Capital Securities will be limited to payments under the Junior Subordinated
Debentures. See "Description of Junior Subordinated Debentures--General." If
the Company does not make interest payments on the Junior Subordinated
Debentures, the Property Trustee will not have funds available to pay
Distributions on the Capital Securities. The payment of Distributions (if and
to the extent the Trust has funds legally available for the payment of such
Distributions and cash sufficient to make such payments) is guaranteed by the
Company on a subordinated basis as set forth under "Description of Guarantee."
REDEMPTION
Upon the repayment in full at the Stated Maturity or prepayment in whole
(but not in part) of the Junior Subordinated Debentures, the proceeds from
such repayment or prepayment shall be applied by the Property Trustee to
redeem the Trust Securities, upon not less than 15 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 in
full of the Junior Subordinated Debentures at the Stated Maturity, the
Maturity Redemption Price (equal to the principal of, and accrued interest on,
the Junior Subordinated Debentures) or (ii) in the case of the optional
prepayment by the Company in whole but not in part of the Junior Subordinated
Debentures upon the occurrence and continuation of a Tax Event or an
Investment Company Event at the Event Redemption Price (which is equal to the
Event Prepayment Price in respect of the Junior Subordinated Debentures) (see
"Description of Junior Subordinated Debentures--Tax Event or Investment
Company Event Prepayment").
LIQUIDATION OF THE TRUST AND DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES
The Company has the right to terminate the Trust at any time and, after
satisfaction of liabilities to creditors of the Trust as provided by
applicable law, cause the Junior Subordinated Debentures to be distributed to
the holders of the Trust Securities in liquidation of the Trust. Such right is
subject to the Company's having received an opinion of counsel to the effect
that such distribution will not be a taxable event to holders of Capital
Securities for United States federal income tax purposes.
Under current United States federal income tax law and interpretations and
assuming, as expected, the Trust is treated as a grantor trust, a distribution
of the Junior Subordinated Debentures will not be a taxable event to holders
of the Capital Securities. Should there be a change in law, a change in legal
interpretation, a Tax Event or other circumstances, however, the distribution
could be a taxable event to holders of the Capital Securities. See "Certain
Federal Income Tax Consequences--Distribution of Junior Subordinated
Debentures to Holders of Capital Securities."
The Trust shall automatically terminate upon the first to occur of: (i)
certain events of bankruptcy, a receivership of the Company or dissolution or
liquidation of the Company; (ii) the dissolution or liquidation of the
Company; (iii) distribution of a Like Amount (as defined below) of the Junior
Subordinated Debentures to the holders of the Trust Securities if the Company,
as Depositor, has given written direction to the Property Trustee to terminate
the Trust (which direction is optional and wholly within the discretion of the
Company, as Depositor, subject to the requirement that the Company receive an
opinion of counsel to the effect that such
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distribution will not be a taxable event to holders of Capital Securities for
United States federal income tax purposes); (iv) redemption of all of the
Trust Securities in connection with the repayment of all Junior Subordinated
Debentures as described above under "--Redemption"; (v) the entry of an order
for the dissolution of the Trust by a court of competent jurisdiction and (vi)
the expiration of the term of the Trust on January 1, 2028.
If a termination occurs as described in clause (i), (ii), (iii) 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 Trust Securities a Like Amount of the
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 liquidation of the assets of the Trust
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 available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Trust Securities shall be paid on a pro rata basis. The holder(s)
of the Common Securities will be entitled to receive Liquidation Distributions
upon any such liquidation pro rata with the holders of the Capital Securities,
except that if a Debenture Event of Default has occurred and is continuing,
the Capital Securities shall have a priority over the Common Securities. See
"--Subordination of Common Securities."
"Like Amount" means Junior Subordinated Debentures having a principal amount
equal to the Liquidation Amount of the Trust Securities of the holder to whom
such Junior Subordinated Debentures are distributed.
If there is no early termination of the Trust, the Capital Securities will
remain outstanding until the repayment of the Junior Subordinated Debentures
at the Stated Maturity.
After the liquidation date for any distribution of Junior Subordinated
Debentures to holders of the Trust Securities, (i) the Capital Securities will
no longer be deemed to be outstanding, (ii) DTC or its nominee, as the record
holder of the Capital Securities, will receive a registered global certificate
or certificates representing the Junior Subordinated Debentures to be
delivered upon such distribution and (iii) any certificates representing
Capital Securities not held by DTC or its nominee will be deemed to represent
Junior Subordinated Debentures having a principal amount equal to the
Liquidation Amount of such Capital Securities and bearing accrued and unpaid
interest in an amount equal to the accrued and unpaid Distributions on such
Capital Securities until such certificates are presented to the Administrative
Trustees or their agent for cancellation, whereupon the Company will issue to
such holder, and the Debenture Trustee will authenticate, a certificate
representing such Junior Subordinated Debentures.
REDEMPTION PROCEDURES
Trust Securities shall be redeemed, if at all, at the applicable Redemption
Price with the proceeds from the contemporaneous repayment or prepayment of
the Junior Subordinated Debentures. Redemptions of the 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 on hand available for the
payment of such applicable Redemption Price. See "--Subordination of Common
Securities."
If the Property Trustee gives a notice of redemption in respect of any
Capital Securities, then, by 10:00 a.m., New York City time, on the Redemption
Date, the Company shall deposit sufficient funds with the Property Trustee to
pay the applicable Redemption Price. If such deposit has been made, then by
12:00 noon, New York City time, on the Redemption Date, to the extent funds
are available, with respect to the Capital Securities held in global form, the
Property Trustee will irrevocably deposit with DTC funds sufficient to pay the
applicable Redemption Price and will give DTC irrevocable instructions and
authority to pay the applicable Redemption Price to the holders of the Capital
Securities. See "--Form, Denomination, Book-Entry Procedures and
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Transfer" and "--Payment and Paying Agency." With respect to the Capital
Securities held in certificated form, the Property Trustee, to the extent
funds are available, will irrevocably deposit with the paying agent for the
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 Capital Securities. See "--Payment and Paying
Agency." Notwithstanding the foregoing, Distributions payable on or prior to
the Redemption Date for any Capital Securities called for redemption shall be
payable to the holders of such 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 Capital Securities will cease, except the right
of the holders of the Capital Securities to receive the applicable Redemption
Price and any Distribution payable on or prior to the Redemption Date, but
without interest, and the Capital Securities will cease to be outstanding. In
the event that any Redemption Date of Capital Securities is not a Business
Day, then payment of the applicable Redemption Price payable on such date will
be made on the next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay). 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 Company pursuant to the Guarantee
as described under "Description of Guarantee," Distributions on Capital
Securities will continue to accumulate at the then applicable rate, from the
Redemption Date originally established by the Trust to but excluding the date
such applicable Redemption Price is actually paid, in which case the actual
payment date will be the date fixed for redemption for purposes of calculating
the applicable Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), the Company or its subsidiaries may at any time and
from time to time purchase outstanding Capital Securities by tender, in the
open market or by private agreement.
Payment of the applicable Redemption Price on, and any distribution of
Junior Subordinated Debentures to holders of, the Trust Securities shall be
made to the applicable recordholders thereof as they appear on the register
therefor on the relevant record date, which shall be a date not more than 45
days nor less than 15 days prior to the Redemption Date or liquidation date,
as applicable.
Notice of any redemption will be mailed at least 15 days but not more than
60 days before the Redemption Date to each holder of Trust Securities at its
registered address. Unless the Company 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
accumulate on the Trust Securities called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Capital
Securities and Common Securities, as applicable, shall be made pro rata based
on the Liquidation Amounts of the Capital Securities and Common Securities;
provided, however, that if on any Distribution Date or Redemption Date a
Debenture Event of Default shall have occurred and be continuing, no payment
of any Distribution on, or 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 on all outstanding Capital
Securities, shall have been made or provided for, and all funds immediately
available to the Property Trustee shall first be applied to the payment in
full in cash of all Distributions on, or Redemption Price of, the Capital
Securities then due and payable.
In the case of any Event of Default under the Trust Agreement resulting from
a Debenture Event of Default, the Company as holder of the Common Securities
will be deemed to have waived any right to act with respect to
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any such Event of Default until the effect of all such Events of Default has
been cured, waived or otherwise eliminated. Until any such Events of Default
have been so cured, waived or otherwise eliminated, the Property Trustee shall
act solely on behalf of the holders of the Capital Securities and not on
behalf of the Company 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
Any one of the following events constitutes an Event of Default under the
Trust Agreement (an "Event of Default") (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description of
Junior Subordinated Debentures--Debenture Events of Default"); or
(ii) default by the Property Trustee in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a
period of 30 days; or
(iii) default by the Property Trustee in the payment of any Redemption
Price of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees in the Trust Agreement
(other than a covenant or warranty a default in the performance of which or
the breach of which is addressed in clause (ii) or (iii) above) and
continuation of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the defaulting Issuer
Trustee or Trustees by the holders of at least 25% in aggregate Liquidation
Amount of the outstanding Capital Securities, a written notice specifying
such default or breach and requiring it to be remedied and stating that
such notice is a "Notice of Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure to appoint a successor
Property Trustee within 60 days thereof.
Within 90 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 Company, as Depositor, unless such Event of Default shall
have been cured or waived. The Company, as Depositor, 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 with respect to
payments of Distributions or upon termination of the Trust as described above.
See "--Liquidation of the Trust and Distribution of Junior Subordinated
Debentures" and "--Subordination of Common Securities."
