UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
June 30, 1997 1-8233
USF&G CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 52-1220567
(State of Incorporation) (IRS Employer Identification No.)
6225 Smith Avenue, Baltimore, Maryland 21209
(Address of principal executive offices) (zip code)
Telephone: 410-547-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months and (2) has been subject to such filing
requirements for the past 90 days. Yes x No __
The number of shares outstanding of the issuer's common stock as of August 12,
1997:
Common Stock, Par Value $2.50; 110,923,001 shares outstanding.
<PAGE>
USF&G CORPORATION Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Statement of Financial Position 3
Condensed Consolidated Statement of Operations 4
Condensed Consolidated Statement of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 8
Report of Independent Auditors 11
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 12
PART II OTHER INFORMATION
Item 2. Changes in Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K: 23
Exhibit 4 - Instruments Defining the Rights of
Security Holders, Including Indentures 23
Exhibit 10 - Material Contracts 23
Exhibit 11 - Computation of Earnings per Share 24
Exhibit 12 - Computation of Ratio of Consolidated
Earnings to Fixed Charges, Distributions on
Capital Securities and Preferred Stock Dividends 25
Exhibit 15 - Letter Regarding Unaudited Interim
Financial Information 26
SIGNATURE 27
<PAGE>
<TABLE>
<CAPTION>
USF&G CORPORATION Condensed Consolidated Statement of Financial Position
(Unaudited)
<S> <C> <C>
At June 30 At December 31
(dollars in millions except per share data) 1997 1996
---------------------------------
Assets
Investments:
Fixed maturities:
Available for sale, at market (cost, 1997, $8,233; 1996, $8,066) $ 8,330 $ 8,164
Common and preferred stocks, at market (cost, 1997, $17; 1996, $16) 13 16
Short-term investments 469 535
Mortgage loans 489 406
Real estate 410 554
Other invested assets 528 401
---------------------------------
Total investments 10,239 10,076
---------------------------------
Cash 74 73
Accounts, notes and other receivables 946 763
Reinsurance receivables 1,514 1,576
Servicing carrier receivables 680 661
Deferred policy acquisition costs 471 456
Other assets 832 802
---------------------------------
Total assets $14,756 $14,407
---------------------------------
Liabilities
Unpaid losses, loss expenses and policy benefits $ 9,774 $ 9,584
Unearned premiums 1,160 1,113
Corporate debt 539 477
Real estate and other debt 5 5
Other liabilities 1,326 1,159
---------------------------------
Total liabilities 12,804 12,338
---------------------------------
USF&G-obligated mandatorily redeemable preferred capital
securities of subsidiary trusts holding solely junior
subordinated deferrable interest debentures of USF&G 200 100
---------------------------------
Shareholders' Equity
Preferred stock, par value $50.00 (12,000,000 shares authorized;
shares issued, 1997,--; 1996, 3,999,910) -- 200
Common stock, par value $2.50 (240,000,000 shares authorized;
shares issued, 1997, 110,691,498; 1996, 114,240,489) 277 286
Paid-in capital 1,014 1,091
Net unrealized gains on investments and foreign currency 54 62
Retained earnings 407 330
---------------------------------
Total shareholders' equity 1,752 1,969
---------------------------------
Total liabilities, capital securities and shareholders' equity $ 14,756 $14,407
---------------------------------
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
USF&G CORPORATION Condensed Consolidated Statement of Operations (Unaudited)
<S> <C> <C>
Three Months Ended June 30
(dollars in millions except per share data) 1997 1996
-----------------------------------
Revenues
Premiums earned $691 $674
Net investment income 172 181
Other 5 2
-----------------------------------
Revenues before net realized gains 868 857
Net realized gains on investments 4 1
-----------------------------------
Total revenues 872 858
-----------------------------------
Expenses
Losses, loss expenses and policy benefits 555 536
Underwriting, acquisition and operating expenses 239 257
Interest expense 8 10
Facilities exit costs/(sublease income) -- (12)
-----------------------------------
Total expenses 802 791
-----------------------------------
Income from operations before income taxes and distributions
on capital securities 70 67
Provision for income taxes 20 --
Distributions on USF&G-obligated mandatorily redeemable
preferred capital securities of subsidiary trusts holding
solely junior subordinated deferrable interest debentures
of USF&G, net of tax 3 --
-----------------------------------
Net income $ 47 $ 67
-----------------------------------
Preferred stock dividend requirements -- 5
-----------------------------------
Net income available to common stock $ 47 $ 62
-----------------------------------
Primary Earnings Per Share $.42 $.52
-----------------------------------
Fully Diluted Earnings Per Share .40 .50
-----------------------------------
Weighted-average shares outstanding (000s):
Primary 113,994 119,190
Fully diluted 120,199 128,978
-----------------------------------
Dividends declared per common share $.07 $ .05
-----------------------------------
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
USF&G CORPORATION Condensed Consolidated Statement of Operations(Unaudited)
<S> <C> <C>
Six Months Ended June 30
(dollars in millions except per share data) 1997 1996
-----------------------------------
Revenues
Premiums earned $1,360 $1,341
Net investment income 344 361
Other 9 11
-----------------------------------
Revenues before net realized gains 1,713 1,713
Net realized gains on investments 4 12
-----------------------------------
Total revenues 1,717 1,725
-----------------------------------
Expenses
Losses, loss expenses and policy benefits 1,071 1,079
Underwriting, acquisition and operating expenses 491 516
Interest expense 17 20
Facilities exit costs/(sublease income) -- (14)
-----------------------------------
Total expenses 1,579 1,601
-----------------------------------
Income from operations before income taxes and distributions
on capital securities 138 124
Provision for income taxes 41 --
Distributions on USF&G-obligated mandatorily redeemable
preferred capital securities of subsidiary trusts holding
solely junior subordinated deferrable interest debentures
of USF&G, net of tax 5 --
-----------------------------------
Net income $ 92 $ 124
-----------------------------------
Preferred stock dividend requirements 2 10
------------------------------------
Net income available to common stock $ 90 $ 114
-----------------------------------
Primary Earnings Per Share $ .79 $ .95
-----------------------------------
Fully Diluted Earnings Per Share .76 .91
-----------------------------------
Weighted-average shares outstanding (000s):
Primary 115,566 119,411
Fully diluted 121,374 129,709
-----------------------------------
Dividends declared per common share $ .12 $ .10
-----------------------------------
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
USF&G CORPORATION Condensed Consolidated Statement of Cash Flows(Unaudited)
<S> <C> <C>
Three Months Ended June 30
(in millions) 1997 1996
----------------------------------
Operating Activities
Direct premiums collected $519 $533
Net investment income collected 176 190
Direct losses, loss expenses and policy benefits paid (374) (438)
Net reinsurance activity (79) (34)
Underwriting and operating expenses paid (162) (142)
Interest paid (14) (16)
Income taxes paid (2) (3)
Other items, net 5 5
----------------------------------
Net cash provided from operating activities 69 95
----------------------------------
Investing Activities
Net (purchases), sales and maturities of short-term investments 42 (26)
Purchases of fixed maturities available for sale (517) (200)
Sales of fixed maturities available for sale 203 93
Maturities/repayments of fixed maturities available for sale 129 192
Purchases of other investments (53) (100)
Sales, maturities and repayments of other investments 168 61
Purchases of property and equipment (21) (17)
Sales of property and equipment 2 --
----------------------------------
Net cash provided from (used in) investing activities (47) 3
----------------------------------
Financing Activities
Deposits for universal life and investment contracts 134 89
Withdrawals of universal life and investment contracts (58) (245)
Net borrowings of short-term debt 57 24
Repayments of long-term borrowings -- (11)
Issuances of common stock 6 3
Repurchases of common stock (67) (26)
Redemptions of preferred stock (100) --
Cash dividends paid to shareholders (7) (11)
Distributions on capital securities (4) --
----------------------------------
Net cash provided from (used in) financing activities (39) (177)
----------------------------------
(Decrease) Increase in cash (17) (79)
Cash at beginning of period 91 120
----------------------------------
Cash at end of period $ 74 $ 41
----------------------------------
Noncash Transactions
Coinsurance of broker SPDA block:
Surrender activity $(34) $ --
----------------------------------
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
USF&G CORPORATION Condensed Consolidated Statement of Cash Flows(Unaudited)
<S> <C> <C>
Six Months Ended June 30
(in millions) 1997 1996
----------------------------------
Operating Activities
Direct premiums collected $1,038 $1,052
Net investment income collected 336 364
Direct losses, loss expenses and policy benefits paid (773) (858)
Net reinsurance activity (105) (23)
Underwriting and operating expenses paid (398) (358)
Interest paid (15) (21)
Income taxes paid (4) (3)
Other items, net (2) (4)
----------------------------------
Net cash provided from operating activities 77 149
----------------------------------
Investing Activities
Net (purchases), sales and maturities of short-term investments 65 (102)
Purchases of fixed maturities available for sale (1,163) (419)
Sales of fixed maturities available for sale 765 145
Maturities/repayments of fixed maturities available for sale 270 452
Purchases of other investments (137) (147)
Sales, maturities and repayments of other investments 194 150
Purchase of subsidiary (25) --
Purchases of property and equipment (51) (26)
Sales of property and equipment 5 2
----------------------------------
Net cash provided from (used in) investing activities (77) 55
----------------------------------
Financing Activities
Deposits for universal life and investment contracts 262 167
Withdrawals of universal life and investment contracts (106) (401)
Net borrowings of short-term debt 57 29
Repayments of long-term borrowings -- (32)
Issuance of capital securities 99 --
Issuances of common stock 12 3
Repurchases of common stock (102) (26)
Redemptions of preferred stock (200) --
Cash dividends paid to shareholders (17) (22)
Distributions on capital securities (4) --
----------------------------------
Net cash provided from (used in) financing activities 1 (282)
----------------------------------
(Decrease) Increase in cash 1 (78)
Cash at beginning of period 73 119
----------------------------------
Cash at end of period $ 74 $ 41
----------------------------------
Noncash Transactions
Coinsurance of broker SPDA block:
Surrender activity $ (89) $ --
----------------------------------
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
USF&G CORPORATION Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 BASIS OF ACCOUNTING
The condensed consolidated financial statements are prepared
in accordance with generally accepted accounting principles ("GAAP"). These
statements include the accounts of USF&G Corporation and its subsidiaries
(collectively, "USF&G"). Intercompany transactions are eliminated in
consolidation. Certain 1996 amounts have been reclassified to conform to the
1997 presentation. The interim financial statements in this report should be
read in conjunction with the consolidated financial statements and notes thereto
in USF&G's 1996 Annual Report to Shareholders. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements contain the
necessary adjustments, all of which are of a normal recurring nature for interim
period reporting purposes, for a fair presentation of results for the interim
periods.
NOTE 2 REVIEW OF INDEPENDENT AUDITORS
USF&G's independent auditors, Ernst & Young LLP, have performed a review of the
condensed consolidated financial statements in this Form 10-Q as to the three-
and six-month periods ended June 30, 1997 and 1996. Their limited review in
accordance with standards established by the American Institute of Certified
Public Accountants did not constitute an audit. Accordingly, they do not express
an opinion on this information.
NOTE 3 EARNINGS PER SHARE ("EPS")
Primary earnings per share are based on income, after deduction of preferred
stock dividends, and the weighted-average number of common shares and common
stock equivalents outstanding during the periods. Fully diluted earnings per
share assume the conversion of all securities whose contingent issuance would
have a dilutive effect on earnings. Refer to the computation in Exhibit 11.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", which
simplifies the standards for computing EPS. SFAS No. 128 replaces primary EPS
with basic EPS, which excludes common stock equivalents, and requires disclosure
of diluted EPS on the face of the income statement for all entities, such as
USF&G, with complex capital structures. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods; however, earlier application is not permitted. The calculation of
earnings per share in accordance with SFAS No. 128 would not have had, and in
the future is not expected to have, a material effect on USF&G's EPS
computations or related disclosures.
NOTE 4 RATIO OF CONSOLIDATED EARNINGS TO FIXED CHARGES
For purposes of computing the ratio of consolidated earnings to fixed charges,
distributions on capital securities and preferred stock dividends, earnings
consist of income before considering income taxes and fixed charges. Fixed
charges consist of interest and that portion of rentals that is deemed to be an
appropriate interest factor. Refer to the computation in Exhibit 12.
NOTE 5 SUPPLEMENTAL CASH FLOW INFORMATION
The Condensed Consolidated Statement of Cash Flows is presented using the
"direct method," which reports major classes of cash receipts and cash payments.
A reconciliation of net income to net cash provided from operating activities is
as follows:
Three Months Ended Six Months Ended
June 30 June 30
(in millions) 1997 1996 1997 1996
-------------------------------------
Net income $ 47 $ 67 $ 92 $124
Adjustments to reconcile net income to net
cash provided from operating activities:
Realized gains on investments (4) (1) (4) (12)
Depreciation expense 11 7 19 14
Facilities exit costs/(sublease income) -- (12) -- (14)
Provision for taxes 20 -- 41 --
Distributions on capital securities 3 -- 5 --
Change in insurance liabilities 136 100 157 131
Change in deferred policy
acquisition costs (2) (17) (16) 1
Change in receivables (133) (75) (176) (127)
Change in other liabilities (55) (31) (79) 33
Change in other assets 27 56 26 2
Other items, net 19 1 12 (3)
-------------------------------------
Net cash provided from operating
activities $ 69 $ 95 $ 77 $149
-------------------------------------
NOTE 6 UNREALIZED GAINS (LOSSES) ON INVESTMENTS
At June 30, 1997, gross unrealized gains and gross unrealized losses pertaining
to investments in common and preferred stocks totaled $2 million and $5 million,
respectively. In addition, gross unrealized gains and gross unrealized losses on
limited partnerships, foreign currency and other investments totaled $12 million
and $3 million, respectively. At June 30, 1997, there were gross unrealized
gains of $141 million and gross unrealized losses of $44 million pertaining to
fixed maturities available for sale. There were also $20 million of gross
unrealized losses relating to a deferred policy acquisition costs ("DPAC")
adjustment. This DPAC adjustment was made to reflect assumptions about the
effect of potential asset sales of fixed maturities available for sale on future
DPAC amortization. The change in net unrealized gains (losses) on investments
and foreign currency amounted to a decrease of $8 million during the six months
ended June 30, 1997, compared with a decrease of $296 million during the six
months ended June 30, 1996.
NOTE 7 PROCEEDS FROM SALES OF FIXED MATURITY INVESTMENTS
Proceeds from sales of fixed maturities available for sale during the six months
ended June 30, 1997, were $765 million compared with $145 million for the same
period of 1996. Gross gains and gross losses of $11 million and $16 million,
respectively, were realized on 1997 sales. Gross gains and gross losses of
$5 million and $8 million, respectively, were realized on such sales in 1996.
NOTE 8 LEGAL CONTINGENCIES
USF&G's insurance subsidiaries are routinely engaged in litigation in the normal
course of their businesses, including defending claims for punitive damages. As
insurers, they defend third-party claims brought against their insureds, as well
as defend themselves against first-party and coverage claims. Additional
information regarding contingencies that may arise from insurance regulatory
matters and regulatory litigation matters may be found in Section 8, "Legal
Contingencies and Regulation", of Management's Discussion and Analysis of
Financial Condition and Results of Operations in USF&G's 1996 Annual Report to
Shareholders.
In the opinion of management, such contingencies and the contingencies described
below are not expected to have a material adverse effect on USF&G's consolidated
financial position, although it is possible that the results of operations in a
particular quarter or annual period would be materially affected by an
unfavorable outcome.
8.1. Workers' compensation litigation
A series of class actions have been filed against the National Council on
Compensation Insurance ("NCCI"), the insurance companies which served as
servicing carriers in various states, and the National Workers' Compensation
Reinsurance Pool ("NWCRP"). The complaints generally allege that the defendants
conspired to fix servicing carrier fees at unreasonably high and noncompetitive
levels thereby allegedly causing inflated deficits in the voluntary market,
excessive expansion of the residual market and excessive contraction of the
voluntary market. The plaintiffs generally seek unspecified compensatory and
punitive damages and in some cases civil penalties, treble damages under state
antitrust laws, and temporary and permanent injunctive relief. Plaintiffs'
counsel in these cases have, from time to time, indicated that similar cases may
be filed in other states. USF&G believes that it has meritorious defenses to
each of the class actions and has determined to defend the actions vigorously.
Each of the currently pending cases is described below.
North Carolina: On November 24, 1993, N.C. Steel, Inc., and six other North
Carolina employers filed a class action captioned N.C. Steel, Inc., et al., v.
National Council on Compensation Insurance, et al., in the General Court of
Justice, Superior Court Division, Wake County, North Carolina against the NCCI,
North Carolina Rate Bureau, USF&G and eleven other insurance companies which
served as servicing carriers for the North Carolina involuntary workers'
compensation market. On January 20, 1994, the plaintiffs filed an amended
complaint seeking to certify a class of all employers who purchased workers'
compensation insurance in the State of North Carolina after November 24, 1989.
On February 14, 1995, the trial court granted the defendants' motion to dismiss
the complaint. The plaintiffs appealed, and on July 16, 1996, the North Carolina
Court of Appeals affirmed the dismissal of the plaintiffs' first claim for
relief, which is premised on alleged excessive rates, but reversed the trial
court's decision to dismiss the plaintiffs' second claim for relief, which is
premised on employers allegedly being improperly shifted from the voluntary
market to the assigned risk market as a result of stricter underwriting caused
by high residual market burdens. The parties are awaiting the decision of the
North Carolina Supreme Court following a hearing of both issues on
March 18, 1997.
South Carolina: On August 22, 1994, the Attorney General of the State of South
Carolina filed a suit captioned State of South Carolina, County of Greenville,
et al., v. National Council on Compensation Insurance, et al., in the County of
Greenville, South Carolina against the NCCI, the NWCRP, USF&G and seven other
insurance companies which served as servicing carriers for the South Carolina
involuntary workers' compensation market. The Attorney General alleges that the
conspiracy occurred for an unspecified period of time prior to January 1994.
Discovery is underway in the case. On August 6, 1997, the trial court denied
motions for summary judgment which had been filed by each party.
Kansas: On October 7, 1996, a Kansas employer filed a class action captioned
Amundson & Associates Art Studies, Ltd., et al., v. National Council on
Compensation Insurance, et al., in the District Court of Wyndotte County, Kansas
against the NCCI and the insurance companies which acted as servicing carriers
for the Kansas involuntary workers' compensation market. The defendants removed
the case to the United States District Court for the District of Kansas and the
plaintiff has filed a motion to remand the case to the state court. No discovery
has yet occurred.
Tennessee: On December 31, 1996, four Tennessee employers filed a class action
captioned Jo Ann Forman, Inc., et al., v. National Council on Compensation
Insurance, et al., in the Chancery Court of Marion County, Tennessee against the
NCCI, NWCRP and the insurance companies which acted as servicing carriers for
the Tennessee involuntary workers' compensation market. The defendants have
filed a motion to dismiss the case and are awaiting the decision of the trial
court following a hearing on July 14, 1997. No discovery has yet occurred.
Missouri: On February 20, 1997, six Missouri employers filed a class action
captioned Atlas Reserve Temporaries, Inc., et al., v. Vanliner Insurance Co.,
et al., in the Circuit Court of Cole County, Missouri against the NCCI, USF&G
and other insurance companies which acted as servicing carriers for the Missouri
involuntary workers' compensation market. The defendants have filed a motion to
dismiss the case. No discovery has yet occurred.
8.2. Regulation
USF&G's insurance subsidiaries are subject to extensive regulatory oversight in
the jurisdictions where they do business. From time to time, the insurance
regulatory framework has been the subject of increased scrutiny. At any one time
there may be numerous initiatives within state legislatures or state insurance
departments to alter and, in many cases, increase state authority to regulate
insurance companies and their businesses. It is not possible to predict the
future impact of increasing regulation on USF&G's operations.
NOTE 9 SUBSEQUENT EVENTS
9.1. Capital Securities
On July 8, 1997, USF&G Capital III ("Capital III"), a business trust wholly
owned by USF&G, issued $100 million (100,000 shares) of 8.312% Capital
Securities, Series C ("Series C Securities"). Payments on the Series C
Securities are guaranteed by USF&G on a subordinated basis, but only to the
extent Capital III has funds available to make such payments. This guarantee,
considered together with the terms of debentures issued by USF&G (described
below) and an agreement for USF&G to pay other expenses and liabilities of
Capital III, constitutes a full and unconditional subordinated guarantee by
USF&G of Capital III's obligations under the Series C Securities.
Capital III used the proceeds from the Series C Securities issuance to purchase
$100 million principal amount of 8.312% Junior Subordinated Debentures issued by
USF&G ("Series C Debentures"). The Series C Debentures rank junior and
subordinate in right of payment to certain other indebtedness of USF&G, and
mature on July 1, 2046.
Interest payments on the Series C Debentures are deferrable, at USF&G's option,
at any time for up to five years at a time, provided there has not been an event
of default. In the event USF&G elects to defer interest payments on the Series C
Debentures, payments of distributions on the Series C Securities will likewise
be deferred. Interest and distributions continue to accrue during any payment
deferral period.
The Series C Debentures are redeemable under certain circumstances related to
tax events at a price of $1,000 per debenture plus any accrued and unpaid
interest and a "make whole" payment. Proceeds from any redemptions of the Series
C Debentures will be used to redeem a like amount of the Series C Securities.
Additionally, USF&G has the right, under certain circumstances related to tax
events, to shorten the maturity of the Series C Debentures to a date no earlier
than April 8, 2012, in which case the stated maturity of the Series C Securities
will likewise be affected.
The sole assets of Capital III are the Series C Debentures. Capital III does not
have operations independent of the aforementioned relationship with USF&G and
the holders of the capital securities. In the event USF&G exercises its right to
defer interest payments on the Series C Debentures, it will be prohibited from
making payments with respect to any capital debt or securities which rank equal
or junior in right of payment to the Series C Debentures, including cash
dividends on its common or preferred stock. In no case may the deferral of
payments described above extend beyond the stated maturity dates of the
respective securities.
9.2. Business Combination
On August 8, 1997, USF&G announced that it had entered into a definitive
agreement to acquire Titan Holdings, Inc. ("Titan"). Titan, which is
headquartered in San Antonio, Texas, primarily operates two specialty
property/casualty operations: Titan Auto, which writes nonstandard automobile
insurance; and Titan Public Entity, which insures small-to-medium sized towns
and counties. Titan reported total assets of $405 million at June 30, 1997, and
written premium of $199 million for the twelve-month period ended June 30, 1997,
with 65 percent of ongoing business written by Titan Auto and 35 percent by
Titan Public Entity.
USF&G will pay $11.60 in cash plus 0.46516 share of common stock for each Titan
share, for a total of $23.20 per Titan share, based on a USF&G share valuation
of $24.94, which was the value used in USF&G's initial offer to Titan. This
consideration is subject to adjustment pursuant to a collar arrangement. At the
$23.20 valuation, the aggregate transaction value is $234 million plus
assumption of debt.
The Corporation expects to finance the cash portion of the consideration payable
to Titan shareholders from internal resources or existing credit facilities. The
transaction is expected to close in the fourth quarter of 1997.
<PAGE>
USF&G CORPORATION Report of Independent Auditors
Board of Directors
USF&G Corporation
We have reviewed the accompanying condensed consolidated statement of financial
position of USF&G Corporation as of June 30, 1997 and the related condensed
consolidated statements of operations and cash flows for the three- and
six-month periods ended June 30, 1997 and 1996. These financial statements are
the responsibility of the company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, which
will be performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of financial position of USF&G Corporation
as of December 31, 1996, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the year then ended (not presented
herein) and, in our report dated February 21, 1997, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated statement of
financial position as of December 31, 1996, is fairly stated in all material
respects in relation to the consolidated statement of financial position from
which it has been derived.
ERNST & YOUNG LLP
Baltimore, Maryland
August 8, 1997
<PAGE>
USF&G CORPORATION Management's Discussion and Analysis of Financial Condition
and Results of Operations
This section provides an assessment of financial results and material changes in
financial position for USF&G Corporation and its subsidiaries (collectively,
"USF&G" or the "Corporation") and explains the results of operations for the
quarter and six months ended June 30, 1997. The analysis focuses on the
performance of USF&G's strategic businesses and its investment portfolio. This
discussion updates the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the 1996 Annual Report to Shareholders
and should be read in conjunction therewith. The results of operations for the
quarter and six months ended June 30, 1997 are compared with those for the same
period of 1996 unless otherwise noted. Financial position at June 30, 1997 is
compared with December 31, 1996.
In connection with, and because it desires to take advantage of, the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995,
USF&G cautions readers regarding certain forward-looking statements in the
following discussion and elsewhere in this Form 10-Q and in any other statement
made by, or on the behalf of, USF&G, whether or not in future filings with the
Securities and Exchange Commission. Forward-looking statements are statements
not based on historical information and which relate to future operations,
strategies, financial results or other developments. Forward-looking statements
are necessarily based upon estimates and assumptions that are inherently subject
to significant business, economic and competitive uncertainties and
contingencies, many of which are beyond USF&G's control and many of which, with
respect to future business decisions, are subject to change. These uncertainties
and contingencies can affect actual results and could cause actual results to
differ materially from those expressed in any forward-looking statements made
by, or on behalf of, USF&G. USF&G disclaims any obligation to update
forward-looking information.
Note: Certain prior-year amounts have been reclassified to conform to the 1997
presentation. A glossary of certain terms used in the discussion can be found in
Section 8; the terms are italicized the first time they appear in the text.
Index
1. Consolidated Results 12
2. Strategic Overview 13
3. Results of Operations 13
4. Reserves and Surplus 16
5. Investments 17
6. Financial Condition 20
7. Liquidity 20
8. Glossary of Terms 21
1. CONSOLIDATED RESULTS
The table below shows the major components of net income.
Three Months Ended Six Months Ended
June 30 June 30
(in millions) 1997 1996 1997 1996
---------------------------------------
Property/casualty insurance $ 77 $ 59 $156 $111
Life insurance 15 12 29 23
Parent and noninsurance (26) (17) (51) (36)
---------------------------------------
Income from operations before net
realized gains, facilities exit
(costs)/sublease income, income
taxes and distributions on capital
securities 66 54 134 98
Net realized gains on investments 4 1 4 12
Facilities exit (costs)/sublease income -- 12 -- 14
Provision for income taxes (20) -- (41) --
Distributions on capital securities,
net of tax (3) -- (5) --
---------------------------------------
Net income $ 47 $ 67 $ 92 $124
---------------------------------------
Property/casualty segment income for the second quarter and six months ended
June 30, 1997 increased $18 million and $45 million, respectively, when compared
with the same periods of 1996. The increase is related primarily to improved
underwriting results, including decreased catastrophe losses, incurred during
the period, as well as changes in the allocation of corporate nonunderwriting
expenses. Life insurance segment results increased $3 million and $6 million,
respectively, for the second quarter and six months ended June 30, 1997 due to
the combined effects of increased annuity sales, improved investment spreads on
annuity and universal life products, and lower per-unit operating expenses. The
loss from parent and noninsurance operations increased during the second quarter
and first six months of 1997 when compared with the same periods of 1996 due
primarily to changes in the allocation of corporate nonunderwriting expenses,
which had no effect on consolidated net income.
As of December 31, 1996, USF&G had fully recognized all of its deferred tax
assets. As a result, the Corporation now recognizes income tax expense in its
consolidated statement of operations. The financial statement recognition of tax
expense is not necessarily an appropriate indicator of tax to be paid, however,
as the Corporation still has income tax net operating loss carryforwards
available for both regular and alternative minimum tax purposes.
In December 1996 and January 1997, two business trusts wholly owned by USF&G
issued a total of $200 million of USF&G-obligated mandatorily redeemable
preferred capital securities. Accruals for distributions on these securities,
net of tax, totaled $5 million in the first six months of 1997. Proceeds from
the issuance of the preferred capital securities were used to redeem the $4.10
Series A Convertible Exchangeable Preferred Stock ("Series A Preferred Stock"),
resulting in annual after-tax savings of over $5 million compared with the
dividends on the Series A Preferred Stock.
In July 1997, USF&G Capital III, a business trust wholly owned
by USF&G, issued a total of $100 million of USF&G-obligated mandatorily
redeemable preferred capital securities. Proceeds from this third issuance of
preferred capital securities were used to repay $60 million outstanding at June
30, 1997 against a standby credit facility.
2. STRATEGIC OVERVIEW
In 1996, USF&G completed its realignment into a portfolio of businesses: the
Commercial Insurance Group ("CIG"), the Family and Business Insurance Group
("FBIG"), the Specialty Businesses, and Life Insurance. The realignment
recognizes the groups' distinctly different strategies of growth and
profitability. As individual businesses, each is able to develop its own
distinct products, distribution channels, technology systems and field
structures, and each is currently in its own stage of development, with a common
focus on long-term strategic positioning.
Further information regarding each group's business and strategy may be found in
the Strategic Overview section of Management's Discussion and Analysis of
Financial Condition and Results of Operations in USF&G's 1996 Annual Report to
Shareholders.
3. RESULTS OF OPERATIONS
3.1. Property/casualty insurance
Property/casualty insurance operations, which consist of CIG, FBIG, and the
Specialty Businesses, accounted for 90 percent of USF&G's revenues before net
realized gains in the first six months of 1997 compared with 87 percent in the
same period of 1996, and 70 percent of its assets at June 30, 1997 and December
31, 1996. Financial results for this segment were as follows:
Three Months Ended Six Months Ended
June 30 June 30
(in millions) 1997 1996 1997 1996
-----------------------------------------
Net premiums written* $640 $684 $1,284 $1,335
Premiums earned* 665 632 1,307 1,268
Net underwriting loss (26) (35) (57) (76)
Income from operations before net
realized gains, facilities exit costs/
sublease income, income taxes and
distributions on capital securities 77 59 156 111
----------------------------------------
*See Glossary of Terms
A significant measurement of a property/casualty company's underwriting
performance is its combined ratio, which is the sum of its loss ratio and
expense ratio. Consolidated property/casualty ratios, calculated based on
statutory accounting practices and generally accepted accounting principles
("GAAP"), were as follows:
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
----------------------------------------
Statutory combined ratio 101.6% 104.5% 102.9% 105.2%
GAAP combined ratio 103.9 105.6 104.3 106.0
----------------------------------------
Income from operations before net realized gains, facilities exit costs/sublease
income, income taxes and distributions on capital securities increased $18
million in the second quarter of 1997 and $45 million in the first six months of
1997 when compared with the same periods of 1996, due primarily to improved
underwriting results and a decrease in other (nonunderwriting) expenses. The
underwriting improvement is primarily attributable to reduced occurrences in
1997 of catastrophe losses and other severe weather related losses. A change in
the approach to corporate allocations, which had no effect on USF&G's
consolidated results, decreased the property/casualty segment's nonunderwriting
expenses by $11 million and $22 million in the second quarter and first half of
1997, respectively.
Gross catastrophe losses totaled $10 million and $19 million in the second
quarter and first six months of 1997, respectively, compared with $19 million
and $55 million in the same periods of 1996, respectively. These losses, net of
ceded reinsurance, were $9 million and $18 million in the second quarter and
first six months of 1997, respectively, compared with $19 million and $54
million in the same periods of 1996, respectively. The high level of catastrophe
losses incurred in the first six months of 1996 was the result of severe winter
storms and floods incurred during the first quarter.
CIG
The following table shows underwriting results for CIG.
Three Months Ended Six Months Ended
June 30 June 30
(dollars in millions) 1997 1996 1997 1996
----------------------------------------
Gross voluntary premiums written $286 $282 $544 $536
Net premiums written 258 260 499 507
Underwriting gain (loss) (25) (16) (45) (12)
GAAP Underwriting Ratios:
Loss ratio 79.8% 74.9% 77.6% 70.3%
Expense ratio 31.2 32.0 32.1 32.2
Combined ratio 111.0 106.9 109.7 102.5
----------------------------------------
Gross voluntary premiums written in excess & surplus lines and specialty
segments combined, represented 45 percent of CIG's gross premiums in the first
six months of 1997 and grew 25 percent in the first six months of 1997 when
compared with the same period of 1996. These increases were largely offset by
declines in the core and defensive segments, as CIG continues to shift its mix
of business toward its typically higher-margin product lines.
In the first quarter of 1996, CIG recorded a $30 million reduction in workers'
compensation reserves as a result of the recognition of the effect on reserve
estimation models of the significant use of structured settlements to close
medical claims. Excluding this one-time reserve adjustment, overall underwriting
results for the first six months of 1997 were generally consistent with 1996. A
trend of deteriorating underwriting losses in the specialty trucking segment is
contributing to the unfavorable second quarter 1997 underwriting loss comparison
with 1996. Management is currently developing an aggressive plan to reduce the
mix and negative profit impact of this line, which had approximately $50 million
of gross premiums written through the first six months of 1997.
FBIG
The following table shows underwriting results for FBIG.
Three Months Ended Six Months Ended
June 30 June 30
(dollars in millions) 1997 1996 1997 1996
----------------------------------------
Gross voluntary premiums written $254 $259 $495 $502
Net premiums written 194 256 422 492
Underwriting loss (18) (34) (42) (91)
GAAP Underwriting Ratios:
Loss ratio 76.7% 76.0% 76.2% 82.0%
Expense ratio 30.7 38.0 32.5 36.7
Combined ratio 107.4 114.0 108.7 118.7
----------------------------------------
FBIG gross voluntary premiums were relatively flat in the second quarter and
first six months of 1997 when compared with the same periods of 1996, primarily
due to intense competition in the personal lines markets, as well as
management's actions to lower the commission rates on most personal lines and
some small commercial business, effective April 1, 1997, which had an adverse
impact on new business writings. The decreases in net premiums written in the
second quarter and first six months of 1997 were primarily the result of a new
personal lines quota share reinsurance treaty (refer to Section 4.2 of this
Analysis).
FBIG incurred most of the catastrophe and other severe weather related losses
which adversely impacted the loss ratio in the first six months of 1996.
Excluding catastrophes, loss ratios for FBIG would have been 74.5 percent and
74.1 percent for the second quarter and first six months of 1997, respectively,
compared with 70.8 percent and 74.6 percent for the respective periods of 1996.
The expense ratio improved 7.3 points and 4.2 points in the second quarter and
first six months of 1997, respectively, when compared with the same periods of
1996. The expense ratio improvement was primarily the result of lower commission
rates and continued expense management, and is expected to continue throughout
1997 as FBIG realizes the operating efficiencies generated by the Centers for
Agency Services and expense savings as a result of the lower commission rates.
Specialty Businesses
USF&G's Specialty Businesses consist of Discover Re Managers, Inc. ("Discover
Re"), which provides insurance, reinsurance and related services to the
alternative risk transfer market, F&G Re, Inc. ("F&G Re"), which manages USF&G's
assumed reinsurance business, and the Surety Group.
Discover Re
The following table shows underwriting results for Discover Re.
Three Months Ended Six Months Ended
June 30 June 30
(dollars in millions) 1997 1996 1997 1996
----------------------------------------
Gross program premium $52 $46 $78 $ 68
Net premiums written 13 6 17 9
Service fees 5 4 8 6
Underwriting gain 2 1 2 1
GAAP Underwriting Ratios:
Loss ratio 66.5% 78.4% 72.1% 78.5%
Expense ratio 10.3 11.6 12.1 13.2
Combined ratio 76.8 90.0 84.2 91.7
----------------------------------------
Discover Re's captive business gross program premiums increased 18 percent and
28 percent in the second quarter and first six months of 1997, respectively,
when compared with the same periods of 1996, resulting in a 15 percent increase
in total gross program premium in both the second quarter and first six months
of 1997. For the six months ended June 30, 1997, captive business represented
51 percent of Discover Re's gross program premium, compared with 46 percent in
the corresponding period of 1996. Management is increasing its focus on captive
business which, despite typically resulting in less retained premium, is
expected to generate significant fee income compared with traditional
alternative risk transfer products.
F&G Re
The following table shows underwriting results for reinsurance assumed through
F&G Re.
Three Months Ended Six Months Ended
June 30 June 30
(dollars in millions) 1997 1996 1997 1996
----------------------------------------
Net Premiums Written:
Traditional risk $ 59 $ 67 $139 $153
Finite risk 59 53 97 96
----------------------------------------
Total premiums written $118 $120 $236 $249
----------------------------------------
Underwriting gain $ 6 $ 14 $ 14 $ 29
GAAP Underwriting Ratios:
Loss ratio 74.8% 60.4% 70.6% 59.8%
Expense ratio 20.6 27.5 24.1 27.7
Combined ratio 95.4 87.9 94.7 87.5
----------------------------------------
F&G Re's net premiums written decreased $2 million and $13 million in the second
quarter and first six months of 1997, respectively, when compared with the same
periods of 1996 as a result of competitive pressures in the assumed reinsurance
market. Management's adherence to its underwriting discipline has resulted in
the sacrifice of some premium volume in favor of maintaining the profitability
of F&G Re's book of business. The intense pricing competition is expected to
continue throughout 1997. The higher loss ratio for the second quarter and first
half of 1997, compared with the same periods of 1996, was primarily attributable
to large losses on finite risk reinsurance contracts in the second quarter.
Surety
The following table shows underwriting results for the Surety Group.
Three Months Ended Six Months Ended
June 30 June 30
(dollars in millions) 1997 1996 1997 1996
----------------------------------------
Gross voluntary premiums written $65 $46 $125 $87
Net premiums written 57 42 110 78
Underwriting gain (loss) 9 -- 14 (3)
GAAP Underwriting Ratios:
Loss ratio 32.6% 47.0% 34.7% 51.3%
Expense ratio 48.7 52.7 50.2 55.3
Combined ratio 81.3 99.7 84.9 104.6
----------------------------------------
Surety's gross premiums written increased 41 percent and 43 percent in the
second quarter and first six months of 1997, respectively, when compared with
the same periods of 1996, due primarily to growth in domestic contract surety
business in the northeast and western regions, and in international surety
business. International surety business consists primarily of Afianzadora
Insurgentes, S.A. de C.V. ("Afianzadora"), which USF&G acquired in December
1996. Afianzadora represented 16 percent and 20 percent of total Surety gross
premiums written in the second quarter and first six months of 1997,
respectively.
Surety's second quarter and first half 1997 underwriting results and loss ratio
improved when compared with the same periods of 1996, largely due to the
absence, in the 1997 periods, of large contract surety losses which were
incurred in the second quarter and first half of 1996.
3.2. Life insurance
Life insurance operations (F&G Life) represented 10 percent of USF&G's revenues
before net realized gains for the first six months of 1997 compared with 13
percent for the same period of 1996. F&G Life also represented 31 percent of the
assets at June 30, 1997 compared with 29 percent at December 31, 1996.
Financial highlights for F&G Life were as follows:
Three Months Ended Six Months Ended
June 30 June 30
(in millions) 1997 1996 1997 1996
----------------------------------------
Sales $121 $88 $235 $164
Premiums earned 26 42 53 73
Net investment income 63 73 121 147
Income from operations before net
realized gains, facilities exit costs/
sublease income, income taxes and
distributions on capital securities 15 12 29 23
----------------------------------------
F&G Life's premiums earned declined in the second quarter and first six months
of 1997 when compared with the same periods of 1996 due to a reduction in sales
of life contingent structured settlement annuities. Non-life contingent
contracts are not recognized as premiums earned under GAAP, but are recorded
directly in the balance sheet on a deposit accounting basis. Structured
settlement annuities are sold primarily to the property/casualty segment to
settle insurance claims. The decline in sales of these annuities resulted from a
higher-than-average level of structured settlement annuities which the
property/casualty segment purchased in prior years as part of its efforts to
settle older property/casualty claims. Net investment income declined due to a
lower asset base created by the transfer of approximately $918 million of F&G
Life's fixed maturities to an unaffiliated life insurance company as part of a
coinsurance transaction (refer to the "Policy surrenders" discussion below).
Despite the decrease in premiums earned and net investment income, income for
the quarter and six months ended June 30, 1997 increased when compared with the
same periods of 1996, primarily due to improved spread management on annuity and
universal life products, which yield higher profit margins on F&G Life's book of
business, combined with lower per-unit operating expenses.
Sales
The following table shows life insurance and annuity sales (premiums and
deposits) by distribution system and product type.
Three Months Ended Six Months Ended
June 30 June 30
(in millions) 1997 1996 1997 1996
----------------------------------------
Distribution System:
Brokerage $ 79 $44 $153 $ 73
National wholesaler 24 19 48 38
Direct structured settlements 16 21 27 42
Other 2 4 7 11
----------------------------------------
Total $121 $88 $235 $164
----------------------------------------
Product Type:
Single premium deferred annuities $ 74 $39 $144 $ 62
Tax sheltered annuities 23 18 45 38
Structured settlement annuities 16 21 27 42
Other annuities 4 6 11 15
Life insurance 4 4 8 7
----------------------------------------
Total $121 $88 $235 $164
----------------------------------------
Sales increased 43 percent in the first six months of 1997 when compared with
the same period of 1996. The growth in sales of single premium deferred
annuities is primarily due to management's continued marketing emphasis on its
new and existing products and distribution channels. Despite this marketing
emphasis, demand for its products is affected by fluctuating interest rates and
the relative attractiveness of alternative investments, annuity or insurance
products, as well as its credit ratings. As a result, there is no assurance that
the improved sales trend will continue. Total life insurance in force was $10.5
billion at June 30, 1997 and $10.7 billion at December 31, 1996.
Policy surrenders
Deferred annuities and universal life products are subject to surrender. Nearly
all of F&G Life's surrenderable annuity policies allow a refund of the cash
value balance less a surrender charge. The surrender charge varies by product.
F&G Life's current product offerings have surrender charges that decline from
nine percent in the first policy year to zero percent by the tenth policy year.
Such built-in surrender charges provide protection against premature policy
surrender. In August 1996, F&G Life entered into a coinsurance contract with an
unaffiliated life insurance company whereby F&G Life ceded all of its remaining
block of single premium deferred annuities that were originally sold through
stock brokerage firms (the "broker SPDA block"). At the time of the transaction,
the broker SPDA block had a current account value of approximately $964 million.
The transaction removed the broker SPDA block from F&G Life's direct
obligations. As of June 30, 1997, surrender activity under the coinsurance
contract had reduced the broker SPDA block and the related reinsurance
receivable to $683 million.
Policy surrenders totaled $42 million and $81 million for the quarter and six
months ended June 30, 1997, compared with $224 million and $365 million for the
same periods of 1996. Surrender activity has decreased significantly due
primarily to the coinsurance of the broker SPDA block. This reduced level of
surrenders is expected to continue throughout 1997.
4. RESERVES AND SURPLUS
The level of loss reserves for both current and prior years' claims is
continually monitored and adjusted for changing economic, social, judicial and
legislative conditions, as well as for changes in historical trends as
information regarding such conditions and actual claims develops. Management
believes that loss reserves are adequate, but establishing appropriate reserves,
particularly with respect to environmental, asbestos and other long-term
exposure claims, is highly judgmental and an inherently uncertain process. It is
possible that, as conditions change and claims experience develops, additional
reserves may be required in the future. There can be no assurance that such
adjustments will not have a material adverse effect on USF&G's financial
condition or results of operations.
4.1. Mass torts
USF&G categorizes long-term exposures where multiple claims relate to a similar
cause of loss (excluding catastrophes) as "mass torts". Mass tort exposures
include construction defect, environmental and asbestos claims.
Reserves for losses that have been reported and certain legal expenses are
established on the "case basis". Bulk reserves are established, in addition to
the case reserves, to reflect unreported claims and future development on
reported claims. Total case and bulk reserves for these mass torts, net of ceded
reinsurance, comprised approximately nine percent and ten percent of total net
property/casualty reserves for unpaid losses and loss expenses at June 30, 1997
and December 31, 1996, respectively.
The following table sets forth selected information for each of the major
categories of mass torts, net of ceded reinsurance.
Construction
(in millions) Defect Environmental Asbestos
---------------------------------------------
Net reserves at
December 31, 1996 $40 $308 $135
Losses incurred 9 10 (2)
Claims paid (7) (13) (2)
---------------------------------------------
Net reserves at June 30, 1997 $42 $305 $131
---------------------------------------------
Management believes that USF&G's reserve position is adequate relative to its
exposure to mass torts. USF&G's customer base generally has not included large
manufacturing companies, which tend to incur most of the known environmental and
asbestos exposures. Many of USF&G's environmental claims relate to small
industrial or transportation accidents which individually are unlikely to
involve material exposures. In addition, USF&G has traditionally been a primary
coverage carrier, having written relatively little high-level excess coverage;
therefore, liability exposures are generally restricted to primary coverage
limits.
4.2. Reinsurance
In the second quarter of 1997, United States Fidelity and Guaranty Company
("USF&G Company"), the principal property/casualty insurance subsidiary,
realigned its catastrophe reinsurance to reflect the company's strategic
initiatives in FBIG and CIG. USF&G Company secured a 60 percent quota share
treaty for its personal lines residential property business (homeowners and
dwelling/fire policies) which allows USF&G Company to limit its exposure to
historically volatile underwriting losses in these lines. To further protect
against catastrophe losses on the remainder of the FBIG residential property
business, USF&G Company obtained an aggregate excess of loss treaty providing
$15 million of coverage in excess of a $20 million annual aggregate deductible.
Additionally, effective July 1, 1997, USF&G Company expanded its property
catastrophe reinsurance coverage by reducing its retention from $75 million to
$50 million and increasing its reinsurance coverage limit from $175 million to
$250 million, providing USF&G Company protection against catastrophe losses in
lines not covered by FBIG's quota share treaty. A property per risk treaty,
which provides coverage of $97 million in excess of USF&G Company's $3 million
retention limit, and a Surety treaty, which provides coverage of $65 million in
excess of USF&G Company's $5 million retention limit, are also in place.
4.3. Liquidity restrictions
There are certain restrictions on payments of dividends by insurance
subsidiaries that may limit USF&G Corporation's ability to receive funds from
its subsidiaries. Under the Maryland Insurance Code, Maryland insurance
subsidiaries, such as USF&G Company and F&G Life, must provide the Maryland
Insurance Commissioner (the "Commissioner") with not less than thirty days'
prior written notice before payment of an "extraordinary dividend" to its
holding company. "Extraordinary dividends" are dividends which, together with
any dividends paid during the immediately preceding twelve-month period, would
be in excess of ten percent of the subsidiary's statutory policyholders' surplus
as of the prior calendar year end. Extraordinary dividends may not be paid until
either such thirty-day period has expired and the Commissioner has not
disapproved the payment or the Commissioner has approved the payment within such
period. In addition, ten days' prior notice of any other dividend must be given
to the Commissioner prior to payment, and the Commissioner has the right to
prevent payment of such dividend if it is determined that such payment could
impair the insurer's surplus or financial condition.
On September 30, 1996, F&G Life, with the Commissioner's consent, paid
extraordinary dividends to USF&G Corporation. Because any dividends paid during
the immediately preceding twelve-month period are considered when determining
whether future dividends constitute extraordinary dividends, any dividends which
F&G Life would propose to pay in the twelve-month period beginning September 30,
1996 would be deemed extraordinary dividends and subject to the thirty-day
notice period. The application of the thirty-day notice requirement to dividends
of its subsidiaries is not expected to materially affect the liquidity of USF&G
Corporation.
5. INVESTMENTS
USF&G's investment mix continues to reflect a concentration in high-quality
fixed-income securities. Long-term fixed maturities comprised 81 percent of
total investments at June 30, 1997 and December 31, 1996. Total investments have
increased primarily due to an increase in securities lending activity. The
following table shows the distribution of USF&G's investment portfolio.
At June 30 At December 31
(dollars in millions) 1997 1996
----------------------------------------
Total investments $10,239 $10,076
----------------------------------------
Fixed maturities 81% 81%
Common and preferred stocks -- --
Short-term investments 5 5
Mortgage loans and real estate 9 10
Other invested assets 5 4
----------------------------------------
Total 100% 100%
----------------------------------------
5.1. Net investment income The following table shows the
components of net investment income.
Three Months Ended Six Months Ended
June 30 June 30
(dollars in millions) 1997 1996 1997 1996
----------------------------------------
Net investment income from:
Taxable fixed maturities $137 $163 $277 $328
Tax-exempt fixed maturities 10 1 17 1
Common and preferred stocks -- 1 -- 2
Short-term investments 8 4 16 8
Mortgage loans and real estate 17 10 34 20
Other investment income, net of
interest expense on funds held 3 5 7 9
----------------------------------------
Total investment income 175 184 351 368
Investment expenses (3) (3) (7) (7)
----------------------------------------
Net investment income $172 $181 $344 $361
----------------------------------------
Average annualized yields:
Total investments 7.1% 6.9% 7.1% 6.8%
Fixed maturities 7.2 7.3 7.3 7.3
----------------------------------------
Investment income for the six months ended June 30, 1997, decreased $17 million,
or five percent, when compared with the same period of 1996. Income from fixed
maturities declined primarily as a result of the decline in F&G Life's fixed
maturities portfolio due to the transfer of fixed maturities to an unaffiliated
life insurance company under the terms of a coinsurance contract (refer to
Section 3.2 of this Analysis). The increases in interest income from short-term
investments are a result of varying short-term interest rates, increases in the
asset balances, and the inclusion of $2 million and $5 million for the second
quarter and first half of 1997, respectively, related to Afianzadora, which
USF&G acquired in December 1996. Investment income on mortgage loans and real
estate for 1997 reflects the continuing strategy of reducing equity real estate
holdings and reinvesting into commercial mortgage loans collateralized by
income-producing real estate. Other investment income includes $4 million and $5
million in the second quarter of 1997 and 1996, respectively, and $9 million for
the six months ended June 30, 1997 and 1996, of income related to USF&G's share
of earnings from an equity interest in RenaissanceRe Holdings, Ltd.
("RenaissanceRe"), a property reinsurance company in Bermuda. Future income from
the investment in RenaissanceRe is subject to volatility and exposure to
catastrophe losses and other risks inherent in the property/casualty reinsurance
industry.
5.2. Net realized gains on investments
The components of net realized gains include the following:
Three Months Ended Six Months Ended
June 30 June 30
(in millions) 1997 1996 1997 1996
----------------------------------------
Net Gains (Losses) on Sales:
Fixed maturities $(4) $(2) $(9) $(1)
Mortgage loans and real estate 4 -- 4 4
Other 5 4 10 10
----------------------------------------
Total net gains from sales 5 2 5 13
Impairments (1) (1) (1) (1)
----------------------------------------
Net realized gains on investments $ 4 $ 1 $ 4 $12
----------------------------------------
Realized losses on fixed maturities in 1997 relate to the sale of taxable bonds
in order to reinvest the proceeds in tax-exempt bonds. Realized gains of $4
million on mortgage loans and real estate in the six months ended June 30, 1997
and 1996, are the result of the sale of equity real estate investments. Other
realized gains in 1997 and 1996 primarily relate to USF&G's share of gains from
its equity in certain venture capital-type limited partnerships. Impairments
relate to specific investments and are realized when the decline in fair value
is deemed other than temporary, or when the fair value is significantly less
than book value and it is probable that the investment will be sold before any
recovery in value can occur.
5.3. Unrealized gains (losses)
The components of the changes in unrealized gains (losses) were as follows:
At June 30 At December 31
(in millions) 1997 1996 Change
----------------------------------------
Fixed maturities
available for sale $ 97 $ 98 $(1)
Deferred policy acquisition
costs (20) (19) (1)
Common and preferred stocks (3) -- (3)
Foreign currency and other 9 16 (7)
----------------------------------------
Total unrealized gains
before taxes 83 95 (12)
Deferred tax on net unrealized
gains (29) (33) 4
----------------------------------------
Total unrealized gains,
net of tax $ 54 $ 62 $(8)
----------------------------------------
Fixed maturity investments classified as "available for sale" are recorded at
market value, with the corresponding unrealized gains reported as a component of
shareholders' equity. Fluctuations in the unrealized gains and losses on fixed
maturities are primarily a result of fluctuating interest rates. Unrealized
gains and losses on fixed maturities are offset by related changes in the DPAC,
which reflect assumptions about the effect of potential sales of fixed
maturities available for sale on future amortization of the life insurance
segment's DPAC. The change in unrealized gains on other investments primarily
relates to USF&G's share of unrealized gains from its equity interests in
certain venture capital-type limited partnerships.
5.4. Fixed maturity investments
The table below details the composition of the fixed maturity portfolio.
At June 30 At December 31
(dollars in millions) 1997 % 1996 %
-----------------------------------------
Corporate and other invest-
ment grade bonds $4,259 52% $4,673 58%
Mortgage-backed securities 1,473 18 1,464 18
Asset-backed securities 695 8 731 9
U.S. Government bonds 350 4 334 4
High-yield bonds* 582 7 548 7
Tax-exempt bonds 874 11 316 4
-----------------------------------------
Total fixed maturities at
amortized cost 8,233 100 8,066 100
Total market value of
fixed maturities 8,330 8,164
-----------------------------------------
Net unrealized
gains $ 97 $ 98
-----------------------------------------
Percent market-to-
amortized cost 101% 101%
-----------------------------------------
*See Glossary of Terms
While subject to prepayment risk, credit risk related to USF&G's mortgage-backed
securities portfolio at June 30, 1997 is believed to be minimal since 99 percent
of such securities have "AAA" ratings or are collateralized by obligations of
the U.S. Government or its agencies. The net proceeds from sales, maturities and
prepayments in 1997 were predominately invested in investment-grade taxable and
tax-exempt bonds. Investment-grade bonds, including debt obligations of the U.S.
Government and its agencies, comprised 93 percent of the portfolio at June 30,
1997 and December 31, 1996. The following table shows the credit quality of the
long-term fixed maturity portfolio at June 30, 1997.
Percent
Market-to-
Amortized Market Amortized
(dollars in millions) Cost Percent Value Cost
- ----------------------------------------------------------------
U.S. Government and
U.S. Government
Agencies $1,801 22% $1,821 101%
AAA 1,502 18 1,514 101
AA 1,203 15 1,209 101
A 1,977 24 1,997 101
BBB 1,168 14 1,186 102
BB 226 3 234 103
B 356 4 368 103
CCC and lower -- -- 1 --
-------------------------------------
Total $8,233 100% $8,330 101%
-------------------------------------
The information on credit quality in the preceding table is based upon the
higher of the rating assigned to each issue by either Standard & Poor's or
Moody's. Where neither Standard & Poor's nor Moody's has assigned a rating to a
particular fixed maturity issue, classification is based on 1) ratings available
from other recognized rating services; 2) ratings assigned by the NAIC; or 3) an
internal assessment of the characteristics of the individual security, if no
other rating is available.
High-yield investments generally involve a greater degree of risk than
investment-grade securities. Expected returns should, however, compensate for
the added risk. USF&G attempts to minimize the risks associated with high-yield
investments by limiting the exposure to any one issuer and by closely monitoring
the creditworthiness of such issuers. At June 30, 1997, USF&G's five largest
investments in high-yield bonds totaled $66 million in amortized cost and had a
market value of $65 million. USF&G's largest single high-yield bond exposure
represented five percent of the high-yield portfolio and less than one percent
of the total fixed maturity portfolio.
5.5. Real Estate
The table below shows the components of USF&G's real estate portfolio.
At June 30 At December 31
(in millions) 1997 1996
----------------------------
Mortgage loans $489 $406
Equity real estate 410 554
----------------------------
Total $899 $960
----------------------------
The decrease in the real estate portfolio was primarily due to the sale of
equity real estate, and was offset in part by new mortgage loan originations
which consisted of fixed rate loans collateralized by apartment and office
properties. This activity is consistent with USF&G's continued strategy to
reduce risk and increase yields in the real estate portfolio by selling equity
real estate when it is advantageous to do so and reinvesting the proceeds in
medium-term mortgage loans.
Mortgage loans and real estate are evaluated on a quarterly basis as part of
management's asset quality review process. This process ensures that the
financial and operating aspects of a property's performance are closely
monitored, analyzed and acted upon if appropriate. Although USF&G anticipates
that any sales of real estate will be in an orderly fashion as and when market
conditions permit, if USF&G were required to dispose of a significant portion of
its real estate in the near term, it is likely that it would recover amounts
substantially less than the related carrying values.
6. FINANCIAL CONDITION
USF&G's corporate debt totaled $539 million at June 30, 1997, compared with $477
million at December 31, 1996. The increase is attributable to a $60 million
borrowing against the standby credit facility which was repaid in mid-July 1997
with the proceeds from the Capital Securities, Series C, issued on July 8, 1997
(refer to Note 9, "Subsequent Events", of the Notes to Condensed Consolidated
Financial Statements).
USF&G's shareholders' equity totaled $1.8 billion at June 30, 1997, compared
with $2.0 billion at December 31, 1996.
The decrease is primarily the result of the redemption of $200 million, or the
entire outstanding balance, of the Series A Preferred Stock. Redemptions of the
Series A Preferred Stock were funded by proceeds from the December 1996 and
January 1997 issuances of $200 million of USF&G-obligated mandatorily redeemable
preferred capital securities of subsidiary trusts holding solely junior
subordinated deferrable interest debentures of USF&G.
During 1996, USF&G announced a plan to repurchase up to 13.3 million shares of
the Corporation's common stock and common stock equivalents. As of December 31,
1996, 8.6 million shares had been repurchased. During the quarter ended March
31, 1997, USF&G repurchased 2.3 million shares. The program was completed during
the quarter ending June 30, 1997 with the purchase of another 2.4 million
shares. It is uncertain at this time if, or to what extent, USF&G will expand
the repurchase program beyond those shares already reacquired, except that the
board of directors has authorized repurchases reasonably designed to offset the
impact of share issuances pursuant to director and employee incentive
compensation programs. Management and the Board of Directors will continue to
evaluate share repurchases as an alternative use of excess capital and cash
flow, depending on other investment opportunities.
7. LIQUIDITY
Liquidity is a measure of an entity's ability to secure enough cash to meet its
contractual obligations and operating needs. USF&G requires cash primarily to
pay policyholders' claims and benefits, debt and dividend obligations, and
operating expenses. USF&G's sources of cash include cash flow from operations,
credit facilities, marketable securities and sales of other assets. Management
believes that internal and external sources of cash will continue to exceed
USF&G's short-term and long-term operating needs.
7.1. Cash flow
USF&G had cash flow from operations of $69 million and $77 million for the
second quarter and first six months of 1997, respectively, compared with $95
million and $149 million for the same periods of 1996, respectively. This
decrease in cash flow from operations is primarily due to the $45 million and
$82 million reduction in net reinsurance activity in the second quarter and
first six months of 1997, respectively, which resulted primarily from the
personal lines quota share treaty (see Section 4.2 of this Analysis). Net
investment income collected decreased $14 million and $28 million in the second
quarter and first six months of 1997, respectively, largely as a result of the
transfer of approximately $918 million of F&G Life's fixed maturity investments
as part of a coinsurance contract (refer to Section 3.2 of this Analysis).
However, the coinsurance transaction also reduced F&G Life's exposure to cash
outflows for surrender activity. Consequently, deposits and withdrawals of
universal life and investment contracts had net cash inflows of $76 million and
$156 million in the second quarter and first six months of 1997, respectively,
which for GAAP purposes are classified as financing activities, compared with
net cash outflows of $156 million and $234 million in the second quarter and
first six months of 1996, respectively.
7.2. Credit facilities
At June 30, 1997, USF&G maintained a $250 million committed, standby credit
facility with a group of foreign and domestic banks. Borrowings outstanding
under the credit facility totaled $60 million at June 30, 1997. There were no
borrowings against the facility at December 31, 1996. The outstanding balance
was repaid in mid-July 1997 with the proceeds from the Capital Securities,
Series C. The credit agreement contains restrictive covenants pertaining to
indebtedness, tangible net worth, liens and other matters. USF&G was in
compliance with these covenants at June 30, 1997 and December 31, 1996.
In addition, at June 30, 1997, USF&G maintained a $150 million multi-currency
credit facility. There were no borrowings on this credit facility as of June 30,
1997.
8. GLOSSARY OF TERMS
Account value: Deferred annuity cash value available to policyholders before the
assessment of surrender charges.
Catastrophe losses: Property/casualty insurance claim losses resulting from a
sudden calamitous event, such as a severe storm, are categorized as
"catastrophes" when they meet certain severity and other criteria determined by
a national organization.
Expense ratio: The ratio of underwriting expenses to net premiums written, if
determined in accordance with statutory accounting practices ("SAP"), or the
ratio of underwriting expenses (adjusted by deferred policy acquisition costs)
to earned premiums, if determined in accordance with GAAP.
High-yield bonds: Fixed maturity investments with credit ratings below the
equivalent of Standard & Poor's "BBB-". In addition, nonrated fixed maturities
that, in the judgment of USF&G, have credit characteristics similar to those of
a fixed maturity rated below BBB- are considered high-yield bonds.
Investment spreads: The difference between the interest rates earned on invested
assets and the interest rates credited to policyholders.
Loss ratio: The ratio of incurred losses and loss expenses to earned premiums,
determined in accordance with SAP or GAAP.
Net premiums written: Premiums retained by an insurer, after the assumption and
cession of reinsurance.
Policyholders' surplus: The net assets of an insurer as reported to regulatory
agencies based on accounting practices prescribed or permitted by the National
Association of Insurance Commissioners.
Premiums earned: The portion of premiums written applicable to the expired
period of policies.
Reinsurance: For a consideration, an assuming insurer agrees
to indemnify a ceding insurer against all or part of the loss the latter may
sustain under the policy or policies it has issued. The legal rights of the
insured are not affected by the transaction, and the ceding insurer remains
liable to the insured for payment of policy benefits.
Specialty segments: Market segments within CIG which operate separate business
resource platforms individually dedicated to specific specialized businesses
such as financial institutions, technology, governmental entities, large real
estate, Directors & Officers, and specialty trucking.
Structured settlement annuity: An immediate annuity sold to property/casualty
companies to fund the settlement of insurance claims.
Underwriting results: Property/casualty pretax operating results excluding
investment results, policyholders' dividends and noninsurance activities;
generally, premiums earned less losses and loss expenses incurred, and
"underwriting" expenses incurred. It is not unusual for property/casualty
companies to have underwriting losses that are offset by investment income.
Universal life: A life insurance product which provides a death benefit for the
life of the insured and accumulated cash values to which interest is credited.
<PAGE>
USF&G CORPORATION Part II. Other Information
ITEM 2. CHANGES IN SECURITIES
(c) On July 8, 1997, USF&G Capital III, a business trust wholly owned by USF&G,
completed the issuance of $100 million of 8.312% Capital Securities, Series C
(the "Capital Securities"). The Capital Securities were offered for sale by
Goldman, Sachs & Co., Merrill Lynch & Co., Lehman Brothers, J.P. Morgan & Co.
and Smith Barney Inc. (the "Initial Purchasers") to qualified institutional
buyers (as defined in Rule 144A under the Securities Act of 1933, as amended
(the "Securities Act") in reliance on Rule 144A and to a limited number of
institutional investors that were accredited investors within the meaning of
Rule 501 (a) under the Securities Act. The offering and sale were conducted
without registration, pursuant to exemption to the registration requirements
under the Securities Act, including Rule 144A and Regulation D. The aggregate
offering price was $100 million. USF&G paid the Initial Purchasers $1 million as
compensation for arranging the investment in the Capital Securities and the
related purchase by USF&G Capital III of Junior Subordinated Debentures issued
by USF&G. (Refer to Note 9, "Subsequent Events", of the Notes to Condensed
Consolidated Financial Statements.)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders was held on May 21, 1997.
(b) The directors nominated were H. Furlong Baldwin, Michael J. Birck,
Norman P. Blake, Jr., George L. Bunting, Jr., Robert E. Davis, Kenneth M.
Duberstein, Dale F. Frey, Robert E. Gregory, Jr., Robert J. Hurst, Wilbur G.
Lewellen, Larry P. Scriggins, Anne M. Whittemore, and R. James Woolsey.
(c) The matters voted on and the number of votes cast were as follows:
(1) Election of Directors
For Withheld
H. Furlong Baldwin 99,427,306 1,609,183
Michael J. Birck 99,451,217 1,585,272
Norman P. Blake, Jr. 99,349,778 1,686,711
George L. Bunting, Jr. 99,436,939 1,599,550
Robert E. Davis 99,352,940 1,683,549
Kenneth M. Duberstein 99,423,541 1,612,948
Dale F. Frey 99,446,483 1,590,006
Robert E. Gregory, Jr. 99,446,355 1,590,134
Robert J. Hurst 98,370,362 2,666,127
Wilbur G. Lewellen 99,452,159 1,584,330
Larry P. Scriggins 98,025,772 3,010,717
Anne M. Whittemore 99,362,677 1,673,812
R. James Woolsey 99,357,620 1,678,869
With regard to the election of directors, there were a total of 1,665,467
abstentions.
(2) Proposal to adopt the Stock Incentive Plan of 1997. Of the shares voted on
the proposal, 59,697,132 shares were voted for the proposal, 24,601,088 were
voted against the proposal, and 1,042,457 shares abstained from voting. The
total broker non-votes were 15,695,812.
ITEM 5. OTHER INFORMATION
On August 8, 1997, USF&G announced that it had entered into a definitive
agreement to acquire Titan Holdings, Inc. ("Titan"). Titan, which is
headquartered in San Antonio, Texas, primarily operates two specialty
property/casualty operations: Titan Auto, which writes nonstandard automobile
insurance; and Titan Public Entity, which insures small-to-medium sized towns
and counties. Titan reported total assets of $405 million at June 30, 1997, and
written premium of $199 million for the twelve-month period ended June 30, 1997,
with 65 percent of ongoing business written by Titan Auto and 35 percent by
Titan Public Entity.
USF&G will pay $11.60 in cash plus 0.46516 share of common stock for each Titan
share, for a total of $23.20 per Titan share, based on a USF&G share valuation
of $24.94, which was the value used in USF&G's initial offer to Titan. This
consideration is subject to adjustment pursuant to a collar arrangement whereby
the price will be adjusted to the extent that the average closing price of
USF&G's common stock during a ten-day trading period ending three trading days
before the effective date of the merger is above $28.68 per share or below
$21.20 per share. There is an additional adjustment to ensure that at all times
50 percent of the total consideration is payable in cash and 50 percent is
payable in stock. At the $23.20 valuation, the aggregate transaction value is
$234 million plus assumption of debt.
In connection with the execution of the merger agreement, Mark E. Watson, Jr.,
Titan's largest shareholder, and related entities entered into a voting
agreement with USF&G covering 2,579,295 Titan shares, or approximately 26
percent of the outstanding shares, whereby the shareholders agreed to vote in
favor of the proposed merger and against any transaction in opposition to or
inconsistent with the proposed merger.
The Corporation expects to finance the cash portion of the consideration payable
to Titan shareholders from internal resources or existing credit facilities. The
transaction is subject to customary closing conditions, including necessary
regulatory approvals and approval by the shareholders of Titan, and is expected
to close in the fourth quarter of 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 4
Documents related to USF&G Capital III:
Amended and Restated Trust Agreement dated as of July 8, 1997
among USF&G Corporation, The Bank Of New York, The Bank Of New
York (Delaware), the Administrators and the Holders.
Junior Subordinated Indenture dated as of July 8, 1997 between
USF&G Corporation and The Bank Of New York.
Guarantee Agreement Between USF&G Corporation and The Bank Of New
York dated as of July 8, 1997.
Form of Global Certificate Evidencing Capital Securities of USF&G
Capital III.
Agreement as to Expenses and Liabilities dated as of July 8, 1997
between USF&G Corporation and USF&G Capital III.
USF&G Corporation 8.312% Deferrable Interest Junior Subordinated
Debenture, $103,093,000.
Exhibit 10A
Material Contracts related to Titan Holdings, Inc.:
Merger Agreement
Voting and Support Agreement
Exhibit 10B
Material Contracts regarding USF&G Executive Severance:
Senior Executive Severance Plan
Key Executive Severance Plan
Exhibit 11
Computation of earnings per share.
Exhibit 12
Computation of ratio of consolidated earnings to fixed charges, distributions on
capital securities and preferred stock dividends.
Exhibit 15
Letter regarding unaudited interim financial information.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the second quarter of 1997.
<PAGE>
<TABLE>
<CAPTION>
USF&G CORPORATION Exhibit 11 - Computation of Earnings Per Share (Unaudited)
<S>
<C> <C>
Six Months Ended June 30
(dollars in millions except per share data) 1997 1996
-----------------------------
Net Income Available to Common Stock
Primary:
Net income $ 92 $124
Less preferred stock dividend requirements (2) (10)
-----------------------------
Net income available to common stock $ 90 $114
-----------------------------
Fully diluted:
Net income $ 92 $124
Less preferred stock dividend requirements (2) (8)
Add interest expense on zero coupon convertible notes 1 2
-----------------------------
Net income available to common stock $ 91 $118
-----------------------------
Weighted-Average Shares Outstanding
Primary:
Common shares 112,076,192 119,411,427
Common stock equivalents 3,490,052 --
-----------------------------
Total primary shares 115,566,244 119,411,427
-----------------------------
Fully diluted:
Common shares 112,076,192 119,411,427
Common stock equivalents 4,116,194 1,636,528
Assumed conversion of preferred stock -- 2,308,106
Assumed conversion of zero coupon convertible notes 5,181,588 6,352,827
-----------------------------
Total fully diluted shares 121,373,974 129,708,888
-----------------------------
Earnings Per Share
Primary $.79 $.95
Fully diluted .76 .91
-----------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
USF&G CORPORATION Exhibit 12 - Computation of Ratio of Consolidated Earnings
to Fixed Charges, Distributions on Capital
Securities and Preferred Stock Dividends
(Unaudited)
<S> <C> <C>
Six Months Ended June 30
(dollars in millions) 1997 1996
------------------------
Fixed charges
Interest expense $ 17 $ 20
Portion of rents representative of interest 5 7
------------------
Total fixed charges 22 27
Distributions on capital securities 8 --
Preferred stock dividend requirements (A) 3 10
------------------
Combined Fixed Charges, Distributions on Capital Securities
and Preferred Stock Dividends $ 33 $ 37
------------------
Consolidated Earnings Available
Income from operations before income taxes and
distributions on capital securities $138 $124
Adjustment:
Fixed charges 22 27
------------------
Consolidated earnings available for fixed
charges, distributions on capital securities
and preferred stock dividends $160 $151
------------------
Ratio of Consolidated Earnings to Fixed Charges 7.2 5.5
Ratio of Consolidated Earnings to Combined Fixed
Charges, Distributions on Capital Securities
and Preferred Stock Dividends 4.9 4.1
------------------
(A) Preferred stock dividend requirements of $2 million and $10 million in 1997
and 1996, respectively, divided by 100% less the effective income tax rate of
29.2% in 1997 and 0% in 1996.
</TABLE>
<PAGE>
USF&G CORPORATION Exhibit 15 - Letter Regarding Unaudited Interim Financial
Information
We are aware of the incorporation by reference in the Registration
Statement Numbers 33-20449, 33-9405, 33-33271, 33-21132, 33-51859, 33-65471 and
333-13685 on Form S-3 and Numbers 2-72026, 2-61626, 2-98232, 33-16111, 33-38113,
33-35095, 33-43132, 33-45664, 33-45665, 33-61965, 33-55667, 33-55669, 33-55671,
33-59535, 33-64839 and 333-04359 on Form S-8 of USF&G Corporation, of our report
on the unaudited condensed consolidated interime financial statements of USF&G
Corporation which is in this Quarterly Report (Form 10-Q) for the quarter ended
June 30, 1997.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a
part of the registration statements prepared or certified by accountants within
the meaning of Section 7 or 11 of the Securities Act of 1933.
ERNST & YOUNG LLP
Baltimore, Maryland
August 8, 1997
<PAGE>
USF&G CORPORATION Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
USF&G Corporation
By /s/ DAN L. HALE
Dan L. Hale
Executive Vice President and
Chief Financial Officer
Dated at Baltimore, Maryland
August 8, 1997
AMENDED AND RESTATED
TRUST AGREEMENT
among
USF&G CORPORATION,
as Depositor,
THE BANK OF NEW YORK,
as Property Trustee,
THE BANK OF NEW YORK (DELAWARE),
as Delaware Trustee,
Dated as of July 8, 1997
USF&G CAPITAL III
TABLE OF CONTENTS
Page
ARTICLE I
DEFINED TERMS
SECTION 1.1. Definitions............................................. 1
ARTICLE II.
CONTINUATION OF THE TRUST
SECTION 2.1. Name................................................... 11
SECTION 2.2. Office of the Delaware Trustee;
Principal Place of Business............................ 12
SECTION 2.3. Initial Contribution of Trust Property;
Organizational Expenses................................ 12
SECTION 2.4. Issuance of the Capital Securities;
Authentication......................................... 12
SECTION 2.5. Issuance of the Common Securities; Subscription
and Purchase of Debentures............................. 12
SECTION 2.6. Declaration of Trust................................... 13
SECTION 2.7. Authorization to Enter into Certain Transactions....... 13
SECTION 2.8. Assets of Trust........................................ 17
SECTION 2.9. Title to Trust Property................................ 17
ARTICLE III.
PAYMENT ACCOUNT
SECTION 3.1. Payment Account........................................ 17
ARTICLE IV.
DISTRIBUTIONS; REDEMPTION
Section 4.1 Distributions.......................................... 17
SECTION 4.2. Redemption............................................. 19
SECTION 4.3. Subordination of Common Securities..................... 21
SECTION 4.4. Payment Procedures..................................... 22
SECTION 4.5. Tax Returns and Reports................................ 22
SECTION 4.6. Payment of Taxes, Duties, Etc. of the Trust............ 22
SECTION 4.7. Payments under Indenture or Pursuant to
Direct Actions......................................... 22
ARTICLE V.
TRUST SECURITIES CERTIFICATES
SECTION 5.1. Initial Ownership...................................... 23
SECTION 5.2. The Trust Securities Certificates...................... 23
SECTION 5.3. Execution and Delivery of Trust Securities
Certificates........................................... 24
SECTION 5.4. Book-Entry Capital Securities.......................... 24
SECTION 5.5. Registration of Transfer and Exchange of
Capital Securities Certificates; Restricted
Capital Securities Legends............................. 26
SECTION 5.6. Mutilated, Destroyed, Lost or Stolen Trust
Securities Certificates................................ 30
SECTION 5.7. Persons Deemed Securityholders......................... 30
SECTION 5.8. Access to List of Securityholders' Names
and Addresses.......................................... 30
SECTION 5.9. Maintenance of Office or Agency........................ 31
SECTION 5.10. Appointment of Paying Agent........................... 31
SECTION 5.11. Ownership of Common Securities by Depositor........... 31
SECTION 5.12. Notices to Clearing Agency............................ 32
SECTION 5.13. Rights of Securityholders............................. 32
ARTICLE VI.
ACTS OF SECURITYHOLDERS; MEETINGS; VOTING
SECTION 6.1. Limitations on Voting Rights........................... 34
SECTION 6.2. Notice of Meetings..................................... 35
SECTION 6.3. Meetings of Capital Securityholders.................... 35
SECTION 6.4. Voting Rights.......................................... 36
SECTION 6.5. Proxies, etc........................................... 36
SECTION 6.6. Securityholder Action by Written Consent............... 36
SECTION 6.7. Record Date for Voting and Other Purposes.............. 37
SECTION 6.8. Acts of Securityholders................................ 37
SECTION 6.9. Inspection of Records.................................. 38
ARTICLE VII.
REPRESENTATIONS AND WARRANTIES
SECTION 7.1. Representations and Warranties of the
Property Trustee, the Delaware Trustee
and the Administrators................................. 38
SECTION 7.2. Representations and Warranties of Depositor............ 39
ARTICLE VIII.
THE TRUSTEES; THE ADMINISTRATORS
SECTION 8.1. Certain Duties and Responsibilities.................... 40
SECTION 8.2. Certain Notices........................................ 41
SECTION 8.3. Certain Rights of Property Trustee..................... 42
SECTION 8.4. Not Responsible for Recitals or Issuance
of Securities.......................................... 44
SECTION 8.5. May Hold Securities.................................... 44
SECTION 8.6. Compensation; Indemnity; Fees.......................... 44
SECTION 8.7. Corporate Property Trustee Required;
Eligibility of Trustees and Administrators............. 46
SECTION 8.8. Conflicting Interests.................................. 46
SECTION 8.9. Co-Trustees and Separate Trustee....................... 46
SECTION 8.10. Resignation and Removal; Appointment
of Successor.......................................... 48
SECTION 8.11. Acceptance of Appointment by Successor................ 49
SECTION 8.12. Merger, Conversion, Consolidation or
Succession to Business................................ 50
SECTION 8.13. Preferential Collection of Claims
Against Depositor or Trust............................ 50
SECTION 8.14. Reports by Property Trustee........................... 51
SECTION 8.15. Reports to the Property Trustee....................... 51
SECTION 8.16. Evidence of Compliance with Conditions
Precedent............................................. 51
SECTION 8.17. Number of Trustees and Administrators................. 52
SECTION 8.18. Delegation of Power................................... 52
SECTION 8.19. Appointment of Administrators......................... 52
ARTICLE IX.
TERMINATION, LIQUIDATION AND MERGER
SECTION 9.1. Termination Upon Expiration Date....................... 53
SECTION 9.2. Early Termination...................................... 53
SECTION 9.3. Termination............................................ 53
SECTION 9.4. Liquidation............................................ 53
SECTION 9.5. Mergers, Consolidations, Amalgamations or
Replacements of the Trust.............................. 55
ARTICLE X.
MISCELLANEOUS PROVISIONS
SECTION 10.1. Limitation of Rights of Securityholders............... 56
SECTION 10.2. Amendment............................................. 56
SECTION 10.3. Separability.......................................... 58
Section 10.4. Governing Law......................................... 58
SECTION 10.5. Payments Due on Non-Business Day...................... 58
SECTION 10.6. Successors............................................ 58
SECTION 10.7. Headings.............................................. 59
SECTION 10.8. Reports, Notices and Demands.......................... 59
SECTION 10.9. Agreement Not to Petition..............................59
SECTION 10.10. Trust Indenture Act; Conflict with Trust
Indenture Act........................................ 60
SECTION 10.11. Acceptance of Terms of Trust Agreement,
Guarantee and Indenture.............................. 61
EXHIBIT A - Certificate of Trust
EXHIBIT B - Certificate of Depository Agreement
EXHIBIT C - Common Securities Certificate
EXHIBIT D - Agreement as to Expenses and Liabilities
EXHIBIT E-1 - Capital Securities Certificate (Book-Entry)
EXHIBIT E-2 - Capital Securities Certificate
EXHIBIT F - Restricted Securities Certificate
EXHIBIT G - Unrestricted Securities Certificate
AMENDED AND RESTATED TRUST AGREEMENT, dated as of July 8, 1997, among
(i) USF&G Corporation, a Maryland corporation (including any successors or
assigns, the "Depositor"), (ii) The Bank of New York, a New York banking
corporation, as property trustee (in such capacity, the "Property Trustee" and,
in its separate corporate capacity and not in its capacity as Property Trustee,
the "Bank"), and (iii) The Bank of New York (Delaware), a Delaware corporation
duly organized and existing under the laws of the State of Delaware, as Delaware
trustee (the "Delaware Trustee") (the Property Trustee and the Delaware Trustee
referred to collectively as the "Trustees"), (iv) the Administrators, as
hereinafter defined, and (v) the several Holders, as hereinafter defined.
W I T N E S S E T H :
WHEREAS, the Depositor, the Property Trustee and the Delaware Trustee
have heretofore duly declared and established a business trust pursuant to the
Delaware Business Trust Act by entering into that certain Trust Agreement, dated
as of June 16, 1997 (the "Original Trust Agreement"), and by the execution and
filing by the Delaware Trustee with the Secretary of State of the State of
Delaware of the Certificate of Trust, filed on June 16, 1997, attached as
Exhibit A; and
WHEREAS, the Depositor and the Trustees desire to amend and restate the
Original Trust Agreement in its entirety as set forth herein to provide for,
among other things, (i) the issuance of the Common Securities by the Trust to
the Depositor, (ii) the issuance and sale of the Capital Securities by the Trust
pursuant to the Purchase Agreement, (iii) the acquisition by the Trust from the
Depositor of all of the right, title and interest in the Debentures and (iv) the
appointment of the Administrators;
NOW THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, each party, for the benefit of the
other parties and for the benefit of the Securityholders, hereby amends and
restates the Original Trust Agreement in its entirety and agrees as follows:
ARTICLE I
DEFINED TERMS
SECTION 1.1. Definitions.
For all purposes of this Trust Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(b) all other terms used herein that are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case may be,
of this Trust Agreement; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Trust Agreement as a whole and not to any
particular Article, Section or other subdivision.
"Act" has the meaning specified in Section 6.8.
"Additional Amount" means, with respect to Trust Securities of a given
Liquidation Amount and/or a given period, the amount of Additional Interest (as
defined in the Indenture) paid by the Depositor on a Like Amount of Debentures
for such period.
"Additional Sums" has the meaning specified in Section 10.6 of the
Indenture.
"Administrators" means each of J. Kendall Huber, John F. Hoffen, Jr.,
and Ron Mishler solely in such Person's capacity as Administrator of the Trust
formed and continued hereunder and not in such Person's individual capacity, or
such Administrator's successor in interest in such capacity, or any successor
appointed as herein provided.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Book-Entry Capital Security, the rules and procedures of
the Clearing Agency for such Book-Entry Capital Security, in each case to the
extent applicable to such transaction and as in effect from time to time.
"Bank" has the meaning specified in the preamble to this Trust
Agreement.
"Bankruptcy Event" means, with respect to any Person:
(a) the entry of a decree or order by a court having jurisdiction in
the premises judging such Person a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjudication or
composition of or in respect of such Person under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law, or appointing
a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of such Person or of any substantial part of its property or ordering
the winding up or liquidation of its affairs, and the continuance of any such
decree or order unstayed and in effect for a period of 60 consecutive days; or
(b) the institution by such Person of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the filing by it of a petition or answer
or consent seeking reorganization or relief under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law, or the
consent by it to the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or similar official) of
such Person or of any substantial part of its property, or the making by it of
an assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due and its willingness
to be adjudicated a bankrupt, or the taking of corporate action by such Person
in furtherance of any such action.
"Bankruptcy Laws" has the meaning specified in Section 10.9.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Depositor to have been duly adopted
by the Depositor's Board of Directors, or such committee of the Board of
Directors or officers of the Depositor to which authority to act on behalf of
the Board of Directors has been delegated, and to be in full force and effect on
the date of such certification, and delivered to the Trustees.
"Book-Entry Capital Securities Certificate" means a Capital Securities
Certificate evidencing ownership of Book-Entry Capital Securities.
"Book-Entry Capital Security" means a Capital Security, the ownership
and transfers of which shall be made through book entries by a Clearing Agency
as described in Section 5.4.
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a
day on which banking institutions in the City of New York are authorized or
required by law or executive order to remain closed, or (c) a day on which the
Property Trustee's Corporate Trust Office or the Corporate Trust Office of the
Debenture Trustee is closed for business.
"Capital Security" means an undivided beneficial interest in the assets
of the Trust, having a Liquidation Amount of $1,000 and having the rights
provided therefor in this Trust Agreement, including the right to receive
Distributions and a Liquidation Distribution as provided herein.
"Capital Securities Certificate" means a certificate evidencing
ownership of Capital Securities, substantially in the form attached as Exhibit
E-1 or E-2.
"Certificate of Depository Agreement" means the agreement among the
Trust, the Depositor and DTC, as the initial Clearing Agency, dated as of the
Closing Date, relating to the Trust Securities Certificates, substantially in
the form attached as Exhibit B, as the same may be amended and supplemented from
time to time.
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended. DTC will be the initial Clearing Agency.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means the Time of Delivery, which date is also the date
of execution and delivery of this Trust Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Securities Exchange Act of 1934, as
amended, or, if at any time after the execution of this instrument such
Commission is not existing and performing the duties now assigned to it under
the Trust Indenture Act, then the body performing such duties at such time.
"Common Security" means an undivided beneficial interest in the assets
of the Trust, having a Liquidation Amount of $1,000 and having the rights
provided therefor in this Trust Agreement, including the right to receive
Distributions and a Liquidation Distribution as provided herein.
"Common Securities Certificate" means a certificate evidencing
ownership of Common Securities, substantially in the form attached as Exhibit C.
"Corporate Trust Office" means (i) when used with respect to the
Property Trustee, the principal corporate trust office of the Property Trustee
located in New York, New York which on the date of this Trust Agreement is 101
Barclay Street, Floor 21 W, New York, New York 10286, and (ii) when used with
respect to the Debenture Trustee, its Corporate Trust Office as defined in the
Indenture.
"Debenture Event of Default" means an "Event of Default" as defined in
the Indenture.
"Debenture Redemption Date" means, with respect to any Debentures to be
redeemed under the Indenture, the date fixed for redemption under the Indenture.
"Debenture Trustee" means The Bank of New York, a New York banking
corporation and any successor thereto.
"Debentures" means the aggregate principal amount of the Depositor's
8.312% Junior Subordinated Deferrable Interest Debentures, Series C, issued
pursuant to the Indenture.
"Definitive Capital Securities Certificates" means either or both (as
the context requires) of (a) Capital Securities Certificates issued as
Book-Entry Capital Securities Certificates as provided in Section 5.2 or 5.4
substantially in the form set forth in Exhibit E-1 and (b) Capital Securities
Certificates issued in certificated, fully registered form as provided in
Section 5.2, 5.4 or 5.5, substantially in the form set forth in Exhibit E-2.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Del. C. (ss.) 3801, et seq., as it may be amended from time
to time.
"Delaware Trustee" means the Person identified as the "Delaware
Trustee" in the preamble to this Trust Agreement solely in its capacity as
Delaware Trustee of the Trust formed and continued hereunder and not in its
individual capacity, or its successor in interest in such capacity, or any
successor trustee appointed as herein provided.
"Depositor" has the meaning specified in the preamble to this Trust
Agreement.
"Distribution Date" has the meaning specified in Section 4.1(a).
"Distributions" means amounts payable in respect of the Trust
Securities as provided in Section 4.1.
"DTC" means The Depository Trust Company.
"Early Termination Event" has the meaning specified in Section 9.2.
"Event of Default" means any one of the following events (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):
(a) the occurrence of a Debenture Event of Default; or
(b) default by the Trust in the payment of any Distribution when it
becomes due and payable, and ontinuation of such default for a period of 30
days; or
(c) default by the Trust in the payment of any Redemption Price of
any Trust Security when it becomes due and payable; or
(d) default in the performance, or breach, in any material respect,
of any covenant or warranty of the Trustees in this Trust Agreement (other than
a covenant or warranty a default in the performance or breach of which is dealt
with in clause (b) or (c) 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 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" hereunder; or
(e) the occurrence of a Bankruptcy Event with respect to the
Property Trustee and a successor Property Trustee not being appointed within
90 days thereof.
"Expense Agreement" means the Agreement as to Expenses and Liabilities
between the Depositor and the Trust, substantially in the form attached as
Exhibit D, as amended from time to time.
"Expiration Date" has the meaning specified in Section 9.1.
"Guarantee" means the Guarantee Agreement executed and delivered by the
Depositor and The Bank of New York, as trustee, contemporaneously with the
execution and delivery of this Trust Agreement, for the benefit of the holders
of the Capital Securities, as amended from time to time.
"Indenture" means the Junior Subordinated Indenture, dated as of
December 24, 1996, between the Depositor and the Debenture Trustee, as trustee,
as amended or supplemented from time to time.
"Initial Purchasers means Goldman Sachs & Co., Lehman Brothers Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities
Inc. and Smith Barney Inc.
"Institutional Accredited Investor" means an institutional accredited
investor within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D
under the Securities Act.
"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of
trust, adverse ownership interest, hypothecation, assignment, security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever.
"Like Amount" means (a) with respect to a redemption of Trust
Securities, Trust Securities having a Liquidation Amount equal to the principal
amount of Debentures to be contemporaneously redeemed in accordance with the
Indenture, the proceeds of which will be used to pay the Redemption Price of
such Trust Securities and (b) with respect to a distribution of Debentures to
Holders of Trust Securities in connection with a dissolution or liquidation of
the Trust, Debentures having a principal amount equal to the Liquidation Amount
of the Trust Securities of the Holder to whom such Debentures are distributed.
"Liquidation Amount" means the stated amount of $1,000 per Trust
Security.
"Liquidation Date" means the date on which Debentures are to be
distributed to Holders of Trust Securities in connection with a termination and
liquidation of the Trust pursuant to Section 9.4(a).
"Liquidation Distribution" has the meaning specified in Section 9.4(d).
"1940 Act" means the Investment Company Act of 1940, as amended.
"Officers' Certificate" means a certificate signed by the Chairman and
Chief Executive Officer, President or a Vice President, and by the Treasurer, an
Assistant Treasurer, the Controller, the Secretary or an Assistant Secretary, of
the Depositor, and delivered to the appropriate Trustee. One of the officers
signing an Officers' Certificate given pursuant to Section 8.16 shall be the
principal executive, financial or accounting officer of the Depositor. Any
Officers' Certificate delivered with respect to compliance with a condition or
covenant provided for in this Trust Agreement shall include:
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination
or investigation undertaken by each officer in rendering the Officers'
Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Opinion of Counsel" means a written opinion of counsel to the
Depositor who shall, and whose opinion shall, be reasonably acceptable to the
Property Trustee.
"Original Trust Agreement" has the meaning specified in the recitals
to this Trust Agreement.
"Other Capital Securities" means the Capital Securities sold by the
Initial Purchasers in the initial offering contemplated by the Purchase
Agreement to Institutional Accredited Investors in reliance on an exemption from
the registration requirements of the Securities Act other than Rule 144A.
"Outstanding", when used with respect to Trust Securities, means, as of
the date of determination, all Trust Securities theretofore executed and
delivered under this Trust Agreement, except:
(a) Trust Securities theretofore canceled by the Property Trustee
or delivered to the Property Trustee for cancellation;
(b) Trust Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Property Trustee or any
Paying Agent for the Holders of such Trust Securities; provided that, if such
Trust Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Trust Agreement; and
(c) Trust Securities which have been paid or in exchange for or in
lieu of which other Trust Securities have been executed and delivered pursuant
to Sections 5.4, 5.5, and 5.6;
provided, however, that in determining whether the Holders of the requisite
Liquidation Amount of the Outstanding Capital Securities have given any request,
demand, authorization, direction, notice, consent or waiver hereunder, Capital
Securities owned by the Depositor, any Trustee or any Affiliate of the Depositor
or any Trustee shall be disregarded and deemed not to be Outstanding, except
that (a) in determining whether any Trustee shall be protected in relying upon
any such request, demand, authorization, direction, notice, consent or waiver,
only Capital Securities that a Responsible Officer of such Trustee actually
knows to be so owned shall be so disregarded and (b) the foregoing shall not
apply at any time when all of the outstanding Capital Securities are owned by
the Depositor, one or more of the Trustees and/or any such Affiliate. Capital
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Administrators
the pledgee's right so to act with respect to such Capital Securities and that
the pledgee is not the Depositor or any Affiliate of the Depositor.
"Owner" means each Person who is the beneficial owner of Book-Entry
Capital Securities as reflected in the records of the Clearing Agency or, if a
Clearing Agency Participant is not the Owner, then as reflected in the records
of a Person maintaining an account with such Clearing Agency (directly or
indirectly, in accordance with the rules of such Clearing Agency).
"Paying Agent" means any paying agent or co-paying agent appointed
pursuant to Section 5.10 and shall initially be the Bank.
"Payment Account" means a segregated non-interest-bearing corporate
trust account maintained by the Property Trustee with the Bank in its trust
department for the benefit of the Securityholders in which all amounts paid in
respect of the Debentures will be held and from which the Property Trustee,
through the Paying Agent, shall make payments to the Securityholders in
accordance with Sections 4.1 and 4.2.
"Person" means any individual, corporation, partnership, joint venture,
trust, limited liability company or corporation, unincorporated organization or
government or any agency or political subdivision thereof.
"Property Trustee" means the Person identified as the "Property
Trustee" in the preamble to this Trust Agreement solely in its capacity as
Property Trustee of the Trust heretofore formed and continued hereunder and not
in its individual capacity, or its successor in interest in such capacity, or
any successor property trustee appointed as herein provided.
"Purchase Agreement" means the Purchase Agreement, dated July 8, 1997,
among the Trust, the Depositor and the Initial Purchasers as such agreement may
be amended from time to time.
"Redemption Date" means, with respect to any Trust Security to be
redeemed, the date fixed for such redemption by or pursuant to this Trust
Agreement; provided that each Debenture Redemption Date and the stated maturity
of the Debentures shall be a Redemption Date for a Like Amount of Trust
Securities.
"Redemption Price" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions to the Redemption Date, plus the related amount of the premium, if
any, paid by the Depositor upon the concurrent redemption of a Like Amount of
Debentures, allocated on a pro rata basis (based on Liquidation Amounts) among
the Trust Securities.
"Regulation D" means Regulation D under the Securities Act (or any
successor provision), as it may be amended from time to time.
"Relevant Trustee" shall have the meaning specified in Section 8.10.
"Responsible Officer" means, when used with respect to the Property
Trustee, any officer assigned to the Corporate Trust Office, including any
managing director, vice president, assistant vice president, assistant
treasurer, assistant secretary or any other officer of the Property Trustee
customarily performing functions similar to those performed by any of the above
designated officers, and also, with respect to a particular matter, any other
officer, to whom such matter is referred because of such officer's knowledge of
and familiarity with the particular subject and with respect to the Delaware
Trustee, any officer of the Delaware Trustee customarily performing functions
similar to those performed by any of the above designated officers, and also,
with respect to a particular matter, any other officer, to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
"Restricted Capital Securities" means all Capital Securities, the
Capital Securities Certificate for which is required pursuant to Section 5.5(c)
to bear a Restricted Capital Securities Legend. Such term includes the
Book-Entry Capital Securities Certificate.
"Restricted Capital Securities Certificate" means a certificate
substantially in the form set forth in Exhibit F.
"Restricted Capital Securities Legend" means a legend substantially in
the form of the legend required in the form of Capital Securities Certificate
set forth in Exhibit E-2 to be placed upon a Restricted Capital Security.
"Rule 144A" means Rule 144A under the Securities Act (or any successor
provision), as it may be amended from time to time.
"Rule 144A Capital Securities" means the Capital Securities purchased
by the Initial Purchasers from the Trust pursuant to the Purchase Agreement,
other than the Other Capital Securities.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 5.5.
"Securityholder" or "Holder" means a Person in whose name a Trust
Security or Trust Securities is or are registered in the Securities Register;
any such Person shall be a beneficial owner within the meaning of the Delaware
Business Trust Act; provided, however, that in determining whether the Holders
of the requisite amount of Capital Securities have voted on any matter provided
for in this Trust Agreement, then for the purpose of any such determination, so
long as Definitive Capital Securities Certificates have not been issued, the
term Securityholders or Holders as used herein shall refer to the Owners.
"Successor Capital Securities Certificate" of any particular Capital
Securities Certificate means every Capital Securities Certificate issued after,
and evidencing all or a portion of the same beneficial interest in the Trust as
that evidenced by, such particular Capital Securities Certificate; and, for the
purposes of this definition, any Capital Securities Certificate executed and
delivered under Section 5.6 in exchange for or in lieu of a mutilated,
destroyed, lost or stolen Capital Securities Certificate shall be deemed to
evidence the same beneficial interest as the mutilated, destroyed, lost or
stolen Capital Securities Certificate.
"Time of Delivery" has the meaning specified in the Purchase Agreement.
"Trust" means the Delaware business trust created and continued hereby
and identified on the cover page to this Trust Agreement.
"Trust Agreement" means this Amended and Restated Trust Agreement, as
the same may be modified, amended or supplemented in accordance with the
applicable provisions hereof, including (i) all exhibits hereto and (ii) for all
purposes of this Trust Agreement and any such modification, amendment or
supplement, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this Trust Agreement and any such modification, amendment or
supplement, respectively.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force
at the date as of which this instrument was executed; provided, however, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"Trust Property" means (a) the Debentures, (b) the rights of the
Property Trustee under the Guarantee, (c) any cash on deposit in, or owing to,
the Payment Account and (d) all proceeds and rights in respect of the foregoing
and any other property and assets for the time being held or deemed to be held
by the Property Trustee pursuant to the trusts of this Trust Agreement.
"Trust Security" means any one of the Common Securities or the Capital
Securities.
"Trust Securities Certificate" means any one of the Common Securities
Certificates or the Capital Securities Certificates.
"Trustees" means, collectively, the Property Trustee and the Delaware
Trustee.
"Unrestricted Securities Certificate" means a certificate substantially
in the form set forth in Exhibit G.
ARTICLE II.
CONTINUATION OF THE TRUST
SECTION 2.1. Name.
The Trust continued hereby shall be known as "USF&G Capital III," as
such name may be modified from time to time by the Administrators following
written notice to the Holders of Trust Securities and the other Trustees, in
which name the Trustees may conduct the business of the Trust, make and execute
contracts and other instruments on behalf of the Trust and sue and be sued.
SECTION 2.2. Office of the Delaware Trustee; Principal Place of
Business
The address of the Delaware Trustee in the State of Delaware is The
Bank of New York (Delaware), White Clay Center, Route 273, Newark, Delaware
19711 or such other address in the State of Delaware as the Delaware Trustee may
designate by written notice to the Securityholders and the Depositor. The
principal place of business of the Trust is c/o USF&G Corporation, 6225 Smith
Avenue, Baltimore, Maryland 21209.
SECTION 2.3. Initial Contribution of Trust Property; Organizational
Expenses
The Property Trustee acknowledges receipt in trust from the Depositor
in connection with the Original Trust Agreement of the sum of $10, which
constituted the initial Trust Property. The Depositor shall pay organizational
expenses of the Trust as they arise or shall, upon request of any Trustee,
promptly reimburse such Trustee for any such expenses paid by such Trustee. The
Depositor shall make no claim upon the Trust Property for the payment of such
expenses.
SECTION 2.4. Issuance of the Capital Securities; Authentication.
On July 8, 1997 the Depositor, on behalf of the Trust and pursuant to
the Original Trust Agreement, executed and delivered the Purchase Agreement.
Contemporaneously with the execution and delivery of this Trust Agreement, an
Administrator, on behalf of the Trust, shall manually execute in accordance with
Section 5.3 and deliver to the Initial Purchasers, or, in the alternative,
execute by facsimile and deliver to the Property Trustee for authentication and
delivery in accordance with Section 5.3, Capital Securities Certificates,
registered in the name of the nominee of the initial Clearing Agency (except to
the extent otherwise provided pursuant to the Purchase Agreement), in an
aggregate amount of 100,000 Capital Securities having an aggregate Liquidation
Amount of $100,000,000, against receipt of the aggregate purchase price for such
Capital Securities of $100,000,000 by the Property Trustee less the amount
payable by the Depositor as compensation to the Initial Purchasers.
SECTION 2.5. Issuance of the Common Securities; Subscription and
Purchase of Debentures.
Contemporaneously with the execution and delivery of this Trust
Agreement, an Administrator, on behalf of the Trust, shall execute in accordance
with Section 5.2 and deliver to the Depositor Common Securities Certificates,
registered in the name of the Depositor, in an aggregate amount of 3,093 Common
Securities having an aggregate Liquidation Amount of $3,093,000 against payment
by the Depositor of such amount to the Property Trustee. Contemporaneously
therewith, an Administrator, on behalf of the Trust, shall subscribe to and
purchase from the Depositor Debentures, registered in the name of the Trust and
having an aggregate principal amount equal to $3,093,000, and, in satisfaction
of the purchase price for such Debentures, the Property Trustee, on behalf of
the Trust, shall deliver to the Depositor the sum of $103,093,000 (being the sum
of the amounts delivered to the Property Trustee pursuant to (i) Section 2.4 and
(ii) this Section 2.5).
SECTION 2.6. Declaration of Trust.
The exclusive purposes and functions of the Trust are (a) to issue and
sell Trust Securities and use the proceeds from such sale to acquire the
Debentures, (b) to maintain the status of the Trust as a grantor trust for
United States federal income tax purposes and (c) except as otherwise limited
herein, to engage in only those activities convenient or incidental thereto. The
Depositor hereby appoints the Trustees as trustees of the Trust, to have all the
rights, powers and duties to the extent set forth herein, and the Trustees
hereby accept such appointment. The Property Trustee hereby declares that it
will hold the Trust Property in trust upon and subject to the conditions set
forth herein for the benefit of the Trust and the Securityholders. The
Administrators shall have only those ministerial duties set forth herein with
respect to accomplishing the purposes of the Trust and shall not be trustees or
fiduciaries with respect to the Trust or the Securityholders. The Delaware
Trustee shall not be entitled to exercise any powers, nor shall the Delaware
Trustee have any of the duties and responsibilities, of the Property Trustee or
the Administrators set forth herein. The Delaware Trustee shall be one of the
Trustees of the Trust for the sole and limited purpose of fulfilling the
requirements of Section 3807 of the Delaware Business Trust Act.
SECTION 2.7. Authorization to Enter into Certain Transactions.
(a) The Trustees and the Administrators shall conduct the affairs of
the Trust in accordance with the terms of this Trust Agreement. Subject to the
limitations set forth in paragraph (b) of this Section, and in accordance with
the following provisions (i) and (ii), the Trustees and the Administrators shall
have the authority to enter into all transactions and agreements determined by
the Trustees and Administrators to be appropriate in exercising the authority,
express or implied, otherwise granted to the Trustees or the Administrators, as
the case may be, under this Trust Agreement, and to perform all acts in
furtherance thereof, including without limitation, the following:
(i) Each Administrator shall have the power and authority
to act on behalf of the Trust with respect to the following matters:
(A) the issuance and sale of the Trust Securities;
(B) to cause the Trust to enter into, and to execute
and deliver on behalf of the Trust, the Expense Agreement and
the Certificate of Depository Agreement and such other
agreements as may be necessary or desirable in connection with
the purposes and function of the Trust;
(C) assisting in the compliance with the Securities
Act of 1933, as amended, applicable state securities or blue
sky laws, and the Trust Indenture Act;
(D) registration of the Capital Securities under the
Securities Exchange Act of 1934, as amended, if required, and
the preparation and filing of all periodic and other reports
and other documents pursuant to the foregoing;
(E) assisting in the designation of the Capital
Securities for trading in the Private Offering, Resales and
Trading through the Automatic Linkages (PORTAL) system;
(F) the sending of notices (other than notices of
default) and other information regarding the Trust Securities
and the Debentures to the Securityholders in accordance with
this Trust Agreement;
(G) the consent to the appointment of a Paying Agent
and Securities Registrar in accordance with this Trust
Agreement which consent shall not be unreasonably withheld;
(H) execution of the Trust Securities in accordance
with this Trust Agreement;
(I) execution and delivery of closing certificates,
pursuant to the Purchase Agreement and the application for a
taxpayer identification number;
(J) to the extent provided in this Trust Agreement,
the winding up of the affairs of and liquidation of the Trust
and the preparation, execution and filing of the certificate
of cancellation with the Secretary of State of the State of
Delaware;
(K) unless otherwise determined by the Property
Trustee or the holders of a majority of the Outstanding
Capital Securities or Common Securities or as otherwise
required by the Delaware Business Trust Act or the Trust
Indenture Act, to execute on behalf of the Trust (either
acting alone or together with any or all of the
Administrators) any documents that the Administrators have the
power to execute pursuant to this Trust Agreement; and
(L) the taking of any action incidental to the
foregoing as the Administrators may from time to time
determine is necessary or advisable to give effect to the
terms of this Trust Agreement for the benefit of the
Securityholders (without consideration of the effect of any
such action on any particular Securityholder).
(ii) As among the Trustees and the Administrators, the
Property Trustee shall have the power, duty and authority to act on
behalf of the Trust with respect to the following matters:
(A) the establishment of the Payment Account;
(B) the receipt of the Debentures;
(C) the collection of interest, principal and any
other payments made in respect of the Debentures in the
Payment Account;
(D) the distribution through the Paying Agent of
amounts owed to the Securityholders in respect of the Trust
Securities;
(E) the exercise of all of the rights, powers and
privileges of a holder of the Debentures;
(F) the sending of notices of default and other
information regarding the Trust Securities and the Debentures
to the Securityholders in accordance with this Trust
Agreement;
(G) the distribution of the Trust Property in
accordance with the terms of this Trust Agreement;
(H) to the extent provided in this Trust Agreement,
the winding up of the affairs of and liquidation of the Trust
and the preparation, execution and filing of the certificate
of cancellation with the Secretary of State of the State of
Delaware;
(I) after an Event of Default (other than under
paragraph (b), (c), (d) or (e) of the definition of such term
if such Event of Default is by or with respect to the Property
Trustee) the taking of any action incidental to the foregoing
as the Property Trustee may from time to time determine is
necessary or advisable to give effect to the terms of this
Trust Agreement and protect and conserve the Trust Property
for the benefit of the Securityholders (without consideration
of the effect of any such action on any particular
Securityholder); and
(b) So long as this Trust Agreement remains in effect, the Trust (or
the Trustees and Administrators acting on behalf of the Trust) shall not
undertake any business, activity or transaction except as expressly provided
herein or contemplated hereby. In particular, neither the Trustees nor the
Administrators shall (i) acquire any assets or investments (other than the
Debentures as provided herein), reinvest the proceeds derived from investments,
possess any power or otherwise act in such a way as to vary the Trust Property
or engage in any activities not authorized by this Trust Agreement, (ii) sell,
assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of
any of the Trust Property or interests therein, including to Securityholders,
except as expressly provided herein, (iii) take any action that would reasonably
be expected to cause the Trust to fail or cease to qualify as a "grantor trust"
for United States Federal income tax purposes, (iv) incur any indebtedness for
borrowed money or issue any other debt, (v) issue any securities or other
evidences of beneficial ownership of, or beneficial interests in, the Trust
other than the Trust Securities or (vi) take or consent to any action that would
result in the placement of a Lien on any of the Trust Property. The
Administrators shall defend all claims and demands of all Persons at any time
claiming any Lien on any of the Trust Property adverse to the interest of the
Trust or the Securityholders in their capacity as Securityholders.
(c) In connection with the issue and sale of the Capital Securities,
the Depositor shall have the right and responsibility to assist the Trust with
respect to, or effect on behalf of the Trust, the following (and any actions
taken by the Depositor in furtherance of the following prior to the date of this
Trust Agreement are hereby ratified and confirmed in all respects):
(i) the preparation by the Trust of an Offering Circular in
relation to the Capital Securities, including any amendments thereto
and the taking of any action necessary to obtain an exemption from the
Securities Act;
(ii) the determination of the States in which to take
appropriate action to qualify or register for sale all or part of the
Capital Securities and the determination of any and all such acts,
other than actions which must be taken by or on behalf of the Trust,
and the advice to the Trustees of actions they must take on behalf of
the Trust, and the preparation for execution and filing of any
documents to be executed and filed by the Trust or on behalf of the
Trust, as the Depositor deems necessary or advisable in order to comply
with the applicable laws of any such States in connection with the sale
of the Capital Securities;
(iii) the negotiation of the terms of, and the execution
and delivery of, the Purchase Agreement providing for the sale of the
Capital Securities; and
(iv) the taking of any other actions necessary or desirable to
carry out any of the foregoing activities.
(d) Notwithstanding anything herein to the contrary, the Administrators
and the Property Trustee are authorized and directed to conduct the affairs of
the Trust and to operate the Trust so that the Trust will not be deemed to be an
"investment company" required to be registered under the 1940 Act, or fail to be
classified as a grantor trust for United States Federal income tax purposes and
so that the Debentures will be treated as indebtedness of the Depositor for
United States Federal income tax purposes. In this connection, the
Administrators, the Property Trustee and the holders of a majority of the Common
Securities are authorized to take any action, not inconsistent with applicable
law, the Certificate of Trust or this Trust Agreement, that each of any
Administrator, the Property Trustee and the holders of a majority of Common
Securities determines in its discretion to be necessary or desirable for such
purposes, as long as such action does not adversely affect in any material
respect the interests of the holders of the Capital Securities.
SECTION 2.8. Assets of Trust.
The assets of the Trust shall consist of the Trust Property.
SECTION 2.9. Title to Trust Property.
Legal title to all Trust Property shall be vested at all times in the
Property Trustee (in its capacity as such) and shall be held and administered by
the Property Trustee for the benefit of the Trust and the Securityholders in
accordance with this Trust Agreement.
ARTICLE III.
PAYMENT ACCOUNT
SECTION 3.1. Payment Account.
(a) On or prior to the Closing Date, the Property Trustee shall
establish the Payment Account. The Property Trustee and any agent of the
Property Trustee shall have exclusive control and sole right of withdrawal with
respect to the Payment Account for the purpose of making deposits in and
withdrawals from the Payment Account in accordance with this Trust Agreement.
All monies and other property deposited or held from time to time in the Payment
Account shall be held by the Property Trustee in the Payment Account for the
exclusive benefit of the Securityholders and for distribution as herein
provided, including (and subject to) any priority of payments provided for
herein.
(b) The Property Trustee shall deposit in the Payment Account, promptly
upon receipt, all payments of principal of or interest on, and any other
payments or proceeds with respect to, the Debentures. Amounts held in the
Payment Account shall not be invested by the Property Trustee pending
distribution thereof.
ARTICLE IV.
DISTRIBUTIONS; REDEMPTION
SECTION 4.1 Distributions.
(a) The Trust Securities represent undivided beneficial interests in
the Trust Property, and Distributions (including Additional Amounts) will be
made on the Trust Securities at the rate and on the dates that payments of
interest (including of Additional Interest, as defined in the Indenture) are
made on the Debentures. Accordingly:
(i) Distributions on the Trust Securities shall be cumulative,
and will accumulate whether or not there are funds of the Trust
available for the payment of Distributions. Distributions shall accrue
from July 8, 1997, and, except in the event (and to the extent) that
the Depositor exercises its right to defer the payment of interest on
the Debentures pursuant to the Indenture, shall be payable
semi-annually in arrears on January 1 and July 1 of each year,
commencing on January 1, 1998. If any date on which a Distribution is
otherwise payable on the Trust Securities is not a Business Day, then
the payment of such Distribution shall be made on the next succeeding
day that is a Business Day (and without any interest or other payment
in respect of any such delay) except that if such Business Day is in
the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force
and effect as if made on the date such payment was originally payable
(each date on which distributions are payable in accordance with this
Section 4.1(a), a "Distribution Date").
(ii) Assuming payments of interest on the Debentures are made
when due (and before giving effect to Additional Amounts, if
applicable), Distributions on the Trust Securities shall be payable at
a rate of 8.312% per annum of the Liquidation Amount of the Trust
Securities. The amount of Distributions payable for any period less
than a full period shall be computed on the basis of a 360-day year of
twelve 30-day months and the actual number of days elapsed in a partial
month in a period. Distributions payable for each full Distribution
period will be computed by dividing the rate per annum by two. The
amount of Distributions payable for any period shall include the
Additional Amounts, if any.
(iii) Distributions on the Trust Securities shall be made by
the Property Trustee from the Payment Account and shall be payable on
each Distribution Date only to the extent that the Trust has funds then
on hand and available in the Payment Account for the payment of such
Distributions.
(b) Distributions on the Trust Securities with respect to a
Distribution Date shall be payable to the Holders thereof as they appear on the
Securities Register for the Trust Securities at the close of business on the
relevant record date, which, for so long as the Capital Securities remain in
book-entry form, shall be one Business Day prior to the relevant Distribution
Date and, in the event the Capital Securities are not in book-entry form, shall
be the December 15 or June 15 next preceding the relevant Distribution Date.
SECTION 4.2. Redemption.
(a) On each Debenture Redemption Date and on the stated maturity of
the Debentures, the Trust will be required to redeem a Like Amount of Trust
Securities at the Redemption Price.
(b) Notice of redemption shall be given by the Property Trustee by
first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days
prior to the Redemption Date to each Holder of Trust Securities to be redeemed,
at such Holder's address appearing in the Security Register. All notices of
redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price or if the Redemption Price cannot be
calculated prior to the time the notice is required to be sent, the
estimate of the Redemption Price provided pursuant to the Indenture
together with a statement that it is an estimate and that the actual
Redemption Price will be calculated on the third Business Day prior to
the Redemption Date (and if an estimate is provided, a further notice
shall be sent of the actual Redemption Price on the date that notice of
such actual Redemption Price is received pursuant to the Indenture);
(iii) the CUSIP number;
(iv) if less than all the Outstanding Trust Securities are to
be redeemed, the identification and the total Liquidation Amount of
the particular Trust Securities to be redeemed;
(v) that on the Redemption Date the Redemption Price will
become due and payable upon each such Trust Security to be redeemed and
that Distributions thereon will cease to accrue on and after said date;
and
(vi) the place or places where the Trust Securities are to be
surrendered for the payment of the Redemption Price.
The Trust, in issuing the Trust Securities, may use "CUSIP" or "private
placement" numbers (if then generally in use), and, if so, the Property Trustee
shall indicate the "CUSIP" or "private placement" numbers of the Trust
Securities in notices of redemption and related materials as a convenience to
Securityholders; provided that any such notice may state that no representation
is made as to the correctness of such numbers either as printed on the Trust
Securities or as contained in any notice of redemption and related materials.
The Depositor will promptly notify the Property Trustee of any change in the
CUSIP numbers.
(c) The Trust Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the proceeds from the contemporaneous
redemption of Debentures. Redemptions of the Trust Securities shall be made and
the Redemption Price shall be payable on each Redemption Date only to the extent
that the Trust has funds then on hand and available in the Payment Account for
the payment of such Redemption Price.
(d) If the Property Trustee gives a notice of redemption in respect of
any Capital Securities, then, by 12:00 noon, New York City time, on the
Redemption Date, subject to Section 4.2(c), the Property Trustee will, with
respect to Book-Entry Capital Securities, irrevocably deposit with the Clearing
Agency for such Book-Entry Capital Securities funds sufficient to pay the
applicable Redemption Price and will give such Clearing Agency irrevocable
instructions and authority to pay the Redemption Price to the holders thereof.
With respect to Capital Securities that are not Book-Entry Capital Securities,
the Property Trustee, subject to Section 4.2(c), will irrevocably deposit with
the Paying Agent funds sufficient to pay the applicable Redemption Price and
will give the Paying Agent irrevocable instructions and authority to pay the
Redemption Price to the Holders thereof upon surrender of their Capital
Securities Certificates. Notwithstanding the foregoing, Distributions payable on
or prior to the Redemption Date for any Trust Securities called for redemption
shall be payable to the Holders of such Trust Securities as they appear on the
Register for the Trust 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
Securityholders holding Trust Securities so called for redemption will cease,
except the right of such Securityholders to receive the Redemption Price
including any unpaid Distribution payable on or prior to the Redemption Date,
but without interest, and such Securities will cease to be outstanding. In the
event that any date on which any Redemption Price is payable is not a Business
Day, then payment of the Redemption Price payable on such date will be made on
the next succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay), except that, if such Business Day
falls in the next calendar year, such payment will be made on the immediately
preceding Business Day, in each case, with the same force and effect as if made
on such date. In the event that payment of the Redemption Price in respect of
any Trust Securities called for redemption is improperly withheld or refused and
not paid either by the Trust or by the Depositor pursuant to the Guarantee,
Distributions on such Trust Securities will continue to accrue, at the then
applicable rate, from the Redemption Date originally established by the Trust
for such Trust Securities to the date such Redemption Price is actually paid, in
which case the actual payment date will be the date fixed for redemption for
purposes of calculating the Redemption Price.
(e) If less than all the Outstanding Trust Securities are to be
redeemed on a Redemption Date, then the aggregate Liquidation Amount of Trust
Securities to be redeemed shall be allocated 3% to the Common Securities and 97%
to the Capital Securities. The particular Capital Securities to be redeemed
shall be selected on a pro rata basis not more than 60 days prior to the
Redemption Date by the Property Trustee from the Outstanding Capital Securities
not previously called for redemption, by such method as the Property Trustee
shall deem fair and appropriate and which may provide for the selection for
redemption of portions (equal to $1,000 or an integral multiple thereof) of the
aggregate Liquidation Amount of Capital Securities of a denomination larger than
$1,000. The Property Trustee shall promptly notify the Securities Registrar in
writing of the Capital Securities selected for redemption and, in the case of
any Capital Securities selected for partial redemption, the Liquidation Amount
thereof to be redeemed. For all purposes of this Trust Agreement, unless the
context otherwise requires, all provisions relating to the redemption of Capital
Securities shall relate, in the case of any Capital Securities redeemed or to be
redeemed only in part, to the portion of the Liquidation Amount of Capital
Securities that has been or is to be redeemed.
SECTION 4.3. Subordination of Common Securities.
(a) Payment of Distributions (including Additional Amounts, if
applicable) on, and the Redemption Price of, the Trust Securities, as
applicable, shall be made, subject to Section 4.2(e), pro rata among the Common
Securities and the Capital Securities based on the Liquidation Amount of the
Trust Securities; provided, however, that if on any Distribution Date or
Redemption Date any Event of Default resulting from a Debenture Event of Default
shall have occurred and be continuing, no payment of any Distribution (including
Additional Amounts, if applicable) on, or Redemption Price of, any Common
Security, and no other payment on account of the redemption, liquidation or
other acquisition of Common Securities, shall be made unless payment in full in
cash of all accumulated and unpaid Distributions (including Additional Amounts,
if applicable) on all Outstanding Capital Securities for all Distribution
periods terminating on or prior thereto, or in the case of payment of the
Redemption Price the full amount of such Redemption Price on all Outstanding
Capital Securities then called for redemption, 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 (including
Additional Amounts, if applicable) on, or the Redemption Price of, Capital
Securities then due and payable.
(b) In the case of the occurrence of any Event of Default resulting
from any Debenture Event of Default, the Holder of Common Securities will be
deemed to have waived any right to act with respect to any such Event of Default
under this Trust Agreement until such Events of Default have been cured, waived
or otherwise eliminated. Until any such Event of Default under this Trust
Agreement with respect to the Capital Securities has been so cured, waived or
otherwise eliminated, the Property Trustee shall act solely on behalf of the
Holders of the Capital Securities and not the 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.
SECTION 4.4. Payment Procedures.
Payments of Distributions (including Additional Amounts, if applicable)
in respect of the Capital Securities shall be made by check mailed to the
address of the Person entitled thereto as such address shall appear on the
Securities Register or, if the Capital Securities are held by a Clearing Agency,
such Distributions shall be made to the Clearing Agency in immediately available
funds, which shall credit the relevant Persons' accounts at such Clearing Agency
on the applicable Distribution Dates. Payments in respect of the Common
Securities shall be made in such manner as shall be mutually agreed between the
Property Trustee and the Common Securityholder.
SECTION 4.5. Tax Returns and Reports.
The Administrators shall prepare (or cause to be prepared), at the
Depositor's expense, and file all United States federal, state and local tax and
information returns and reports required to be filed by or in respect of the
Trust. In this regard, the Administrators shall (a) prepare and file (or cause
to be prepared and filed) the appropriate Internal Revenue Service Form required
to be filed in respect of the Trust in each taxable year of the Trust and (b)
prepare and furnish (or cause to be prepared and furnished) to each
Securityholder the appropriate Internal Revenue Service form required to be
provided on such form. The Administrators shall provide the Depositor and the
Property Trustee with a copy of all such returns and reports promptly after such
filing or furnishing. The Property Trustee shall comply with United States
federal withholding and backup withholding tax laws and information reporting
requirements with respect to any payments to Securityholders under the Trust
Securities.
On or before December 15 of each year during which any Capital
Securities are outstanding, the Administrators shall furnish to the Property
Trustee such information as may be reasonably requested by the Property Trustee
in order that the Property Trustee may prepare the information which it is
required to report for such year on Internal Revenue Service Forms 1096 and 1099
pursuant to Section 6049 of the Internal Revenue Code of 1986, as amended. Such
information shall include the amount of original issue discount includible in
income for each outstanding Capital Security during such year.
SECTION 4.6. Payment of Taxes, Duties, Etc. of the Trust.
Upon receipt under the Debentures of Additional Sums, the Property
Trustee shall promptly pay any taxes, duties or governmental charges of
whatsoever nature (other than withholding taxes) imposed on the Trust by the
United States or any other taxing authority.
SECTION 4.7. Payments under Indenture or Pursuant to Direct Actions.
Any amount payable hereunder to any Holder of Capital Securities shall
be reduced by the amount of any corresponding payment such Holder (or an Owner
with respect to the Holder's Capital Securities) has directly received pursuant
to Section 5.8 of the Indenture or Section 5.13 of this Trust Agreement.
ARTICLE V.
TRUST SECURITIES CERTIFICATES
SECTION 5.1. Initial Ownership.
Upon the creation of the Trust and the contribution by the Depositor
pursuant to Section 2.3 and until the issuance of the Trust Securities, and at
any time during which no Trust Securities are outstanding, the Depositor shall
be the sole beneficial owner of the Trust.
SECTION 5.2. The Trust Securities Certificates.
(a) The Capital Securities Certificates shall be issued in minimum
denominations of $1,000 Liquidation Amount (and in blocks of at least 100
Capital Securities) and integral multiples thereof, and the Common Securities
Certificates shall be issued in denominations of $1,000 Liquidation Amount and
integral multiples thereof. The Trust Securities Certificates shall be executed
on behalf of the Trust by signature of at least one Administrator. Trust
Securities Certificates bearing the signatures of individuals who were, at the
time when such signatures shall have been affixed, authorized to sign on behalf
of the Trust, shall be validly issued and entitled to the benefits of this Trust
Agreement, notwithstanding that such individuals or any of them shall have
ceased to be so authorized prior to the delivery of such Trust Securities
Certificates or did not hold such offices at the date of delivery of such Trust
Securities Certificates. A transferee of a Trust Securities Certificate shall
become a Securityholder, and shall be entitled to the rights and subject to the
obligations of a Securityholder hereunder, upon due registration of such Trust
Securities Certificate in such transferee's name pursuant to Section 5.5.
(b) Upon their original issuance, Capital Securities Certificates
representing Rule 144A Capital Securities shall be issued in the form of one or
more Book-Entry Capital Securities Certificates registered in the name of DTC,
as Clearing Agency, or its nominee and deposited with DTC for credit by DTC to
the respective accounts of the Owners thereof (or such other accounts as they
may direct).
(c) Upon their original issuance, Capital Securities Certificates
representing Other Capital Securities shall not be issued in the form of a
Book-Entry Capital Securities Certificate or in any other form intended to
facilitate book-entry trading in beneficial interests in such Capital
Securities.
(d) A single Common Securities Certificate representing the Common
Securities shall be issued to the Depositor in the form of a definitive Common
Securities Certificate.
SECTION 5.3. Execution and Delivery of Trust Securities Certificates.
At the Time of Delivery, the Administrators shall cause the Common
Securities Certificate, in an aggregate Liquidation Amount as provided in
Section 2.5, to be executed on behalf of the Trust and delivered, and the
Administrators shall cause Capital Securities Certificates, in an aggregate
Liquidation Amount as provided in Section 2.4, to be executed and delivered to
the Property Trustee and upon such delivery the Property Trustee shall
authenticate such Capital Securities Certificates, and deliver such Capital
Securities Certificates in each case to or upon the written order of the
Depositor, signed by its chairman of the board, its president, any executive
vice president or any vice president, treasurer or assistant treasurer or
controller without further corporate action by the Depositor, in authorized
denominations.
SECTION 5.4. Book-Entry Capital Securities.
(a) Each Book-Entry Capital Securities Certificate issued under this
Trust Agreement shall be registered in the name of the Clearing Agency
designated by the Depositor for the related Book-Entry Capital Securities or a
nominee thereof and delivered to such Clearing Agency or a nominee thereof or
custodian therefor.
(b) Notwithstanding any other provision in this Trust Agreement, no
Book-Entry Capital Securities Certificate may be exchanged in whole or in part
for Capital Securities Certificates registered, and no transfer of a Book-Entry
Capital Securities Certificate in whole or in part may be registered, in the
name of any Person other than the Clearing Agency for such Book-Entry Capital
Securities Certificates or a nominee thereof unless (a) the Clearing Agency
advises the Property Trustee in writing that the Clearing Agency is no longer
willing or able to properly discharge its responsibilities with respect to the
Book-Entry Capital Securities Certificates and the Property Trustee is unable to
locate a qualified successor, (b) the Trust, at its option, advises the Clearing
Agency in writing that it elects to terminate the book-entry system through the
Clearing Agency, (c) after the occurrence of a Debenture Event of Default or (d)
pursuant to the following sentence. All or any portion of a Book-Entry Capital
Securities Certificate may be exchanged for a Capital Securities Certificate
that has a like aggregate principal amount and is not a Book-Entry Capital
Securities Certificate, upon 20 days' prior request made by the Clearing Agency
or its authorized representative to the Property Trustee; provided, however,
that no Capital Securities Certificate shall be issued in an amount representing
less than 100 Capital Securities. Upon the occurrence of any event specified in
clause (a), (b) or (c) above, the Administrators shall notify the Clearing
Agency and the Clearing Agency shall notify all Owners of Book-Entry Capital
Securities, the Delaware Trustee of the occurrence of such event and of the
availability of the Definitive Capital Securities Certificates to Owners of such
class or classes, as applicable, requesting the same; provided, however, that no
Definitive Capital Securities Certificate shall be issued in an amount
representing less than 100 Capital Securities.
(c) If any Book-Entry Capital Securities Certificate is to be exchanged
for other Capital Securities Certificates or canceled in part, or if another
Capital Securities Certificate is to be exchanged in whole or in part for
Book-Entry Capital Securities represented by a Book-Entry Capital Securities
Certificate, then either (i) such Book-Entry Capital Securities Certificate
shall be so surrendered for exchange or cancellation as provided in this Article
Five or (ii) the aggregate Liquidation Amount represented by such Book-Entry
Capital Securities Certificate shall be reduced, subject to Section 5.2, or
increased by an amount equal to the Liquidation Amount represented by that
portion of the Book-Entry Capital Securities Certificate to be so exchanged or
canceled, or equal to the Liquidation Amount represented by such other Capital
Securities Certificates to be so exchanged for Book-Entry Capital Securities
represented thereby, as the case may be, by means of an appropriate adjustment
made on the records of the Security Registrar, whereupon the Property Trustee,
in accordance with the Applicable Procedures, shall instruct the Clearing Agency
or its authorized representative to make a corresponding adjustment to its
records. Upon surrender to the Administrators or the Securities Registrar of the
Book-Entry Capital Securities Certificate or Certificates by the Clearing
Agency, accompanied by registration instructions, the Administrators, or any one
of them, shall execute the Definitive Capital Securities Certificates in
accordance with the instructions of the Clearing Agency; provided, however, that
no Definitive Capital Securities Certificate shall be issued in an amount
representing less than 100 Capital Securities. None of the Securities Registrar,
the Trustees or the Administrators shall be liable for any delay in delivery of
such instructions and may conclusively rely on, and shall be protected in
relying on, such instructions. Upon the issuance of Definitive Capital
Securities Certificates, the Trustees and Administrators shall recognize the
Holders of the Definitive Capital Securities Certificates as Securityholders.
The Definitive Capital Securities Certificates shall be printed, lithographed or
engraved or may be produced in any other manner as is reasonably acceptable to
the Administrators, as evidenced by the execution thereof by the Administrators
or any one of them.
(d) Every Capital Securities Certificate executed and delivered upon
registration of transfer of, or in exchange for or in lieu of, a Book-Entry
Capital Securities Certificate or any portion thereof, whether pursuant to this
Article Five or Article Four or otherwise, shall be executed and delivered in
the form of, and shall be, a Book-Entry Capital Securities Certificate, unless
such Capital Securities Certificate is registered in the name of a Person other
than the Clearing Agency for such Book-Entry Capital Securities Certificate or a
nominee thereof.
(e) The Clearing Agency or its nominee, as registered owner of a
Book-Entry Capital Securities Certificate, shall be the Holder of such
Book-Entry Capital Securities Certificate for all purposes under this Agreement
and the Book-Entry Capital Securities Certificate, and Owners with respect to a
Book-Entry Capital Securities Certificate shall hold such interests pursuant to
the Applicable Procedures. The Securities Registrar and the Trustees shall be
entitled to deal with the Clearing Agency for all purposes of this Trust
Agreement relating to the Book-Entry Capital Securities Certificates (including
the payment of the Liquidation Amount of and Distributions on the Book-Entry
Capital Securities represented thereby and the giving of instructions or
directions to Owners of Book-Entry Capital Securities represented thereby) as
the sole Holder of the Book-Entry Capital Securities represented thereby and
shall have no obligations to the Owners thereof. Neither the Trustee nor the
Securities Registrar shall have any liability in respect of any transfers
effected by the Clearing Agency.
The rights of the Owners of the Book-Entry Capital Securities shall be
exercised only through the Clearing Agency and shall be limited to those
established by law, the Applicable Procedures and agreements between such Owners
and the Clearing Agency and/or the Clearing Agency Participants. Pursuant to the
Certificate of Depository Agreement, unless and until Definitive Capital
Securities Certificates are issued pursuant to Section 5.4(b), the initial
Clearing Agency will make book-entry transfers among the Clearing Agency
Participants and receive and transmit payments on the Capital Securities to such
Clearing Agency Participants.
SECTION 5.5. Registration of Transfer and Exchange of Capital
Securities Certificates; Restricted Capital Securities Legends.
(a) The Property Trustee shall keep or cause to be kept, at the office
or agency maintained pursuant to Section 5.9, a register or registers for the
purpose of registering Trust Securities Certificates and transfers and exchanges
of Capital Securities Certificates (the "Securities Register") in which, the
registrar designated by the Property Trustee (the "Securities Registrar") with
the reasonable consent of the Administrators, subject to such reasonable
regulations as it may prescribe, shall provide for the registration of Capital
Securities Certificates and Common Securities Certificates (subject to Section
5.11 in the case of the Common Securities Certificates) and registration of
transfers and exchanges of Capital Securities Certificates as herein provided.
The Bank shall be the initial Securities Registrar.
Upon surrender for registration of transfer of any Capital Securities
Certificate at the office or agency maintained pursuant to Section 5.9, the
Administrators or any one of them shall execute and deliver to the Property
Trustee for further delivery, in the name of the designated transferee or
transferees, one or more new Capital Securities Certificates in authorized
denominations of a like aggregate Liquidation Amount dated the date of execution
by such Administrator.
The Securities Registrar shall not be required to (a) issue, register
the transfer of or exchange any Capital Securities during a period beginning at
the opening of business 15 days before the day of mailing of a notice of
redemption or (b) to transfer or exchange any Capital Securities so selected for
redemption in whole or in part, except, in the case of any Capital Securities to
be redeemed in part, any portion thereof not to be redeemed. At the option of a
Holder, Capital Securities Certificates may be exchanged for other Capital
Securities Certificates in authorized denominations of the same class and of a
like aggregate Liquidation Amount upon surrender of the Capital Securities
Certificates to be exchanged at the office or agency maintained pursuant to
Section 5.9.
Every Capital Securities Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Securities Registrar duly
executed by the Holder or his attorney duly authorized in writing. Each Capital
Securities Certificate surrendered for registration of transfer or exchange
shall be canceled and subsequently disposed of by the Property Trustee in
accordance with its customary practice.
No service charge shall be made for any registration of transfer or
exchange of Capital Securities Certificates, but the Securities 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 of Capital Securities
Certificates.
The provisions of Sections 8.1, 8.3 and 8.6 herein shall apply to the
Bank also in its role as Securities Registrar, for so long as the Bank shall
act as Securities Registrar.
Whenever this document makes reference to the execution of Trust
Securities Certificates, such reference to execution shall mean manual execution
or, in the alternative, execution by facsimile signature by an Administrator,
and, in the case of Capital Securities, authentication by the Property Trustee.
Capital Securities Certificates bearing the manual or facsimile
signatures of individuals who were at any time the proper Administrators of the
Trust shall bind the Trust, notwithstanding that such individuals or any of them
have ceased to hold such office prior to the authentication and delivery of such
Capital Securities Certificates or did not hold such offices at the date of such
Capital Securities Certificates.
Each Capital Securities Certificate that is executed by facsimile and
authenticated by the Property Trustee shall be dated the date of its
authentication.
No Capital Securities Certificate that is executed and authenticated by
the Property Trustee shall be entitled to any benefit under this Trust Agreement
or be valid or obligatory for any purpose, unless there appears on such Capital
Securities Certificate a certificate of authentication substantially in the form
provided for in the form attached as Exhibit E-2 executed by the Property
Trustee by the manual signature of one of its authorized signatories, and such
certificate upon any Capital Securities Certificate shall be conclusive
evidence, and the only evidence, that such Capital Securities Certificate has
been duly authenticated and delivered hereunder.
(b) Certain Transfers and Exchanges. Notwithstanding any other
provision of this Trust Agreement, transfers and exchanges of Capital Securities
Certificates and beneficial interests in a Book-Entry Capital Security of the
kinds specified in this Section 5.5(b) shall be made only in accordance with
this Section 5.5(b).
(i) Non-Book-Entry Capital Securities Certificate to
Book-Entry Capital Securities Certificate. If the Holder of a Capital
Securities Certificate (other than a Book-Entry Capital Securities
Certificate) wishes at any time to transfer all or any portion of the
Capital Securities represented thereby to a Person who wishes to take
delivery thereof in the form of Book-Entry Capital Securities
represented by a Book-Entry Capital Securities Certificate, such
transfer may be effected only in accordance with the provisions of this
Clause (b)(i) and subject to the Applicable Procedures. Upon receipt by
the Security Registrar of (A) such Capital Securities Certificate as
provided in Section 5.5(a) and instructions satisfactory to the
Security Registrar directing that a specified number of Capital
Securities to be represented by the Book-Entry Capital Securities
Certificate not greater than the number of Capital Securities
represented by such Capital Securities Certificate be credited to a
specified Clearing Agency Participant's account and (B) a Restricted
Securities Certificate duly executed by such Holder or his attorney
duly authorized in writing, then the Security Registrar shall cancel
such Capital Securities Certificate (and issue a new Capital Securities
Certificate in respect of any untransferred portion thereof) as
provided in Section 5.5(a) and increase the aggregate Liquidation
Amount of the Book-Entry Capital Securities Certificate by the
Liquidation Amount represented by such Capital Securities so
transferred as provided in Section 5.4(c).
(ii) Non-Book-Entry Capital Securities Certificate to
Non-Book-Entry Capital Securities Certificate. A Capital Securities
Certificate that is not a Book-Entry Capital Securities Certificate may
be transferred, in whole or in part, to a Person who takes delivery in
the form of another Capital Securities Certificate that is not a
Book-Entry Capital Securities Certificate as provided in Section
5.5(a), provided that if the Capital Securities Certificate is a
Restricted Capital Securities Certificate, then the Security Registrar
shall have received a Restricted Securities Certificate duly executed
by the transferor Holder or his attorney duly authorized in writing.
(iii) Exchanges between Book-Entry Capital Securities
Certificate and Non-Book-Entry Capital Securities Certificate. A
Book-Entry Capital Security represented by a Book-Entry Capital
Securities Certificate may be exchanged for a Capital Securities
Certificate that is not a Book-Entry Capital Securities Certificate as
provided in Section 5.4.
(iv) Certain Initial Transfers of Non-Book-Entry Capital
Securities Certificates. In the case of Capital Securities Certificates
initially issued other than in global form, an initial transfer or
exchange of such Capital Securities Certificates that does not involve
any change in beneficial ownership may be made to an Institutional
Accredited Investor or Investors as if such transfer or exchange were
not an initial transfer or exchange; provided that a written
certification is provided certifying that such exchange or transfer
does not involve a change in beneficial ownership.
(v) Limitations Relating to Size of Blocks. Notwithstanding
any other provision of this Trust Agreement, Capital Securities may
only be transferred or exchanged in blocks having a Liquidation Amount
of not less than $100,000. Any transfer, exchange or other disposition
of Capital Securities in contravention of this Section 5.5(b)(v) shall
be deemed to be void and of no legal effect whatsoever, any such
transferee shall be deemed not to be the Holder or Owner of such
Capital Securities for any purpose, including but not limited to the
receipt of Distributions on such Capital Securities, and such
transferee shall be deemed to have no interest whatsoever in such
Capital Securities.
(c) Restricted Capital Securities Legend. All Capital Securities
issued hereunder shall bear a Restricted Capital Securities Legend, subject
to the following:
(i) subject to the following Clauses of this Section 5.5(c), a
Capital Securities Certificate or any portion thereof which is
exchanged, upon transfer or otherwise, for a Book-Entry Capital
Securities Certificate or any portion thereof shall bear a Restricted
Capital Securities Legend;
(ii) subject to the following Clauses of this Section 5.5(c),
a new Capital Securities Certificate which is not a Book-Entry Capital
Securities Certificate and is issued in exchange for another Capital
Securities Certificate (including a Book-Entry Capital Securities
Certificate) or any portion thereof, upon transfer or otherwise, shall
bear a Restricted Capital Securities Legend;
(iii) after July 8, 1998, a new Capital Securities Certificate
(other than a Book-Entry Capital Security Certificate) which does not
bear a Restricted Capital Securities Legend shall (unless an
Administrator provides an Opinion of Counsel to the contrary) be issued
in exchange for or in lieu of a Restricted Capital Securities
Certificate or any portion thereof if the Property Trustee has received
an Unrestricted Securities Certificate, in the form of Exhibit G
hereto, duly executed by the Holder or the Owner of such Restricted
Capital Securities Certificate or his attorney duly authorized in
writing, and after such date and receipt of such certificate, the
Administrators shall execute and deliver such a new Capital Securities
Certificate in exchange for or in lieu of such other Restricted Capital
Securities Certificate as provided in this Article Five;
(iv) a new Capital Securities Certificate (other than a
Book-Entry Capital Securities Certificate) which does not bear a
Restricted Capital Securities Legend may be issued in exchange for or
in lieu of a Restricted Capital Securities Certificate or any portion
thereof based on an Opinion of Counsel, stating that placing such a
legend upon such new Capital Securities Certificate is not necessary to
ensure compliance with the registration requirements of the Securities
Act, and the Administrators, shall execute and deliver such a new
Capital Securities Certificate as provided in this Article Five; and
(v) notwithstanding the foregoing provisions of this Section
5.5(c), a Successor Capital Securities Certificate of a Capital
Securities Certificate that does not bear a Restricted Capital
Securities Legend shall not bear such form of legend unless a
Responsible Officer of the Property Trustee has actual knowledge
(without conducting any independent inquiry) that such Successor
Capital Securities Certificate is a "restricted security" within the
meaning of Rule 144, in which case the Administrators shall
authenticate and deliver a new Capital Securities Certificate bearing a
Restricted Capital Securities Legend in exchange for such Successor
Capital Securities Certificate as provided in this Article Five.
SECTION 5.6. Mutilated, Destroyed, Lost or Stolen Trust Securities
Certificates.
If (a) any mutilated Trust Securities Certificate shall be surrendered
to the Securities Registrar, or if the Securities Registrar shall receive
evidence to its satisfaction of the destruction, loss or theft of any Trust
Securities Certificate and (b) there shall be delivered to the Securities
Registrar and the Administrators such security or indemnity as may be required
by them to save each of them harmless, then in the absence of notice that such
Trust Securities Certificate shall have been acquired by a bona fide purchaser,
the Administrators, or any one of them, on behalf of the Trust shall execute and
make available for delivery, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Trust Securities Certificate, a new Trust Securities
Certificate of like class, tenor and denomination. In connection with the
issuance of any new Trust Securities Certificate under this Section, the
Administrators or the Securities Registrar may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith. Any duplicate Trust Securities Certificate issued pursuant
to this Section shall constitute conclusive evidence of an undivided beneficial
interest in the assets of the Trust, as if originally issued, whether or not the
lost, stolen or destroyed Trust Securities Certificate shall be found at any
time.
SECTION 5.7. Persons Deemed Securityholders.
The Trustees, the Administrators or the Securities Registrar shall
treat the Person in whose name any Trust Securities Certificate shall be
registered in the Securities Register as the owner of such Trust Securities
Certificate for the purpose of receiving Distributions and for all other
purposes whatsoever, and neither the Trustees, the Administrators nor the
Securities Registrar shall be bound by any notice to the contrary.
SECTION 5.8. Access to List of Securityholders' Names and Addresses.
Each Holder and each Owner shall be deemed to have agreed not to hold
the Depositor, the Trustees or the Administrators accountable by reason of the
disclosure of its name and address, regardless of the source from which such
information was derived.
SECTION 5.9. Maintenance of Office or Agency.
The Property Trustee shall designate, with the consent of the
Administrators, which consent shall not be unreasonably withheld, an office or
offices or agency or agencies where Capital Securities Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Trustees in respect of the Trust Securities Certificates
may be served. The Corporate Trust Office of the Property Trustee is initially
designated the office for such purpose. The Administrators or the Property
Trustee shall give prompt written notice to the Depositor and to the
Securityholders of any change in the location of the Securities Register or any
such office or agency.
SECTION 5.10. Appointment of Paying Agent.
The Paying Agent shall make Distributions to Securityholders from the
Payment Account and shall report the amounts of such Distributions to the
Property Trustee and the Administrators. Any Paying Agent shall have the
revocable power to withdraw funds from the Payment Account for the purpose of
making the Distributions referred to above. The Property Trustee may revoke such
power and remove the Paying Agent in its sole discretion. The Paying Agent shall
initially be the Bank, and any co-paying agent chosen by the Bank, and
reasonably acceptable to the Administrators. Any Person acting as Paying Agent
shall be permitted to resign as Paying Agent upon 30 days' written notice to the
Administrators and the Property Trustee. In the event that the Bank shall no
longer be the Paying Agent or a successor Paying Agent shall resign or its
authority to act be revoked, the Property Trustee shall appoint a successor that
is reasonably acceptable to the Administrators to act as Paying Agent (which
shall be a bank or trust company). Such successor Paying Agent or any additional
Paying Agent shall execute and deliver to the Trustees an instrument in which
such successor Paying Agent or additional Paying Agent shall agree with the
Trustees that as Paying Agent, such successor Paying Agent or additional Paying
Agent will hold all sums, if any, held by it for payment to the Securityholders
in trust for the benefit of the Securityholders entitled thereto until such sums
shall be paid to such Securityholders. The Paying Agent shall return all
unclaimed funds to the Property Trustee and upon removal of a Paying Agent such
Paying Agent shall also return all funds in its possession to the Property
Trustee. The provisions of Sections 8.1, 8.3 and 8.6 herein shall apply to the
Bank also in its role as Paying Agent, for so long as the Bank shall act as
Paying Agent and, to the extent applicable, to any other paying agent appointed
hereunder. Any reference in this Agreement to the Paying Agent shall include any
co-paying agent unless the context requires otherwise.
SECTION 5.11. Ownership of Common Securities by Depositor.
At the Time of Delivery, the Depositor shall acquire and retain
beneficial and record ownership of the Common Securities. To the fullest extent
permitted by law, other than a transfer in connection with a consolidation or
merger of the Depositor into another Person, or any conveyance, transfer or
lease by the Depositor of its properties and assets substantially as an entirety
to any Person, pursuant to Section 8.1 of the Indenture, any attempted transfer
of the Common Securities shall be void. The Administrators shall cause the
Common Securities Certificate issued to the Depositor to contain a legend
stating "THIS CERTIFICATE IS NOT TRANSFERABLE".
SECTION 5.12. Notices to Clearing Agency.
To the extent that a notice or other communication to the Owners is
required under this Trust Agreement, unless and until Definitive Capital
Securities Certificates shall have been issued to all Owners pursuant to Section
5.4(b), the Trustees shall give all such notices and communications specified
herein to be given to Owners to the Clearing Agency, and shall have no
obligations to the Owners.
SECTION 5.13. Rights of Securityholders.
(a) The legal title to the Trust Property is vested exclusively in the
Property Trustee (in its capacity as such) in accordance with Section 2.9, and
the Securityholders shall not have any right or title therein other than the
undivided beneficial interest in the assets of the Trust conferred by their
Trust Securities and they shall have no right to call for any partition or
division of property, profits or rights of the Trust except as described below.
The Trust Securities shall be personal property giving only the rights
specifically set forth therein and in this Trust Agreement. The Trust Securities
shall have no preemptive or similar rights and when issued and delivered to
Securityholders against payment of the purchase price therefor will be fully
paid and nonassessable by the Trust. The Holders of the Trust Securities, in
their capacities as such, shall be entitled to the same limitation of personal
liability extended to stockholders of private corporations for profit organized
under the General Corporation Law of the State of Delaware.
(b) For so long as any Capital Securities remain Outstanding, if, upon
a Debenture Event of Default, the Debenture Trustee fails or the holders of not
less than 25% in principal amount of the outstanding Debentures fail to declare
the principal of all of the Debentures to be immediately due and payable, the
Holders of at least 25% in Liquidation Amount of the Capital Securities then
Outstanding shall have such right by a notice in writing to the Depositor and
the Debenture Trustee with a copy to the Property Trustee; and upon any such
declaration such principal amount of and the accrued interest on all of the
Debentures shall become immediately due and payable, provided that the payment
of principal and interest on such Debentures shall remain subordinated to the
extent provided in the Indenture.
At any time after such a declaration of acceleration with respect to
the Debentures has been made and before a judgment or decree for payment of the
money due has been obtained by the Debenture Trustee as in the Indenture
provided, the Holders of a majority in Liquidation Amount of the Capital
Securities, by written notice to the Property Trustee, the Depositor and the
Debenture Trustee, may rescind and annul such declaration and its consequences
if:
(i) the Depositor has paid or deposited with the Debenture
Trustee a sum sufficient to pay
(A) all overdue installments of interest (including
any Additional Interest (as defined in the Indenture)) on
all of the Debentures,
(B) the principal of (and premium, if any, on) any
Debentures which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate
borne by the Debentures, and
(C) all sums paid or advanced by the Debenture
Trustee under the Indenture and the reasonable compensation,
expenses, disbursements and advances of the Debenture Trustee
and the Property Trustee, their agents and counsel; and
(ii) all Events of Default with respect to the Debentures,
other than the non-payment of the principal of the Debentures which has
become due solely by such acceleration, have been cured or waived as
provided in Section 5.13 of the Indenture.
The Holders of a majority in aggregate Liquidation Amount of the
Capital Securities may, on behalf of the Holders of all the Capital Securities,
waive any past default under the Indenture, except a default in the payment of
principal or interest (unless such default has been cured and a sum sufficient
to pay all matured installments of interest and principal due otherwise than by
acceleration has been deposited with the Debenture Trustee) or a default in
respect of a covenant or provision which under the Indenture cannot be modified
or amended without the consent of the holder of each outstanding Debenture.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Upon receipt by the Property Trustee of written notice declaring such
an acceleration, or rescission and annulment thereof, by Holders of the Capital
Securities all or part of which is represented by Book-Entry Capital Securities
Certificates, a record date shall be established for determining Holders of
Outstanding Capital Securities entitled to join in such notice, which record
date shall be at the close of business on the day the Property Trustee receives
such notice. The Holders on such record date, or their duly designated proxies,
and only such Persons, shall be entitled to join in such notice, whether or not
such Holders remain Holders after such record date; provided, that, unless such
declaration of acceleration, or rescission and annulment, as the case may be,
shall have become effective by virtue of the requisite percentage having joined
in such notice prior to the day which is 90 days after such record date, such
notice of declaration of acceleration, or rescission and annulment, as the case
may be, shall automatically and without further action by any Holder be canceled
and of no further effect. Nothing in this paragraph shall prevent a Holder, or a
proxy of a Holder, from giving, after expiration of such 90-day period, a new
written notice of declaration of acceleration, or rescission and annulment
thereof, as the case may be, that is identical to a written notice which has
been canceled pursuant to the proviso to the preceding sentence, in which event
a new record date shall be established pursuant to the provisions of this
Section 5.13(b).
(c) For so long as any Capital Securities remain Outstanding, to the
fullest extent permitted by law and subject to the terms of this Trust Agreement
and the Indenture, upon a Debenture Event of Default specified in Section 5.1(1)
or 5.1(2) of the Indenture, any Holder of Capital Securities shall have the
right to institute a proceeding directly against the Depositor, pursuant to
Section 5.9 of the Indenture, for enforcement of payment to such Holder of the
principal amount of or interest on Debentures having a principal amount equal to
the Liquidation Amount of the Capital Securities of such Holder (a "Direct
Action"). Except as set forth in Section 5.13(b) and this Section 5.13(c), the
Holders of Capital Securities shall have no right to exercise directly any right
or remedy available to the holders of, or in respect of, the Debentures.
ARTICLE VI.
ACTS OF SECURITYHOLDERS; MEETINGS; VOTING
SECTION 6.1. Limitations on Voting Rights.
(a) Except as provided in this Section, in Sections 5.13, 8.10 and 10.2
and in the Indenture and as otherwise required by law, no Holder of Capital
Securities shall have any right to vote or in any manner otherwise control the
administration, operation and management of the Trust or the obligations of the
parties hereto, nor shall anything herein set forth, or contained in the terms
of the Trust Securities Certificates, be construed so as to constitute the
Securityholders from time to time as partners or members of an association.
(b) So long as any Debentures are held by the Property Trustee, the
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 such
Debentures, (ii) waive any past default which is waivable under Section 5.13 of
the Indenture, (iii) exercise any right to rescind or annul a declaration that
the principal of all the Debentures shall be due and payable or (iv) consent to
any amendment, modification or termination of the Indenture or the Debentures,
where such consent shall be required, 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 Debentures affected
thereby, no such consent shall be given by the Property Trustee without the
prior written consent of each Holder of Capital Securities. The Trustees shall
not revoke any action previously authorized or approved by a vote of the Holders
of Capital Securities, except by a subsequent vote of the Holders of Capital
Securities. The Property Trustee shall notify all Holders of the Capital
Securities of any notice of default received from the Debenture Trustee with
respect to the Debentures. In addition to obtaining the foregoing approvals of
the Holders of the Capital Securities, prior to taking any of the foregoing
actions, the Trustees shall, at the expense of the Depositor, obtain an Opinion
of Counsel experienced in such matters to the effect that such action shall not
cause the Trust to be classified as an association taxable as a corporation for
United States Federal income tax purposes.
(c) If any proposed amendment to the Trust Agreement provides for, or
the Trustees otherwise propose to effect, (i) any action that would adversely
affect in any material respect the powers, preferences or special rights of the
Capital Securities, whether by way of amendment to the Trust Agreement or
otherwise or (ii) the dissolution, winding-up or termination of the Trust, other
than pursuant to the terms of this Trust Agreement, then the Holders of
Outstanding Capital Securities as a class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of the Holders of at least a majority in Liquidation
Amount of the Outstanding Capital Securities. Notwithstanding any other
provision of this Trust Agreement, no amendment to this Trust Agreement may be
made if, as a result of such amendment, it would cause the Trust to fail to be
classified as a grantor trust for United States Federal income tax purposes.
SECTION 6.2. Notice of Meetings.
Notice of all meetings of the Capital Securityholders, stating the
time, place and purpose of the meeting, shall be given by the Property Trustee
pursuant to Section 10.8 to each Capital Securityholder of record, at his
registered address, at least 15 days and not more than 90 days before the
meeting. At any such meeting, any business properly before the meeting may be so
considered whether or not stated in the notice of the meeting. Any adjourned
meeting may be held as adjourned without further notice.
SECTION 6.3. Meetings of Capital Securityholders.
No annual meeting of Securityholders is required to be held. The
Administrators, however, shall call a meeting of Capital Securityholders to vote
on any matter upon the written request of the Capital Securityholders of record
of 25% of the Outstanding Capital Securities (based upon their Liquidation
Amount) and the Administrators or the Property Trustee may, at any time in their
discretion, call a meeting of Capital Securityholders to vote on any matters as
to which Capital Securityholders are entitled to vote.
Capital Securityholders of record of 50% of the Outstanding Capital
Securities (based upon their Liquidation Amount), present in person or by proxy,
shall constitute a quorum at any meeting of Capital Securityholders.
If a quorum is present at a meeting, an affirmative vote by the Capital
Securityholders of record present, in person or by proxy, holding more than a
majority of the Capital Securities (based upon their Liquidation Amount) held by
the Capital Securityholders of record present, either in person or by proxy, at
such meeting shall constitute the action of the Capital Securityholders, unless
this Trust Agreement requires a greater number of affirmative votes.
SECTION 6.4. Voting Rights.
Securityholders shall be entitled to one vote for each $1,000 of
Liquidation Amount represented by their Trust Securities in respect of any
matter as to which such Securityholders are entitled to vote.
SECTION 6.5. Proxies, etc.
At any meeting of Securityholders, any Securityholder entitled to vote
thereat may vote by proxy, provided that no proxy shall be voted at any meeting
unless it shall have been placed on file with the Administrators, or with such
other officer or agent of the Trust as the Administrators may direct, for
verification prior to the time at which such vote shall be taken. If authorized
by the Property Trustee, proxies may be solicited in the name of the Property
Trustee or one or more officers of the Property Trustee. Only Securityholders of
record shall be entitled to vote. When Trust Securities are held jointly by
several Persons, any one of them may vote at any meeting in person or by proxy
in respect of such Trust Securities, but if more than one of them shall be
present at such meeting in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote to be cast, such vote shall not be
received in respect of such Trust Securities. A proxy purporting to be executed
by or on behalf of a Securityholder shall be deemed valid unless challenged at
or prior to its exercise, and the burden of proving invalidity shall rest on the
challenger. No proxy shall be valid more than three years after its date of
execution.
SECTION 6.6. Securityholder Action by Written Consent.
Any action which may be taken by Securityholders at a meeting may be
taken without a meeting if Securityholders holding more than a majority of all
Outstanding Trust Securities (based upon their Liquidation Amount) entitled to
vote in respect of such action (or such larger proportion thereof as shall be
required by any express provision of this Trust Agreement) shall consent to the
action in writing.
SECTION 6.7. Record Date for Voting and Other Purposes.
For the purposes of determining the Securityholders who are entitled to
notice of and to vote at any meeting or by written consent, or to participate in
any distribution on the Trust Securities in respect of which a record date is
not otherwise provided for in this Trust Agreement, or for the purpose of any
other action, the Administrators or Property Trustee may from time to time fix a
date, not more than 90 days prior to the date of any meeting of Securityholders
or the payment of a distribution or other action, as the case may be, as a
record date for the determination of the identity of the Securityholders of
record for such purposes.
SECTION 6.8. Acts of Securityholders.
Any request, demand, authorization, direction, notice, consent, waiver
or other action provided or permitted by this Trust Agreement to be given, made
or taken by Securityholders or Owners may be embodied in and evidenced by one or
more instruments of substantially similar tenor signed by such Securityholders
or Owners in person or by an agent duly appointed in writing; and, except as
otherwise expressly provided herein, such action shall become effective when
such instrument or instruments are delivered to an Administrator. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Securityholders or
Owners signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Trust Agreement and (subject to Section 8.1) conclusive in favor
of the Trustees, if made in the manner provided in this Section.
The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner which any Trustee receiving the same deems sufficient.
The ownership of Capital Securities shall be proved by the Securities
Register.
Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Securityholder of any Trust Security shall bind every future
Securityholder of the same Trust Security and the Securityholder of every Trust
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, omitted or suffered to
be done by the Trustees or the Trust in reliance thereon, whether or not
notation of such action is made upon such Trust Security.
Without limiting the foregoing, a Securityholder entitled hereunder to
take any action hereunder with regard to any particular Trust Security may do so
with regard to all or any part of the Liquidation Amount of such Trust Security
or by one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any part of such Liquidation Amount.
If any dispute shall arise between the Securityholders and the
Administrators or among such Securityholders or Trustees with respect to the
authenticity, validity or binding nature of any request, demand, authorization,
direction, consent, waiver or other Act of such Securityholder or Trustee under
this Article VI, then the determination of such matter by the Property Trustee
shall be conclusive with respect to such matter.
SECTION 6.9. Inspection of Records.
Upon reasonable notice to the Administrators and the Property Trustee,
the records of the Trust shall be open to inspection by Securityholders during
normal business hours for any purpose reasonably related to such
Securityholder's interest as a Securityholder.
ARTICLE VII.
REPRESENTATIONS AND WARRANTIES
SECTION 7.1. Representations and Warranties of the Property Trustee,
the Delaware Trustee and the Administrators.
The Property Trustee, the Delaware Trustee and the Administrators, each
severally on behalf of and as to itself, hereby represents and warrants for the
benefit of the Depositor and the Securityholders that:
(a) the Property Trustee is a New York banking corporation duly
organized, validly existing and in good standing under the laws of the State of
New York;
(b) the Property Trustee has full corporate power, authority and legal
right to execute, deliver and perform its obligations under this Trust Agreement
and has taken all necessary action to authorize the execution, delivery and
performance by it of this Trust Agreement;
(c) the Delaware Trustee is a Delaware corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware;
(d) the Delaware Trustee has full corporate power, authority and legal
right to execute, deliver and perform its obligations under this Trust Agreement
and has taken all necessary action to authorize the execution, delivery and
performance by it of this Trust Agreement;
(e) this Trust Agreement has been duly authorized, executed and
delivered by the Property Trustee, and the Delaware Trustee and the
Administrators in their capacity as such, and constitutes the valid and legally
binding agreement of each of the Property Trustee, and the Delaware Trustee and
the Administrators in their capacity as such, enforceable against them in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles;
(f) the execution, delivery and performance of this Trust Agreement has
been duly authorized by all necessary corporate or other action on the part of
the Property Trustee and the Delaware Trustee and does not require any approval
of stockholders of the Property Trustee and the Delaware Trustee and such
execution, delivery and performance will not (i) violate the Charter or By-laws
of the Property Trustee or the Delaware Trustee, (ii) result in the creation or
imposition of, any Lien on any properties included in the Trust Property
pursuant to the provisions of, any indenture, mortgage, credit agreement,
license or other agreement or instrument to which the Property Trustee or the
Delaware Trustee is a party or by which it is bound or (iii) violate any law,
governmental rule or regulation of the United States or the State of Delaware,
as the case may be, governing the banking, trust or general powers of the
Property Trustee or the Delaware Trustee (as appropriate in context) or any
order, judgment or decree applicable to the Property Trustee or the Delaware
Trustee;
(g) neither the authorization, execution or delivery by the Property
Trustee or the Delaware Trustee of this Trust Agreement nor the consummation of
any of the transactions by the Property Trustee or the Delaware Trustee (as
appropriate in context) contemplated herein or therein requires the consent or
approval of, the giving of notice to, the registration with or the taking of any
other action with respect to any governmental authority or agency under any
existing Federal law governing the banking, trust or general powers of the
Property Trustee or the Delaware Trustee, as the case may be, under the laws of
the United States or the State of Delaware; and
(h) there are no proceedings pending or, to the best of each of the
Property Trustee's and the Delaware Trustee's knowledge, threatened against or
affecting the Property Trustee or the Delaware Trustee in any court or before
any governmental authority, agency or arbitration board or tribunal which, in
the good faith judgment of the Property Trustee or the Delaware Trustee, as the
case may be, individually or in the aggregate, would materially and adversely
affect the Trust or the right, power and authority of the Property Trustee or
the Delaware Trustee, as the case may be, to enter into or perform its
obligations as one of the Trustees under this Trust Agreement.