REMOVAL OF ISSUER TRUSTEES; APPOINTMENT OF SUCCESSORS
The holders of a majority in Liquidation Amount of Capital Securities may
remove the Property Trustee or the Delaware Trustee if a Debenture Event of
Default has occurred and is continuing. If the Property Trustee or the
Delaware Trustee is removed at a time when a Debenture Event of Default has
occurred and is continuing, the holders of a majority in Liquidation Amount of
Capital Securities may appoint a successor Property Trustee or Delaware
Trustee. If no Debenture Event of Default has occurred and is continuing at
such time, the Company, as holder of the Common Securities, may appoint a
successor Property Trustee or Delaware Trustee. If an Administrative Trustee
is removed, the Company, as holder of the Common Securities, shall promptly
appoint a successor. In no event will the holders of Capital Securities have
the right to vote to remove the Administrative Trustees, which voting rights
are vested exclusively in the Company, as holder of the Common Securities. If
a
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successor has not been so appointed, any holder of Capital Securities or
Common Securities (who has been a holder for at least six months), or a
resigning Trustee, in the case of the failure to appoint its successor, may
petition a court of competent jurisdiction to appoint a successor. Any
Delaware Trustee must meet the applicable requirements of Delaware law. Any
Property Trustee must be a national or state-chartered bank and at the time of
appointment have securities rated in one of the three highest rating
categories by a nationally recognized statistical rating organization and have
capital and surplus of at least $50,000,000. Each Administrative Trustee shall
be a current officer of the Company. No resignation or removal of an Issuer
Trustee and no appointment of a successor trustee shall be effective until the
acceptance of appointment by the successor trustee in accordance with the
provisions of the Trust Agreement.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any entity into which the Property Trustee or the Delaware Trustee may be
merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which such Issuer
Trustee shall be a party, or any entity 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 entity 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 substantially as an
entirety to any corporation or other entity, except as described below or
pursuant to a liquidation as described above in "--Liquidation of the Trust
and Distribution of Junior Subordinated Debentures." The Trust may, at the
request of the Company, as Depositor, and with the consent of the
Administrative Trustees, but without the consent of the holders of the Capital
Securities, the Property Trustee or the Delaware Trustee, merge with or into,
consolidate, amalgamate or be replaced by or convey, transfer or lease its
properties and assets substantially as an entirety to a trust organized as
such under the laws of any State; provided, however, 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 Company expressly appoints a trustee of such successor entity possessing
the same powers and duties as the Property Trustee as the holder of the Junior
Subordinated Debentures, (iii) the Successor Securities are listed or traded,
or any Successor Securities will be listed upon notification of issuance, on
any national securities exchange or other organization on which the Capital
Securities are then listed, 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 substantially identical to
that of the Trust, (vii) prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, the Company 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 of 1940, as
amended (the "Investment Company Act"), and (viii) the Company or any
permitted successor or assignee owns all of the common securities of such
successor entity and guarantees the obligations of such successor entity under
the Successor Securities at least to the extent provided by the Guarantee.
Notwithstanding the foregoing, the Trust shall not, except with the consent of
holders of 100% in Liquidation Amount of the Capital Securities, consolidate,
amalgamate, merge with or into, or be replaced by or convey, transfer or lease
its
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properties and assets substantially as an entirety to any other entity or
permit any other entity to consolidate, amalgamate, merge with or into, or
replace it if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the Trust or the successor entity to
be classified as other than a grantor trust for United States federal income
tax purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "Description of Guarantee--Amendments and
Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Capital Securities have no voting rights.
The Trust Agreement may be amended from time to time by the Company, the
Property Trustee, the Delaware Trustee and the Administrative Trustees,
without the consent of the holders of the Trust Securities, (i) to cure any
ambiguity, to correct or supplement any provisions in the Trust Agreement that
may be inconsistent with any other provision or to make any other provision
with respect to matters or questions arising under the Trust Agreement, which
shall not be inconsistent with the other provisions of the Trust Agreement,
(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 or (iii) to provide the Property Trustee with the authority to
execute on behalf of the Administrative Trustees Capital Securities
certificates in certificated, fully registered form; provided, however, that
in the case of clauses (i) and (ii), such action shall not adversely affect in
any material respect the interests of any holder of Trust Securities or the
Property Trustee or the Delaware Trustee, and any amendments of the Trust
Agreement shall become effective when notice thereof is given to the holders
of the Trust Securities. The Trust Agreement may be amended by the Issuer
Trustees and the Company with (i) the consent of holders representing not less
than a majority (based upon Liquidation Amounts) of the outstanding Trust
Securities and (ii) receipt by the Issuer Trustees of an opinion of counsel to
the effect that such amendment or the exercise of any power granted to the
Issuer Trustees in accordance with such amendment will not affect the 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. The Trust Agreement may not be amended without the consent of
each holder of Trust Securities 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.
So long as any Junior Subordinated Debentures are held by the Property
Trustee, the Issuer Trustees shall not (i) direct the time, method and place
of conducting any proceeding for any remedy available to the Debenture Trustee
or executing any trust or power conferred on the Debenture Trustee with
respect to the Junior Subordinated Debentures, (ii) waive any past default
that is waivable under the Indenture, (iii) exercise any right to rescind or
annul a declaration that the principal of all the Junior Subordinated
Debentures shall be due and payable or (iv) consent to any amendment,
modification or termination of the Indenture or the Junior Subordinated
Debentures, where the consent of the holders of the Junior Subordinated
Debentures shall be required, without, in each case, obtaining the prior
approval of the holders of at least 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 written consent of each holder of the Capital
Securities. The Issuer Trustees shall not revoke any action previously
authorized or approved by a vote of the holders of the Capital Securities,
except by a 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 unless such default shall have been cured or
waived. 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 such action will not cause the Trust to be classified as an
association taxable as a corporation for United States federal income tax
purposes.
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Any required approval of holders of Trust Securities may be given at a
meeting of such holders convened for such purpose. Any action that may be
taken by holders of Trust Securities at a meeting may be taken without a
meeting if holders of Trust Securities holding more than a majority of
outstanding Trust Securities (based upon their Liquidation Amount) shall
consent to the action in writing. The Property Trustee will cause a notice of
any meeting at which holders of Trust 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 Trust Securities in the manner
set forth in the Trust Agreement.
No vote or consent of the holders of Capital Securities is required for the
Trust to redeem and cancel the 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 Company, the Issuer Trustees or any affiliate
of the Company or any Issuer Trustee, shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
In the event that New Capital Securities are issued in certificated form,
such New Capital Securities will be in blocks having a Liquidation Amount of
not less than $100,000 (100 New Capital Securities) and may be transferred or
exchanged in such blocks in the manner and at the offices described below.
In the event that New Capital Securities are issued in registered, global
form (collectively, the "Global Capital Securities"), the Global Capital
Securities will be deposited upon issuance with the Property Trustee as
custodian for DTC, in New York, New York, and registered in the name of DTC or
its nominee, in each case for credit to an account of a direct or indirect
participant in DTC as described below.
Except as set forth below, 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 Global Capital Securities may not be
exchanged for New Capital Securities in certificated form except in the
limited circumstances described below. See "--Exchange of Book-Entry New
Capital Securities for Certificated New Capital Securities."
Depositary Procedures
DTC has advised the Trust and the Company that DTC is a limited-purpose
trust company created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in those securities 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 Company that, pursuant to procedures
established by it, (i) upon deposit of Global Capital Securities, DTC will
credit the accounts of Participants designated by the Exchange Agent with
portions of the Liquidation Amount of such Global Capital Securities and (ii)
ownership of such interests in such 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).
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EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN GLOBAL CAPITAL SECURITIES
WILL NOT HAVE NEW CAPITAL SECURITIES REGISTERED IN THEIR NAME, WILL NOT
RECEIVE PHYSICAL DELIVERY OF NEW 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 a 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 New Capital Securities, including Global Capital Securities, are
registered as the owners thereof for the purpose of receiving such payments
and for any and all other purposes whatsoever. Consequently, neither the
Property Trustee nor any agent thereof has or will have any responsibility or
liability for (i) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in Global Capital Securities, or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in 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 Company that its current practice, upon receipt of
any payment in respect of securities such as the New 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 or the Trust. Neither the
Trust 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 and the Property Trustee may conclusively rely on
and will be protected in relying on instructions from DTC or its nominee for
all purposes.
Interests in 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.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds.
DTC has advised the Trust and the Company 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
Global Capital Securities are credited and only in respect of such portion of
the aggregate 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 Global Capital Securities for legended New Capital Securities in
certificated form and to distribute such New Capital Securities to its
Participants.
The information in this section concerning DTC and their book-entry systems
has been obtained from sources that the Trust and the Company believe to be
reliable, but neither the Trust nor the Company takes responsibility for the
accuracy thereof.
Exchange of Book-Entry New Capital Securities for Certificated New Capital
Securities
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
or (y) has ceased to be a clearing agency registered under the Exchange Act
and the Company fails to appoint a successor Depositary within 90 days, (ii)
the Company 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
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Default or any event which after notice or lapse of time or both would be an
Event of Default under the Trust Agreement. In all cases, certificated 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).
PAYMENT AND PAYING AGENCY
Payments in respect of Global Capital Securities shall be made to DTC, which
shall credit the relevant accounts at DTC on the applicable Distribution
Dates, or in respect of New Capital Securities that are not held by DTC, 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 Company. The Paying Agent shall be permitted to resign as
Paying Agent upon 30 days' written notice to the Property Trustee and the
Company. 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
Company) to act as Paying Agent.
RESTRICTIONS ON TRANSFER AND REMOVAL OF CERTAIN RESTRICTIONS
The New Capital Securities will be issued, and may be transferred only, in
blocks having a Liquidation Amount of not less than $100,000 (100 New Capital
Securities). Any attempted transfer, sale or other disposition of Capital
Securities in a block having a Liquidation Amount of less than $100,000 shall
be deemed to be void and of no legal effect whatsoever. Any such transferee
shall be deemed not to be the holder of such Capital Securities for any
purpose, including but not limited to the receipt of Distributions on such
Capital Securities, and such transferee shall be deemed to have no interest
whatsoever in such Capital Securities.
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. New
Capital Securities acquired in accordance with the Exchange Offer will not
bear a legend reflecting such restrictions on transfer.
RATING
The Capital Securities have not been rated by S&P or Moody's. On February 4,
1997, S&P announced that the preferred stock of the Company was downgraded
from "AA-" to "A" and that the Company was removed from CreditWatch (where it
had been placed following the Company's announcement that it had entered into
the Merger Agreement with A&A). The preferred stock of the Company is
currently rated "a3" by Moody's.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the New
Capital Securities. The Property Trustee also acts as registrar and transfer
agent for the Old Capital Securities.