SECTION 7.2. Representations and Warranties of Depositor.
The Depositor hereby represents and warrants for the benefit of the
Securityholders that:
(a) the Trust Securities Certificates issued at each Time of Delivery
on behalf of the Trust have been duly authorized and will have been, duly and
validly executed, issued and delivered by the Trustees pursuant to the terms and
provisions of, and in accordance with the requirements of, this Trust Agreement
and the Securityholders will be, as of each such date, entitled to the benefits
of this Trust Agreement; and
(b) there are no taxes, fees or other governmental charges payable by
the Trust (or the Trustees on behalf of the Trust) under the laws of the State
of Delaware or any political subdivision thereof in connection with the
execution, delivery and performance by the Property Trustee or the Delaware
Trustee, as the case may be, of this Trust Agreement.
ARTICLE VIII.
THE TRUSTEES; THE ADMINISTRATORS
SECTION 8.1. Certain Duties and Responsibilities.
(a) The duties and responsibilities of the Trustees shall be as
provided by this Trust Agreement and, in the case of the Property Trustee, by
the Trust Indenture Act. 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 this Trust Agreement and, after an 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. The Trustees
shall have all the privileges, rights and immunities provided by the Delaware
Business Trust Act. Notwithstanding the foregoing, no provision of this Trust
Agreement shall require the Trustees or Administrators to expend or risk their
own funds or otherwise incur any financial liability in the performance of any
of their duties hereunder, or in the exercise of any of their rights or powers,
if they shall have reasonable grounds for believing that repayment of such funds
or adequate indemnity satisfactory to it against such risk or liability is not
reasonably assured to it. Whether or not therein expressly so provided, every
provision of this Trust Agreement relating to the conduct or affecting the
liability of or affording protection to the Trustees or Administrators shall be
subject to the provisions of this Article. Nothing in this Trust Agreement shall
be construed to release the Property Trustee from liability for its own gross
negligent action, its own gross negligent failure to act or its own willful
misconduct. To the extent that, at law or in equity, an Administrator has duties
(including fiduciary duties) and liabilities relating thereto to the Trust or to
the Securityholders, such Administrator shall not be liable to the Trust or to
any Securityholder for such Administrator's good faith reliance on the
provisions of this Trust Agreement. The provisions of this Trust Agreement, to
the extent that they restrict the duties and liabilities of the Administrators
otherwise existing at law or in equity, are agreed by the Depositor and the
Securityholders to replace such other duties and liabilities of the
Administrators.
(b) All payments made by the Property Trustee or a Paying Agent in
respect of the Trust Securities shall be made only from the revenue and proceeds
from the Trust Property and only to the extent that there shall be sufficient
revenue or proceeds from the Trust Property to enable the Property Trustee or a
Paying Agent to make payments in accordance with the terms hereof. Each
Securityholder, by its acceptance of a Trust Security, agrees that it will look
solely to the income and proceeds from the Trust Property to the extent legally
available for distribution to it as herein provided and that the Trustees and
Administrators are not personally liable to it for any amount distributable in
respect of any Trust Security or for any other liability in respect of any Trust
Security. This Section 8.1(b) does not limit the liability of the Trustees
expressly set forth elsewhere in this Trust Agreement or, in the case of the
Property Trustee, in the Trust Indenture Act.
(c) No provision of this Trust Agreement shall be construed to relieve
the Property Trustee from liability for its own negligent action, its own
negligent failure to act or its own willful misconduct, except that:
(i) the Property Trustee shall not be liable for any error of
judgment made in good faith by an authorized officer of the Property
Trustee, unless it shall be proved that the Property Trustee was
negligent in ascertaining the pertinent facts;
(ii) the Property Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of not less than a
majority in Liquidation Amount of the Trust Securities relating to the
time, method and place of conducting any proceeding for any remedy
available to the Property Trustee, or exercising any trust or power
conferred upon the Property Trustee under this Trust Agreement;
(iii) the Property Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the Debentures and
the Payment Account shall be to deal with such property in a similar
manner as the Property Trustee deals with similar property for its own
account, subject to the protections and limitations on liability
afforded to the Property Trustee under this Trust Agreement and the
Trust Indenture Act;
(iv) the Property Trustee shall not be liable for any interest
on any money received by it except as it may otherwise agree in writing
with the Depositor; and money held by the Property Trustee need not be
segregated from other funds held by it except in relation to the
Payment Account maintained by the Property Trustee pursuant to Section
3.1 and except to the extent otherwise required by law; and
(v) the Property Trustee shall not be responsible for
monitoring the compliance by the Administrators or the Depositor with
their respective duties under this Trust Agreement, nor shall the
Property Trustee be liable for the default or misconduct of the
Administrators or the Depositor.
SECTION 8.2. Certain Notices.
Within 90 days after the occurrence of any Event of Default actually
known to a Responsible Officer of the Property Trustee, the Property Trustee
shall transmit, in the manner and to the extent provided in Section 10.8, notice
of such Event of Default to the Securityholders, the Administrators and the
Depositor, unless such Event of Default shall have been cured or waived.
Within five Business Days after the receipt of notice of the
Depositor's exercise of its right to defer the payment of interest on the
Debentures pursuant to the Indenture, the Property Trustee shall transmit, in
the manner and to the extent provided in Section 10.8, notice of such exercise
to the Securityholders, unless such exercise shall have been revoked.
SECTION 8.3. Certain Rights of Property Trustee
Subject to the provisions of Section 8.1:
(a) the Property Trustee may conclusively rely and shall fully be
protected in acting or refraining from acting in good faith upon any resolution,
Opinion of Counsel, certificate, written representation of a Holder or
transferee, certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal, bond,
debenture, note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented by the proper
party or parties;
(b) if, other than during the occurrence and continuance of an Event of
Default, (i) in performing its duties under this Trust Agreement the Property
Trustee is required to decide between alternative courses of action or (ii) in
construing any of the provisions of this Trust Agreement the Property Trustee
finds the same ambiguous or inconsistent with any other provisions contained
herein or (iii) the Property Trustee is unsure of the application of any
provision of this Trust Agreement, then, except as to any matter as to which the
Capital Securityholders are entitled to vote under the terms of this Trust
Agreement, the Property Trustee shall deliver a notice to the Depositor
requesting written instructions of the Depositor as to the course of action to
be taken. The Property Trustee shall take such action, or refrain from taking
such action, as the Property Trustee shall be instructed in writing to take, or
to refrain from taking, by the Depositor; provided, however, that if the
Property Trustee does not receive such instructions of the Depositor within ten
Business Days after it has delivered such notice, or such reasonably shorter
period of time set forth in such notice (which to the extent practicable shall
not be less than two Business Days), it may, but shall be under no duty to, take
or refrain from taking such action not inconsistent with this Trust Agreement as
it shall deem advisable and in the best interests of the Securityholders, in
which event the Property Trustee shall have no liability except for its own bad
faith, negligence or willful misconduct;
(c) any direction or act of the Depositor or the Administrators
contemplated by this Trust Agreement shall be sufficiently evidenced by an
Officers' Certificate;
(d) whenever in the administration of this Trust Agreement, the
Property Trustee shall deem it desirable that a matter be established before
undertaking, suffering or omitting any action hereunder, the Property Trustee
(unless other evidence is herein specifically prescribed) may, in the absence of
bad faith on its part, request and rely upon an Officers' Certificate as to
factual matters (other than the interpretation of this Agreement) which, upon
receipt of such request, shall be promptly delivered by the Depositor or the
Administrators;
(e) the Property Trustee shall have no duty to see to any recording,
filing or registration of any instrument (including any financing or
continuation statement or any filing under tax or securities laws) or any
rerecording, refiling or reregistration thereof;
(f) the Property Trustee may consult with counsel of its selection
(which counsel may be counsel to the Depositor or any of its Affiliates, and may
include any of its employees) and the advice of such counsel shall be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reliance thereon and in
accordance with such advice; the Property Trustee shall have the right at any
time to seek instructions concerning the administration of this Trust Agreement
from any court of competent jurisdiction;
(g) the Property Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Trust Agreement at the request or
direction of any of the Securityholders pursuant to this Trust Agreement, unless
such Securityholders shall have offered to the Property Trustee security or
indemnity reasonably satisfactory to it against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction;
(h) the Property Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
debenture, note or other evidence of indebtedness or other paper or document,
unless requested in writing to do so by one or more Securityholders, but the
Property Trustee may make such further inquiry or investigation into such facts
or matters as it may see fit;
(i) the Property Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through its
agents or attorneys and the Property Trustee shall not be responsible for any
misconduct or negligence on the part of, or for the supervision of, any such
agent or attorney appointed with due care by it hereunder;
(j) whenever in the administration of this Trust Agreement the Property
Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder the Property
Trustee (i) may request instructions from the Holders of the Trust Securities
which instructions may only be given by the Holders of the same proportion in
Liquidation Amount of the Trust Securities as would be entitled to direct the
Property Trustee under the terms of the Trust Securities in respect of such
remedy, right or action, (ii) may refrain from enforcing such remedy or right or
taking such other action until such instructions are received and (iii) shall be
fully protected in acting in accordance with such instructions;
(k) except as otherwise expressly provided by this Trust Agreement, the
Property Trustee shall not be under any obligation to take any action that is
discretionary under the provisions of this Trust Agreement;
(l) when the Property Trustee incurs expenses or renders services in
connection with a Bankruptcy Event, such expenses (including the fees and
expenses of its counsel) and the compensation for such services are intended to
constitute expenses of administration under any bankruptcy law or law relating
to creditors rights generally; and
(m) the Property Trustee shall not be charged with knowledge of an
Event of Default unless a Responsible Officer of the Property Trustee obtains
actual knowledge of such event or the Property Trustee receives written notice
of such event from Securityholders holding more than a majority of Capital
Securities (based upon Liquidation Amount).
No provision of this Trust Agreement shall be deemed to impose any duty
or obligation on the Property Trustee to perform any act or acts or exercise any
right, power, duty or obligation conferred or imposed on it, in any jurisdiction
in which it shall be illegal, or in which the Property Trustee shall be
unqualified or incompetent in accordance with applicable law, to perform any
such act or acts, or to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Property Trustee shall be
construed to be a duty.
SECTION 8.4. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Trust Securities Certificates
shall be taken as the statements of the Trust, and the Trustees do not assume
any responsibility for their correctness. The Trustees shall not be accountable
for the use or application by the Depositor of the proceeds of the Debentures.
SECTION 8.5. May Hold Securities.
Any Trustee or any other agent of any Trustee or the Trust, in its
individual or any other capacity, may become the owner or pledgee of Trust
Securities and, subject to Sections 8.8 and 8.13 and except as provided in the
definition of the term "Outstanding" in Article I, may otherwise deal with the
Trust with the same rights it would have if it were not a Trustee or such other
agent.
SECTION 8.6. Compensation; Indemnity; Fees.
The Depositor agrees:
(a) to pay to the Trustees from time to time such compensation as
agreed in writing between the Depositor and the Trustees for all services
rendered by them hereunder (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustees upon request for all reasonable expenses, disbursements and advances
incurred or made by the Trustees in accordance with any provision of this Trust
Agreement (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or bad faith; and
(c) to the fullest extent permitted by applicable law, to indemnify and
hold harmless (i) each Trustee, (ii) any Affiliate of any Trustee, (iii) any
officer, director, shareholder, employee, representative or agent of any Trustee
and (iv) any employee or agent of the Trust or its Affiliates (referred to
herein as an "Indemnified Person") from and against any loss, damage, liability,
tax, penalty, expense or claim of any kind or nature whatsoever incurred by such
Indemnified Person by reason of the creation, operation or termination of the
Trust or any act or omission performed or omitted by such Indemnified Person in
good faith on behalf of the Trust and in a manner such Indemnified Person
reasonably believed to be within the scope of authority conferred on such
Indemnified Person by this Trust Agreement, except that no Indemnified Person
shall be entitled to be indemnified in respect of any loss, damage or claim
incurred by such Indemnified Person by reason of negligence or willful
misconduct with respect to such acts or omissions.
The provisions of this Section 8.6 shall survive the termination of
this Trust Agreement or the earlier resignation or removal of any Trustee.
No Trustee may claim any lien or charge on any Trust Property as a
result of any amount due pursuant to this Section 8.6.
The Depositor and any Trustee (in the case of the Property Trustee,
subject to Section 8.8 hereof) may engage in or possess an interest in other
business ventures of any nature or description, independently or with others,
similar or dissimilar to the business of the Trust, and the Trust and the
Holders of Trust Securities shall have no rights by virtue of this Trust
Agreement in and to such independent ventures or the income or profits derived
therefrom, and the pursuit of any such venture, even if competitive with the
business of the Trust, shall not be deemed wrongful or improper. Neither the
Depositor, nor any Trustee, shall be obligated to present any particular
investment or other opportunity to the Trust even if such opportunity is of a
character that, if presented to the Trust, could be taken by the Trust, and the
Depositor or any Trustee shall have the right to take for its own account
(individually or as a partner or fiduciary) or to recommend to others any such
particular investment or other opportunity. Any Trustee may engage or be
interested in any financial or other transaction with the Depositor or any
Affiliate of the Depositor, or may act as depository for, trustee or agent for,
or act on any committee or body of holders of, securities or other obligations
of the Depositor or its Affiliates.
SECTION 8.7. Corporate Property Trustee Required; Eligibility of
Trustees and Administrators.
(a) There shall at all times be a Property Trustee hereunder with
respect to the Trust Securities. The Property Trustee shall be a Person that is
a national or state chartered bank and eligible pursuant to the Trust Indenture
Act to act as such, shall have a combined capital and surplus of at least
$50,000,000 and at the time of appointment shall have unsecured securities rated
in one of the three highest rating categories by a nationally recognized
statistical rating organization. If any such Person publishes reports of
condition at least annually, pursuant to law or to the requirements of its
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such Person shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time the Property Trustee with respect to the Trust
Securities shall cease to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article. At the time of appointment, the Property
Trustee must have securities rated in one of the three highest rating categories
by a nationally recognized statistical rating organization.
(b) There shall at all times be one or more Administrators hereunder
with respect to the Trust Securities. Each Administrator shall be either a
natural person who is at least 21 years of age or a legal entity that shall act
through one or more persons authorized to bind that entity.
(c) There shall at all times be a Delaware Trustee with respect to the
Trust Securities. The Delaware Trustee shall either be (i) a natural person who
is at least 21 years of age and a resident of the State of Delaware or (ii) a
legal entity with its principal place of business in the State of Delaware and
that otherwise meets the requirements of applicable Delaware law that shall act
through one or more persons authorized to bind such entity.
SECTION 8.8. Conflicting Interests.
If the Property Trustee has or shall acquire a conflicting interest
within the meaning of the Trust Indenture Act, the Property Trustee shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Trust
Agreement.
SECTION 8.9. Co-Trustees and Separate Trustee.
Unless a Debenture Event of Default shall have occurred and be
continuing, at any time or times, for the purpose of meeting the legal
requirements of any jurisdiction in which any part of the Trust Property may at
the time be located, the Depositor and the Administrators by agreed action by
the majority of such Administrators, shall have power to appoint, and upon the
written request of the Administrators, the Depositor shall for such purpose join
with the Administrators in the execution, delivery, and performance of all
instruments and agreements necessary or proper to appoint, one or more Persons
approved by the Property Trustee either to act as co-trustee, jointly with the
Property Trustee, of all or any part of such Trust Property, or to the extent
required by law to act as separate trustee of any such property, in either case
with such powers as may be provided in the instrument of appointment, and to
vest in such Person or Persons in the capacity aforesaid, any property, title,
right or power deemed necessary or desirable, subject to the other provisions of
this Section. If the Depositor does not join in such appointment within 15 days
after the receipt by it of a request to do so, or in case a Debenture Event of
Default has occurred and is continuing, the Property Trustee alone shall have
the power to make such appointment. Any co-trustee or separate trustee appointed
pursuant to this Section shall either be (i) a natural person who is at least 21
years of age and a resident of the United States or (ii) a legal entity with its
principal place of business in the United States that shall act through one or
more persons authorized to bind such entity.
Should any written instrument from the Depositor be required by any
co-trustee or separate trustee so appointed for more fully confirming to such
co-trustee or separate trustee such property, title, right, or power, any and
all such instruments shall, on request, be executed, acknowledged and delivered
by the Depositor.
Every co-trustee or separate trustee shall, to the extent permitted
by law, but to such extent only, be appointed subject to the following terms,
namely:
(a) The Trust Securities shall be executed and delivered and all
rights, powers, duties, and obligations hereunder in respect of the custody of
securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustees specified hereunder shall be exercised
solely by such Trustees and not by such co-trustee or separate trustee.
(b) The rights, powers, duties, and obligations hereby conferred or
imposed upon the Property Trustee in respect of any property covered by such
appointment shall be conferred or imposed upon and exercised or performed by the
Property Trustee or by the Property Trustee and such co-trustee or separate
trustee jointly, as shall be provided in the instrument appointing such
co-trustee or separate trustee, except to the extent that under any law of any
jurisdiction in which any particular act is to be performed, the Property
Trustee shall be incompetent or unqualified to perform such act, in which event
such rights, powers, duties and obligations shall be exercised and performed by
such co-trustee or separate trustee.
(c) The Property Trustee at any time, by an instrument in writing
executed by it, with the written concurrence of the Depositor, may accept the
resignation of or remove any co-trustee or separate trustee appointed under this
Section, and, in case a Debenture Event of Default has occurred and is
continuing, the Property Trustee shall have the power to accept the resignation
of, or remove, any such co-trustee or separate trustee without the concurrence
of the Depositor. Upon the written request of the Property Trustee, the
Depositor shall join with the Property Trustee in the execution, delivery and
performance of all instruments and agreements necessary or proper to effectuate
such resignation or removal. A successor to any co-trustee or separate trustee
so resigned or removed may be appointed in the manner provided in this Section.
(d) No co-trustee or separate trustee hereunder shall be personally
liable by reason of any act or omission of the Property Trustee or any other
trustee hereunder.
(e) The Property Trustee shall not be liable by reason of any act of a
co-trustee or separate trustee.
(f) Any Act of Holders delivered to the Property Trustee shall be
deemed to have been delivered to each such co-trustee and separate trustee.
SECTION 8.10. Resignation and Removal; Appointment of Successor.
No resignation or removal of any Trustee (the "Relevant Trustee") and
no appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 8.11. Subject to the
immediately preceding sentence, a Relevant Trustee may resign at any time by
giving written notice thereof to the Securityholders.
Unless a Debenture Event of Default shall have occurred and be
continuing, any Trustee may be removed and replaced at any time by Act of the
Common Securityholder. If a Debenture Event of Default shall have occurred and
be continuing, the Property Trustee or the Delaware Trustee, or both of them,
may be removed at such time only by Act of the Holders of a majority in
Liquidation Amount of the Capital Securities, delivered to the Relevant Trustee
(in its individual capacity and on behalf of the Trust). An Administrator may be
removed and replaced by the Holder of Common Securities at any time. If the
instrument of acceptance by the successor Trustee required by Section 8.11 shall
not have been delivered to the Relevant Trustee within 30 days after the giving
of such notice of removal, the Relevant Trustee may petition, at the expense of
the Depositor, any court of competent jurisdiction for the appointment of a
successor Relevant Trustee.
If any Trustee shall resign, be removed or become incapable of acting
as Trustee, or if a vacancy shall occur in the office of any Trustee for any
cause, the Capital Securityholders, by Act of the Securityholders of at least
25% in Liquidation Amount of the Capital Securities then Outstanding delivered
to the retiring Relevant Trustee, shall promptly appoint a successor Relevant
Trustee or Trustees, and such successor Trustee shall comply with the applicable
requirements of Section 8.11. If no successor Relevant Trustee shall have been
so appointed by the Capital Securityholders and accepted appointment in the
manner required by Section 8.11, any Securityholder who has been a
Securityholder of Trust Securities for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Relevant Trustee.
The Property Trustee shall give notice of each resignation and each
removal of a Trustee and each appointment of a successor Trustee to all
Securityholders in the manner provided in Section 10.8 and shall give notice to
the Depositor. Each notice shall include the name of the successor Relevant
Trustee and the address of its Corporate Trust Office if it is the Property
Trustee.
Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event an Administrator or a Delaware Trustee who is a natural
person dies or becomes incompetent or incapacitated, the vacancy created by such
death, incompetence or incapacity may be filled by the unanimous act of the
remaining Administrators if there are at least two of them or otherwise by the
Depositor (with the successor being a Person who satisfies the eligibility
requirement for an Administrator set forth in Section 8.7).
SECTION 8.11. Acceptance of Appointment by Successor.
In case of the appointment hereunder of a successor Relevant Trustee,
the retiring Relevant Trustee and each successor Relevant Trustee with respect
to the Trust Securities shall execute and deliver an amendment hereto wherein
each successor Relevant Trustee shall accept such appointment and which (a)
shall contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Relevant Trustee all the rights,
powers, trusts and duties of the retiring Relevant Trustee with respect to the
Trust Securities and the Trust and (b) shall add to or change any of the
provisions of this Trust Agreement as shall be necessary to provide for or
facilitate the administration of the Trust by more than one Relevant Trustee, it
being understood that nothing herein or in such amendment shall constitute such
Relevant Trustees co-trustees and upon the execution and delivery of such
amendment the resignation or removal of the retiring Relevant Trustee shall
become effective to the extent provided therein and each such successor Relevant
Trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts and duties of the retiring Relevant Trustee; but,
on request of the Trust or any successor Relevant Trustee such retiring Relevant
Trustee shall duly assign, transfer and deliver to such successor Relevant
Trustee all Trust Property, all proceeds thereof and money held by such retiring
Relevant Trustee hereunder with respect to the Trust Securities and the Trust.
Upon request of any such successor Relevant Trustee, the Trust shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Relevant Trustee all such rights, powers and trusts
referred to in the first or second preceding paragraph, as the case may be.
No successor Relevant Trustee shall accept its appointment unless at
the time of such acceptance such successor Relevant Trustee shall be qualified
and eligible under this Article.
SECTION 8.12. Merger, Conversion, Consolidation or Succession to
Business.
Any Person into which the Property Trustee or the Delaware Trustee may
be merged or converted or with which it may be consolidated, or any Person
resulting from any merger, conversion or consolidation to which such Relevant
Trustee shall be a party, or any Person succeeding to all or substantially all
the corporate trust business of such Relevant Trustee, shall be the successor of
such Relevant Trustee hereunder, provided such Person shall be otherwise
qualified and eligible under this Article, without the execution or filing of
any paper or any further act on the part of any of the parties hereto.
SECTION 8.13. Preferential Collection of Claims Against Depositor or
Trust.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
similar judicial proceeding relative to the Trust or any other obligor upon the
Trust Securities or the property of the Trust or of such other obligor or their
creditors, the Property Trustee (irrespective of whether any Distributions on
the Trust Securities shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Property Trustee shall
have made any demand on the Trust for the payment of any past due Distributions)
shall be entitled and empowered, to the fullest extent permitted by law, by
intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of any Distributions
owing and unpaid in respect of the Trust Securities and to file such other
papers or documents as may be necessary or advisable in order to have the claims
of the Property Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Property Trustee, its agents and
counsel) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Property Trustee and, in the event the
Property Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Property Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Property Trustee, its
agents and counsel, and any other amounts due the Property Trustee.
Nothing herein contained shall be deemed to authorize the Property
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement adjustment or compensation affecting the
Trust Securities or the rights of any Holder thereof or to authorize the
Property Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 8.14. Reports by Property Trustee.
(a) Not later than 60 days after May 15 of each year commencing with
May 15, 1998, the Property Trustee shall transmit to all Securityholders in
accordance with Section 10.8, and to the Depositor, a brief report dated as of
the immediately preceding December 31 with respect to:
(i) its eligibility under Section 8.7 or, in lieu thereof,
if to the best of its knowledge it has continued to be eligible under
said Section, a written statement to such effect; and
(ii) any change in the property and funds in its possession as
Property Trustee since the date of its last report and any action taken
by the Property Trustee in the performance of its duties hereunder
which it has not previously reported and which in its opinion
materially affects the Trust Securities.
(b) In addition, the Property Trustee shall transmit to Securityholders
such reports concerning the Property Trustee and its actions under this Trust
Agreement as may be required pursuant to the Trust Indenture Act at the times
and in the manner provided pursuant thereto.
(c) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Property Trustee with the Depositor.
SECTION 8.15. Reports to the Property Trustee.
The Depositor and the Administrators on behalf of the Trust shall
provide to the Property Trustee such documents, reports and information as
required by Section 314 of the Trust Indenture Act (if any) and the compliance
certificate required by Section 314(a) of the Trust Indenture Act in the form,
in the manner and at the times required by Section 314 of the Trust Indenture
Act.
SECTION 8.16. Evidence of Compliance with Conditions Precedent.
Each of the Depositor and the Administrators on behalf of the Trust
shall provide to the Property Trustee such evidence of compliance with any
conditions precedent, if any, provided for in this Trust Agreement that relate
to any of the matters set forth in Section 314 (c) of the Trust Indenture Act.
Any certificate or opinion required to be given by an officer pursuant to
Section 314(c)(1) of the Trust Indenture Act shall be given in the form of an
Officers' Certificate.
SECTION 8.17. Number of Trustees and Administrators
(a) The number of Trustees shall be two. The Property Trustee and the
Delaware Trustee may be the same Person. The number of Administrators shall be
three, provided that the Holder of the Common Securities by written instrument
may increase or decrease the number of Administrators.
(b) If a Trustee or Administrator ceases to hold office for any
reason a vacancy shall occur. The vacancy shall be filled with a Trustee or
Administrator appointed in accordance with Section 8.10. or 8.19. as the case
may be.
(c) The death, resignation, retirement, removal, bankruptcy,
incompetence or incapacity to perform the duties of a Trustee shall not operate
to annul, dissolve or terminate the Trust.
SECTION 8.18. Delegation of Power.
(a) Any Administrator may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his or
her power for the purpose of executing any documents contemplated in Section
2.7(a), including any registration statement or amendment thereto filed with the
Commission, or making any other governmental filing; and
(b) The Administrators shall have power to delegate from time to time
to such of their number the doing of such things and the execution of such
instruments either in the name of the Trust or the names of the Administrators
or otherwise as the Administrators may deem expedient, to the extent such
delegation is not prohibited by applicable law or contrary to the provisions of
this Trust Agreement, as set forth herein.
SECTION 8.19. Appointment of Administrators.
(a) The Administrators shall be appointed by the Common Securityholder
and may be removed by the Common Securityholder at any time. Each Administrator
shall sign an agreement agreeing to comply with the terms of this Trust
Agreement. If at any time there is no Administrator, the Property Trustee or any
Securityholder who has been a Securityholder of Trust Securities for at least
six months may petition any court of competent jurisdiction for the appointment
of one or more Administrators.
(b) Whenever a vacancy in the number of Administrators shall occur,
until such vacancy is filled by the appointment of an Administrator in
accordance with this Section 8.19, the Administrators in office, regardless of
their number (and notwithstanding any other provision of this Agreement), shall
have all the powers granted to the Administrators and shall discharge all the
duties imposed upon the Administrators by this Trust Agreement.
Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event any Administrator who is a natural person dies or
becomes, in the opinion of the Common Securityholder, incompetent or
incapacitated, the vacancy created by such death, incompetence or incapacity may
be filled by the unanimous act of the remaining Administrators if there were at
least two of them prior to such vacancy (with the successor in each case being a
Person who satisfies the eligibility requirement for Administrators set forth in
Section 8.7).
ARTICLE IX.
TERMINATION, LIQUIDATION AND MERGER
SECTION 9.1. Termination Upon Expiration Date.
Unless earlier terminated, the Trust shall automatically terminate on
June 30, 2046 (the "Expiration Date"), following the distribution of the Trust
Property in accordance with Section 9.4.
SECTION 9.2. Early Termination
The first to occur of any of the following events is an "Early
Termination Event":
(a) the occurrence of a Bankruptcy Event in respect of, or the
dissolution or liquidation of, the Depositor;
(b) the written direction to the Property Trustee from the Holder of
the Common Securities at any time to terminate the Trust and, after satisfaction
of liabilities to creditors of the Trust as provided by applicable law,
distribute Debentures to Securityholders in exchange for the Capital Securities;
provided, however, that the Property Trustee shall have first received an
Opinion of Counsel to the effect that such distribution will not be a taxable
event to the Holders;
(c) the redemption of all of the Capital Securities in connection with
the redemption of all the Debentures; and
(d) the entry of an order for dissolution of the Trust by a court of
competent jurisdiction.
SECTION 9.3. Termination.
The respective obligations and responsibilities of the Trustees and the
Trust created and continued hereby shall terminate upon the latest to occur of
the following: (a) the distribution by the Property Trustee to Securityholders
upon the liquidation of the Trust pursuant to Section 9.4, or upon the
redemption of all of the Trust Securities pursuant to Section 4.2, of all
amounts required to be distributed hereunder upon the final payment of the Trust
Securities; (b) the payment of any expenses owed by the Trust; and (c) the
discharge of all administrative duties of the Administrators, including the
performance of any tax reporting obligations with respect to the Trust or the
Securityholders.
SECTION 9.4. Liquidation.
(a) If an Early Termination Event specified in clause (a), (b) or (d)
of Section 9.2 occurs or upon the Expiration Date, the Trust shall be liquidated
by the Trustees as expeditiously as the Trustees determine to be possible by
distributing, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, to each Securityholder a Like Amount of Debentures,
subject to Section 9.4(d). Notice of liquidation shall be given by the Property
Trustee by first-class mail, postage prepaid mailed not later than 30 nor more
than 60 days prior to the Liquidation Date to each Holder of Trust Securities at
such Holder's address appearing in the Securities Register. All notices of
liquidation shall:
(i) state the Liquidation Date;
(ii) state that from and after the Liquidation Date, the Trust
Securities will no longer be deemed to be Outstanding and any Trust
Securities Certificates not surrendered for exchange will be deemed to
represent a Like Amount of Debentures; and
(iii) provide such information with respect to the mechanics
by which Holders may exchange Trust Securities Certificates for
Debentures, or if Section 9.4(d) applies receive a Liquidation
Distribution, as the Property Trustee or the Administrators shall deem
appropriate.
(b) Except where Section 9.2(c) or 9.4(d) applies, in order to effect
the liquidation of the Trust and distribution of the Debentures to
Securityholders, the Property Trustee, either itself acting as exchange agent or
through the appointment of a separate exchange agent, shall establish such
procedures as it shall deem appropriate to effect the distribution of Debentures
in exchange for the Outstanding Trust Securities Certificates.
(c) Except where Section 9.2(c) or 9.4(d) applies, after the
Liquidation Date, (i) the Trust Securities will no longer be deemed to be
Outstanding, (ii) certificates representing a Like Amount of Debentures will be
issued to holders of Trust Securities Certificates, upon surrender of such
certificates to the Administrators or their agent for exchange, (iii) any Trust
Securities Certificates not so surrendered for exchange will be deemed to
represent a Like Amount of Debentures, accruing interest at the rate provided
for in the Debentures from the last Distribution Date on which a Distribution
was made on such Trust Securities Certificates until such certificates are so
surrendered (and until such certificates are so surrendered, no payments of
interest or principal will be made to Holders of Trust Securities Certificates
with respect to such Debentures) and (iv) all rights of Securityholders holding
Trust Securities will cease, except the right of such Securityholders to receive
Debentures upon surrender of Trust Securities Certificates.
(d) In the event that, notwithstanding the other provisions of this
Section 9.4, whether because of an order for dissolution entered by a court of
competent jurisdiction or otherwise, distribution of the Debentures in the
manner provided herein is determined by the Property Trustee not to be
practical, the Trust Property shall be liquidated, and the Trust shall be
dissolved, wound-up or terminated, by the Property Trustee in such manner as the
Property Trustee determines. In such event, on the date of the dissolution,
winding-up or other termination of the Trust, Securityholders will be entitled
to receive out of the assets of the Trust available for distribution to
Securityholders, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, an amount equal to the Liquidation Amount per Trust
Security plus accumulated and unpaid Distributions thereon to the date of
payment (such amount being the "Liquidation Distribution"). If, upon any such
dissolution, winding up or termination, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then, subject to the next succeeding
sentence, the amounts payable by the Trust on the Trust Securities shall be paid
on a pro rata basis (based upon Liquidation Amounts). The holder of the Common
Securities will be entitled to receive Liquidation Distributions upon any such
dissolution, winding-up or termination pro rata (determined as aforesaid) with
Holders of 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. Any such determination and liquidation by the Property
Trustee shall be conclusive upon the Securityholders and the Property Trustee
shall have no liability in connection therewith.
SECTION 9.5. 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 body, except pursuant
to Article IX. At the request of the Holder of the Common Securities, with the
consent of the Holders of a majority (based on Liquidation Amounts) of the
Capital Securities, the Property Trustee or the Delaware Trustee, the Trust may
merge with or into, consolidate, amalgamate, or be replaced by or convey,
transfer or lease its properties and assets substantially as an entirety to a
trust organized as such under the laws of any State; provided, that (i) such
successor entity either (a) expressly assumes all of the obligations of the
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
Holders of a majority (based on Liquidation Amounts) of Capital Securities
appoints a trustee of such successor entity possessing the same powers and
duties as the Property Trustee as the holder of the Debentures, (iii) the
Successor Securities are listed, quoted or traded, or any Successor Securities
will be listed or quoted upon notification of issuance, on any national
securities exchange or other organization on which the Capital Securities are
then listed, quoted or traded, 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 Depositor and the Property Trustee have
received an Opinion of Counsel 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 1940 Act and (viii)
the Depositor 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 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.
ARTICLE X.
MISCELLANEOUS PROVISIONS
SECTION 10.1. Limitation of Rights of Securityholders
The death or incapacity of any person having an interest, beneficial or
otherwise, in Trust Securities shall not operate to terminate this Trust
Agreement, nor entitle the legal representatives or heirs of such person or any
Securityholder for such person, to claim an accounting, take any action or bring
any proceeding in any court for a partition or winding up of the arrangements
contemplated hereby, nor otherwise affect the rights, obligations and
liabilities of the parties hereto or any of them.
SECTION 10.2. Amendment.
(a) This Trust Agreement may be amended from time to time by the
Property Trustee, the Delaware Trustee and the Common Securityholders without
the consent of any Capital Securityholders, (i) to cure any ambiguity, correct
or supplement any provision herein which may be inconsistent with any other
provision herein, or to make any other provisions with respect to matters or
questions arising under this Trust Agreement, which shall not be inconsistent
with the other provisions of this Trust Agreement or (ii) to modify, eliminate
or add to any provisions of this 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 1940 Act; provided, however, that such action
shall not adversely affect in any material respect the interests of any
Securityholder, and any amendments of this Trust Agreement shall become
effective when notice thereof is given to the Securityholders.
(b) Except as provided in Section 10.2(c) hereof, any provision of this
Trust Agreement may be amended by the Trustees and the Holder of Common
Securities (without execution of any amendment by the Depositor) and with (i)
the consent of Capital Securityholders representing not less than a majority
(based upon Liquidation Amounts) of the Capital Securities then Outstanding and
(ii) receipt by the Trustees of an Opinion of Counsel to the effect that such
amendment or the exercise of any power granted to the 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
of an investment company under the 1940 Act.
(c) In addition to and notwithstanding any other provision in this
Trust Agreement, without the consent of each affected Securityholder (such
consent being obtained in accordance with Section 6.3 or 6.6 hereof), this Trust
Agreement may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount of
any Distribution required to be made in respect of the Trust Securities as of a
specified date or (ii) restrict the right of a Securityholder to institute suit
for the enforcement of any such payment on or after such date; notwithstanding
any other provision herein, without the unanimous consent of the Securityholders
(such consent being obtained in accordance with Section 6.3 or 6.6 hereof), this
paragraph (c) of this Section 10.2 may not be amended.
(d) Notwithstanding any other provisions of this Trust Agreement, no
Trustee shall enter into or consent to any amendment to this Trust Agreement
which would cause the Trust to fail or cease to qualify for the exemption from
status of an investment company under the 1940 Act or fail or cease to be
classified as a grantor trust for United States Federal income tax purposes.
(e) Notwithstanding anything in this Trust Agreement to the contrary,
without the consent of the Depositor, this Trust Agreement may not be amended in
a manner which imposes any additional obligation on the Depositor.
(f) In the event that any amendment to this Trust Agreement is made,
the Administrators or the Property Trustee shall promptly provide to the
Depositor a copy of such amendment.
(g) Neither the Property Trustee nor the Delaware Trustee shall be
required to enter into any amendment to this Trust Agreement which affects its
own rights, duties or immunities under this Trust Agreement or would otherwise
expose the Property Trustee to any liability or be contrary to applicable law.
The Property Trustee shall be entitled to receive an Opinion of Counsel and an
Officers' Certificate stating that any amendment to this Trust Agreement is in
compliance with this Trust Agreement.
SECTION 10.3. Separability.
In case any provision in this Trust Agreement or in the Trust
Securities Certificates shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 10.4. Governing Law.
THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE
SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST AGREEMENT
AND THE TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF DELAWARE. THE PROVISIONS OF SECTION 3540 AND 3561 OF
TITLE 12 OF THE DELAWARE CODE SHALL NOT APPLY TO THIS TRUST.
SECTION 10.5. Payments Due on Non-Business Day.
If the date fixed for any payment on any Trust Security shall be a day
that is not a Business Day, then such payment need not be made on such date but
may be made on the next succeeding day that is a Business Day (except as
otherwise provided in Sections 4.1(a) and 4.2(d)), with the same force and
effect as though made on the date fixed for such payment, and no interest shall
accrue thereon for the period after such date.
SECTION 10.6. Successors.
This Trust Agreement shall be binding upon and shall inure to the
benefit of any successor to the Depositor, the Trust or the Relevant Trustee,
including any successor by operation of law. Except in connection with a
consolidation, merger or sale involving the Depositor that is permitted under
Article Eight of the Indenture and pursuant to which the assignee agrees in
writing to perform the Depositor's obligations hereunder, the Depositor shall
not assign its obligations hereunder.
SECTION 10.7. Headings.
The Article and Section headings are for convenience only and shall not
affect the construction of this Trust Agreement.
SECTION 10.8. Reports, Notices and Demands.
Any report, notice, demand or other communication which by any
provision of this Trust Agreement is required or permitted to be given or served
to or upon any Securityholder or the Depositor may be given or served in writing
by deposit thereof, first-class postage prepaid, in the United States mail, hand
delivery or facsimile transmission, in each case, addressed, (a) in the case of
a Capital Securityholder, to such Capital Securityholder as such
Securityholder's name and address may appear on the Securities Register; and (b)
in the case of the Common Securityholder or the Depositor, to USF&G Corporation,
6225 Smith Avenue, Baltimore, Maryland, 21209 Attention: Treasurer, facsimile
no.: (410) 205-6672. Any notice to Capital Securityholders may also be given to
such Owners as have, within two years preceding the giving of such notice, filed
their names and addresses with the Property Trustee for that purpose. Such
notice, demand or other communication to or upon a Securityholder shall be
deemed to have been sufficiently given or made, for all purposes, upon hand
delivery, mailing or transmission.
Any notice, demand or other communication which by any provision of
this Trust Agreement is required or permitted to be given or served to or upon
the Trust, the Property Trustee, the Delaware Trustee or the Administrators
shall be given in writing by deposit thereof, first class postage prepaid, in
the United States mail, hand delivery or overnight courier or by facsimile
transmission (confirmed by delivery of the original), in each case, addressed
(until another address is published by the Trust) as follows: (a) with respect
to the Trust, to the Delaware Trustee, the Property Trustee, and the
Administrators at their respective addresses set forth below; (b) with respect
to the Property Trustee to The Bank of New York, 101 Barclay Street, Floor 21 W,
New York, New York 10286, Attention: Corporate Trust Trustee Administration; (c)
with respect to the Delaware Trustee, to The Bank of New York (Delaware), White
Clay Center, Route 273, Newark, Delaware 19711; and (d) with respect to the
Administrators, to them at the address above for notices to the Depositor,
marked "Attention Administrators of USF&G Capital III." Such notice, demand or
other communication to or upon the Trust or the Property Trustee shall be deemed
to have been sufficiently given or made only upon actual receipt of the writing
by the Trust or the Property Trustee.
SECTION 10.9. Agreement Not to Petition.
Each of the Trustees and the Depositor agree for the benefit of the
Securityholders that, until at least one year and one day after the Trust has
been terminated in accordance with Article IX, they shall not file, or join in
the filing of, a petition against the Trust under any bankruptcy, insolvency,
reorganization or other similar law (including, without limitation, the United
States Bankruptcy Code) (collectively, "Bankruptcy Laws") or otherwise join in
the commencement of any proceeding against the Trust under any Bankruptcy Law.
In the event the Depositor takes action in violation of this Section 10.9, the
Property Trustee agrees, for the benefit of Securityholders, that at the expense
of the Depositor, it shall file an answer with the bankruptcy court or otherwise
properly contest the filing of such petition by the Depositor against the Trust
or the commencement of such action and raise the defense that the Depositor has
agreed in writing not to take such action and should be stopped and precluded
therefrom and such other defenses, if any, as counsel for the Trustees or the
Trust may assert. The provisions of this Section 10.9 shall survive the
termination of this Trust Agreement.
SECTION 10.10. Trust Indenture Act; Conflict with Trust Indenture Act.
(a) The Trust Indenture Act shall apply as a matter of contract to this
Trust Agreement for purposes of interpretation, construction and defining the
rights and obligations hereunder.
(b) The Property Trustee shall be the only Trustee which is a trustee
for the purposes of the Trust Indenture Act.
(c) If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Trust Agreement by any
of the provisions of the Trust Indenture Act, such required provision shall
control. If any provision of this Trust Agreement modifies or excludes any
provision of the Trust Indenture Act which may be so modified or excluded, the
latter provision shall be deemed to apply to this Trust Agreement as so modified
or excluded, as the case may be.
(d) The application of the Trust Indenture Act to this Trust Agreement
shall not affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
SECTION 10.11. Acceptance of Terms of Trust Agreement, Guarantee and
Indenture.
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN
BY OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY
SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL
ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN
SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT AND
AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AND
THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST, SUCH
SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST
AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE TRUST AND
SUCH SECURITYHOLDER AND SUCH OTHERS.
USF&G CORPORATION
By:
Name: Ron Mishler
Title: Vice President - Treasurer
THE BANK OF NEW YORK,
as Property Trustee
By:
Name:
Title:
THE BANK OF NEW YORK (DELAWARE),
as Delaware Trustee
By:
Name:
Title:
THE ADMINISTRATORS
----------------------------------
J. Kendall Huber, as Administrator
----------------------------------
John F. Hoffen, Jr., as Administrator
----------------------------------
Ron Mishler, as Administrator
EXHIBIT A
CERTIFICATE OF TRUST
OF
USF&G CAPITAL III
THIS CERTIFICATE OF TRUST of USF&G Capital III (the "Trust"), dated
June 16, 1997, is being duly executed and filed by the undersigned, as trustees,
to form a business trust under the Delaware Business Trust Act (12 Del.C.(S)3801
et seq.).
(i) Name. The name of the business trust being formed hereby is USF&G
Capital III.
(ii) Delaware Trustee. The name and business address of the trustee of
the Trust with a principal place of business in the State of Delaware are The
Bank of New York (Delaware), White Clay Center, Route 273, Newark, Delaware
19711.
(iii) Counterparts. This Certificate of Trust may be executed in one or
more counterparts, all of which together shall constitute one and the same
instrument.
(iv) Effective Date. This Certificate of Trust shall be effective as of
its filing.
IN WITNESS WHEREOF, the undersigned, being the trustees of the Trust,
have executed this Certificate of Trust as of the date first above written.
THE BANK OF NEW YORK,
as Trustee
By_________________________________
Name: ________________________
Title: _________________________
THE BANK OF NEW YORK (DELAWARE), as Trustee
By___________________________________
Name: _________________________
Title: __________________________
EXHIBIT B
CERTIFICATE OF DEPOSITORY AGREEMENT
OF
USF&G CAPITAL III
July 2, 1997
The Depository Trust Company
55 Water Street, 49th Floor
New York, New York 10041-0099
Attention: Debra Hawksby
General Counsel's Office
Re: USF&G Capital III 8.312% Capital Securities, Series C
Ladies and Gentlemen:
The purpose of this letter is to set forth certain matters relating to
the issuance and deposit with The Depository Trust Company ("DTC") of the USF&G
Capital III 8.312% Capital Securities, Series C (the "Capital Securities"), of
USF&G Capital III, a Delaware business trust (the "Issuer"), created pursuant to
a Trust Agreement between USF&G Corporation ("USF&G"), The Bank of New York, as
Property Trustee and The Bank of New York (Delaware), as Delaware Trustee. The
payment of distributions on the Capital Securities, and payments due upon
liquidation of the Issuer or redemption of the Capital Securities, to the extent
the Issuer has funds available for the payment thereof are guaranteed by USF&G
to the extent set forth in a Guarantee Agreement dated July 8, 1997 by USF&G
with respect to the Capital Securities. USF&G and the Issuer propose to sell the
Capital Securities to Initial Purchasers (the "Initial Purchasers") pursuant to
a Purchase Agreement dated July 8, 1997 by and among the Initial Purchasers, the
Issuer and USF&G, and the Initial Purchasers wish to take delivery of all or a
portion of the Capital Securities through DTC. The Bank of New York is acting as
transfer agent and registrar with respect to the Capital Securities (the
"Transfer Agent and Registrar").
To induce DTC to accept the Capital Securities as eligible for deposit
at DTC, and to act in accordance with DTC's rules with respect to the Capital
Securities, the Issuer and the Transfer Agent and Registrar make the following
representations to DTC:
1. Prior to the closing of the sale of the Capital Securities to the
Initial Purchasers, which is expected to occur on June __, 1997, there shall be
deposited with DTC one or more global certificates (individually and
collectively, the "Global Certificate") registered in the name of DTC's nominee,
Cede & Co., representing an aggregate of up to 100,000 Capital Securities and
bearing the following legend:
Unless this certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to Issuer
or its agent for registration of transfer, exchange, or payment, and
any certificate issued is registered in the name of Cede & Co. or in
such other name as is requested by an authorized representative of DTC
(and any payment is made to Cede & Co. or to such other entity as is
requested by an authorized representative of DTC), ANY TRANSFER,
PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an
interest herein.
Capital Securities will be issued, and may be transferred, only in
blocks having not less than 100 Capital Securities.
2. The Amended and Restated Trust Agreement of the Issuer provides for
the voting by holders of the Capital Securities under certain limited
circumstances (with no provision for revocation of consents or votes by
subsequent holders). The Issuer shall establish a record date for such purposes
and shall, to the extent possible, give DTC notice of such record date not less
than 15 calendar days in advance of such record date.
3. In the event of a stock split, conversion, recapitalization,
reorganization or any other similar transaction resulting in the cancellation of
all or any part of the Capital Securities outstanding, the Issuer or the
Transfer Agent and Registrar shall send DTC a notice of such event at least five
business days prior to the effective date of such event.
4. In the event of distribution on, or an offering or issuance of
rights with respect to, the Capital Securities outstanding, the Issuer or the
Transfer Agent and Registrar shall send DTC a notice specifying: (a) the amount
of and conditions, if any, applicable to the payment of any such distribution or
any such offering or issuance of rights; (b) any applicable expiration or
deadline date, or any date by which any action on the part of the holders of
Capital Securities is required; and (c) the date any required notice is to be
mailed by or on behalf of the Issuer to holders of Capital Securities or
published by or on behalf of the Issuer (whether by mail or publication, the
"Publication Date"). Such notice shall be sent to DTC by a secure means (e.g.,
legible telecopy, registered or certified mail, overnight delivery) in a timely
manner designed to assure that such notice is in DTC's possession no later than
the close of business on the business day before the Publication Date. The
Issuer or the Transfer Agent and Registrar will forward such notice either in a
separate secure transmission for each CUSIP number or in a secure transmission
of multiple CUSIP number submitted in that transmission. (The party sending such
notice shall have a method to verify subsequently the use of such means and the
timeliness of such notice.) The Publication Date shall be not less than 30
calendar days nor more than 60 calendar days prior to the payment of any such
distribution or any such offering or issuance of rights with respect to the
Capital Securities. After establishing the amount of payment to be made on the
Capital Securities, the Issuer or the Transfer Agent and Registrar will notify
DTC's Dividend Department of such payment five business days prior to payment
date. Notices to DTC's Dividend Department by telecopy shall be sent to (212)
709-1723. Such notices by mail or by any other means shall be sent to:
Manager, Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004-2695
The Issuer or the Transfer Agent and Registrar shall confirm DTC's
receipt of such telecopy by telephoning the Dividend Department at (212)
709-1270.
5. In the event of a redemption by the Issuer of the Capital
Securities, notice specifying the terms of the redemption and the Publication
Date of such notice shall be sent by the Issuer or the Transfer Agent and
Registrar to DTC not less than 30 calendar days prior to such event by a secure
means in the manner set forth in paragraph 4. Such redemption notice shall be
sent to DTC's Call Notification Department at (516) 227-4164 or (516) 227-4190,
and receipt of such notice shall be confirmed by telephoning (516) 227-4070.
Notice by mail or by any other means shall be sent to:
Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, New York 11530-4719
6. In the event of any invitation to tender the Capital Securities,
notice specifying the terms of the tender and the Publication Date of such
notice shall be sent by the Issuer or the Transfer Agent and Registrar to DTC by
a secure means and in a timely manner as described in paragraph 4. Notices to
DTC pursuant to this paragraph and notices of other corporate actions (including
mandatory tenders, exchanges and capital changes) shall be sent, unless
notification to another department is expressly provided for herein, by telecopy
to DTC's Reorganization Department at (212) 709-1093 or (212) 709-1094 and
receipt of such notice shall be confirmed by telephoning (212) 709-6884, or by
mail or any other means to:
Manager, Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004-2695
7. All notices and payment advices sent to DTC shall contain the CUSIP
number or numbers of the Capital Securities and the accompanying designation of
the Capital Securities, which, as of the date of this letter, is USF&G Capital
III 8.312% Capital Securities, Series C.
8. Distribution payments or other cash payments with respect to the
Capital Securities evidenced by the Global Certificate shall be received by Cede
& Co., as nominee of DTC, or its registered assigns in same day funds no later
than 2:30 p.m. (Eastern Time) on each payment date. Such funds shall be made
payable to the order of Cede & Co., and shall be wired in accordance with the
instructions in the attached Principal and Income Payments Rider.
9. DTC may direct the Issuer and the Transfer Agent and Registrar to
use any other telecopy number or address of DTC as the number or address to
which notices or payments may be sent.
10. In the event of a conversion, redemption, or any other similar
transaction (e.g., tender made and accepted in response to the Issuer's or the
Transfer Agent and Registrar's invitation) necessitating a reduction in the
aggregate number of Capital Securities outstanding evidenced by Global
Certificates, DTC, in its discretion: (a) may request the Issuer or the Transfer
Agent and Registrar to issue and countersign a new Global Certificate; or (b)
may make an appropriate notation on the Global Certificate indicating the date
and amount of such reduction.
11. DTC may discontinue its services as a securities depositary with
respect to the Capital Securities at any time by giving reasonable notice to the
Issuer and the Transfer Agent and Registrar (at which time DTC will confirm with
the Issuer or the Transfer Agent and Registrar the aggregate number of Capital
Securities deposited with it) and discharging its responsibilities with respect
thereto under applicable law. Under such circumstances, the Issuer may determine
to make alternative arrangements for book-entry settlement for the Capital
Securities, make available one or more separate global certificates evidencing
Capital Securities to any Participant having Capital Securities credited to its
DTC account, or issue definitive Capital Securities to the beneficial holders
thereof, and in any such case, DTC agrees to cooperate fully with the Issuer and
the Transfer Agent and Registrar, and to return the Global Certificate, duly
endorsed for transfer as directed by the Issuer or the Transfer Agent and
Registrar, together with any other documents of transfer reasonably requested by
the Issuer or the Transfer Agent and Registrar.
12. In the event that the Issuer Determines that beneficial owners of
Capital Securities shall be able to obtain definitive Capital Securities, the
Issuer or the Transfer Agent and Registrar shall notify DTC of the availability
of certificates. In such event, the Issuer or the Transfer Agent and Registrar
shall issue, transfer and exchange certificates in appropriate amounts, as
required by DTC and others, and DTC agrees to cooperate fully with the Issuer
and the Transfer Agent and Registrar and to return the Global Certificate, duly
endorsed for transfer as directed by the Issuer or the Transfer Agent and
Registrar, together with any other documents of transfer reasonably requested by
the Issuer or the Transfer Agent and Registrar.
13. This letter may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
Nothing herein shall be deemed to require the Transfer Agent and
Registrar to advance funds on behalf of the Issuer.
Very truly yours,
USF&G CAPITAL III, as Issuer
By:
Name:
Title: Administrator
(as Transfer Agent and Registrar)
THE BANK OF NEW YORK, as Trustee
By:
Name:
Title:
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
By:
Authorized Officer
PRINCIPAL AND INCOME PAYMENTS RIDER
1. This Rider supersedes any contradictory language set forth in the Letter of
Representations to which it is appended.
2. With respect to payments in the Securities:
A. Issuer or Agent shall provide notice to a standard interest and
dividend announcement service subscribed to by DTC. In the event
that no such service exists, Issuer or Agent shall provide such
notice directly to DTC electronically, as previously arranged by
Issuer or Agent and DTC. If electronic transmission has not been
arranged, absent any other arrangements between Issuer or Agent
and DTC, such notice shall be sent by telecopy to DTC's Dividend
Department at (212) 709-1723 or (212) 709-1686, and receipt of
such notices shall be confirmed by telephoning (212) 709-1270.
Notices to DTC pursuant to the above by mail or any other means
shall be sent to:
Manager, Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square, 22nd Floor
New York, NY 10004-2696
B. Issuer or Agent shall provide DTC, no later than noon (Eastern
Time) on each periodic interest, principal or dividend payment
date, a written notice of payment information containing the
Security CUSIP numbers for which payment will be sent, as well as
the dollar amount of payment.
C. Dividends, interest payments and principal payments that are part
of periodic principal and interest payments shall be received by
Cede & Co., as nominee of DTC, or its registered assigns, in
same-day funds no later than 2:30 p.m. (Eastern Time) on each
payment date. Absent any other arrangements between Issuer or
Agent and DTC, such funds shall be wired as follows:
The Chase Manhattan Bank
ABA #021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Dividend Deposit Account #088-026778
D. Maturity and redemption payments with CUSIP-level detail shall be
received by Cede & Co., as nominee of DTC, or its registered
assigns, in same-day funds by 2:30 p.m. (Eastern Time) on the
payable date. Absent any other arrangements between Issuer or
Agent and DTC, such funds shall be wired as follows:
The Chase Manhattan Bank
ABA #021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Dividend Deposit Account #066-027306
E. Principal payments (plus accrued interest, if any) as the result
of optional tenders for purchase affected by means of DTC's
Repayment Option Procedures shall be received by Cede & Co., as
nominee of DTC, or its registered assigns, in same-day funds by
2:30 p.m. (Eastern Time) on the first payable date. Absent any
other arrangements between Issuer or Agent and DTC, such funds
shall be wired as follows:
The Chase Manhattan Bank
ABA #021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Dividend Deposit Account #066-027608
REPRESENTATIONS FOR PRO RATA REDUCTION OF PRINCIPAL
To be included in Letter of Representations
In the event of a pro rata reduction of principal, Trustee/Agent shall
send DTC written notice with respect to the dollar amount per $1,000 original
face value (or other minimum authorized denomination if less that $1,000 face
value) payable on each payment date allocated as to the interest and principal
portions thereof preferably five, but not less than two, business days prior to
each payment date. Such notices, which shall clearly indicate that they relate
to a pro rata reduction of principal and which shall also contain the current
pool factor or ratio and Trustee/Agent contact's name and telephone number,
shall be sent by telecopy to DTC's Dividend Department at (212) 789-1723, or if
by mail by any other means to:
Manager, Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square; 22nd Floor
New York, NY 10004-2695
Excluded from the applicability of any pro rata reduction shall be any reduction
that would cause a holder to hold fewer that 100 Capital Securities.
REPRESENTATIONS FOR RULE 144A SECURITIES
to be included in DTC Letter of Representations
1. Issuer represents that at the time of initial registration in the
name of DTC's nominee, Cede & Co., the Securities were Legally or Contractually
Restricted Securities (footnote 1) eligible for transfer under Rule 144A under
the Securities Act of 1933, as amended (the "Securities Act"), and identified by
a CUSIP or CINS identification number that was different from any CUSIP or CINS
number assigned to any securities of the same class that were not Legally or
Contractually Restricted Securities. Issuer shall ensure that a CUSIP or CINS
identification number is obtained for all unrestricted securities of the same
class that is different from any CUSIP or CINS identification number assigned to
a Legally or Contractually Restricted Security of such class, and shall notify
DTC promptly in the event that it is unable to do so. Issuer represents that it
has agreed to comply with all applicable information requirements of Rule 144A.
2. Issuer represents that the Securities are an issue of nonconvertible
debt securities or nonconvertible preferred stock which is rated in one of the
top four categories by a nationally recognized statistical rating organization
("Investment - Grade Securities")
3. If the Securities are not Investment Grade Securities, Issuer and
Agent acknowledge that if such Securities cease to be included in an SRO Rule
144A System during any period in which such Securities are Legally or
Contractually Restricted Securities, such Securities shall not longer be
eligible for DTC's services. Furthermore, DTC may discontinue providing its
services as securities depository with respect to the Securities at any time by
giving reasonable notice to Issuer or Agent. Under any of the aforementioned
circumstances, at DTC's request, Issuer and Agent shall cooperate fully with DTC
by taking appropriate action to make available one or more separate certificates
evidencing Securities to any Participant having Securities credited to its DTC
accounts.
4. Issuer and Agent acknowledge that so long as Cede & Co. is a record
owner of the Securities, Cede & Co., shall be entitled to all applicable voting
rights and to receive the full amount of all distributions payable with respect
thereto. Issuer and Agent acknowledge that DTC shall treat any DTC Participant
("Participant") having Securities credited to its DTC accounts as entitled to
the full benefits of ownership of such Securities. Without limiting the
generality of the preceding sentence, Issuer and Agent acknowledge that DTC
shall treat any Participant having Securities credited to its DTC accounts as
entitled to receive distributions (and voting rights, if any) in respect of
Securities, and to receive from DTC certificates evidencing Securities. Issuer
and Agent recognize that DTC does not in any way undertake to, and shall not
have any responsibility to, monitor or ascertain the compliance of any
transactions in the Securities with any of the provisions: (a) of Rule 144A; (b)
of other exemptions from registration under the Securities Act or of any state
or federal securities laws; or (c) of the offering documents.
EXHIBIT C
THIS CERTIFICATE IS NOT TRANSFERABLE
Certificate Number
Number of Common Securities
C-0001 __________
Certificate Evidencing Common Securities
of
USF&G Capital III
8.312% Common Securities
(liquidation amount $1,000 per Common Security)
USF&G Capital III, a statutory business trust formed under the Business
Trust Act of the State of Delaware (the "Trust"), hereby certifies that
___________________ (the "Holder") is the registered owner of
___________________ (__________) common securities of the Trust representing
beneficial interests of the Trust and designated the 8.312% Common Securities
(liquidation amount $1,000 per common security) (the "Common Securities"). In
accordance with Section 5.11 of the Trust Agreement (as defined below), the
Common Securities are not transferable and any attempted transfer hereof shall
be void. The designations, rights, privileges, restrictions, preferences and
other terms and provisions of the Common Securities are set forth in, and this
certificate and the Common Securities represented hereby are issued and shall in
all respects be subject to the terms and provisions of, the Amended and Restated
Trust Agreement of the Trust, dated as of July 8, 1997, as the same may be
amended from time to time (the "Trust Agreement"), including the designation of
the terms of the Common Securities as set forth therein. The Trust will furnish
a copy of the Trust Agreement to the Holder without charge upon written request
to the Trust at its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
IN WITNESS WHEREOF, one of the Administrators of the Trust has executed
this certificate this 8th day of July, 1997.
USF&G CAPITAL III
By:___________________________
Name: J. Kendall Huber
Title: Administrator
EXHIBIT D
AGREEMENT AS TO EXPENSES AND LIABILITIES
AGREEMENT dated as of July 8, 1997, between USF&G Corporation, a
Maryland corporation ("USF&G Corporation"), and USF&G Capital III, a Statutory
business trust formed under the Business Trust Act of the State of Delaware (the
"Trust").
WHEREAS, the Trust intends to issue its Common Securities (the "Common
Securities") to and receive Debentures from USF&G Corporation and to issue and
sell 8.312% Capital Securities, Series C (the "Capital Securities") with such
powers, preferences and special rights and restrictions as are set forth in the
Amended and Restated Trust Agreement of the Trust, dated as of July 8, 1997, as
the same may be amended from time to time (the "Trust Agreement");
WHEREAS, USF&G Corporation will directly or indirectly own all of the
Common Securities of the Trust and will issue the Debentures;
NOW, THEREFORE, in consideration of the purchase by each holder of the
Capital Securities, which purchase USF&G Corporation hereby agrees shall benefit
USF&G Corporation and which purchase USF&G Corporation acknowledges will be made
in reliance upon the execution and delivery of this Agreement, USF&G Corporation
and the Trust hereby agree as follows:
ARTICLE I
SECTION 1.1. Guarantee by USF&G Corporation.
Subject to the terms and conditions hereof, USF&G Corporation hereby
irrevocably and unconditionally guarantees to each person or entity to whom the
Trust is now or hereafter becomes indebted or liable (the "Beneficiaries") the
full payment, when and as due, of any and all Obligations (as hereinafter
defined) to such Beneficiaries. As used herein, "Obligations" means any costs,
expenses or liabilities of the Trust (including, without limitation, any tax
liability of the Trust), other than obligations of the Trust to pay to holders
of any Capital Securities or other similar interests in the Trust the amounts
due such holders pursuant to the terms of the Capital Securities or such other
similar interests, as the case may be. This Agreement is intended to be for the
benefit of, and to be enforceable by, all such Beneficiaries, whether or not
such Beneficiaries have received notice hereof.
SECTION 1.2. Term of Agreement.
This Agreement shall terminate and be of no further force and effect
upon the later of (a) the date on which full payment has been made of all
amounts payable to all holders of all the Capital Securities (whether upon
redemption, liquidation, exchange or otherwise) and (b) the date on which there
are no Beneficiaries remaining; provided, however, that this Agreement shall
continue to be effective or shall be reinstated, as the case may be, if at any
time any holder of Capital Securities or any Beneficiary must restore payment of
any sums paid under the Capital Securities, under any Obligation, under the
Guarantee Agreement dated the date hereof by USF&G Corporation and The Bank of
New York, as guarantee trustee or under this Agreement for any reason
whatsoever. This Agreement is continuing, irrevocable, unconditional and
absolute.
SECTION 1.3. Waiver of Notice.
USF&G Corporation hereby waives notice of acceptance of this Agreement
and of any Obligation to which it applies or may apply, and USF&G Corporation
hereby waives presentment, demand for payment, protest, notice of nonpayment,
notice of dishonor, notice of redemption and all other notices and demands.
SECTION 1.4. No Impairment.
The obligations, covenants, agreements and duties of USF&G Corporation
under this Agreement shall in no way be affected or impaired by reason of the
happening from time to time of any of the following:
(a) the extension of time for the payment by the Trust of all or
any portion of the Obligations or for the performance of any other obligation
under, arising out of, or in connection with, the obligations;
(b) any failure, omission, delay or lack of diligence on the part of
the Beneficiaries to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Beneficiaries with respect to the Obligations or any
action on the part of the Trust granting indulgence or extension of any kind; or
(c) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Trust or any of the assets of the
Trust.
There shall be no obligation of the Beneficiaries to give notice to, or obtain
the consent of, USF&G Corporation with respect to the happening of any of the
foregoing.
SECTION 1.5. Enforcement.
A Beneficiary may enforce this Agreement directly against USF&G
Corporation and USF&G Corporation waives any right or remedy to require that any
action be brought against the Trust or any other person or entity before
proceeding against USF&G Corporation.
SECTION 1.6. Subrogation.
USF&G Corporation shall be subrogated to all (if any) rights of the
Trust in respect of any amounts paid to the Beneficiaries by USF&G Corporation
under this Agreement; provided, however, that USF&G Corporation shall not
(except to the extent required by mandatory provisions of law) be entitled to
enforce or exercise any rights which it may acquire by way of subrogation or any
indemnity, reimbursement or other agreement, in all cases as a result of payment
under this Agreement, if, at the time of any such payment, any amounts are due
and unpaid under this Agreement.
ARTICLE II
SECTION 2.1. Binding Effect.
All guarantees and agreements contained in this Agreement shall bind
the successors, assigns, receivers, trustees and representatives of USF&G
Corporation and shall inure to the benefit of the Beneficiaries.
SECTION 2.2. Amendment.
So long as there remains any Beneficiary or any Capital Securities of
any series are outstanding, this Agreement shall not be modified or amended in
any manner adverse to such Beneficiary or to the holders of the Capital
Securities.
SECTION 2.3. Notices.
Any notice, request or other communication required or permitted to be
given hereunder shall be given in writing by delivering the same against receipt
therefor by facsimile transmission (confirmed by mail), telex or by registered
or certified mail, addressed as follows (and if so given, shall be deemed given
when mailed or upon receipt of an answer-back, if sent by telex):
USF&G Capital III
c/o USF&G Corporation
6225 Smith Avenue
Baltimore, Maryland 21209
Attention: Treasurer
USF&G Corporation
6225 Smith Avenue
Baltimore, Maryland 21209
Facsimile No.: (410) 205-6672
Attention: Treasurer
SECTION 2.4. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE.
THIS AGREEMENT is executed as of the day and year first above written.
USF&G CORPORATION
By: _____________________________
Name: Dan L. Hale
Title: Executive Vice President,
Chief Financial Officer
USF&G Capital III
By: _____________________________
Name: J. Kendall Huber
Title: Administrator
EXHIBIT E-1
CAPITAL SECURITIES CERTIFICATE (BOOK-ENTRY)
[FACE OF CERTIFICATE]
THIS SECURITY IS A GLOBAL CAPITAL SECURITIES CERTIFICATE WITHIN THE
MEANING OF THE TRUST AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE
NAME OF THE DEPOSITORY TRUST COMPANY (THE "DEPOSITORY") OR A NOMINEE OF THE
DEPOSITORY. THE CAPITAL SECURITIES REPRESENTED HEREBY ARE EXCHANGEABLE IN WHOLE
OR IN PART FOR CAPITAL SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN
THE DEPOSITORY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
TRUST AGREEMENT AND NO TRANSFER OF THE CAPITAL SECURITIES REPRESENTED HEREBY
(OTHER THAN A TRANSFER OF SUCH CAPITAL SECURITIES AS A WHOLE BY THE DEPOSITORY
TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE
DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN
SUCH LIMITED CIRCUMSTANCES.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE TRUST OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE CAPITAL SECURITIES EVIDENCED HEREBY AND ANY JUNIOR SUBORDINATED
DEBENTURES ISSUABLE IN CONNECTION THEREWITH HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) BY THE
INITIAL PURCHASERS (I) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) IN AN
OFFSHORE TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 903 OR RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND (B) BY SUBSEQUENT INVESTORS AS SET FORTH IN (A) ABOVE AND, IN
ADDITION, TO AN INSTITUTIONAL ACCREDITED INVESTOR (AS DEFINED IN REGULATION D
UNDER THE SECURITIES ACT) IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER JURISDICTIONS OF THE UNITED
STATES. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION
PROVIDED BY RULE 144 FOR RESALES OF THE CAPITAL SECURITIES OR THE JUNIOR
SUBORDINATED DEBENTURES. IN ADDITION, THE CAPITAL SECURITIES EVIDENCED HEREBY
MAY BE TRANSFERRED ONLY IN BLOCKS HAVING A LIQUIDATION AMOUNT OF NOT LESS THAN
$100,000 (100 CAPITAL SECURITIES). 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 LEGAL EFFECT WHATSOEVER.
THE CAPITAL SECURITIES EVIDENCED HEREBY MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED TO ANY PERSON UNLESS SUCH PERSON (A) IS NOT ITSELF, AND IS
NOT ACQUIRING CAPITAL SECURITIES WITH "PLAN ASSETS" OF, AN EMPLOYEE BENEFIT OR
OTHER PLAN SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE") (EACH, A "PLAN"), OR ANY ENTITY WHOSE UNDERLYING
ASSETS INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S INVESTMENT IN THE ENTITY (A
"PLAN ASSET ENTITY") OR (B) IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER
PTCE 96-23, 95-60, 91-38, 90-1 OR 84-14 WITH RESPECT TO SUCH PURCHASE, HOLDING
OR OTHER TRANSFER OF CAPITAL SECURITIES.
THE HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE
FOREGOING RESTRICTIONS.
Certificate Number Number of Capital Securities
PG-
CUSIP NO.
Certificate Evidencing Capital Securities of
USF&G Capital III
8.312% Capital Securities, Series C
(liquidation amount $1,000 per Capital Security)
USF&G Capital III, a business trust created under the laws of the State
of Delaware (the "Trust"), hereby certifies that CEDE & CO. (the "Holder") is
the registered owner of one hundred thousand (100,000) capital securities of the
Trust representing an undivided beneficial interest in the assets of the Trust
and designated the USF&G Capital III 8.312% Capital Securities, Series C
(liquidation amount $1,000 per Capital Security) (the "Capital Securities"), or
such other amount (which, when taken together with all other outstanding Capital
Securities, shall not exceed 100,000 Capital Securities in the aggregate at any
time) as may be set forth in the records of the Securities Registrar. The
Capital Securities are transferable on the books and records of the Trust, in
person or by a duly authorized attorney, upon surrender of this certificate duly
endorsed and in proper form for transfer as provided in Section 5.5 of the Trust
Agreement (as defined below). The designations, rights, privileges,
restrictions, preferences and other terms and provisions of the Capital
Securities are set forth in, and this certificate and the Capital Securities
represented hereby are issued and shall in all respects be subject to the terms
and provisions of, the Amended and Restated Trust Agreement of the Trust dated
as of July 8, 1997, 1996, as the same may be amended from time to time (the
"Trust Agreement") including the designation of the terms of Capital Securities
as set forth therein. The Holder is entitled to the benefits of the Guarantee
Agreement entered into by USF&G Corporation, a Maryland corporation, and The
Bank of New York, as guarantee trustee, dated as of July 8, 1997 (the
"Guarantee"), to the extent provided therein. The Trust will furnish a copy of
the Trust Agreement and the Guarantee to the Holder without charge upon written
request to the Trust at its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
This Certificate is not valid unless authenticated by the Property
Trustee.
WITNESS the signature of a duly authorized Administrator of the Trust.
Dated: July 8, 1997 USF&G CAPITAL III
By:___________________________
Name:
Administrator
Authenticated:
THE BANK OF NEW YORK
By:_____________________
Property Trustee
EXHIBIT E-2
CAPITAL SECURITIES CERTIFICATE
THE CAPITAL SECURITIES EVIDENCED HEREBY AND ANY JUNIOR SUBORDINATED
DEBENTURES ISSUABLE IN CONNECTION THEREWITH HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) BY THE
INITIAL PURCHASERS (I) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) IN AN
OFFSHORE TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 903 OR RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND (B) BY SUBSEQUENT INVESTORS AS SET FORTH IN (A) ABOVE AND, IN
ADDITION, TO AN INSTITUTIONAL ACCREDITED INVESTOR (AS DEFINED IN REGULATION D
UNDER THE SECURITIES ACT) IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER JURISDICTIONS OF THE UNITED
STATES. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION
PROVIDED BY RULE 144 FOR RESALES OF THE CAPITAL SECURITIES OR THE JUNIOR
SUBORDINATED DEBENTURES. IN ADDITION, THE CAPITAL SECURITIES EVIDENCED HEREBY
MAY BE TRANSFERRED ONLY IN BLOCKS HAVING A LIQUIDATION AMOUNT OF NOT LESS THAN
$100,000 C100 CAPITAL SECURITIES. 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 LEGAL EFFECT WHATSOEVER.
THE CAPITAL SECURITIES EVIDENCED HEREBY MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED TO ANY PERSON UNLESS SUCH PERSON (A) IS NOT ITSELF, AND IS
NOT ACQUIRING CAPITAL SECURITIES WITH "PLAN ASSETS" OF, AN EMPLOYEE BENEFIT OR
OTHER PLAN SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE") (EACH, A "PLAN"), OR ANY ENTITY WHOSE UNDERLYING
ASSETS INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S INVESTMENT IN THE ENTITY (A
"PLAN ASSET ENTITY") OR (B) IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER
PTCE 96-23, 95-60, 91-38, 90-1 OR 84-14 WITH RESPECT TO SUCH PURCHASE, HOLDING
OR OTHER TRANSFER OF CAPITAL SECURITIES.
THE HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE
FOREGOING RESTRICTIONS.
Certificate Number Number of Capital Securities
CUSIP NO. ___________
Certificate Evidencing Capital Securities of
USF&G Capital III
8.312% Capital Securities, Series C
(liquidation amount $1,000 per Capital Security)
USF&G Capital III, a business trust created under the laws of the State
of Delaware (the "Trust"), hereby certifies that _____________ (the "Holder") is
the registered owner of ( ) capital securities of the Trust representing an
undivided beneficial interest in the assets of the Trust and designated the
USF&G Capital III 8.312% Capital Securities, Series C (liquidation amount $1,000
per Capital Security) (the "Capital Securities"). The Capital Securities are
transferable on the books and records of the Trust, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer as provided in Section 5.4 of the Trust Agreement (as
defined below). The designations, rights, privileges, restrictions, preferences
and other terms and provisions of the Capital Securities are set forth in, and
this certificate and the Capital Securities represented hereby are issued and
shall in all respects be subject to the terms and provisions of, the Amended and
Restated Trust Agreement of the Trust dated as of July 8, 1997, as the same may
be amended from time to time (the "Trust Agreement") including the designation
of the terms of Capital Securities as set forth therein. The Holder is entitled
to the benefits of the Guarantee Agreement entered into by USF&G Corporation, a
Maryland corporation, and The Bank of New York, as guarantee trustee, dated as
of July 8, 1997 (the "Guarantee"), to the extent provided therein. The Trust
will furnish a copy of the Trust Agreement and the Guarantee to the Holder
without charge upon written request to the Trust at its principal place of
business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
This Certificate is not valid unless authenticated by the Property
Trustee. WITNESS the signature of a duly authorized Administrator of
the Trust.
Dated: July 8, 1997 USF&G CAPITAL III
By: ___________________________________
Name:
Administrator
Authenticated:
THE BANK OF NEW YORK
By: ______________________
Property Trustee
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers
___________________________________ Capital Securities represented by the within
(Transfer of fewer than 100 Capital Securities are prohibited)
Certificate to:
- -------------------------------------------------------------------------------
(Insert assignee's name)
- -------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints_______________________________________________________
- -------------------------------------------------------------------------------
agent to transfer said Capital Securities on the books of the Trust. The agent
may substitute another to act for him or her.
Date: _________________________
Signature: ____________________________________________________________________
(Sign exactly as your name appears on the other side of this
Capital Security Certificate)
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
EXHIBIT F -- Form of Restricted
Securities Certificate
RESTRICTED SECURITIES CERTIFICATE
(For transfers pursuant to ss. 5.5(b) of the Trust Agreement)
[-------------------------],
as Security Registrar
[address]
Re: 8.312% Capital Securities, Series C of USF&G Capital III
the "Trust") (the "Capital Securities")
Reference is made to the Amended and Restated Trust Agreement,
dated as of July 8, 1997 (the "Trust Agreement"), among USF&G Corporation, as
Depositor, The Bank of New York, as Property Trustee, and The Bank of New York
(Delaware), as Delaware Trustee. Terms used herein and defined in the Trust
Agreement or in Regulation S, Rule 144A or Rule 144 under the U.S. Securities
Act of 1933 (the "Securities Act") are used herein as so defined.
This certificate relates to $_____________ aggregate
Liquidation Amount of Capital Securities, which are evidenced by the following
certificate(s) (the "Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
CURRENTLY IN BOOK-ENTRY FORM: _____ Yes _____ No (check one)
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Book-Entry Capital Securities
Certificate, they are held through the Clearing Agency or a Clearing Agency
Participant in the name of the Undersigned, as or on behalf of the Owner. If the
Specified Securities are not represented by a Book-Entry Capital Securities
Certificate, they are registered in the name of the Undersigned, as or on behalf
of the Owner.
The Owner has requested that the Specified Securities be
transferred to a person (the "Transferee") who will take delivery in the form of
a Restricted Capital Security. In connection with such transfer, the Owner
hereby certifies that, unless such transfer is being effected pursuant to an
effective registration statement under the Securities Act, it is being effected
in accordance with Rule 144A, Rule 904 or Rule 144 under the Securities Act and
all applicable securities laws of the states of the United States and other
jurisdictions. Accordingly, the Owner hereby further certifies as:
(1) Rule 144A Transfers. If the transfer is being effected in
accordance with Rule 144A:
(A) the Specified Securities are being transferred to
a person that the Owner and any person acting on its behalf
reasonably believe is a "qualified institutional buyer" within
the meaning of Rule 144A, acquiring for its own account or for
the account of a qualified institutional buyer; and
(B) the Owner and any person acting on its behalf
have taken reasonable steps to ensure that the Transferee is
aware that the Owner may be relying on Rule 144A in connection
with the transfer; and
(2) Rule 904 Transfers. If the transfer is being effected in
accordance with Rule 904:
(A) the Owner is not a distributor of the Securities,
an affiliate of the Depositor or the Trust or any such
distributor or a person acting on behalf of any of the
foregoing;
(B) the offer of the Specified Securities was not
made to a person in the United States;
(C) either;
(i) at the time the buy order was
originated, the Transferee was outside the United
States or the Owner and any person acting on its
behalf reasonably believed that the Transferee was
outside the United States, or
(ii) the transaction is being executed in,
on or through the facilities of the Eurobond market,
as regulated by the Association of International Bond
Dealers, or another designated offshore securities
market and neither the Owner nor any person acting on
its behalf knows that the transaction has been
prearranged with a buyer in the United States;
(D) no directed selling efforts have been made in the
United States by or on behalf of the Owner or any affiliate
thereof; and
(3) Rule 144 Transfers. If the transfer is being effected
pursuant to Rule 144:
(A) the transfer is occurring after a holding period
of at least one year (computed in accordance with paragraph
(d) of Rule 144) has elapsed since the date the Specified
Securities were acquired from the Depositor or the Trust or
from an affiliate (as such term is defined in Rule 144) of the
Depositor or the Trust, whichever is later, and is being
effected in accordance with the applicable amount, manner of
sale and notice requirements of paragraphs (e), (f) and (h) of
Rule 144; or
(B) the transfer is occurring after a holding period
of at least two years has elapsed since the date the Specified
Securities were acquired from the Depositor or the Trust or
from an affiliate (as such term is defined in Rule 144) of the
Depositor or the Trust, whichever is later, and the Owner is
not, and during the preceding three months has not been, an
affiliate of the Depositor or the Trust.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Depositor, the Trust and the Initial
Purchasers.
Dated: ____________________________________________
(Print the name of the Undersigned, as such
term is defined in the second paragraph of
this certificate.)