Registration of transfers of the Capital Securities may be effected without
charge by or on behalf of the Trust, but the registrar may require payment of
a sum sufficient to cover any tax or governmental charge 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 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 or
inconsistent 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 are entitled under the Trust Agreement to
vote, then the Property Trustee shall take such action as is directed by the
Company 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 other than a grantor trust for United
States federal income tax purposes and so that the Junior Subordinated
Debentures will be treated as indebtedness of the Company for United States
federal income tax purposes. In this connection, the Company 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 Company 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 or issue debt or mortgage or pledge any of
its assets.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Old Junior Subordinated Debentures were issued and the New Junior
Subordinated Debentures will be issued as a separate series under the
Indenture. The Indenture has been qualified under the Trust Indenture Act. In
the event the Exchange Offer is consummated, the Company will exchange the New
Junior Subordinated Debentures for the Old Junior Subordinated Debentures. The
form and terms of the New Junior Subordinated Debentures are identical in all
material respects to the form and terms of the Old Junior Subordinated
Debentures, except that the New Junior Subordinated Debentures have been
registered under the Securities Act and therefore are not subject to certain
restrictions on transfer applicable to the Old Junior Subordinated Debentures
and will not provide for any increase in the interest rate thereon.
Accordingly, as the context may require, unless expressly stated otherwise,
"Junior Subordinated Debentures" means the Old Junior Subordinated Debentures
and, in the event the Exchange Offer is consummated, the New Junior
Subordinated Debentures. The following is a summary of all material terms and
provisions of the Junior Subordinated Debentures and the Indenture; however,
the summary 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.
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GENERAL
Concurrently with the issuance of the Old Capital Securities, the Trust
invested the proceeds thereof, together with the consideration paid by the
Company for the Common Securities, in the Old Junior Subordinated Debentures.
Pursuant to the Exchange Offer, the Company will exchange the Old Junior
Subordinated Debentures as soon as practicable after the consummation of the
Exchange Offer and the Old Junior Subordinated Debentures will be retired and
cancelled.
The Junior Subordinated Debentures bear interest at the annual rate of
8.205% of the principal amount thereof, payable semi-annually in arrears on
January 1 and July 1 of each year (each, an "Interest Payment Date"),
commencing July 1, 1997, to the person in whose name each Junior Subordinated
Debenture is registered, subject to certain exceptions, at the close of
business on the Business Day next preceding such Interest Payment Date. It is
anticipated that until the liquidation, if any, of the Trust, each 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 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 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 on the date such payment was originally payable. Accrued
interest that is not paid on the applicable Interest Payment Date will bear
additional interest ("Additional Interest") on the amount thereof (to the
extent permitted by law) at the rate per annum of 8.205% thereof, compounded
semi-annually. The term "interest" as used herein shall include semi-annual
interest payments, Additional Interest and Additional Tax Sums (as defined
below), as applicable.
The Junior Subordinated Debentures mature on January 1, 2027. The Junior
Subordinated Debentures are unsecured and rank junior and subordinate in right
of payment to all Senior Indebtedness of the Company. Because the Company is a
holding company, the right of the Company to participate in any distribution
of assets of any subsidiary, upon such subsidiary's liquidation or
reorganization or otherwise (and thus the ability of holders of the Capital
Securities to benefit indirectly from such distribution), is subject to the
prior claims of creditors of that subsidiary, except to the extent that the
Company may itself be recognized as a creditor of that subsidiary. Claims on
the Company's subsidiaries by creditors other than the Company include long-
term debt and certain other short-term borrowings. Accordingly, the Junior
Subordinated Debentures are subordinated to all Senior Indebtedness of the
Company and effectively subordinated to all existing and future liabilities of
the Company's subsidiaries, and holders of Junior Subordinated Debentures
should look only to the assets of the Company for payments on the Junior
Subordinated Debentures. The Indenture does not limit the incurrence or
issuance of other secured or unsecured debt of the Company, including Senior
Indebtedness.
DENOMINATIONS, REGISTRATION AND TRANSFER
The New Junior Subordinated Debentures will be represented by one
certificate registered in the name of The Bank of New York as Property Trustee
of the Trust. If distributed to holders of Capital Securities in connection
with a Tax Event or an Investment Company Event, the 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 and one or more New Junior
Subordinated Debentures in certificated form. Beneficial interests in New
Junior Subordinated Debentures in global form will be shown on, and transfers
thereof will be effected only through, records maintained by participants in
DTC. Except as described below, New Junior Subordinated Debentures in
certificated form will not be issued in exchange for the global certificates.
A global security shall be exchangeable for New Junior Subordinated
Debentures registered in the names of persons other than Cede & Co. only if
(i) DTC notifies the Company that it is unwilling or unable to continue as a
depositary for such global security and no successor depositary shall have
been appointed, or if at any time DTC ceases to be a "clearing agency"
registered under the Exchange Act, at a time when DTC is required to be so
registered to act as such depositary, (ii) the Company in its sole discretion
determines that such global security
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shall be so exchangeable or (iii) there shall have occurred and be continuing
a Debenture Event of Default. Any global security that is exchangeable
pursuant to the preceding sentence shall be exchangeable for certificates
registered in such names as DTC shall direct. It is expected that such
instructions will be based upon directions received by DTC from its
Participants with respect to ownership of beneficial interests in such global
security. In the event that New Junior Subordinated Debentures are issued in
certificated form, such New Junior Subordinated Debentures will be in minimum
denominations of $100,000 and integral multiples of $1,000 in excess thereof
and may be transferred or exchanged only in such minimum denominations and in
the manner and at the offices described below.
Payments on New Junior Subordinated Debentures represented by a global
security will be made to DTC, as the depositary for the New Junior
Subordinated Debentures. In the event New Junior Subordinated Debentures are
issued in certificated form, principal and interest will be payable, the
transfer of the New Junior Subordinated Debentures will be registrable, and
New Junior Subordinated Debentures will be exchangeable for New Junior
Subordinated Debentures of other denominations of a like aggregate principal
amount, at the corporate office of the Debenture Trustee in New York, New
York, or at the offices of any paying agent or transfer agent appointed by the
Company, provided that payment of interest may be made at the option of the
Company by check mailed to the address of the persons entitled thereto or by
wire transfer. In addition, if the New Junior Subordinated Debentures are
registered to a holder other than the Property Trustee or a nominee of DTC,
the record dates will be the immediately preceding December 15 and June 15,
respectively.
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 Capital Securities--Form, Denomination,
Book-Entry Procedures and Transfer." If the New Junior Subordinated Debentures
are distributed to the holders of the Trust Securities upon the termination of
the Trust, the form, denomination, book-entry and transfer procedures with
respect to the Capital Securities as described under "Description of Capital
Securities--Form, Denomination, Book-Entry Procedures and Transfer," shall
apply to the New Junior Subordinated Debentures mutatis mutandis.
PAYMENT AND PAYING AGENTS
Payment of principal of (and premium, if any) and any interest on 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 Company may designate from time to time, except that at the option of the
Company payment of any interest may be made, except in the case of 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
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 Junior Subordinated Debenture will be made to
the Person in whose name such Junior Subordinated Debenture is registered at
the close of business on the record date for such interest, except in the case
of a call for redemption after a record date and prior to such Interest
Payment Date and defaulted interest. The Company may at any time designate
additional Paying Agents or rescind the designation of any Paying Agent;
however, the Company will at all times be required to maintain a Paying Agent
in each place of payment for the Junior Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or then
held by the Company in trust, for the payment of the principal of (and
premium, if any) or interest on any Junior Subordinated Debenture and
remaining unclaimed for two years after such principal (and premium, if any)
or interest has become due and payable shall, at the request of the Company,
be repaid to the Company and the holder of such Junior Subordinated Debenture
shall thereafter look, as a general unsecured creditor, only to the Company
for payment thereof.
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OPTION TO DEFER INTEREST PAYMENTS
So long as no Debenture Event of Default has occurred and is continuing, the
Company has the right under the Indenture to defer the payment of interest at
any time or from time to time for a period not exceeding 10 consecutive semi-
annual periods, during which Extension Period the Company has the right to
make partial payments of interest on any Interest Payment Date. No Extension
Period may extend beyond the Stated Maturity or any earlier prepayment date.
At the end of such Extension Period, the Company must pay all interest then
accrued and unpaid (together with interest thereon at the annual rate of
8.205%, compounded semi-annually, to the extent permitted by applicable law).
During an Extension Period, interest will continue to accrue and holders of
Junior Subordinated Debentures (and holders of the Capital Securities while
Capital Securities are outstanding) will be required to accrue interest income
for United States federal income tax purposes. See "Certain Federal Income Tax
Consequences--Interest Income and Original Issue Discount."
During any such Extension Period, the Company may not, and may not permit
any subsidiary of the Company to (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock (which includes common and
preferred stock) or (ii) make any payment of principal of or interest or
premium, if any, on or repay, repurchase or redeem any debt securities of the
Company (including Other Debentures) that rank on a parity with or junior to
the Junior Subordinated Debentures or make any guarantee payments with respect
to any guarantee by the Company of the debt securities of any subsidiary of
the Company (including Other Guarantees) if such guarantee ranks on a parity
with or junior to the Junior Subordinated Debentures (other than (a) dividends
or distributions in common stock of the Company, (b) any declaration of a
dividend in connection with the implementation of a stockholders' rights plan,
the issuance of capital stock under any such plan in the future, or the
redemption or repurchase of any such rights distributed pursuant thereto, (c)
payments under the Guarantee and (d) purchases of common stock related to the
issuance of common stock or rights under any of the Company's benefit plans
for its directors, officers, employees, consultants or advisers). Prior to the
termination of any such Extension Period, the Company 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 or any earlier prepayment date. At any time following the
termination of any Extension Period and the payment of all amounts then due,
the Company may elect to begin a new Extension Period, subject to the
foregoing requirements. No interest shall be due and payable during an
Extension Period, except at the end thereof. The Company must give the
Property Trustee and Debenture Trustee notice of its election to begin or
extend any Extension Period at least five Business Days prior to the earlier
of (i) the next succeeding date the Distributions on the Capital Securities
would have been payable but 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 other applicable self-regulatory
organization or to holders of Capital Securities of the record date or the
date such Distributions are payable, but in any event not fewer than five
Business Days prior to such record date. An Administrative Trustee shall give
notice of the Company's election to begin or extend an Extension Period to the
holders of the Capital Securities. There is no limitation on the number of
times that the Company may elect to begin an Extension Period.
TAX EVENT OR INVESTMENT COMPANY EVENT PREPAYMENT
If a Tax Event or an Investment Company Event (each as defined below) shall
occur and be continuing, the Company may, at its option, prepay the Junior
Subordinated Debentures in whole (but not in part) at any time within 90 days
of the occurrence of such Tax Event or Investment Company Event, at a
prepayment price (the "Event Prepayment Price") equal to the greater of (i)
100% of the principal amount of such Junior Subordinated Debentures or (ii) as
determined by the Quotation Agent (as defined below), the sum of the present
value of 100% of the principal amount that would be payable on January 1,
2027, together with the present values of scheduled payments of interest from
the prepayment date to January 1, 2027 (the "Remaining Life"), in each case
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 but excluding the date of
prepayment.
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If the Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, the Company will also pay any
Additional Tax Sums on the Junior Subordinated Debentures.
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 Junior Subordinated
Debentures to be prepaid at its registered address. Unless the Company
defaults in payment of the prepayment price, on and after the prepayment date
interest will cease to accrue on such Junior Subordinated Debentures called
for prepayment.
"Adjusted Treasury Rate" means, with respect to any prepayment date, the
Treasury Rate plus (i) 1.00% if such prepayment date occurs on or before
January 1, 1998 or (ii) 0.50% if such prepayment date occurs after January 1,
1998.
"Treasury Rate" means (i) the yield, under the heading which represents the
average for the immediately prior week, appearing in the most recently
published statistical release designated "H.15(519)" or any successor
publication which is published weekly by the Federal Reserve and which
establishes yields on actively traded United States Treasury securities
adjusted to constant maturity under the caption "Treasury Constant
Maturities," for the maturity corresponding to the Remaining Life (if no
maturity is within three months before or after the Remaining Life, yields for
the two published maturities most closely corresponding to the Remaining Life
shall be determined and the Treasury Rate shall be interpolated or
extrapolated from such yields on a straight-line basis, rounding to the
nearest month) or (ii) if such release (or any successor release) is not
published during the week preceding the calculation date or does not contain
such yields, the rate per annum equal to the semi-annual equivalent yield to
maturity of the Comparable Treasury Issue, calculated using a price for the
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price for such prepayment date. The Treasury
Rate shall be calculated on the third Business Day preceding the prepayment
date.
"Comparable Treasury Issue" means with respect to any prepayment date the
United States Treasury security selected by the Quotation Agent as having a
maturity comparable to the Remaining Life that would be used, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the Remaining
Life. If no United States Treasury security has a maturity which is within a
period from three months before to three months after January 1, 2027, the two
most closely corresponding United States Treasury securities shall be used as
the Comparable Treasury Issue, and the Treasury Rate shall be interpolated or
extrapolated on a straight-line basis, rounding to the nearest month using
such securities.
"Quotation Agent" means Morgan Stanley & Co. Incorporated.
"Reference Treasury Dealer" means (i) Morgan Stanley & Co. Incorporated and
Goldman, Sachs & Co. and their respective successors; provided, however, that
if any of the foregoing shall cease to be a primary U.S. Government securities
dealer in New York City (a "Primary Treasury Dealer"), the Company shall
substitute therefor another Primary Treasury Dealer; and (ii) any other
Primary Treasury Dealer selected by the Debenture Trustee after consultation
with the Company.
"Comparable Treasury Price" means, with respect to any prepayment date, (A)
the average of five 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.
"Liquidation Amount" means the stated amount of $1,000 per Capital Security.
"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
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the Debenture Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third Business Day preceding such prepayment date.
"Additional Tax 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.
"Tax Event" means the receipt by the Trust of an opinion of counsel
experienced in such matters to the effect that, as a result of any amendment
to, or change (including any announced prospective change) in, the laws (or
any regulations thereunder) of the United States or any political subdivision
or taxing authority thereof or therein, or as a result of any official
administrative pronouncement or judicial decision interpreting or applying
such laws or regulations, which amendment or change is effective or which
pronouncement or decision is announced on or after January 13, 1997, there is
more than an insubstantial risk that (i) the Trust is, or will be within 90
days after the date of such opinion, subject to United States federal income
tax with respect to income received or accrued on the Junior Subordinated
Debentures, (ii) interest payable by the Company on the Junior Subordinated
Debentures is not, or within 90 days after the date of such opinion, will not
be, deductible by the Company, in whole or in part, for United States federal
income tax purposes or (iii) the Trust is, or will be within 90 days after the
date of such opinion, subject to more than a de minimis amount of other taxes,
duties, assessments or other governmental charges.
"Investment Company Event" means the receipt by the Trust of an opinion of
counsel experienced in such matters to the effect that, as a result of the
occurrence of a change in law or regulation or change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in 1940 Act Law"), the Trust is or
will be considered an investment company that is required to be registered
under the Investment Company Act of 1940, as amended, which Change in 1940 Act
Law becomes effective on or after January 13, 1997.
RESTRICTIONS ON CERTAIN PAYMENTS
The Company also covenanted that it will not, and will not permit any
subsidiary of the Company to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock (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 Company
(including other Debentures) that rank on a parity with or junior to the
Junior Subordinated Debentures or make any guarantee payments with respect to
any guarantee by the Company of the debt securities of any subsidiary of the
Company (including other Guarantees) if such guarantee ranks on a parity with
or junior to the Junior Subordinated Debentures (other than (a) dividends or
distributions in common stock of the Company, (b) any declaration of a
dividend in connection with the implementation of a stockholder's rights
plan, or the issuance of any capital stock under any such plan in the future,
or the redemption or repurchase of any such rights pursuant thereto, (c)
payments under the Guarantee and (d) purchases of common stock related to the
issuance of common stock or rights under any of the Company's benefit plans
for its directors, officers, employees consultants or advisers) if at such
time (i) there shall have occurred any event of which the Company has actual
knowledge that (a) with the giving of notice or the lapse of time, or both,
would constitute a "Debenture Event of Default" and (b) in respect of which
the Company shall not have taken reasonable steps to cure, (ii) the Company
shall be in default with respect to its payment of any obligations under the
Guarantee or (iii) the Company shall have given notice of its election of an
Extension Period as provided in the Indenture and shall not have rescinded
such notice, or such Extension Period, or any extension thereof, shall
be continuing.
MODIFICATION OF INDENTURE
From time to time, the Company and the Debenture Trustee may, without the
consent of the holders of the Junior Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including,
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among other things, curing ambiguities, defects or inconsistencies (provided
that any such action does not materially adversely affect the interest of the
holders of the Junior Subordinated Debentures or the holders of Capital
Securities so long as they remain outstanding) and qualifying, or maintaining
the qualification of, the Indenture under the Trust Indenture Act.
The Indenture contains a provision permitting the Company and the Debenture
Trustee, with the consent of the holders of not less than a majority in
principal amount of the Junior Subordinated Debentures, to modify the rights
of the holders of Junior Subordinated Debentures, provided that no such
modification may (i) change the fixed maturity of any Junior Subordinated
Debentures, or reduce the rate or extend the time of payment of any interest
thereon or on any overdue principal amount, or reduce the principal amount
thereof, or reduce any amount payable upon any redemption thereof, or change
the currency of payment of principal of or any interest thereon or on any
overdue principal amount, without the consent of the holder of each Junior
Subordinated Debenture so affected, (ii) reduce the aforesaid percentage of
Junior Subordinated Debentures, the holders of which are required to consent
to any such supplemental indenture, without the consent of the holders of all
Junior Subordinated Debentures then outstanding, (iii) modify certain
provisions of the Indenture relating to waiver of compliance with covenants,
waiver of defaults or modification of the Indenture, except to increase the
percentage of holders required for such waiver or modification, without the
consent of the holders of all Junior Subordinated Debentures then outstanding,
or (iv) modify the provisions of the Indenture with respect to the
subordination of outstanding Junior Subordinated Debentures in a manner
adverse to the holders thereof without the consent of the holder of each
Junior Subordinated Debentures so affected; provided further that, so long as
any of the Capital Securities remain outstanding, no such modification may be
made that adversely affects the holders of such Capital Securities in any
material respect, and no termination of the Indenture may occur, and no waiver
of any Event of Default or compliance with any covenant under the Indenture
may be effective, without the prior consent of the holders of at least a
majority of the aggregate Liquidation Amount of such Capital Securities unless
and until the principal of the underlying Junior Subordinated Debentures and
all accrued and unpaid interest thereon have been paid in full and certain
other conditions are satisfied.
DEBENTURE EVENTS OF DEFAULT
A Debenture Event of Default with respect to the Junior Subordinated
Debentures is defined in the Indenture as being: (a) default for 30 days in
payment of any installment of interest on the Junior Subordinated Debentures
(subject to the deferral of any due date in the case of an Extension Period);
(b) default in payment of any principal or premium, if any, on Junior
Subordinated Debentures; (c) failure by the Company in performance in any
material respect of any of the covenants or agreements (other than covenants
to pay interest, principal and premium, which are subject to the foregoing
clauses (a) and (b)) in the Indenture specifically contained therein for the
benefit of the Junior Subordinated Debentures which shall not have been
remedied for a period of 60 days after written notice to the Company by the
Debenture Trustee or to the Company and the Debenture Trustee by the holders
of not less than 25% in principal amount of the Junior Subordinated Debentures
outstanding; or (d) certain events of bankruptcy, insolvency or reorganization
of the Company.
The Indenture provides that if a Debenture Event of Default under clause
(a), (b) or (c) above shall have occurred and be continuing (but, in the case
of clause (c), only if the Debenture Event of Default is with respect to less
than all Junior Subordinated Debentures outstanding under the Indenture),
either the Debenture Trustee or the holders of not less than 25% in principal
amount of the then outstanding Junior Subordinated Debentures (each series of
Junior Subordinated Debentures voting as a separate class in the case of
clauses (a) and (b) above, and all series voting as one class in the case of
clause (c) above) may declare the principal of all the Junior Subordinated
Debentures, together with any accrued interest, to be immediately due and
payable. Should the Debenture Trustee or holders of such Junior Subordinated
Debentures fail to make such declaration, the holders of at least 25% in
aggregate liquidation amount of the Capital Securities shall have such right.
The Indenture also provides that if a Debenture Event of Default under clause
(c) or (d) above shall have occurred and be continuing (but, in the case of
clause (c), only if the Debenture Event of Default is with respect to all
Junior Subordinated Debentures outstanding under the Indenture), either the
Debenture Trustee or the holders of not less than 25% in principal amount of
the then outstanding Junior Subordinated Debentures (all series voting as
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one class) may declare the principal of all the Junior Subordinated
Debentures, together with any accrued interest, to be immediately due and
payable. Should the Debenture Trustee or holders of such Junior Subordinated
Debentures fail to make such declaration, the holders of at least 25% in
aggregate liquidation amount of the Capital Securities shall have such right.