By:________________________________________
Name:
Title:
(If the Undersigned is a corporation,
partnership or fiduciary, the title of the
person signing on behalf of the Undersigned
must be stated.)
EXHIBIT G -- Form of Unrestricted
Securities Certificate
UNRESTRICTED SECURITIES CERTIFICATE
(For removal of Restricted Capital Securities Legends pursuant to ss. 5.5(c)
of the Trust Agreement)
[-------------------------],
as Security Registrar
[address]
Re: 8.312% Capital Securities, Series C of USF&G Capital III
(the "Trust") (the "Capital Securities")
Reference is made to the Amended and Restated Trust Agreement,
dated as of July 8, 1997 (the "Trust Agreement"), among USF&G Corporation, as
Depositor, The Bank of New York, as Property Trustee, and The Bank of New York
(Delaware), as Delaware Trustee. Terms used herein and defined in the Trust
Agreement or in Rule 144 under the U.S. Securities Act of 1933 (the "Securities
Act") are used herein as so defined.
This certificate relates to $_____________ aggregate
Liquidation Amount of Capital Securities, which are evidenced by the following
certificate(s) (the "Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
CURRENTLY IN BOOK-ENTRY FORM: _____ Yes _____ No (check one)
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Book-Entry Capital Securities
Certificate, they are held through the Clearing Agency or a Clearing Agency
Participant in the name of the Undersigned, as or on behalf of the Owner. If the
Specified Securities are not represented by a Book-Entry Capital Securities
Certificate, they are registered in the name of the Undersigned, as or on behalf
of the Owner.
The Owner has requested that the Specified Securities be
exchanged for Capital Securities bearing no Restricted Capital Securities Legend
pursuant to Section 5.5(c) of the Trust Agreement. In connection with such
exchange, the Owner hereby certifies that a period of at least two years has
elapsed since the date the Specified Securities were acquired from the Depositor
or the Trust or from an affiliate of the Depositor or the Trust and the Owner is
not, and during the preceding three months has not been, an affiliate of the
Depositor or the Trust. The Owner also acknowledges that any future transfers of
the Specified Securities must comply with all applicable securities laws of the
states of the United States and other jurisdictions.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Depositor, the Trust and the Initial
Purchasers.
Dated: ____________________________________________
(Print the name of the Undersigned, as such
term is defined in the second paragraph of
this certificate.)
By:_______________________________________
Name:
Title:
(If the Undersigned is a corporation,
partnership or fiduciary, the title of the
person signing on behalf of the Undersigned
must be stated.)
(Footnote 1) A "Legally Restricted Security" is a security that is a restricted
security, as defined in Rule 144(a)(3). A "Contractually Restricted Security" is
a security that upon issuance and continually thereafter can only be sold
pursuant to Regulation S under the Securities Act, Rule 144A, Rule 144, or in a
transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4 of the Securities Act and not involving any public
offering; provided, however, that once the security is sold pursuant to the
provisions of Rule 144, including Rule 144(k), it will thereby cease to be a
"Contractually Restricted Security." For purposes of this definition, in order
for a depositary receipt to be considered a "Legally or Contractually Restricted
Security," the underlying security must also be a "Legally or Contractually
Restricted Security."
<PAGE>
USF&G CORPORATION
to
THE BANK OF NEW YORK
Trustee
JUNIOR SUBORDINATED INDENTURE
Dated as of July 8, 1997
JUNIOR SUBORDINATED INDENTURE, dated as of July 8, 1997, between USF&G
Corporation, a Maryland corporation (hereinafter called the "Company") having
its principal office at 6225 Smith Avenue, Baltimore, Maryland 21209, and THE
BANK OF NEW YORK, a New York banking corporation, as Trustee (hereinafter called
the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured junior
subordinated debt securities in series (hereinafter called the "Securities") of
substantially the tenor hereinafter provided, including, without limitation,
Securities issued to evidence loans made to the Company of the proceeds from the
issuance from time to time by one or more business trusts (each a "USF&G Trust,"
and, collectively, the "USF&G Trusts") of preferred trust interests in such
Trusts (the "Capital Securities") and common interests in such Trusts (the
"Common Securities" and, collectively with the Capital Securities, the "Trust
Securities"), and to provide the terms and conditions upon which the Securities
are to be authenticated, issued and delivered.
All things necessary to make the Securities, when executed by the Company
and authenticated and delivered hereunder and duly issued by the Company, the
valid obligations of the Company, and to make this Indenture a valid agreement
of the Company, in accordance with their and its terms, have been done.
NOW THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the
premises and the purchase of the Securities by the Holders thereof, it is
mutually covenanted and agreed, for the equal and proportionate benefit of all
Holders of the Securities or of any series thereof, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) The terms defined in this Article have the meanings assigned to them in
this Article, and include the plural as well as the singular;
(2) All other terms used herein which are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(3) All accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles,
and the term "generally accepted accounting principles" with respect to any
computation required or permitted hereunder shall mean such accounting
principles which are generally accepted at the date or time of such computation;
provided, that when two or more principles are so generally accepted, it shall
mean that set of principles consistent with those in use by the Company; and
(4) The words "herein," "hereof" and "hereunder" and other words of similar
import refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision.
"Act" when used with respect to any Holder has the meaning specified in
Section 1.4.
"Additional Interest" means the interest, if any, that shall accrue on any
interest on the Securities of any series the payment of which has not been made
on the applicable Interest Payment Date and which shall accrue at the rate per
annum specified or determined as specified in such Security.
"Additional Sums" has the meaning specified in Section 10.6.
"Additional Taxes" means the sum of any additional taxes, duties and other
governmental charges to which a USF&G Trust has become subject from time to time
as a result of a Tax Event.
"Administrator" means, in respect of any USF&G Trust, each Person
identified as an "Administrator" in the related Trust Agreement, solely in such
Person's capacity as Administrator of such USF&G Trust under such Trust
Agreement and not in such Person's individual capacity, or any successor
administrator appointed as therein provided.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person; provided, however, no USF&G Trust to which
Securities have been issued shall be deemed to be an Affiliate of the Company.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agent Member" means any member of, or participant in, the Depository.
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Global Security or beneficial interest therein, the rules and
procedures of the Depository for such Security, in each case to the extent
applicable to such transaction and as in effect from time to time.
"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 6.14 to act on behalf of the Trustee to authenticate Securities of
one or more series.
"USF&G Guarantee" means the guarantee by the Company of distributions on
the Capital Securities of a USF&G Trust to the extent provided in the Guarantee
Agreement.
"USF&G Trust" has the meaning specified in the first recital of this
Indenture.
"Board of Directors" means either the board of directors of the Company or
any executive committee or other committee of that board duly authorized to
act hereunder.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors, or officers of the Company to which authority to act on behalf of
the Board of Directors has been delegated, and to be in full force and effect on
the date of such certification, and delivered to the Trustee.
"Business Day" means any day other than (i) a Saturday or Sunday, (ii) a
day on which banking institutions in the City of New York are authorized or
required by law or executive order to remain closed or (iii) a day on which the
Corporate Trust Office of the Trustee, or, with respect to the Securities of a
series initially issued to a USF&G Trust, the principal office of the Property
Trustee under the related Trust Agreement, is closed for business.
"Capital Securities" has the meaning specified in the first recital of this
Indenture.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties on such date.
"Common Securities" has the meaning specified in the first recital of this
Indenture.
"Common Stock" means the common stock, par value $2.50 per share, of the
Company.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor corporation shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor corporation.
"Company Request" and "Company Order" mean, respectively, the written
request or order signed in the name of the Company by the Chairman of the Board
of Directors, the Chairman of the Executive Committee of the Board of Directors,
a Vice Chairman of the Board of Directors, the Chief Executive Officer, the
President, the Chief Operating Officer, a Vice Chairman or a Vice President, and
by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary of the Company, and delivered to the Trustee.
"Corporate Trust Office" means the principal office of the Trustee at which
at any particular time its corporate trust business shall be administered, which
office as of the date of this Indenture is located at 101 Barclay Street, Floor
21W, New York, New York 10286.
"Corporation" includes a corporation, association, company, joint-stock
company or business trust.
"Defaulted Interest" has the meaning specified in Section 3.7.
"Depository" means, with respect to the Securities of any series issuable
or issued in whole or in part in the form of one or more Global Securities, the
Person designated as Depository by the Company pursuant to Section 3.1 with
respect to such series (or any successor thereto).
"Discount Security" means any security which provides for an amount less
than the principal amount thereof to be due and payable upon a declaration of
acceleration of the Maturity thereof pursuant to Section 5.2.
"Distributions," with respect to the Trust Securities issued by a USF&G
Trust, means amounts payable in respect of such Trust Securities as provided in
the related Trust Agreement and referred to therein as "Distributions."
"Dollar" means the currency of the United States of America that, as
at the time of payment, is legal tender for the payment of public and private
debts.
"DTC" means The Depository Trust Company.
"Event of Default" unless otherwise specified in the supplemental indenture
creating a series of Securities has the meaning specified in Article V.
"Exchange Act" means the Securities Exchange Act of 1934 and any statute
successor thereto, in each case as amended from time to time.
"Extension Period" has the meaning specified in Section 3.11.
"Global Security" means a Security in the form prescribed in Section 2.4
evidencing all or part of a series of Securities, issued to the Depository or
its nominee for such series, and registered in the name of such Depository or
its nominee.
"Guarantee Agreement" means the Guarantee Agreement substantially in the
form attached hereto as Annex C, or substantially in such form as may be
specified as contemplated by Section 3.1 with respect to the Securities of any
series, in each case as amended from time to time.
"Hedging Obligations" means, with respect to any Person, all obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) foreign exchange contracts,
currency swap agreements or similar agreements, and (iii) other agreements or
arrangements designed to protect such Person against fluctuations, or otherwise
to establish financial hedges in respect of, exchange rates, currency rates or
interest rates.
"Holder" means a Person in whose name a Security is registered in the
Securities Register.
"Indebtedness" means (without duplication and without regard to any portion
of principal amount that has not accrued and to any interest component thereof
(whether accrued or imputed) that is not due and payable) with respect to any
Person, whether recourse is to all or a portion of the assets of such Person and
whether or not contingent, (i) every obligation of such Person for money
borrowed, (ii) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses, (iii) every
reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person, (iv) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business), (v) every
capital lease obligation of such Person, (vi) every Hedging Obligation, (vii)
every obligation of others secured by a lien on any asset of such Person,
whether or not such obligation is assumed by such Person, (viii) every
obligation of the type referred to in clauses (i) through (vii) of another
Person and all dividends of another Person the payment of which, in either case,
such Person has guaranteed or is responsible or liable, directly or indirectly,
as obligor or otherwise, and (ix) any and all deferrals, renewals, extensions
and refundings of, or amendments, modifications or supplements to any liability
of the kind described in any of the preceding clauses (i) through (viii).
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof and shall
include the terms of each particular series of Securities established as
contemplated by Section 3.1.
"Institutional Accredited Investor" means an institutional accredited
investor within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D
under the Securities Act.
"Intercompany Indebtedness" means Indebtedness of the Company to any of its
directly or indirectly owned Subsidiaries.
"Interest Payment Date" means as to each series of Securities the Stated
Maturity of an installment of interest on such Securities.
"Junior Subordinated Debt" means any obligation of the Company to its
creditors, whether now outstanding or subsequently incurred, where the
instrument creating or evidencing the obligations pursuant to which the
obligation provides that it is subordinated and junior in right of payment to
Senior Indebtedness pursuant to subordination provisions substantially similar
to those set forth in this Indenture. Junior Subordinated Debt includes the
Securities.
"Maturity" when used with respect to any Security means the date on which
the principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc.
"Notice of Default" means a written notice of the kind specified in
Section 5.1(3).
"Officers' Certificate" means a certificate signed by the Chairman of the
Board of Directors, a Vice Chairman of the Board of Directors, the President or
a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or
an Assistant Secretary of the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company, and who shall be acceptable to the Trustee.
"Original Issue Date" means the date of issuance specified as such in each
Security.
"Other Securities" means Securities transferred, upon exchange or
otherwise, to holders of "Other Capital Securities" as defined in the related
Trust Agreement.
"Outstanding" means, when used in reference to any Securities, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Securities for whose payment money in the necessary amount has been
theretofore deposited with the Trustee or any Paying Agent in trust for the
Holders of such Securities; and
(iii) Securities in substitution for or in lieu of which other Securities
have been authenticated and delivered or which have been paid pursuant to
Section 3.6, unless proof satisfactory to the Trustee is presented that any such
Securities are held by Holders in whose hands such Securities are valid, binding
and legal obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which a Responsible Officer of the Trustee
knows to be so owned shall be so disregarded. Securities so owned which have
been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or such other
obligor. Upon the written request of the Trustee, the Company shall furnish to
the Trustee promptly an Officers' Certificate listing and identifying all
Securities, if any, known by the Company to be owned or held by or for the
account of the Company, or any other obligor on the Securities or any Affiliate
of the Company or such obligor, and, subject to the provisions of Section 6.1,
the Trustee shall be entitled to accept such Officers' Certificate as conclusive
evidence of the facts therein set forth and of the fact that all Securities not
listed therein are Outstanding for the purpose of any such determination.
"Paying Agent" means the Trustee or any Person authorized by the Company
to pay the principal of (and premium, if any) or interest on any Securities on
behalf of the Company.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Place of Payment" means, with respect to the Securities of any series, the
place or places where the principal of (and premium, if any) and interest on the
Securities of such series are payable pursuant to Sections 3.1 and 3.11.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any security
authenticated and delivered under Section 3.6 in lieu of a lost, destroyed or
stolen Security shall be deemed to evidence the same debt as the lost, destroyed
or stolen Security.
"Proceeding" has the meaning specified in Section 13.2.
"Property Trustee" means, in respect of any USF&G Trust, the commercial
bank or trust company identified as the "Property Trustee" in the related Trust
Agreement, solely in its capacity as Property Trustee of such USF&G Trust under
such Trust Agreement and not in its individual capacity, or its successor in
interest in such capacity, or any successor property trustee appointed as
therein provided.
"Redemption Date," when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price," when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment Date
with respect to the Securities of a series means, unless otherwise provided
pursuant to Section 3.1 with respect to Securities of a series, the date which
is fifteen days next preceding such Interest Payment Date (whether or not a
Business Day).
"Regulation D" means Regulation D under the Securities Act (or any
successor provision), as it may be amended from time to time.
"Responsible Officer" means when used with respect to the Trustee, any
officer assigned to the Corporate Trust Office, including any managing director,
vice president, assistant vice president, assistant treasurer, assistant
secretary or any other officer of the Trustee customarily performing functions
similar to those performed by any of the above designated officers, and also,
with respect to a particular matter, any other officer, to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
"Restricted Security" means each Security required pursuant to Section
3.6(c) to bear a Restricted Securities Legend.
"Restricted Securities Certificate" means a certificate substantially in
the form set forth in Annex D.
"Restricted Securities Legend" means a legend substantially in the form
of the legend required in the form of Security set forth in Section 2.2 to be
placed upon a Restricted Security.
"Rights Plan" means a plan of the Company providing for the issuance by the
Company to all holders of its Common Stock of rights entitling the holders
thereof to subscribe for or purchase shares of Common Stock or any class or
series of preferred stock, which rights (i) are deemed to be transferred with
such shares of Common Stock, (ii) are not exercisable and (iii) are also issued
in respect of future issuances of Common Stock, in each case until the
occurrence of a specified event or events.
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard & Poor's Ratings Services.
"Securities" or "Security" means any debt securities or debt security, as
the case may be, authenticated and delivered under this Indenture.
"Securities Act" means the Securities Act of 1933 (or any successor
statute), as it may be amended from time to time.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 3.5.
"Senior Indebtedness" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company to the
extent that such claim for post-petition interest is allowed in such proceeding)
payable on, and fees, expenses, reimbursement obligations, indemnity obligations
and other amounts due on or in connection with, any Indebtedness incurred,
assumed or guaranteed by the Company, whether on or prior to the date of the
Indenture or thereafter incurred, assumed or guaranteed, unless, in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are not superior in right of
payment to the Securities or to other Indebtedness which is pari passu with the
Securities. Without limiting the generality of the foregoing, Senior
Indebtedness shall include (i) the Company's Zero Coupon Convertible
Subordinated Notes due 2009 and (ii) Intercompany Indebtedness, but does not
include the Company's 8 1/2% Deferrable Interest Junior Subordinated Debentures,
Series A or the Company's 8.47% Deferrable Interest Junior Subordinated
Debentures, Series B (which shall rank pari passu with the Securities).
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.7.
"Stated Maturity" when used with respect to any Security or any installment
of principal thereof or interest thereon means the date specified pursuant to
the terms of such Security as the date on which the principal of such Security
or such installment of interest is due and payable, in the case of such
principal, as such date may be shortened or extended as provided pursuant to the
terms of such Security and this Indenture.
"Subsidiary" means a corporation more than 50% of the outstanding voting
stock of which is owned, directly or indirectly, by the Company or by one or
more other Subsidiaries, or by the Company and one or more other Subsidiaries.
For purposes of this definition, "voting stock" means stock which ordinarily has
voting power for the election of directors, whether at all times or only so long
as no senior class of stock has such voting power by reason of any contingency.
"Successor Security" of any particular Security means every Security issued
after, and evidencing all or a portion of the same debt as that evidenced by,
such particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 3.6 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Tax Event" means the receipt by a USF&G Trust of an Opinion of Counsel (as
defined in the relevant Trust Agreement) experienced in such matters to the
effect that, as a result of any amendment to, or change (including any announced
prospective change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or therein, or
as a result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of the Capital Securities of such USF&G Trust, there is more than an
insubstantial risk that (i) such USF&G Trust is, or will be within 90 days of
the date of such Opinion of Counsel, subject to United States Federal income tax
with respect to income received or accrued on the corresponding series of
Securities issued by the Company to such USF&G Trust, (ii) interest payable by
the Company on such corresponding series of Securities is not, or within 90 days
of the date of such Opinion of Counsel, will not be, deductible by the Company,
in whole or in part, for United States Federal income tax purposes or (iii) such
USF&G Trust is, or will be within 90 days of the date of such Opinion of
Counsel, subject to more than a de minimis amount of other taxes, duties or
other governmental charges.
"Trust Agreement" means the Trust Agreement substantially in the form
attached hereto as Annex A, as amended by the form of Amended and Restated Trust
Agreement substantially in the form attached hereto as Annex B, or substantially
in such form as may be specified as contemplated by Section 3.1 with respect to
the Securities of any series, in each case as amended from time to time.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this instrument until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean or
include each Person who is then a Trustee hereunder and, if at any time there is
more than one such Person, "Trustee" as used with respect to the Securities of
any series shall mean the Trustee with respect to Securities of that series.
"Trust Indenture Act" means the Trust Indenture Act of 1939
(15 U.S.C.ss.ss.77aaa-77bbb), as amended and as in effect on the date as of
this Indenture, except as provided in Section 9.5.
"Trust Securities" has the meaning specified in the first recital of this
Indenture.
"Unrestricted Securities Certificate" means a certificate substantially in
the form set forth in Annex E.
"Vice President" when used with respect to the Company, means any duly
appointed vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
SECTION 1.2. Compliance Certificate and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent
(including covenants, compliance with which constitutes a condition precedent),
if any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent (including covenants compliance with which
constitute a condition precedent), if any, have been complied with, except that
in the case of any such application or request as to which the furnishing of
such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than the certificates provided
pursuant to Section 10.4) shall include:
(1) a statement that each individual signing such certificate or opinion
has read such covenant or condition and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether, in the opinion of each such individual, such
condition or covenant has been complied with.
SECTION 1.3. Forms of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions, or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.4. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given to or taken by Holders
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Holders in person or by an agent duly appointed in
writing; and, except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments is or are delivered to the
Trustee, and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by
the certificate of any notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a Person acting in other than his individual capacity, such certificate or
affidavit shall also constitute sufficient proof of his authority.
(c) The fact and date of the execution by any Person of any such instrument
or writing, or the authority of the Person executing the same, may also be
proved in any other manner which the Trustee deems sufficient and in accordance
with such reasonable rules as the Trustee may determine.
(d) The ownership of Securities shall be proved by the Securities Register.
(e) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Holder of any Security shall bind every future Holder of
the same Security and the Holder of every Security issued upon the transfer
thereof or in exchange therefor or in lieu thereof in respect of anything done
or suffered to be done by the Trustee or the Company in reliance thereon,
whether or not notation of such action is made upon such Security.
(f) The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities of any series entitled to
give, make or take any request, demand, authorization, direction, notice,
consent, waiver or other action provided or permitted by this Indenture to be
given, made or taken by Holders of Securities of such series, provided that the
Company may not set a record date for, and the provisions of this paragraph
shall not apply with respect to, the giving or making of any notice,
declaration, request or direction referred to in the next paragraph. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of the relevant series on such record date, and no other Holders,
shall be entitled to take the relevant action, whether or not such Holders
remain Holders after such record date, provided that no such action shall be
effective hereunder unless taken on or prior to the applicable Expiration Date
(as hereinafter in this Section 1.4(f) provided) by Holders of the requisite
principal amount of Outstanding Securities of such series on such record date.
Nothing in this paragraph shall be construed to prevent the Company from setting
a new record date for any action for which a record date has previously been set
pursuant to this paragraph (whereupon the record date previously set shall
automatically and with no action by any Person be canceled and of no effect),
and nothing in this paragraph shall be construed to render ineffective any
action taken by Holders of the requisite principal amount of Outstanding
Securities of the relevant series on the date such action is taken. Promptly
after any record date is set pursuant to this paragraph, the Company, at its own
expense, shall cause notice of such record date, the proposed action by Holders
and the applicable Expiration Date to be given to the Trustee in writing and to
each Holder of Securities of the relevant series in the manner set forth in
Section 1.6.
The Trustee may set any day as a record date for the purpose of determining
the Holders of Outstanding Securities of any series entitled to join in the
giving or making of (i) any Notice of Default, (ii) any declaration of
acceleration referred to in Section 5.2, (iii) any request to institute
proceedings referred to in Section 5.7(2) or (iv) any direction referred to in
Section 5.12, in each case with respect to Securities of such series. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of such series on such record date, and no other Holders, shall be
entitled to join in such notice, declaration, request or direction, whether or
not such Holders remain Holders after such record date, provided that no such
action shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of Outstanding
Securities of such series on such record date. Nothing in this paragraph shall
be construed to prevent the Trustee from setting a new record date for any
action for which a record date has previously been set pursuant to this
paragraph (whereupon the record date previously set shall automatically and with
no action by any Person be canceled and of no effect), and nothing in this
paragraph shall be construed to render ineffective any action taken by Holders
of the requisite principal amount of Outstanding Securities of the relevant
series on the date such action is taken. Promptly after any record date is set
pursuant to this paragraph, the Trustee, at the Company's expense, shall cause
notice of such record date, the proposed action by Holders and the applicable
Expiration Date to be given to the Company in writing and to each Holder of
Securities of the relevant series in the manner set forth in Section 1.6.
With respect to any record date set pursuant to this Section, the party
hereto which sets such record dates may designate any day as the "Expiration
Date" and from time to time may change the Expiration Date to any earlier or
later day, provided that no such change shall be effective unless notice of the
proposed new Expiration Date is given to the other party hereto in writing, and
to each Holder of Securities of the relevant series in the manner set forth in
Section 10.6, on or prior to the existing Expiration Date. If an Expiration Date
is not designated with respect to any record date set pursuant to this Section,
the party hereto which set such record date shall be deemed to have initially
designated the 180th day after such record date as the Expiration Date with
respect thereto, subject to its right to change the Expiration Date as provided
in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be
later than the 180th day after the applicable record date.
(g) Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Security may do so with regard to
all or any part of the principal amount of such Security or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.
SECTION 1.5. Notices, Etc. to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder, any holder of Capital Securities or the
Company shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Trustee at its Corporate Trust
office, or
(2) the Company by the Trustee, any Holder or any holder of Capital
Securities shall be sufficient for every purpose (except as otherwise provided
in Section 5.1) hereunder if in writing and mailed, first class, postage
prepaid, to the Company addressed to it at the address of its principal office
specified in the first paragraph of this instrument or at any other address
previously furnished in writing to the Trustee by the Company.
SECTION 1.6. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first class postage prepaid, to each Holder affected
by such event, at the address of such Holder as it appears in the Securities
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. In case, by reason of
the suspension of or irregularities in regular mail service or for any other
reason, it shall be impossible or impracticable to mail notice of any event to
Holders when said notice is required to be given pursuant to any provision of
this Indenture or of the relevant Securities, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice. Where this Indenture provides for notice in
any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
SECTION 1.7. Conflict with Trust Indenture Act.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by any of Sections 310 to 317, inclusive, of the Trust Indenture
Act through operation of Section 318(c) thereof, such imposed duties shall
control. This Indenture, the Company and the Trustee shall be deemed for all
purposes hereof to be subject to and governed by the Trust Indenture Act to the
same extent as would be the case if this Indenture were so qualified on the date
hereof.
SECTION 1.8. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 1.9. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
SECTION 1.10. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 1.11 Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors and
assigns, the holders of Senior Indebtedness, the Holders of the Securities and,
to the extent expressly provided in Sections 5.2, 5.8, 5.9, 5.11, 5.13, 9.1 and
9.2, the holders of Capital Securities, any benefit or any legal or equitable
right, remedy or claim under this Indenture.
SECTION 1.12. Governing Law.
This Indenture and the Securities shall be governed by and construed in
accordance with the laws of the State of New York.
SECTION 1.13. Non-Business Days.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or the Securities) payment of interest or
principal (and premium, if any) need not be made on such date, but may be made
on the next succeeding Business Day (and no interest shall accrue for the period
from and after such Interest Payment Date, Redemption Date or Stated Maturity,
as the case may be, until such next succeeding Business Day except that, if such
Business Day is in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day (in each case with the same force and
effect as if made on the Interest Payment Date or Redemption Date or at the
Stated Maturity).
ARTICLE II
SECURITY FORMS
SECTION 2.1. Forms Generally.
The Securities of each series and the Trustee's certificate of
authentication shall be in substantially the forms set forth in this Article, or
in such other form or forms as shall be established by or pursuant to a Board
Resolution or in one or more indentures supplemental hereto, in each case with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture and may have such letters, numbers
or other marks of identification and such legends or endorsements placed thereon
as may be required to comply with applicable tax laws or the rules of any
securities exchange or as may, consistently herewith, be determined by the
officers executing such securities, as evidenced by their execution of the
Securities. If the form of Securities of any series is established by action
taken pursuant to a Board Resolution, a copy of an appropriate record of such
action shall be certified by the Secretary or an Assistant Secretary of the
Company and delivered to the Trustee at or prior to the delivery of the Company
Order contemplated by Section 3.3 with respect to the authentication and
delivery of such Securities.
The Trustee's certificate of authentication shall be substantially in the
form set forth in this Article.
The definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods, if required by any securities
exchange on which the Securities may be listed, on a steel engraved border or
steel engraved borders or may be produced in any other manner permitted by the
rules of any securities exchange on which the Securities may be listed, all as
determined by the officers executing such Securities, as evidenced by their
execution of such securities.
Securities distributed to holders of Book-Entry Capital Securities upon the
dissolution of a USF&G Trust shall be distributed in the form of one or more
Global Securities registered in the name of a Depository or its nominee, and
deposited with the Security Registrar, as custodian for such Depository, or held
by such Depository, for credit by the Depository to the respective accounts of
the beneficial owners of the Securities represented thereby (or such other
accounts as they may direct). Securities distributed to holders of Capital
Securities other than Book-Entry Capital Securities upon the dissolution of a
USF&G Trust shall not be issued in the form of a Global Security or any other
form intended to facilitate book-entry trading in beneficial interests in such
Securities.
SECTION 2.2. Form of Face of Security.
THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) BY AN INVESTOR WHO WAS, PRIOR TO THE
DISTRIBUTION OF THIS SECURITY, HOLDING RELATED CAPITAL SECURITIES AS AN INITIAL
PURCHASER THEREOF (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE
TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 903 OR RULE 904 OF REGULATION
S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (4)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B)
BY SUBSEQUENT INVESTORS HOLDING THIS SECURITY IN BOOK-ENTRY FORM AS SET FORTH IN
(A) ABOVE AND, IN ADDITION, TO AN ACCREDITED INVESTOR (AS DEFINED IN REGULATION
D UNDER THE SECURITIES ACT) THAT IS AN INSTITUTIONAL INVESTOR IN A TRANSACTION
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER
JURISDICTIONS OF THE UNITED STATES. NO REPRESENTATION CAN BE MADE AS TO THE
AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 FOR RESALES OF THIS SECURITY.
THE HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE FOREGOING
RESTRICTIONS.
USF&G CORPORATION
(Title of Security)
CUSIP NO.
No. $
USF&G Corporation, a corporation organized and existing under the laws of
Maryland (hereinafter called the "Company", which term includes any successor
corporation under the Indenture hereinafter referred to), for value received,
hereby promises to pay to , or registered assigns, the principal sum of
Dollars, or such other principal amount as may be set forth in the
records of the Securities Registrar hereinafter referred to in accordance with
the Indenture, on , . The Company further promises to pay interest on
said principal sum from , or from the most recent interest payment date
(each such date, an "Interest Payment Date") on which interest has been paid or
duly provided for semi-annually (subject to deferral as set forth herein) in
arrears on [insert applicable Interest Payment Dates] of each year,
commencing , , at the rate of % per annum, until the principal hereof
shall have become due and payable, plus Additional Interest, if any, until the
principal hereof is paid or duly provided for or made available for payment
[if applicable, insert--and on any overdue principal and (without duplication
and to the extent that payment of such interest is enforceable under applicable
law) on any overdue installment of interest at the rate of % per annum,
compounded semi-annually]. The amount of interest payable for any period less
than a full interest period shall be computed on the basis of twelve 30-day
months and a 360-day year and the actual number of days elapsed in a partial
month in a period. The amount of interest payable for any full interest period
shall be computed by dividing the rate per annum by two. In the event that any
date on which interest is payable on this Security is not a Business Day, then a
payment of the interest payable on such date will be made on the next succeeding
day which is a Business Day (and without any interest or other payment in
respect of any such delay), except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on the date the payment was originally payable. A "Business Day" shall mean any
day other than (i) a Saturday or Sunday, (ii) a day on which banking
institutions in the City of New York are authorized or required by law or
executive order to remain closed or (iii) a day on which the Corporate Trust
Office of the Trustee, or the principal office of the Property Trustee under the
Trust Agreement hereinafter referred to for [insert reference to applicable
USF&G Trust] is closed for business. The interest installment so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Security
(or one or more Predecessor Securities is registered at the close of
business on the Regular Record Date for such interest installment, which shall
be the [insert definition of Regular Record Dates]. Any such interest
installment not so punctually paid or duly provided for shall forthwith cease to
be payable to the Holder on such Regular Record Date and may either be paid to
the Person in whose name this Security (or one or more Predecessor Securities)
is registered at the close of business on a Special Record Date for the payment
of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Securities of this series not less than 10 days prior to
such Special Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities of this series may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in said Indenture.
So long as no Event of Default has occurred and is continuing, the Company
shall have the right at any time during the term of this Security to defer
payment of interest on this Security, at any time or from time to time, for up
to ten consecutive semi-annual interest payment periods with respect to each
deferral period (each an "Extension Period"), during which Extension Periods the
Company shall have the right to make partial payments of interest on any
Interest Payment Date, and at the end of which the Company shall pay all
interest then accrued and unpaid on the Securities (together with Additional
Interest thereon to the extent permitted by applicable law); provided, however,
that no Extension Period shall extend beyond the Stated Maturity of the
principal of this Security; provided, further, that during any such Extension
Period, the Company shall not, and shall not permit any Subsidiary of the
Company to, (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of the
Company's capital stock, (ii) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities of the
Company (including other Securities) that rank pari passu in all respects with
or junior in interest to this Security or (iii) make any guarantee payments with
respect to any guarantee by the Company of the debt securities of any
Subsidiaries of the Company if such guarantee ranks pari passu with or junior in
interest to this Security (other than (a) in securities of the Company junior in
interest to the Securities, (b) any declaration of a dividend in connection with
the implementation of a Rights Plan, the issuance of any Common Stock or any
class or series of preferred stock of the Company under any Rights Plan in the
future or the redemption or repurchase of any rights distributed pursuant to a
Rights Plan, (c) payments under any USF&G Guarantee, (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 or employees, (e) payments
made on any series of Securities upon the stated maturity of such Securities and
(f) payments of accrued dividends (and cash in lieu of fractional shares) upon
conversion into common stock of any convertible preferred stock of the Company
of any series now or hereinafter outstanding, in accordance with the terms of
such stock. Prior to the termination of any such Extension Period, the Company
may further extend the interest payment period, provided that no Extension
Period shall exceed ten (10) consecutive semi-annual periods or extend beyond
the Stated Maturity of the principal of this Security. Upon the termination of
any such Extension Period and upon the payment of all amounts then due on any
Interest Payment Date, the Company may elect to begin a new Extension Period,
subject to the above requirements. No interest shall be due and payable during
an Extension Period except at the end thereof. The Company shall give the
Property Trustee and the Trustee notice of its election to begin any Extension
Period at least one Business Day prior to the earlier of (i) the date on which
Distributions on the Capital Securities would be payable but for such deferral
or (ii) the date the Property Trustee is required to give notice to any
applicable self-regulatory organization or to holders of such Capital Securities
of the record date or the date such Distributions are payable, but in any event
not less than one Business Day prior to such record date. For purposes hereof,
the Company's Senior Indebtedness shall not be deemed to be pari passu with this
Security.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the United States, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that at the option of the Company, payment of
interest may be made (i) by check mailed to the address of the Person entitled
thereto as such address shall appear in the Securities Register or (ii) by wire
transfer in immediately available funds at such place and to such account as may
be designated by the Person entitled thereto as specified in the Securities
Register.
The indebtedness evidenced by this Security is, to the extent provided in
the Indenture, subordinate and junior in right of payments to the prior payment
in full of all Senior Indebtedness, and this Security is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Security,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his behalf to take such actions as may be
necessary or appropriate to effectuate the subordination so provided and (c)
appoints the Trustee his attorney-in-fact for any and all such purposes. Each
Holder hereof, by his acceptance hereof, waives all notice of the acceptance of
the subordination provisions contained herein and in the Indenture by each
holder of Senior Indebtedness, whether now outstanding or hereafter incurred,
and waives reliance by each such holder upon said provisions.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
USF&G CORPORATION
By:_____________________________________
[President, Vice President, Treasurer or
Assistant Treasurer]
Attest:
[Secretary or Assistant Secretary]
SECTION 2.3. Form of Reverse of Security. ity.
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under a Junior Subordinated Indenture, dated as of July 8, 1997 (herein
called the "Indenture"), between the Company and The Bank of New York, as
Trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Trustee, the Company and the
Holders of the Securities, and of the terms upon which the Securities are, and
are to be, authenticated and delivered. This Security is one of the series
designated on the face hereof, limited in aggregate principal amount to $ .
All terms used in this Security that are defined in the Indenture or in the
Amended and Restated Trust Agreement, dated as of July 8, 1997 as amended (the
"Trust Agreement") among USF&G Corporation, as Depositor, and the Trustees named
therein, shall have the meanings assigned to them in the Indenture or the Trust
Agreement, as the case may be.
Upon the occurrence and during the continuation of a Tax Event in respect
of a USF&G Trust, the Company may, at its option, within 90 days of the
occurrence of such Tax Event redeem this Security, in whole but not in part,
subject to the provisions of Section 11.7 and the other provisions of Article XI
of the Indenture, at a redemption price equal to the Make-Whole Amount for a
corresponding principal amount of this Security, together with accrued
Distributions to, but excluding the date fixed for redemption. [insert
appropriate definition of Make-Whole Amount] [In addition, if such Tax Event
relates to the deductibility of interest payable by USF&G on the Securities, and
if the opinion referred to in the definition of Tax Event states that the risk
of non-deductibility would be avoided if the maturity of the Securities were
shortened, the Company may, at its option, shorten the maturity of the
Securities by the amount stated in such opinion to be the minimum extent
required in order to avoid suck risk, but in no event may the Company shorten
the maturity to a Stated Maturity of less than 14 3/4 years from the date of
original issuance. In the event the Company exercises such option to shorten the
maturity, the Company will no longer have the right to redeem the Securities
prior to their Stated Maturity.]
In the event of redemption of this Security in part only, a new Security or
Securities of this series for the unredeemed portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.
The Indenture contains provisions for satisfaction and discharge of the
entire indebtedness of this Security upon compliance by the Company with certain
conditions set forth in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
Company and the Trustee at any time to enter into a supplemental indenture or
indentures for the purpose of modifying in any manner the rights and obligations
of the Company and of the Holders of the Securities, with the consent of the
Holders of not less than a majority in principal amount of the Outstanding
Securities of each series to be affected by such supplemental indenture. The
Indenture also contains provisions permitting Holders of specified percentages
in principal amount of the Securities of each series at the time Outstanding, on
behalf of the Holders of all Securities of such series, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder of this Security shall be conclusive and binding upon such Holder and
upon all future Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, if an Event
of Default with respect to the Securities of this series at the time Outstanding
occurs and is continuing, then and in every such case the Trustee or the Holders
of not less than 25% in principal amount of the Outstanding Securities of this
series may declare the principal amount of all the Securities of this series to
be due and payable immediately, by a notice in writing to the Company (and to
the Trustee if given by Holders), provided that, in the case of the Securities
of this series issued to a USF&G Trust, if upon an Event of Default, the Trustee
or the Holders of not less than 25% in principal amount of the Outstanding
Securities of this series fails to declare the principal of all the Securities
of this series to be immediately due and payable, the holders of at least 25% in
aggregate Liquidation Amount of the Capital Securities of such USF&G Trust then
outstanding shall have such right by a notice in writing to the Company and the
Trustee; and upon any such declaration the principal amount of and the accrued
interest (including any Additional Interest) on all the Securities of this
series shall become immediately due and payable, provided that the payment of
principal and interest (including any Additional Interest) on such Securities
shall remain subordinated to the extent provided in Article XIII of the
Indenture.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Securities Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company maintained under Section 10.2 of the Indenture duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Securities Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities of this series, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees. No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee shall treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
The Securities of this series are issuable only in registered form without
coupons in minimum denominations of $100,000 and any integral multiples of
$1,000 in excess thereof. As provided in the Indenture and subject to certain
limitations therein set forth, Securities of this series are exchangeable for a
like aggregate principal amount of Securities of such series of a different
authorized denomination, as requested by the Holder surrendering the same.
The Company and, by its acceptance of this Security or a beneficial
interest therein, the Holder of, and any Person that acquires a beneficial
interest in, this Security agree that for United States Federal, state and local
tax purposes it is intended that this Security constitute indebtedness.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE NEW YORK.
SECTION 2.4. Additional Provisions Required in Global Security.
Any Global Security issued hereunder shall, in addition to the provisions
contained in Sections 2.2 and 2.3, bear a legend in substantially the following
form:
"THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE ONLY IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A
NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY."
SECTION 2.5. Form of Trustee's Certificate of Authentication.
This is one of the Securities referred to in the within mentioned
Indenture.
Dated:
The Bank of New York
as Trustee
By:____________________________
Authorized Signatory
ARTICLE III
THE SECURITIES
SECTION 3.1. Title and Terms.
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution, and set forth in an Officers'
Certificate, or established in one or more indentures supplemental hereto, prior
to the issuance of Securities of a series:
(a) the title of the securities of such series, which shall distinguish the
Securities of the series from all other Securities;
(b) the limit, if any, upon the aggregate principal amount of the
Securities of such series which may be authenticated and delivered under this
Indenture (except for Securities authenticated and delivered upon registration
of transfer of, or in exchange for, or in lieu of, other Securities of the
series pursuant to Section 3.4, 3.5, 3.6, 9.6 or 11.6 and except for any
Securities which, pursuant to Section 3.3, are deemed never to have been
authenticated and delivered hereunder); provided, however, that the authorized
aggregate principal amount of such series may be increased above such amount by
a Board Resolution to such effect;
(c) the Stated Maturity or Maturities on which the principal of the
Securities of such series is payable or the method of determination thereof;
(d) the rate or rates, if any, at which the Securities of such series shall
bear interest, if any, the rate or rates and extent to which Additional
Interest, if any, shall be payable in respect of any Securities of such series,
the Interest Payment Dates on which such interest shall be payable, the right,
pursuant to Section 3.12 or as otherwise set forth therein, of the Company to
defer or extend an Interest Payment Date, and the Regular Record Date for the
interest payable on any Interest Payment Date or the method by which any of the
foregoing shall be determined;
(e) the place or places where the principal of (and premium, if any) and
interest on the Securities of such series shall be payable, the place or places
where the Securities of such series may be presented for registration of
transfer or exchange, and the place or places where notices and demands to or
upon the Company in respect of the Securities of such series may be made;
(f) the period or periods within or the date or dates on which, if any, the
price or prices at which and the terms and conditions upon which the Securities
of such series may be redeemed, in whole or in part, at the option of the
Company;
(g) the obligation or the right, if any, of the Company to redeem, repay or
purchase the Securities of such series pursuant to any sinking fund,
amortization or analogous provisions, or at the option of a Holder thereof, and
the period or periods within which, the price or prices at which, the currency
or currencies (including currency unit or units) in which and the other terms
and conditions upon which Securities of the series shall be redeemed, repaid or
purchased, in whole or in part, pursuant to such obligation;
(h) the denominations in which any Securities of such series shall be
issuable, if other than denominations of $100,000 and any integral multiple of
$1,000 in excess thereof;
(i) if other than Dollars, the currency or currencies (including currency
unit or units) in which the principal of (and premium, if any) and interest, if
any, on the Securities of the series shall be payable, or in which the
Securities of the series shall be denominated and the manner of determining the
equivalent thereof in Dollars for purposes of the definition of Outstanding;
(j) the additions, modifications or deletions, if any, in the Events of
Default or covenants of the Company set forth herein with respect to the
Securities of such series;
(k) if other than the principal amount thereof, the portion of the
principal amount of Securities of such series that shall be payable upon
declaration of acceleration of the Maturity thereof;
(l) the additions or changes, if any, to this Indenture with respect to the
Securities of such series as shall be necessary to permit or facilitate the
issuance of the Securities of such series in bearer form, registrable or not
registrable as to principal, and with or without interest coupons;
(m) any index or indices used to determine the amount of payments of
principal of and premium, if any, on the Securities of such series or the manner
in which such amounts will be determined;
(n) whether the Securities of the series, or any portion thereof, shall
initially be issuable in the form of a temporary Global Security representing
all or such portion of the Securities of such series and provisions for the
exchange of such temporary Global Security for definitive Securities of such
series;
(o) if applicable, that any Securities of the series shall be issuable in
whole or in part in the form of one or more Global Securities and, in such case,
the respective Depositories for such Global Securities, the form of any legend
or legends which shall be borne by any such Global Security in addition to or in
lieu of that set forth in Section 2.4 and any circumstances in addition to or in
lieu of those set forth in Section 3.5 in which any such Global Security may be
exchanged in whole or in part for Securities registered, and any transfer of
such Global Security in whole or in part may be registered, in the name or names
of Persons other than the Depository for such Global Security or a nominee
thereof;
(p) the appointment of any Paying Agent or Agents for the Securities of
such series;
(q) the terms of any right to convert or exchange Securities of such series
into any other securities or property of the Company, and the additions or
changes, if any, to this Indenture with respect to the Securities of such series
to permit or facilitate such conversion or exchange;
(r) the form or forms of the Trust Agreement, Amended and Restated Trust
Agreement and Guarantee Agreement, if different from the forms attached hereto
as Annexes A, B and C, respectively;
(s) the relative degree, if any, to which the Securities of the series
shall be senior to or be subordinated to other series of Securities in right of
payment, whether such other series of Securities are Outstanding or not; and
(t) any other terms of the Securities of such series (which terms shall not
be inconsistent with the provisions of this Indenture).
All Securities of any one series shall be substantially identical except as
to denomination and except as may otherwise be provided herein or in or pursuant
to such Board Resolution and set forth in such Officers' Certificate or in any
such indenture supplemental hereto.
If any of the terms of the series are established by action taken pursuant
to a Board Resolution, a copy of an appropriate record of such action shall be
certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of the series.
The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article XIII.
Unless otherwise provided with respect to the Securities of any series, at
the option of the Company, interest on the Securities of any series that bears
interest may be paid (i) by mailing a check to the address of the person
entitled thereto as such address shall appear in the Security Register or (ii)
by wire transfer in immediately available funds at such place and to such
account as may be designated by the person entitled thereto as specified in the
Security Register.
SECTION 3.2. Denominations.
The Securities of each series shall be in registered form without coupons
and shall be issuable in denominations of $100,000 and any integral multiple of
$1,000 in excess thereof, unless otherwise specified as contemplated by Section
3.1.
SECTION 3.3. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its President,
one of its Vice Presidents, its Treasurer or an Assistant Treasurer under its
corporate seal reproduced or impressed thereon and attested by its Secretary or
one of its Assistant Secretaries. The signature of any of these officers on the
Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities. At any time and from time to
time after the execution and delivery of this Indenture, the Company may deliver
Securities of any series executed by the Company to the Trustee for
authentication, together with a Company Order for the authentication and
delivery of such Securities, and the Trustee in accordance with the Company
Order shall authenticate and deliver such Securities. If the form or terms of
the Securities of the series have been established by or pursuant to one or more
Board Resolutions as permitted by Sections 2.1 and 3.1, in authenticating such
Securities, and accepting the additional responsibilities under this Indenture
in relation to such Securities, the Trustee shall be entitled to receive, and
(subject to Section 6.1) shall be fully protected in relying upon, an Opinion of
Counsel stating,
(1) if the form of such Securities has been established by or pursuant to
Board Resolution as permitted by Section 2.1, that such form has been
established in conformity with the provisions of this Indenture;
(2) if the terms of such Securities have been established by or pursuant
to Board Resolution as permitted by Section 3.1, that such terms have been
established in conformity with the provisions of this Indenture; and
(3) that such Securities, when authenticated and delivered by the Trustee
and issued by the Company in the manner and subject to any conditions
specified in such Opinion of Counsel, will constitute valid and legally
binding obligations of the Company enforceable in accordance with their
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to or affecting creditors' rights and to general equity principles.
If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner
which is not reasonably acceptable to the Trustee.
Notwithstanding the provisions of Section 3.1 and of the preceding
paragraph, if all Securities of a series are not to be originally issued at one
time, it shall not be necessary to deliver the Officers' Certificate otherwise
required pursuant to Section 3.1 or the Company Order and Opinion of Counsel
otherwise required pursuant to such preceding paragraph at or prior to the
authentication of each Security of such series if such documents are delivered
at or prior to the authentication upon original issuance of the first Security
of such series to be issued.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by the manual signature of one of its authorized
officers, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such Security has been duly authenticated and
delivered hereunder. Notwithstanding the foregoing, if any Security shall have
been authenticated and delivered hereunder but never issued and sold by the
Company, and the Company shall deliver such Security to the Trustee for
cancellation as provided in Section 3.10, for all purposes of this Indenture
such Security shall be deemed never to have been authenticated and delivered
hereunder and shall never be entitled to the benefits of this Indenture.
SECTION 3.4. Temporary Securities.
Pending the preparation of definitive Securities of any series, the Company
may execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any denomination, substantially of the tenor of the
definitive Securities of such series in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as evidenced by their
execution of such Securities.
If temporary Securities of any series are issued, the Company will cause
definitive Securities of such series to be prepared without unreasonable delay.
After the preparation of definitive Securities, the temporary Securities shall
be exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for that purpose
without charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor one or more definitive Securities
of the same series, of any authorized denominations having the same Original
Issue Date and Stated Maturity and having the same terms as such temporary
Securities. Until so exchanged, the temporary Securities of any series shall in
all respects be entitled to the same benefits under this Indenture as definitive
Securities of such series.
SECTION 3.5. Global Securities.
(a) Each Global Security issued under this Agreement shall be registered in
the name of the Depository designated by the Company for such Global Security or
a nominee thereof and delivered to such Depository or a nominee thereof or
custodian therefor, and each such Global Security shall constitute a single
Security for all purposes of this Agreement.
(b) Notwithstanding any other provision in this Agreement, no Global
Security may be exchanged in whole or in part for Securities registered, and no
transfer of a Global Security in whole or in part may be registered, in the name
of any Person other than the Depository for such Global Security or a nominee
thereof unless (a) such Depository advises the Trustee in writing that such
Depository is no longer willing or able to properly discharge its
responsibilities as Depository with respect to such Global Security, and the
Company is unable to locate a qualified successor, (b) the Company executes and
delivers to the Trustee a Company Order stating that the Company elects to
terminate the book-entry system through the Depository, (c) there shall have
occurred and be continuing an Event of Default or (d) pursuant to the following
sentence. All or any portion of a Global Security may be exchanged for a
Security that has a like aggregate principal amount and is not a Global Security
upon 20 days' prior request made by the Depository or its Agent Member to the
Securities Registrar.
(c) If any Global Security is to be exchanged for other Securities or
canceled in whole, it shall be surrendered by or on behalf of the Depository or
its nominee to the Security Registrar for exchange or cancellation as provided
in this Article III. If any Global Security is to be exchanged for other
Securities or canceled in part, or if another Security is to be exchanged in
whole or in part for a beneficial interest in any Global Security, then either
(i) such Global Security shall be so surrendered for exchange or cancellation as
provided in this Article III or (ii) the principal amount thereof shall be
reduced, subject to Section 3.6(b)(v), or increased by an amount equal to the
portion thereof to be so exchanged or canceled, or equal to the principal amount
of such other Security to be so exchanged for a beneficial interest therein, as
the case may be, by means of an appropriate adjustment made on the records of
the Security Registrar, whereupon the Trustee, in accordance with the Applicable
Procedures, shall instruct the Depository or its authorized representative to
make a corresponding adjustment to its records. Upon any such surrender or
adjustment of a Global Security by the Depository, accompanied by registration
instructions, the Trustee shall, subject to Section 3.5(b) and as otherwise
provided in this Article III, authenticate and deliver any Securities issuable
in exchange for such Global Security (or any portion thereof) in accordance with
the instructions of the Depository. The Trustee shall not be liable for any
delay in delivery of such instructions and may conclusively rely on, and shall
be fully protected in relying on, such instructions.
(d) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any portion
thereof, whether pursuant to this Article III, Section 9.6 or 11.6 or otherwise,
shall be authenticated and delivered in the form of, and shall be, a Global
Security, unless such Security is registered in the name of a Person other than
the Depository for such Global Security or a nominee thereof.
(e) The Depository or its nominee, as registered owner of a Global
Security, shall be the Holder of such Global Security for all purposes under
this Indenture and the Securities, and owners of beneficial interests in a
Global Security shall hold such interests pursuant to the Applicable Procedures.
Accordingly, any such owner's beneficial interest in a Global Security shall be
shown only on, and the transfer of such interest shall be effected only through,
records maintained by the Depository or its nominee or its Agent Members.
Neither the Trustee nor the Securities Registrar shall have any liability in
respect of any transfers effected by the Depository.
(f) The rights of owners of beneficial interests in a Global Security shall
be exercised only through the Depository and shall be limited to those
established by law and agreements between such owners and the Depository and/or
its Agent Members.
SECTION 3.6. Registration, Transfer and Exchange Generally, Certain
Transfers and Exchanges; Securities Act Legends.
(a) The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of Securities and of
transfers of Securities. Such register is herein sometimes referred to as the
"Securities Register." The Trustee is hereby appointed "Securities Registrar"
for the purpose of registering Securities and transfers of Securities as herein
provided.
Upon surrender for registration of transfer of any Security at the office
or agency of the Company designated for that purpose the Company shall execute,
and the Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Securities of the same series of any
authorized denominations, of a like aggregate principal amount, of the same
Original Issue Date and Stated Maturity and having the same terms and bearing
such restrictive legends as may be required by this Indenture.
At the option of the Holder, Securities may be exchanged for other
Securities of the same series of any authorized denominations, of a like
aggregate principal amount, of the same Original Issue Date and Stated Maturity
and having the same terms and bearing such restrictive legends as may be
required by this Indenture, upon surrender of the Securities to be exchanged at
such office or agency. Whenever any securities are so surrendered for exchange,
the Company shall execute, and the Trustee shall authenticate and deliver, the
Securities which the Holder making the exchange is entitled to receive.
All Securities issued upon any transfer or exchange of Securities shall be
the valid obligations of the Company, evidencing the same debt, and entitled to
the same benefits under this Indenture, as the Securities surrendered upon such
transfer or exchange.
Every Security presented or surrendered for transfer or exchange shall (if
so required by the Company or the Securities Registrar) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Securities Registrar, duly executed by the Holder thereof or his
attorney duly authorized in writing.
No service charge shall be made to a Holder for any transfer or exchange of
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
transfer or exchange of Securities.
Neither the Company nor the Trustee shall be required, pursuant to the
provisions of this Section, (a) to issue, register the transfer of or exchange
any Security of any series during a period beginning at the opening of business
15 days before the day of mailing of a notice of such redemption of Securities
pursuant to Article XI and ending at the close of business on the day of mailing
of notice of redemption or (b) to transfer or exchange any Security so selected
for redemption in whole or in part, except, in the case of any Security to be
redeemed in part, any portion thereof not to be redeemed.
(b) Certain Transfers and Exchanges. Notwithstanding any other provision of
this Indenture, transfers and exchanges of Securities and beneficial interests
in a Global Security of the kinds specified in this Section 3.6(b) shall be made
only in accordance with this Section 3.6(b).
(i) Restricted Non-Global Security to Global Security. If the Holder
of a Restricted Security (other than a Global Security) wishes at any time to
transfer all or any portion of such Security to a Person who wishes to take
delivery thereof in the form of a beneficial interest in a Global Security, such
transfer may be effected only in accordance with the provisions of this Clause
(b)(i) and subject to the Applicable Procedures. Upon receipt by the Security
Registrar of (A) such Security as provided in Section 3.6(a) and instructions
satisfactory to the Security Registrar directing that a beneficial interest in
the Global Security in a specified principal amount not greater than the
principal amount of such Security be credited to a specified Agent Member's
account and (B) a Restricted Securities Certificate duly executed by such Holder
or his attorney duly authorized in writing, then the Security Registrar shall
cancel such Security (and issue a new Security in respect of any untransferred
portion thereof) as provided in Section 3.6(a) and increase the aggregate
principal amount of the Global Security by the specified principal amount as
provided as provided in Section 3.5(c).
(ii) Non-Global Security to Non-Global Security. A Security that is
not a Global Security may be transferred, in whole or in part, to a Person who
takes delivery in the form of another Security that is not a Global Security as
provided in Section 3.6(a), provided that if the Security to be transferred in
whole or in part is a Restricted Security, then the Security Registrar shall
have received a Restricted Securities Certificate duly executed by the
transferor Holder or his attorney duly authorized in writing.
(iii) Exchanges between Global Security and Non-Global Security. A
beneficial interest in a Global Security may be exchanged for a Security that is
not a Global Security as provided in Section 3.5.
(iv) Certain Initial Transfers of Non-Global Securities. In the case
of Securities initially issued other than in global form, an initial transfer or
exchange of such Securities that does not involve any change in beneficial
ownership may be made to an Institutional Accredited Investor or Investors as if
such transfer or exchange were not an initial transfer or exchange; provided
that written certification shall be provided by a Holder of such Securities to
the Securities Registrar that such transfer or exchange does not involve a
change in beneficial ownership.
(v) Limitations relating to Principal Amount. Notwithstanding any
other provision of this Indenture and unless otherwise specified as permitted by
Section 3.1, Securities or portions thereof may be transferred or exchanged only
in principal amounts of not less than $100,000. Any transfer, exchange or other
disposition of Securities in contravention of this Section 3.6(b)(v) shall be
deemed to be void and of no legal effect whatsoever, any such transferee shall
be deemed not to be the Holder or owner of any beneficial interest in such
Securities for any purpose, including but not limited to the receipt of interest
payable on such Securities, and such transferee shall be deemed to have no
interest whatsoever in such Securities.
(c) Restricted Securities Legend. Except as set forth below, all Securities
shall bear a Restricted Securities Legend:
(i) subject to the following Clauses of this Section 3.6(c), a
Security or any portion thereof which is exchanged, upon transfer or otherwise,
for a Global Security or any portion thereof shall bear the Restricted
Securities Legend;
(ii) subject to the following Clauses of this Section 3.6(c), a new
Security which is not a Global Security and is issued in exchange for another
Security (including a Global Security) or any portion thereof, upon transfer or
otherwise, shall bear a Restricted Securities Legend;
(iii) after the date which is two years following the Original Issue
Date of a Security, a new Security (other than a Global Security) which does not
bear a Restricted Securities Legend shall, unless the Securities Registrar is
otherwise instructed by the Company in writing, be issued in exchange for or in
lieu of a Restricted Security or any portion thereof which bears such a legend
if the Trustee has received an Unrestricted Securities Certificate, in the form
of Annex E hereto, duly executed by the Holder of such legended Restricted
Security or his attorney duly authorized in writing, and after such date and
receipt of such certificate, the Trustee shall authenticate and deliver such a
new Security in exchange for or in lieu of such other Security as provided in
this Article III;
(iv) a new Security (other than a Global Security) which does not bear
a Restricted Securities Legend may be issued in exchange for or in lieu of a
Restricted Security or any portion thereof which bears such a legend if, in the
Company's judgment, placing such a legend upon such new Security is not
necessary to ensure compliance with the registration requirements of the
Securities Act, and the Trustee, at the written direction of the Company in the
form of an Officers' Certificate, shall authenticate and deliver such a new
Security as provided in this Article III;
(v) notwithstanding the foregoing provisions of this Section 3.6(c), a
Successor Security of a Security that does not bear a Restricted Securities
Legend shall not bear such form of legend unless the Company has reasonable
cause to believe that such Successor Security is a "restricted security" within
the meaning of Rule 144, in which case the Trustee, at the written direction of
the Company in the form of an Officers' Certificate, shall authenticate and
deliver a new Security bearing a Restricted Securities Legend in exchange for
such Successor Security as provided in this Article III; and
(v) Securities distributed to a holder of Capital Securities upon
dissolution of a USF&G Trust shall bear a Restricted Securities Legend if the
Capital Securities so held bear a similar legend.
SECTION 3.7. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee together with such
security or indemnity as may be required by the Company or the Trustee to save
each of them harmless, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a new Security of the same issue
and series of like tenor and principal amount, having the same Original Issue
Date and Stated Maturity, and bearing a number not contemporaneously
outstanding.
If there shall be delivered to the Company and to the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Security, and
(ii) such security or indemnity as may be required by them to save each of them
harmless, then, in the absence of notice to the Company or the Trustee that such
Security has been acquired by a bona fide purchaser, the Company shall execute
and upon its request the Trustee shall authenticate and deliver, in lieu of any
such destroyed, lost or stolen Security, a new Security of the same issue and
series of like tenor and principal amount, having the same Original Issue Date
and Stated Maturity as such destroyed, lost or stolen Security, and bearing a
number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.8. Payment of Interest; Interest Rights Preserved.
Interest on any Security of any series which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date, shall be paid to the
Person in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such interest
in respect of Securities of such series, except that, unless otherwise provided
in the Securities of such series, interest payable on the Stated Maturity of the
principal of a Security shall be paid to the Person to whom principal is paid.
The initial payment of interest on any Security of any series which is issued
between a Regular Record Date and the related Interest Payment Date shall be
payable as provided in such Security or in the Board Resolution pursuant to
Section 3.1 with respect to the related series of Securities.
Any interest on any Security which is payable, but is not timely paid or
duly provided for, on any Interest Payment Date for Securities of such series
(herein called "Defaulted Interest"), shall forthwith cease to be payable to the
registered Holder on the relevant Regular Record Date by virtue of having been
such Holder, and such Defaulted Interest may be paid by the Company, at its
election in each case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to the
Persons in whose names the Securities of such series in respect of which
interest is in default (or their respective Predecessor Securities) are
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the proposed payment, and
at the same time the Company shall deposit with the Trustee an amount of money
equal to the aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to be held
in trust for the benefit of the Persons entitled to such Defaulted Interest as
in this Clause provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and not less
than 10 days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Special Record
Date and, in the name and at the expense of the Company, shall cause notice of
the proposed payment of such Defaulted Interest and the Special Record Date
therefor to be mailed, first class, postage prepaid, to each Holder of a
Security of such series at the address of such Holder as it appears in the
Securities Register not less than 10 days prior to such Special Record Date. The
Trustee may, in its discretion, in the name and at the expense of the Company,
cause a similar notice to be published at least once in a newspaper, customarily
published in the English language on each Business Day and of general
circulation in the Borough of Manhattan, the City of New York, but such
publication shall not be a condition precedent to the establishment of such
Special Record Date. Notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor having been mailed as aforesaid, such
Defaulted Interest shall be paid to the Persons in whose names the Securities of
such series (or their respective Predecessor Securities) are registered on such
Special Record Date and shall no longer be payable pursuant to the following
Clause (2).
(2) The Company may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities of the series in respect of which interest is in default
may be listed and, upon such notice as may be required by such exchange (or by
the Trustee if the Securities are not listed), if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this Clause, such
payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon transfer of or in exchange for or in lieu of
any other Security shall carry the rights to interest accrued and unpaid, and to
accrue, which were carried by such other Security.
SECTION 3.9. Persons Deemed Owners.
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name any Security is registered as the owner of such
Security for the purpose of receiving payment of principal of and (subject to
Section 3.8) any interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
No holder of any beneficial interest in any Global Security held on its
behalf by a Depository shall have any rights under this Indenture with respect
to such Global Security, and such Depository may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the owner of such Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by a Depository or impair, as between a Depository and
such holders of beneficial interests, the operation of customary practices
governing the exercise of the rights of the Depository (or its nominee) as
Holder of any Security.
SECTION 3.10. Cancellation.
All Securities surrendered for payment, redemption, transfer or exchange
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee, and any such Securities and Securities surrendered directly to the
Trustee for any such purpose shall be promptly canceled by it. The Company may
at any time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and all Securities so delivered shall be promptly canceled by
the Trustee. No Securities shall be authenticated in lieu of or in exchange for
any Securities canceled as provided in this Section, except as expressly
permitted by this Indenture. All canceled Securities shall be returned to the
Company.
SECTION 3.11. Computation of Interest.
Except as otherwise specified as contemplated by Section 3.1 for Securities
of any series, interest on the Securities of each series for any partial period
shall be computed on the basis of a 360-day year of twelve 30-day months and the
actual days elapsed in a partial month in such period, and interest on the
Securities of each series for a full period shall be computed by dividing the
rate per annum by the number of interest periods that together constitute a full
twelve months.
SECTION 3.12. Deferrals of Interest Payment Dates.
If specified as contemplated by Section 2.1 or Section 3.1 with respect to
the Securities of a particular series, so long as no Event of Default has
occurred and is continuing, the Company shall have the right, at any time during
the term of such series, from time to time to defer the payment of interest on
such Securities for such period or periods as may be specified as contemplated
by Section 3.1 (each, an "Extension Period") during which Extension Periods the
Company shall have the right to make partial payments of interest on any
Interest Payment Date. No Extension Period shall end on a date other than an
Interest Payment Date. At the end of any such Extension Period the Company shall
pay all interest then accrued and unpaid on the Securities (together with
Additional Interest thereon, if any, at the rate specified for the Securities of
such series to the extent permitted by applicable law); provided, however, that
no Extension Period shall extend beyond the Stated Maturity of the principal of
the Securities of such series; provided, further, that during any such Extension
Period, the Company shall not, and shall not permit any Subsidiary to, (i)
declare or pay any dividends or distributions on, or redeem, purchase, acquire
or make a liquidation payment with respect to, any of the Company's capital
stock, (ii) make any payment of principal, interest or premium, if any, on or
repay, repurchase or redeem any debt securities of the Company (including other
Securities) that rank pari passu in all respects with or junior in interest to
the Securities of such series or (iii) make any guarantee payments with respect
to any guarantee by the Company of the debt securities of any Subsidiary of the
Company if such guarantee ranks pari passu with or junior in interest to the
securities of such series (other than (a) payments in securities junior in
interest to the Security, (b) any declaration of a dividend in connection with
the implementation of a Rights Plan, the issuance of any Common Stock of any
class or series of preferred stock of the Company under any Rights Plan in the
future or the redemption or repurchase of any rights pursuant thereto, (c)
payments under any USF&G Guarantee, (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 or employees, (e) payments made on any series of
Securities upon the stated maturity of such Securities and (f) payments of
accrued dividends (and cash in lieu of fractional shares) upon conversion into
common stock of any convertible preferred stock of the Company of any series now
or hereinafter outstanding, in accordance with the terms of such stock.). Prior
to the termination of any such Extension Period, the Company may further extend
the interest payment period, provided that no Extension Period shall exceed the
period or periods specified in such Securities or extend beyond the Stated
Maturity of the principal of such Securities. Upon the termination of any
Extension Period and upon the payment of all amounts then due on any Interest
Payment Date, the Company may elect to begin a new Extension Period, subject to
the above requirements. No interest shall be due and payable during an Extension
Period, except at the end thereof. The Company shall give the Property Trustee
and the Trustee notice of its election to begin any such Extension Period at
least one Business Day prior to the earlier of (i) the date the Distributions on
the Capital Securities of such USF&G Trust would have been payable except for
the election to begin such Extension Period or (ii) the date the Property
Trustee of such USF&G Trust is required to give notice to any applicable
self-regulatory organization or to holders of such Capital Securities of the
record date or the date such Distributions are payable, but in any event not
less than one Business Day prior to such record date. For purposes hereof, the
Company's Senior Debt shall not be deemed to be pari passu with the Securities.
The Trustee, at the expense of the Company, shall promptly give notice of
the Company's election to begin any such Extension Period to the Holders of the
Outstanding Securities of such series.
SECTION 3.13. Right of Set-Off.
With respect to the Securities of a series issued to a USF&G Trust,
notwithstanding anything to the contrary herein, the Company shall have the
right to set-off any payment it is otherwise required to make thereunder in
respect of any such Security to the extent the Company has theretofore made, or
is concurrently on the date of such payment making, a payment under the USF&G
Guarantee relating to such Security or under Section 5.8 hereof.
SECTION 3.14. Agreed Tax Treatment.
Each Security issued hereunder shall provide that the Company and, by its
acceptance of a Security or a beneficial interest therein, the Holder of, and
any Person that acquires a beneficial interest in, such Security agree that for
United States Federal, state and local tax purposes it is intended that such
Security constitutes indebtedness.
SECTION 3.15. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption or other related material as a convenience to Holders; provided
that any such notice or other related material may state that no representation
is made as to the correctness of such numbers either as printed on the
Securities or as contained in any notice of redemption or other related material
and that reliance may be placed only on the other identification numbers printed
on the Securities, and any such redemption shall not be affected by any defect
in or omission of such numbers. The Company shall promptly notify the Trustee of
any change in the CUSIP numbers.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1. Satisfaction and Discharge of Indenture.
This Indenture shall, upon Company Request, cease to be of further effect
(except as to any surviving rights of registration of transfer or exchange of
Securities herein expressly provided for and as otherwise provided in this
Section 4.1) and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging satisfaction and discharge of
this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered (other than
(i) Securities which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 3.6 and (ii) Securities for whose
payment money has theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged from
such trust, as provided in Section 10.3) have been delivered to the Trustee for
cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within
one year of the date of deposit, or
(iii) are to be called for redemption within one year by the
Trustee in the name, and at the expense, of the Company,
and the Company, in the case of Clause (B) (i), (ii) or (iii)
above, has deposited or caused to be deposited with the Trustee
as trust funds in trust for such purpose an amount in the
currency or currencies in which the Securities of such series are
payable sufficient to pay and discharge the entire indebtedness
on such Securities not theretofore delivered to the Trustee for
cancellation, for principal (and premium, if any) and interest
(including any Additional Interest) to the date of such deposit
(in the case of Securities which have become due and payable) or
to the Stated Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel each stating that all conditions precedent herein provided
for relating to the satisfaction and discharge of this Indenture have been
complied with.
Notwithstanding the satisfaction and discharge of this Indenture, or the earlier
resignation or removal of the Trustee or any Authenticating Agent, the
obligations of the Company to the Trustee under Section 6.7, the obligations of
the Company to any Authenticating Agent under Section 6.14 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section, the obligations of the Trustee under Section 4.2 and the last
paragraph of Section 10.3 shall survive.
SECTION 4.2. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.3, all money
deposited with the Trustee pursuant to Section 4.1 shall be held in trust and
applied by the Trustee, in accordance with the provisions of the Securities and
this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for the payment of which such money or obligations have been
deposited with or received by the Trustee.
ARTICLE V
REMEDIES
SECTION 5.1. Events of Default.
"Event of Default," wherever used herein with respect to the Securities of
any series, means any one of the following events that has occurred and is
continuing (whatever the reason for such Event of Default and whether it shall
be voluntary or involuntary or be effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body):
(1) default in the payment of any interest upon any Security of that
series, including any Additional Interest in respect thereof, when it becomes
due and payable, and continuance of such default for a period of 30 days
(subject to the deferral of any due date in the case of an Extension Period); or
(2) default in the payment of the principal of (or premium, if any, on) any
Security of that series whether at its Maturity, upon its redemption, by
declaration of acceleration or otherwise; or
(3) default in the performance, or breach, in any material respect, of any
covenant of the Company in this Indenture (other than a covenant a default in
the performance of which or the breach of which is elsewhere in this Section
specifically dealt with), and continuance of such default or breach for a period
of 90 days after there has been given, by registered or certified mail, to the
Company by the Trustee or by the Holders of at least 25% in principal amount of
the Outstanding Securities of that series a written notice specifying such
default or breach and requiring it to be remedied; or
(4) the entry of a decree or order for relief in respect of the Company by
a court having jurisdiction in the premises in an involuntary case under Federal
or State bankruptcy laws, as now or hereafter constituted, and the continuance
of any such decree or order unstayed and in effect for a period of 60
consecutive days; or
(5) the commencement by the Company of a voluntary case under Federal or
State bankruptcy laws, as now or hereafter constituted, or the consent by the
Company to the entry of a decree or order for relief in an involuntary case
under any such laws; or
(6) any other Event of Default provided with respect to Securities of that
series.
SECTION 5.2. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in Section
5.1(4) or 5.1(5)) with respect to Securities of any series at the time
Outstanding occurs and is continuing, then and in every such case the Trustee or
the Holders of not less than 25% in principal amount of the Outstanding
Securities of that series may declare the principal amount (or, if the
Securities of that series are Discount Securities, such portion of the principal
amount as may be specified in the terms of that series) of all the Securities of
that series to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by Holders), provided that, in the case of
the Securities of a series issued to a USF&G Trust, if, upon an Event of
Default, the Trustee or the Holders of not less than 25% in principal amount of
the Outstanding Securities of that series fail to declare the principal of all
the Securities of that series to be immediately due and payable, the holders of
at least 25% in aggregate Liquidation Amount (as defined in the related Trust
Agreement) of the corresponding series of Capital Securities then outstanding
shall have such right by a notice in writing to the Company and the Trustee; and
upon any such declaration such principal amount (or specified portion thereof)
of and the accrued interest (including any Additional Interest) on all the
Securities of such series shall become immediately due and payable. Payment of
principal and interest (including any Additional Interest) on such Securities
shall remain subordinated to the extent provided in Article XIII notwithstanding
that such amount shall become immediately due and payable as herein provided. If
an Event of Default specified in Section 5.1(4) or 5.1(5) with respect to
Securities of any series at the time Outstanding occurs, the principal amount of
all the Securities of that series (or, if the Securities of that series are
Discount Securities, such portion of the principal amount of such Securities as
may be specified by the terms of that series) shall automatically, and without
any declaration or other action on the part of the Trustee or any Holder, become
immediately due and payable.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in principal amount of the
Outstanding Securities of that series, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if:
(1) the Company has paid or deposited with the Trustee a sum sufficient to
pay:
(A) all overdue installments of interest (including any Additional
Interest) on all Securities of that series,
(B) the principal of (and premium, if any, on) any Securities of that
series which have become due otherwise than by such declaration of acceleration
and interest thereon at the rate borne by the Securities, and
(C) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel; and
(2) all Events of Default with respect to Securities of that series, other
than the non-payment of the principal of Securities of that series which has
become due solely by such acceleration, have been cured or waived as provided in
Section 5.13.
In the case of Securities of a series issued to a USF&G Trust, the holders
of a majority in aggregate Liquidation Amount (as defined in the related Trust
Agreement) of the related series of Capital Securities issued by such USF&G
Trust shall also have the right to rescind and annul such declaration and its
consequences by written notice to the Company and the Trustee, subject to the
satisfaction of the conditions set forth in Clauses (1) and (2) above of this
Section 5.2.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if:
(1) default is made in the payment of any installment of interest
(including any Additional Interest) on any Security when such interest becomes
due and payable and such default continues for a period of 30 days, or
(2) default is made in the payment of the principal of (and premium, if
any, on) any Security at the Maturity thereof, the Company will, upon demand of
the Trustee, pay to the Trustee, for the benefit of the Holders of such
Securities, the whole amount then due and payable on such Securities for
principal, including any sinking fund payment or analogous obligations (and
premium, if any) and interest (including any Additional Interest); and, in
addition thereto, all amounts owing the Trustee under Section 6.7.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
SECTION 5.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors,
(a) the Trustee (irrespective of whether the principal of the Securities of
any series shall then be due and payable as therein expressed or by declaration
or otherwise and irrespective of whether the Trustee shall have made any demand
on the Company for the payment of overdue principal (and premium, if any) or
interest (including any Additional Interest)) shall be entitled and empowered,
by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest (including any Additional Interest) owing and
unpaid in respect to the Securities and to file such other papers or documents
as may be necessary or advisable and to take any and all actions as are
authorized under the Trust Indenture Act in order to have the claims of the
Holders and any predecessor to the Trustee under Section 6.7 allowed in any such
judicial proceedings; and
(ii) in particular, the Trustee shall be authorized to collect and
receive any moneys or other property payable or deliverable on any such claims
and to distribute the same in accordance with Section 5.6; and
(b) any custodian, receiver, assignee, trustee, liquidator, sequestrator
(or other similar official) in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee for distribution in
accordance with Section 5.6, and in the event that the Trustee shall consent to
the making of such payments directly to the Holders, to pay to the Trustee any
amount due to it and any predecessor Trustee under Section 6.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; provided, however,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and be a member of a creditors' or
other similar committee.
SECTION 5.5. Trustee May Enforce Claim Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of all the amounts owing the Trustee and any predecessor Trustee
under Section 6.7, its agents and counsel, be for the ratable benefit of the
Holders of the Securities in respect of which such judgment has been recovered.
SECTION 5.6. Application of Money Collected.
Any money or property collected or to be applied by the Trustee with
respect to a series of Securities pursuant to this Article shall be applied in
the following order, at the date or dates fixed by the Trustee and, in case of
the distribution of such money or property on account of principal (or premium,
if any) or interest (including any Additional Interest), upon presentation of
the Securities and the notation thereon of the payment if only partially paid
and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any predecessor
Trustee;
SECOND: Subject to Article XIII, to the payment of the amounts then due and
unpaid upon such series of Securities for principal (and premium, if any) and
interest (including any Additional Interest), in respect of which or for the
benefit of which such money has been collected, ratably, without preference or
priority of any kind, according to the amounts due and payable on such series of
Securities for principal (and premium, if any) and interest (including any
Additional Interest), respectively; and
THIRD: The balance, if any, to the Person or Persons entitled thereto.
SECTION 5.7. Limitation on Suits.
No Holder of any Securities of any series shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture or for the
appointment of a receiver, assignee, trustee, liquidator, sequestrator (or other
similar official) or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities of that series;
(2) the Holders of not less than 25% in principal amount of the Outstanding
Securities of that series shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable indemnity
against the costs, expenses and liabilities to be incurred in compliance with
such request;
(4) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to
the Trustee during such 60-day period by the Holders of a majority in principal
amount of the Outstanding Securities of that series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing itself of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Securities, or to obtain or to seek to obtain priority or
preference over any other of such Holders or to enforce any right under this
Indenture, except in the manner herein provided and for the equal and ratable
benefit of all such Holders.
SECTION 5.8. Unconditional Right of Holders to Receive Principal,
Premium and Interest; Direct Action by Holders of Capital Securities.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right which is absolute and unconditional to receive
payment of the principal of (and premium, if any) and (subject to Section 3.8)
interest (including any Additional Interest) on such Security on the respective
Stated Maturities expressed in such Security (or, in the case of redemption, on
the Redemption Date) and to institute suit for the enforcement of any such
payment, and such right shall not be impaired without the consent of such
Holder. In the case of Securities of a series issued to a USF&G Trust, any
holder of the corresponding series of Capital Securities issued by such USF&G
Trust shall have the right, upon the occurrence of an Event of Default described
in Section 5.1(1) or 5.1(2), to institute a suit directly against the Company
for enforcement of payment to such holder of principal of (premium, if any) and
(subject to Section 3.8) interest (including any Additional Interest) on the
Securities having a principal amount equal to the aggregate Liquidation Amount
(as defined in the Trust Agreement under which such USF&G Trust is formed) of
such Capital Securities of the corresponding series held by such holder.
SECTION 5.9. Restoration of Rights and Remedies.
If the Trustee, any Holder or any holder of Capital Securities has
instituted any proceeding to enforce any right or remedy under this Indenture
and such proceeding has been discontinued or abandoned for any reason, or has
been determined adversely to the Trustee, such Holder or such holder of Capital
Securities, then and in every such case the Company, the Trustee, the Holders
and such holder of Capital Securities shall, subject to any determination in
such proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Trustee, the
Holders and the holders of Capital Securities shall continue as though no such
proceeding had been instituted.
SECTION 5.10. Rights and Remedies Cumulative.
Except as otherwise provided in the last paragraph of Section 3.6, no right
or remedy herein conferred upon or reserved to the Trustee or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 5.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee, any Holder of any Security or any
holder of any Capital Security to exercise any right or remedy accruing upon any
Event of Default shall impair any such right or remedy or constitute a waiver of
any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or to
the Holders and the right and remedy given to the holders of Capital Securities
by Section 5.8 may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee, the Holders or the holders of Capital Securities, as
the case may be.
SECTION 5.12. Control by Holders.
The Holders of a majority in principal amount of the Outstanding Securities
of any series shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee, with respect to the Securities of
such series, provided that:
(1) such direction shall not be in conflict with any rule of law or with
this Indenture,
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
(3) subject to the provisions of Section 6.1, the Trustee shall have the
right to decline to follow such direction if a Responsible Officer or Officers
of the Trustee shall, in good faith, determine that the proceeding so directed
would be unjustly prejudicial to the Holders not joining in any such direction
or would involve the Trustee in personal liability.
SECTION 5.13. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series affected thereby and, in the case of any
Securities of a series issued to a USF&G Trust, the holders of a majority in
aggregate Liquidation Amount (as defined in the related Trust Agreement) of
Capital Securities issued by such USF&G Trust, may waive any past default
hereunder and its consequences with respect to such series except a default:
(1) in the payment of the principal of (or premium, if any) or interest
(including any Additional Interest) on any Security of such series, unless
(A) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
(i) all overdue installments of interest (including any
Additional Interest) on all Securities of that series,
(ii) the principal of (and premium, if any, on) any Securities of
that series which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Securities, and
(iii) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel; or
(2) in respect of a covenant or provision hereof which under Article IX
cannot be modified or amended without the consent of the Holder of each
Outstanding Security of such series affected.