Upon certain conditions, such declaration (including a declaration caused by a
default in the payment of principal or interest, the payment for which has
subsequently been provided) may be annulled by the holders of at least a
majority in principal amount of the Junior Subordinated Debentures. Should the
holders of the Junior Subordinated Debentures fail to annul such declaration,
the holders of at least a majority in aggregate liquidation amount of the
Capital Securities shall have such right. In addition, past defaults may be
waived by the holders of a majority in principal amount of the Junior
Subordinated Debentures, except a default in the payment of principal of or
interest on the Junior Subordinated Debentures or in respect of a covenant or
provision of the Indenture which cannot be modified or amended without the
consent of the holder of each Junior Subordinated Debenture so affected.
Should the holders of the Junior Subordinated Debentures fail to waive such
default, the holders of a majority in aggregate liquidation amount of the
Capital Securities shall have such right.
The Indenture contains a provision entitling the Debenture Trustee, subject
to the duty of the Debenture Trustee during default to act with the required
standard of care, to be indemnified by the holders of Junior Subordinated
Debentures issued under the Indenture before proceeding to exercise any right
or power under the Indenture at the request of such holders. The Indenture
also provides that the holders of a majority in principal amount of the
outstanding Junior Subordinated Debentures issued thereunder may direct the
time, method and place of conducting any proceeding for any remedy available
to the Debenture Trustee, or exercising any trust or power conferred on the
Debenture Trustee.
The Indenture contains a covenant that the Company will file annually with
the Debenture Trustee a certificate as to the absence of any default or
specifying any default that exists.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay interest or
principal on the Junior Subordinated Debentures on the date such interest or
principal is otherwise payable, a holder of Capital Securities may institute a
legal proceeding directly against the Company for enforcement of payment to
such holder of the principal of or interest on such related Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the related Capital Securities of such holder (a "Direct
Action"). The Company 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 Capital Securities. If the right to bring a Direct
Action is removed, the Trust may become subject to reporting obligations under
the Securities Exchange Act of 1934, as amended. Notwithstanding any payments
made to a holder of Capital Securities by the Company in connection with a
Direct Action, the Company shall remain obligated to pay the principal of or
interest on the Junior Subordinated Debentures, and the Company 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 Company to such holder in any Direct Action.
The holders of the Capital Securities would not be able to exercise directly
any remedies, other than those set forth in the preceding paragraph, available
to the holders of the Junior Subordinated Debentures unless there shall have
been an Event of Default under the Trust Agreement. See "Description of
Capital Securities--Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Company may not merge or consolidate or sell
or convey all or substantially all of its assets unless (i) the successor
entity (if other than the Company) is a U.S. entity that assumes the Company's
obligations under such Indenture and on the Junior Subordinated Debentures
issued under such Indenture, and, after giving effect to such transaction, the
Company or the successor would not be in default under such Indenture; and
(ii) certain other conditions as prescribed in the Indenture are met.
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The provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Company that may adversely affect holders of the
Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and
payable at their Stated Maturity within one year, and the Company deposits or
causes to be deposited with the Debenture Trustee funds, in trust, for the
purpose and in an amount sufficient to pay and discharge the entire
indebtedness on the Junior Subordinated Debentures not previously delivered to
the Debenture Trustee for cancellation, for the principal (and premium, if
any) and interest to the date of the deposit or to the Stated Maturity, as the
case may be, then the Indenture will cease to be of further effect (except as
to remaining rights of registration of transfer, conversion, substitution and
exchange, the rights and obligations of the Debenture Trustee, the Company'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
Company will be deemed to have satisfied and discharged the Indenture.
SUBORDINATION
In the Indenture, the Company has covenanted and agreed that the obligations
of the Company to make any payment on account of the principal of and interest
on the Junior Subordinated Debentures will be subordinate and junior in right
of payment to the Company's obligations to the holders of Senior Indebtedness
of the Company to the extent described in the next two paragraphs. Senior
Indebtedness of the Company with respect to the Junior Subordinated Debentures
will include the existing and future senior notes, senior subordinated notes
and subordinated notes of the Company and means (i) any indebtedness of the
Company for borrowed or purchased money, whether or not evidenced by bonds,
debentures, notes or other written instruments, (ii) obligations under letters
of credit, (iii) any indebtedness or other obligations of the Company with
respect to commodity contracts, interest rate and currency swap agreements,
cap, floor and collar agreements, currency spot and forward contracts, and
other similar agreements or arrangements designed to protect against
fluctuations in currency exchange or interest rates, and (iv) any guarantees,
endorsements (other than by endorsement of negotiable instruments for
collection in the ordinary course of business) or other similar contingent
obligations in respect of obligations of others of a type described in (i),
(ii) or (iii) above, whether or not such obligation is classified as a
liability on a balance sheet prepared in accordance with generally accepted
accounting principles, in each case listed in (i), (ii), (iii) and (iv) above,
whether outstanding on the date of execution of the Indenture or thereafter
incurred, other than obligations "ranking on a parity" with the Junior
Subordinated Debentures or "ranking junior" to the Junior Subordinated
Debentures (as those terms are defined in the Indenture); provided, however,
that the Junior Subordinated Debentures will not be subordinate and junior in
right of payment to trade creditors. As of September 30, 1996, there was
approximately $583 million of Senior Indebtedness of the Company outstanding.
The Indenture does not limit the amount of future increase in Senior
Indebtedness of the Company. The Company expects from time to time to issue
additional indebtedness constituting Senior Indebtedness.
No payments on account of principal (or premium, if any) or interest, if
any, 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.
In the case of any insolvency, receivership, conservatorship,
reorganization, readjustment of debt, marshaling of assets and liabilities or
similar proceedings or any liquidation or winding-up of or relating to the
Company as a whole, whether voluntary or involuntary, all obligations of the
Company to holders of Senior Indebtedness of the Company shall be entitled to
be paid in full before any payment shall be made on account of the principal
of or interest on the Junior Subordinated Debentures. In the event of any such
proceeding, after
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payment in full of all sums owing with respect to Senior Indebtedness of the
Company, the holders of the Junior Subordinated Debentures, together with the
holders of any obligations of the Company ranking on a parity with the Junior
Subordinated Debentures, shall be entitled to be paid from the remaining
assets of the Company the amount at the time due and owing on account of
unpaid principal of and interest on the Junior Subordinated Debentures before
any payment or other distribution, whether in cash, property or otherwise,
shall be made on account of any capital stock or any obligations of the
Company ranking junior to the Junior Subordinated Debentures. By reason of
such subordination, in the event of the insolvency of the Company, holders of
Senior Indebtedness of the Company may receive more, ratably, and holders of
the Junior Subordinated Debentures having a claim pursuant to the Junior
Subordinated Debentures may receive less, ratably, than the other creditors of
the Company. Such subordination will not prevent the occurrence of any Event
of Default in respect of the Junior Subordinated Debentures.
RESTRICTIONS ON TRANSFER
The New Junior Subordinated Debentures will be issued, and may be
transferred only, in minimum denominations of not less than $100,000 and
multiples of $1,000 in excess thereof. Any transfer, sale or other disposition
of Junior Subordinated Debentures in a denomination of less than $100,000
shall be deemed to be void and of no legal effect whatsoever. Any such
transferee shall be deemed not to be the holder of such Junior Subordinated
Debentures for any purpose, including but not limited to the receipt of
payments on such Junior Subordinated Debentures, and such transferee shall be
deemed to have no interest whatsoever in such Junior Subordinated Debentures.
GOVERNING LAW
The Indenture is 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
The Debenture Trustee is 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 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.
DESCRIPTION OF GUARANTEE
The Old Guarantee was executed and delivered by the Company 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. In the event
the Exchange Offer is consummated, the Company will exchange the New Guarantee
for the Old Guarantee. The New Guarantee Agreement has been qualified under
the Trust Indenture Act. The form and terms of the New Guarantee are identical
in all material respects to the form and terms of the Old Guarantee, except
that the New Guarantee has been registered under the Securities Act.
Accordingly, as the context may require, unless expressly stated otherwise,
"Guarantee" means the Old Guarantee and, in the event the Exchange Offer is
consummated, the New Guarantee. The following is a summary of all material
terms and provisions of the Old Guarantee Agreement and the New Guarantee
Agreement; however, the summary does not purport to be complete and is subject
to, and qualified in its entirety by reference to, all of the provisions of
the Old Guarantee Agreement and the New Guarantee Agreement, including the
definitions therein of certain terms, and the Trust Indenture Act. The Bank of
New York will act as Guarantee Trustee and will hold the New Guarantee for the
benefit of the holders of all Capital Securities.
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GENERAL
Under the New Guarantee the Company will irrevocably agree (and under the
Old Guarantee has agreed) to pay in full on a subordinated basis, to the
extent set forth herein, the Guarantee Payments (as defined below) to the
holders of all 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 Capital
Securities, to the extent not paid by or on behalf of the Trust (the
"Guarantee Payments"), will be subject to the Guarantee: (i) any accumulated
and unpaid Distributions required to be paid on the Capital Securities, to the
extent that the Trust has funds on hand available therefor at such time, (ii)
the applicable Redemption Price with respect to Capital Securities called for
redemption, to the extent that the Trust has funds on hand available therefor
at such time and (iii) upon a voluntary or involuntary termination,
dissolution, winding-up or 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 plus accumulated and
unpaid Distributions on the Capital Securities to the date of payment, to the
extent that the Trust has funds on hand available therefor at such time, and
(b) the amount of assets of the Trust remaining available for distribution to
holders of Capital Securities in liquidation of the Trust. The Company's
obligation to make a Guarantee Payment may be satisfied by direct payment of
the required amounts by the Company to the holders of the Capital Securities
or by causing the Trust to pay such amounts to such holders.
The Guarantee is an irrevocable guarantee on a subordinated basis of the
Trust's related obligations under all Capital Securities, but will apply only
to the extent that the Trust has funds sufficient to make such payments, and
is not a guarantee of collection. If the Company does not make interest
payments on the Junior Subordinated Debentures held by the Trust, the Trust
will not be able to pay Distributions on the Capital Securities and will not
have funds legally available therefor. In such event, holders of the Capital
Securities would not be able to rely on the Guarantee for such payments.