Any such waiver shall be deemed to be on behalf of the Holders of all the
Securities of such series or, in the case of a waiver by holders of Capital
Securities issued by such USF&G Trust, by all holders of Capital Securities
issued by such USF&G Trust.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in such suit, having due regard to the
merits and good faith of the claims or defenses made by such party litigant; but
the provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Securities of
any series, or to any suit instituted by any Holder for the enforcement of the
payment of the principal of (or premium, if any) or interest (including any
Additional Interest) on any Security on or after the respective Stated
Maturities expressed in such Security.
SECTION 5.15. Waiver of Usury, Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any usury, stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE VI
THE TRUSTEE
SECTION 6.1. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; but in the case of
any such certificates or opinions which by any provisions hereof are
specifically required to be furnished to the Trustee, the Trustee shall be under
a duty to examine the same to determine whether or not they conform to the
requirements of this Indenture.
(b) In case an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent person
would exercise or use under the circumstances in the conduct of his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct except that
(1) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction of
Holders pursuant to Section 5.12 relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred upon the Trustee, under this Indenture with respect
to the Securities of such series.
(d) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its rights or
powers, if there shall be reasonable grounds for believing that repayment of
such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(e) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
SECTION 6.2. Notice of Defaults.
Within 90 days after actual knowledge by a Responsible Officer of the
Trustee of the occurrence of any default hereunder with respect to the
Securities of any series, the Trustee shall transmit by mail to all Holders of
Securities of such series, as their names and addresses appear in the Securities
Register, notice of such default, unless such default shall have been cured or
waived; provided, however, that, except in the case of a default in the payment
of the principal of (or premium, if any) or interest (including any Additional
Interest) on any Security of such series, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of directors and/or Responsible Officers of the
Trustee in good faith determines that the withholding of such notice is in the
interests of the Holders of Securities of such series; and provided, further,
that, in the case of any default of the character specified in Section 5.1(3),
no such notice to Holders of Securities of such series shall be given until at
least 30 days after the occurrence thereof. For the purpose of this Section, the
term "default" means any event which is, or after notice or lapse of time or
both would become, an Event of Default with respect to Securities of such
series.
SECTION 6.3. Certain Rights of Trustee.
Subject to the provisions of Section 6.1:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, Security or
other paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall deem
it desirable that a matter be proved or established prior to taking, suffering
or omitting any action hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its part, rely upon
an Officers' Certificate;
(d) the Trustee may consult with counsel of its selection and the advice of
such counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders pursuant to this Indenture, unless such Holders shall have offered
to the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction;
(f) the Trustee shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, indenture,
Security or other paper or document, but the Trustee in its discretion may make
such inquiry or investigation into such facts or matters as it may see fit, and,
if the Trustee shall determine to make such inquiry or investigation, it shall
be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder;
(h) the Trustee shall not be under any obligation to take any action that
is discretionary under the provisions of this Indenture;
(i) the Trustee shall not be charged with knowledge of any Event of Default
unless either (i) a Responsible Officer of the Trustee shall have actual
knowledge thereof or (2) the Trustee shall have received notice thereof in
accordance with Section 1.5(1) hereof from the Company or a Holder; and
(j) no permissive power or authority available to the Trustee shall be
construed as a duty.
SECTION 6.4. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and neither the Trustee nor any Authenticating Agent assumes any responsibility
for their correctness. The Trustee makes no representations as to the validity
or sufficiency of this Indenture or of the Securities. Neither the Trustee nor
any Authenticating Agent shall be accountable for the use or application by the
Company of the Securities or the proceeds thereof.
SECTION 6.5. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Securities
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
6.8 and 6.13, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Securities
Registrar or such other agent.
SECTION 6.6. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed in writing with the Company.
SECTION 6.7. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time such compensation as shall have
been agreed to in writing between the Company and the Trustee for all services
rendered by it hereunder in such amounts as the Company and the Trustee shall
agree from time to time (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust);
(2) to reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any provision of this Indenture (including the reasonable compensation and the
expenses and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad faith;
and
(3) to indemnify each Trustee or any Predecessor Trustee for, and to hold
it harmless against, any and all loss, liability, damage, claim or expense
(including the reasonable compensation and the expenses and disbursements of its
agents and counsel) incurred without negligence or bad faith, arising out of or
in connection with the acceptance or administration of this trust or the
performance of its duties hereunder, including the costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder.
The obligations of the Company under this Section 6.7 shall survive the
termination of the Indenture or the earlier resignation or removal of the
Trustee.
To secure the Company's payment obligations in this Section, the Company
and the Holders agree that the Trustee shall have a lien prior to the Securities
on all money or property held or collected by the Trustee. Such lien shall
survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 5.1(4) or (5) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under the Bankruptcy Reform Act of 1978 or any successor statute.
SECTION 6.8. Disqualification; Conflicting Interests.
The Trustee for the Securities of any series issued hereunder shall be
subject to the provisions of Section 310(b) of the Trust Indenture Act. Nothing
herein shall prevent the Trustee from filing with the Commission the application
referred to in the second to last paragraph of said Section 310(b).
SECTION 6.9. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be
(a) a corporation organized and doing business under the laws of the United
States of America or of any State or Territory or the District of Columbia,
authorized under such laws to rexercise corporate trust powers and subject to
supervision or examination by Federal, State, Territorial or District of
Columbia authority, or
(b) a corporation or other Person organized and doing business under the
laws of a foreign government that is permitted to act as Trustee pursuant to a
rule, regulation or order of the Commission, authorized under such laws to
exercise corporate trust powers, and subject to supervision or examination by
authority of such foreign government or a political subdivision thereof
substantially equivalent to supervision or examination applicable to United
States institutional trustees,
in either case having a combined capital and surplus of at least $50,000,000,
subject to supervision or examination by Federal or State authority. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of the aforesaid supervising or examining authority, then,
for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect hereinafter specified
in this Article. Neither the Company nor any Person directly or indirectly
controlling, controlled by or under common control with the Company shall serve
as Trustee for the Securities of any series issued hereunder.
SECTION 6.10. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time with respect to the Securities of
one or more series by giving written notice thereof to the Company. If an
instrument of acceptance by a successor Trustee shall not have been delivered to
the Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition, at the expense of the Company, any court of
competent jurisdiction for the appointment of a successor Trustee with respect
to the Securities of such series.
(c) The Trustee may be removed at any time with respect to the Securities
of any series by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series, delivered to the Trustee and to the
Company. If an instrument of acceptance by a successor Trustee shall not have
been delivered to the Trustee within 30 days after the giving of such notice of
removal, the removed Trustee may petition, at the expense of the Company, any
court of competent jurisdiction for the appointment of a successor Trustee with
respect to the Securities of such series
(d) If at any time:
(1) the Trustee shall fail to comply with Section 6.8 after written
request therefor by the Company or by any Holder who has been a bona fide Holder
of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 6.9 and shall fail
to resign after written request therefor by the Company or by any such Holder,
or
(3) the Trustee shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or a receiver of the Trustee or of its property shall be
appointed or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation,
then, in any such case, (i) the Company, acting pursuant to the authority of a
Board Resolution, may remove the Trustee with respect to all Securities, or (ii)
subject to Section 5.14, any Holder who has been a bona fide Holder of a
Security for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the removal
of the Trustee with respect to all Securities and the appointment of a successor
Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of the Trustee for any cause with
respect to the Securities of one or more series, the Company, by a Board
Resolution, shall promptly appoint a successor Trustee with respect to the
Securities of that or those series. If, within one year after such resignation,
removal or incapability, or the occurrence of such vacancy, a successor Trustee
with respect to the Securities of any series shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities of such
series delivered to the Company and the retiring Trustee, the successor Trustee
so appointed shall, forthwith upon its acceptance of such appointment, become
the successor Trustee with respect to the Securities of such series and
supersede the successor Trustee appointed by the Company. If no successor
Trustee with respect to the Securities of any series shall have been so
appointed by the Company or the Holders and accepted appointment in the manner
hereinafter provided, any Holder who has been a bona fide Holder of a Security
for at least six months may, subject to Section 5.14, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee with respect to the Securities of such
series.
(f) The Company shall give notice of each resignation and each removal of
the Trustee with respect to the Securities of any series and each appointment of
a successor Trustee with respect to the Securities of any series by mailing
written notice of such event by first-class mail, postage prepaid, to the
Holders of Securities of such series as their names and addresses appear in the
Securities Register. Each notice shall include the name of the successor Trustee
with respect to the Securities of such series and the address of its Corporate
Trust Office.
SECTION 6.11. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee so appointed shall
execute, acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on the request
of the Company or the successor Trustee, such retiring Trustee shall, upon
payment of its charges, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee and
shall duly assign, transfer and deliver to such successor Trustee all property
and money held by such retiring Trustee hereunder.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more series, the Company, the retiring
Trustee and each successor Trustee with respect to the Securities of one or more
series shall execute and deliver an instrument in writing or an indenture
supplemental hereto wherein each successor Trustee shall accept such appointment
and which (i) shall contain such provisions as shall be necessary or desirable
to transfer and confirm to, and to vest in, each successor Trustee all the
rights, powers, trusts and duties of the retiring Trustee with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates, (ii) if the retiring Trustee is not retiring with respect to
all Securities, shall contain such provisions as shall be deemed necessary or
desirable to confirm that all the rights, powers, trusts and duties of the
retiring Trustee with respect to the Securities of that or those series as to
which the retiring Trustee is not retiring shall continue to be vested in the
retiring Trustee, and (iii) shall add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the administration
of the trusts hereunder by more than one Trustee, it being understood that
nothing herein or in such instrument in writing or supplemental indenture shall
constitute such Trustees co-trustees of the same trust and that each such
Trustee shall be trustee of a trust or trusts hereunder separate and apart from
any trust or trusts hereunder administered by any other such Trustee; and upon
the execution and delivery of such instrument in writing or supplemental
indenture the resignation or removal of the retiring Trustee shall become
effective to the extent provided therein and each such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts, and duties of the retiring Trustee with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates; but, on request of the Company or any successor Trustee, such
retiring Trustee shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder with
respect to the Securities of that or those series to which the appointment of
such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all rights, powers and trusts referred to in paragraph
(a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be eligible under this Article.
SECTION 6.12. Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated, and in case any
Securities shall not have been authenticated, any successor to the Trustee may
authenticate such Securities either in the name of any predecessor Trustee or in
the name of such successor Trustee, and in all cases the certificate of
authentication shall have the full force which it is provided anywhere in the
Securities or in this Indenture that the certificate of the Trustee shall have.
SECTION 6.13. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company (or
any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
SECTION 6.14. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents with respect to
one or more series of Securities which shall be authorized to act on behalf of
the Trustee to authenticate Securities of such series issued upon original issue
and upon exchange, registration of transfer or partial redemption thereof or
pursuant to Section 3.6, and Securities so authenticated shall be entitled to
the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder. Wherever reference is
made in this Indenture to the authentication and delivery of Securities by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States of America, or of any State or Territory or
the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to all or substantially all of
the corporate trust business of an Authenticating Agent shall be the successor
Authenticating Agent hereunder, provided such corporation shall be otherwise
eligible under this Section, without the execution or filing of any paper or any
further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall give notice of such
appointment in the manner provided in Section 1.6 to all Holders of Securities
of the series with respect to which such Authenticating Agent will serve. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provision of this Section.
The Company agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section.
If an appointment with respect to one or more series is made pursuant to
this Section, the Securities of such series may have endorsed thereon, in
addition to the Trustee's certificate of authentication, an alternative
certificate of authentication in the following form:
This is one of the Securities referred to in the within mentioned
Indenture.
Dated:
The Bank of New York
As Trustee
By:______________________________
As Authenticating Agent
By:_______________________________
Authorized Officer
ARTICLE VII
HOLDER'S LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 7.1. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee:
(a) semi-annually, not more than 15 days after each Regular Record Date in
each year, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date, and
(b) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished,
excluding from any such list names and addresses received by the Trustee in its
capacity as Securities Registrar.
SECTION 7.2. Preservation of Information, Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.1 and the names and
addresses of Holders received by the Trustee in its capacity as Securities
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.1 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with respect to
their rights under this Indenture or under the Securities, and the corresponding
rights and privileges of the Trustee, shall be as provided in the Trust
Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any agent of either of them shall be held accountable by reason of the
disclosure of information as to the names and addresses of the Holders made
pursuant to the Trust Indenture Act.
SECTION 7.3. Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act, at the times and in the manner provided pursuant thereto.
(b) Reports so required to be transmitted at stated intervals of not more
than 12 months shall be transmitted no later than 60 days after May 15 in each
calendar year, commencing 60 days after the first May 15 after the first
issuance of Securities under this Indenture.
(c) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each securities exchange upon which any
Securities are listed and also with the Commission. The Company will promptly
notify the Trustee when any Securities are listed on any securities exchange.
SECTION 7.4. Reports by Company.
The Company shall file with the Trustee and with the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided in the Trust Indenture Act; provided that any
such information, documents or reports required to be filed with the Commission
pursuant to Section 13 or Section 15(d) of the Exchange Act shall be filed with
the Trustee within 15 days after the same is required to be filed with the
Commission. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall continue to file with the Commission and provide the
Trustee with the annual reports and the information, documents and other reports
which are specified in Sections 13 and 15(d) of the Exchange Act. The Company
also shall comply with the other provisions of Trust Indenture Act Section
314(a). Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein, including
the Company's compliance with any of its covenants hereunder (as to which the
Trustee is entitled to rely exclusively on Officers' Certificates).
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 8.1. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets substantially as an entirety
to any Person, and no Person shall consolidate with or merge into the Company or
convey, transfer or lease its properties and assets substantially as an entirety
to the Company, unless:
(1) in case the Company shall consolidate with or merge into another Person
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, the corporation formed by such consolidation or into
which the Company is merged or the Person which acquires by conveyance or
transfer, or which leases, the properties and assets of the Company
substantially as an entirety shall be a corporation, partnership or trust
organized and existing under the laws of the United States of America or any
State or the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form satisfactory
to the Trustee, the due and punctual payment of the principal of (and premium,
if any) and interest (including any Additional Interest) on all the Securities
and the performance of every covenant of this Indenture on the part of the
Company to be performed or observed;
(2) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time, or both, would
become an Event of Default, shall have happened and be continuing;
(3) in the case of the Securities of a series issued to a USF&G Trust, such
consolidation, merger, conveyance, transfer or lease is permitted under the
related Trust Agreement and USF&G Guarantee and does not give rise to any breach
or violation of the related Trust Agreement or USF&G Guarantee; and
(4) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that such consolidation, merger, conveyance,
transfer or lease and any such supplemental indenture comply with this Article
and that all conditions precedent herein provided for relating to such
transaction have been complied with; and the Trustee, subject to Section 6.1,
may rely upon such Officers' Certificate and Opinion of Counsel as conclusive
evidence that such transaction complies with this Section 8.1.
SECTION 8.2. Successor Corporation Substituted.
Upon any consolidation or merger by the Company with or into any other
Person, or any conveyance, transfer or lease by the Company of its properties
and assets substantially as an entirety to any Person in accordance with Section
8.1, the successor corporation formed by such consolidation or into which the
Company is merged or to which such conveyance, transfer or lease is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such successor
Person had been named as the Company herein; and in the event of any such
conveyance, transfer or lease the Company shall be discharged from all
obligations and covenants under the Indenture and the Securities and may be
dissolved and liquidated.
Such successor Person may cause to be signed, and may issue either in its
own name or in the name of the Company, any or all of the Securities issuable
hereunder which theretofore shall not have been signed by the Company and
delivered to the Trustee; and, upon the order of such successor Person instead
of the Company and subject to all the terms, conditions and limitations in this
Indenture prescribed, the Trustee shall authenticate and shall deliver any
Securities which previously shall have been signed and delivered by the officers
of the Company to the Trustee for authentication pursuant to such provisions and
any Securities which such successor Person thereafter shall cause to be signed
and delivered to the Trustee on its behalf for the purpose pursuant to such
provisions. All the Securities so issued shall in all respects have the same
legal rank and benefit under this Indenture as the Securities theretofore or
thereafter issued in accordance with the terms of this Indenture as though all
of such Securities had been issued at the date of the execution hereof.
In case of any such consolidation, merger, sale, conveyance or lease, such
changes in phraseology and form may be made in the Securities thereafter to be
issued as may be appropriate.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1. Supplemental Indentures without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the Trustee,
for any of the following purposes:
(1) to evidence the succession of another Person to the Company, and the
assumption by any such successor of the covenants of the Company herein and in
the Securities contained; or
(2) to convey, transfer, assign, mortgage or pledge any property to or
with the Trustee or to surrender any right or power herein conferred upon the
Company; or
(3) to establish the form or terms of Securities of any series as
permitted by Sections 2.1 or 3.1; or
(4) to add to the covenants of the Company for the benefit of the Holders
of all or any series of Securities (and if such covenants are to be for the
benefit of less than all series of Securities, stating that such covenants are
expressly being included solely for the benefit of such series) or to surrender
any right or power herein conferred upon the Company; or
(5) to add any additional Events of Default for the benefit of the Holders
of all or any series of Securities (and if such additional Events of Default are
to be for the benefit of less than all series of Securities, stating that such
additional Events of Default are expressly being included solely for the benefit
of such series); or
(6) to change or eliminate any of the provisions of this Indenture,
provided that any such change or elimination (a) shall become effective only
when there is no Security Outstanding of any series created prior to the
execution of such supplemental indenture which is entitled to the benefit of
such provision or (b) shall not apply to any Outstanding Securities; or
(7) to cure any ambiguity, to correct or supplement any provision herein
which may be defective or inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising under
this Indenture, provided that such action pursuant to this clause (7) shall not
adversely affect the interest of the Holders of Securities of any series in any
material respect or, in the case of the Securities of a series issued to a USF&G
Trust and for so long as any of the corresponding series of Capital Securities
issued by such USF&G Trust shall remain outstanding, the holders of such Capital
Securities; or
(8) to evidence and provide for the acceptance of appointment hereunder by
a successor Trustee with respect to the Securities of one or more series and to
add to or change any of the provisions of this Indenture as shall be necessary
to provide for or facilitate the administration of the trusts hereunder by more
than one Trustee, pursuant to the requirements of Section 6.11(b); or
(9) to comply with the requirements of the Commission in order to effect
or maintain the qualification of this Indenture under the Trust Indenture Act.
SECTION 9.2. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities of each series affected by such
supplemental indenture, by Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by a Board Resolution, and the Trustee may
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders of Securities of such series under this Indenture; provided, however,
that no such supplemental indenture shall, without the consent of the Holder of
each Outstanding Security affected thereby,
(1) except to the extent permitted by Section 3.12 or as otherwise
specified as contemplated by Section 2.1 or Section 3.1 with respect to the
deferral of the payment of interest on the Securities of any series, change the
Stated Maturity of the principal of, or any installment of interest (including
any Additional Interest) on, any Security, or reduce the principal amount
thereof or the rate of interest thereon or reduce any premium payable upon the
redemption thereof, or reduce the amount of principal of a Discount Security
that would be due and payable upon a declaration of acceleration of the Maturity
thereof pursuant to Section 5.2, or change the place of payment where, or the
coin or currency in which, any Security or interest thereon is payable, or
impair the right to institute suit for the enforcement of any such payment on or
after the Stated Maturity thereof (or, in the case of redemption, on or after
the Redemption Date), or
(2) reduce the percentage in principal amount of the Outstanding Securities
of any series, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section, Section 5.13 or Section
10.5, except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent of
the Holder of each Security affected thereby; provided, further, that, in the
case of the Securities of a series issued to a USF&G Trust, so long as any of
the corresponding series of Capital Securities issued by such USF&G Trust
remains outstanding, (i) no such amendment shall be made that adversely affects
the holders of such Capital Securities in any material respect, and no
termination of this Indenture shall occur, and no waiver of any Event of Default
or compliance with any covenant under this Indenture shall be effective, without
the prior consent of the holders of at least a majority of the aggregate
Liquidation Amount of such Capital Securities then outstanding unless and until
the principal (and premium, if any) of the Securities of such series and all
accrued and, subject to Section 3.8, unpaid interest (including any Additional
Interest) thereon have been paid in full and (ii) no amendment shall be made to
Section 5.8 of this Indenture that would impair the rights of the holders of
Capital Securities provided therein without the prior consent of the holders of
each Capital Security then outstanding unless and until the principal (and
premium, if any) of the Securities of such series and all accrued and (subject
to Section 3.8) unpaid interest (including any Additional Interest) thereon have
been paid in full.
A supplemental indenture that changes or eliminates any covenant or other
provision of this Indenture that has expressly been included solely for the
benefit of one or more particular series of Securities or Capital Securities, or
which modifies the rights of the Holders of Securities or holders of Capital
Securities of such series with respect to such covenant or other provision,
shall be deemed not to affect the rights under this Indenture of the Holders of
Securities or holders of Capital Securities of any other series.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 9.3. Execution of Supplemental Indentures
In executing or accepting the additional trusts created by any supplemental
indenture permitted by this Article or the modifications thereby of the trusts
created by this Indenture, the Trustee shall be entitled to receive, and
(subject to Section 6.1) shall be fully protected in relying upon, an Officers'
Certificate and an Opinion of Counsel stating that the execution of such
supplemental indenture is authorized or permitted by this Indenture, and that
all conditions precedent have been complied with. The Trustee may, but shall not
be obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise or
that may subject it to any liability.
SECTION 9.4. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 9.5. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 9.6. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Company, bear a notation in form approved by the Company as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities of any series so modified as to conform, in the opinion of the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities of such series.
ARTICLE X
COVENANTS
SECTION 10.1. Payment of Principal, Premium and Interest.
The Company covenants and agrees for the benefit of each series of
securities that it will duly and punctually pay the principal of (and premium,
if any) and interest on the Securities of that series in accordance with the
terms of such Securities and this Indenture.
SECTION 10.2. Maintenance of Office or Agency.
The Company will maintain in each Place of Payment for any series of
Securities, an office or agency where Securities of that series may be presented
or surrendered for payment and an office or agency where Securities of that
series may be surrendered for transfer or exchange and where notices and demands
to or upon the Company in respect of the Securities of that series and this
Indenture may be served. The Company initially appoints the Trustee, acting
through its Corporate Trust Office, as its agent for said purposes. The Company
will give prompt written notice to the Trustee of any change in the location of
any such office or agency. If at any time the Company shall fail to maintain
such office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one or more other offices
or agencies where the Securities may be presented or surrendered for any or all
of such purposes, and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in each Place of
Payment for Securities of any series for such purposes. The Company will give
prompt written notice to the Trustee of any such designation and any change in
the location of any such office or agency.
SECTION 10.3. Money for Security Payments to be Held in Trust.
If the Company shall at any time act as its own Paying Agent with respect
to any series of Securities, it will, on or before each due date of the
principal of (and premium, if any) or interest on any of the Securities of such
series, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal (and premium, if any) or interest
so becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided, and will promptly notify the Trustee of its
failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, prior
to 10:00 a.m. New York City time on each due date of the principal of or
interest on any Securities, deposit with a Paying Agent a sum sufficient to pay
the principal (and premium, if any) or interest so becoming due, such sum to be
held in trust for the benefit of the Persons entitled to such principal and
premium (if any) or interest, and (unless such Paying Agent is the Trustee) the
Company will promptly notify the Trustee of its failure so to act.
The Company will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any other
obligor upon the Securities) in the making of any payment of principal (and
premium, if any) or interest;
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent; and
(4) comply with the provisions of the Trust Indenture Act applicable to it
as a Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of (and premium, if any)
or interest on any Security and remaining unclaimed for two years after such
principal (and premium, if any) or interest has become due and payable shall be
paid on Company Request to the Company, or (if then held by the Company) shall
(unless otherwise required by mandatory provision of applicable escheat or
abandoned or unclaimed property law) be discharged from such trust; and the
Holder of such Security shall thereafter, as an unsecured general creditor, look
only to the Company for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in a newspaper
published in the English language, customarily published on each Business Day
and of general circulation in the Borough of Manhattan, the City of New York,
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to the
Company.
SECTION 10.4. Statement as to Compliance.
The Company shall deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company ending after the date hereof, an Officers'
Certificate executed by the principal executive officer, principal financial
officer or principal accounting officer of the Company covering the preceding
calendar year, stating whether or not to the best knowledge of the signers
thereof the Company is in default in the performance, observance or fulfillment
of or compliance with any of the terms, provisions, covenants and conditions of
this Indenture, and if the Company shall be in default, specifying all such
defaults and the nature and status thereof of which they may have knowledge. For
the purpose of this Section 10.4, compliance shall be determined without regard
to any grace period (other than an Extension Period) or requirement of notice
provided pursuant to the terms of this Indenture.
SECTION 10.5. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any covenant
or condition provided pursuant to Section 3.1, 9.1(3) or 9.1(4) with respect to
the Securities of any series, if before or after the time for such compliance
the Holders of at least a majority in principal amount of the Outstanding
Securities of such series shall, by Act of such Holders, either waive such
compliance in such instance or generally waive compliance with such covenant or
condition, but no such waiver shall extend to or affect such covenant or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company in respect of any such covenant
or condition shall remain in full force and effect.
SECTION 10.6. Additional Sums.
In the case of the Securities of a series issued to a USF&G Trust, so long
as no Event of Default has occurred and is continuing and except as otherwise
specified as contemplated by Section 2.1 or Section 3.1, in the event that (i) a
USF&G Trust is the Holder of all of the Outstanding Securities of such series
and (ii) a Tax Event in respect of such USF&G Trust shall have occurred and be
continuing, the Company shall pay to such USF&G Trust (and its permitted
successors or assigns under the related Trust Agreement) as Holder of the
Securities of such series for so long as such USF&G Trust (or its permitted
successor or assignee) is the registered holder of any Securities of such
series, such additional sums as may be necessary in order that the amount of
Distributions (including any Additional Amounts (as defined in such Trust
Agreement)) paid by such USF&G Trust on the related Capital Securities and
Common Securities that at any time remain outstanding in accordance with the
terms thereof shall not be reduced as a result of any Additional Taxes (the
"Additional Sums"). Whenever in this Indenture or the Securities there is a
reference in any context to the payment of principal of or interest on the
Securities, such mention shall be deemed to include mention of the payments of
the Additional Sums provided for in this paragraph to the extent that, in such
context, Additional Sums are, were or would be payable in respect thereof
pursuant to the provisions of this paragraph and express mention of the payment
of Additional Sums (if applicable) in any provisions hereof shall not be
construed as excluding Additional Sums in those provisions hereof where such
express mention is not made.
SECTION 10.7. Additional Covenants.
The Company covenants and agrees with each Holder of Securities of each
series that it shall not, and it shall not permit any Subsidiary of the Company
to, (a) declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the Company's
capital stock, or (b) 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 Securities) that rank pari passu in all respects with or junior
in interest to the Securities of such series or (c) make any guarantee payments
with respect to any guarantee by the Company of debt securities of any
subsidiary of the Company if such guarantee ranks pari passu with or junior in
interest to the Securities (other than (i) payments with securities junior in
interest to the Security, (ii) any declaration of a dividend in connection with
the implementation of a Rights Plan, the issuance of any Common Stock of any
class or series of preferred stock of the Company under any Rights Plan in the
future or the redemption or repurchase of any such rights pursuant thereto,
(iii) payments under any USF&G Guarantee, (iv) 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 or employees, (v) payments made on any series
of Securities upon the stated maturity of such Securities and (vi) payments of
accrued dividends (and cash in lieu of fractional shares) upon conversion into
common stock of any convertible preferred stock of the Company of any series now
or hereinafter outstanding, in accordance with the terms of such stock), 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 an Event of Default with respect to the Securities of
such series and (B) in respect of which the Company shall not have taken
reasonable steps to cure, (ii) if the Securities of such series are held by a
USF&G Trust, the Company shall be in default with respect to its payment of any
obligations under the USF&G Guarantee relating to the Capital Securities issued
by such USF&G Trust or (iii) the Company shall have given notice of its election
to begin an Extension Period with respect to the Securities of such series as
provided herein and shall not have rescinded such notice, or such Extension
Period, or any extension thereof, shall be continuing. For purposes hereof, the
Company's Senior Debt shall not be deemed to be pari passu with the Securities.
The Company also covenants with each Holder of Securities of a series
issued to a USF&G Trust (i) to maintain directly or indirectly 100% ownership of
the Common Securities of such USF&G Trust; provided, however, that any permitted
successor of the Company hereunder may succeed to the Company's ownership of
such Common Securities, (ii) as holder of the Common Securities not to
voluntarily terminate, wind-up or liquidate such USF&G Trust, except (a) in
connection with a distribution of the Securities of such series to the holders
of Capital Securities in liquidation of such USF&G Trust or (b) in connection
with certain mergers, consolidations or amalgamations permitted by the related
Trust Agreement and (iii) to use its reasonable efforts, consistent with the
terms and provisions of such Trust Agreement, to cause such USF&G Trust to
remain classified as a grantor trust and not as an association taxable as a
corporation for United States federal income tax purposes.
SECTION 10.8. Original Issue Discount.
On or before December 15 of each year during which any Securities are
outstanding, the Company shall furnish to each Paying Agent such information as
may be reasonably requested by each Paying Agent in order that each Paying Agent
may prepare the information which it is required to report for such year on
Internal Revenue Service Forms 1096 and 1099 pursuant to Section 6049 of the
Internal Revenue Code of 1986, as amended. Such information shall include the
amount of original issue discount includible in income for each $1,000 of
principal amount at Stated Maturity of outstanding Securities during such year.
ARTICLE XI
REDEMPTION OF SECURITIES
SECTION 11.1. Applicability of This Article.
Redemption of Securities of any series (whether by operation of a sinking
fund or otherwise) as permitted or required by any form of Security issued
pursuant to this Indenture shall be made in accordance with such form of
Security and this Article; provided, however, that if any provision of any such
form of Security shall conflict with any provision of this Article, the
provision of such form of Security shall govern. Except as otherwise set forth
in the form of Security for such series, each Security of such series shall be
subject to partial redemption only in the amount of $1,000 or integral multiples
thereof and the principal amount of the unredeemed portion of such Security is
not less than $100,000.
SECTION 11.2. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced by
or pursuant to a Board Resolution. In case of any redemption at the election of
the Company of any of the Securities of any particular series and having the
same terms, the Company shall, not less than 45 nor more than 60 days prior to
the Redemption Date (unless a shorter notice shall be satisfactory to the
Trustee), notify the Trustee and, in the case of Securities of a series held by
a USF&G Trust, the related Property Trustee of such date and of the principal
amount of Securities of that series to be redeemed and provide the additional
information required to be included in the notice or notices contemplated by
Section 11.4. In the case of any redemption of Securities prior to the
expiration of any restriction on such redemption provided in the terms of such
Securities, the Company shall furnish the Trustee with an Officers' Certificate
and an Opinion of Counsel evidencing compliance with such restriction. The
Company shall have received the prior approval of the Federal Reserve if then
required under applicable capital guidelines or policies of the Federal Reserve
prior to redeeming any Securities pursuant hereto.
SECTION 11.3. Selection of Securities to be Redeemed.
If less than all the Securities of any series are to be redeemed, the
particular Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Trustee, from the Outstanding Securities of
such series not previously called for redemption, by such method as the Trustee
shall deem fair and appropriate and which may provide for the selection for
redemption of a portion of the principal amount of any Security of such series.
If less than all the Securities of such series and of a specified tenor are to
be redeemed (unless such redemption affects only a single Security), the
particular Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Trustee, from the Outstanding Securities of
such series and specified tenor not previously called for redemption in
accordance with the preceding sentence.
The Trustee shall promptly notify the Company in writing of the Securities
selected for partial redemption and the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires, all
provisions relating to the redemption of Securities shall relate, in the case of
any Security redeemed or to be redeemed only in part, to the portion of the
principal amount of such Security which has been or is to be redeemed. If the
Company shall so direct, Securities registered in the name of the Company, any
Affiliate or any Subsidiary thereof shall not be included in the Securities
selected for redemption.
SECTION 11.4. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not later than the thirtieth day, and not earlier than the sixtieth day,
prior to the Redemption Date, to each Holder of Securities to be redeemed, at
the address of such Holder as it appears in the Securities Register.
With respect to Securities of each series to be redeemed, each notice of
redemption shall identify the Securities to be redeemed (including CUSIP
numbers) and shall state:
(a) the Redemption Date;
(b) the Redemption Price or if the Redemption Price cannot be calculated
prior to the time the notice is required to be sent, the estimate of the
Redemption Price provided pursuant to the Indenture together with a statement
that it is an estimate and that the actual Redemption Price will be calculated
on the third Business Day prior to the Redemption Date (if such an estimate of
the Redemption Price is given, a subsequent notice shall be given as set forth
above setting forth the Redemption Price promptly following the calculation
thereof);
(c) if less than all Outstanding Securities of such particular series and
having the same terms are to be redeemed, the identification (and, in the case
of partial redemption, the respective principal amounts) of the particular
Securities to be redeemed;
(d) that on the Redemption Date, the Redemption Price will become due and
payable upon each such Security or portion thereof, and that interest thereon,
if any, shall cease to accrue on and after said date;
(e) the place or places where such Securities are to be surrendered for
payment of the Redemption Price;
(f) that the redemption is for a sinking fund, if such is the case; and
(g) such other provisions as may be required in respect of the terms of a
particular series of Securities.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company and shall not be
irrevocable. The notice if mailed in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the Holder
receives such notice. In any case, a failure to give such notice by mail or any
defect in the notice to the Holder of any Security designated for redemption as
a whole or in part shall not affect the validity of the proceedings for the
redemption of any other Security.
SECTION 11.5. Deposit of Redemption Price.
Prior to 10:00 a.m. New York City time on the Redemption Date specified in
the notice of redemption given as provided in Section 11.4, the Company will
deposit with the Trustee or with one or more Paying Agents (or if the Company is
acting as its own Paying Agent, the Company will segregate and hold in trust as
provided in Section 10.3) an amount of money sufficient to pay the Redemption
Price of, and any accrued interest (including Additional Interest) on, all the
Securities which are to be redeemed on that date.
SECTION 11.6. Payment of Securities Called for Redemption.
If any notice of redemption has been given as provided in Section 11.4, the
Securities or portion of Securities with respect to which such notice has been
given shall become due and payable on the date and at the place or places stated
in such notice at the applicable Redemption Price, together with accrued
interest (including any Additional Interest) to the Redemption Date. On
presentation and surrender of such Securities at a Place of Payment in said
notice specified, the said securities or the specified portions thereof shall be
paid and redeemed by the Company at the applicable Redemption Price, together
with accrued interest (including any Additional Interest) to the Redemption
Date; provided, however, that, unless otherwise specified as contemplated by
Section 3.1, installments of interest whose Stated Maturity is on or prior to
the Redemption Date will be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such at the close of business on the
relevant record dates according to their terms and the provisions of Section
3.7.
Upon presentation of any Security redeemed in part only, the Company shall
execute and the Trustee shall authenticate and deliver to the Holder thereof, at
the expense of the Company, a new Security or Securities of the same series, of
authorized denominations, in aggregate principal amount equal to the unredeemed
portion of the Security so presented and having the same Original Issue Date,
Stated Maturity and terms. If a Global Security is so surrendered, such new
Security (subject to Section 3.5) will also be a new Global Security.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal of and premium, if any, on such Security
shall, until paid, bear interest from the Redemption Date at the rate prescribed
therefor in the Security.
SECTION 11.7. Right of Redemption or Changes in Stated Maturity of
Securities Initially Issued to a USF&G Trust.
In the case of the Securities of a series initially issued to a USF&G
Trust, if specified as contemplated by Section 3.1, the Company, at its option,
may redeem such Securities upon the occurrence and during the continuation of a
Tax Event, within 90 days following the occurrence of such Tax Event in respect
of such USF&G Trust, in whole (but not in part), in each case at a Redemption
Price specified as contemplated by Section 3.1. In addition, if such Tax Event
relates to the deductibility of interest payable by the Company, and the opinion
referred to in the definition of Tax Event states that the risk of
non-deductibility would be avoided if the Maturity of the Securities were
shortened, the Company shall have the right to change the Maturity of the
Securities to the date stated in such opinion to be the minimum change required
to avoid such risk, but, in no event, may the Company shorten the Maturity to a
Stated Maturity of less than 14 1/2 years from the date of original issuance. In
the event the Company exercises this option (i) written notice of such election
must be provided to the Property Trustee and Debenture Trustee within the 90-day
period after the occurrence of the Tax Event and (ii) the Company no longer will
have the right to redeem the Debentures prior to their Stated Maturity.
ARTICLE XII
SINKING FUNDS
SECTION 12.1. Applicability of Article.
The provisions of this Article shall be applicable to any sinking fund for
the retirement of Securities of any series except as otherwise specified as
contemplated by Section 3.1 for such Securities.
The minimum amount of any sinking fund payment provided for by the terms of
any Securities of any series is herein referred to as a "mandatory sinking fund
payment," and any sinking fund payment in excess of such minimum amount which is
permitted to be made by the terms of such Securities of any series is herein
referred to as an "optional sinking fund payment." If provided for by the terms
of any Securities of any series, the cash amount of any sinking fund payment may
be subject to reduction as provided in Section 12.2. Each sinking fund payment
shall be applied to the redemption (or purchase by tender or otherwise) of
Securities of any series as provided for by the terms of such Securities.
SECTION 12.2. Satisfaction of Sinking Fund Payments with Securities.
In lieu of making all or any part of a mandatory sinking fund payment with
respect to any Securities of a series in cash, the Company may at its option, at
any time no more than 16 months and no less than 45 days prior to the date on
which such sinking fund payment is due, deliver to the Trustee Securities of
such series (together with the unmatured coupons, if any, appertaining thereto)
theretofore purchased or otherwise acquired by the Company, except Securities of
such series that have been redeemed through the application of mandatory or
optional sinking fund payments pursuant to the terms of the Securities of such
series, accompanied by a Company Order instructing the Trustee to credit such
obligations and stating that the Securities of such series were originally
issued by the Company by way of bona fide sale or other negotiation for value;
provided that the Securities to be so credited have not been previously so
credited. The Securities to be so credited shall be received and credited for
such purpose by the Trustee at the redemption price for such Securities, as
specified in the Securities so to be redeemed, for redemption through operation
of the sinking fund and the amount of such sinking fund payment shall be reduced
accordingly.
SECTION 12.3. Redemption of Securities for Sinking Fund.
Not less than 45 days prior to each sinking fund payment date for any
series of Securities, the Company will deliver to the Trustee an Officers'
Certificate specifying the amount of the next ensuing sinking fund payment for
such Securities pursuant to the terms of such Securities, the portion thereof,
if any, which is to be satisfied by payment of cash in the currency in which the
Securities of such series are payable (except as provided pursuant to Section
3.1) and the portion thereof, if any, which is to be satisfied by delivering and
crediting Securities pursuant to Section 12.2 and will also deliver to the
Trustee any Securities to be so delivered. Such Officers' Certificate shall be
irrevocable and upon its delivery the Company shall be obligated to make the
cash payment or payments therein referred to, if any, on or before the
succeeding sinking fund payment date. In the case of the failure of the Company
to deliver such Officers' Certificate (or, as required by this Indenture, the
Securities and coupons, if any, specified in such Officers' Certificate) by the
due date therefor, the sinking fund payment due on the succeeding sinking fund
payment date for such series shall be paid entirely in cash and shall be
sufficient to redeem the principal amount of the Securities of such series
subject to a mandatory sinking fund payment without the right to deliver or
credit securities as provided in Section 12.2 and without the right to make the
optional sinking fund payment with respect to such series at such time.
Any sinking fund payment or payments (mandatory or optional) made in cash
plus any unused balance of any preceding sinking fund payments made with respect
to the Securities of any particular series shall be applied by the Trustee (or
by the Company if the Company is acting as its own Paying Agent) on the sinking
fund payment date on which such payment is made (or, if such payment is made
before a sinking fund payment date, on the sinking fund payment date immediately
following the date of such payment) to the redemption of Securities of such
series at the Redemption Price specified in such Securities with respect to the
sinking fund. Any sinking fund moneys not so applied or allocated by the Trustee
(or, if the Company is acting as its own Paying Agent, segregated and held in
trust by the Company as provided in Section 10.3) for such series and together
with such payment (or such amount so segregated) shall be applied in accordance
with the provisions of this Section 12.3. Any and all sinking fund moneys with
respect to the Securities of any particular series held by the Trustee (or if
the Company is acting as its own Paying Agent, segregated and held in trust as
provided in Section 10.3) on the last sinking fund payment date with respect to
Securities of such series and not held for the payment or redemption of
particular Securities of such series shall be applied by the Trustee (or by the
Company if the Company is acting as its own Paying Agent), together with other
moneys, if necessary, to be deposited (or segregated) sufficient for the
purpose, to the payment of the principal of the Securities of such series at
Maturity. The Trustee shall select the Securities to be redeemed upon such
sinking fund payment date in the manner specified in Section 11.3 and cause
notice of the redemption thereof to be given in the name of and at the expense
of the Company in the manner provided in Section 11.4. Such notice having been
duly given, the redemption of such Securities shall be made upon the terms and
in the manner stated in Section 11.6. On or before each sinking fund payment
date, the Company shall pay to the Trustee (or, if the Company is acting as its
own Paying Agent, the Company shall segregate and hold in trust as provided in
Section 10.3) in cash a sum in the currency in which Securities of such series
are payable (except as provided pursuant to Section 3.1) equal to the principal,
premium, if any, and any interest accrued to the Redemption Date for Securities
or portions thereof to be redeemed on such sinking fund payment date pursuant to
this Section 12.3.
Neither the Trustee nor the Company shall redeem any Securities of a series
with sinking fund moneys or mail any notice of redemption of Securities of such
series by operation of the sinking fund for such series during the continuance
of a default in payment of interest, if any, on any Securities of such series or
of any Event of Default (other than an Event of Default occurring as a
consequence of this paragraph) with respect to the Securities of such series,
except that if the notice of redemption shall have been provided in accordance
with the provisions hereof, the Trustee (or the Company, if the Company is then
acting as its own Paying Agent) shall redeem such Securities if cash sufficient
for that purpose shall be deposited with the Trustee (or segregated by the
Company) for that purpose in accordance with the terms of this Article XII.
Except as aforesaid, any moneys in the sinking fund for such series at the time
when any such default or Event of Default shall occur and any moneys thereafter
paid into such sinking fund shall, during the continuance of such default or
Event of Default, be held as security for the payment of the Securities and
coupons, if any, of such series; provided, however, that in case such default or
Event of Default shall have been cured or waived herein, such moneys shall
thereafter be applied on the next sinking fund payment date for the Securities
of such series on which such moneys may be applied pursuant to the provisions of
this Section 12.3.
ARTICLE XIII
SUBORDINATION OF SECURITIES
SECTION 13.1. Securities Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Security, by its
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article, the payment of the principal
of (and premium, if any) and interest (including any Additional Interest) on
each and all of the Securities are hereby expressly made subordinate and subject
in right of payment to the prior payment in full of all amounts then due and
payable in respect of all Senior Indebtedness.
SECTION 13.2. Payment Over of Proceeds Upon Dissolution, Etc.
In the event of (a) any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation, arrangement, reorganization, debt
restructuring or other similar case or proceeding in connection therewith,
relative to the Company, or its creditors as such, or to its assets, or (b) any
liquidation, dissolution or other winding up of the Company, whether voluntary
or involuntary and whether or not involving insolvency or bankruptcy, or (c) any
assignment for the benefit of creditors or any other marshaling of assets and
liabilities of the Company, then and in any such event specified in (a), (b) or
(c) above (each such event, if any, herein sometimes referred to as a
"Proceeding") the holders of Senior Indebtedness shall be entitled to receive
payment in full of all amounts due or to become due on or in respect of all
Senior Indebtedness, or provision shall be made for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Senior
Indebtedness, before the Holders of the Securities are entitled to receive any
payment or distribution of any kind or character, whether in cash, property or
securities (including any payment or distribution which may be payable or
deliverable by reason of the payment of any other Indebtedness of the Company
subordinated to the payment of the Securities, such payment or distribution
being hereinafter referred to as "Junior Subordinated Payment"), on account of
principal of (or premium, if any) or interest on the Securities or on account of
the purchase or other acquisition of Securities by the Company or any Subsidiary
and to that end the holders of Senior Indebtedness shall be entitled to receive,
for application to the payment thereof, any payment or distribution of any kind
or character, whether in cash, property or securities, including any Junior
Subordinated Payment, which may be payable or deliverable in respect of the
Securities in any such Proceeding. In the event that, notwithstanding the
foregoing provisions of this Section, the Trustee or the Holder of any Security
shall have received any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, including any Junior
Subordinated Payment, before all Senior Indebtedness is paid in full or payment
thereof is provided for in cash or cash equivalents or otherwise in a manner
satisfactory to the holders of Senior Indebtedness, and if such fact shall, at
or prior to the time of such payment or distribution, have been made known to
the Trustee or, as the case may be, such Holder, then and in such event such
payment or distribution shall be paid over or delivered forthwith to the trustee
in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or
other Person making payment or distribution of assets of the Company for
application to the payment of all Senior Indebtedness remaining unpaid, to the
extent necessary to pay all Senior Indebtedness in full, after giving effect to
any concurrent payment or distribution to or for the holders of Senior
Indebtedness. Any taxes that have been withheld or deducted from any payment or
distribution in respect of the Securities, or any taxes that ought to have been
withheld or deducted from any such payment or distribution that have been
remitted to the relevant taxing authority, shall not be considered to be an
amount that the Trustee or the Holder of any Security receives for purposes of
this Section. For purposes of this Article only, the words "any payment or
distribution of any kind or character, whether in cash, property or securities"
shall not be deemed to include shares of stock of the Company as reorganized or
readjusted, or securities of the Company or any other corporation provided for
by a plan of reorganization or readjustment which securities are subordinated in
right of payment to all then outstanding Senior Indebtedness to substantially
the same extent as the Securities are so subordinated as provided in this
Article. The consolidation of the Company with, or the merger of the Company
into, another Person or the liquidation or dissolution of the Company following
the sale of all or substantially all of its properties and assets as an entirety
to another Person or the liquidation or dissolution of the Company following the
sale of all or substantially all of its properties and assets as an entirety to
another Person upon the terms and conditions set forth in Article Eight shall
not be deemed a Proceeding for the purposes of this Section if the Person formed
by such consolidation or into which the Company is merged or the Person which
acquires by sale such properties and assets as an entirety, as the case may be,
shall, as a part of such consolidation, merger, or sale comply with the
conditions set forth in Article Eight.
SECTION 13.3. Prior Payment to Senior Indebtedness Upon Acceleration of
Securities.
In the event that any Securities are declared due and payable before
their Stated Maturity, then and in such event the holders of the Senior
Indebtedness outstanding at the time such Securities so become due and payable
shall be entitled to receive payment in full of all amounts due on or in respect
of such Senior Indebtedness, or provision shall be made for such payment in cash
or cash equivalents or otherwise in a manner satisfactory to the holders of
Senior Indebtedness, before the Holders of the Securities are entitled to
receive any payment (including any payment which may be payable by reason of the
payment of any other indebtedness of the Company being subordinated to the
payment of the Securities) by the Company on account of the principal of (or
premium, if any) or interest on the Securities or on account of the purchase or
other acquisition of Securities by the Company or any Subsidiary; provided,
however, that nothing in this Section shall prevent the satisfaction of any
sinking fund payment in accordance with Article Twelve by delivering and
crediting pursuant to Section 12.2 Securities which have been acquired (upon
redemption or otherwise) prior to such declaration of acceleration. In the event
that, notwithstanding the foregoing, the Company shall make any payment to the
Trustee or the Holder of any Security prohibited by the foregoing provisions of
this Section, and if such fact shall, at or prior to the time of such payment,
have been made known to the Trustee or, as the case may be, such Holder, then
and in such event such payment shall be paid over and delivered forthwith to the
Company. The provisions of this Section shall not apply to any payment with
respect to which Section 13.2 would be applicable.
SECTION 13.4. No Payment When Senior Indebtedness in Default.
(a) In the event and during the continuation of any default in the
payment of principal of (or premium, if any) or interest or any other payment on
any Senior Indebtedness, or in the event that any event of default with respect
to any Senior Indebtedness shall have occurred and be continuing and shall have
resulted in such Senior Indebtedness becoming or being declared due and payable
prior to the date on which it would otherwise have become due and payable,
unless and until such event of default shall have been cured or waived or shall
have ceased to exist and such acceleration shall have been rescinded or
annulled, or (b) in the event any judicial proceeding shall be pending with
respect to any such default in payment or such event of default, then no payment
(including any payment which may be payable by reason of the payment of any
other indebtedness of the Company being subordinated to the payment of the
Securities) shall be made by the Company on account of principal of (or premium,
if any) or interest on the Securities or on account of the purchase or other
acquisition of Securities by the Company or any Subsidiary; provided, however,
that nothing in this Section shall prevent the satisfaction of any sinking fund
payment in accordance with Article Twelve by delivering and crediting pursuant
to Section 12.2 Securities which have been acquired (upon redemption or
otherwise) prior to such default in payment or event of default or which have
been converted pursuant to Article Twelve. In the event that, notwithstanding
the foregoing, the Company shall make any payment to the Trustee or the Holder
of any Security prohibited by the foregoing provisions of this Section, and if
such fact shall, at or prior to the time of such payment, have been made known
to the Trustee or, as the case may be, such Holder, then and in such event such
payment shall be paid over and delivered forthwith to the Company. The
provisions of this Section shall not apply to any payment with respect to which
Section 13.2 would be applicable.
SECTION 13.5. Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this Indenture, or in any
of the Securities, shall prevent (a) the Company at any time, except during the
conditions described in the first paragraph of Section 13.2 or the pendency of
any Proceeding referred to in Section 13.2 or under the conditions described in
Sections 13.3 and 13.4, from making payments at any time of principal of (and
premium, if any) or interest (including Additional Interest) on the Securities,
or (b) the application by the Trustee of any moneys deposited with it hereunder
to the payment of or on account of the principal of (and premium, if any) or
interest (including any Additional Interest) on the Securities or the retention
of such payment by the Holders, if, at the time of such application by the
Trustee, it did not have knowledge that such payment would have been prohibited
by the provisions of this Article.
SECTION 13.6. Subrogation to Rights of Holders of Senior Indebtedness.
Subject to the payment in full of all Senior Indebtedness, or the provision
for such payment in cash or cash equivalents or otherwise in a manner
satisfactory to the holders of Senior Indebtedness, the Holders of the
Securities shall be subrogated to the extent of the payments or distributions
made to the holders of such Senior Indebtedness pursuant to the provisions of
this Article (equally and ratably with the holders of all indebtedness of the
Company which by its express terms is subordinated to Senior Indebtedness of the
Company to substantially the same extent as the Securities are subordinated to
the Senior Indebtedness and is entitled to like rights of subrogation by reason
of any payments or distributions made to holders of such Senior Indebtedness) to
the rights of the holders of such Senior Indebtedness to receive payments and
distributions of cash, property and securities applicable to the Senior
Indebtedness until the principal of (and premium, if any) and interest on the
Securities shall be paid in full. Such assignment shall not be effective until
such time as all Senior Indebtedness has been paid in full or payment thereof
provided for. For purposes of such subrogation or assignment, no payments or
distributions to the holders of the Senior Indebtedness of any cash, property or
securities to which the Holders of the Securities or the Trustee would be
entitled except for the provisions of this Article, and no payments over
pursuant to the provisions of this Article to the holders of Senior Indebtedness
by Holders of the Securities or the Trustee, shall, as among the Company, its
creditors other than holders of Senior Indebtedness, and the Holders of the
Securities, be deemed to be a payment or distribution by the Company to or on
account of the Senior Indebtedness.
SECTION 13.7. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the purpose
of defining the relative rights of the Holders of the Securities on the one hand
and the holders of Senior Indebtedness on the other hand. Nothing contained in
this Article or elsewhere in this Indenture or in the Securities is intended to
or shall (a) impair, as between the Company, its creditors other than Holders of
Senior Indebtedness and the Holders of the Securities, the obligations of the
Company, which are absolute and unconditional (and which, subject to the rights
under this Article of the holders of Senior Indebtedness are intended to rank
equally with all other general unsecured obligations of the Company), to pay to
the Holders of the Securities the principal of (and premium, if any) and
interest (including any Additional Interest) on the Securities as and when the
same shall become due and payable in accordance with their terms; or (b) affect
the relative rights against the Company of the Holders of the Securities and
creditors of the Company other than the holders of Senior Indebtedness; or (c)
prevent the Trustee or the Holder of any Security from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture
including, without limitation, filing and voting claims in any Proceeding,
subject to the rights, if any, under this Article of the holders of Senior
Indebtedness to receive cash, property and securities otherwise payable or
deliverable to the Trustee or such Holder.
SECTION 13.8. Trustee to Effectuate Subordination.
Each Holder of a Security by his or her acceptance thereof authorizes and
directs the Trustee on his or her behalf to take such action as may be necessary
or appropriate to acknowledge or effectuate the subordination provided in this
Article and appoints the Trustee his or her attorney-in-fact for any and all
such purposes.
SECTION 13.9. No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by (i) any amendment of or addition or supplement to any
Senior Indebtedness or any instrument or agreement relating thereto (unless
otherwise expressly provided therein) or (ii) any act or failure to act on the
part of the Company or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by the Company with the terms, provisions and
covenants of this Indenture, regardless of any knowledge thereof that any such
holder may have or be otherwise charged with.
Without in any way limiting the generality of the immediately preceding
paragraph, the holders of Senior Indebtedness may, at any time and from to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article or
the obligations hereunder of the Holders of the Securities to the holders of
Senior Indebtedness, do any one or more of the following: (i) change the manner,
place or terms of payment or extend the time of payment of, or renew or alter or
increase, Senior Indebtedness, or otherwise amend or supplement in any manner
Senior Indebtedness or any instrument evidencing the same or any agreement under
which Senior Indebtedness is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights
against the Company and any other Person.
SECTION 13.10. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment to or by the
Trustee in respect of the Securities. Notwithstanding the provisions of this
Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof from the
Company or a holder of Senior Indebtedness or from any trustee, agent or
representative therefor; and, prior to the receipt of any such written notice,
the Trustee, subject to the provisions of Section 6.1, shall be entitled in all
respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this Section at least
two Business Days prior to the date upon which by the terms hereof any monies
may become payable for any purpose (including, without limitation, the payment
of the principal of (and premium, if any) or interest (including any Additional
Interest) on any Security), then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power and authority to receive such
monies and to apply the same to the purpose for which the monies were received
and shall not be affected by any notice to the contrary which may be received by
it within two Business Days prior to such date.
Subject to the provisions of Section 6.1, the Trustee shall be entitled to
rely on the delivery to it of a written notice by a Person representing himself
or herself to be a holder of Senior Indebtedness (or a trustee, agent or
representative therefor) to establish that such notice has been given by a
holder of Senior Indebtedness (or a trustee or attorney-in-fact therefor). In
the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any Person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article, and if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
SECTION 13.11. Reliance on Judicial Order or Certificate of Liquidating
Agent.
Upon any payment or distribution of assets of the Company referred to in
this Article, the Trustee, subject to the provisions of Section 6.1, and the
Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such Proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other Person
making such payment or distribution, delivered to the Trustee or to the Holders
of Securities, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article.
SECTION 13.12. Trustee Not Fiduciary for Holders of Senior Indebtedness.
The Trustee, in its capacity as trustee under this Indenture, shall not be
deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall
not be liable to any such holders if it shall in good faith mistakenly pay over
or distribute to Holders of Securities or to the Company or to any other Person
cash, property or securities to which any holders of Senior Indebtedness shall
be entitled by virtue of this Article or otherwise. With respect to the holders
of Senior Indebtedness, the Trustee undertakes to perform or to observe only
such of its covenants or obligations as are specifically set forth in this
Article and no implied covenants or obligations with respect to holders of
Senior Indebtedness shall be read into this Indenture against the Trustee.
SECTION 13.13. Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article with respect to any Senior Indebtedness which may at
any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder. Nothing in this Article shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 6.7.
SECTION 13.14. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article shall in such case (unless the context otherwise requires)
be construed as extending to and including such Paying Agent within its meaning
as fully for all intents and purposes as if such Paying Agent were named in this
Article in addition to or in place of the Trustee.
* * * *
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the day and year first above written.
USF&G CORPORATION
By:____________________________
Ron Mishler
Vice President-Treasurer
Attest:______________________________
John F. Hoffen, Jr., Secretary
THE BANK OF NEW YORK
as Trustee
By:____________________________
ANNEX D -- Form of Restricted
Securities Certificate
RESTRICTED SECURITIES CERTIFICATE
(For transfers pursuant to ss. 3.6(b) of the Indenture)
[-------------------------],
as Security Registrar
[address]
Re: ____________ of [USF&G Trust] (the "Trust")
(the "Securities")
Reference is made to the Indenture, dated as of July 8, 1997
(the "Indenture"), entered into between USF&G Corporation, and The Bank of New
York, as Trustee. Terms used herein and defined in the Indenture or in
Regulation S, Rule 144A or Rule 144 under the U.S. Securities Act of 1933 (the
"Securities Act") are used herein as so defined.
This certificate relates to $_____________ aggregate
principal amount of Securities, which are evidenced by the following
certificate(s) (the "Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
CURRENTLY IN BOOK-ENTRY FORM: Yes ___ No ___ (check one)
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Global Security, they are held
through a Depository or an Agent Member in the name of the Undersigned, as or on
behalf of the Owner. If the Specified Securities are not represented by a Global
Security, they are registered in the name of the Undersigned, as or on behalf of
the Owner.
The Owner has requested that the Specified Securities be
transferred to a person (the "Transferee") who will take delivery in the form of
a Restricted Security. In connection with such transfer, the Owner hereby
certifies that, unless such transfer is being effected pursuant to an effective
registration statement under the Securities Act, it is being effected in
accordance with Rule 144A, Rule 904 of Regulation S or Rule 144 under the
Securities Act and all applicable securities laws of the states of the United
States and other jurisdictions. Accordingly, the Owner hereby further certifies
as:
(1) Rule 144A Transfers. If the transfer is being
effected in accordance with Rule 144A:
(A) the Specified Securities are being transferred to
a person that the Owner and any person acting on its behalf
reasonably believe is a "qualified institutional buyer" within
the meaning of Rule 144A, acquiring for its own account or for
the account of a qualified institutional buyer; and
(B) the Owner and any person acting on its behalf
have taken reasonable steps to ensure that the Transferee is
aware that the Owner may be relying on Rule 144A in connection
with the transfer; and
(2) Rule 904 Transfers. If the transfer is being
effected in accordance with Rule 904:
(A) the Owner is not a distributor of the Securities,
an affiliate of the Company or any such distributor or a
person acting in behalf of any of the foregoing;
(B) the offer of the Specified Securities was not
made to a person in the United States;
(C) either;
(i) at the time the buy order was
originated, the Transferee was outside the United
States or the Owner and any person acting on its
behalf reasonably believed that the Transferee was
outside the United States, or
(ii) the transaction is being executed in,
on or through the facilities of the Eurobond market,
as regulated by the Association of International Bond
Dealers, or another designated offshore securities
market and neither the Owner nor any person acting on
its behalf knows that the transaction has been
prearranged with a buyer in the United States;
(D) no directed selling efforts have been made in
the United States by or on behalf of the Owner or any
affiliate thereof; and
(E) the transaction is not part of a plan or scheme
to evade the registration requirements of the Securities act.
(3) Rule 144 Transfers. If the transfer is being
effected pursuant to Rule 144:
(A) the transfer is occurring after a holding period
of at least one year (computed in accordance with paragraph
(d) of Rule 144) has elapsed since the date the Specified
Securities were acquired from the Company or from an affiliate
(as such term is defined in Rule 144) of the Company,
whichever is later, and is being effected in accordance with
the applicable amount, manner of sale and notice requirements
of paragraphs (e), (f) and (h) of Rule 144; or
(B) the transfer is occurring after a holding period
of at least two years has elapsed since the date the Specified
Securities were acquired from the Company or from an affiliate
(as such term is defined in Rule 144) of the Company,
whichever is later, and the Owner is not, and during the
preceding three months has not been, an affiliate of the
Company.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company and the Initial Purchasers (as
defined in the related Trust Agreement).
Dated: ___________________________________
(Print the name of the Undersigned,
as such term is defined in the second
paragraph of this certificate.)
By: _______________________________
Name:
Title:
(If the Undersigned is a corporation,
partnership or fiduciary, the title of
the person signing on behalf of the
Undersigned must be stated.)
ANNEX E -- Form of Unrestricted
Securities Certificate
UNRESTRICTED SECURITIES CERTIFICATE
(For removal of Restricted Capital Securities Legends pursuant to ss. 3.6(c)
of the Indenture)
[-------------------------],
as Security Registrar
[address]
Re: _________________________ of [USF&G Trust] (the
"Trust") (the "Securities")
Reference is made to the Indenture, dated as of July 8, 1997
(the "Indenture"), between USF&G Corporation and The Bank of New York, as
Trustee. Terms used herein and defined in the Indenture or in Rule 144 under the
U.S. Securities Act of 1933 (the "Securities Act") are used herein as so
defined.
This certificate relates to $_____________ aggregate
principal amount of Securities, which are evidenced by the following
certificate(s) (the "Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
CURRENTLY IN BOOK-ENTRY FORM: Yes ___ No ___ (check one)
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Global Security, they are held
through the Depository or an Agent Member in the name of the Undersigned, as or
on behalf of the Owner. If the Specified Securities are not represented by a
Global Security, they are registered in the name of the Undersigned, as or on
behalf of the Owner.
The Owner has requested that the Specified Securities be
exchanged for Securities bearing no Restricted Securities Legend pursuant to
Section 3.6(c) of the Indenture. In connection with such exchange, the Owner
hereby certifies that the exchange is occurring after a period of at least two
years has elapsed since the date the Specified Securities were acquired from the
Company or from an affiliate (as such term is defined in Rule 144) of the
Company, whichever is later, and the Owner is not, and during the preceding
three months has not been, an affiliate of the Company. The Owner also
acknowledges that any future transfers of the Specified Securities must comply
with all applicable securities laws of the states of the United States and other
jurisdictions.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company and the Initial Purchasers (as
defined in the related Trust Agreement).
Dated: ___________________________________
(Print the name of the Undersigned, as
such term is defined in the second
paragraph of this certificate.)
By:________________________________
Name:
Title:
(If the Undersigned is a corporation,
partnership or fiduciary, the title of
the person signing on behalf of the
Undersigned must be stated.)
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1. Definitions. ........................................ 1
SECTION 1.2. Compliance Certificate and Opinions. ................ 11
SECTION 1.3. Forms of Documents Delivered to Trustee. ............ 12
SECTION 1.4. Acts of Holders. .................................... 12
SECTION 1.5. Notices, Etc. to Trustee and Company. ............... 14
SECTION 1.6. Notice to Holders; Waiver. .......................... 15
SECTION 1.7. Conflict with Trust Indenture Act. .................. 15
SECTION 1.8. Effect of Headings and Table of Contents. ........... 15
SECTION 1.9. Successors and Assigns. ............................. 15
SECTION 1.10. Separability Clause. ................................ 16
SECTION 1.11. Benefits of Indenture. .............................. 16
SECTION 1.12. Governing Law. ...................................... 16
SECTION 1.13. Non-Business Days. .................................. 16
ARTICLE II
SECURITY FORMS
SECTION 2.1. Forms Generally. .................................... 16
SECTION 2.2. Form of Face of Security. ........................... 17
SECTION 2.3. Form of Reverse of Security. ........................ 21
SECTION 2.4. Additional Provisions Required in Global Security. .. 24
SECTION 2.5. Form of Trustee's Certificate of Authentication. .... 24
ARTICLE III
THE SECURITIES
SECTION 3.1. Title and Terms. .................................... 24
SECTION 3.2. Denominations. ...................................... 27
SECTION 3.3. Execution, Authentication, Delivery and Dating. ..... 27
SECTION 3.4. Temporary Securities. ............................... 29
SECTION 3.5. Global Securities.................................... 29
SECTION 3.6. Registration, Transfer and Exchange Generally,
Certain Transfers and Exchanges; Securities
Act Legends.......................................... 31
SECTION 3.7. Mutilated, Destroyed, Lost and Stolen
Securities........................................... 34
SECTION 3.8. Payment of Interest; Interest Rights Preserved. ..... 35
SECTION 3.9. Persons Deemed Owners. .............................. 36
SECTION 3.10. Cancellation. ....................................... 36
SECTION 3.11. Computation of Interest. ............................ 37
SECTION 3.12. Deferrals of Interest Payment Dates. ................ 37
SECTION 3.13. Right of Set-Off. ................................... 38
SECTION 3.14. Agreed Tax Treatment................................. 38
SECTION 3.15. CUSIP Numbers........................................ 38
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1. Satisfaction and Discharge of Indenture. ............ 39
SECTION 4.2. Application of Trust Money. ......................... 40
ARTICLE V
REMEDIES
SECTION 5.1. Events of Default. .................................. 40
SECTION 5.2. Acceleration of Maturity; Rescission and
Annulment............................................ 41
SECTION 5.3. Collection of Indebtedness and Suits for
Enforcement by Trustee............................... 42
SECTION 5.4. Trustee May File Proofs of Claim. ................... 43
SECTION 5.5. Trustee May Enforce Claim Without Possession
of Securities........................................ 44
SECTION 5.6. Application of Money Collected. ..................... 44
SECTION 5.7. Limitation on Suits. ................ ............... 45
SECTION 5.8. Unconditional Right of Holders to Receive
Principal, Premium and Interest; Direct Action
by Holders of Capital Securities..................... 45
SECTION 5.9. Restoration of Rights and Remedies................... 46
SECTION 5.10. Rights and Remedies Cumulative. ..................... 46
SECTION 5.11. Delay or Omission Not Waiver. ....................... 46
SECTION 5.12. Control by Holders. ................................. 47
SECTION 5.13. Waiver of Past Defaults. ............................ 47
SECTION 5.14. Undertaking for Costs. .............................. 48
SECTION 5.15. Waiver of Usury, Stay or Extension Laws. ............ 48
ARTICLE VI
THE TRUSTEE
SECTION 6.1. Certain Duties and Responsibilities. ................ 49
SECTION 6.2. Notice of Defaults. ................................. 50
SECTION 6.3. Certain Rights of Trustee. .......................... 50
SECTION 6.4. Not Responsible for Recitals or Issuance of
Securities........................................... 51
SECTION 6.5. May Hold Securities. ................................ 52
SECTION 6.6. Money Held in Trust. ................................ 52
SECTION 6.7. Compensation and Reimbursement. ..................... 52
SECTION 6.8. Disqualification; Conflicting Interests. ............ 53
SECTION 6.9. Corporate Trustee Required; Eligibility. ............ 53
SECTION 6.10. Resignation and Removal; Appointment of Successor. .. 54
SECTION 6.11. Acceptance of Appointment by Successor. ............. 55
SECTION 6.12. Merger, Conversion, Consolidation or
Succession to Business............................... 56
SECTION 6.13. Preferential Collection of Claims Against
Company.............................................. 57
SECTION 6.14. Appointment of Authenticating Agent. ................ 57
ARTICLE VII
HOLDER'S LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 7.1. Company to Furnish Trustee Names and
Addresses of Holders................................. 59
SECTION 7.2. Preservation of Information, Communications
to Holders. ......................................... 59
SECTION 7.3. Reports by Trustee. ................................. 59
SECTION 7.4. Reports by Company. ................................. 60
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 8.1. Company May Consolidate, Etc., Only
on Certain Terms..................................... 60
SECTION 8.2. Successor Corporation Substituted. .................. 61
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1. Supplemental Indentures without Consent
of Holders. ......................................... 62
SECTION 9.2. Supplemental Indentures with Consent
of Holders............................................63
SECTION 9.3. Execution of Supplemental Indentures................. 65
SECTION 9.4. Effect of Supplemental Indentures.................... 65
SECTION 9.5. Conformity with Trust Indenture Act.................. 65
SECTION 9.6. Reference in Securities to Supplemental
Indentures........................................... 65
ARTICLE X
COVENANTS
SECTION 10.1. Payment of Principal, Premium and Interest. ........ 66
SECTION 10.2. Maintenance of Office or Agency. ................... 66
SECTION 10.3. Money for Security Payments to be Held in Trust. ... 66
SECTION 10.4. Statement as to Compliance. ........................ 68
SECTION 10.5. Waiver of Certain Covenants. ....................... 68
SECTION 10.6. Additional Sums. ................................... 68
SECTION 10.7. Additional Covenants. .............................. 69
SECTION 10.8. Original Issue Discount. ........................... 70
ARTICLE XI
REDEMPTION OF SECURITIES
SECTION 11.1. Applicability of This Article. ..................... 70
SECTION 11.2. Election to Redeem; Notice to Trustee. ............. 71
SECTION 11.3. Selection of Securities to be Redeemed. ............ 71
SECTION 11.4. Notice of Redemption. .............................. 71
SECTION 11.5. Deposit of Redemption Price. ....................... 73
SECTION 11.6. Payment of Securities Called for Redemption. ....... 73
SECTION 11.7. Right of Redemption of Securities or Changes
in Stated Maturity of Securities Initially
Issued to a USF&G Trust............................. 73
ARTICLE XII
SINKING FUNDS
SECTION 12.1. Applicability of Article. .......................... 74
SECTION 12.2. Satisfaction of Sinking Fund Payments
with Securities..................................... 74
SECTION 12.3. Redemption of Securities for Sinking Fund........... 75
ARTICLE XIII
SUBORDINATION OF SECURITIES
SECTION 13.1. Securities Subordinate to Senior Indebtedness....... 76
SECTION 13.2. Payment Over of Proceeds Upon Dissolution, Etc...... 77
SECTION 13.3. Prior Payment to Senior Indebtedness Upon
Acceleration of Securities...........................78
SECTION 13.4. No Payment When Senior Indebtedness in Default.......79
SECTION 13.5. Payment Permitted If No Default..................... 79
SECTION 13.6. Subrogation to Rights of Holders of Senior
Indebtedness........................................ 80
SECTION 13.7. Provisions Solely to Define Relative Rights......... 80
SECTION 13.8. Trustee to Effectuate Subordination. ............... 81
SECTION 13.9. No Waiver of Subordination Provisions. ............. 81
SECTION 13.10. Notice to Trustee................................... 81
SECTION 13.11. Reliance on Judicial Order or Certificate of
Liquidating Agent................................... 82
SECTION 13.12. Trustee Not Fiduciary for Holders of
Senior Indebtedness................................. 82
SECTION 13.13. Rights of Trustee as Holder of
Senior Indebtedness; Preservation of
Trustee's Rights.................................... 83
SECTION 13.14. Article Applicable to Paying Agents................. 83
ANNEX A - Form of Trust Agreement
ANNEX B - Form of Amended and Restated Trust Agreement
ANNEX C - Form of Guarantee Agreement
ANNEX D - Form of Restricted Securities Certificate
ANNEX E - Form of Unrestricted Securities Certificate
<PAGE>
[Execution Copy]
GUARANTEE AGREEMENT
Between
USF&G CORPORATION
(as Guarantor)
and
THE BANK OF NEW YORK
(as Trustee)
dated as of
July 8, 1997
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS
Section 1.1. Definitions.......................................... 1
ARTICLE II. TRUST INDENTURE ACT............................................ 3
Section 2.1. Trust Indenture Act; Application..................... 3
Section 2.2. List of Holders...................................... 3
Section 2.3. Reports by the Guarantee Trustee..................... 4
Section 2.4. Periodic Reports to the Guarantee Trustee............ 4
Section 2.5. Evidence of Compliance with Conditions Precedent..... 4
Section 2.6. Events of Default; Waiver............................ 4
Section 2.7. Event of Default; Notice............................. 4
Section 2.8. Conflicting Interests................................ 5
ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE............ 5
Section 3.1. Powers and Duties of the Guarantee Trustee........... 5
Section 3.2. Certain Rights of Guarantee Trustee.................. 6
Section 3.3. Compensation; Indemnity; Fees........................ 7
ARTICLE IV. GUARANTEE TRUSTEE.............................................. 8
Section 4.1. Guarantee Trustee: Eligibility....................... 8
Section 4.2. Appointment, Removal and Resignation of the
Guarantee Trustee................................... 8
ARTICLE V. GUARANTEE....................................................... 9
Section 5.1. Guarantee............................................ 9
Section 5.2. Waiver of Notice and Demand.......................... 9
Section 5.3. Obligations Not Affected............................. 9
Section 5.4. Rights of Holders................................... 10
Section 5.5. Guarantee of Payment................................. 10
Section 5.6. Subrogation.......................................... 10
Section 5.7. Independent Obligations.............................. 11
ARTICLE VI. COVENANTS AND SUBORDINATION.................................... 11
Section 6.1. Subordination........................................ 11
Section 6.2. Pari Passu Guarantees................................ 11
ARTICLE VII. TERMINATION................................................... 11
Section 7.1. Termination.......................................... 11
ARTICLE VIII. MISCELLANEOUS................................................ 12
Section 8.1. Successors and Assigns............................... 12
Section 8.2. Amendments........................................... 12
Section 8.3. Notices.............................................. 12
Section 8.4. Benefit.............................................. 13
Section 8.5. Interpretation....................................... 13
Section 8.6. Governing Law........................................ 13
GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT, dated as of July 8, 1997, is executed and
delivered by USF&G CORPORATION, a Maryland corporation (the "Guarantor") having
its principal office at 6225 Smith Avenue, Baltimore, Maryland 21209, and THE
BANK OF NEW YORK, a New York banking corporation, as trustee (the "Guarantee
Trustee"), for the benefit of the Holders (as defined herein) from time to time
of the Capital Securities (as defined herein) of USF&G Capital III, a Delaware
statutory business trust (the "Issuer").
WHEREAS, pursuant to an Amended and Restated Trust Agreement, dated as
of July 8, 1997 (the "Trust Agreement"), among the Guarantor, as Depositor, the
Property Trustee and the Delaware Trustee named therein and the Holders from
time to time of undivided beneficial interests in the assets of the Issuer, the
Issuer is issuing $100,000,000 aggregate Liquidation Amount (as defined in the
Trust Agreement) of its 8.312% Capital Securities, Series C, Liquidation Amount
$1,000 per capital security) (the "Capital Securities") representing preferred
undivided beneficial interests in the assets of the Issuer and having the terms
set forth in the Trust Agreement;
WHEREAS, the Capital Securities will be issued by the Issuer and the
proceeds thereof, together with the proceeds from the issuance of the Issuer's
Common Securities (as defined below), will be used to purchase the Debentures
(as defined in the Trust Agreement) of the Guarantor which will be deposited
with The Bank of New York, as Property Trustee under the Trust Agreement, as
trust assets; and
WHEREAS, as incentive for the Holders to purchase Capital Securities,
the Guarantor desires irrevocably and unconditionally to agree, to the extent
set forth herein, to pay to the Holders of the Capital Securities the Guarantee
Payments (as defined herein) and to make certain other payments on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of
Capital Securities, which purchase the Guarantor hereby agrees shall benefit the
Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the
benefit of the Holders from time to time of the Capital Securities.
ARTICLE I. DEFINITIONS
SECTION 1.1. Definitions
As used in this Guarantee Agreement, the terms set forth below shall,
unless the context otherwise requires, have the following meanings. Capitalized
or otherwise defined terms used but not otherwise defined herein shall have the
meanings assigned to such terms in the Trust Agreement as in effect on the date
hereof.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person; provided, however, that an Affiliate of the
Guarantor shall not be deemed to be an Affiliate of the Issuer. For the purposes
of this definition, "control" when used with respect to any specified Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Board of Directors" means either the board of directors of the
Guarantor or any committee of that board duly authorized to act hereunder.
"Common Securities" means the securities representing common undivided
beneficial interests in the assets of the Issuer.
"Event of Default" means a default by the Guarantor on any of its
payment or other obligations under this Guarantee Agreement; provided, however,
that, except with respect to a default in payment of any Guarantee Payments, the
Guarantor shall have received notice of default and shall not have cured such
default within 60 days after receipt of such notice.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Capital Securities, to the extent not
paid or made by or on behalf of the Issuer: (i) any accrued and unpaid
Distributions (as defined in the Trust Agreement) required to be paid on the
Capital Securities, to the extent the Issuer shall have funds on hand available
therefor at such time; (ii) the redemption price, including all accrued and
unpaid Distributions to the date of redemption (the "Redemption Price"), with
respect to any Capital Securities called for redemption by the Issuer, to the
extent the Issuer shall have funds on hand available therefor at such time; and
(iii) upon a voluntary or involuntary termination, winding-up or liquidation of
the Issuer, unless Debentures are distributed to the Holders, the lesser of (a)
the aggregate of the Liquidation Amount of $1,000 per Capital Security plus
accrued and unpaid Distributions on the Capital Securities to the date of
payment (the "Liquidation Distribution") and (b) the amount of assets of the
Issuer remaining available for distribution to Holders on liquidation of the
Issuer.
"Guarantee Trustee" means The Bank of New York, until a Successor
Guarantee Trustee has been appointed and has accepted such appointment pursuant
to the terms of this Guarantee Agreement, and thereafter means each such
Successor Guarantee Trustee.
"Holder" means any holder, as registered on the books and records of
the Issuer, of any Capital Securities; provided, however, that in determining
whether the holders of the requisite percentage of Capital Securities have given
any request, notice, consent or waiver hereunder, "Holder" shall not include the
Guarantor, the Guarantee Trustee, or any Affiliate of the Guarantor or the
Guarantee Trustee.
"Indenture" means the Junior Subordinated Indenture dated as of
July 8, 1997, as supplemented and amended between the Guarantor and The Bank
of New York, as trustee.
"List of Holders" has the meaning specified in Section 2.2(a).
"Majority in Liquidation Amount of the Securities" means, except as
provided by the Trust Indenture Act, a vote by the Holder(s), voting separately
as a class, of more than 50% of the Liquidation Amount of all then outstanding
Capital Securities issued by the Issuer.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chairman or a Vice Chairman of the Board of Directors
of such Person or the President or a Vice President of such Person, and by the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of
such Person, and delivered to the Guarantee Trustee. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Guarantee Agreement shall include:
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definitions relating
thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each officer, such
condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"Responsible Officer" means, when used with respect to the Guarantee
Trustee, any officer assigned to the Corporate Trust Office, including any
managing director, vice president, assistant vice president, assistant
treasurer, assistant secretary or any other officer of the Guarantee Trustee
customarily performing functions similar to those performed by any of the above
designated officers, and also, with respect to a particular matter, any other
officer, to whom such matter is referred because of such officer's knowledge of
and familiarity with the particular subject.
"Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.
ARTICLE II. TRUST INDENTURE ACT
SECTION 2.1. Trust Indenture Act; Application.
(a) The Trust Indenture Act shall apply as a matter of contract to
this Trust Agreement for purposes of interpretation, construction and defining
the rights and obligations hereunder.
(b) If and to the extent that any provision of this Guarantee
Agreement limits, qualifies or conflicts with the duties imposed by Sections 310
to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control.
SECTION 2.2. List of Holders.
(a) The Guarantor shall furnish or cause to be furnished to the
Guarantee Trustee (a) semi-annually, on or before June 30 and December 31 of
each year, a list, in such form as the Guarantee Trustee may reasonably require,
of the names and addresses of the Holders ("List of Holders") as of a date not
more than 15 days prior to the delivery thereof, and (b) at such other times as
the Guarantee Trustee may request in writing, within 30 days after the receipt
by the Guarantor of any such request, a List of Holders as of a date not more
than 15 days prior to the time such list is furnished, in each case to the
extent such information is in the possession or control of the Guarantor and is
not identical to a previously supplied list of Holders or has not otherwise been
received by the Guarantee Trustee in its capacity as such. The Guarantee Trustee
may destroy any List of Holders previously given to it on receipt of a new List
of Holders.
(b) The Guarantee Trustee shall comply with its obligations under
Section 311(a), Section 311(b) and Section 312(b) of the Trust Indenture Act.
SECTION 2.3. Reports by the Guarantee Trustee.
Not later than 60 days after December 31 of each year, commencing 60
days after December 31, 1997, the Guarantee Trustee shall provide to the Holders
such reports as are required by Section 313 of the Trust Indenture Act, if any,
in the form and in the manner provided by Section 313 of the Trust Indenture
Act. The Guarantee Trustee shall also comply with the requirements of Section
313(d) of the Trust Indenture Act.
SECTION 2.4. Periodic Reports to the Guarantee Trustee.
The Guarantor shall provide to the Guarantee Trustee, the Securities
and Exchange Commission and the Holders such documents, reports and information,
if any, as required by Section 314 of the Trust Indenture Act and the compliance
certificate required by Section 314 of the Trust Indenture Act, in the form, in
the manner and at the times required by Section 314 of the Trust Indenture Act.
SECTION 2.5. Evidence of Compliance with Conditions Precedent.
The Guarantor shall provide to the Guarantee Trustee such evidence of
compliance with such conditions precedent, if any, provided for in this
Guarantee Agreement that relate to any of the matters set forth in Section
314(c) of the Trust Indenture Act. Any certificate or opinion required to be
given by an officer pursuant to Section 314(c)(1) may be given in the form of an
Officers' Certificate.
SECTION 2.6. Events of Default; Waiver.
The Holders of a Majority in Liquidation Amount of the Capital
Securities may, by vote, on behalf of the Holders, waive any past Event of
Default and its consequences. Upon such waiver, any such Event of Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured, for every purpose of this Guarantee Agreement, but no such
waiver shall extend to any subsequent or other default or Event of Default or
impair any right consequent therefrom.
SECTION 2.7. Event of Default; Notice.
(a) The Guarantee Trustee shall, within 90 days after the occurrence
of an Event of Default, transmit by mail, first class postage prepaid, to the
Holders, notices of all Events of Default known to the Guarantee Trustee, unless
such Events of Default have been cured before the giving of such notice,
provided, that, except in the case of a default in the payment of a Guarantee
Payment, the Guarantee Trustee shall be protected in withholding such notice if
and so long as the Board of Directors, the executive committee or a trust
committee of directors and/or Responsible Officers of the Guarantee Trustee in
good faith determines that the withholding of such notice is in the interests of
the Holders.
(b) The Guarantee Trustee shall not be deemed to have knowledge of any
Event of Default unless a Responsible Officer charged with the administration of
this Guarantee Agreement shall have obtained written notice of such Event of
Default.
SECTION 2.8. Conflicting Interests.
The Trust Agreement shall be deemed to be specifically described in
this Guarantee Agreement for the purposes of clause (i) of the first proviso
contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE
SECTION 3.1. Powers and Duties of the Guarantee Trustee.
(a) This Guarantee Agreement shall be held by the Guarantee Trustee
for the benefit of the Holders, and the Guarantee Trustee shall not transfer
this Guarantee Agreement to any Person except a Holder exercising his or her
rights pursuant to Section 5.4(iv) or to a Successor Guarantee Trustee on
acceptance by such Successor Guarantee Trustee of its appointment to act as
Successor Guarantee Trustee. The right, title and interest of the Guarantee
Trustee shall automatically vest in any Successor Guarantee Trustee upon
acceptance by such Successor Guarantee Trustee of its appointment hereunder,
and such vesting and cessation of title shall be effective whether or not
conveyancing documents have been executed and delivered pursuant to the
appointment of such Successor Guarantee Trustee.
(b) If an Event of Default has occurred and is continuing, the
Guarantee Trustee shall enforce this Guarantee Agreement for the benefit of the
Holders.
(c) The Guarantee Trustee, before the occurrence of any Event of
Default and after the curing of all Events of Default that may have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Guarantee Agreement, and no implied covenants shall be read into this
Guarantee Agreement against the Guarantee Trustee. In case an Event of Default
has occurred (that has not been cured or waived pursuant to Section 2.6), the
Guarantee Trustee shall exercise such of the rights and powers vested in it by
this Guarantee Agreement, and use the same degree of care and skill in its
exercise thereof, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.
(d) No provision of this Guarantee Agreement shall be construed to
relieve the Guarantee Trustee from liability for its own negligent action, its
own negligent failure to act or its own willful misconduct, except that:
(i) prior to the occurrence of any Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Guarantee Trustee shall
be determined solely by the express provisions of this Guarantee Agreement, and
the Guarantee Trustee shall not be liable except for the performance of such
duties and obligations as are specifically set forth in this Guarantee
Agreement; and
(B) in the absence of bad faith on the part of the Guarantee
Trustee, the Guarantee Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Guarantee Trustee and conforming to
the requirements of this Guarantee Agreement; but in the case of any such
certificates or opinions that by any provision hereof or of the Trust Indenture
Act are specifically required to be furnished to the Guarantee Trustee, the
Guarantee Trustee shall be under a duty to examine the same to determine whether
or not they conform to the requirements of this Guarantee Agreement;
(ii) the Guarantee Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Guarantee
Trustee, unless it shall be proved that the Guarantee Trustee was negligent
in ascertaining the pertinent facts upon which such judgment was made;
(iii) the Guarantee Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of not less than a majority in Liquidation
Amount of the Capital Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Guarantee
Trustee, or exercising any trust or power conferred upon the Guarantee
Trustee under this Guarantee Agreement; and
(iv) no provision of this Guarantee Agreement shall require the
Guarantee Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or in
the exercise of any of its rights or powers, if the Guarantee Trustee shall
have reasonable grounds for believing that the repayment of such funds or
liability is not assured to it under the terms of this Guarantee Agreement
or indemnity satisfactory to it against such risk or liability is not
assured to it.
SECTION 3.2. Certain Rights of Guarantee Trustee.
(a) Subject to the provisions of Section 3.1:
(i) The Guarantee Trustee may conclusively rely and shall be
fully protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or other
paper or document reasonably believed by it to be genuine and to have been
signed, sent or presented by the proper party or parties.
(ii) Any direction or act of the Guarantor contemplated by
this Guarantee Agreement shall be sufficiently evidenced by an
Officers' Certificate unless otherwise prescribed herein.
(iii) Whenever, in the administration of this Guarantee
Agreement, the Guarantee Trustee shall deem it desirable that a matter
be proved or established before taking, suffering or omitting to take
any action hereunder, the Guarantee Trustee (unless other evidence is
herein specifically prescribed) may, in the absence of bad faith on its
part, request and conclusively rely upon an Officers' Certificate.
(iv) The Guarantee Trustee may consult with legal counsel of
its selection, and the advice or opinion of such legal counsel with
respect to legal matters shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted to be
taken by it hereunder in good faith and in accordance with such advice
or opinion. Such legal counsel may be legal counsel to the Guarantor or
any of its Affiliates and may be one of its employees. The Guarantee
Trustee shall have the right at any time to seek instructions
concerning the administration of this Guarantee Agreement from any
court of competent jurisdiction.
(v) The Guarantee Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Guarantee
Agreement at the request or direction of any Holder, unless such Holder
shall have provided to the Guarantee Trustee such security and
indemnity satisfactory to it, against the costs, expenses (including
attorneys' fees and expenses) and liabilities that might be incurred by
it in complying with such request or direction, including such
reasonable advances as may be requested by the Guarantee Trustee;
provided that, nothing contained in this Section 3.2(a)(v) shall be
taken to relieve the Guarantee Trustee, upon the occurrence of an Event
of Default, of its obligation to exercise the rights and powers vested
in it by this Guarantee Agreement.
(vi) The Guarantee Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Guarantee Trustee, in
its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit.
(vii) The Guarantee Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by
or through its agents or attorneys, and the Guarantee Trustee shall not
be responsible for any misconduct or negligence on the part of any such
agent or attorney appointed with due care by it hereunder.
(viii) Whenever in the administration of this Guarantee
Agreement the Guarantee Trustee shall deem it desirable to receive
instructions with respect to enforcing any remedy or right or taking
any other action hereunder, the Guarantee Trustee (A) may request and
shall be entitled to receive instructions from the Holders, (B) may
refrain from enforcing such remedy or right or taking such other action
until such instructions are received, and (C) shall be fully protected
in acting in accordance with such instructions.
(ix) The Trustee shall not be under any obligation to take any
action that is discretionary under the provisions of this Guarantee.
(x) The Trustee shall not be charged with knowledge of any
Event of Default unless either (i) a Responsible Officer of the Trustee
shall have actual knowledge thereof or (2) the Trustee shall have
received notice thereof in accordance with Section 2.7 hereof from the
Company or a Holder.
(xi) No permissive power or authority available to the Trustee
shall be construed as a duty.
(b) No provision of this Guarantee Agreement shall be deemed to impose
any duty or obligation on the Guarantee Trustee to perform any act or
acts or exercise any right, power, duty or obligation conferred or
imposed on it in any jurisdiction in which it shall be illegal, or in
which the Guarantee Trustee shall be unqualified or incompetent in
accordance with applicable law, to perform any such act or acts or to
exercise any such right, power, duty or obligation. No permissive power
or authority available to the Guarantee Trustee shall be construed to be
a duty to act in accordance with such power and authority.
SECTION 3.3. Compensation; Indemnity; Fees.
The Guarantor agrees:
(a) to pay to the Guarantee Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which compensation shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Guarantee Trustee upon request for all reasonable expenses, disbursements and
advances incurred or made by the Guarantee Trustee in accordance with any
provision of this Guarantee Agreement (including the reasonable compensation and
the expenses and disbursements of its agents and counsel), except any such
expense, disbursement or advance as may be attributable to its negligence or bad
faith; and
(c) to indemnify the Guarantee Trustee and its directors, officers,
agents and employees for, and to hold it harmless against, any and all loss,
liability, claim, damage or expense (including reasonable compensation and the
expenses and disbursements of its agents and counsel) incurred without
negligence or bad faith on the part of the Guarantee Trustee, arising out of or
in connection with the acceptance or administration of this Guarantee Agreement,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder. The Guarantee Trustee will not claim or exact any lien or
charge on any Guarantee Payments as a result of any amount due to it under this
Guarantee Agreement.
The provisions of this Section 3.3 shall survive the termination of
this Guarantee Agreement or the earlier resignation or removal of the Guarantee
Trustee.
To secure the Company's payment obligations in this Section, the
Company and the Holders agree that the Trustee shall have a lien prior to the
Guarantee on all money or properly held or collected by the Trustee. Such lien
shall survive the satisfaction and discharge of this Guarantee.
When the Trustee incurs expense or renders services after an Event of
Default specified in Section 5.1(4) or (5) of the Indenture occurs, the expenses
and the compensation for the services are intended to constitute expenses of
administration under the Bankruptcy Reform Act of 1978 or any successor statute.
ARTICLE IV. GUARANTEE TRUSTEE
SECTION 4.1. Guarantee Trustee: Eligibility.
(a) There shall at all times be a Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a Person that is eligible pursuant to the Trust
Indenture Act to act as such and has a combined capital and surplus of at least
$50,000,000, and shall be a corporation meeting the requirements of Section
310(a) of the Trust Indenture Act. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of the
supervising or examining authority, then, for the purposes of this Section and
to the extent permitted by the Trust Indenture Act, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published.
(b) If at any time the Guarantee Trustee shall cease to be eligible to
so act under Section 4.1(a), the Guarantee Trustee shall immediately resign in
the manner and with the effect set out in Section 4.2(c).
(c) If the Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Guarantee Trustee and Guarantor shall in all respects comply with the provisions
of Section 310(b) of the Trust Indenture Act.
SECTION 4.2. Appointment, Removal and Resignation of the Guarantee
Trustee.
(a) Subject to Section 4.2(b), the Guarantee Trustee may be appointed
or removed without cause at any time by the action of the Holders of a majority
of the outstanding Capital Securities.
(b) The Guarantee Trustee shall not be removed until a Successor
Guarantee Trustee has been appointed and has accepted such appointment by
written instrument executed by such Successor Guarantee Trustee and delivered to
the Guarantor.
(c) The Guarantee Trustee appointed hereunder shall hold office until
a Successor Guarantee Trustee shall have been appointed or until its removal or
resignation. The Guarantee Trustee may resign from office (without need for
prior or subsequent accounting) by an instrument in writing executed by the
Guarantee Trustee and delivered to the Guarantor, which resignation shall not
take effect until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by instrument in writing executed by such Successor
Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee
Trustee.
(d) If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 4.2 within 30 days after
delivery of an instrument of resignation or removal, the Guarantee Trustee
resigning or being removed may petition, at the expense of the Guarantor, any
court of competent jurisdiction for appointment of a Successor Guarantee
Trustee. Such court may thereupon, after prescribing such notice, if any, as it
may deem proper, appoint a Successor Guarantee Trustee.
ARTICLE V. GUARANTEE
SECTION 5.1. Guarantee.
The Guarantor irrevocably and unconditionally agrees to pay in full to
the Holders the Guarantee Payments (without duplication of amounts theretofore
paid by or on behalf of the Issuer), as and when due, regardless of any defense,
right of set-off or counterclaim which the Issuer may have or assert other than
the defense of payment. The Guarantor's obligation to make a Guarantee Payment
may be satisfied by direct payment of the required amounts by the Guarantor to
the Holders or by causing the Issuer to pay such amounts to the Holders. The
Guarantor shall notify the Guarantee Trustee of any such payment.
SECTION 5.2. Waiver of Notice and Demand.
The Guarantor hereby waives notice of acceptance of the Guarantee
Agreement and of any liability to which it applies or may apply, presentment,
demand for payment, any right to require a proceeding first against the
Guarantee Trustee, Issuer or any other Person before proceeding against the
Guarantor, protest, notice of nonpayment, notice of dishonor, notice of
redemption and all other notices and demands.
SECTION 5.3. Obligations Not Affected.
The obligations, covenants, agreements and duties of the Guarantor
under this Guarantee Agreement shall in no way be affected or impaired by reason
of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied agreement,
covenant, term or condition relating to the Capital Securities to be performed
or observed by the Issuer;
(b) the extension of time for the payment by the Issuer of all or any
portion of the Distributions (other than an extension of time for payment of
Distributions that results from the extension of any interest payment period on
the Debentures as provided in the Indenture), Redemption Price, Liquidation
Distribution or any other sums payable under the terms of the Capital Securities
or the extension of time for the performance of any other obligation under,
arising out of, or in connection with, the Capital Securities;
(c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Capital Securities, or any
action on the part of the Issuer granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Issuer or any of the assets of the
Issuer;
(e) any invalidity of, or defect or deficiency in, the Capital
Securities;
(f) the settlement or compromise of any obligation guaranteed
hereby or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute
a legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 5.3 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain the
consent of, the Guarantor with respect to the happening of any of the foregoing.
SECTION 5.4. Rights of Holders.
The Guarantor expressly acknowledges that: (i) this Guarantee Agreement
will be deposited with the Guarantee Trustee to be held for the benefit of the
Holders; (ii) the Guarantee Trustee has the right to enforce this Guarantee
Agreement on behalf of the Holders; (iii) the Holders of a majority in
Liquidation Amount of the Capital Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee in respect of this Guarantee Agreement or exercising any trust
or power conferred upon the Guarantee Trustee under this Guarantee Agreement;
and (iv) any Holder may institute a legal proceeding directly against the
Guarantor to enforce its rights under this Guarantee Agreement, without first
instituting a legal proceeding against the Issuer or any other Person.
SECTION 5.5. Guarantee of Payment.
This Guarantee Agreement creates a guarantee of payment and not of
collection. This Guarantee Agreement will not be discharged except by payment of
the Guarantee Payments in full (without duplication of amounts theretofore paid
by the Issuer) or upon distribution of Debentures to Holders as provided in the
Trust Agreement.
SECTION 5.6. Subrogation.
The Guarantor shall be subrogated to all (if any) rights of the Holders
against the Issuer in respect of any amounts paid to the Holders by the
Guarantor under this Guarantee Agreement and shall have the right to waive
payment by the Issuer pursuant to Section 5.1; provided, however, that the
Guarantor shall not (except to the extent required by mandatory provisions of
law) be entitled to enforce or exercise any rights which it may acquire by way
of subrogation or any indemnity, reimbursement or other agreement, in all cases
as a result of payment under this Guarantee Agreement, if, at the time of any
such payment, any amounts are due and unpaid under this Guarantee Agreement. If
any amount shall be paid to the Guarantor in violation of the preceding
sentence, the Guarantor agrees to hold such amount in trust for the Holders and
to pay over such amount to the Holders.
SECTION 5.7. Independent Obligations.
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the Capital
Securities and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Guarantee
Agreement notwithstanding the occurrence of any event referred to in subsections
(a) through (g), inclusive, of Section 5.3 hereof.
ARTICLE VI. COVENANTS AND SUBORDINATION
SECTION 6.1. Subordination.
The obligations of the Guarantor under this Guarantee Agreement will
constitute unsecured obligations of the Guarantor and will rank subordinate and
junior in right of payment to all Senior Indebtedness (as defined in the
Indenture) to the extent and in the manner set forth in the Indenture. The
obligations of the Guarantor under this Guarantee Agreement do not constitute
Senior Indebtedness or Senior Debt (each as defined in the Indenture).
SECTION 6.2. Pari Passu Guarantees.
The obligations of the Guarantor under this Guarantee Agreement shall
rank pari passu with the obligations of the Guarantor under any similar
Guarantee Agreements issued by the Guarantor on behalf of the holders of
preferred or capital securities issued by any USF&G Trust (as defined in the
Indenture).
ARTICLE VII. TERMINATION
SECTION 7.1. Termination.
This Guarantee Agreement shall terminate and be of no further force and
effect upon (i) full payment of the Redemption Price of all Capital Securities,
(ii) the distribution of Debentures to the Holders in exchange for all of the
Capital Securities or (iii) full payment of the amounts payable in accordance
with the Trust Agreement upon liquidation of the Issuer. Notwithstanding the
foregoing, this Guarantee Agreement will continue to be effective or will be
reinstated, as the case may be, if at any time any Holder must repay any sums
paid with respect to Capital Securities or this Guarantee Agreement.
ARTICLE VIII. MISCELLANEOUS
SECTION 8.1. Successors and Assigns.
All guarantees and agreements contained in this Guarantee Agreement
shall bind the successors, assigns, receivers, trustees and representatives of
the Guarantor and shall inure to the benefit of the Holders of the Capital
Securities then outstanding. Except in connection with a consolidation, merger
or sale involving the Guarantor that is permitted under Article VIII of the
Indenture and pursuant to which the successor or assignee agrees in writing to
perform the Guarantor's obligations hereunder, the Guarantor shall not assign
its obligations hereunder.
SECTION 8.2. Amendments.
Except with respect to any changes which do not adversely affect the
rights of the Holders in any material respect (in which case no consent of the
Holders will be required), this Guarantee Agreement may only be amended with the
prior approval of the Holders of not less than a majority in Liquidation Amount
of all the outstanding Capital Securities. The provisions of Article VI of the
Trust Agreement concerning meetings of the Holders shall apply to the giving of
such approval.
SECTION 8.3. Notices.
Any notice, request or other communication required or permitted to be
given hereunder shall be in writing, duly signed by the party giving such
notice, and delivered, telecopied (confirmed by delivery of the original) or
mailed by first class mail as follows:
(a) if given to the Guarantor, to the address set forth below or such
other address, facsimile number or to the attention of such other Person as the
Guarantor may give notice to the Holders:
USF&G Corporation
6225 Smith Avenue
Baltimore, Maryland 21209
Facsimile No.: (410) 205-6672
Attention: Treasurer
(b) if given to the Guarantee Trustee or the Issuer, in care of the
Guarantee Trustee, at the Issuer's (and the Guarantee Trustee's) address set
forth below or such other address as the Guarantee Trustee on behalf of the
Issuer may give notice to the Holders:
USF&G Capital III
c/o USF&G Corporation
6225 Smith Avenue
Baltimore, Maryland 21209
Facsimile No.: (410) 205-6672
Attention: Treasurer
and:
The Bank of New York
101 Barclay Street, Floor 21 W
New York, New York 10286
Facsimile No.:(212) 815-5915
Attention: Corporate Trust Trustee Administration
Guarantee Trustee
The Bank of New York
101 Barclay Street, Floor 21W
New York, New York 10286
Facsimile No.: (212) 815-5915
Attention: Corporate Trust Trustee Administration
(c) if given to any Holder, at the address set forth on the books
and records of the Issuer.
All notices hereunder shall be deemed to have been given when received
in person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.
SECTION 8.4. Benefit.
This Guarantee Agreement is solely for the benefit of the Holders and
is not separately transferable from the Capital Securities.
SECTION 8.5. Interpretation.
In this Guarantee Agreement, unless the context otherwise requires:
(a) capitalized terms used in this Guarantee Agreement but not
defined in the preamble hereto have the respective meanings assigned to them in
Section 1.1;
(b) a term defined anywhere in this Guarantee Agreement has the same
meaning throughout;
(c) all references to "the Guarantee Agreement" or "this Guarantee
Agreement" are to this Guarantee Agreement as modified, supplemented or amended
from time to time;
(d) all references in this Guarantee Agreement to Articles and
Sections are to Articles and Sections of this Guarantee Agreement unless
otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning
when used in this Guarantee Agreement unless otherwise defined in this Guarantee
Agreement or unless the context otherwise requires;
(f) a reference to the singular includes the plural and vice versa;
and
(g) the masculine, feminine or neuter genders used herein shall
include the masculine, feminine and neuter genders.
SECTION 8.6. Governing Law.
THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
THIS GUARANTEE AGREEMENT is executed as of the day and year first above
written.
USF&G CORPORATION
as Guarantor
By:
Name: Ron Mishler
Title: Vice President-Treasurer
THE BANK OF NEW YORK
as Guarantee Trustee
By:
Name:
Title:
<PAGE>
THIS SECURITY IS A GLOBAL CAPITAL SECURITIES CERTIFICATE WITHIN THE
MEANING OF THE TRUST AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE
NAME OF THE DEPOSITORY TRUST COMPANY (THE "DEPOSITORY") OR A NOMINEE OF THE
DEPOSITORY. THE CAPITAL SECURITIES REPRESENTED HEREBY ARE EXCHANGEABLE IN WHOLE
OR IN PART FOR CAPITAL SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN
THE DEPOSITORY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
TRUST AGREEMENT AND NO TRANSFER OF THE CAPITAL SECURITIES REPRESENTED HEREBY
(OTHER THAN A TRANSFER OF SUCH CAPITAL SECURITIES AS A WHOLE BY THE DEPOSITORY
TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE
DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN
SUCH LIMITED CIRCUMSTANCES.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE TRUST OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE CAPITAL SECURITIES EVIDENCED HEREBY AND ANY JUNIOR SUBORDINATED DEBENTURES
ISSUABLE IN CONNECTION THEREWITH HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) BY THE INITIAL
PURCHASERS (I) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) IN AN
OFFSHORE TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 903 OR RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND (B) BY SUBSEQUENT INVESTORS AS SET FORTH IN (A) ABOVE AND, IN
ADDITION, TO AN INSTITUTIONAL ACCREDITED INVESTOR (AS DEFINED IN REGULATION D
UNDER THE SECURITIES ACT) IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER JURISDICTIONS OF THE UNITED
STATES. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION
PROVIDED BY RULE 144 FOR RESALES OF THE CAPITAL SECURITIES OR THE JUNIOR
SUBORDINATED DEBENTURES. IN ADDITION, THE CAPITAL SECURITIES EVIDENCED HEREBY
MAY BE TRANSFERRED ONLY IN BLOCKS HAVING A LIQUIDATION AMOUNT OF NOT LESS THAN
$100,000 (100 CAPITAL SECURITIES). 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 LEGAL EFFECT WHATSOEVER.
THE CAPITAL SECURITIES EVIDENCED HEREBY MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED TO ANY PERSON UNLESS SUCH PERSON (A) IS NOT ITSELF, AND IS
NOT ACQUIRING CAPITAL SECURITIES WITH "PLAN ASSETS" OF, AN EMPLOYEE BENEFIT OR
OTHER PLAN SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE") (EACH, A "PLAN"), OR ANY ENTITY WHOSE UNDERLYING
ASSETS INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S INVESTMENT IN THE ENTITY (A
"PLAN ASSET ENTITY") OR (B) IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER
PTCE 96-23, 95-60, 91-38, 90-1 OR 84-14 WITH RESPECT TO SUCH PURCHASE, HOLDING
OR OTHER TRANSFER OF CAPITAL SECURITIES.
THE HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE
FOREGOING RESTRICTIONS.
Certificate Number Number of Capital Securities
PG-001 100,000
CUSIP NO. 90330SAA8
Certificate Evidencing Capital Securities of
USF&G Capital III
8.312% Capital Securities, Series C
(liquidation amount $1,000 per Capital Security)
USF&G Capital III, a business trust created under the laws of the State
of Delaware (the "Trust"), hereby certifies that CEDE & CO. (the "Holder") is
the registered owner of one hundred thousand (100,000) capital securities of the
Trust representing an undivided beneficial interest in the assets of the Trust
and designated the USF&G Capital III 8.312% Capital Securities, Series C
(liquidation amount $1,000 per Capital Security) (the "Capital Securities"), or
such other amount (which, when taken together with all other outstanding Capital
Securities, shall not exceed 100,000 Capital Securities in the aggregate at any
time) as may be set forth in the records of the Securities Registrar. The
Capital Securities are transferable on the books and records of the Trust, in
person or by a duly authorized attorney, upon surrender of this certificate duly
endorsed and in proper form for transfer as provided in Section 5.5 of the Trust
Agreement (as defined below). The designations, rights, privileges,
restrictions, preferences and other terms and provisions of the Capital
Securities are set forth in, and this certificate and the Capital Securities
represented hereby are issued and shall in all respects be subject to the terms
and provisions of, the Amended and Restated Trust Agreement of the Trust dated
as of July 8, 1997, as the same may be amended from time to time (the "Trust
Agreement") including the designation of the terms of Capital Securities as set
forth therein. The Holder is entitled to the benefits of the Guarantee Agreement
entered into by USF&G Corporation, a Maryland corporation, and The Bank of New
York, as guarantee trustee, dated as of July 8, 1997 (the "Guarantee"), to the
extent provided therein. The Trust will furnish a copy of the Trust Agreement
and the Guarantee to the Holder without charge upon written request to the Trust
at its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
This Certificate is not valid unless authenticated by the Property
Trustee.
WITNESS the signature of a duly authorized Administrator of the Trust.
USF&G CAPITAL III
By:
Ron Mishler
Administrator
Authenticated:
THE BANK OF NEW YORK
By:
Property Trustee
Dated: July 8, 1997
<PAGE>
AGREEMENT AS TO EXPENSES AND LIABILITIES
AGREEMENT dated as of July 8, 1997, between USF&G Corporation, a
Maryland corporation ("USF&G Corporation"), and USF&G Capital III, a Statutory
business trust formed under the Business Trust Act of the State of Delaware (the
"Trust").
WHEREAS, the Trust intends to issue its Common Securities (the "Common
Securities") to and receive Debentures from USF&G Corporation and to issue and
sell 8.312% Capital Securities, Series C (the "Capital Securities") with such
powers, preferences and special rights and restrictions as are set forth in the
Amended and Restated Trust Agreement of the Trust, dated as of July 8, 1997, as
the same may be amended from time to time (the "Trust Agreement");
WHEREAS, USF&G Corporation will directly or indirectly own all of the
Common Securities of the Trust and will issue the Debentures;
NOW, THEREFORE, in consideration of the purchase by each holder of the
Capital Securities, which purchase USF&G Corporation hereby agrees shall benefit
USF&G Corporation and which purchase USF&G Corporation acknowledges will be made
in reliance upon the execution and delivery of this Agreement, USF&G Corporation
and the Trust hereby agree as follows:
ARTICLE I
SECTION 1.1. Guarantee by USF&G Corporation.
Subject to the terms and conditions hereof, USF&G Corporation hereby
irrevocably and unconditionally guarantees to each person or entity to whom the
Trust is now or hereafter becomes indebted or liable (the "Beneficiaries") the
full payment, when and as due, of any and all Obligations (as hereinafter
defined) to such Beneficiaries. As used herein, "Obligations" means any costs,
expenses or liabilities of the Trust (including, without limitation, any tax
liability of the Trust), other than obligations of the Trust to pay to holders
of any Capital Securities or other similar interests in the Trust the amounts
due such holders pursuant to the terms of the Capital Securities or such other
similar interests, as the case may be. This Agreement is intended to be for the
benefit of, and to be enforceable by, all such Beneficiaries, whether or not
such Beneficiaries have received notice hereof.
SECTION 1.2. Term of Agreement.
This Agreement shall terminate and be of no further force and effect
upon the later of (a) the date on which full payment has been made of all
amounts payable to all holders of all the Capital Securities (whether upon
redemption, liquidation, exchange or otherwise) and (b) the date on which there
are no Beneficiaries remaining; provided, however, that this Agreement shall
continue to be effective or shall be reinstated, as the case may be, if at any
time any holder of Capital Securities or any Beneficiary must restore payment of
any sums paid under the Capital Securities, under any Obligation, under the
Guarantee Agreement dated the date hereof by USF&G Corporation and The Bank of
New York, as guarantee trustee or under this Agreement for any reason
whatsoever. This Agreement is continuing, irrevocable, unconditional and
absolute.
SECTION 1.3. Waiver of Notice.
USF&G Corporation hereby waives notice of acceptance of this Agreement
and of any Obligation to which it applies or may apply, and USF&G Corporation
hereby waives presentment, demand for payment, protest, notice of nonpayment,
notice of dishonor, notice of redemption and all other notices and demands.
SECTION 1.4. No Impairment.
The obligations, covenants, agreements and duties of USF&G Corporation
under this Agreement shall in no way be affected or impaired by reason of the
happening from time to time of any of the following:
(a) the extension of time for the payment by the Trust of all or
any portion of the Obligations or for the performance of any other obligation
under, arising out of, or in connection with, the obligations;
(b) any failure, omission, delay or lack of diligence on the part of
the Beneficiaries to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Beneficiaries with respect to the Obligations or any
action on the part of the Trust granting indulgence or extension of any kind; or
(c) the voluntary or involuntary liquidation, dissolution, sale of
any collateral, receivership, insolvency, bankruptcy, assignment for the benefit
of creditors, reorganization, arrangement, composition or readjustment of debt
of, or other similar proceedings affecting, the Trust or any of the assets of
the Trust.
There shall be no obligation of the Beneficiaries to give notice to, or obtain
the consent of, USF&G Corporation with respect to the happening of any of the
foregoing.
SECTION 1.5. Enforcement.
A Beneficiary may enforce this Agreement directly against USF&G
Corporation and USF&G Corporation waives any right or remedy to require that any
action be brought against the Trust or any other person or entity before
proceeding against USF&G Corporation.
SECTION 1.6. Subrogation.
USF&G Corporation shall be subrogated to all (if any) rights of the
Trust in respect of any amounts paid to the Beneficiaries by USF&G Corporation
under this Agreement; provided, however, that USF&G Corporation shall not
(except to the extent required by mandatory provisions of law) be entitled to
enforce or exercise any rights which it may acquire by way of subrogation or any
indemnity, reimbursement or other agreement, in all cases as a result of payment
under this Agreement, if, at the time of any such payment, any amounts are due
and unpaid under this Agreement.
ARTICLE II
SECTION 2.1. Binding Effect.
All guarantees and agreements contained in this Agreement shall bind
the successors, assigns, receivers, trustees and representatives of USF&G
Corporation and shall inure to the benefit of the Beneficiaries.
SECTION 2.2. Amendment.
So long as there remains any Beneficiary or any Capital Securities of
any series are outstanding, this Agreement shall not be modified or amended in
any manner adverse to such Beneficiary or to the holders of the Capital
Securities.
SECTION 2.3. Notices.
Any notice, request or other communication required or permitted to be
given hereunder shall be given in writing by delivering the same against receipt
therefor by facsimile transmission (confirmed by mail), telex or by registered
or certified mail, addressed as follows (and if so given, shall be deemed given
when mailed or upon receipt of an answer-back, if sent by telex):
USF&G Capital III
c/o USF&G Corporation
6225 Smith Avenue
Baltimore, Maryland 21209
Attention: Treasurer
USF&G Corporation
6225 Smith Avenue
Baltimore, Maryland 21209
Facsimile No.: (410) 547-3000
Attention: Treasurer
SECTION 2.4. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE.
THIS AGREEMENT is executed as of the day and year first above written.
USF&G CORPORATION
By:
Name: Ron Mishler
Title: Vice President-Treasurer
USF&G Capital III
By:
Name: J. Kendall Huber
Title: Administrator
<PAGE>
USF&G Corporation
(Deferrable Interest Junior Subordinated Debenture)
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE ONLY IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A
NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY.
THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) BY AN INVESTOR WHO WAS, PRIOR TO THE
DISTRIBUTION OF THIS SECURITY, HOLDING RELATED CAPITAL SECURITIES AS AN INITIAL
PURCHASER THEREOF (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE
TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 903 OR RULE 904 OF REGULATION
S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (4)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B)
BY SUBSEQUENT INVESTORS HOLDING THIS SECURITY IN BOOK-ENTRY FORM AS SET FORTH IN
(A) ABOVE AND, IN ADDITION, TO AN ACCREDITED INVESTOR (AS DEFINED IN REGULATION
D UNDER THE SECURITIES ACT) THAT IS AN INSTITUTIONAL INVESTOR IN A TRANSACTION
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER
JURISDICTIONS OF THE UNITED STATES. NO REPRESENTATION CAN BE MADE AS TO THE
AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 FOR RESALES OF THIS SECURITY.
THE HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE FOREGOING
RESTRICTIONS.
USF&G CORPORATION
(Deferrable Interest Junior Subordinated Debenture)
CUSIP NO. 903290AH7
No. D1 $ 103,093,000
USF&G CORPORATION, a corporation organized and existing under the laws of
Maryland (hereinafter called the "Company", which term includes any successor
corporation under the Indenture hereinafter referred to), for value received,
hereby promises to pay to The Bank of New York, as Property Trustee, or
registered assigns, the principal sum of One Hundred Three Million Ninety-Three
Thousand Dollars ($103,093,000), or such other principal amount as may be set
forth in the records of the Securities Registrar hereinafter referred to in
accordance with the Indenture, on July 1, 2046 (unless the maturity is shortened
as hereinafter provided). The Company further promises to pay interest on said
principal sum from July 8, 1997 or from the most recent interest payment date
(each such date, an "Interest Payment Date") on which interest has been paid or
duly provided for semi-annually (subject to deferral as set forth herein) in
arrears on January 1 and July 1 of each year, commencing January 1, 1998, at the
rate of 8.312% per annum, until the principal hereof shall have become due and
payable, plus Additional Interest, if any, until the principal hereof is paid or
duly provided for or made available for payment and on any overdue principal and
(without duplication and to the extent that payment of such interest is
enforceable under applicable law) on any overdue installment of interest at the
rate of 8.312% per annum, compounded semi-annually. The amount of interest
payable for any period less than a full interest period shall be computed on the
basis of twelve 30-day months and a 360-day year and the actual number of days
elapsed in a partial month in a period. The amount of interest payable for any
full interest period shall be computed by dividing the rate per annum by two. In
the event that any date on which interest is payable on this Security is not a
Business Day, then a payment of the interest payable on such date will be made
on the next succeeding day which is a Business Day (and without any interest or
other payment in respect of any such delay), except that, if such Business Day
is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on the date the payment was originally payable. A "Business Day"
shall mean any day other than (i) a Saturday or Sunday, (ii) a day on which
banking institutions in the City of New York are authorized or required by law
or executive order to remain closed or (iii) a day on which the Corporate Trust
Office of the Trustee, or the principal office of the Property Trustee under the
Trust Agreement hereinafter referred to for USF&G Capital III, is closed for
business. The interest installment so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest installment, which shall be one Business Day prior to the
relevant Interest Payment Date. Any such interest installment not so punctually
paid or duly provided for shall forthwith cease to be payable to the Holder on
such Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Securities
of this series not less than 10 days prior to such Special Record Date, or be
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities of this series
may be listed, and upon such notice as may be required by such exchange, all as
more fully provided in said Indenture.
So long as no Event of Default has occurred and is continuing, the Company
shall have the right at any time during the term of this Security to defer
payment of interest on this Security, at any time or from time to time, for up
to ten consecutive semi-annual interest payment periods with respect to each
deferral period (each an "Extension Period"), during which Extension Periods the
Company shall have the right to make partial payments of interest on any
Interest Payment Date, and at the end of which the Company shall pay all
interest then accrued and unpaid on the Securities (together with Additional
Interest thereon to the extent permitted by applicable law); provided, however,
that no Extension Period shall extend beyond the Stated Maturity of the
principal of this Security; provided, further, that during any such Extension
Period, the Company shall not, and shall 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 shares of
the Company's capital stock, (ii) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities of the
Company that rank pari passu in all respects with or junior in interest to this
Security or (iii) make any guarantee payments with respect to any guarantee by
the Company of the debt securities of any subsidiary of the Company if such
guarantee ranks pari passu with or junior in interest to this Security (other
than (a) in securities of the Company junior in interest to the Securities, (b)
any declaration of a dividend in connection with the implementation of a Rights
Plan, the issuance of any Common Stock or any class or series of preferred stock
of the Company under any Rights Plan in the future or the redemption or
repurchase of any rights distributed pursuant to a Rights Plan, (c) payments
under any USF&G Guarantee, (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 or employees, (e) payments made on any series of Securities
upon the stated maturity of such Securities and (f) payments of accrued
dividends (and cash in lieu of fractional shares) upon conversion into common
stock of any convertible preferred stock of the Company of any series now or
hereinafter outstanding, in accordance with the terms of such stock). Prior to
the termination of any such Extension Period, the Company may further extend the
interest payment period, provided that no Extension Period shall exceed ten (10)
consecutive semi-annual periods or extend beyond the Stated Maturity of the
principal of this Security. Upon the termination of any such Extension Period
and upon the payment of all amounts then due on any Interest Payment Date, the
Company may elect to begin a new Extension Period, subject to the above
requirements. No interest shall be due and payable during an Extension Period
except at the end thereof. The Company shall give the Property Trustee and the
Debenture Trustee notice of its election to begin any Extension Period at least
one Business Day prior to the earlier of (i) the date on which Distributions on
the Capital Securities would be payable but for such deferral or (ii) the date
the Property Trustee is required to give notice to any applicable
self-regulatory organization or to holders of such Capital Securities of the
record date or the date such Distributions are payable, but in any event not
less than one Business Day prior to such record date. For purposes hereof, the
Company's Senior Indebtedness shall not be deemed to be pari passu with this
Security.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the United States, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that at the option of the Company, payment of
interest may be made (i) by check mailed to the address of the Person entitled
thereto as such address shall appear in the Securities Register or (ii) by wire
transfer in immediately available funds at such place and to such account as may
be designated by the Person entitled thereto as specified in the Securities
Register.
The indebtedness evidenced by this Security is, to the extent provided in
the Indenture, subordinate and junior in right of payment to the prior payment
in full of all Senior Indebtedness of the Company, and this Security is issued
subject to the provisions of the Indenture with respect thereto. The Holder of
this Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf to take such
actions as may be necessary or appropriate to effectuate the subordination so
provided and (c) appoints the Trustee his attorney-in-fact for any and all such
purposes. The Holder hereof, by his acceptance hereof, waives all notice of the
acceptance of the subordination provisions contained herein and in the Indenture
by each holder of Senior Indebtedness, whether now outstanding or hereafter
incurred, and waives reliance by each such holder upon said provisions.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
USF&G CORPORATION
By:
Name: Ron Mishler
Title: Vice President-
Treasurer
Attest:
By: ____________________________
John F. Hoffen, Jr., Secretary
Certificate of Authentication
This is one of the Securities referred to in the within mentioned Indenture.
Dated: July 8, 1997
The Bank of New York
as Trustee
By:
Authorized Signatory
[Reverse of Security]
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under a Junior Subordinated Indenture, dated as of July 8, 1997 (herein
called the "Indenture"), between the Company and The Bank of New York, as
Trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Trustee, the Company and the
Holders of the Securities, and of the terms upon which the Securities are, and
are to be, authenticated and delivered. This Security is one of the series
designated on the face hereof, limited in aggregate principal amount to
$103,093,000.
All terms used in this Security that are defined in the Indenture or in the
Amended and Restated Trust Agreement, dated as of July 8, 1997 as amended (the
"Trust Agreement"), for USF&G Capital III, among USF&G CORPORATION, as
Depositor, and the Trustees named therein, shall have the meanings assigned to
them in the Indenture or the Trust Agreement, as the case may be.
Upon the occurrence and during the continuation of a Tax Event in respect
of a USF&G Trust, the Company may, at its option, within 90 days of the
occurrence of such Tax Event, redeem this Security, in whole but not in part,
subject to the provisions of Section 11.7 and the other provisions of Article XI
of the Indenture, at a Redemption Price equal to the Make-Whole Amount (as
hereinafter defined) for a corresponding principal amount of this Security,
together with accrued Distributions to, but excluding, the date fixed for
redemption. The Make-Whole Amount shall be equal to the greater of (i) 100% of
the principal amount of this Security or (ii) as determined by a Quotation Agent
(as hereinafter defined), the sum of the present values of the principal amount
together with scheduled payments of interest from the prepayment date to the
Stated Maturity (the "Remaining Life"), in each case discounted to the
prepayment date on a semi-annual basis (assuming a 360-day year consisting of
30-day months) at the Adjusted Treasury Rate (as hereinafter defined). In
addition, if such Tax Event relates to the deductibility of interest by the
Company on this Security, and if the opinion referred to in the definition of
Tax Event states that the risk of non-deductibility would be avoided if the
maturity of this Security was shortened, the Company may, at its option, within
90 days of the occurrence of such Tax Event, shorten the maturity of this
Security by the amount stated in such opinion to be the minimum extent required
in order to avoid suck risk, but in no event may the Company shorten the
maturity to a Stated Maturity of less than 14 3/4 years from the date of
original issuance. In the event the Company exercises such option to shorten the
maturity, the Company will no longer have the right to redeem this Security
prior to the new Stated Maturity upon the occurrence of a Tax Event or to
further shorten the maturity of this Security.
"Adjusted Treasury Rate" means, with respect to any prepayment date,
the Treasury Rate (as hereinafter defined) plus (i) 1.25% if such prepayment
date occurs on or before July 2, 1998 or (ii) 0.50% if such prepayment date
occurs after July 2, 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
Comparable Treasury Issue (as hereinafter defined) 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 (as
hereinafter defined) 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 utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the Remaining
Life. If no United States Treasury security has a maturity which is within a
period from three months before to three months after July 1, 2046, 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; provided, however, that if the Remaining Life is longer than the
longest United States Treasury Security, the longest maturity United States
Treasury Security shall be used as the Comparable Treasury Issue, without
extrapolation.
"Quotation Agent" means Goldman, Sachs & Co. and their respective
successors; provided, however, that if the foregoing shall case 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.
Reference Treasury Dealer means (i) the Quotation Agent and (ii) any other
Primary Treasury Dealer selected by the Debenture Trustee after consultation
with the Company.
"Comparable Treasury Price" means (A) the average of five Reference
Treasury Dealer Quotations (as hereinafter defined) for such prepayment date,
after excluding the highest and lowest such Reference Treasury Dealer
Quotations; or (B) if the Debenture Trustee obtains fewer than three such
Reference Treasury Dealer Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any prepayment date, the average, as determined by
the Debenture Trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted in
writing to the Debenture Trustee by such Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third Business Day preceding such prepayment date.
In the event of redemption of this Security in part only, a new Security or
Securities of this series for the unredeemed portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.
The Indenture contains provisions for satisfaction and discharge of the
entire indebtedness of this Security upon compliance by the Company with certain
conditions set forth in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
Company and the Trustee at any time to enter into a supplemental indenture or
indentures for the purpose of modifying in any manner the rights and obligations
of the Company and of the Holders of the Securities, with the consent of the
Holders of not less than a majority in principal amount of the Outstanding
Securities of each series to be affected by such supplemental indenture. The
Indenture also contains provisions permitting Holders of specified percentages
in principal amount of the Securities of each series at the time Outstanding, on
behalf of the Holders of all Securities of such series, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder of this Security shall be conclusive and binding upon such Holder and
upon all future Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, if an Event
of Default with respect to this Security occurs and is continuing, then and in
every such case the Trustee or the Holders of not less than 25% in aggregate
outstanding principal amount of this Security may declare the principal amount
of this Security to be due and payable immediately, by a notice in writing to
the Company (and to the Trustee if given by Holders), provided that, if the
Trustee or the Holders of not less than 25% in aggregate outstanding principal
amount of this Security fails to declare the principal amount of this Security
to be immediately due and payable, the holders of at least 25% in aggregate
Liquidation Amount of the Capital Securities of USF&G Capital III then
outstanding shall have such right by a notice in writing to the Company and the
Trustee; and upon any such declaration the principal amount of and the accrued
interest (including any Additional Interest) on all the Securities of this
series shall become immediately due and payable, provided that the payment of
principal and interest (including any Additional Interest) on such Securities
shall remain subordinated to the extent provided in Article XIII of the
Indenture.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Securities Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company maintained under Section 10.2 of the Indenture duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Securities Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees. No
service charge shall be made for any such registration of transfer or exchange,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee shall treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
This Security is issuable only in registered form without coupons in
minimum denominations of $100,000 and any integral multiples of $1,000 in excess
thereof. As provided in the Indenture and subject to certain limitations therein
set forth, this Security is exchangeable for a like aggregate principal amount
of Securities of this series of a different authorized denomination, as
requested by the Holder surrendering the same.
The Company and, by its acceptance of this Security or a beneficial
interest therein, the Holder of, and any Person that acquires a beneficial
interest in, this Security agree that for United States Federal, state and local
tax purposes, it is intended that this Security constitute indebtedness.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE NEW YORK.
AGREEMENT AND PLAN OF MERGER
among
USF&G CORPORATION,
UNITED STATES FIDELITY AND GUARANTY COMPANY,
and
TITAN HOLDINGS, INC.
dated as of August 7, 1997
TABLE OF CONTENTS
ARTICLE I
THE MERGER
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . .2
1.2 Closing. . . . . . . . . . . . . . . . . . . . . . . .2
1.3 Effective Time . . . . . . . . . . . . . . . . . . . .2
1.4 Effects of the Merger. . . . . . . . . . . . . . . . .2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS;
MERGER CONSIDERATION; EXCHANGE OF CERTIFICATES; WARRANTS AND OPTIONS
2.1 Effect on Capital Stock. . . . . . . . . . . . . . . .3
2.2 Company Common Stock Elections . . . . . . . . . . . .5
2.3 Proration. . . . . . . . . . . . . . . . . . . . . . .7
2.4 Tax Adjustment . . . . . . . . . . . . . . . . . . . .9
2.5 Dividends, Fractional Shares, Etc. . . . . . . . . . .9
2.6 Warrants . . . . . . . . . . . . . . . . . . . . . . 11
2.7 Stock Options. . . . . . . . . . . . . . . . . . . . 11
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. . . . 12
3.2 Representations and Warranties of Parent and USF&G . 44
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Covenants of the Company . . . . . . . . . . . . . . 49
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Form S-4 and Proxy Statement;
Shareholder Meeting; Comfort Letters . . . . . . . . 56
5.2 Contract and Regulatory Approvals. . . . . . . . . . 57
5.3 HSR Filings. . . . . . . . . . . . . . . . . . . . . 58
5.4 Access to Information; Confidentiality . . . . . . . 58
5.5 Fees and Expenses. . . . . . . . . . . . . . . . . . 59
5.6 Indemnification. . . . . . . . . . . . . . . . . . . 60
5.7 Reasonable Best Efforts. . . . . . . . . . . . . . . 61
5.8 Public Announcements . . . . . . . . . . . . . . . . 62
5.9 Environmental Studies. . . . . . . . . . . . . . . . 62
5.10 Affiliates . . . . . . . . . . . . . . . . . . . . . 62
5.11 Support Agreement. . . . . . . . . . . . . . . . . . 62
5.12 Cooperation. . . . . . . . . . . . . . . . . . . . . 62
5.13 NYSE Listing . . . . . . . . . . . . . . . . . . . . 63
5.14 Benefit Plans and Employee Arrangements. . . . . . . 63
5.15 Tax-Free Reorganization. . . . . . . . . . . . . . . 63
5.16 Tri-West . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect
the Merger . . . . . . . . . . . . . . . . . . . . . 63
6.2 Conditions to Obligations of Parent and USF&G. . . . 64
6.3 Conditions to Obligation of the Company. . . . . . . 65
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. . . . . . . . . . . . . . . . . . . . . 66
7.2 Effect of Termination. . . . . . . . . . . . . . . . 68
7.3 Amendment. . . . . . . . . . . . . . . . . . . . . . 68
7.4 Extension; Waiver. . . . . . . . . . . . . . . . . . 68
ARTICLE VIII
GENERAL PROVISIONS
8.1 Nonsurvival of Representations, Warranties and
Agreements . . . . . . . . . . . . . . . . . . . . . 69
8.2 Notices. . . . . . . . . . . . . . . . . . . . . . . 69
8.3 Interpretation . . . . . . . . . . . . . . . . . . . 70
8.4 Counterparts . . . . . . . . . . . . . . . . . . . . 70
8.5 Entire Agreement; No Third Party Beneficiaries;
Rights of Ownership. . . . . . . . . . . . . . . . . 70
8.6 Governing Law. . . . . . . . . . . . . . . . . . . . 70
8.7 Assignment . . . . . . . . . . . . . . . . . . . . . 70
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of August 7, 1997 (the
"Agreement"), is made and entered into by and among USF&G Corporation, a
Maryland corporation ("Parent"), United States Fidelity and Guaranty Company, a
Maryland corporation and a wholly owned subsidiary of Parent ("USF&G"), and
Titan Holdings, Inc., a Texas corporation (the "Company").
WHEREAS, the respective Boards of Directors of the Company, Parent and
USF&G have determined that the merger of the Company with and into USF&G (the
"Merger"), upon the terms and subject to the conditions set forth in this
Agreement, would be fair to and in the best interests of their respective
shareholders, and such Boards of Directors have approved the Merger, pursuant to
which each share of common stock, par value $0.01 per share, of the Company (the
"Company Common Stock") issued and outstanding immediately prior to the
Effective Time (as defined in Section 1.3) (other than (a) shares of Company
Common Stock owned, directly or indirectly, by the Company, any Subsidiary (as
defined in Section 3.1(c)) of the Company, Parent or USF&G or any Subsidiary of
USF&G or Parent and (b) Dissenting Shares (as defined in Section 2.1(e))) will
be converted into, subject to the terms hereof, the right to receive the Merger
Consideration (as defined in Section 2.1(c));
WHEREAS, the Merger requires, for the approval thereof, the affirmative
vote of two-thirds of each of (a) the outstanding shares of the Company Common
Stock (the "Company Shareholder Approval") and (b) the outstanding shares of
USF&G's common stock, par value $2.50 per share (the "USF&G Common Stock");
WHEREAS, Parent and USF&G are unwilling to enter into this Agreement
unless, contemporaneously with the execution and delivery of this Agreement,
Mark E. Watson, Jr., in his capacity as a shareholder of the Company, enters
into a voting and support agreement with Parent and USF&G, the form of which is
attached hereto as Exhibit A (the "Support Agreement");
WHEREAS, Parent, USF&G and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger; and
WHEREAS, it is intended that the Merger constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and that this Agreement shall constitute a "plan of
reorganization" for purposes of the Code.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with the Texas Business Corporation Act
("TBCA") and the Maryland General Corporation Law ("MGCL"), the Company shall be
merged with and into USF&G at the Effective Time. At the Effective Time, the
separate corporate existence of the Company shall cease and USF&G shall continue
as the surviving corporation (USF&G and the Company are sometimes hereinafter
referred to as "Constituent Corporations" and, as the context requires, USF&G is
sometimes hereinafter referred to as the "Surviving Corporation"). The name of
the Surviving Corporation shall be United States Fidelity and Guaranty Company.
1.2 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1, and subject to the satisfaction or waiver of the conditions set forth in
Article VI, the closing of the Merger (the "Closing") shall take place at 10:00
a.m., Chicago, Illinois time, on the second business day after satisfaction
and/or waiver of all of the conditions set forth in Article VI (the "Closing
Date"), at the offices of Mayer, Brown & Platt, 190 South LaSalle Street,
Chicago, Illinois 60603, unless another date, time or place is agreed to in
writing by the parties hereto.
1.3 Effective Time. Subject to the provisions of this Agreement, the
parties hereto shall cause the Merger to be consummated by filing articles of
merger (the "Articles of Merger") with the Secretary of State of the State of
Texas, as provided in the TBCA, and the Maryland State Department of Assessments
and Taxation, as provided in the MGCL, as soon as practicable on or after the
Closing Date. The Merger shall become effective upon the acceptance for record
of such filings or at such time thereafter as is provided in the Articles of
Merger (the "Effective Time").
1.4 Effects of the Merger. The Merger shall have the effects as set
forth in the applicable provisions of the TBCA and MGCL.
(a) The Articles of Incorporation of USF&G shall be the
Articles of Incorporation of the Surviving Corporation until duly amended in
accordance with the terms thereof and the MGCL.
(b) The Bylaws of USF&G (the "USF&G Bylaws") shall be the
Bylaws of the Surviving Corporation until thereafter amended as provided by
applicable law, the Surviving Corporation's Articles of Incorporation or the
Bylaws.
(c) The directors of USF&G immediately prior to the Effective
Time shall be the directors of the Surviving Corporation until their successors
have been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's Articles
of Incorporation and Bylaws.
(d) The officers of USF&G at the Effective Time shall, from
and after the Effective Time, be the officers of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Articles of Incorporation and Bylaws.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS; MERGER CONSIDERATION;
EXCHANGE OF CERTIFICATES; WARRANTS AND OPTIONS
2.1 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any further action on the part of the holder of any shares of
Company Common Stock or the holder of any shares of USF&G Common Stock:
(a) Capital Stock of USF&G. Each share of USF&G Common Stock
issued and outstanding immediately prior to the Effective Time shall be
converted into and become one fully paid and nonassessable share of common
stock, par value $2.50 per share of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Company Common Stock
owned by USF&G or Parent. Each share of Company Common Stock that is owned by
the Company, any Subsidiary of the Company, Parent or USF&G or any Subsidiary of
Parent or USF&G shall automatically be canceled and retired and shall cease to
exist, and no stock of Parent or other consideration shall be delivered or
deliverable in exchange therefor.
(c) Merger Consideration. Subject to Sections 2.1(b) and (e)
and Section 2.3, at the Effective Time each issued and outstanding share of
Company Common Stock shall be converted into, at the election of the holder
thereof, one of the following (as adjusted pursuant to this Article II), (the
"Merger Consideration"):
(i) for each such share of Company Common Stock (other
than shares as to which a Stock Election or Cash
Election (each as defined below) has been made), the
right to receive (x) 0.46516 (the "Standard Exchange
Ratio") of a share of the Common Stock, $2.50 par
value per share (including the associated Parent
Rights (as defined below), "Parent Common Stock"), of
Parent (the "Standard Stock Consideration") and (y) an
amount in cash, without interest, equal to $11.60 (the
"Standard Cash Consideration" and, together with the
Standard Stock Consideration, the "Standard
Consideration"); provided, however, that
(1) in the event the Average Stock Price is greater or
less than $24.94 but not greater than $28.68 or
less than $21.20, the allocation of the
consideration between stock and cash will be
adjusted to maintain a 50% stock, 50% cash
relationship by adjusting the Standard Cash
Consideration to an amount equal to 0.50 times the
product of (a) $23.20 times (b) 1 plus the product
of (i) 0.50 times (ii) a fraction the numerator of
which is the Average Stock Price minus $24.94 and
the denominator of which is $24.94 and adjusting
the Standard Exchange Ratio to an amount equal to
the quotient obtained by dividing the Standard
Cash Consideration as so adjusted by the Average
Stock Price; and
(2) in the event the Average Stock Price is greater
than $28.68, the Standard Cash Consideration shall
be an amount equal to $12.47 and the Standard
Exchange Ratio shall be equal to the quotient
obtained by dividing $12.47 by the Average Stock
Price; and
(3) in the event the Average Stock Price is less than
$21.20, the Standard Cash Consideration shall be
an amount equal to $10.73 and the Standard
Exchange Ratio shall be equal to the quotient
obtained by dividing $10.73 by the Average Stock
Price.
(ii) for each such share of Company Common Stock with
respect to which an election to receive solely Parent
Common Stock has been effectively made and not revoked
or lost pursuant to Sections 2.2(c), (d) or (e), the
right to receive 2.0 times the Standard Exchange Ratio
as determined by (c)(i) above (the "Stock Exchange
Ratio") of a share of Parent Common Stock (the "Stock
Consideration"); or
(iii) for each such share of Company Common Stock with
respect to which an election to receive solely cash
has been effectively made and not revoked or lost
pursuant to Section 2.2(c), (d) or (e), the right to
receive in cash, without interest, in an amount equal
to 2.0 times the Standard Cash Consideration as
determined pursuant to (i) above (the "Cash
Consideration"); provided, however, that (1) in the
event the Average Stock Price is less than $21.20, the
Cash Consideration shall be equal to $21.46 and (2) in
the event the Average Stock Price is more than $28.68,
the Cash Consideration shall be equal to $24.94.
"Average Stock Price" means the average of the Closing Market Prices
(as hereinafter defined) for the ten consecutive trading days ending on the
third trading day prior to the Effective Time; provided, however, that the
Average Stock Price used for purposes of the calculations in this Article II
shall not in any event be less than $17.46. The "Closing Market Prices" for any
trading day means the closing sales price of Parent Common Stock as reported in
the New York Stock Exchange Composite Tape for that day.
(d) Cancellation and Retirement of Company Common Stock. As a
result of the Merger and without any action on the part of the holder thereof,
at the Effective Time and except as provided in Sections 2.1(b) and (e), all
shares of Company Common Stock shall cease to be outstanding and shall be
canceled and retired and shall cease to exist, and each holder of such shares of
Company Common Stock shall thereafter cease to have any rights with respect to
such shares of Company Common Stock, except the right to receive, without
interest, the Merger Consideration and cash for fractional shares of Parent
Common Stock in accordance with Section 2.5(c) upon the surrender of a
certificate representing such shares of Company Common Stock (a "Company
Certificate").
(e) Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, holders of Company Common Stock that have, as of the
Effective Time, complied with all procedures necessary to assert appraisal
rights in accordance with the TBCA, if applicable, shall have such rights, if
any, as they may have pursuant to Section 5.12 of the TBCA and such Company
Common Stock shall not be converted or be exchangeable as provided in this
Section 2.1, but such holders shall be entitled to receive such payment as may
be determined to be due to such holders pursuant to the TBCA; provided, however,
that if such holder shall have failed to perfect or shall have effectively
withdrawn or lost his right to appraisal and payment under the TBCA, such
holder's Company Common Stock shall thereupon be deemed to have been converted
and to have become exchangeable, as of the Effective Time, into the Standard
Consideration. The Company Common Stock described in this Section 2.1(e) held by
holders who exercise and perfect appraisal rights are referred to herein as
"Dissenting Shares." The Company shall give Parent prompt notice of any demands
for appraisal of shares received by the Company (and shall also give Parent
prompt notice of any withdrawals of such demands for appraisal rights) and
Parent shall have the opportunity and right to participate in and direct all
negotiations with respect to such demands. The Company shall not, except with
the prior written consent of Parent, make any payment with respect to, settle or
otherwise negotiate or offer to settle any such demand for appraisal rights.
Parent agrees that it shall make all payments with respect to appraisal rights
and that the funds therefor shall not come, directly or indirectly, from the
Company.
2.2 Company Common Stock Elections
(a) Elections. Each person who, at the Effective Time, is a
record holder of shares of Company Common Stock (other than holders of shares of
Company Common Stock to be canceled as set forth in Section 2.1(b) or of
Dissenting Shares) shall have the right to submit an Election Form (as defined
in Section 2.2(c)) specifying that such person desires to have all of the shares
of Company Common Stock owned by such person converted into the right to receive
either (i) the Standard Consideration (a "Standard Election") (ii) the Stock
Consideration (a "Stock Election"), or (iii) the Cash Consideration (a "Cash
Election").
(b) Deposit of Exchange Fund. Promptly after the Allocation
Determination (as defined in Section 2.2(d)), Parent shall deposit (or cause to
be deposited) with a bank or trust company to be designated by Parent and
reasonably acceptable to the Company (the "Exchange Agent"), for the benefit of
the holders of shares of Company Common Stock, for exchange in accordance with
this Article II, (i) cash in an amount sufficient to pay the aggregate cash
portion of the Merger Consideration in accordance with this Article II and (ii)
certificates representing shares of Parent Common Stock ("Parent Certificates")
for exchange in accordance with this Article II (the cash and certificates
deposited pursuant to clauses (i) and (ii) being hereinafter referred to as the
"Exchange Fund").
(c) Method of Election; Deemed Standard Election. As soon as
reasonably practicable after the Effective Time, the Exchange Agent shall mail
to each holder of record of Company Common Stock immediately prior to the
Effective Time (excluding any shares of Company Common Stock which (i) are
canceled pursuant to Section 2.1(b), or (ii) are Dissenting Shares) (A) a letter
of transmittal (the "Company Letter of Transmittal") (which shall specify that
delivery shall be effected, and risk of loss and title to the Company
Certificates shall pass, only upon delivery of such Company Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Parent shall specify), (B) instructions for use in effecting the surrender of
the Company Certificates in exchange for the Merger Consideration with respect
to the shares of Company Common Stock formerly represented thereby, and (C) an
election form (the "Election Form") providing for such holders to make the
Standard Election, the Cash Election or the Stock Election. As of the Election
Deadline (as defined in Section 2.2(d)) all holders of Company Common Stock
immediately prior to the Effective Time (excluding any shares of Company Common
Stock that (i) are canceled pursuant to Section 2.1(b) or (ii) are Dissenting
Shares) that shall not have properly submitted to the Exchange Agent, or that
shall have properly revoked, an effective and properly completed Election Form
shall be deemed to have made a Standard Election (each a "Deemed Standard
Election").
(d) Election Deadline. Any Cash Election, Standard Election,
or Stock Election shall have been validly made only if the Exchange Agent shall
have received by 5:00 p.m. New York City time on a date (the "Election
Deadline") to be mutually agreed upon by Parent and the Company (which date
shall not be later than the twentieth business day after the Effective Time), an
Election Form properly completed and executed (with the signature or signatures
thereof guaranteed to the extent required by the Election Form) by such holder
accompanied by such holder's Company Certificates, or by an appropriate
guarantee of delivery of such Company Certificates from a member of any
registered national securities exchange or of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company in the United
States as set forth in such Election Form. Any holder of Company Common Stock
that has made an election by submitting an Election Form to the Exchange Agent
may at any time prior to the Election Deadline change such holder's election by
submitting a revised Election Form, properly completed and signed that is
received by the Exchange Agent prior to the Election Deadline. Any holder of
Company Common Stock may at any time prior to the Election Deadline revoke such
holder's election and withdraw such holder's Company Certificate deposited with
the Exchange Agent by written notice to the Exchange Agent received by the close
of business on the day prior to the Election Deadline. As soon as practicable
after the Election Deadline (but in no event later than ten business days after
the Election Deadline), the Exchange Agent shall determine the allocation of the
cash portion and stock portion of the Merger Consideration and shall notify
Parent of its determined allocation (the "Allocation Determination").
(e) No Further Ownership Rights in Company. From and after the
Effective Time, each holder of a certificate that immediately prior to the
Effective Time represented outstanding shares of Company Common Stock, shall,
upon surrender of such certificate for cancellation to the Exchange Agent,
together with the Company Letter of Transmittal, duly executed, and such other
documents as Parent or the Exchange Agent shall reasonably request, be entitled
to receive promptly after the Election Deadline in exchange therefor (A) a check
in the amount equal to the cash, if any, which such holder has the right to
receive pursuant to the provisions of this Article II (including any cash in
lieu of fractional shares of Parent Common Stock), and (B) a Parent Certificate
representing that number of shares of Parent Common Stock, if any, which such
holder has the right to receive pursuant to this Article II (in each case less
the amount of any required withholding taxes), and the Company Certificate so
surrendered shall forthwith be canceled. Until surrendered as contemplated by
this Section 2.2(e), each Company Certificate shall be deemed at any time after
the Effective Time to represent only the right to receive the Merger
Consideration with respect to the shares of Company Common Stock formerly
represented thereby. If any certificate for shares of Parent Common Stock to be
issued in the Merger is to be issued in a name other than that in which the
certificate for shares of Company Common Stock surrendered in exchange therefor
is registered, it shall be a condition of such issuance that the person
requesting such issuance shall pay any transfer or other tax required by reason
of the issuance of certificates for such shares of Parent Common Stock in a name
other than that of the registered holder of the certificate surrendered, or
shall establish to the satisfaction of Parent or its agent that such tax has
been paid or is not applicable.
(f) Rules Governing Elections. Parent shall have the right to
make rules, not inconsistent with the terms of this Agreement, governing the
validity of the Election Forms, the manner and extent to which Standard
Elections, Cash Elections or Stock Elections are to be taken into account in
making the determinations prescribed by Section 2.3, the issuance and delivery
of certificates for Parent Common Stock into which shares of Company Common
Stock are converted in the Merger, and the payment of cash for shares of Company
Common Stock converted into the right to receive cash in the Merger.
2.3 Proration.
(a) As is more fully set forth below, the maximum number of
shares of Parent Common Stock issuable to holders of Company Common Stock (the
"Maximum Number of Parent Shares") shall not exceed the product of (x) the
Standard Exchange Ratio and (y) the number of Outstanding Company Shares (as
defined below).
(b) As is more fully set forth below, the aggregate amount of
cash to be paid to holders of Outstanding Company Shares (as defined below) (the
"Maximum Cash Amount") shall not exceed the product of (x) the Standard Cash
Consideration and (y) the number of Outstanding Company Shares. "Outstanding
Company Shares" shall mean those shares of Company Common Stock outstanding
immediately prior to the Effective Time.
(c) In the event that the aggregate number of shares of Parent
Common Stock issuable pursuant to the Stock Elections received by the Exchange
Agent exceeds an amount equal to the Maximum Number of Parent Shares minus the
number of shares of Parent Common Stock issuable pursuant to Standard Elections
and Deemed Standard Elections, including any fractional shares of Parent Common
Stock for which a cash adjustment shall be paid pursuant to Section 2.5(c) (such
difference, the "Remaining Parent Shares"), each holder making a Stock Election
shall receive, for each share of Company Common Stock held by such holder, (x) a
number of shares of Parent Common Stock equal to the quotient obtained by
dividing (i) the Remaining Parent Shares by (ii) the aggregate number of shares
of Company Common Stock held by holders making Stock Elections (the "Stock
Election Company Shares"), plus (y) cash in an amount equal to the quotient
obtained by dividing (iii) the Remaining Stock Election Cash Amount (as defined
below) by (iv) the Stock Election Company Shares. The "Remaining Stock Election
Cash Amount" shall be equal to the Maximum Cash Amount minus the sum of (i) the
aggregate amount of cash payable pursuant to, or with respect to, Standard
Elections, Deemed Standard Elections, Cash Elections, Dissenting Shares and
fractional shares and (ii) the aggregate amount of consideration transferred by
Parent in acquiring the Parent Shares (as defined below). "Parent Shares" means
any and all shares of Company Common Stock that are (i) owned by Parent or USF&G
and (ii) canceled and retired at the Effective Time pursuant to Section 2.1(b).
For purposes of this paragraph and the following paragraph, the aggregate amount
of cash payable with respect to Dissenting Shares shall be deemed to be the
product of (x) the number of Dissenting Shares times (y) the sum of (i) the
Standard Cash Consideration and (ii) the product of the Standard Exchange Ratio
times the Average Stock Price.
(d) In the event that the aggregate amount of cash payable
pursuant to Cash Elections received by the Exchange Agent exceeds the Maximum
Cash Amount minus the sum of (i) the aggregate amount of cash payable pursuant
to Standard Elections and Deemed Standard Elections, (ii) the aggregate amount
of cash payable with respect to the Dissenting Shares and fractional shares and
(iii) the aggregate amount of consideration transferred by Parent in acquiring
the Parent Shares (such difference, the "Remaining Cash"), each holder making a
Cash Election shall receive, for each share of Company Common Stock held by such
holder, (x) cash in an amount equal to the quotient obtained by dividing the (i)
Remaining Cash by (ii) the aggregate number of shares of Company Common Stock
held by holders making Cash Elections (the "Cash Election Company Shares"), plus
(y) a number of shares of Parent Common Stock equal to the quotient obtained by
dividing (iii) the Remaining Cash Election Parent Shares (as defined below) by
(iv) the Cash Election Company Shares. The "Remaining Cash Election Parent
Shares" shall be the Maximum Number of Parent Shares minus the number of shares
of Parent Common Stock issuable pursuant to Standard Elections, Deemed Standard
Elections and Stock Elections (including any fractional shares of Parent Common
Stock for which a cash adjustment shall be paid pursuant to Section 2.5(c) in
respect of such Standard Elections, Deemed Standard Elections and Stock
Elections).
2.4 Tax Adjustment.
In the event that the Closing Stock Price (as defined below) is less
than the Average Stock Price such that the allocation of the consideration
between stock and cash based on the Closing Stock Price is not 50% stock and 50%
cash, appropriate adjustment will be made, as determined by Parent and the
Company upon advice of counsel, to the extent if any, as may be required to
cause the Merger Consideration allocation between cash and stock to satisfy the
continuity of interest requirements for purposes of causing the transaction to
qualify as a tax-free reorganization, provided that the total value of the
Merger Consideration to be delivered by Parent, based upon the Average Stock
Price, shall not increase. For purposes of this Section 2.4, the "Closing Stock
Price" shall mean the mean between the highest and lowest quoted selling prices
of the Parent Common Stock as reported on the New York Stock Exchange Composite
Tape on the day of the Effective Time of the Merger. In the event that an
adjustment is made under this Section 2.4, any adjustments necessary or
appropriate to reflect such adjustment shall be made to the other provisions of
this Article II.
2.5 Dividends, Fractional Shares, Etc.
(a) Dividends on Parent Common Stock. Notwithstanding any
other provisions of this Agreement, no dividends or other distributions declared
after the Effective Time on Parent Common Stock shall be paid with respect to
any shares of Company Common Stock represented by a Company Certificate, until
such Company Certificate is surrendered for exchange as provided herein. Subject
to the effect of applicable laws, following surrender of any such Company
Certificate, there shall be paid to the holder of Parent Certificates issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of dividends or other distributions with a record date after the
Effective Time theretofore payable with respect to such whole shares of Parent
Common Stock and not paid, less the amount of any withholding taxes that may be
required thereon, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but
prior to surrender and a payment date subsequent to surrender payable with
respect to such whole shares of Parent Common Stock, less the amount of any
withholding taxes that may be required thereon.
(b) No Transfers; Closing of Stock Transfer Book. At or after
the Effective Time, there shall be no transfer on the stock transfer books of
the Company of the shares of Company Common Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
certificates representing any such shares are presented to the Surviving
Corporation, they shall be canceled and exchanged for the Merger Consideration,
if any, deliverable in respect thereof pursuant to this Agreement.
(c) No Fractional Shares. No fractional shares of Parent
Common Stock shall be issued pursuant to the Merger. In lieu of the issuance of
any fractional share of Parent Common Stock pursuant to the Merger, cash
adjustments shall be paid to holders in respect of any fractional share of
Parent Common Stock that would otherwise be issuable, and the amount of such
cash adjustment shall be equal to the product of such fractional amount and the
Average Stock Price.
(d) Termination of Exchange Fund. Any portion of the Exchange
Fund (including the proceeds of any investments thereof and any shares of Parent
Common Stock) that remains unclaimed by the former stockholders of the Company
two years after the Effective Time shall be delivered to Parent. Any former
stockholder of the Company who has not theretofore complied with this Article II
shall thereafter look only to the Surviving Corporation and Parent for payment
of the applicable Merger Consideration, cash in lieu of fractional shares and
unpaid dividends and distributions on Parent Common Stock deliverable in respect
of each share of Company Common Stock such stockholder holds as determined
pursuant to this Agreement, in each case without any interest thereon.
(e) None of Parent, the Company, USF&G, the Surviving
Corporation, the Exchange Agent or any other person shall be liable to any
former holder of shares of Company Common Stock for any amount properly
delivered to a public official pursuant to applicable or unclaimed property,
escheat or similar laws.
(f) In the event that any Company Certificate shall have been
lost, stolen or destroyed upon the making of an affidavit of that fact by the
person claiming such Company Certificate to be lost, stolen or destroyed and, if
required by Parent, the posting by such person of a bond in such reasonable
amount as Parent may direct as indemnity against any claim that may be made
against it with respect to such Company Certificate, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Company Certificate the
applicable Merger Consideration, cash in lieu of fractional shares, and unpaid
dividends and distributions on shares of Parent Common Stock, as provided in
this Section 2.5, deliverable in respect thereof pursuant to this Agreement.
(g) In the event of any change in Parent Common Stock between
the date of this Agreement and the Effective Time by reason of any stock split,
stock dividend, subdivision, reclassification, combination, exchange of Parent
Common Stock or the like, the Merger Consideration and other terms set forth in
this Agreement shall be appropriately adjusted.
(h) The pricing terms set forth herein are based on the
information disclosed in Section 3.1(b) hereof. If the number of such shares and
share equivalents outstanding is greater than the foregoing, the Merger
Consideration shall be appropriately adjusted.
2.6 Warrants.
The Company shall use its reasonable best efforts to cause holders of
all then outstanding warrants to purchase Company Common Stock (each a "Company
Warrant") whether or not then exercisable in whole or in part, to agree to
surrender and receive, in exchange for cancellation and in settlement thereof a
number of shares of Parent Common Stock for each share of Company Common Stock
subject to such Company Warrant (subject to any applicable withholding tax)
equal to the quotient of (i) the product of (1) the number of shares of Company
Common Stock which the holder would be entitled to receive if such Company
Warrant were exercised in full immediately prior to the Effective Time
multiplied by (2) the difference between (x) the Cash Consideration and (y) the
exercise price of such share of Company Common Stock under the Company Warrant,
to the extent such amount is a positive number divided by (ii) the Average
Closing Price (such amount being hereinafter referred to as the "Warrant
Consideration"); provided, however, that with respect to any person subject to
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), any such amount shall be paid as soon as practicable after the first date
payment can be made without liability to such person under Section 16(b) of the
Exchange Act. Upon receipt of the Warrant Consideration, the Company Warrant
shall be canceled. The surrender of a Company Warrant to the Company in exchange
for the Warrant Consideration shall be deemed a release of any and all rights
the holder had or may have had in respect of such Company Warrant. With respect
to the Company Warrants that are not surrendered prior to the Effective Time,
after the Effective Time, the Surviving Corporation shall comply with all
applicable terms of such unsurrendered Company Warrants.
2.7 Stock Options.
Each stock option issued and outstanding under the 1993 Stock Option
Plan, as amended, of the Company (the "Stock Option Plan") is referred to herein
as an "Employee/Director Stock Option" and all such options are referred to
herein, collectively, as the "Employee/Director Stock Options." Each stock
option issued and outstanding under the 1993 Directors' Stock Option Plan (the
"Directors' Stock Option Plan") is referred to herein as a "Director's Option"
and all such options are referred to herein, collectively, as the "Directors'
Options." The Employee/Director Stock Options and the Directors' Options are
referred to herein, collectively, as the "Company Options" and, individually, as
a "Company Option." At the Effective Time, each Company Option shall become
immediately fully vested and shall be converted into an option to purchase
shares of Parent Common Stock, as provided below. Following the Effective Time,
each such Company Option shall be exercisable upon the same terms and conditions
as then are applicable to such Company Option, except that (i) each such Company
Option shall be exercisable for that number of shares of Parent Common Stock
equal to the product of (x) the number of shares of Company Common Stock for
which such Company Option was exercisable immediately prior to the Effective
Date and (y) the Stock Exchange Ratio and (ii) the exercise price of such option
shall be equal to the quotient obtained by dividing the exercise price per share
of such Company Option by the Stock Exchange Ratio. From and after the date of
this Agreement, no additional options to purchase shares of Company Common Stock
shall be granted under the Company Stock Option Plan, Directors' Stock Option
Plan or otherwise. Except as otherwise agreed to by the parties, no person shall
have any right under any stock option plan (or any option granted thereunder) or
other plan, program or arrangement of the Company with respect to, including any
right to acquire, equity securities of the Company following the Effective Time.
At or as soon as practicable after the Effective Time, Parent shall issue to
each holder of a Company Option that is canceled an agreement that accurately
reflects the terms of the Parent Option substituted therefore as contemplated by
this Section 2.7. Parent shall (i) take all corporate actions necessary to
reserve for issuance such number of shares of Parent Common Stock as will be
necessary to satisfy exercises in full of all Parent Options after the Effective
Time, (ii) use its reasonable best efforts to ensure that an effective
Registration Statement on Form S-8 is on file with the Securities and Exchange
Commission (the "SEC") with respect to such Parent Common Stock, and (iii) use
its reasonable best efforts to have such shares admitted to trading upon
exercises of Parent Options.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company.
Except as disclosed in (i) the Company's Annual Report on Form 10-K fo
the fiscal year ended December 31, 1996, (ii) the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1997, or (iii) the disclosure
memorandum (the "Disclosure Memorandum") delivered at or prior to the date of
this Agreement (it being understood that each section of the Disclosure
Memorandum shall list all items applicable to such section, although the
inadvertent omission of an item from one section shall not be a breach of this
Agreement if such item and an explanation of the nature of such item is clearly
disclosed in another section of the Disclosure Memorandum) the Company
represents and warrants to Parent and USF&G as follows:
(a) Organization, Standing and Power. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction in which it is incorporated, has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted and is duly qualified or licensed to do business
as a foreign corporation and in good standing to conduct business in each
jurisdiction in which the business it is conducting, or the operation, ownership
or leasing of its properties, makes such qualification or license necessary,
other than such jurisdictions where the failure so to qualify or become so
licensed would not individually or in the aggregate adversely affect the Company
and its Subsidiaries taken as a whole in any material respect. The Company has
heretofore made available to Parent complete and correct copies of its Amended
and Restated Articles of Incorporation, as currently in effect as of the date of
this Agreement (the "Company Articles of Incorporation"), and the Bylaws. As
used in this Agreement, a "Material Adverse Effect" shall mean, with respect to
any specified party to this Agreement, any event, change, condition, fact or
effect which has or could reasonably be expected to have a material adverse
effect on (i) the business, results of operations, or financial condition of
such party and its Subsidiaries taken as a whole or (ii) the ability of such
party to consummate the transactions contemplated by this Agreement.