The Guarantee ranks subordinate and junior in right of payment to all
liabilities of the Company, other than any liabilities which expressly by
their terms are made pari passu with or subordinate to the obligations of the
Company under the Guarantee (including Other Guarantees). See "--Status of the
Guarantee." Since the Company is a holding company, the right of the Company
to participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise (and thus the ability
of holders of Capital Securities to benefit indirectly from such
distribution), is subject to the prior claims of creditors of that subsidiary,
except to the extent that the Company may itself be recognized as a creditor
of that subsidiary. Claims on the Company's subsidiaries by creditors other
than the Company include long-term debt and certain other short-term
borrowings. Accordingly, the Company's obligations under the Guarantee will be
effectively subordinated to all existing and future liabilities of the
Company's subsidiaries, and claimants should look only to the assets of the
Company for payments thereunder. The Guarantee does not limit the incurrence
or issuance of other secured or unsecured debt of the Company, including
Senior Indebtedness, whether under the Indenture or any other indenture that
the Company may enter into in the future or otherwise.
The Company has, through the Guarantee, the Guarantee Agreement, the Trust
Agreement, the Junior Subordinated Debentures, the Indenture and the Expense
Agreement, taken together, fully, irrevocably and unconditionally guaranteed
on a subordinated basis all of the Trust's obligations under the Capital
Securities. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes such guarantee. It is only
the combined operation of these documents that provides a full, irrevocable
and unconditional guarantee of the Trust's obligations under the Capital
Securities. See "Relationship Among the Capital Securities, the Junior
Subordinated Debentures, the Guarantee and the Expense Agreement."
STATUS OF THE GUARANTEE
The Guarantee constitutes an unsecured obligation of the Company and ranks
subordinate and junior in right of payment to all liabilities of the Company
(including obligations under the Junior Subordinated Debentures), other than
any liabilities which expressly by their terms are made pari passu with or
subordinate to the obligations of the Company under the Guarantee.
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The Guarantee ranks pari passu with all Other Guarantees issued by the
Company. The Guarantee constitutes a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against any other person or entity). The
Guarantee is held for the benefit of the holders of all Capital Securities.
The 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 of
the Junior Subordinated Debentures to the holders of the Capital Securities.
The Guarantee does not place a limitation on the amount of additional Senior
Indebtedness that may be incurred by the Company. The Company expects from
time to time to incur additional indebtedness constituting Senior
Indebtedness.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of the Capital Securities in any material respect (in which case no
vote will be required), the Guarantee Agreement may not be amended without the
prior approval of the holders of not less than a majority of the aggregate
Liquidation Amount of outstanding Capital Securities. The manner of obtaining
any such approval will be as set forth under "Description of 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 Company and shall
inure to the benefit of the holders of the Capital Securities then
outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee Agreement will occur upon the
failure of the Company to perform any of its payment or other obligations
thereunder. The holders of not less than a majority in aggregate Liquidation
Amount of the 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 exercising of
any trust or power conferred upon the Guarantee Trustee under the Guarantee
Agreement.
Any holder of the Capital Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Trust, the Guarantee Trustee
or any other person or entity.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with
all the conditions and covenants applicable to it under the Guarantee
Agreement.
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Guarantee Agreement provides that the Company shall not consolidate with
or merge into any other entity or convey, transfer or lease all or
substantially all of its properties and assets to any other entity, and no
entity shall consolidate with or merge into the Company or convey, transfer or
lease all or substantially all of its properties and assets to the Company,
unless (i) either the Company shall be the continuing corporation or the
successor entity is organized under the laws of the United States or any state
or the District of Columbia and such successor entity expressly assumes the
Company's obligations on the Guarantee; (ii) immediately after giving effect
thereto, no event of default under the Guarantee Agreement and no event which,
after notice or lapse of time or both, would become an event of default under
the Guarantee Agreement, shall have happened and be continuing; and (iii)
certain other conditions as prescribed in the Guarantee Agreement are met.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by the Company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the
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Guarantee Agreement and, after default with respect to the Guarantee, must
exercise the same degree of care and skill as a prudent person would exercise
or use in the conduct of his or her own affairs. Subject to this provision,
the Guarantee Trustee is under no obligation to exercise any of the powers
vested in it by the Guarantee Agreement at the request of any holder of the
Capital Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon full
payment of the applicable Redemption Price of the Capital Securities, upon
full payment of the amounts payable upon liquidation of the Trust or upon
distribution of Junior Subordinated Debentures to the holders of the Capital
Securities. The Guarantee will continue to be effective or will be reinstated,
as the case may be, if at any time any holder of the Capital Securities must
restore payment of any sums paid under the Capital Securities or the
Guarantee.
GOVERNING LAW
The Old Guarantee is and the New Guarantee will be governed by and construed
in accordance with the laws of the State of New York.
THE EXPENSE AGREEMENT
Pursuant to the Expense Agreement, the Company has irrevocably and
unconditionally guaranteed to each person or entity to whom the Trust becomes
indebted or liable, the full payment of any costs, expenses or liabilities of
the Trust, other than obligations of the Trust to pay to the holders of any
Trust Securities or other similar interests in the Trust of the amounts due
such holders pursuant to the terms of the Trust Securities or such other
similar interests, as the case may be.
DESCRIPTION OF OLD SECURITIES
The forms and terms of the Old Securities are identical in all material
respects to the forms and terms of the New Securities, except that (i) the Old
Securities have not been registered under the Securities Act, are subject to
certain restrictions on transfer 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 provide for any increase in the Distribution rate
thereon; and (iii) 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 the Exchange Offer is not consummated on or prior to August 11,
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 on or prior to August 11,
1997, then interest will accrue (in addition to the stated interest rate on
the Junior Subordinated Debentures) at the rate of 0.25% per annum on the
principal amount of the Junior Subordinated Debentures and Distributions will
accumulate (in addition to the stated Distribution rate on the Capital
Securities) at the rate of 0.25% per annum on the Liquidation Amount of the
Capital Securities, for the period from the occurrence of such event until
such time as the 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 Securities."
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RELATIONSHIP AMONG THE CAPITAL SECURITIES, THE JUNIOR SUBORDINATED
DEBENTURES, THE GUARANTEE AND THE EXPENSE AGREEMENT
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Capital Securities
(to the extent the Trust has funds available for the payment of such
Distributions) are and will continue to be irrevocably guaranteed by the
Company as and to the extent set forth under "Description of Securities--
Description of Guarantee." Taken together, the Company's obligations under the
Junior Subordinated Debentures, the Indenture, the Trust Agreement, the
Expense Agreement, the Guarantee Agreement and the Guarantee provide, in the
aggregate, a full, irrevocable and unconditional guarantee of payments of
Distributions and other amounts due on the Capital Securities. No single
document standing alone or operating in conjunction with fewer than all of the
other documents constitutes such guarantee. It is only the combined operation
of these documents that provides a full, irrevocable and unconditional
guarantee of the Trust's obligations under the Capital Securities. If and to
the extent that the Company does not make payments on the Junior Subordinated
Debentures, the Trust will not pay Distributions or other amounts due on the
Capital Securities. The Guarantee does not cover payment of Distributions when
the Trust does not have sufficient funds to pay such Distributions. In such
event, the remedy of a holder of Capital Securities is to institute a Direct
Action. The obligations of the Company under the Guarantee are subordinate and
junior in right of payment to all liabilities of the Company to the extent and
in the manner set forth in the Guarantee Agreement.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Capital Securities, primarily
because (i) the aggregate principal amount of the Junior Subordinated
Debentures will be equal to the sum of the aggregate Liquidation Amount or
Redemption Price, as applicable, of the Capital Securities and Common
Securities; (ii) the interest rate and interest and other payment dates on the
Junior Subordinated Debentures will match the Distribution rate and
Distribution and other payment dates for the Trust Securities; (iii) under the
Expense Agreement, the Company 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 further
provides that the Trust will not engage in any activity that is not consistent
with the limited purposes thereof.
ENFORCEMENT RIGHTS OF HOLDERS OF CAPITAL SECURITIES
A holder of any Capital Security may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the 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 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
Junior Subordinated Debentures would constitute an Event of Default under the
Trust Agreement.
LIMITED PURPOSES OF THE TRUST
The Capital Securities evidence an undivided beneficial interest in the
assets of the Trust, and the Trust exists for the exclusive purposes of
issuing and selling the Trust Securities, using the proceeds from the sale of
the Common Securities and Old Capital Securities to acquire the Old Junior
Subordinated Debentures and exchanging the Old Junior Subordinated Debentures
for New Junior Subordinated Debentures in the Exchange Offer pursuant to the
Indenture, and engaging in only those other activities necessary, convenient
or incidental
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thereto (such as registering the transfer of Capital Securities). A principal
difference between the rights of a holder of a Capital Security and a holder
of a Junior Subordinated Debenture is that a holder of a Junior Subordinated
Debenture is entitled to receive from the Company the principal amount of and
interest accrued on Junior Subordinated Debentures held, while a holder of
Capital Securities is entitled to receive Distributions from the Trust (or
from the Company under the Guarantee) if and to the extent the Trust has funds
available for the payment of such Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or liquidation of
the Trust involving the liquidation of the Junior Subordinated Debentures,
after satisfaction of liabilities to creditors as required by applicable law,
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
Securities--Description of Capital Securities--Liquidation of the Trust and
Distribution of Junior Subordinated Debentures." Upon any voluntary or
involuntary liquidation or bankruptcy of the Company, the Property Trustee, as
holder of the Junior Subordinated Debentures, would be a subordinated creditor
of the Company, subordinated in right of payment to all Senior Indebtedness as
set forth in the Indenture, but entitled to receive payment in full of
principal and interest, before any stockholders of the Company receive
payments or distributions. Since the Company is the guarantor under the
Guarantee and has agreed under the Expense Agreement 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 Capital
Securities and a holder of Junior Subordinated Debentures relative to other
creditors and to stockholders of the Company in the event of liquidation or
bankruptcy of the Company are expected to be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States federal income tax
consequences of the purchase, ownership and disposition of Capital Securities
to beneficial owners thereof ("Securityholders"). This summary does not
address all tax consequences that may be applicable to Securityholders, nor
does it address the tax consequences to (i) persons that may be subject to
special treatment under United States federal income tax law, such as banks,
insurance companies, thrift institutions, regulated investment companies, real
estate investment trusts, tax-exempt organizations and dealers in securities
or currencies, (ii) persons that will hold Capital Securities as part of a
position in a "straddle" or as part of a "hedging," "conversion" or other
integrated investment transaction for federal income tax purposes, (iii)
persons whose functional currency is not the United States dollar or (iv)
persons that do not hold Capital Securities as capital assets.