(b) Capital Structure. As of the date of this Agreement, the
authorized capital stock of the Company consists of 45,000,000 shares, divided
into the following: (i) 5,000,000 shares of preferred stock, par value $0.01 per
share (the "Company Preferred Stock"); and (ii) 40,000,000 shares of Company
Common Stock. At the close of business on August 1, 1997: (i) 10,101,915 shares
of Company Common Stock were issued and outstanding, 27,825 of which are
restricted shares; (ii) 815,902 shares of Company Common Stock were reserved for
issuance in connection with the Stock Option Plan; (iii) 122,457 shares of
Company Common Stock were reserved for issuance in connection with the
Directors' Stock Option Plan; (iv) 491,222 shares of Company Common Stock were
reserved for issuance upon exercise of outstanding Company Warrants; (v) no
shares of Company Common Stock were held in treasury; (vi) no shares of Company
Preferred Stock were issued and outstanding or held by the Company or any
Subsidiary of the Company; and (vii) no bonds, debentures, notes or other
instruments or evidence of indebtedness having the right to vote (or convertible
into, or exercisable or exchangeable for securities having the right to vote) on
any matters on which the Company shareholders may vote ("Company Voting Debt")
were issued or outstanding. All outstanding shares of Company Common Stock are
validly issued, fully paid and nonassessable and are not subject to preemptive
or other similar rights. Except as set forth in Section 3.1(b) of the Disclosure
Memorandum, there are outstanding: (i) no securities of the Company convertible
into or exchangeable or exercisable for shares of capital stock, Company Voting
Debt or other voting securities of the Company; and (ii) no stock awards,
options, warrants, calls, rights (including stock purchase or preemptive
rights), commitments or agreements to which the Company is a party or by which
it is bound, in any case obligating the Company to issue, deliver, sell,
purchase, redeem or acquire, or cause to be issued, delivered, sold, purchased,
redeemed or acquired, additional shares of its capital stock, any Company Voting
Debt or other voting securities or securities convertible into or exchangeable
or exercisable for voting securities of the Company, or obligating the Company
to grant, extend or enter into any such option, warrant, call, right, commitment
or agreement. Except as set forth in Section 3.1(b) of the Disclosure
Memorandum, since December 31, 1996, the Company has not (i) granted any
options, warrants or rights to purchase shares of Company Common Stock or (ii)
amended or repriced, as applicable, any Company Option, any Company Warrant, the
Stock Option Plan or the Directors' Stock Option Plan. Section 3.1(b) of the
Disclosure Memorandum sets forth the following information with respect to each
Company Option and Company Warrant outstanding on the date of this Agreement:
(A) the name of the optionee or warrantholder, (B) the number of shares of
Company Common Stock subject to such Company Option or Company Warrant, and (C)
the exercise price of such Company Option or Company Warrant. None of the
Company Options are "incentive stock options" (within the meaning of Section 422
of the Code). There are not as of the date of this Agreement and there will not
be on the date of the Shareholders' Meeting any shareholder agreements, voting
trusts or other agreements or understandings to which the Company is a party or
by which it is bound relating to the voting of any shares of the capital stock
of the Company which will limit in any way the solicitation of proxies by or on
behalf of the Company from, or the casting of votes by, the shareholders of the
Company with respect to the Merger. True and correct copies of all agreements
relating to the Company Warrants and the Company Options and the issuance of any
restricted stock have previously been provided or made available to Parent.
(c) Subsidiaries; Investments. Section 3.1(c) of the
Disclosure Memorandum sets forth the name of each Subsidiary of the Company, the
jurisdiction of its incorporation or organization and whether it is an insurance
company. Each Subsidiary is an entity duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization and has the power and authority and all necessary government
approvals to own, lease and operate its properties and to carry on its business
as now being conducted. Each Subsidiary of the Company is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary. The Company has
heretofore made available to USF&G complete and correct copies of the articles
of incorporation (or other organizational documents) and bylaws of each of its
Subsidiaries. Section 3.1(c) of the Disclosure Memorandum sets forth, as to each
Subsidiary of the Company, its authorized capital stock and the number of issued
and outstanding shares of capital stock (or similar information with respect to
any Subsidiary not organized as a corporate entity). All outstanding shares of
the capital stock of the Subsidiaries of the Company are validly issued, fully
paid and nonassessable and are not subject to preemptive or other similar
rights; neither the Company nor any Subsidiary of the Company has any call
obligations or similar liabilities with respect to partnerships or other
Subsidiaries not organized as corporate entities. Except as set forth in Section
3.1(c) of the Disclosure Memorandum, the Company is, directly or indirectly, the
record and beneficial owner of all of the outstanding shares of capital stock
(or other interests, with respect to Subsidiaries not organized as corporate
entities) of each of its Subsidiaries free and clear of all Liens and other
restrictions with respect to the transferability or assignability thereof (other
than restrictions on transfer imposed by federal or state securities laws) and
no capital stock (or other interests, with respect to Subsidiaries not organized
as corporate entities) of any of its Subsidiaries is or may become required to
be issued by reason of any options, warrants, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable or exercisable for, shares of capital stock (or
other interests, with respect to Subsidiaries not organized as corporate
entities) of any of its Subsidiaries and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may be bound to issue, redeem, purchase or sell shares of Subsidiary
capital stock (or other interests, with respect to Subsidiaries not organized as
corporate entities) or securities convertible into or exchangeable or
exercisable for any such shares or interests. Except for the ownership interests
set forth in Section 3.1(c) of the Disclosure Memorandum, neither the Company
nor any of its Subsidiaries owns, directly or indirectly, any capital stock or
other ownership interest in any corporation, partnership, business association,
joint venture or other entity, except for portfolio investments made in the
ordinary course of business. As used in this Agreement, the word "Subsidiary,"
with respect to any party to this Agreement, means any corporation, partnership,
joint venture or other organization, whether incorporated or unincorporated, of
which: (i) such party or any other Subsidiary of such party is a general
partner; (ii) voting power to elect a majority of the Board of Directors or
others performing similar functions with respect to such corporation,
partnership, joint venture or other organization is held by such party or by any
one or more of its Subsidiaries, or by such party and any one or more of its
Subsidiaries; or (iii) at least 10% of the equity, other securities or other
interests is, directly or indirectly, owned or controlled by such party or by
any one or more of its Subsidiaries or by such party and any one or more of its
Subsidiaries.
(d) Authority; No Violations; Consents and Approvals.
(i) The Company has all requisite corporate power and
authority to enter into this Agreement and,
subject to the Company Shareholder Approval, to
consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and
the consummation of the transactions contemplated
hereby have been duly authorized by all necessary
corporate action on the part of the Company,
subject, in the case of the Merger, to the
Company Shareholder Approval. This Agreement has
been duly executed and delivered by the Company
and, subject, in the case of the Merger, to the
Company Shareholder Approval, and assuming that
this Agreement constitutes the valid and binding
agreement of Parent and USF&G, constitutes a
valid and binding obligation of the Company
enforceable in accordance with its terms and
conditions except that the enforcement hereof may
be limited by (A) applicable bankruptcy,
insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws now
or hereafter in effect relating to creditors'
rights generally and (B) general principles of
equity (regardless of whether enforceability is
considered in a proceeding at law or in equity)
and (C) any ruling or action of any Governmental
Entity as set forth in Section 3.1(d)(iii).
(ii) The execution and delivery of this Agreement
and the consummation of the transactions
contemplated hereby by the Company will not
conflict with, or result in any violation of,
or default (with or without notice or lapse
of time, or both) under, or give rise to a
right of termination, cancellation or
acceleration (including pursuant to any put
right) of any obligation or the loss of a
material benefit under, or the creation of a
Lien on assets or property, or right of first
refusal with respect to any asset or property
or change any other rights, benefits,
liabilities or obligations (any such
conflict, violation, default, right of
termination, cancellation or acceleration,
loss, creation or right of first refusal, or
change, a "Violation"), pursuant to, (A) any
provision of the Articles of Incorporation or
Bylaws of the Company or the comparable
documents of any of its Subsidiaries or (B)
except as to which requisite waivers or
consents have been obtained and specifically
identified in Section 3.1(d) of the
Disclosure Memorandum and assuming the
consents, approvals, authorizations or
permits and filings or notifications referred
to in paragraph (iii) of this Section 3.1(d)
are duly and timely obtained or made and, in
the case of the Merger, the Company
Shareholder Approval has been obtained, any
loan or credit agreement, note, mortgage,
deed of trust, indenture, lease, Company
License (as defined in Section 3.1(g)),
Company Benefit Plan (as defined in Section
3.1(n)), Company Material Contract (as
defined in Section 3.1(r)), or any other
agreement, obligation, instrument, concession
or license or any judgment, order, decree,
statute, law, ordinance, rule or regulation
applicable to the Company, any of its
Subsidiaries or any of their respective
properties or assets except for such
Violations which would not individually or in
the aggregate adversely affect the Company
and its Subsidiaries taken as a whole in any
material respect.
(iii)No consent, approval, order or authorization of,
or registration, declaration or filing with,
notice to, or permit from any court,
administrative agency or commission or other
governmental authority or instrumentality,
domestic or foreign (a "Governmental Entity"), is
required by or with respect to the Company or any
of its Subsidiaries in connection with the
execution and delivery of this Agreement by the
Company or the consummation by the Company of the
transactions contemplated hereby, except for: (A)
any actions and approval that may be required
under the insurance laws and regulations of the
jurisdictions in which the Subsidiaries of the
Company that are insurance companies are
domiciled or licensed, each of which is listed in
Section 3.1(d)(iii)(A) of the Disclosure
Memorandum; (B) the filing of a pre-merger
notification and report form by the Company under
the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR
Act"), and the expiration or termination of the
applicable waiting period thereunder; (C) the
filing with the SEC of (x) a proxy statement in
definitive form relating to the approval by the
holders of Company Common Stock of the Merger
(such proxy statement as amended or supplemented
from time to time being hereinafter referred to
as the "Proxy Statement"), (y) the registration
statement on Form S-4 to be filed with the SEC by
Parent pursuant to which Shares of Parent Common
Stock issuable in the Merger will be registered
with the SEC (the "Form S-4"), and (z) such
reports under and such other compliance with the
Exchange Act and the rules and regulations
thereunder as may be required in connection with
this Agreement and the transactions contemplated
hereby; (D) the filing of the Articles of Merger
with the Secretary of State of the State of Texas
and the Maryland State Department of Assessments
and Taxation; (E) such filings and approvals as
may be required by any applicable state
securities, "blue sky" or takeover laws; (F) the
Company Shareholder Approval; and (G) where the
failure to obtain consent, approval, order, or
authorization of, or registration, declaration or
filing with, notice to, or permit from a
Government Entity would not adversely effect the
Company and its Subsidiaries taken as a whole in
any material respect.
(e) Government Filings. The Company has made available to
USF&G a true and complete copy of each report, schedule, registration statement
and definitive proxy statement filed by the Company with the SEC since December
31, 1994 and prior to the date of this Agreement (the "Filed Company SEC
Documents"), which are all the documents (other than preliminary material) that
the Company was required to file with the SEC since such date. As of their
respective dates, the Filed Company SEC Documents complied in all material
respects with the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Filed Company
SEC Documents, and none of the Filed Company SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of the Company included in the Filed Company SEC Documents
comply as to form in all material respects with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of the unaudited statements, as permitted by Rule 10-01
of Regulation S-X of the SEC) and fairly present in accordance with applicable
requirements of GAAP the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates therein and the consolidated results
of their operations and cash flows for the periods presented therein (subject,
in the case of unaudited interim financial statements, to normal recurring
adjustments none of which are material). Section 3.1(e) of the Disclosure
Memorandum lists with respect to the Company Common Stock for the period since
December 31, 1996 and prior to the date of this Agreement each: (i) Schedule 13D
filed with the SEC and (ii) application for change in control filed under the
insurance holding company laws of any Company has been or is required to or has
filed any documents with the SEC. Section 3.1(e) of the Disclosure Memorandum
includes the Company's reported results for the six-month period ended June 30,
1997 and such reported results fairly present in summary fashion and in
accordance with applicable requirements of GAAP the consolidated financial
position of the Company and its consolidated subsidiaries as of the dates
therein and the consolidated results of their operations for the periods
presented therein (subject to normal recurring adjustments none of which are
material).
(f) Information Supplied. None of the information supplied or
to be supplied by the Company for inclusion or incorporation by reference in (i)
the Form S-4 will, at the time the Form S-4 is filed with the SEC, and at any
time it is amended or supplemented or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading, and (ii) the Proxy Statement will, on the date it is first mailed to
the holders of the Company Common Stock or at the time of the Shareholders'
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement will comply as to form in all material respects
with the requirements of the Exchange Act and the rules and regulations
promulgated thereunder, except that no representation is made by the Company
with respect to statements made or incorporated by reference therein based on
information supplied in writing by Parent or USF&G specifically for inclusion
therein. If, at any time prior to the Shareholders' Meeting, any event with
respect to the Company, or with respect to other information supplied by the
Company for inclusion in the Proxy Statement, shall occur which is required to
be described in an amendment of, or a supplement to, any of such documents, such
event shall be so described, and such amendment or supplement shall be promptly
filed with the SEC and, as required by law, disseminated to the shareholders of
the Company.
(g) Compliance with Applicable Laws.
(i) Except as disclosed in Section 3.1(g)(i) of the
Disclosure Memorandum, the business of the
Company and each of its Subsidiaries is being, in
all material respects, conducted in compliance
with all applicable laws, including, without
limitation, all insurance laws, ordinances, rules
and regulations, decrees and orders of any
Governmental Entity, and all notices, reports,
documents and other information required to be
filed thereunder within the last three years were
properly filed and were in compliance in all
respects with such laws.
(ii) (A) Insurance Licenses. Section 3.1(g)(ii)(A) of
the Disclosure Memorandum contains a true and
complete list of all jurisdictions in which each
of the Subsidiaries of the Company is licensed to
transact insurance business. Except as disclosed
in Section 3.1(g)(ii)(B) of the Disclosure
Memorandum, each of the Subsidiaries of the
Company has all the licenses necessary to conduct
the lines of insurance business which such
Subsidiary is currently conducting in each of the
states set forth in Section 3.1(g)(ii)(A) of the
Disclosure Memorandum, which are all of the
states in which the Company is currently
conducting business or in the process of
commencing conducting business. The Subsidiaries
of the Company own or validly hold the insurance
licenses referred to in Section 3.1(g)(ii)(A) of
the Disclosure Memorandum, all of which licenses
are valid and in full force and effect. Except as
set forth in Section 3.1(g)(ii)(A) of the
Disclosure Memorandum, there is no proceeding or
investigation pending or, to the knowledge (as
defined below) of the Company, threatened which
would reasonably be expected to lead to the
revocation, amendment, failure to renew,
limitation, suspension or restriction of any such
license to transact insurance business. As used
in this Agreement, "knowledge" means the actual
knowledge, after reasonable inquiry, of, in the
case of the Company, the management of the
Company, and, in the case of Parent, the
management of Parent.
(B) Other Licenses. The Company and each of its
Subsidiaries owns or validly holds all licenses,
franchises, permits, approvals, authorizations,
exemptions, classifications, registrations,
rights and similar documents (other than licenses
to transact insurance business) which are
necessary for it to own, lease or operate its
properties and assets and to conduct its business
as now conducted, except for such licenses the
failure to hold which would not individually or
in the aggregate adversely affect the Company and
its Subsidiaries taken as a whole in any
material respect. The business of the Company and
each of its Subsidiaries has been and is being
conducted in compliance in all material respects
with all such licenses. All such licenses are in
full force and effect, and there is no proceeding
or investigation pending or, to the knowledge of
the Company, threatened which would reasonably be
expected to lead to the revocation, amendment,
failure to renew, limitation, suspension or
restriction of any such license.
(C) The licenses referred to in subparagraphs (A)
and (B) are collectively referred to herein as
the "Company Licenses."
(iii)Each Subsidiary of the Company that is an
insurance company has filed all annual and
quarterly statements, together with all exhibits
and schedules thereto, required to be filed with
or submitted to the appropriate regulatory
authorities of the jurisdiction in which it is
domiciled and to any other jurisdiction where
required on forms prescribed or permitted by such
authority. Each Annual Statement filed by any
Subsidiary of the Company that is an
insurance company with the insurance
regulator in its state of domicile for the
three years ended December 31, 1996 (each a
"Company Annual Statement"), together with
all exhibits and schedules thereto, financial
statements relating thereto and any actuarial
opinion, affirmation or certification filed
in connection therewith and each Quarterly
Statement so filed for the quarterly periods
ended after January 1, 1997 (each a "Company
Quarterly Statement") were prepared in
conformity with the statutory accounting
practices prescribed or permitted by the
insurance regulatory authorities of the
applicable state of domicile applied on a
consistent basis ("SAP"), present fairly, in
all material respects, to the extent required
by and in conformity with SAP, the statutory
financial condition of such Subsidiary at
their respective dates and the results of
operations, changes in capital and surplus
and cash flow of such Subsidiary for each of
the periods then ended, and were correct when
filed and there were no omissions therefrom
when filed. No deficiencies or violations
have been asserted in writing (or, to the
knowledge of the Company, orally) by any
insurance regulator with respect to the
foregoing financial statements which have not
been cured or otherwise resolved to the
satisfaction of such insurance regulator and
which have not been disclosed in writing to
USF&G prior to the date of this Agreement.
Set forth in Section 3.1(g)(iii) of the
Disclosure Memorandum is a list of permitted
practices under SAP which are utilized in any
of the Company's Annual or Quarterly
Statements.
(iv) All statutory reserves as established or
reflected in the Company Annual Statements and
Company Quarterly Statements were determined in
accordance with SAP and generally accepted
actuarial assumptions and met the requirements of
the insurance laws of each applicable
jurisdiction as of the respective dates of such
statements. The statutory reserves set forth in
the Company Annual Statement and Company
Quarterly Statements meet in all material
respects the requirements of the insurance laws
of the jurisdictions in which such Subsidiaries
do business and reflect a reasonable provision
for unpaid policy losses and loss adjustment
expenses as of such date. The reserves of the
Subsidiaries of the Company including, but not
limited to, the reserves for incurred losses,
incurred loss adjustment expenses, incurred but
not reported losses and loss adjustment expenses
for incurred but not reported losses (the "Loss
Reserves") as set forth in the audited
consolidated financial statements and unaudited
interim financial statements of such Subsidiaries
included in the Filed Company SEC Documents were
determined in good faith by the Company and such
Subsidiaries in accordance with generally
accepted accounting principles and were believed
by the Company and such Subsidiaries to be
reasonable when made. The Loss Reserves
established or reflected in the Company Annual
Statements and the Company Quarterly Statements
were determined in accordance with generally
accepted actuarial standards consistently applied
and are in compliance in all material respects
with the insurance laws, rules and regulations of
their respective states of domicile as well as
those of any other applicable jurisdictions. The
Company has delivered or made available to Parent
true and complete copies of all actuarial reports
and actuarial certificates in the possession or
control of the Company, any of the Subsidiaries
or any other affiliates of the Company relating
to the adequacy of the Loss Reserves (or any
portion thereof) of the Company or any of its
Subsidiaries for any period ended on or after
December 31, 1996.
(v) Except as set forth in Section 3.1(g)(v) of the
Disclosure Memorandum, from January 1, 1997
through the date of this Agreement, none of the
Company's Subsidiaries have paid any dividend or
made any other distribution in respect of its
capital stock.
(h) Insurance Issued. Except (i) as set forth in Section
3.1(h) of the Disclosure Memorandum and (ii) where noncompliance would not
individually or in the aggregate adversely affect the Company and its
Subsidiaries taken as a whole in any material respect, with respect to all
insurance issued:
(i) All insurance policies issued, reinsured or
underwritten by the Subsidiaries of the Company are,
to the extent required by applicable law, and in all
material respects on forms approved by the insurance
regulatory authority of the jurisdiction where issued
or delivered or have been filed with and not objected
to by such authority within the period prescribed for
such objection, and utilize premium rates which if
required to be filed with or approved by insurance
regulatory authorities have been so filed or approved
and the premiums charged conform thereto.
(ii) All insurance policy benefits payable by any
Subsidiary of the Company and, to the knowledge of the
Company, by any other person that is a party to or
bound by any reinsurance, coinsurance or other similar
agreement with any Subsidiary of the Company, have in
all material respects been paid or are in the course
of settlement in accordance with the terms and within
the limits of the insurance policies and other
contracts under which they arose, except for such
benefits for which there is a reasonable basis to
contest payment and which are being or have been
contested by appropriate proceedings and in accordance
with applicable law.
(iii) The Company has not received any information
which would reasonably cause it to believe
that the financial condition of any other
party to any reinsurance, coinsurance or
other similar agreement with any of its
Subsidiaries is so impaired as to result in a
default thereunder.
(iv) All advertising, promotional, sales and solicitation
materials and product illustrations used by any
Subsidiaries of the Company or any agent of any of its
Subsidiaries have complied and are in compliance, in
all material respects, with all applicable laws.
(v) To the knowledge of the Company, each insurance agent,
at the time such agent wrote, sold or produced
business for any Subsidiary of the Company since
January 1, 1993 was duly licensed as an insurance
agent (for the type of business written, sold or
produced by such insurance agent) in the particular
jurisdiction in which such agent wrote, sold or
produced such business and was properly appointed by
such Subsidiary. All written contracts and agreements
between any such agent, on the one hand, and the
Company or any of its Subsidiaries, on the other hand,
are in material compliance with all applicable laws
and regulations. To the knowledge of the Company and
its Subsidiaries, no such agent is the subject of, or
party to, any disciplinary action or proceeding under
applicable law. As of the date hereof, to the
Company's knowledge, the Company has not been advised
that any insurance agent intends to terminate or
materially change its relationship with the Company or
its Subsidiaries as a result of the Merger or the
contemplated operations of the Company and its
Subsidiaries after the Merger is consummated.
(vi) Except as set forth in Section 3.1(h)(vi) of the
Disclosure Memorandum, neither the Company nor any of
its Subsidiaries is a party to any fronting agreement
or places or sells reinsurance whether for its own
account or for any reinsurance company.
(vii) There are (A) to the knowledge of the Company or its
Subsidiaries, no claims asserted, (B) no actions,
suits, investigations or proceedings by or before
any court or other Governmental Entity, and
(C) no investigations by or on behalf of any
of the Company or its Subsidiaries ((A), (B)
and (C) being collectively referred to as
"Actions") pending or, to the knowledge of
the Company or its Subsidiaries, threatened,
against or involving any of the Company or
its Subsidiaries, or any of their agents that
include allegations that any of the Company
or its Subsidiaries or any of the agents of
the Company or its Subsidiaries were in
violation of or failed to comply with any
law, statute, ordinance, rule, regulation,
code, writ, judgement, injunction decree,
determination or award applicable to the
Company or its Subsidiaries in the respective
jurisdictions in which their products have
been sold, and, to the knowledge of the
Company or the Subsidiary, no facts exist
which would reasonably be expected to result
in the filing or commencement of any such
Action.
(i) Rating Agencies. Except as disclosed in Section 3.1(i) of
the Disclosure Memorandum, since December 31, 1996, no rating agency has imposed
conditions (financial or otherwise) on retaining any currently held rating
assigned to any Subsidiary of the Company that is an insurance company or
indicated to the Company that it is considering the downgrade of any rating
assigned to any Subsidiary of the Company that is an insurance company. As of
the date of this Agreement, each Subsidiary of the Company that is an insurance
company has the A.M. Best rating set forth in Section 3.1(i) of the Disclosure
Memorandum. Notwithstanding anything to the contrary, the imposition of
conditions (financial or otherwise) on retaining any currently held rating
assigned to any Subsidiary of the Company that is an insurance company or
downgrade of any rating assigned to any subsidiary of the Company that is an
insurance company primarily as a result of the transactions contemplated by this
Agreement shall not be a breach of this representation and warranty.
(j) Absence of Certain Changes or Events. Since December 31,
1996, there has not been, occurred, or arisen any change, event (including
without limitation any damage, destruction, or loss whether or not covered by
insurance), condition, or state of facts of any character with respect to the
business or financial condition of the Company or any of its Subsidiaries,
except (i) as disclosed in Section 3.1(j) of the Disclosure Memorandum or in the
Filed Company SEC Documents, (ii) the imposition of conditions (financial or
otherwise) on retaining any currently held rating assigned to any Subsidiary of
the Company that is an insurance company or downgrade of any rating assigned to
any Subsidiary of the Company that is an insurance company primarily as a result
of the transactions contemplated by this Agreement, and (iii) for events in the
ordinary course of business consistent with past practice that would not,
individually or in the aggregate, result in a Material Adverse Effect on the
Company. Except as disclosed in Section 3.1(j) of the Disclosure Memorandum or
in the Filed Company SEC Documents, since December 31, 1996, the Company and
each of its Subsidiaries has operated only in the ordinary course of business
consistent with past practice and (without limiting the generality of the
foregoing) there has not been, occurred, or arisen:
(i) any declaration, setting aside, or payment of any
dividend or other distribution in respect of the
capital stock of the Company (other than as expressly
permitted by this Agreement) or any direct or (other
than any retirement of Options or Warrants
contemplated pursuant to this Agreement) indirect
redemption, purchase, or other acquisition by the
Company of any such stock or of any interest in or
right to acquire any such stock;
(ii) any split, combination or reclassification of any of
its outstanding capital stock or any issuance or the
authorization of any issuance of any other securities
in respect of, in lieu of or in substitution for
shares of the Company's or any of its Subsidiary's
outstanding capital stock;
(iii) (A) any granting by the Company or any of its
Subsidiaries to any director, officer or other
employee of the Company or any of its Subsidiaries of
any increase in compensation (including
perquisites), except, with respect to
employees other than Key Employees (as
defined below), grants in the ordinary course
of business consistent with prior practice,
(B) any granting by the Company or any of its
Subsidiaries to any such director, officer or
other employee of any increase in severance
or termination pay, or (C) any entry into,
modification, amendment, waiver or consent by
the Company or any of its Subsidiaries with
respect to any employment, severance, change
of control, termination or similar agreement,
arrangement or plan (oral or otherwise) with
any officer, director or other employee;
(iv) any change in the method of accounting or policy used
by the Company or any of its Subsidiaries other than
as disclosed in the financial statements included in
the Filed Company SEC Documents or in the Company
Annual Statement or the Company Quarterly Statement
most recently filed and publicly available prior to
the date hereof or which were required by GAAP or SAP;
(v) made any material amendment to the insurance policies
in force of any Subsidiary of the Company or made any
change in the methodology used in the determination of
the reserve liabilities of the Subsidiaries of the
Company or any reserves contained in the financial
statements included in the Filed Company SEC Documents
or in the Company Annual Statement or the Company
Quarterly Statements;
(vi) any termination, amendment or entrance into as ceding
or assuming insurer any reinsurance, coinsurance or
other similar agreement or any trust agreement or
security agreement relating thereto, other than (A)
facultative reinsurance contracts related to the
Company's public entity business only that have been
entered into in the ordinary course of business
consistent with past practice, and (B) renewals for
periods of one year or less on substantially the same
terms, in the ordinary course of business;
(vii) any introduction of any insurance policy or
any changes made in its customary marketing,
pricing, underwriting, investing or actuarial
practices and policies, except in the
ordinary course of business consistent with
past practice;
(viii) any Lien created or assumed on any of the assets or
properties of the Company or any of its Subsidiaries;
(ix) any liability involving the borrowing of money by the
Company or any of its Subsidiaries or the incurrence
by the Company or any of its Subsidiaries of any
deferred purchase price obligation (other than trade
credit incurred in the ordinary course of business and
consistent with past practice);
(x) any cancellation of any liability owed to the Company
or any of its Subsidiaries by any other person or
entity other than immaterial amounts owed by a person
or entity who is not a Related Party (as defined in
Section 3.1(s));
(xi) any write-off or write-down of, or any determination
to write-off or write-down, the assets or properties
(other than any statutory write-down of investment
assets which is not related to a permanent impairment
of value) of the Company of any of its Subsidiaries or
any portion thereof;
(xii) any expenditure or commitment for additions
to property, plant, equipment, or other
tangible or intangible capital assets or
properties of the Company or any of its
Subsidiaries which exceeds $75,000
individually or in the aggregate;
(xiii) any material change in any marketing relationship
between the Company or any of its Subsidiaries and any
person or entity through which the Company sells
insurance Contracts; or
(xiv) any Contract to take any of the actions prohibited in
this Section 3.1(j).
(k) Absence of Undisclosed Liabilities. Except as reflected in
Section 3.1(k) of the Disclosure Memorandum, as of December 31, 1996, neither
the Company nor any of its Subsidiaries had any liabilities, absolute, accrued,
contingent or otherwise, whether due or to become due (and there was no basis
for any such liability), which were not shown or provided for in the audited
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 and which should have been so shown or provided
for under generally accepted accounting principles. Since December 31, 1996,
neither the Company nor any of its Subsidiaries has incurred any liabilities,
absolute, accrued, contingent or otherwise, whether due or to become due (and
there is no basis for such liabilities) except: (i) liabilities arising in the
ordinary course of business consistent with past practice, which would not
individually or in the aggregate adversely affect the Company and its
Subsidiaries taken as a whole in any material respect; (ii) as specifically and
individually reflected in Section 3.1(k) of the Disclosure Memorandum or Filed
Company SEC Documents, or (iii) other liabilities which, individually or in the
aggregate, together with those liabilities referenced in subparagraphs (i) and
(ii), would not adversely affect the Company and its Subsidiaries taken as a
whole in any material respect. Except for regular periodic assessments in the
ordinary course of business, no claim or assessment is pending or, to the
knowledge of the Company, threatened, against the Company or any of its
Subsidiaries by any state insurance guaranty association in connection with such
association's fund relating to insolvent insurers.
(l) Litigation. Except as set forth in Section 3.1(1) of the
Disclosure Memorandum and except for claims arising under insurance policies in
(i) an amount no greater than the limits set forth in such policies and/or (ii)
not involving punitive, extra-contractual or extraordinary damages, (A) there is
no suit, action, investigation, arbitration or proceeding pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries, at law or in equity, before any person and (B) there is no
writ judgment, decree, injunction, rule or similar order of any Governmental
Entity or arbitrator outstanding against the Company or any of its Subsidiaries.
(m) Taxes. Except as set forth in Section 3.1(m) of the
Disclosure Memorandum:
(i) The Company and its Subsidiaries have (x) duly and
timely filed (or there have been filed on their
behalf) with the appropriate taxing authorities all
Tax Returns required to be filed by them, and all such
Tax Returns are true, correct and complete in all
material respects and (y) timely paid or there have
been paid on their behalf all Taxes due or claimed to
be due from them by any taxing authority.
(ii) The Company and its Subsidiaries have complied in all
material respects with all applicable laws, rules and
regulations relating to the payment and withholding of
Taxes and have, within the time and manner prescribed
by law, withheld and paid over to the proper
governmental authorities all amounts required to be
withheld and paid over under all applicable laws.
(iii) There are no liens for Taxes upon the assets or
properties of the Company or any of its Subsidiaries
except for statutory liens for current Taxes not yet
due.
(iv) Neither the Company nor any of its Subsidiaries has
requested any extension of time within which to file
any Tax Return in respect of any taxable year which
has not since been filed.
(v) Based upon the Company's knowledge, no federal, state,
local or foreign audits or other administrative
proceedings or court proceedings ("Audits") exist with
regard to any Taxes or Tax Returns of the Company or
any of its Subsidiaries and there has not been
received any written notice that such an Audit is
pending or threatened with respect to any Taxes due
from or with respect to the Company or any of its
Subsidiaries or any Tax Return filed by or with
respect to the Company or any of its Subsidiaries.
(vi) Neither the Company nor any of its Subsidiaries has
requested or received a ruling from any taxing
authority or signed a closing or other agreement with
any taxing authority which would affect any taxable
period after the Closing Date.
(vii) The federal and state income Tax Returns of the
Company and its Subsidiaries have been examined
by the appropriate taxing authorities (or the
applicable statute of limitations for the
assessment of Taxes for such periods have
expired) for all periods through December 31,
1992 and a list of all Audits commenced or
completed with respect to the Company and its
Subsidiaries for all taxable periods not yet
closed by the statute of limitations is set
forth in Section 3.1(m) of the Disclosure
Memorandum.
(viii) All material Tax deficiencies which have been claimed,
proposed or asserted in writing against the Company
or any of its Subsidiaries have been fully paid
or finally settled, and no issue has been
raised in writing in any examination which,
by application of similar principles, could
be expected to result in the proposal or
assertion of a material Tax deficiency for
any other year not so examined.
(ix) Neither the Company nor any of its Subsidiaries is
required to include in income any adjustment pursuant
to Section 481(a) of the Code, for any period after
the Closing Date, by reason of any voluntary or
involuntary change in accounting method (nor has any
taxing authority proposed in writing any such
adjustment or change of accounting method).
(x) Neither the Company nor any of its Subsidiaries is a
party to, is bound by, nor has any obligation under,
any Tax sharing agreement, Tax indemnification
agreement or similar contract or arrangement.
(xi) No power of attorney has been granted by or with
respect to the Company or any of its Subsidiaries with
respect to any matter relating to Taxes, which is
currently effective.
(xii) Neither the Company nor any of its Subsidiaries has
filed a consent pursuant to Section 341(f) of the
Code (or any predecessor provision) or agreed to have
Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as
such term is defined in Section 341(f)(4) of
the Code) owned by the Company or any of its
Subsidiaries.
(xiii) Since the date of the December 31, 1996
consolidated financial statements of the
Company, neither the Company nor any of its
Subsidiaries has incurred any liability for
Taxes other than in the ordinary course of
business.
(xiv) Neither the Company nor any of its
Subsidiaries has or could have any liability
for Taxes of any person other than itself or
the Company or any of its Subsidiaries under
Treasury Regulation Section 1.1502-6 (or any
similar provision of state, local or foreign law).
(xv) Neither the Company nor any of its Subsidiaries has
any intercompany items or corresponding items that
have not been taken into account under Treasury
Regulation Section 1.1502-13 (or any similar provision
under state, local or foreign law).
(xvi) Neither the Company nor any of its Subsidiaries has
made any tax election that would result in deferring
any income or gain from a tax period ending on or
before the Closing Date to a tax period
ending after the Closing Date without a
corresponding receipt of cash and/or property
or would result in accelerating any loss or
deduction from a tax period ending after the
Closing Date to a tax period ending on or
before the Closing Date.
(xvii) Neither the Company nor any of its
Subsidiaries is a party to any contract,
agreement or other arrangement(s) which could
result in the payment of amounts that could
be nondeductible by reason of Section 280G or
162(m) of the Code.
For purposes of this Agreement, (i) "Taxes" (including, with correlative
meaning, the term "Tax") shall mean all taxes, charges, fees, levies, penalties
or other assessments imposed by any federal, state, local or foreign taxing
authority, including, but not limited to, income, gross receipts, excise,
property, sales, transfer, franchise, payroll, withholding, social security and
other taxes, and shall include any interest, penalties or additions attributable
thereto and (ii) "Tax Return" shall mean any return, report, information return
or other document (including any related or supporting information) required to
be prepared with respect to Taxes.
(n) Pension And Benefit Plans; ERISA.
(i) Section 3.1(n)(i) of the Disclosure Memorandum sets forth
a complete and correct list of:
(A) all "employee benefit plans," as defined in
Sections 3(3) and 4(b)(4) of ERISA, under which
Company or any of its Subsidiaries maintains or has
any obligation or liability, contingent or otherwise
("Company Benefit Plans"); and
(B) all employment or consulting agreements and all
bonus or other incentive compensation, deferred
compensation, salary continuation, severance,
perquisites or other special or fringe benefit
agreements (including mortgage financings and tuition
reimbursements), policies or arrangements which the
Company or any of its Subsidiaries maintains or has
any obligation or liability (contingent or otherwise)
in each case, written or oral, with respect to any
current or former officer, director or employee of the
Company or any of its Subsidiaries and which
individually (or in the aggregate with respect to a
single individual) has a cost to the Company or any of
its Subsidiaries in excess of $10,000 per year (the
"Company Employee Arrangements").
(ii) With respect to each Company Benefit Plan and Company
Employee Arrangement, a complete and correct copy of
each of the following documents (if applicable) has
been provided or made available to Parent: (A) the
most recent plan and related trust documents, and all
amendments thereto; (B) the most recent summary plan
description, and all related summaries of material
modifications thereto; (C) the most recent Form 5500
(including schedules and attachments); (D) the most
recent IRS determination letter or request therefor;
(E) the most recent actuarial reports (including for
purposes of Financial Accounting Standards Board
report no. 87, 106 and 112), if any; and (F) to the
extent not provided pursuant to (A) and (B) above, all
documents that set forth the terms of the Company
Employee Arrangements.
(iii) Except as set forth in Section 3.1(n)(iii) of the
Disclosure Memorandum, the Company Benefit Plans and
their related trusts intended to qualify under
Sections 401(a) and 501(a) of the Code, respectively,
have received favorable determination letters
from the Internal Revenue Service and the
Company is not aware of any event or
circumstance that could reasonably be
expected to result in the failure of such
Company Benefit Plans or their related trusts
to be so qualified.
(iv) Except as set forth in Section 3.1(n)(iv) of the
Disclosure Memorandum, all contributions or other
payments required to have been made by the Company or
any of its Subsidiaries to or under any Company
Benefit Plan or Company Employee Arrangement by
applicable law or the terms of such Company Benefit
Plan or Company Employee Arrangement (or any agreement
relating thereto) have been timely and properly made.
(v) Except as set forth in Section 3.1(n)(v) of the
Disclosure Memorandum, the Company Benefit Plans and
Company Employee Arrangements have been maintained and
administered in all respects in accordance with their
terms and applicable laws.
(vi) Except as disclosed in Section 3.1(n)(vi) of the
Disclosure Memorandum, there are no pending or, to the
knowledge of the Company, threatened actions, claims
or proceedings against or relating to any Company
Benefit Plan or Company Employee Arrangement other
than routine benefit claims by persons entitled to
benefits thereunder.
(vii) Except as set forth in Section 3.1(n)(vii) of the
Disclosure Memorandum, neither the Company nor
any of its Subsidiaries maintains or has an
obligation to contribute to retiree life or
retiree health plans which provide for
continuing benefits or coverage for current
or former officers, directors or employees of
the Company or any of its Subsidiaries except
(A) as may be required under Part 6 of Title
I of ERISA and at the sole expense of the
participant or the participant's beneficiary
or (B) a medical expense reimbursement
account plan pursuant to Section 125 of the Code.
(viii) Except as disclosed in Section 3.1(n)(viii)
of the Disclosure Memorandum, none of the
assets of any Company Benefit Plan is stock
of the Company or any of its affiliates, or
property leased to or jointly owned by the
Company or any of its affiliates.
(ix) Except as disclosed in Section 3.1(n)(ix) of the
Disclosure Memorandum and as otherwise provided in
Sections 2.6 and 2.7, neither the execution and
delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (A) result in
any payment becoming due to any employee (current,
former or retired) of Company, (B) increase any
benefits under any Company Benefit Plan or Company
Employee Arrangement, or (C) result in the
acceleration of the time of payment of, vesting of or
other rights with respect to any such benefits.
(x) Neither the Company nor any of its Subsidiaries has
any obligation (or prior obligation) to make
contributions to any benefit plan described in
Sections 3(37), 4063 or 4064 of ERISA.
(xi) Neither the Company nor any of its Subsidiaries is
acting on behalf of an employee benefit plan subject
to ERISA, or acting on behalf of or using (A) assets
which are or which are deemed under ERISA to be assets
of an employee benefit plan subject to ERISA, (B)
assets of a foreign, church or governmental employee
benefit plan, or (C) assets of individual retirement
accounts.
(xii) No prohibited transaction under Section 406 of ERISA
or Section 4975 of the Code has occurred with respect
to a Company Benefit Plan.
(xiii) Each Company Benefit Plan (including, without
limitation, a Company Benefit Plan covering retirees
or the beneficiaries of such retirees) may be
terminated or amended by the plan sponsor at
any time without the consent of any person
covered thereunder, and may be terminated
without liability for benefits accruing after
the date of such termination.
(xiv) The Company has no knowledge of any oral or
written statement made by or on behalf of the
Company or a Subsidiary regarding a Company
Benefit Plan or Company Employee Arrangement
that was not in accordance with the Company
Benefit Plan or Company Employee Arrangement.
(xv) There are no trusts or other arrangements under any
Company Benefit Plan which are intended to qualify as
a voluntary employees' beneficiary association under
Section 501(c)(9) of the Code.
(o) Labor Matters.
(i) Except as set forth in Section 3.1(o) of the
Disclosure Memorandum, (A) neither the Company nor any
of its Subsidiaries is a party to any labor or
collective bargaining agreement and no employees of
the Company or any of its Subsidiaries are represented
by any labor organization; (B) within the preceding
three years, there have been no representation or
certification proceedings, or petitions seeking a
representation proceeding, pending or, to the
knowledge of the Company, threatened in writing to be
brought or filed with the National Labor Relations
Board or any other labor relations tribunal or
authority; and (C) within the preceding three years,
to the knowledge of the Company, there have been no
organizing activities involving the Company or any of
its Subsidiaries with respect to any group of
employees of the Company or any of its Subsidiaries.
(ii) There are no strikes, work stoppages, slowdowns,
lockouts, material arbitrations or material grievances
or other material labor disputes pending or threatened
in writing against or involving the Company or any of
its Subsidiaries. There are no unfair labor practice
charges, grievances or complaints pending or, to the
knowledge of the Company, threatened in writing by or
on behalf of any employee or group of employees of the
Company or any of its Subsidiaries.
(iii) Except as set forth in Section 3.1(o) of the
Disclosure Memorandum, there are no complaints,
charges or claims against the Company or any of
its Subsidiaries pending or, to the knowledge
of the Company, threatened to be brought or
filed with any governmental authority,
arbitrator or court based on, arising out of,
in connection with, or otherwise relating to
the employment or termination of employment
of any individual by the Company or any of
its Subsidiaries.
(iv) The Company and each of its Subsidiaries is in
compliance with all laws, regulations and orders
relating to the employment of labor, including all
such laws, regulations and orders relating to wages,
hours, Worker Adjustment Retraining and Notification
Act of 1988, as amended ("WARN Act"), collective
bargaining, discrimination, civil rights, safety and
health, workers' compensation and the collection and
payment of withholding and/or social security taxes
and any similar tax, except where non compliance would
not individually or in the aggregate adversely affect
the Company and its Subsidiaries taken as a whole in
any material respect.
(v) Since December 31, 1993, there has been no "mass
layoff" or "plant closing" (as deemed by the WARN Act)
with respect to the Company or any of its
Subsidiaries.
(p) Environmental Matters.
(i) For purposes of this Agreement:
(A) "Environmental Law" means any applicable law
regulating or prohibiting Releases of Hazardous
Materials into any part of the natural environment, or
pertaining to the protection of natural resources, the
environment, and public and employee health and safety
from Hazardous Materials including, without
limitation, the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA") (42 U.S.C.
_ 9601 et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. _ 1801 et seq.), the
Resource Conservation and Recovery Act (42 U.S.C. _
6901 et seq.), the Clean Water Act (33 U.S.C. _ 1251
et seq.), the Clean Air Act (33 U.S.C. _ 7401 et
seq.), the Toxic Substances Control Act (15 U.S.C. _
7401 et seq.), the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. _ 136 et seq.), and the
Occupational Safety and Health Act (29 U.S.C. _ 651 et
seq.) ("OSHA") (to the extent OSHA regulates
occupational exposure to Hazardous Materials) and the
regulations promulgated pursuant thereto, and any such
applicable state or local statutes, and the
regulations promulgated pursuant thereto, as such laws
have been and may be amended or supplemented through
the Closing Date;
(B) "Hazardous Material" means any substance, material
or waste which is regulated as hazardous or toxic by
any public or governmental authority in the
jurisdictions in which the applicable party or its
Subsidiaries conducts business, or the United States,
including, without limitation, any material or
substance which is defined as a "hazardous waste,"
"hazardous material," "hazardous substance,"
"extremely hazardous waste" or "restricted hazardous
waste," "contaminant," "toxic waste" or "toxic
substance" under any provision of Environmental Law
and shall also include, without limitation, petroleum,
petroleum products, asbestos, polychlorinated
biphenyls and radioactive materials;
(C) "Release" means any release, spill, effluence,
emission, leaking, pumping, injection, deposit,
disposal, discharge, dispersal, leaching, or migration
of Hazardous Material into the environment; and
(D) "Remedial Action" means all actions, including,
without limitation, those involving any capital
expenditures, required by a governmental entity or
required under any Environmental Law, or voluntarily
undertaken to (w) clean up, remove, treat, or in any
other way mitigate the adverse effects of any
Hazardous Materials Released in the environment; (x)
prevent the Release or threat of Release, or minimize
the further Release of any Hazardous Material so it
does not endanger or threaten to endanger the public
health or welfare or the environment; (y) perform
preremedial studies and investigations or postremedial
monitoring and care pertaining or relating to a
Release or threat of Release; or (z) bring the
applicable party into compliance with any
Environmental Law.
(ii) Except as set forth in Section 3.1(p) of the
Disclosure Memorandum:
(A) The operations of the Company and each of its
Subsidiaries have been and, as of the Closing Date,
will be, in compliance with all Environmental Laws,
except for such noncompliance which would not
individually or in the aggregate adversely affect the
Company and its Subsidiaries taken as a whole in any
material respect;
(B) The Company and each of its Subsidiaries have
obtained and will, as of the Closing Date, maintain
all permits required under applicable Environmental
Laws for the continued operations of their respective
businesses, except where the failure to so obtain or
maintain would not individually or in the aggregate
adversely affect the Company and its Subsidiaries
taken as a whole in any material respect;
(C) Neither the Company nor any of its Subsidiaries is
subject to any outstanding orders from, or agreements
with, any Governmental Entity or other person
respecting (x) Environmental Laws, (y) Remedial Action
or (z) any Release or threatened Release of a
Hazardous Material;
(D) Neither the Company nor any of its Subsidiaries
has received any written communication alleging, with
respect to any such party, the violation of or
potential liability under any Environmental Law;
(E) Neither the Company nor any of its Subsidiaries
has contingent liability in connection with the
Release of any Hazardous Material into the environment
(whether on-site or off-site);
(F) Neither the operations of the Company nor any of
its Subsidiaries involve the generation,
transportation, treatment, storage or disposal of
hazardous waste as defined and regulated under 40
C.F.R. Parts 260-270 (in effect as of the date of this
Agreement) or any state equivalent;
(G) There is not now, nor, to the knowledge of the
Company, has there been in the past, on or in any
property of the Company or any of its Subsidiaries any
of the following: (w) any underground storage tanks;
(x) surface impoundments; (y) any polychlorinated
biphenyls; or (z) any asbestos-containing materials;
(H) No judicial or administrative proceedings or
governmental investigations are pending or, to the
knowledge of the Company, threatened against the
Company or any of its Subsidiaries alleging the
violation of or seeking to impose liability pursuant
to any Environmental Law;
(I) The Company has made available to Parent copies of
all environmental investigations, studies, audits,
tests, reviews and other analyses, including soil
and/or groundwater analyses, conducted by or on behalf
of, or that are in the possession, custody or control
of the Company or any of its Subsidiaries, in relation
to any site or facility owned, operated, leased or
used, at any time, by the Company or any of its
Subsidiaries or any of their respective predecessors;
(J) Neither the Company nor any of its Subsidiaries
has caused or suffered to occur any Release at, under,
above or within any real property, owned, operated,
used or leased by the Company or any of its
Subsidiaries;
(K) No environmental approvals, clearances or consents
are required under applicable law from any
governmental entity or authority in order to
consummate the transactions contemplated herein; and
(L) Neither the Company nor any of its Subsidiaries
has any fixed or contingent liability in connection
with environmental conditions at or associated with
any vessel or facility in which the Company or any of
its Subsidiaries owns or previously owned or holds or
previously held a mortgage or other security interest,
and neither the Company nor any of its Subsidiaries
has participated in the management of any such vessel
or facility.
(iii) This Section 3.1(p) sets forth the sole
representations and warranties of the Company with
respect to Environmental Laws.
(q) Property and Assets.
(i) Section 3.1(q)(i) of the Disclosure Memorandum sets
forth all of the real property owned in fee by the
Company and its Subsidiaries. The Company or its
Subsidiaries have good and marketable title to each
parcel of real property owned by them free and clear
of all Liens, except (A) those reflected or reserved
against in the consolidated balance sheet of the
Company dated as of December 31, 1996, (B) taxes and
general and special assessments not in default and
payable without penalty and interest for which
reasonable reserves have been established, (C)
mechanics and similar statutory liens arising or
incurred in the ordinary course of business for
amounts that are not delinquent, (D) any zoning,
building, and land use regulation imposed by any
Governmental Entity, and (E) any covenant,
restriction, or easement expressly set forth in the
title documents governing such real property filed
with the appropriate Governmental Entity. There are
no (A) zoning, building or land use regulations
imposed by any Governmental Entities or (B) any
covenant, restriction or easement filed and expressly
set forth in the title documents governing such real
property which in any case materially interfere with
the current and intended use of such property or
materially impair the value of such property as
reflected on the books of the Company.
(ii) Each lease, sublease or other agreement (collectively,
the "Real Property Leases") under which the Company or
any of its Subsidiaries uses or occupies or has the
right to use or occupy, now or in the future, any real
property is valid, binding and in full force and
effect, all rent and other sums and charges payable by
the Company or any of its Subsidiaries as a tenant
thereunder are current, and no termination event or
condition or uncured default of a material nature on
the part of the Company or any of its Subsidiaries or,
to the Company's knowledge, the landlord, exists under
any Real Property Lease. The Company and its
Subsidiaries have a good and valid leasehold interest
in each parcel of real property leased by them free
and clear of all Liens, except those reflected or
reserved against in the consolidated balance sheet of
the Company dated as of December 31, 1996.
(iii) Section 3.1(q)(iii) of the Disclosure Memorandum
contains a list of all purchases or acquisitions,
sales or dispositions of all investment assets of
the Company and its Subsidiaries since December
31, 1996 and prior to the date of this
Agreement. The Company and its Subsidiaries
have good and marketable title to such
investment assets owned by them free and
clear of all Liens.
(iv) Except as set forth in Section 3.1(q)(iv) of the
Disclosure Memorandum, the Company and its
Subsidiaries own good and indefeasible title to, or
have a valid leasehold interest in or a valid right
under contract to use, all tangible personal property
that is used in the conduct of their business, free
and clear of any Liens, except for any mechanics or
similar statutory liens arising in the ordinary course
of business. All such tangible personal property is in
good operating condition and repair (normal wear and
tear) and is suitable for its current uses.
(v) Except as set forth in Section 3.1(q)(v) of the
Disclosure Memorandum, the Company and its
Subsidiaries own or have a right to use each
trademark, trade name, patent, service mark, brand
mark, brand name, database, copyright and other
intellectual property owned or used in connection with
the operation of the business of the Company and its
Subsidiaries, including any registrations thereof, and
each license or other contract relating thereto
(collectively, the "Company Intangible Property"),
free and clear of any and all Liens. Section
3.1(q)(v) of the Disclosure Memorandum sets forth a
complete list of the Company Intangible Property. The
use of the Company Intangible Property by the Company
and its Subsidiaries does not conflict with, infringe
upon, violate or interfere with or constitute an
appropriation of any right, title, interest or
goodwill, including, without limitation, any
intellectual property right, trademark, trade name,
patent, service mark, brand mark, brand name, databas
or copyright of any other person. Except as set forth
in Section 3.1(q)(v) of the Disclosure Memorandum, the
Company and its Subsidiaries own or have valid and
enforceable licenses or other rights to use, free and
clear of any and all Liens, all software used in
connection with the operation of the business of the
Company and its Subsidiaries, the use of such software
by the Company and its Subsidiaries does not infringe
on or otherwise violate the rights of any person, and,
to the knowledge of the Company, no person is
challenging, infringing on or otherwise violating the
right of the Company or any Subsidiary with respect to
any such software used by the Company and its
Subsidiaries.
(vi) The Company and its Subsidiaries own or have the
rights to use all assets required for the conduct of
the business of the Company and its Subsidiaries as it
is now conducted.
(r) Material Contracts. Section 3.1(r) of the Disclosure
Memorandum contains a true and complete list of each of the following Contracts
in effect as of the date of this Agreement (true and complete copies of which
have been made available to Parent) to which the Company or any of its
Subsidiaries is a party or by which any of their respective assets or properties
is or may be bound (each of which is a "Company Material Contract"):
(i) all employment, agency (other than insurance agency),
consultation, or representation Contracts or other
Contracts of any type (including without limitation
loans or advances) with any present officer, director,
Key Employee (as defined below), agent (other than an
insurance agent), consultant, or other similar
representative of the Company or any of its
Subsidiaries (or former officer, director, Key
Employee, agent (other than an insurance agent),
consultant or similar representative of the Company or
any of its Subsidiaries if there exists any present or
future liability with respect to such Contract);
(ii) a specimen form insurance agent Contract (the
"Producer Agreements") and any insurance agent
Contract having terms different in any material
respect than the terms contained in the specimen form
agent Contract;
(iii) all Contracts with any person or entity containing any
any provision or covenant (A) limiting the ability
of the Company to (x) sell any products or services,
(y) engage in any line of business, or (z)
compete with or obtain products or services
from any person or entity or (B) limiting the
ability of any person or entity to compete
with or to provide products or services to
the Company;
(iv) all Contracts relating to the borrowing of money by
the Company, relating to the deferred purchase price
for property or services, or relating to the direct or
indirect guarantee by the Company or any of its
Subsidiaries of any liability;
(v) all Contracts (other than Contracts of insurance or
reinsurance entered into in the ordinary course of
business) pursuant to wh or any of its Subsidiaries
has agreed to indemnify or hold harmless any person or
entity (other than indemnifications or hold harmless
covenants in the ordinary course of business and
consistent with past practice);
(vi) all leases or subleases of real property used in the
business, operations, or affairs of the Company or any
of its Subsidiaries;
(vii) all Contracts or arrangements (including without
limitation those relating to allocations of expenses,
personnel, services, or facilities) between the
Company and any of its Subsidiaries or among the
Subsidiaries of the Company;
(viii) all leases of automobiles used in the business,
operations, or affairs of the Company or any of its
Subsidiaries;
(ix) all reinsurance (whether as assuming or ceding insurer
or otherwise), coinsurance or other similar Contracts;
(x) all other Contracts (other than insurance Contracts
issued, reinsured, or underwritten by the Company)
that involve the payment or potential payment,
pursuant to the terms of such Contracts, by or to the
Company of more than $75,000 or that are otherwise
material to the business or condition of the Company;
and
(xi) any commitments or other obligations to enter into any
of the foregoing.
Each Contract disclosed or required to be disclosed in Section 3.1(r) of the
Disclosure Memorandum is in full force and effect and constitutes a legal, valid
and binding obligation of the Company or any of its Subsidiaries to the extent
any such entity is a party thereto and, to the knowledge of Company, each other
party thereto. Neither the Company nor any of its Subsidiaries has received from
any other party to such Contract any written notice of termination or intention
to terminate or not to honor the terms of such Contract, or to the knowledge of
the Company, any oral notice of termination or intention to terminate or not to
honor the terms of such Contract. Except as set forth in Section 3.1(r) of the
Disclosure Memorandum, neither the Company nor any of its Subsidiaries nor, to
the knowledge of the Company, any other party to such Contract is in violation
or breach of or default under any such Contract (or with or without notice or
lapse of time or both, would be in violation or breach of or default under any
such Contract), which violations, breach or default would individually or in the
aggregate adversely affect the Company and its Subsidiaries taken as a whole in
any material respect. As used in this Agreement, the word "Contract" shall mean
any agreement, arrangement, undertaking, lease, sublease, license, sublicense,
promissory note, evidence of indebtedness or other binding contract, in each
case, whether or not reduced to writing. As used in this Agreement "Key
Employee" shall mean employees of the Company or Parent, as the case may be,
having a salary of $90,000 or more per year.
(s) Related Party Transactions. Except as set forth in Section
3.1(s) of the Disclosure Memorandum, no director, officer, Key Employee,
"affiliate" or "associate" (as such terms are defined in Rule 12b-2 under the
Exchange Act) of the Company (each a "Related Party") (i) has borrowed any
monies from or has outstanding any indebtedness, liabilities or other similar
obligations to the Company or any of its Subsidiaries; (ii) owns any direct or
indirect interest of any kind in, or is a director, officer, employee, partner,
affiliate or associate of, or consultant or lender to, or borrower from, or has
the right to participate in the management, operations or profits of, any person
or entity which is (A) a competitor, supplier, customer, distributor, lessor,
tenant, creditor or debtor of the Company or any of its Subsidiaries, (B)
engaged in a business related to the business of the Company or any of its
Subsidiaries, or (C) participating in any transaction to which the Company or
any of its Subsidiaries is a party; or (iii) is otherwise a party to any
contract, arrangement or understanding with the Company or any of its
Subsidiaries.
(t) Prepayment of Credit Facilities. The Loan Agreement, dated
July 30, 1996, among the Company, Dresdner Bank AG, New York Branch, as Agent,
and the lenders party thereto and the Loan Agreement, dated July 30, 1996 and
amended as of February 14, 1997, among Westchester Premium Acceptance
Corporation, Dresdner Bank AG, New York Branch, as Agent, and the lenders party
thereto (collectively referred to herein as the "Company Credit Facilities") are
prepayable without the payment of any premium or penalties.
(u) Liens. Except as set forth in Section 3.1(u) of the
Disclosure Memorandum, neither the Company nor any of its Subsidiaries has
granted, created, or suffered to exist with respect to any of its assets, any
mortgage, pledge, charge, hypothecation, collateral assignment, lien (statutory
or otherwise), encumbrance or security agreement of any kind or nature
whatsoever (collectively, the "Liens").
(v) Operations Insurance. Section 3.1(v) of the Disclosure
Memorandum contains a true and complete list and description of all liability,
property, workers compensation, directors and officers liability, and other
similar insurance policies or agreements that insure the business, operations,
or affairs of the Company and its Subsidiaries or affect or relate to the
ownership, use, or operations of any of the assets or properties of the Company
and its Subsidiaries. Excluding insurance policies that have expired and been
replaced in the ordinary course of business, no insurance policy has been
canceled within the last year except as disclosed in Section 3.1(v) of the
Disclosure Memorandum, and, to the knowledge of the Company or its Subsidiaries,
no threat has been made to cancel any insurance policy of any of the Company or
its Subsidiaries during such period. Except as disclosed in Section 3.1(v) of
the Disclosure Memorandum, all such insurance will remain in full force and
effect with respect to periods before the Closing without the payment of
additional premiums. No event has occurred, including, without limitation, the
failure by any of the Company or its Subsidiaries to give any notice or
information or any of the Company or its Subsidiaries giving any inaccurate or
erroneous notice or information, which limits or impairs the rights of such
Company or Subsidiary under any such insurance policies.
(w) Opinion of Financial Advisor. The Company has received the
opinion of Furman Selz LLC (the "Financial Advisor") dated August 7, 1997 (the
"FS Opinion"), to the effect that, as of the date thereof, the Merger
Consideration to be received by the holders of Company Common Stock in the
Merger is fair from a financial point of view to such holders. A signed, true
and complete copy of the FS Opinion has been delivered to Parent, and the FS
Opinion has not been withdrawn or modified. True and complete copies of all
agreements and understandings between the Company or any of its affiliates and
the Financial Advisor relating to the transactions contemplated by this
Agreement are attached hereto as Section 3.1(w) of the Disclosure Memorandum.
(x) Board Recommendation. The Board of Directors of the
Company, at a meeting duly called and held, has by the unanimous vote of those
directors present (who constituted all of the directors then in office) (i)
determined that this Agreement and the transactions contemplated hereby are fair
to and in the best interests of the shareholders of the Company and has approved
the same, (ii) resolved to recommend, subject to the board's fiduciary duties,
that the holders of the shares of Company Common Stock approve this Agreement
and the transactions contemplated herein, and (iii) resolved to call a special
meeting of the shareholders of the Company to approve the Merger.
(y) Vote Required. The affirmative vote of the holders of
two-thirds of the outstanding shares of Company Common Stock is the only vote of
the holders of any class or series of the Company's capital stock necessary
(under applicable law or otherwise) to approve the Merger and the transactions
contemplated hereby.
(z) Brokers. The Company represents, as to itself and its
affiliates, that no agent, broker, investment broker, financial advisor or other
firm or person is or will be entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement, except for E. B. Lyon, III and/or Stonegate
Securities Inc. (in either case, pursuant to the letter agreement with the
Company dated May 13, 1997) and the Financial Advisor, whose fees and expenses
shall be paid by the Company in accordance with the Company's agreements with
such individual and/or firm(s) (copies of which have been delivered by the
Company to USF&G prior to the date of this Agreement).
(aa) Bank Accounts. Section 3.1(aa) of the Disclosure
Memorandum contains (i) a true and complete list of the names and locations of
all banks, trust companies, securities brokers, and other financial institutions
at which the Company and each of its Subsidiaries has an account or safe deposit
box or maintains a banking, custodial, trading, trust, or other similar
relationship, (ii) a true and complete list and description of each such
account, box, and relationship, and (iii) a list of all signatories for each
such account and box.
(bb) Premium Balances Receivable. The premium balances
receivable of the Company and its Subsidiaries as reflected in the Company's
financial statements for the quarter ended March 31, 1997, to the extent
uncollected on the date hereof, and the premium balances receivable reflected on
the books of the Company and its Subsidiaries as of the date hereof, are valid
and existing and represent monies due, and the Company and its Subsidiaries have
made reserves reasonably considered adequate for receivables not collectible in
the ordinary course of business, and (subject to the aforesaid reserves) are
subject to no refunds or other adjustments and to no defenses, rights of setoff,
assignments, restrictions, encumbrances or conditions enforceable by third
parties or affecting any material amount thereof.
(cc) Investment Portfolio and Other Assets. The Company and
its Subsidiaries own an investment portfolio acquired in the ordinary course of
business, and a true and complete list of the securities and other investments
in such investment portfolio, as of June 23, 1997 with respect to mortgage loans
and May 30, 1997 with respect to debt and equity securities and other
investments, with true and correct information included thereon as to the cost
of each such investment and the market value thereof as of such date, is listed
in Section 3.1(cc) of the Disclosure Memorandum. Except as otherwise set forth
in Section 3.1(cc) of the Disclosure Memorandum, (i) none of the investments
included in such investment portfolio is in default in the payment of principal
or interest or dividends or impaired to any extent, (ii) all investments
included in such investment portfolio comply (x) with all insurance laws and
regulations of each of the states to which the Company and its Subsidiaries is
subject relating thereto and (y) with all federal and state securities laws, and
(iii) such investments constitute all of the investments or holdings (including
loans to agencies) of the Company and its Subsidiaries other than any disclosed
in Sections 3.1(c), 3.1(q)(i) or 3.1(q)(iii) of the Disclosure Memorandum
(dd) Questionable Payments. To the knowledge of the Company,
neither the Company nor any of its Subsidiaries nor any director, officer,
agent, employee or other person associated with or acting on behalf of the
Company or any Subsidiary has used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, or made any direct or indirect unlawful payments to
government officials or employees or agents from corporate funds, or established
or maintained any unlawful or unrecorded funds.
(ee) Reinsurance Agreements. Section 3.1(ee) of the Disclosure
Memorandum is a true and complete list of all reinsurance treaties and contracts
applicable to the Company (whether as ceding insurer or assuming reinsurer) or
the Subsidiaries (individually, a "Reinsurance Agreement" and collectively, the
"Reinsurance Agreements"), copies of which have been delivered or made available
to Parent. Each of the Reinsurance Agreements is valid and binding in all
material respects in accordance with its terms and is in full force and effect.
None of the Reinsurance Agreements will terminate because of a change in control
of the Company or any of the Subsidiaries. No other party to any Reinsurance
Agreement has given notice to the Company or any of its Subsidiaries that
intends to terminate or cancel any such Reinsurance Agreement as a result of the
Merger or the contemplated operations of the Company or its Subsidiaries after
the Merger is consummated, which termination or change would have a Material
Adverse Effect on the Company. Any Subsidiary of the Company that has ceded
reinsurance pursuant to any such Reinsurance Agreement is entitled to take full
credit in its financial statements for all amounts recoverable (net of any
reserve for collectibility under such Reinsurance Agreement) with such credit
accounted for (i) pursuant to SAP, as a reduction of such Company's loss
reserves, and (ii) pursuant to GAAP, as a reinsurance recoverable asset.
(ff) Quick-Sure Auto Agency, Inc. Quick-Sure Auto Agency, Inc.
("Quick-Sure") is a Texas corporation owned 99% by Mark E. Watson, Jr.
("Watson") and 1% by Dennis Walsh ("Walsh"). There are outstanding (i) no shares
of capital stock of Quick-Sure other than those shares held by Watson and Walsh;
(ii) no securities of Quick-Sure convertible into or exchangeable for shares of
capital stock of Quick-Sure or any other voting securities of Quick Sure; and
(iii) no stock awards, options, warrants, calls, rights (including stock
purchase or preemptive rights) commitments or agreements to which Quick-Sure is
bound, in any case obligating Quick-Sure to issue, deliver, sell, purchase,
redeem or acquire or cause to be issued, delivered, sold, purchased, redeemed or
acquired, additional shares of its capital stock, any other voting securities or
securities convertible into or exchangeable or exercisable for voting securities
of Quick-Sure, or obligating Quick-Sure to grant, extend or enter into any such
option, warrant, call, right, commitment or agreement. Quick-Sure has appointed
under a Local Recording Agent Agreement (the "LRA Agreement") with Titan
Insurance Services, Inc. ("TIS"), a subsidiary of Whitehall Insurance Agency of
Texas, Inc. (a wholly owned subsidiary of the Company), to write insurance on
behalf of TIS, and a true and correct copy of the LRA Agreement, including any
amendments thereto, has been provided to the Parent. The LRA Agreement is
terminable by TIS at any time in its sole discretion without any further
liability or obligation to Quick-Sure. Except as set forth in Section 3.1(hh) of
the Disclosure Memorandum, Quick-Sure does not engage in any business other than
the writing of insurance policies on behalf of TIS and is not obligated by any
material agreement or other obligation. TIS has an exclusive right to any
renewals of policies written by Quick-Sure, and nothing in any producer
agreement or other agreement to which Quick-Sure, the Company or any of the
Company's Subsidiaries is a party provides to the contrary. The insurance
written by Quick-Sure is placed with Home State County Mutual Insurance ("Home
State") pursuant to a Managing General Agent Agreement between Home State and
TIS (the "MGA Agreement"), and a true and correct copy of the MGA Agreement,
including any amendments thereto, has been provided to the Parent. All
operations of Quick-Sure have been conducted in accordance with the terms of the
LRA Agreement and the MGA Agreement. All arrangements between Home State,
Quick-Sure, and the Company and/or any of its Subsidiaries are in compliance
with all applicable laws and have received all necessary consents, approvals and
authorizations from any required regulatory authorities or third parties.
(gg) Tri-West of New Mexico, LLC, a New Mexico limited
liability company, Tri-West of Indianapolis, LLC, an Indiana limited liability
company, and Tri-West of Florida, LLC, a Florida limited liability company
(collectively, the "Tri-West Agencies") are each owned one-third by each of E.B.
Lyon, III, Michael J. Claypool and Michael J. Bodayle. There are outstanding (i)
no membership or other equity or voting interests of Tri-West Holdings, LLC
("Tri-West") or any Tri-West Agency, other than as set forth above; (ii) no
securities of Tri-West Holdings or any Tri-West Agency convertible into or
exchangeable for membership or other equity or voting interests; and (iii) no
stock awards, options, warrants, calls, rights (including stock purchase or
preemptive rights), commitments or agreements to which Tri-West Holdings or any
Tri-West Agency is bound, in any case obligating Tri-West Holdings or any
Tri-West Agency to issue, deliver, sell, purchase, redeem or acquire or cause to
be issued, delivered, sold, purchased, redeemed or acquired additional
membership or other equity or voting interests or securities convertible into or
exchangeable or exercisable for membership, equity or other voting interests of
Tri-West Holdings or any Tri-West Agency, or obligating Tri-West Holdings or any
Tri-West Agency to grant, extend or enter into any such option, warrant, call,
right, commitment or agreement. Each of the Tri-West Agencies has entered into a
producer agreement with Titan Indemnity Company ("Indemnity") in the form set
forth in Section 3.1(gg) of the Disclosure Memorandum. Tri-West of New Mexico,
LLC has entered into a Direct Response Center Agreement dated November 30, 1996
(together with the producer agreements referenced in the immediately preceding
sentence, the "Tri-West Agreements"). To the knowledge of the Company, none of
the Tri-West Agencies engage in any business other than the writing of insurance
policies on behalf of Indemnity and none of the Tri-West Agencies is obligated
by any material agreement or other obligation other than employment agreements
entered into in connection with the acquisition of such Tri-West agency. Each of
the Tri-West Agencies has an exclusive right to any renewals of policies written
by such Tri-West Agency, and, to the knowledge of the Company, nothing in any
producer agreement nor other agreement to which Tri-West Holdings or any
Tri-West Agency is a party provides to the contrary. To the knowledge of the
Company, all operations of the Tri-West Agencies have been conducted in
accordance with the terms of the Tri-West Agreements. All arrangements between
Tri-West Holdings or any Tri-West Agency, on the one hand, and the Company
and/or any of its Subsidiaries, on the other hand, are in compliance with all
applicable laws and have received all necessary consents, approvals and
authorizations from any required regulatory authorities or third parties.
3.2 Representations and Warranties of Parent and USF&G. Except as
disclosed in (i) Parent's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, (ii) Parent's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1997 (collectively such Form 10-K and Form 10-Q, the
"Parent SEC Reports"), or (iii) the Disclosure Memorandum delivered at or prior
to the date of this Agreement (it being understood that each section of the
Disclosure Memorandum shall list all items applicable to such section, although
the inadvertent omission of an item from one section shall not be a breach of
this Agreement if such item and an explanation of the nature of such item is
clearly disclosed in another section of the Disclosure Memorandum), Parent and
USF&G represent and warrant to the Company as follows:
(a) Organization, Standing and Power. Each of Parent and USF&G
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated, has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted and is duly qualified or licensed
to do business as a foreign corporation and in good standing to conduct business
in each jurisdiction in which the business it is conducting, or the operation,
ownership or leasing of its properties, makes such qualification or license
necessary, other than such jurisdictions where the failure so to qualify or
become so licensed would not, individually or in the aggregate, adversely affect
Parent and its Subsidiaries taken as a whole in any material respect. Parent has
heretofore made available to the Company complete and correct copies of its
Articles of Incorporation, as currently in effect as of the date of this
Agreement (the "Parent Articles of Incorporation"), and its Bylaws, as currently
in effect as of the date of this Agreement (the "Parent Bylaws").
(b) Capital Structure. As of June 30, 1997, the authorized
capital stock of Parent consists of 240,000,000 shares of Parent Common Stock
and 12,000,000 shares of Preferred Stock, $50.00 par value. As of the close of
business on June 30, 1997, there were 110,691,498 shares of Parent Common Stock
validly issued and outstanding (all of which are fully paid and nonassessable).
As of such date, except for (i) options to purchase or other obligations to
issue 11,531,342 shares of Parent Common Stock, (ii) $175,653,000 principal
amount at maturity of Zero Coupon Convertible Subordinated Notes due March 3,
2009 issued by Parent, and (iii) the Preferred Share Purchase Rights issued
pursuant to the Amended and Restated Rights Agreement dated March 11, 1997,
between Parent and The Bank of New York ("Parent Rights"), there are no options,
warrants, calls or other rights, agreements or commitments presently outstanding
obligating Parent to issue, deliver or sell shares of its capital stock, or
obligating Parent to grant, extend or enter into any such option, warrant, call
or other such right, agreement or commitment. Parent has not issued any
securities in violation of any preemptive or similar rights.
(c) As of June 30, 1997, the authorized capital stock of USF&G
consists of 40,000,000 shares of USF&G Common Stock, 28,231,715 shares of which
are validly issued and outstanding, fully paid and nonassessable, and 4,000,000
shares of Preference Stock, par value $50.00 per share, none of which are issued
and outstanding. USF&G has not issued any securities in violation of any
preemptive or similar rights, and there are no options, warrants, calls, rights
or other securities, agreements or commitments of any character obligating USF&G
to issue capital stock.
(d) Authority; No Violations; Consents and Approvals.
(i) Parent and USF&G have all requisite corporate power
and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate
action on the part of Parent and USF&G. This
Agreement has been duly executed and delivered by
Parent and USF&G and assuming that this Agreement
constitutes the valid and binding agreement of the
Company, constitutes a valid and binding obligation of
Parent and USF&G enforceable in accordance with its
terms and conditions except that the enforcement
hereof may be limited by (A) applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws now or hereafter in
effect relating to creditors' rights generally and
(B) general principles of equity (regardless of
whether enforceability is considered in a proceeding
at law or in equity) and (c) any ruling or action of
any Governmental Entity as set forth in Section
3.2(d)(iii).
(ii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby
by Parent and USF&G will not result in a violation
pursuant to (A) any provision of the Parent Articles
of Incorporation or Parent Bylaws or the comparable
documents of any of its Subsidiaries or (B) except as
to which requisite waivers or consents have been
obtained as specifically identified in Section 3.2(d)
of the Disclosure Memorandum and assuming the
consents, approvals, authorizations or permits and
filings or notifications referred to in paragraph
(iii) of this Section 3.2(d) are duly and timely
obtained or made, any loan or credit agreement, note,
mortgage, deed of trust, indenture, lease, or any
other agreement, obligation, instrument, concession or
license or any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Parent,
USF&G or any of their respective properties or assets,
except for such Violations which would not,
individually or in the aggregate, adversely affect
Parent and its Subsidiaries taken as a whole in any
material respect.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, notice to,
or permit from a Governmental Entity is required
by or with respect to Parent or USF&G or any
of their respective Subsidiaries in
connection with the execution and delivery of
this Agreement by Parent or USF&G or the
consummation by Parent or USF&G of the
transactions contemplated hereby, except for:
(A) any actions, consents, approvals, filings
and/or notices that may be required under the
insurance laws and regulations of the
jurisdictions in which the Subsidiaries of
Parent that are insurance companies are
domiciled or licensed, each of which is
listed in Section 3.2(d)(iii) of the
Disclosure Memorandum; (B) the filing of a
pre-merger notification and report form by
Parent under the HSR Act, and the expiration
or termination of the applicable waiting
period thereunder; (C) the filing with the
SEC of (x) the Proxy Statement, (y) the Form
S-4, and (z) such reports under and such
other compliance with the Exchange Act and
the rules and regulations thereunder as may
be required in connection with this Agreement
and the transactions contemplated hereby; (D)
the filing of the Articles of Merger with the
Secretary of State of the State of Texas and
the Maryland State Department of Assessments
and Taxation; and (E) such filings and
approvals as may be required by any
applicable state securities, "blue sky" or
takeover laws.
(e) Government Filings. Parent has made available to the
Company a true and complete copy of each report, schedule and definitive proxy
statement filed by Parent with the SEC pursuant to the Exchange Act and the
Rules and Regulations promulgated thereunder since December 31, 1994 and prior
to the date of this Agreement other than reports on Form 11-K relating to
employee benefit plans, which are all the documents (other than preliminary
material) that Parent was required to file with the SEC under the Exchange Act
since such date. As of their respective dates, the Parent SEC Reports complied
in all material respects with the requirements of the Exchange Act and the rules
and regulations of the SEC promulgated thereunder applicable to such Parent SEC
Reports, and none of the Parent SEC Reports contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The consolidated financial statements of
Parent included in the Parent SEC Reports comply as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of the unaudited statements, as permitted by Rule 10-01
of Regulation S-X of the SEC) and fairly present in accordance with applicable
requirements of GAAP the consolidated financial position of Parent and its
consolidated subsidiaries as of the dates therein and the consolidated results
of their operations and cash flows for the periods presented therein (subject,
in the case of unaudited interim financial statements, to normal recurring
adjustments none of which are material). Section 3.2(e) of the Disclosure
Memorandum lists with respect to the Parent Common Stock for the period since
December 31, 1996 and prior to the date of this Agreement each: (i) Schedule 13D
filed with the SEC and (ii) application for change in control filed under the
insurance holding company laws of any state or other jurisdiction.
(f) Information Supplied. None of the information supplied or
to be supplied by Parent (including information concerning USF&G) for inclusion
or incorporation by reference in (i) the Form S-4 will, at the time the Form S-4
is filed with the SEC, and at any time it is amended or supplemented or at the
time it becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading, and (ii) the Proxy
Statement will, on the date it is first mailed to the holders of Company Common
Stock or at the time of the Shareholders' Meeting, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Form S-4 will, as
of its effective date, and the prospectus contained therein will, as of its
date, comply as to form in all material respects with the requirements of the
Securities Act and the rules and regulations promulgated thereunder, except that
no representation is made by Parent with respect to statements made or
incorporated by reference therein based on information supplied in writing by
the Company specifically for inclusion therein. If, at any time prior to the
Shareholders' Meeting, any event with respect to Parent, or with respect to
other information supplied by Parent for inclusion in the Proxy Statement, shall
occur which is required to be described in an amendment of, or a supplement to,
any of such documents, such event shall be so described, and such amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the shareholders of Parent.
(g) Compliance with Applicable Laws.
(i) Except as disclosed in Section 3.2(g)(i) of the
Disclosure Memorandum, the business of Parent and each
of its Subsidiaries is being conducted in compliance
in all material respects with all applicable laws,
including, without limitation, all insurance laws,
ordinances, rules and regulations, decrees and orders
of any Governmental Entity, and all notices, reports,
documents and other information required to be filed
thereunder within the last three years were properly
filed and were in compliance in all respects with such
laws.
(ii) Other Licenses. Parent and each of its Subsidiaries
owns or validly holds all licenses, franchises,
permits, approvals, authorizations, exemptions,
classifications, registrations, rights and similar
documents which are necessary for it to own, lease or
operate its properties and assets and to conduct its
business as now conducted, except for such licenses
the failure to hold which would not individually or in
the aggregate adversely affect Parent and its
Subsidiaries taken as a whole in any material respect.
The business of Parent and each of its Subsidiaries
has been and is being conducted in compliance in all
material respects with all such licenses. All such
licenses are in full force and effect, and there is no
proceeding or investigation pending or, to the
knowledge of Parent, threatened which would reasonably
be expected to lead to the revocation, amendment,
failure to renew, limitation, suspension or
restriction of any such license.
(h) Absence of Undisclosed Liabilities. Since December 31,
1996, neither Parent nor any of its Subsidiaries has incurred any liabilities,
except: (i) liabilities arising in the ordinary course of business consistent
with past practice, which individually or in the aggregate would not adversely
affect Parent and its Subsidiaries taken as a whole in any material respect;
(ii) as specifically and individually reflected in Section 3.2(h) of the
Disclosure Memorandum or Parent SEC Reports; or (iii) other liabilities, which,
individually or in the aggregate, together with those liabilities referenced in
subparagraphs (i) and (ii), would not adversely affect Parent and its
Subsidiaries taken as a whole in any material respect.
(i) Litigation. Except as set forth on Section 3.2(i) of the
Disclosure Memorandum and except for claims arising in the ordinary course of
business, (A) there is no suit, action, investigation, arbitration or proceeding
pending or, to the knowledge of Parent, threatened against or affecting Parent
or any of its Subsidiaries, at law or in equity, before any person and (B) there
is no writ judgment, decree, injunction, rule or similar order of any
Governmental Entity or arbitrator outstanding against Parent or any of its
Subsidiaries, which, individually or in the aggregate, would adversely affect
Parent and its Subsidiaries taken as a whole in any material respect.