The statements of law or legal conclusion set forth in this summary
constitute the opinion of Sidley & Austin, counsel to the Company and the
Trust. Such opinion has not been confirmed by the Internal Revenue Service, by
private ruling or otherwise, and is not binding on the Internal Revenue
Service or the courts. This summary is based upon the Internal Revenue Code of
1986, as amended (the "Code"), Treasury Regulations promulgated thereunder,
Internal Revenue Service rulings and pronouncements and judicial decisions now
in effect, all of which are subject to change at any time. Such changes may be
applied retroactively in a manner that could cause the tax consequences to
vary substantially from the consequences described below, possibly affecting a
beneficial owner of Capital Securities adversely. In particular, legislation
has been proposed that could affect adversely the Company's ability to deduct
interest on the Junior Subordinated Debentures, which may in turn permit the
Company to cause a redemption of the Capital Securities. See "--Possible Tax
Law Changes." The authorities on which this summary is based are subject to
various interpretations, and it is therefore possible that the federal income
tax treatment of the purchase, ownership and disposition of Capital Securities
may differ from the treatment described below.
HOLDERS OF CAPITAL SECURITIES ARE ADVISED TO CONSULT WITH THEIR OWN TAX
ADVISORS IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE FEDERAL TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF CAPITAL SECURITIES,
AS WELL AS THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
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EXCHANGE OF OLD CAPITAL SECURITIES FOR NEW CAPITAL SECURITIES
Under current United States federal income tax law, the exchange of Old
Capital Securities for New Capital Securities pursuant to the Exchange Offer
will not be a taxable event to Securityholders. The New Capital Securities
will be treated as a continuation of the Old Capital Securities. Accordingly,
a Securityholder will have the same adjusted tax basis and holding period in
the New Capital Securities that such Securityholder had in the Old Capital
Securities exchanged therefor.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
In connection with the issuance of the Old Capital Securities, Sidley &
Austin has rendered its opinion to the effect that, under then-current law and
assuming compliance with the Indenture, and based on certain facts and
assumptions contained in such opinion, the Junior Subordinated Debentures held
by the Trust will be classified for United States federal income tax purposes
as indebtedness of the Company.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Old Capital Securities, Sidley &
Austin has rendered its opinion to the effect that, under then-current law and
assuming compliance with the terms of the Trust Agreement, and based on
certain facts and assumptions contained in such opinion, the Trust will be
classified as a grantor trust and not as an association taxable as a
corporation for United States federal income tax purposes. As a result, each
Securityholder will be treated as owning an undivided beneficial interest in
the Junior Subordinated Debentures. By its acceptance of a Capital Security,
each Securityholder agrees to treat such Capital Security consistently with
the foregoing opinions. Accordingly, each Securityholder will be required to
include in its gross income its pro rata share of income on the Junior
Subordinated Debentures. See "--Interest Income and Original Issue Discount."
No amount included in income with respect to the Capital Securities will be
eligible for the dividends-received deduction.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
The Company has the option, under the terms of the Junior Subordinated
Debentures, to defer payments of interest by extending interest payment
periods for up to ten consecutive semi-annual periods. See "Description of
Securities--Description of Junior Subordinated Debentures--Option to Defer
Interest Payments." Under Treasury Regulations, this option should cause
stated interest payments on the Junior Subordinated Debentures to be treated
as original issue discount ("OID") and the Company intends to so treat the
Junior Subordinated Debentures. Holders of debt instruments issued with OID
must include that discount in income on an economic accrual basis before the
receipt of cash attributable to the discount, regardless of their method of
tax accounting. Generally, all of a Securityholder's taxable interest income
with respect to the Junior Subordinated Debentures will be accounted for as
OID, and actual distributions of stated interest will not be reported
separately as taxable income. The amount of OID that accrues in any semi-
annual period will approximately equal the amount of the interest that accrues
on the Junior Subordinated Debentures in that period at the stated interest
rate. In the event that the interest payment period is extended,
Securityholders will continue to accrue OID approximately equal to the amount
of the interest payment due at the end of the extended interest payment period
on an economic accrual basis over the length of the extended interest period.
Under recently issued Treasury Regulations, it is possible that the Junior
Subordinated Debentures could be considered to have terms and conditions that
make the likelihood of the Company's deferring the payment of interest a
"remote contingency" for purposes of the OID rules. In that event, (a) the
Junior Subordinated Debentures would not be subject to the OID rules at the
time of their original issuance, (b) a Securityholder would include its share
of interest on the Junior Subordinated Debentures in income in accordance with
such holder's regular method of tax accounting and (c) if the Company were to
defer the payment of interest, the Junior Subordinated Debentures would
generally become subject to the OID rules described above.
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MARKET DISCOUNT AND PREMIUM
Securityholders that did not acquire their interest in the Capital
Securities pursuant to an acquisition of Old Capital Securities on their
original issue at their original offering price or pursuant to an exchange of
such Old Capital Securities for New Capital Securities pursuant to the
Exchange Offer may be considered to have acquired their undivided interest in
the Junior Subordinated Debentures with market discount, amortizable bond
premium or acquisition premium as such terms are defined for United States
federal income tax purposes. Such Securityholders are advised to consult their
tax advisors as to the income tax consequences of the acquisition, ownership
and disposition of the Capital Securities.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF CAPITAL
SECURITIES
A distribution by the Trust of the Junior Subordinated Debentures as
described under the caption "Description of Securities--Description of Capital
Securities--Liquidation of the Trust and Distribution of Junior Subordinated
Debentures" is conditioned on receipt by the Company of an opinion of counsel
to the effect that such distribution will not be a taxable event to
Securityholders for United States federal income tax purposes. Under current
United States federal income tax law, such a distribution would not be a
taxable event to Securityholders and such a distribution would result in a
Securityholder's receiving directly its pro rata share of the Junior
Subordinated Debentures previously held indirectly through the Trust, with a
holding period and aggregate tax basis equal to the holding period and
aggregate tax basis such Securityholder had in its Capital Securities before
such distribution. A Securityholder would recognize interest income in respect
of Junior Subordinated Debentures received from the Trust in the manner
described above under "--Interest Income and Original Issue Discount."
SALES OR REDEMPTIONS OF CAPITAL SECURITIES
Gain or loss will be recognized by a Securityholder on a sale of Capital
Securities (including a redemption for cash) in an amount equal to the
difference between the amount realized (which for this purpose, will exclude
amounts attributable to accrued interest or OID not previously included in
income) and the Securityholder's adjusted tax basis in the Capital Securities
sold (or so redeemed). Gain or loss recognized by a Securityholder on Capital
Securities held for more than one year will generally be taxable as long-term
capital gain or loss. Amounts attributable to accrued interest with respect to
a Securityholder's pro rata share of the Junior Subordinated Debentures not
previously included in income will be taxable as ordinary income.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The Trust will report the interest and original issue discount that accrued
during the year with respect to the Junior Subordinated Debentures, and any
gross proceeds received by the Trust from the retirement or redemption of the
Junior Subordinated Debentures, annually to the holders of record of the
Capital Securities and the Internal Revenue Service. The Trust currently
intends to deliver such reports to holders of record prior to January 31
following each calendar year. It is anticipated that persons who hold Capital
Securities as nominees for beneficial owners will report the required tax
information to beneficial owners on Form 1099.
Payments made on, and proceeds from the sale of, Capital Securities may be
subject to a "backup" withholding tax of 31% unless the Securityholder
complies with certain identification requirements. Any withheld amounts will
generally be allowed as a credit against the Securityholder's federal income
tax, provided the required information is timely filed with the Internal
Revenue Service.
UNITED STATES ALIEN SECURITYHOLDERS
For purposes of this discussion, a United States Alien Securityholder is any
Securityholder that is a corporation, individual, partnership, estate or trust
that, for United States federal income tax purposes, is a foreign corporation,
a non-resident alien individual, a foreign partnership or a foreign estate or
trust. This discussion assumes that income with respect to the Capital
Securities is not effectively connected with a trade or business in the United
States in which the United States Alien Securityholder is engaged.
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Under current United States federal income tax law:
(i) payments by the Trust or any of its paying agents to any United
States Alien Securityholder generally will not be subject to withholding or
other United States federal income tax, provided that, in the case of
payments with respect to interest (including OID), (a) the United States
Alien Securityholder does not actually or constructively own 10% or more of
the total combined voting power of all classes of stock of the Company
entitled to vote, (b) the United States Alien Securityholder is not a
controlled foreign corporation that is related to the Company through stock
ownership, and (c) either (A) the United States Alien Securityholder
certifies to the Trust or its agent, under penalties of perjury, that it is
a United States Alien Securityholder 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 Securities in
such capacity certifies to the Trust or its agent under penalties of
perjury that such statement has been received from the United States Alien
Securityholder by it or by a Financial Institution between it and the
United States Alien Securityholder and furnishes the Trust or its agent
with a copy thereof; and
(ii) a United States Alien Securityholder generally will not be subject
to withholding or other United States federal income tax on any gain
realized upon the sale or other disposition of Capital Securities.
POSSIBLE TAX LAW CHANGES
On February 6, 1997, President Clinton's budget proposal for fiscal year
1998 was released. Included in the budget proposal is a provision which, if
enacted, would generally treat instruments such as the Junior Subordinated
Debentures as equity for United States federal income tax purposes if the
instruments (i) have a maximum term of more than 15 years and (ii) are not
shown as indebtedness on the separate balance sheet of the issuer. The
provision is proposed to be effective generally for instruments issued on or
after the date of first committee action by Congress. As of the date hereof,
no such action has been taken. If the provision applied to the Junior
Subordinated Debentures, among other things, the Company would be unable to
deduct interest on the Junior Subordinated Debentures for United States
federal income tax purposes. A similar provision was included in President
Clinton's budget proposal for fiscal year 1997, but the 104th Congress
adjourned without taking action on such provision. There can be no assurance
that the current budget provision or future legislative proposals, future
regulations or official administrative pronouncements or future judicial
decisions will not affect the ability of the Company to deduct interest on the
Junior Subordinated Debentures. Such a change could give rise to a Tax Event,
which may permit the Company to cause a redemption of the Capital Securities.
See "Description of Securities--Description of Capital Securities--Redemption"
and "Description of Securities--Description of Junior Subordinated
Debentures--Tax Event or Investment Company Event Prepayment." Such a tax law
change would not alter the United States federal income tax consequences of
the purchase, ownership and disposition of Capital Securities to
Securityholders.
ERISA CONSIDERATIONS
GENERAL
A fiduciary of an employee benefit plan subject to Title I of ERISA should
consider fiduciary standards under ERISA in the context of the particular
circumstances of such plan before authorizing an investment in the Capital
Securities. Such fiduciary should consider whether the investment satisfies
ERISA's diversification and prudence requirements, whether the investment
constitutes unauthorized delegation of fiduciary authority and whether the
investment is in accordance with the documents and instruments governing the
plan. In addition, ERISA and the Code prohibit a wide range of transactions
("Prohibited Transactions") involving the assets of a plan subject to ERISA or
the assets of an individual retirement account or plan subject to Section 4975
of the Code (hereinafter an "ERISA Plan") and persons who have certain
specified relationships to the ERISA Plan ("parties in interest," within the
meaning of ERISA, and "disqualified persons," within the meaning of the Code).
Such transactions may require "correction" and may cause the ERISA Plan
fiduciary to incur certain liabilities and the parties in interest or
disqualified persons to be subject to excise taxes.
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The acquisition of any Capital Security by any person who is using for such
acquisition the assets of an ERISA Plan shall constitute a representation by
such person to the Company that (i) if the Company is a "party in interest" or
a "disqualified person" with respect to such ERISA Plan, then such security is
being acquired pursuant to an exemption from the Prohibited Transaction rules
under ERISA and the Code, and (ii) the Company is not a "fiduciary," within
the meaning of Section 3(21) of ERISA and the regulations thereunder, with
respect to such person's interest in the Capital Securities or the Junior
Subordinated Debentures.
Governmental plans and certain church plans (each as defined under ERISA)
are not subject to the Prohibited Transaction rules. Such plans may, however,
be subject to federal, state or local laws or regulations which may affect
their investment in the Capital Securities. Any fiduciary of such a
governmental or church plan considering an investment in the Capital
Securities should determine the need for, and the availability, if necessary,
of any exemptive relief under such laws or regulations.
THE DISCUSSION HEREIN OF ERISA IS GENERAL IN NATURE AND IS NOT INTENDED TO
BE ALL INCLUSIVE. ANY FIDUCIARY OF AN ERISA PLAN, GOVERNMENTAL PLAN OR CHURCH
PLAN CONSIDERING AN INVESTMENT IN THE CAPITAL SECURITIES SHOULD CONSULT WITH
ITS LEGAL ADVISORS REGARDING THE CONSEQUENCES OF SUCH INVESTMENT.
PROHIBITED TRANSACTIONS
The Company may be a party in interest or a disqualified person with respect
to an ERISA Plan investing in the Capital Securities, and, therefore, such
investments by an ERISA Plan may give rise to a Prohibited Transaction.
Consequently, before investing in the Capital Securities, any person who is,
or who in acquiring such securities is using the assets of, an ERISA Plan
should determine that either a statutory or an administrative exemption from
the Prohibited Transaction rules discussed below or otherwise available is
applicable to such person's investment in the Capital Securities, or that its
investment in such securities will not result in a Prohibited Transaction.
Certain statutory or administrative exemptions from the Prohibited
Transaction rules under ERISA and the Code may be available to an ERISA Plan
which is investing in the Capital Securities. Included among these exemptions
are: Prohibited Transaction Class Exemption ("PTCE") 90-1, regarding
investments by insurance company pooled separate accounts; PTCE 91-38,
regarding investments by bank collective investment funds; PTCE 84-14,
regarding transactions effected by qualified professional asset managers; PTCE
96-23, regarding transactions effected by in-house asset managers; or PTCE 95-
60, regarding investments by insurance company general accounts.
TRUST ASSETS AS "PLAN ASSETS"
The Department of Labor has issued final regulations (the "Labor
Regulations") as to what constitutes assets of an employee benefit plan ("plan
asset") under ERISA. The Labor Regulations provide that, as a general rule,
when an ERISA Plan acquires an equity interest in an entity and such interest
does not represent a "publicly offered security" nor a security issued by an
investment company registered under the Investment Company Act of 1940, the
ERISA Plan's assets include both the equity interest and an undivided interest
in each of the underlying assets of the entity, unless it is established
either that the entity is an operating company or that equity participation in
the entity by "benefit plan investors" is not "significant." For purposes of
the Labor Regulations, the Trust will not be an investment company nor an
operating company and the Old Capital Securities will not constitute a
"publicly offered security." As discussed below, at the time of the Exchange
Offer, the New Capital Securities may qualify as "publicly offered securities"
for purposes of the Labor Regulations, but such result cannot be assured.
Under the Labor Regulations, equity participation by benefit plan investors
will not be considered "significant" on any date only if, immediately after
the most recent acquisition of Capital Securities, the aggregate interest in
the Capital Securities held by benefit plan investors will be less than 25% of
the value of the Capital Securities. Although it is possible that the equity
participation by benefit plan investors on any date
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will not be "significant" for purposes of the Labor Regulations, such result
cannot be assured. Consequently, if ERISA Plans or investors using plan assets
of ERISA plans purchase the Capital Securities, the Trust's assets could be
deemed to be "plan assets" of such ERISA Plans for purposes of the fiduciary
responsibility provisions of ERISA and the Code. Under ERISA, any person who
exercises any authority or control respecting the management or disposition of
the assets of an ERISA Plan is considered to be a fiduciary of such ERISA
Plan. For example, the Property Trustee could therefore become a fiduciary of
the ERISA Plans that invest in the Capital Securities and be subject to the
general fiduciary requirements of ERISA in exercising its authority with
respect to the management of the assets of the Trust. However, the Property
Trustee will have only limited discretionary authority with respect to the
Trust's assets and the remaining functions and responsibilities performed by
the Property Trustee will be for the most part custodial and ministerial in
nature. Inasmuch as the Property Trustee or another person with authority or
control respecting the management or disposition of the Trust assets may
become a fiduciary with respect to the ERISA Plans that will purchase the
Capital Securities, there may be an improper delegation by such ERISA Plans of
the responsibility to manage plan assets.
The New Capital Securities may qualify as "publicly offered securities"
under the Labor Regulations if, in addition to such distribution and
registration, at the time of the Exchange Offer they are also "widely held"
and "freely transferable." Under the Labor Regulations, a class of securities
is "widely held" only if it is a class of securities 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 Labor 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" as of such time. 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 immediately
preceding paragraph in connection with the Capital Securities could also be
applicable in connection with the investment by ERISA Plans or investors'
using plan assets of ERISA Plans in the New Capital Securities.
PLAN OF DISTRIBUTION
The Company and the Trust will require each broker-dealer who tenders,
pursuant to the Exchange Offer, Old Capital Securities that were acquired for
its own account as the result of market-making activities or other trading
activities to acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of New
Capital Securities received in exchange for such Old Capital Securities
pursuant to the Exchange Offer. The Company and the Trust believe that
Participating Broker-Dealers may fulfill their prospectus delivery requirement
in connection with resales of New Capital Securities received in exchange for
Old Capital Securities that were acquired by such Participating Broker-Dealer
for its own account as a result of market-making activities or other trading
activities with this Prospectus, as it may be amended or supplemented from
time to time, during the 90-day period referred to below. The Company has
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 herein) or, if earlier, when all such New Capital Securities have
been disposed of by such Participating Broker-Dealer. See "The Exchange
Offer--Resales of New Capital Securities." The Company will not receive any
cash or other 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
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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 SECURITIES
Certain matters of Delaware law relating to the validity of the New Capital
Securities and the creation of the Trust have been passed upon by Richards,
Layton & Finger, P.A., Wilmington, Delaware, special Delaware counsel to the
Company and the Trust. The validity of the New Guarantee and the New Junior
Subordinated Debentures have been passed upon for the Company by Sidley &
Austin, Chicago, Illinois. Certain matters relating to United States federal
income tax considerations have been passed upon for the Company by Sidley &
Austin, Chicago, Illinois.
EXPERTS
The consolidated financial statements and schedules of the Company, included
in and incorporated by reference in the Company's Annual Report (Form 10-K)
for the year ended December 31, 1996, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon included and
incorporated by reference therein and incorporated herein by reference. Such
consolidated financial statements and schedules are incorporated herein by
reference in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
The financial statements and schedules of Alexander & Alexander as of
December 31, 1995 and 1994 and for each of the three years in the period ended
December 31, 1995 included in the Company's Current Report (Form 8-K) dated
January 15, 1997 and incorporated by reference in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports incorporated by reference in this Prospectus. Such financial
statements and schedules are incorporated herein by reference in reliance upon
such reports given upon the authority of such firm as experts in accounting
and auditing.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR IN-
CORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE TRUST.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UN-
DER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY OR THE TRUST SINCE THE DATE HEREOF. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAK-
ING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 6
Incorporation of Certain Documents by Reference........................... 6
Summary................................................................... 8
Risk Factors.............................................................. 18
Use of Proceeds from the Sale of Old Capital Securities................... 23
Aon Capital A............................................................. 24
Aon Corporation........................................................... 25
Acquisition of Alexander & Alexander...................................... 25
Pro Forma Consolidated Financial Information.............................. 26
Ratios of Earnings to Fixed Charges....................................... 33
Accounting Treatment for the Trust........................................ 34
The Exchange Offer........................................................ 34
Description of Securities................................................ 43
Description of Capital Securities........................................ 43
Description of Junior Subordinated Debentures............................ 54
Description of Guarantee................................................. 63
Description of Old Securities............................................. 66
Relationship Among the Capital Securities, the Junior Subordinated
Debentures, the Guarantee and the Expense Agreement...................... 67
Certain Federal Income Tax Consequences................................... 68
ERISA Considerations...................................................... 71
Plan of Distribution...................................................... 73
Validity of Securities.................................................... 74
Experts................................................................... 74
</TABLE>
UNTIL JULY 2, 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SE-
CURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UN-
SOLD ALLOTMENT OR SUBSCRIPTIONS.
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AON CAPITAL A
OFFER TO EXCHANGE ITS
8.205% CAPITAL SECURITIES WHICH
HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 FOR ANY
AND ALL OF ITS OUTSTANDING 8.205%
CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000
PER CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY
GUARANTEED, AS DESCRIBED HEREIN,
BY AON CORPORATION
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PROSPECTUS
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MARCH 28, 1997
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