(j) Absence of Certain Changes or Events. Except as disclosed
in the Parent SEC Reports, since March 31, 1997, there has not been (i) any
transaction, commitment, dispute or other event or condition of any character
(whether or not in the ordinary course of business) which would, individually or
in the aggregate, have a Material Adverse Effect on Parent; or (ii) any damage,
destruction or loss, whether or not covered by insurance, which, insofar as
reasonably can be foreseen, in the future would, individually or in the
aggregate, have a Material Adverse Effect on Parent.
(k) Board Recommendation. The Board of Directors of Parent and
USF&G, at a meeting duly called and held or by unanimous written consent, has by
the requisite vote of directors determined that this Agreement and the
transactions contemplated hereby are fair to and in the best interests of the
shareholders of Parent and USF&G, as the case may be and has approved the same,
and in the case of USF&G resolved to recommend that Parent approve this
Agreement and the transactions contemplated herein.
(l) Vote Required. The affirmative vote of Parent, as the sole
stockholder of USF&G, is sufficient, and no further vote or consent of any class
or series of capital stock of Parent or USF&G is necessary under applicable law
or otherwise, to approve the Merger and the other transactions contemplated
hereby on the part of Parent or USF&G.
(m) Brokers. Parent and USF&G represent, as to themselves and
their affiliates, that no agent, broker, investment broker, financial advisor or
other firm or person is or will be entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement, except for Merrill Lynch & Co., Merrill Lynch
Pierce Fenner & Smith Incorporated, whose fees and expenses shall be paid by
Parent.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Covenants of the Company. During the period from the date of this
Agreement and continuing until the earlier of (i) the Effective Time and (ii)
the termination of this Agreement pursuant to Article VII, the Company agrees
(and has caused its Subsidiaries to agree) that (except to the extent that
Parent shall consent in writing, which consent shall not be unreasonably
withheld or delayed):
(a) Ordinary Course. The Company will (and will cause each of
its Subsidiaries to) conduct its business only in the ordinary course and
consistent with past practice. Without limiting the generality of the foregoing
and except as expressly provided herein or in Section 4.1(a) of the Disclosure
Memorandum:
(i) The Company will use (and will cause each of its
Subsidiaries to use) reasonable best efforts to (A)
maintain in full force and effect all Company Material
Contracts, except those which expire in accordance
with their terms, (B) maintain all Company Licenses,
qualifications, and authorizations of the Company to
do business in each jurisdiction in which it is so
licensed, qualified, or authorized, and (C) maintain
each rating classification assigned to the
Subsidiaries of the Company that are insurance
companies by all rating agencies as of the date of
this Agreement, except in the case of (A) and (B)
above where the Company's Board of Directors
determines in good faith that the maintenance of any
such Company Material Contract or Company License,
qualification or authorization is no longer necessary
or advisable for the conduct of the Company as
presently conducted or as proposed to be conducted
after the Effective Time, if appropriate after
consultation with USF&G pursuant to Section 5.12.
(ii) The Company will (and will cause each of its
Subsidiaries to) in all material respects (A) maintain
all its assets and properties in good working order
and condition (ordinary wear and tear excepted), and
(B) continue all current marketing and selling
activities relating to its business, operations and
affairs, except where the Company's Board of Directors
determines in good faith that such assets, properties
or marketing or selling activities are no longer
necessary or advisable for the conduct of the Company
as presently conducted or as proposed to be conducted
after the Effective Time, if appropriate after
consultation with USF&G pursuant to Section 5.12.
(iii) The Company will (and will cause each of its
Subsidiaries to) maintain its books and records in
the usual manner and consistent with past practice
and will not permit a material change in any
underwriting, investment, actuarial, financial
reporting, tax, or accounting practice or policy
or in any assumption underlying such a practice
or policy, or in any method of calculating any
bad debt, contingency, insurance, or other
reserve for financial reporting purposes or
for other accounting purposes (including any
practice, policy, assumption, or method
relating to or affecting the determination of
its insurance in force, premium or investment
income, reserves or other similar amounts, or
operating ratios with respect to expenses,
losses or lapses).
(iv) The Company will (and will cause each of its
Subsidiaries to) (A) prepare properly and to file duly
and validly all Tax Returns required to be filed prior
to the Closing Date with the appropriate taxing
authority, (B) pay duly and fully all Taxes which are
due with respect to the periods covered by such Tax
Returns or otherwise levied or assessed upon such
entity or any of its assets or properties, and to
withhold or collect and pay to the proper taxing
authorities all Taxes that such entity is required to
so withhold or collect and pay, unless such taxes are
being contested in good faith and, if appropriate,
reasonable reserves therefore have been established
and reflected in the books and records of such entity
and in accordance with SAP and (C) provide Parent with
copies of all federal income tax returns and all
material state income tax returns as soon as
practicable after the preparation, but prior to the
filing, thereof. The Company will not make (and will
prohibit its Subsidiaries from making) any tax
election or settle or compromise any income tax
liability that may reasonably be expected to be
material to the Company and its Subsidiaries taken as
a whole.
(v) The Company will (and will cause each of its
Subsidiaries to) cause all statutory reserves and
other similar amounts with respect to losses,
benefits, claims, and expenses in respect of the
Subsidiary's insurance business to be (A) determined
in accordance with SAP and generally accepted
actuarial assumptions, (B) determined in accordance
with the benefits specified in the related insurance
or reinsurance Contracts in all material respects, (C)
calculated, established and reflected on a basis
consistent in all material respects with those
reserves and other similar amounts and reserving
methods followed at December 31, 1996, (D) determined
in conformity with the requirements of the insurance
laws of each applicable jurisdiction in all material
respects and (E) adequate, in all material respects,
based upon then current information and assumptions to
cover the total amount of all matured and reasonably
anticipated unmatured benefits, dividends, losses,
claims, expenses, and other liabilities of the
Subsidiary under all insurance or reinsurance
Contracts which the Subsidiary has or will have any
liability. The Company will (and will cause each of
its Subsidiaries to) continue to own assets and
properties that qualify as legal reserve assets under
all applicable insurance laws in an amount at least
equal to all required reserves and other similar
amounts.
(vi) The Company will (and will cause each of its
Subsidiaries to) use reasonable best efforts to
maintain in full force and effect substantially the
same levels of coverage as the insurance afforded
under the insurance coverage described in Section
3.1(v) of the Disclosure Memorandum.
(vii) The Company will (and will cause each of its
Subsidiaries to) refrain from entering into
any new treaty of reinsurance, coinsurance,
or other similar Contract, whether as
reinsurer or reinsured.
(viii) The Company will (and will cause each of its
Subsidiaries to) continue to comply in all material
respects with all laws applicable to its business,
operations or affairs.
(ix) The Company shall not incur (and shall prohibit each
of its Subsidiaries from incurring) any capital
expenditure in excess of $75,000, individually or in
the aggregate.
(x) Subject to Sections 2.6 and 2.7, the Company shall not
(and shall cause each of its Subsidiaries to not): (A)
grant any increases in the compensation of any of its
directors, officers or Key Employees; (B) pay or agree
to pay any pension, retirement allowance or other
employee benefit not required to be paid prior to the
Effective Time by any of the existing Company Benefit
Plans or Company Employee Arrangements as in effect on
the date hereof to any such director, officer or
employee, whether past or present; (C) enter into any
new, or amend, modify or grant any consent or waiver
with respect to any existing, employment, retention or
severance or termination agreement with any director,
officer or employee; or (D) become obligated under any
new Benefit Plan or Employee Arrangement, which was
not in existence on the date hereof, or amend any such
plan or arrangement in existence on the date hereof if
such amendment would have the effect of enhancing any
benefits thereunder.
(xi) Other than with respect to drawdowns in the ordinary
course of business with respect to the Company Credit
Facilities, the Company shall not (and shall cause
each of its Subsidiaries to not) assume or incur
(which shall not be deemed to include entering into
credit agreements, lines of credit or similar
arrangements until borrowings are made under such
arrangements) any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any
debt securities or warrants or rights to acquire any
debt securities of the Company or any of its
Subsidiaries or guarantee any debt securities of
others or enter into any lease (whether such lease is
an operating or capital lease) or create any Liens on
the property of the Company or any of its Subsidiaries
in connection with any indebtedness thereof, or enter
into any "keep well" or other agreement or arrangement
to maintain the financial condition of another person.
(xii) The Company shall not (and shall cause each of its
Subsidiaries to not) pay, discharge, settle or satisfy
any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent
or otherwise), other than the payment,
discharge or satisfaction, in the ordinary
course of business consistent with past
practice or in accordance with their terms of
liabilities reflected or reserved against in,
or contemplated by, the consolidated
financial statements (or the notes thereto)
of the Company dated included in the Filed
Company SEC Documents, or incurred since the
date of such financial statements in the
ordinary course of business consistent with
past practice. Except in the ordinary course
of business consistent with past practice,
the Company shall not effect (and shall
prohibit each of its Subsidiaries from
effecting) any settlements of any legal
proceedings without the prior written consent
(such consent not to be unreasonably
withheld) of Parent.
The Company shall, from the date of this Agreement through the Effective Time
or earlier termination of this Agreement pursuant to Article VII, cause its
management and that of its Subsidiaries to consult on a regular basis and in
good faith with the employees and representatives of Parent concerning the
management of the Company's and its Subsidiaries' businesses.
(b) Dividends; Changes in Stock. Neither the Company nor any
of its Subsidiaries shall (i) declare or pay any dividends on or make other
distributions in respect of any of its capital stock (other than, with respect
to the Company, regular cash dividends on Company Common Stock not in excess of
$0.08 per share of Company Common Stock which shall be paid on a quarterly
basis, with identical record and payment dates as the quarterly dividends paid
by Parent on Parent Common Stock), (ii) split, combine or reclassify any of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, (iii) issue any shares of capital stock (except pursuant to and
in accordance with the terms of currently outstanding Company Options and
Company Warrants), or (iv) repurchase or otherwise acquire any shares of its
capital stock, except as required by the terms of any employee benefit plan as
in effect on the date of this Agreement.
(c) Issuance of Securities. Neither the Company nor any of its
Subsidiaries shall (i) grant any options, warrants or rights, to purchase shares
of its capital stock, (ii) amend the terms of or reprice any Company Warrant or
Company Option or amend the terms of the Stock Option Plan or the Directors'
Stock Option Plan, or (iii) issue, deliver or sell, or pledge or otherwise
encumber any shares of its capital stock, or authorize or propose to issue,
deliver or sell, any shares of its capital stock, any Company Voting Debt or any
securities convertible into, or any rights, warrants or options to acquire, any
such shares, Company Voting Debt or convertible securities, or agree to do any
of the foregoing, other than: (A) issue shares of Company Common Stock upon the
exercise of Options that are outstanding on the date of this Agreement or (B)
issue shares of Company Common Stock upon the exercise of Warrants that are
outstanding on the date of this Agreement.
(d) No Solicitation. Prior to the Effective Time, the Company
agrees (a) that neither it nor any of its affiliates or Subsidiaries shall, and
it shall not authorize or permit its officers, directors, employees,
representatives, investment bankers, attorneys, accountants or other agents to,
initiate, solicit or encourage (including by way of furnishing information),
directly or indirectly, any inquiries or the making or implementation of any
proposal or offer (including, without limitation, any proposal or offer to its
stockholders) with respect to a merger, consolidation or other business
combination including the Company or any of its Subsidiaries or any acquisition
or similar transaction (including, without limitation, a tender or exchange
offer) involving the purchase of (i) all or any significant portion of the
assets of the Company and its Subsidiaries taken as a whole, (ii) 15% or more of
the outstanding shares of Company Common Stock or (iii) 15% or more of the
outstanding shares of the capital stock of any Subsidiary of the Company (any
such proposal or offer being hereinafter referred to as an "Acquisition
Proposal"), or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person or
group relating to an Acquisition Proposal (excluding the transactions
contemplated by this Agreement), or otherwise facilitate any effort or attempt
to make or implement an Acquisition Proposal; (b) that it will immediately cease
and cause to be terminated any existing activities, discussions or negotiations
with any parties with respect to any of the foregoing, and it will take the
necessary steps to inform such parties of its obligations under this Section
4.1(d) and will require each such party who has signed a confidentiality
agreement to honor the restrictions therein with respect to open market
purchases of Company Common Stock and to return or destroy all confidential
information of the Company previously provided by it; and (c) that it will
notify Parent immediately (orally followed by written confirmation) if any such
inquiries, proposals or offers are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with, it or any of such persons. Notwithstanding the
above, (A) the Company may provide non-public information to any person or group
if (i) such person or group has expressed a written interest in (which, unless
such person previously has been provided confidential information, need not
constitute a proposal for) making an Acquisition Proposal providing greater
aggregate value to the Company and/or the Company's shareholders than the
transactions contemplated by this Agreement; (ii) the Company reasonably
believes such person or group has the financial ability to consummate an
Acquisition Proposal; (iii) such person or group executes a confidentiality
letter no less favorable to the Company than the Parent Confidentiality Letter
(as defined below); (iv) the Board of Directors of the Company, based upon the
advice of outside counsel, determines in good faith that it is necessary, in
order to comply with the Board's fiduciary duties under applicable law, to
provide such requested information; and (v) the Company provides notice to
Parent of the identity of the person or group to whom the non-public information
is being given at or before the time such information is given and the Company
delivers to Parent a copy of all such information concurrently with its delivery
to the requesting party and (B) the Company may (I) enter into discussions or
negotiate with any person or group that makes a wholly unsolicited bona fide
Acquisition Proposal providing greater aggregate value to the Company and/or the
Company's shareholders than the transactions contemplated by this Agreement, if,
and only to the extent that, (1) the Board of Directors of the Company, based
upon the advice of outside counsel, determines in good faith that such action is
required for the Board of Directors to comply with its fiduciary duties to
stockholders imposed by law, (2) prior to entering into discussions or
negotiations with such person or group, the Company provides written notice (the
"Acquisition Proposal Notice") to Parent to the effect that it is entering into
discussions or negotiations with such person or group, and (3) the Company keeps
Parent informed of the status and all material information including the
identity of such person or group with respect to any such discussions or
negotiations to the extent such disclosure would not constitute a violation of
any applicable law or any confidentiality agreement with such person or group;
and (II) to the extent required, comply with Rule 14e-2 promulgated under the
Exchange Act with regard to an Acquisition Proposal.
(e) No Acquisitions; No Subsidiaries. Except as permitted by
Section 4.1(d), neither the Company nor any Subsidiary of the Company shall
merge or consolidate with, or acquire any equity interest in, any corporation,
partnership, association or other business organization, or enter into an
agreement with respect thereto. Neither the Company nor any Subsidiary of the
Company shall (i) acquire or agree to acquire any assets of any corporation,
partnership, association or other business organization or division thereof,
except for the purchase of inventory and supplies in the ordinary course of
business or (ii) create any Subsidiary.
(f) No Dispositions. Other than dispositions set forth in
Section 4.1(f) of the Disclosure Memorandum and dispositions in the ordinary
course of business consistent with past practice which are not material,
individually or in the aggregate, to such party, and neither the Company nor any
Subsidiary of the Company shall sell, lease, encumber or otherwise dispose of,
or agree to sell, lease (whether such lease is an operating or capital lease),
reinsure, mortgage or otherwise encumber or subject to any lien, encumber or
otherwise dispose of, any of its properties.
(g) No Dissolution, Etc. Except as otherwise permitted or
contemplated by this Agreement, neither the Company nor any of its Subsidiaries
shall authorize, recommend, propose or announce an intention to adopt a plan of
complete or partial liquidation or dissolution of such entity.
(h) Investments. Neither the Company nor any Subsidiary of the
Company shall make any investment other than (A) money market instruments,
A-1/P-1 commercial paper, treasury bills or other cash equivalents, (B)
investment grade publicly traded debt securities or (C) exchange traded or
Nasdaq National Market System traded equity-related securities which in the
aggregate, when combined with any other equity-related securities holdings
(which shall include preferred stock), do not exceed nine percent (9%) of the
total investments (excluding cash) of the Company and its Subsidiaries, taken as
a whole, in each case which are made in accordance with the Company's Investment
Policy Guidelines (effective January 1, 1995) (the "Investment Guidelines") and
otherwise in accordance with past practice. Neither the Company nor any
Subsidiary of the Company shall make any portfolio investments except in the
ordinary course of business.
(i) Other Actions. Except as contemplated or permitted by this
Agreement, neither Parent nor the Company shall authorize, take or agree or
commit to (and shall cause each of its respective Subsidiaries to take or commit
or agree to) take any action that is reasonably likely to result in any of the
representations or warranties hereunder being untrue in any material respect or
in any of the covenants hereunder or any of the conditions to the Merger not
being satisfied in all material respects.
(j) Quick-Sure. The Company will take commercially reasonable
actions necessary to cause all of the outstanding capital stock of Quick-Sure to
be transferred to USF&G or its designee for a nominal price per share and to
take whatever other actions are reasonably necessary to ensure that upon
Closing, the material benefits of Quick-Sure's relationships with Home State,
the Company and the Company's Subsidiaries inure to the benefit of USF&G or its
designee. Without limiting the generality of the foregoing, the Company agrees
to use commercially reasonable efforts to cause Quick-Sure to assign any leases
to which Quick-Sure is a party to USF&G or its designee if so requested by the
Parent.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Form S-4 and Proxy Statement; Shareholder Meeting;
Comfort Letters.
(a) Promptly following the date of this Agreement, the Company
shall prepare the Proxy Statement, and Parent shall prepare and file with the
SEC the Form S-4, in which the Proxy Statement will be included. Parent will
cooperate with the Company in connection with the preparation of the Proxy
Statement including, but not limited to, furnishing to the Company any and all
information regarding Parent as may be required to be disclosed therein. Parent
shall use reasonable best efforts to have the Form S-4 declared effective under
the Securities Act as promptly as practicable after such filing. The Company
will use reasonable best efforts to cause the Proxy Statement to be mailed to
the Company's shareholders as promptly as practicable after the Form S-4 is
declared effective under the Securities Act. Parent shall also take any action
required to be taken under any applicable state securities laws in connection
with the issuance of Parent Common Stock following the Merger. The information
provided and to be provided by Parent and the Company, respectively, for use in
the Form S-4 shall, at the time the Form S-4 becomes effective and on the date
of the Shareholders' Meeting referred to below, be true and correct in all
material respects and shall not omit to state any material fact required to be
stated therein or necessary in order to make such information not misleading,
and the Company and Parent each agree to correct any information provided by it
for use in the Form S-4 which shall have become false or misleading.
(b) Parent will as promptly as practicable notify the Company
of (i) the effectiveness of the Form S-4, (ii) the receipt of any comments from
the SEC, and (iii) any request by the SEC for any amendment to the Form S-4 for
additional information. All filings with the SEC, including the Form S-4 and any
amendment thereto, and all mailings to the Company's shareholders in connection
with the Merger, including the Proxy Statement, shall be subject to the prior
review, comment and approval of Parent or the Company, as the case may be (such
approval not to be unreasonably withheld or delayed).
(c) The Company will, as promptly as practicable following the
date of this Agreement and in consultation with Parent, duly call and give
notice of, and, provided that this Agreement has not been terminated, convene
and hold the Shareholders' Meeting for the purpose of approving this Agreement
and the transactions contemplated by this Agreement to the extent required by
the TBCA. Except as provided below, the Company will, through its Board of
Directors, recommend to its shareholders approval of the foregoing matters, as
set forth in Section 3.1(x); provided, however, that the Board of Directors of
the Company may fail to make or may withdraw or modify such recommendation, but
only to the extent that the Board of Directors of the Company shall have
concluded in good faith after receiving the advice of outside counsel that such
action is required to prevent the Board of Directors of the Company from
breaching its fiduciary duties to the Company or the shareholders of the Company
under applicable law. Any such recommendation, together with a copy of the
opinion referred to in Section 3.1(w), shall be included in the Proxy Statement.
The Company will use reasonable best efforts to hold such meeting as soondate
hereof.
(d) Parent shall use reasonable best efforts to cause to be
delivered to the Company a letter of Ernst & Young LLP, Parent's independent
public accountants, dated a date within two business days before the date on
which the Form S-4 shall become effective and a letter of Ernst & Young LLP
dated a date within two business days before the date of the Shareholders'
Meeting, addressed to the Company, in form and substance reasonably satisfactory
to the Company and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4.
(e) The Company shall use reasonable best efforts to cause to
be delivered to Parent a letter of KPMG Peat Marwick LLP, the Company's
independent public accountants, dated a date within two business days before the
date on which the Form S-4 shall become effective and a letter of KPMG Peat
Marwick LLP dated a date within two business days before the Shareholders'
Meeting, addressed to Parent, in form and substance reasonably satisfactory to
Parent and customary in scope and substance for letters delivered by independent
public accountants in connection with registration statements similar to the
Form S-4.
5.2 Contract and Regulatory Approvals. USF&G, Parent and the Company
will use (and will cause each of its Subsidiaries to use) reasonable best
efforts to obtain as promptly as practicable (a) all approvals and consents
required of any person or entity under all Contracts to which the Company or any
of its Subsidiaries is a party to consummate the transactions contemplated
hereby, and (b) all approvals, authorizations, and clearances of Governmental
Entities required of the Company and each of its Subsidiaries to consummate the
transactions contemplated hereby. The Company will, and will cause each of its
Subsidiaries to, (i) provide such other information and communications to such
Governmental Entities as USF&G, Parent or such authorities may reasonably
request, and (ii) cooperate with USF&G or Parent in obtaining, as promptly as
practicable, all approvals, authorizations, and clearances of governmental or
regulatory authorities and other persons or entities required of USF&G or Parent
to consummate the transactions contemplated hereby. Each of USF&G and the Parent
will (i) provide such information and communications to such Governmental
Entities as the Company or such authorities may reasonably request, and (ii)
cooperate with the Company in obtaining, as promptly as practicable, all
approvals, authorizations, and clearances of governmental or regulatory
authorities and other persons or entities required of the Company to consummate
the transactions contemplated hereby. Parent and USF&G shall use their
reasonable best efforts to take or cause to be taken all actions necessary,
proper or advisable to obtain any consent, waiver, approval or authorization
relating to any federal, state or local statutes, rules, regulations, orders,
decrees, administrative and judicial doctrines and other laws that are designed
or intended to prohibit, restrict or regulate actions having the purpose or
effect of monopolization, lessening of competition or restraint of trade and
includes the HSR Act that is required for consummation of the transactions
contemplated by this Agreement; provided, however, that the foregoing shall not
obligate Parent or USF&G to agree to take any action which would have a material
adverse effect on the expected benefits to Parent of the transactions
contemplated hereby.
5.3 HSR Filings. The Company will (a) take all actions necessary to
make the filings required of it or its affiliates under the HSR Act with respect
to the transactions contemplated by this Agreement, (b) comply with any request
for additional information received by the Company or its affiliates from the
Federal Trade Commission or Antitrust Division of the Department of Justice
pursuant to the HSR Act, (c) cooperate with Parent in connection with Parent's
filings under the HSR Act, and (d) request early termination of the applicable
waiting period.
5.4 Access to Information; Confidentiality.
(a) Upon reasonable notice, the Company shall (and shall cause
each of its Subsidiaries to) afford to the officers, employees, accountants,
counsel and other representatives of Parent or USF&G, access, during normal
business hours during the period prior to the Effective Time, to all its
properties, books, contracts, commitments, employees, auditors, agents,
representatives and records and, during such period, the Company shall (and
shall cause each of its Subsidiaries to) furnish promptly to Parent, (i) each
SAP Annual Statement and SAP Quarterly Statement filed by the Company's
Subsidiaries during such period pursuant to the requirements of any applicable
law; (ii) a copy of each report, schedule, registration statement and other
document filed or received by it during such period pursuant to SEC
requirements; (iii) all correspondence or written communication with A.M. Best
and Company or any of its Subsidiaries, Standard & Poor's Corporation, Moody's
Investor Services, Inc., and with any Governmental Entity or insurance
regulatory authorities which relates to the transactions contemplated hereby or
which is otherwise material to the financial condition or operation of the
Company and its Subsidiaries taken as a whole; and (iv) all other information
concerning its business, properties and personnel as the other party may
reasonably request.
(b) Upon reasonable notice, Parent shall (and shall cause each
of its Subsidiaries to) afford to the officers, employees, accountants, counsel
and other representatives of the Company, access, during normal business hours
during the period prior to the Effective Time, to the books, records, officers
and employees of Parent and its Subsidiaries reasonably necessary to perform a
"due diligence" review with respect to (i) material matters, conditions or
events arising after the date hereof or (ii) matters, conditions or events which
the Company has a reasonable basis for believing make any of the representations
or warranties of Parent contained herein not true in any material respect and,
during such period, Parent shall (and shall cause each of its Subsidiaries to)
furnish promptly to the Company, (a) each SAP Annual Statement and SAP Quarterly
Statement filed by such party's Subsidiaries during such period pursuant to the
requirements of any applicable law; (b) a copy of each report filed by Parent
with the SEC during such period pursuant to SEC requirements; and (c) all
correspondence or written communication with A.M. Best and Company or any of its
Subsidiaries, Standard & Poor's Corporation, Moody's Investor Services, Inc.,
and with any Governmental Entity or insurance regulatory authorities which
primarily relates to the transactions contemplated hereby.
(c) The Confidentiality Agreement dated June 26, 1997 (the
"Parent Confidentiality Agreement"), between Parent and the Company and the
confidentiality agreement dated July 30, 1997 (the "Company Confidentiality
Agreement"), between the Company and Parent shall apply with respect to
information furnished thereunder or hereunder and any other activities
contemplated thereby.
5.5 Fees and Expenses.
(a) Except as otherwise provided in this Section 5.5 and
except with respect to claims for damages incurred as a result of the breach of
this Agreement (it being understood that such claims by Parent, USF&G or their
affiliates shall be precluded under Section 5.5(d) by the payment of the amount
set forth in Section 5.5(b) when Section 5.5(b) is applicable), all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expense.
(b) The Company agrees to pay Parent a fee in immediately
available funds equal to $7,500,000 if (i) this Agreement is terminated pursuant
to Section 7.1(d) hereof and any person or group of persons shall, within 90
days after the date of such termination, consummate an Acquisition Proposal or
enter into an agreement with respect to an Acquisition Proposal or (ii) this
Agreement is terminated pursuant to Section 7.1(e) hereof. Such fee shall be
paid within one business day of any termination of this Agreement pursuant to
Section 7.1(e) hereof or within one business day of the consummation of an
Acquisition Proposal or the entry into of any agreement with respect to an
Acquisition Proposal, in either case during the 90-day period after any
termination of this Agreement pursuant to Section 7.1(d) hereof.
(c) Any amounts due under this Section 5.5 that are not paid
when due shall bear interest at the rate of 9% per annum from the date due
through and including the date paid.
(d) Upon the payment of any fee pursuant to Section 5.5(b)
above (regardless of whether a transaction pursuant to an Acquisition Proposal
is consummated), such fee shall be the exclusive remedy of Parent, USF&G and
their affiliates relating to this Agreement or the transactions contemplated
thereunder, and upon payment of any such fee, Parent, USF&G and their affiliates
shall have no rights, in tort, contract or otherwise, arising under or relating
to this Agreement or the transactions contemplated thereunder, except for rights
under the second sentence of Section 5.4 hereof.
(e) The fee set forth in Section 5.5(b) shall be payable
solely under the circumstances set forth in Section 5.5(b) and shall not be
payable under any other circumstances.
5.6 Indemnification.
(a) The Company shall, and from and after the Effective Time
the Surviving Corporation shall, indemnify, defend and hold harmless each person
who is now, or has been at any time prior to the date hereof or who becomes
prior to the Effective Time, an officer or director of the Company (the
"Indemnified Parties") against all losses, claims, damages, costs, expenses
(including attorneys' fees and expenses), liabilities or judgments or amounts
that are paid in settlement with the approval of the indemnifying party (which
approval shall not be unreasonably withheld) of or in connection with any
threatened or actual claim, action, suit, proceeding or investigation based in
whole or in part on or arising in whole or in part out of the fact that such
person is or was a director or officer of the Company whether pertaining to any
matter existing or occurring at or prior to the Effective Time and whether
asserted or claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities"), including all Indemnified Liabilities based in whole or in part
on, or arising in whole or in part out of, or pertaining to this Agreement or
the transactions contemplated hereby, in each case to the full extent a
corporation is permitted under applicable law to indemnify its own directors or
officers as the case may be (and the Company and the Surviving Corporation, as
the case may be, will pay expenses in advance of the final disposition of any
such action or proceeding to each Indemnified Party to the full extent permitted
by law). Without limiting the foregoing, in the event any such claim, action,
suit, proceeding or investigation is brought against any Indemnified Parties
(whether arising before or after the Effective Time), (i) the Indemnified
Parties may retain counsel satisfactory to them and the Company (or them and the
Surviving Corporation after the Effective Time) and the Company (or after the
Effective Time, the Surviving Corporation) shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received; and (ii) the Company (or after the Effective Time, the
Surviving Corporation) will use reasonable best efforts to assist in the defense
of any such matter, provided that neither the Company nor the Surviving
Corporation shall be liable for any settlement effected without its prior
written consent which consent shall not unreasonably be withheld. Any
Indemnified Party wishing to claim indemnification under this Section 5.6, upon
learning of any such claim, action, suit, proceeding or investigation, shall
notify the Company (or after the Effective Time, the Surviving Corporation) (but
the failure so to notify shall not relieve a party from any liability which it
may have under this Section 5.6 except to the extent such failure prejudices
such party). The Indemnified Parties as a group may retain only one law firm to
represent them with respect to each such matter unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the positions of any two or more Indemnified Parties. The Company
and Parent agree that the foregoing rights to indemnification, including
provisions relating to advances of expenses incurred in defense of any action or
suit, existing in favor of the Indemnified Parties with respect to matters
occurring through the Effective Time, shall survive the Merger and shall
continue in full force and effect for a period of not less than six years from
the Effective Time; provided, however, that all rights to indemnification in
respect of any Indemnified Liabilities asserted or made within such period shall
continue until the disposition of such Indemnified Liabilities. Furthermore, the
provisions with respect to indemnification set forth in the articles of
incorporation or bylaws of the Surviving Corporation shall not be amended for a
period of six years following the Effective Time if such amendment would
materially and adversely affect the rights thereunder of individuals who at any
time prior to the Effective Time were directors or officers of the Company in
respect of actions or omissions occurring at or prior to the Effective Time.
(b) For a period of six years after the Effective Time, the
Surviving Corporation shall cause to be maintained in effect the current
policies of directors' and officers' liability insurance maintained by the
Company (provided that Parent may substitute therefor (i) policies of at least
the same coverage and amounts containing terms and conditions which are no less
advantageous in any material respect to the Indemnified Parties and (ii)
coverage under Parent's directors' and officers' liability insurance coverage if
such substitution is approved by those persons, in their sole discretion, who at
the Effective Time constitute or constituted a majority of the Company's Board
of Directors) with respect to matters arising before the Effective Time,
provided that the Surviving Corporation shall not be required to pay an annual
premium for such insurance in excess of 200% of the last annual premium paid by
the Company prior to the date hereof, but in such case shall purchase as much
coverage as possible for such amount. The last annual premium paid by the
Company was $130,000.
(c) The provisions of this Section 5.6 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party, his heirs
and his personal representatives and shall be binding on all successors and
assigns of the Company and the Surviving Corporation.
(d) In the event that the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or substantially all of
its properties and assets to any person, then, and in each case, to the extent
necessary to effectuate the purpose of this Section 5.6, proper provision shall
be made so that the successors and assigns of the Surviving Corporation shall
succeed to the obligations set forth in this Section 5.6 and none of the actions
described in clauses (i) or (ii) shall be taken until such provision is made.
5.7 Reasonable Best Efforts. Subject to the terms and conditions of
this Agreement, except as otherwise expressly contemplated hereby, each of the
parties hereto agrees to use all reasonable best efforts to take, or cause to be
taken, all action and to do, or cause to be done as promptly as practicable, all
things necessary, proper or advisable, under applicable laws and regulations or
otherwise, to consummate and make effective the Merger and the other
transactions contemplated by this Agreement, subject, as applicable, to the
Company Shareholder Approval.
5.8 Public Announcements. The parties hereto will consult with each
other regarding any press release or public announcement pertaining to the
Merger and shall not issue any such press release or make any such public
announcement prior to such consultation, except as may be required by applicable
law, court process or obligations pursuant to any listing agreement with any
national securities exchange, in which case the party proposing to issue such
press release or make such public announcement shall use reasonable efforts to
consult in good faith with the other party before issuing any such press release
or making any such public announcement. The parties hereto shall also consult
with each other before engaging in any communications with A.M. Best and Company
with respect to this Agreement or the transactions contemplated hereby.
5.9 Environmental Studies. Within thirty (30) days of this Agreement,
the Company shall deliver to Parent a report of a Phase I Environmental Site
Assessment, which shall be conducted in accordance with and presented in the
form prescribed by the most recent edition of the ASTM Standard for Phase I
environmental site assessments and a report of an environmental compliance audit
conducted in substantial accordance with the ASTM Standard for environmental
compliance audits, on the real property located at NBC Plaza, 2700 NE Loop 410,
San Antonio, TX, and the Village at NBC Plaza, 8200 Perrin Beitel Rd., San
Antonio, TX (including the undeveloped real property owned by the Company in the
vicinity thereof) ("Environmental Reports"), prepared by an environmental
consultant, engineer or environmental consulting or engineering firm reasonably
satisfactory to Parent. The cost of preparing the reports contemplated by this
Section 509 shall be borne by the Company.
5.10 Affiliates. Prior to the Closing Date, the Company shall deliver
to Parent a letter identifying all persons who are, at the time this Agreement
is submitted for approval to the shareholders of the Company, "affiliates" of
the Company for purposes of Rule 145 under the Securities Act. The Company shall
cause each such person to deliver to Parent on or prior to the Closing Date a
written agreement substantially in the form attached as Exhibit B hereto.
5.11 Support Agreement. The Support Agreement shall be executed
contemporaneously with this Agreement.
5.12 Cooperation. From the date hereof until the Effective Time, the
parties agree to work together to coordinate all aspects of transition planning
and the integration of the Public Entity and Nonstandard Businesses of Parent
and its Subsidiaries with the businesses of the Company and its Subsidiaries
from and after the Effective Time. In this regard, the parties agree, among
other things, (i) to create a dedicated transition team, including consultation
between the parties to identify the appropriate officers and employees of each
of the Company and Parent who will be members of such team, to plan and prepare
for the integration of the business and other matters following the Merger and
preparing for the execution of any such plans, (ii) to jointly develop any
employee, agent, policyholder or other communications relating to such plans and
the Merger, (iii) to discuss and consult with respect to investment management
activities, (iv) to jointly consider information processing systems updates and
technology integration issues and to plan and prepare for an agreed-upon
resolution of such issues following the Merger and (v) to take such actions as
are necessary or appropriate to promote and implement the integration plan,
subject to applicable law.
5.13 NYSE Listing. Parent shall use its best efforts to cause the
shares of Parent Common Stock to be issued in the Merger to be approved for
listing on the New York Stock Exchange (the "NYSE"), subject to official notice
of issuance, prior to the Effective Time
5.14 Benefit Plans and Employee Arrangements. For employees who are
employees of the Company as of the Effective Time and who continue to be
employed by the Company, Parent shall cause the Surviving Corporation to provide
employee benefits which are substantially comparable in the aggregate to the
benefits provided under the Company Benefit Plans until the first anniversary of
the Effective Time.
5.15 Tax-Free Reorganization. Parent and the Company shall each use its
best efforts to cause the Merger to be treated as a reorganization within the
meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code. Parent shall own
all of the issued and outstanding shares of USF&G immediately prior to the
Merger. Parent shall not, nor shall Parent permit any of its affiliates to, take
any action which would cause the Merger to fail to qualify as a reorganization
within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code.
5.16 Tri-West. The Company will use its reasonable best efforts to
cause each of E.B. Lyon, III, Michael J. Claypool and Michael J. Bodayle to
enter into an agreement with the Company granting the Company the right to
purchase, on terms reasonably acceptable to Parent, the outstanding membership,
equity and voting interests of Tri-West of New Mexico, LLC, Tri-West of
Indianapolis, LLC, Tri-West of Florida, LLC, and any other agency owned by any
of them which has entered into a producer agreement with any Subsidiary of the
Company.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing Date of the following conditions:
(a) Company Shareholder Approval. The Merger shall have been
approved and adopted by the affirmative vote or written consent of the holders
of two-thirds of the outstanding shares of Company Common Stock entitled to vote
thereon.
(b) Governmental and Regulatory Consents. All actions,
consents, approvals, filings and notices listed in Sections 3.1(d)(ii)(A) and
3.2(d)(iii)(A) of the Disclosure Memorandum shall have been taken, made or
obtained; provided, however, that such consents or approvals shall be in full
force and effect at the Effective Time and shall not obligate Parent or USF&G to
agree to take any action which would have a material adverse effect on the
expected benefits to Parent of the transactions contemplated hereby.
(c) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or shall
have expired, and no restrictive order or other requirements shall have been
placed on the Company, Parent or the Surviving Corporation in connection
therewith.
(d) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided, however, that prior to
invoking this condition, each party shall use reasonable best efforts to have
any such decree, ruling, injunction or order vacated.
(e) Form S-4. The Form S-4 shall have become effective under
the Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order, and any material "blue sky" and other state securities
laws applicable to the registration and qualification of the Parent Common Stock
following the Merger shall have been complied with.
(f) NYSE Listing. The shares of Parent Common Stock which
shall be issued to the stockholders of the Company upon consummation of the
Merger shall have been authorized for listing on the NYSE, subject to official
notice of issuance.
6.2 Conditions to Obligations of Parent and USF&G. The obligations of
Parent and USF&G to effect the Merger are further subject to the satisfaction or
waiver following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
(without regard to any materiality qualifiers contained therein) in each case as
of the date of this Agreement and (except to the extent such representations and
warranties speak as of a particular date) as of the Closing as though made on
and as of the Closing, except where the failure of one or more representations
or warranties to be true and correct, individually or in the aggregate, would
not result in a Material Adverse Effect on the Company. Parent shall have
received a certificate signed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to the effect set forth
in this paragraph.
(b) Performance of Obligations of the Company. The Company
shall have performed and complied with, in all material respects, all agreements
and covenants required to be performed and complied with by the Company under
this Agreement at or prior to the Closing Date.
(c) No Material Adverse Change. There shall not have occurred
or arisen after March 31, 1997 and prior to the Effective Time any change, event
(including without limitation any damage, destruction or loss, whether or not
covered by insurance), condition (financial or otherwise), or state of facts
with respect to the Company or any of its Subsidiaries which would constitute a
Material Adverse Effect on the Company.
(d) No Litigation. There shall not be pending or, to the
Company's or Parent's knowledge threatened, any action, suit, investigation, or
other proceeding by any Governmental Entity to restrain, enjoin, or otherwise
prevent consummation of any of the transactions contemplated by this Agreement.
(e) Affiliate Letters. A duly executed copy of each of the
agreements referred to in Section 5.10 shall have been received by Parent.
(f) Option Agreements and Warrants. The Company shall have (i)
taken all actions required to enable the consummation of the transactions
contemplated by Section 2.6 and (ii) received agreements in the form of Exhibit
C attached hereto from holders of Company Warrants representing the right to
purchase 75% of the shares of Company Common Stock underlying all outstanding
Company Warrants as of the date of this Agreement, whether or not then
exercisable in whole or in part.
(g) Tax Opinion. Parent shall have received an opinion of
Piper & Marbury L.L.P. (or another nationally recognized law firm) to the effect
that the Merger will be treated for federal income tax purposes as a tax-free
reorganization within the meaning of Section 368(a)(1)(A) and 368 (a)(2)(D) of
the Code.
(h) Authorization. The Company shall have delivered to Parent
evidence reasonably satisfactory to Parent that all requisite action on the part
of the Company necessary for the due authorization of this Agreement and the
performance and consummation of the transactions contemplated hereby has been
taken.
6.3 Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger is further subject to the satisfaction or waiver of
the following conditions:
(a) Representations and Warranties. The representations and
warranties of Parent and USF&G set forth in this Agreement shall be true and
correct (without regard to any materiality qualifiers contained therein), in
each case as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a particular date) as of the Closing
Date as though made on and as of the Closing Date, except where the failure of
one or more representations or warranties to be true and correct, individually
or in the aggregate, would not result in a Material Adverse Effect on Parent.
The Company shall have received certificates signed on behalf of Parent by the
chief executive officer and chief financial officer of Parent to the effect set
forth in this paragraph.
(b) Performance of Obligations of USF&G. Parent and USF&G
shall have performed and complied with, in all material respects, all agreements
and covenants required to be performed and complied with by Parent and USF&G
under this Agreement at or prior to the Closing Date.
(c) Federal Tax Opinion. The Company shall have received an
opinion of Mayer, Brown & Platt (or another nationally recognized law firm) to
the effect that the Merger will be treated for federal income tax purposes as a
tax-free reorganization within the meaning of Section 368(a)(1)(A) and
368(a)(2)(D) of the Code.
(d) No Material Adverse Change. Except as publicly disclosed
in a document filed by Parent under the Exchange Act, there shall not have been
any change in the business, results of operation or financial condition of the
Parent and its Subsidiaries taken as a whole at any time between March 31, 1997
and the Effective Time which would have a Material Adverse Effect on the Parent.
(e) Authorization. Parent shall have delivered to the Company
evidence reasonably satisfactory to the Company that all requisite action on the
part of Parent necessary for the due authorization of this Agreement and the
performance and consummation of the transactions contemplated hereby has been
taken.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
approval of the matters presented in connection with the Merger by the
shareholders of the Company or Parent:
(a) by mutual written consent of the Company and Parent;
(b) by either the Company or Parent if any permanent
injunction or other order of a court or other competent authority preventing the
consummation of the Merger shall have become final and non-appealable;
(c) by either the Company or Parent, if the Merger shall not
have been consummated on or before December 31, 1997; provided that if the
conditions set forth in Article VI have not been satisfied as of such date, this
Agreement may not be terminated until February 28, 1998 if it can reasonably be
anticipated that such conditions can be satisfied by February 28, 1998 (such
December 31, 1997 or February 28, 1998, the "Termination Date"); and provided
further that the right to terminate this Agreement under this Section 7.1(c)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of or resulted in the failure of the
Merger to occur on or before such date;
(d) by either Parent or the Company if at the duly held
meeting of the shareholders of the Company (including any adjournment thereof)
held for the purpose of voting on the Merger, this Agreement and the
consummation of the transactions contemplated hereby, the holders of at least
two-thirds of the outstanding shares of Company Common Stock shall not have
approved the Merger, this Agreement and the consummation of the transactions
contemplated hereby;
(e) by Parent or the Company, in the event that a Trigger
Event has occurred prior to the consummation of the Merger (for purposes of this
Section 7.1(e), "Trigger Event" shall mean: (i) the Board of Directors of the
Company shall have failed to give or shall have withdrawn or adversely modified
in any material respect, or taken a public position materially inconsistent
with, its approval or recommendation of the Merger or this Agreement; or (ii) an
Acquisition Proposal shall have been recommended or accepted by the Company or
the Company shall have entered into an agreement with respect to an Acquisition
Proposal with any person or entity other than Parent or an affiliate thereof);
(f) by Parent, upon a breach of any representation or warranty
of the Company, or in the event the Company fails to comply in any respect with
any of its covenants and agreements, or if any representation or warranty of the
Company shall be or become untrue, in each case, where such breach, failure to
so comply or untruth (either individually or in the aggregate with all other
such breaches, failures to comply or untruths) would cause one or more of the
conditions set forth in Sections 6.1(a), 6.1(b), 6.2(a) or 6.2(b) to be
incapable of being satisfied as of a date within ten days after the occurrence
thereof, provided that a willful breach by the Company shall be deemed to cause
such conditions to be incapable of being satisfied by such date;
(g) by the Company, upon a breach of any representation or
warranty of Parent or USF&G, or in the event Parent or USF&G fails to comply in
any respect with any of its covenants or agreements, or if any representation or
warranty of Parent or USF&G shall be or become untrue, in each case, where such
breach, failure to so comply or untruth (either individually or in the aggregate
with all other such breaches, failures to comply or untruths) would cause one or
more of the conditions set forth in Sections 6.1(a), 6.1(b), 6.3(a) or 6.3(b) to
be incapable of being satisfied as of a date within ten days after the
occurrence thereof, provided that a willful breach by Parent or USF&G shall be
deemed to cause such conditions to be incapable of being satisfied by such date;
or
(h) by either Parent or the Company within two days of the
determination of the Average Stock Price if the Average Stock Price shall be
greater than $32.42 or less than $17.46.
7.2 Effect of Termination. If this Agreement is validly terminated by
either the Company or Parent pursuant to Section 7.1, this Agreement will
forthwith become null and void and there will be no liability or obligation on
the part of either the Company or Parent (or any of their respective
Subsidiaries or affiliates), except (i) that the provisions of Section 5.4(c),
Section 5.5 and this Section 7.2 will continue to apply following any such
termination, (ii) such termination shall not in any case affect the obligations
of the Company under the Parent Confidentiality Agreement and the Company
Confidentiality Agreement and (iii) that nothing contained herein shall relieve
any party hereto from liability for willful breach of its representations,
warranties, covenants or agreements contained in this Agreement. The
effectiveness of any termination under this Agreement shall be subject to the
payments required to be made pursuant to Section 5.5 being so made, if
applicable.
7.3 Amendment. Subject to applicable law, this Agreement may be
amended, modified or supplemented only by written agreement of Parent, USF&G and
the Company at any time prior to the Effective Date of the Merger with respect
to any of the terms contained herein; provided, however, that, after this
Agreement is approved by the Company's shareholders, no such amendment or
modification shall (a) reduce the amount or change the form of consideration to
be delivered to the holders of shares of Company Common Stock, (b) change the
date by which the Merger is required to be effected, or (c) change the amounts
payable in respect of the Options or Warrants.
7.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed: (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto;
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto; and (c) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party. The failure of
any party hereto to assert any of its rights hereunder shall not constitute a
waiver of such rights.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Nonsurvival of Representations, Warranties and Agreements. None of
the representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time; provided, however, that Article II, Sections 5.6 and 5.14, the Parent
Confidentiality Agreement and the Company Confidentiality Agreement (with
respect to directors, officers, advisors and representatives of Parent and the
Company) shall survive the Effective Time.
8.2 Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally, telegraphed or
telecopied or sent by certified or registered mail, postage prepaid, and shall
be deemed to be given, dated and received upon receipt. Any such notice or
communication shall be provided to the following address or telecopy number, or
to such other address or addresses as such person may subsequently designate by
notice given hereunder:
(a) if to USF&G or Parent, to:
USF&G Corporation
6225 Smith Avenue
Baltimore, Maryland 21209-3653
Attn: Andrew A. Stern, Mail Stop LA-0300
Telecopy: (410) 205-6802
with a copy to:
Piper & Marbury L.L.P.
35 South Charles Street
Baltimore, Maryland 21201
Attn: R.W. Smith, Jr.
Telecopy: (410) 576-5052
(b) if to the Company, to:
Titan Holdings, Inc.
2700 N.E. Loop 410, Suite 500
San Antonio, Texas 78217
Attn: Mark E. Watson, III
Telecopy: (210) 527-2936
with a copy to:
Mayer, Brown & Platt
190 S. LaSalle Street
Chicago, Illinois 60603
Attn: Edward S. Best
Telecopy: (312) 701-7711
8.3 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents, glossary of defined terms and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the word "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation". The phrase
"made available" in this Agreement shall mean that the information referred to
has been made available if requested by the party to whom such information is to
be made available.
8.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership. This Agreement together with the Parent Confidentiality Agreement and
the Company Confidentiality Agreement (and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings including that certain Letter Agreement, dated
July 15, 1997 between Parent and the Company, both written and oral, among the
parties with respect to the subject matter hereof and, except as provided in
Article II, Sections 5.6 and 5.14, is not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder. Anything to the
contrary notwithstanding, paragraph 6 of the Parent Confidentiality Agreement
and paragraph 6 of the Company Confidentiality Agreement shall terminate after
the date of this Agreement.
8.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Texas, without giving effect to the
principles of conflicts of law thereof.
8.7 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the other
parties, such consent not to be unreasonably withheld and any such assignment
that is not consented to shall be null and void; provided, however, that Parent
may assign this Agreement to an affiliate without the consent of the Company.
Any such assignment shall not affect Parent's or USF&G's liability hereunder,
including its obligations to deliver the Merger Consideration. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
USF&G:
UNITED STATES FIDELITY AND GUARANTY
COMPANY
By:
Name:
Title:
Parent:
USF&G CORPORATION
By:
Name:
Title:
Company:
TITAN HOLDINGS, INC.
By:
Name:
Title:
EXHIBIT A
TO MERGER AGREEMENT
[FORM OF VOTING AND SUPPORT AGREEMENT]
Agreement dated as of August 7, 1997 between the shareholder identified
on Exhibit A hereto (the "Shareholder") and USF&G Corporation, a Maryland
corporation ("Parent"). Capitalized terms used but not defined herein shall have
the meanings ascribed to such terms in the Merger Agreement (as defined below).
In consideration of the execution by Parent of the Agreement and Plan of
Merger dated as of August 7, 1997 (the "Merger Agreement") among Parent, United
States Fidelity and Guaranty Company, a Maryland corporation, and Titan
Holdings, Inc., a Texas corporation ("Company"), and other good and valuable
consideration, receipt of which is hereby acknowledged, the Shareholder and
Parent hereby agree as follows:
1. Representations, Warranties and Agreements of Shareholder. The
Shareholder hereby represents and warrants to, and agrees with, Parent as
follows:
(a) Title. As of the date hereof, the Shareholder is the
beneficial and registered owner of 2,579,295 shares (the "Shares") of common
stock, $.01 par value per share ("Common Stock"), of Company. As of the date
hereof, except as set forth on Exhibit A hereto, the Shareholder does not (i)
beneficially own any shares of any class or series of capital stock of Company
(other than the Shares) or any securities convertible into or exercisable for
shares of any class or series of Company's capital stock or (ii) have any
options or other rights to acquire any shares of any class or series of capital
stock of Company or any securities convertible into or exercisable for shares of
any class of Company's capital stock. Except as set forth in Exhibit B hereto,
the Shareholder owns the Shares free and clear of any lien, mortgage, pledge,
charge, security interest or any other encumbrance of any kind. The Shareholder
covenants and agrees to comply with the pledge agreements and other loan
documents relating to the pledges of certain of the Shares identified on Exhibit
B and to otherwise take any action necessary to insure that the Shareholder can
carry out the terms of this Agreement. Each pledgee of the Shares has consented
to this Agreement and to the Shareholder's fulfillment of the terms thereof.
(b) Right to Vote and to Transfer Shares. The Shareholder has
full legal power, authority and right to vote all of the Shares in favor of
approval and adoption of the Merger Agreement without the consent or approval
of, or any other action on the part of, any other person or entity. Without
limiting the generality of the foregoing, except for this Agreement, Shareholder
has not entered into any voting agreement or any other agreement with any person
or entity with respect to any of the Shares, granted any person or entity any
proxy (revocable or irrevocable) or power of attorney with respect to any of the
Shares, deposited any of the Shares in a voting trust or entered into any
arrangement or agreement with any person or entity limiting or affecting the
Shareholder's ability to enter into this Agreement or legal power, authority or
right to vote the Shares in favor of the approval and adoption of the Merger
Agreement or any of the transactions contemplated by the Merger Agreement, and
Shareholder will not take any such action after the date of this Agreement and
prior to the Company shareholders meeting to vote on approval and adoption of
the Merger Agreement, including any adjournment or postponement thereof (the
"Company Shareholders Meeting"). This Agreement has been duly executed and
delivered by the Shareholder and constitutes a valid and binding agreement of
the Shareholder.
2. Representations and Warranties of Parent. Parent hereby represents and
warrants to the Shareholder that this Agreement (i) has been duly authorized by
all necessary corporate action, (iii) has been duly executed and delivered by
Parent and (iii) is a valid and binding agreement of Parent.
3. Restriction on Transfer. The Shareholder agrees that (other than
pursuant to the Merger Agreement) it will not, and will not agree to, sell,
assign, dispose of, encumber, mortgage, hypothecate or otherwise transfer or
encumber (collectively, "Transfer") any of the Shares to any person or entity;
provided, however, that the Shareholder may enter into pledge agreements
pledging any of the Shares as collateral security under loan agreements,
provided that (i) the lender under each such loan agreement consents to this
Agreement and fulfillment of the terms thereof and (ii) the Shareholder
covenants and agrees to comply with each pledge agreement and other loan
documents relating to pledges of Shares thereunder and to otherwise take all
action necessary to insure that the Shareholder can carry out the terms of this
Agreement.
4. Agreement to Vote of Shareholder. The Shareholder, in his individual
capacity as a shareholder of the Company only, hereby irrevocably and
unconditionally agrees to vote or to cause to be voted all of the Shares at the
Company Shareholders' Meeting and at any other annual or special meeting of
shareholders of Company where such matters arise (a) in favor of the approval
and adoption of the Merger Agreement and (b) against (i) approval of any
proposal made in opposition to or in competition with the Merger or any of the
other transactions contemplated by the Merger Agreement, (ii) any merger,
consolidation, sale of assets, business combination, share exchange,
reorganization or recapitalization of Company or any of its subsidiaries, with
or involving any party other than Parent or one of its subsidiaries, (iii) any
liquidation, dissolution or winding up of Company, (iv) any extraordinary
dividend by Company, (v) any change in the capital structure of Company (other
than pursuant to the Merger Agreement) and (vi) any other action that may
reasonably be expected to impede, interfere with, delay, postpone or attempt to
discourage the Merger or the other transactions contemplated by the Merger
Agreement or this Agreement or result in a breach of any of the covenants,
representations, warranties or other obligations or agreements of Company under
the Merger Agreement which would materially and adversely affect Company or its
ability to consummate the transactions contemplated by the Merger Agreement. The
Stockholder further agrees not to take or commit or agree to take any action
inconsistent with the foregoing.
5. Action in Shareholder Capacity Only. The Shareholder signs solely in
the Shareholder's capacity as a record and beneficial owner of the Shares, and
nothing herein shall prohibit, prevent or preclude the Shareholder from
fulfilling his fiduciary duties as a director of Company, including without
limitation, voting or consenting as a director in favor of an Acquisition
Proposal (as defined in the Merger Agreement) or negotiating with respect to an
Acquisition Proposal in his capacity as an officer or director of the Company.
6. No Shopping. The Shareholder, in his individual capacity as a
shareholder of the Company only, agrees not to, directly or indirectly, (i)
solicit, initiate or encourage (or authorize any person to solicit, initiate or
encourage) any inquiry, proposal or offer from any person to acquire the
business, property or capital stock of Company or any direct or indirect
subsidiary thereof, or any acquisition of a substantial equity interest in, or a
substantial amount of the assets of, Company or any direct or indirect
subsidiary thereof, whether by merger, purchase of assets, tender offer or other
transaction or (ii) participate in any discussion or negotiations regarding, or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or participate in, facilitate or encourage any effort
or attempt by any other person to do or seek any of the foregoing; provided
that, notwithstanding the foregoing, the Shareholder shall not be prohibited
from taking any such actions as are required, based upon advice of counsel, to
comply with his fiduciary duties as an officer and director of the Company to
the extent such actions are permitted under the Merger Agreement.
7. Invalid Provisions. If any provision of this Agreement shall be
invalid or unenforceable under applicable law, such provision shall be
ineffective to the extent of such invalidity or unenforceability only, without
it affecting the remaining provisions of this Agreement.
8. Executed in Counterparts. This Agreement may be executed in
counterparts each of which shall be an original with the same effect as if the
signatures hereto and thereto were upon the same instrument.
9. Specific Performance. The parties hereto agree that if for any reason
the Shareholder fails to perform any of his agreements or obligations under this
Agreement irreparable harm or injury to Parent would be caused for which money
damages would not be an adequate remedy. Accordingly, the Shareholder agrees
that, in seeking to enforce this Agreement against the Shareholder, Parent shall
be entitled to specific performance and injunctive and other equitable relief in
addition and without prejudice to any other rights or remedies, whether at law
or in equity, that Parent may have against the Shareholder for any failure to
perform any of its agreements or obligations under this Agreement.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without giving effect to the
principles of conflicts of laws thereof.
11. Amendments; Termination.
(a) This Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto.
(b) The provisions of this Agreement shall terminate upon the
earliest to occur of (i) the consummation of the Merger, (ii) the date which is
12 months after the date hereof, (iii) the termination of the Merger Agreement
pursuant to Section 7.1(a) or (g) thereof, or (iv) the termination of the Merger
Agreement pursuant to Section 7.1 (b) or (c) thereof if, but only if, the Merger
Agreement is terminated pursuant to such subsection (b) or (c) solely for
reasons that are not directly or indirectly related to the commencement of, or
any person's or entity's direct or indirect indication of interest in making, an
Acquisition Proposal with respect to the Company.
(c) For purposes of this Agreement, the term "Merger Agreement"
includes the Merger Agreement, as the same may be modified or amended from
time to time.
12. Additional Shares. If, after the date hereof the Shareholder acquires
beneficial ownership of any shares of the capital stock of Company (any such
shares, "Additional Shares"), including, without limitation, upon exercise of
any option, warrant or right to acquire shares of capital stock or through any
stock dividend or stock split, the provisions of this Agreement (other than
those set forth in Section 1 (a)) applicable to the Shares shall be applicable
to such Additional Shares as if such Additional Shares had been Shares as of the
date hereof. The provisions of the immediately preceding sentence shall be
effective with respect to Additional Shares without action by any person or
entity immediately upon the acquisition by the Shareholder of beneficial
ownership of such Additional Shares.
13. Action by Written Consent. If, in lieu of the Company Shareholders
Meeting, shareholder action in respect of the Merger Agreement or any of the
transactions contemplated by the Merger Agreement is taken by written consent,
the provisions of this Agreement imposing obligations in respect of or in
connection with the Company Shareholders Meeting shall apply mutatis mutandis to
such action by written consent.
14. Shareholder Certificate. Shareholder agrees to execute and deliver a
certificate containing such representations as are reasonably necessary and
customary for tax counsel to Parent on the one hand, and Company on the other
hand, to render an opinion to the effect that the Merger will constitute a
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986 and that no gain or loss will be recognized by the shareholders of Company
to the extent they receive Parent Common Stock solely in exchange for shares of
Company Common Stock, such certificate to be in the form attached hereto as
Exhibit C.
15. Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
legal successors and permitted assigns; provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of Parent (in the case of the Shareholder or any
of its permitted assigns) or the Shareholder (in the case of Parent or any of
its permitted assigns).
16. Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by facsimile, or by registered or certified mail (postage prepaid,
return receipt requested) to such party at its address set forth on the
signature page hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
Mark E. Watson, Jr.
Address:
MEW FAMILY LIMITED PARTNERSHIP
By:
Mark E. Watson, Jr., General Partner
By:
Kathleen Watson, General Partner
Address:
THE MARK AND KATHLEEN WATSON
CHARITABLE FOUNDATION
By:________________________________
Mark E. Watson, Jr., Trustee
By:________________________________
Kathleen E. Watson, Trustee
By:_________________________________
E.B. Lyon, III, Trustee
Address:____________________________
USF&G CORPORATION
By:
Address:
EXHIBIT A TO
VOTING AND SUPPORT AGREEMENT
Mark E. Watson, Jr., including 2,223,096 shares owned in his individual
capacity, 256,199 shares owned through MEW Family Limited Partnership, a limited
partnership in which he is a general partner together with his wife, Kathleen
Watson, and 100,000 shares owned through The Mark and Kathleen Watson Charitable
Foundation, of which he is a trustee together with Kathleen Watson and E.B.
Lyons, III.
EXHIBIT B TO
VOTING AND SUPPORT AGREEMENT
[Encumbrances on Shares]
EXHIBIT C TO
VOTING AND SUPPORT AGREEMENT
[Form of Tax Opinion Certificate]
This Certificate is being issued to Piper & Marbury L.L.P. in
connection with its rendering of opinions regarding certain federal income tax
consequences of a merger pursuant to the Plan and Agreement to Merge, dated as
of August 8, 1997 (the "Merger Agreement"), by and among USF&G Corporation, a
Maryland corporation ("USF&G"), United States Fidelity and Guaranty Company, a
Maryland corporation and wholly owned subsidiary of USF&G ("Subsidiary"), and
Titan Holdings, Inc. a Texas corporation ("Company"), providing, among other
things, for the merger of Company with and into Subsidiary (the "Merger"). As
used herein, "USF&G Common Stock" shall mean any one or more shares of the
USF&G's $2.50 per share par value common stock and "Company Common Stock" shall
mean any one or more shares of Company's $0.01 per share par value common stock.
After consulting with their counsel regarding the meaning of and
factual support for the following representations, the undersigned hereby
certify and represent to Piper & Marbury L.L.P. to the best of their knowledge
and belief that the following facts are now true and will continue to be true
through and as of the effective time of the Merger: There is no plan or
intention by the undersigned, acting either individually or in concert with one
another or with other persons, directly or indirectly, to sell, exchange,
transfer, transfer by gift or otherwise dispose (including by transactions which
would have the ultimate effect of a disposition including, but not limited to,
puts, short-sales and equity swap type of arrangements) (collectively, dispose)
of a number of shares of USF&G Common Stock received in the Merger that would
reduce the former Company Common Stockholders' ownership of USF&G stock to a
number of shares having, in the aggregate, a value, as of the date of the
Merger, of less than 50 percent of the fair market value of Company Common Stock
outstanding as of the same date. For purposes of the preceding sentence, all
shares of Company Common Stock exchanged for cash paid in lieu of fractional
shares of USF&G Common Stock will be considered outstanding stock of Company as
of the date of the Merger. Moreover, shares of Company Common Stock and shares
of USF&G Common Stock held by Company stockholders and otherwise sold, redeemed,
or disposed of prior or subsequent to the Merger are taken into account for
purpose of the first sentence of this paragraph.
Each of the undersigned recognizes that the opinions of Piper & Marbury
L.L.P. will be (i) based on the representations set forth herein and on the
statements contained in the Merger Agreement and documents related thereto, and
(ii) subject to certain limitations and qualifications including that they may
not be relied upon if any such representations are not accurate in all material
respects.
Each of the undersigned recognizes that the opinions of Piper & Marbury
L.L.P. will not address any tax consequences of the Merger or any action taken
in connection therewith except as expressly set forth in such opinions.
In witness whereof, the undersigned have executed this Certificate
this __ day of ________, 1997.
-----------------------------
Mark E. Watson, Jr.
-----------------------------
Mark E. Watson, III
-----------------------------
Thomas E. Mangold
MERGER AGREEMENT
[FORM OF AFFILIATE LETTER]
________, 1997
USF&G Corporation
6225 Smith Avenue
Baltimore, Maryland 21209
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed
to be an "affiliate" of Titan Holdings, Inc., a Texas corporation ("Titan"), as
the term "affiliate" is (i) defined for purposes of paragraphs (c) and (d) of
Rule 145 of the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"), and/or (ii) used in and for purposes of
Accounting Series, Releases 130 and 135, as amended, of the Commission. I have
been further advised that pursuant to the terms of the Agreement and Plan of
Merger dated as of August ___, 1997 (the "Agreement"), between Titan, USF&G
Corporation ("USF&G") and United States Fidelity and Guaranty Company, a
Maryland corporation (the "Subsidiary"), Titan will be merged with and into the
Subsidiary (the"Merger") and I will receive shares of Common Stock, par value
$2.50 per share, of USF&G (the "USF&G Common Stock") in exchange for shares of
Common Stock, par value $0.01 per share, of Titan owned by me.
I represent, warrant and covenant to USF&G that in the event I receive
any USF&G Common Stock as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of the
USF&G Common Stock in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Agreement and discussed
the requirements of such documents and other applicable limitations upon my
ability to sell, transfer or otherwise dispose of the USF&G Common Stock to the
extent I believe necessary, with my counsel or counsel for Titan.
C. I have been advised that the issuance of USF&G Common Stock to me
pursuant to the Merger has been registered with the Commission under the Act on
a Registration Statement on Form S-4. However, I have also been advised that,
since at the time the Merger was submitted for a vote of the stockholders of
Titan, I may be deemed to have been an affiliate of Titan and the distribution
by me of the USF&G Common Stock has not been registered under the Act, and that
I may not sell, transfer or otherwise dispose of the USF&G Common Stock issued
to me in the Merger unless (i) such sale, transfer or other disposition has been
registered under the Act, (ii) such sale, transfer or other disposition is made
in conformity with Rule 145 promulgated by the Commission under the Act, or
(iii) in the opinion of counsel reasonably acceptable to USF&G, such sale,
transfer or other disposition is otherwise exempt from registration under the
Act.
D. I understand that USF&G is under no obligation to register the sale,
transfer or other disposition of the USF&G Common Stock by me or on my behalf
under the Act or, to take any other action necessary in order to make compliance
with an exemption from such registration available.
E. I also understand that, in the event USF&G or USF&G's transfer agent
determines that I beneficially own one percent (1%) or more of the USF&G Common
Stock outstanding, stop transfer instructions will be given to USF&G's transfer
agents with respect to the USF&G Common Stock and that there will be placed on
the certificates for the USF&G Common Stock issued to me, or any substitutions
therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IN COMPLIANCE
WITH THE REQUIREMENTS OF RULE 145 OR PURSUANT TO A REGISTRATION
STATEMENT UNDER SAID ACT OF AN EXEMPTION FROM SUCH REGISTRATION."
F. I also understand that, in the event USF&G or USF&G's transfer agent
determines that I beneficially own one percent (1%) or more of the USF&G Common
Stock outstanding, unless the transfer by me of my USF&G Common Stock has been
registered under the Act or is a sale made in conformity with the provisions of
Rule 145, USF&G reserves the right to put the following legend on the
certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED
BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN
ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933."
It is understood and agreed that the legend set forth in paragraphs E
and F above shall be removed by delivery of substitute certificates without such
legend if such legend is not required for purposes of the Act or this Agreement.
It is understood and agreed that such legends and the stop orders referred to
above will be removed if (i) one year shall have elapsed from the date the
undersigned acquired the USF&G Common Stock received in the Merger and the
provisions of Rule 145(d)(2) are then available to the undersigned, (ii) two
years shall have elapsed from the date the undersigned acquired the USF&G Common
Stock received in the Merger and the provisions of Rule 145(d)(3) are then
applicable to the undersigned, or (iii) USF&G has received either an opinion of
counsel, which opinion and counsel shall be reasonably satisfactory to USF&G, or
a "no action" letter obtained by the undersigned from the staff of the
Commission, to the effect that the restrictions imposed by Rule 145 under the
Act no longer apply to the undersigned.
Execution of this letter should not be considered an admission on my
part that I am an "affiliate" of Titan as described in the first paragraph of
this letter or as a waiver of any rights I may have to object to any claim that
I am such an affiliate on or after the date of this letter.
[Name]
Accepted this ____ day of ______, 199___.
USF&G CORPORATION
By:
Name:
Title:
EXHIBIT C TO
MERGER AGREEMENT
[FORM OF WARRANT CANCELLATION AGREEMENT]
THIS AGREEMENT, dated as of ____________ __, 1997, by and between Titan
Holdings, Inc., a Texas corporation (the "Company"), USF&G Corporation,
a Maryland corporation ("Parent") and ____________________ (the
"Holder").
WHEREAS, the Holder is the record owner of _______ warrants (the
"Warrants") outstanding under the ________________ Warrant Agreement
(the "Warrant Agreement"); and
WHEREAS, the Company, Parent and the Holder have agreed that it is now
desirable that the Warrants be cancelled and that the Parent shall pay the
Holder the Warrant Consideration, as such term is defined in the Agreement and
Plan of Merger, dated as of August 7, 1997, by and among Parent, United States
Fidelity and Guaranty Company and the Company (the "Merger Agreement"), in
consideration for such cancellation;
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, IT IS HEREBY AGREED by the parties hereto as follows:
1. The Company, Parent and the Holder hereby agree that the Warrants
will be cancelled immediately prior to the Effective Time (as such term is
defined in the Merger Agreement) and that the Holder will have no further rights
under the Warrant Agreement with respect to the Warrants; provided, however,
that such cancellations will be of no force and effect if the Merger does not
occur.
2. In consideration for the cancellation of the Warrants, Parent shall
pay to the Holder the Warrant Consideration, which amount shall be paid to the
Holder no later than ten days after the Effective Time.
3. The Holder hereby agrees to forever relinquish its rights to the
Warrants and any rights that it may have with respect to the Warrants under the
Warrant Agreement.
4. If the Merger does not occur, this Agreement shall be of no force
and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
USF&G CORPORATION [HOLDER]
By: By:
Title: Title:
TITAN HOLDINGS, INC.
By:
Title:
<PAGE>
VOTING AND SUPPORT AGREEMENT
Agreement dated as of August 7, 1997 between the shareholder identified on
Exhibit A hereto (the "Shareholder") and USF&G Corporation, a Maryland
corporation ("Parent"). Capitalized terms used but not defined herein shall have
the meanings ascribed to such terms in the Merger Agreement (as defined below).
In consideration of the execution by Parent of the Agreement and Plan of
Merger dated as of August 7, 1997 (the "Merger Agreement") among Parent, United
States Fidelity and Guaranty Company, a Maryland corporation, and Titan
Holdings, Inc., a Texas corporation ("Company"), and other good and valuable
consideration, receipt of which is hereby acknowledged, the Shareholder and
Parent hereby agree as follows:
1. Representations, Warranties and Agreements of Shareholder. The
Shareholder hereby represents and warrants to, and agrees with, Parent as
follows:
(a) Title. As of the date hereof, the Shareholder is the beneficial
and registered owner of 2,579,295 shares (the "Shares") of common stock, $.01
par value per share ("Common Stock"), of Company. As of the date hereof, except
as set forth on Exhibit A hereto, the Shareholder does not (i) beneficially own
any shares of any class or series of capital stock of Company (other than the
Shares) or any securities convertible into or exercisable for shares of any
class or series of Company's capital stock or (ii) have any options or other
rights to acquire any shares of any class or series of capital stock of Company
or any securities convertible into or exercisable for shares of any class of
Company's capital stock. Except as set forth in Exhibit B hereto, the
Shareholder owns the Shares free and clear of any lien, mortgage, pledge,
charge, security interest or any other encumbrance of any kind. The Shareholder
covenants and agrees to comply with the pledge agreements and other loan
documents relating to the pledges of certain of the Shares identified on Exhibit
B and to otherwise take any action necessary to insure that the Shareholder can
carry out the terms of this Agreement. Each pledgee of the Shares has consented
to this Agreement and to the Shareholder's fulfillment of the terms thereof.
(b) Right to Vote and to Transfer Shares. The Shareholder has full
legal power, authority and right to vote all of the Shares in favor of approval
and adoption of the Merger Agreement without the consent or approval of, or any
other action on the part of, any other person or entity. Without limiting the
generality of the foregoing, except for this Agreement, Shareholder has not
entered into any voting agreement or any other agreement with any person or
entity with respect to any of the Shares, granted any person or entity any proxy
(revocable or irrevocable) or power of attorney with respect to any of the
Shares, deposited any of the Shares in a voting trust or entered into any
arrangement or agreement with any person or entity limiting or affecting the
Shareholder's ability to enter into this Agreement or legal power, authority or
right to vote the Shares in favor of the approval and adoption of the Merger
Agreement or any of the transactions contemplated by the Merger Agreement, and
Shareholder will not take any such action after the date of this Agreement and
prior to the Company shareholders meeting to vote on approval and adoption of
the Merger Agreement, including any adjournment or postponement thereof (the
"Company Shareholders Meeting"). This Agreement has been duly executed and
delivered by the Shareholder and constitutes a valid and binding agreement of
the Shareholder.
2. Representations and Warranties of Parent. Parent hereby represents and
warrants to the Shareholder that this Agreement (i) has been duly authorized by
all necessary corporate action, (iii) has been duly executed and delivered by
Parent and (iii) is a valid and binding agreement of Parent.
3. Restriction on Transfer. The Shareholder agrees that (other than
pursuant to the Merger Agreement) it will not, and will not agree to, sell,
assign, dispose of, encumber, mortgage, hypothecate or otherwise transfer or
encumber (collectively, "Transfer") any of the Shares to any person or entity;
provided, however, that the Shareholder may enter into pledge agreements
pledging any of the Shares as collateral security under loan agreements,
provided that (i) the lender under each such loan agreement consents to this
Agreement and fulfillment of the terms thereof and (ii) the Shareholder
covenants and agrees to comply with each pledge agreement and other loan
documents relating to pledges of Shares thereunder and to otherwise take all
action necessary to insure that the Shareholder can carry out the terms of this
Agreement.
4. Agreement to Vote of Shareholder. The Shareholder, in his individual
capacity as a shareholder of the Company only, hereby irrevocably and
unconditionally agrees to vote or to cause to be voted all of the Shares at the
Company Shareholders' Meeting and at any other annual or special meeting of
shareholders of Company where such matters arise (a) in favor of the approval
and adoption of the Merger Agreement and (b) against (i) approval of any
proposal made in opposition to or in competition with the Merger or any of the
other transactions contemplated by the Merger Agreement, (ii) any merger,
consolidation, sale of assets, business combination, share exchange,
reorganization or recapitalization of Company or any of its subsidiaries, with
or involving any party other than Parent or one of its subsidiaries, (iii) any
liquidation, dissolution or winding up of Company, (iv) any extraordinary
dividend by Company, (v) any change in the capital structure of Company (other
than pursuant to the Merger Agreement) and (vi) any other action that may
reasonably be expected to impede, interfere with, delay, postpone or attempt to
discourage the Merger or the other transactions contemplated by the Merger
Agreement or this Agreement or result in a breach of any of the covenants,
representations, warranties or other obligations or agreements of Company under
the Merger Agreement which would materially and adversely affect Company or its
ability to consummate the transactions contemplated by the Merger Agreement. The
Stockholder further agrees not to take or commit or agree to take any action
inconsistent with the foregoing.
5. Action in Shareholder Capacity Only. The Shareholder signs solely in the
Shareholder's capacity as a record and beneficial owner of the Shares, and
nothing herein shall prohibit, prevent or preclude the Shareholder from
fulfilling his fiduciary duties as a director of Company, including without
limitation, voting or consenting as a director in favor of an Acquisition
Proposal (as defined in the Merger Agreement) or negotiating with respect to an
Acquisition Proposal in his capacity as an officer or director of the Company.
6. No Shopping. The Shareholder, in his individual capacity as a
shareholder of the Company only, agrees not to, directly or indirectly, (i)
solicit, initiate or encourage (or authorize any person to solicit, initiate or
encourage) any inquiry, proposal or offer from any person to acquire the
business, property or capital stock of Company or any direct or indirect
subsidiary thereof, or any acquisition of a substantial equity interest in, or a
substantial amount of the assets of, Company or any direct or indirect
subsidiary thereof, whether by merger, purchase of assets, tender offer or other
transaction or (ii) participate in any discussion or negotiations regarding, or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or participate in, facilitate or encourage any effort
or attempt by any other person to do or seek any of the foregoing; provided
that, notwithstanding the foregoing, the Shareholder shall not be prohibited
from taking any such actions as are required, based upon advice of counsel, to
comply with his fiduciary duties as an officer and director of the Company to
the extent such actions are permitted under the Merger Agreement.
7. Invalid Provisions. If any provision of this Agreement shall be invalid
or unenforceable under applicable law, such provision shall be ineffective to
the extent of such invalidity or unenforceability only, without it affecting the
remaining provisions of this Agreement.
8. Executed in Counterparts. This Agreement may be executed in counterparts
each of which shall be an original with the same effect as if the signatures
hereto and thereto were upon the same instrument.
9. Specific Performance. The parties hereto agree that if for any reason
the Shareholder fails to perform any of his agreements or obligations under this
Agreement irreparable harm or injury to Parent would be caused for which money
damages would not be an adequate remedy. Accordingly, the Shareholder agrees
that, in seeking to enforce this Agreement against the Shareholder, Parent shall
be entitled to specific performance and injunctive and other equitable relief in
addition and without prejudice to any other rights or remedies, whether at law
or in equity, that Parent may have against the Shareholder for any failure to
perform any of its agreements or obligations under this Agreement.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without giving effect to the
principles of conflicts of laws thereof
11. Amendments; Termination.
(a) This Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto.
(b) The provisions of this Agreement shall terminate upon the earliest
to occur of (i) the consummation of the Merger, (ii) the date which is 12 months
after the date hereof, (iii) the termination of the Merger Agreement pursuant to
Section 7.1(a) or (g) thereof, or (iv) the termination of the Merger Agreement
pursuant to Section 7.1 (b) or (c) thereof if, but only if, the Merger Agreement
is terminated pursuant to such subsection (b) or (c) solely for reasons that are
not directly or indirectly related to the commencement of, or any person's or
entity's direct or indirect indication of interest in making, an Acquisition
Proposal with respect to the Company.
(c) For purposes of this Agreement, the term "Merger Agreement"
includes the Merger Agreement, as the same may be modified or amended from time
to time.
12. Additional Shares. If, after the date hereof the Shareholder acquires
beneficial ownership of any shares of the capital stock of Company (any such
shares, "Additional Shares"), including, without limitation, upon exercise of
any option, warrant or right to acquire shares of capital stock or through any
stock dividend or stock split, the provisions of this Agreement (other than
those set forth in Section 1 (a)) applicable to the Shares shall be applicable
to such Additional Shares as if such Additional Shares had been Shares as of the
date hereof. The provisions of the immediately preceding sentence shall be
effective with respect to Additional Shares without action by any person or
entity immediately upon the acquisition by the Shareholder of beneficial
ownership of such Additional Shares.
13. Action by Written Consent. If, in lieu of the Company Shareholders
Meeting, shareholder action in respect of the Merger Agreement or any of the
transactions contemplated by the Merger Agreement is taken by written consent,
the provisions of this Agreement imposing obligations in respect of or in
connection with the Company Shareholders Meeting shall apply mutatis mutandis to
such action by written consent.
14. Shareholder Certificate. Shareholder agrees to execute and deliver a
certificate containing such representations as are reasonably necessary and
customary for tax counsel to Parent on the one hand, and Company on the other
hand, to render an opinion to the effect that the Merger will constitute a
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986 and that no gain or loss will be recognized by the shareholders of Company
to the extent they receive Parent Common Stock solely in exchange for shares of
Company Common Stock, such certificate to be in the form attached hereto as
Exhibit C.
15. Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
legal successors and permitted assigns; provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of Parent (in the case of the Shareholder or any
of its permitted assigns) or the Shareholder (in the case of Parent or any of
its permitted assigns).
16. Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by facsimile, or by registered or certified mail (postage prepaid,
return receipt requested) to such party at its address set forth on the
signature page hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
Mark E. Watson, Jr.
Address:
MEW FAMILY LIMITED PARTNERSHIP
By:
------------------------------------
Mark E. Watson, Jr., General Partner
By:
----------------------------------
Kathleen Watson, General Partner
Address:
USF&G CORPORATION
By:
-----------------------------------
Address:
THE MARK AND KATHLEEN WATSON
CHARITABLE FOUNDATION
By:
----------------------------
Mark E. Watson, Jr., Trustee
By:
---------------------------
Kathleen E. Watson, Trustee
By:
-----------------------
E.B. Lyon, III, Trustee
Address:
EXHIBIT A
Mark E. Watson, Jr., including 2,223,096 shares owned in his
individual capacity, 256,199 shares owned through MEW Family
Limited Partnership, a limited partnership in which he is a
general partner together with his wife, Kathleen Watson, and
100,000 shares owned through The Mark and Kathleen Watson
Charitable Foundation, of which he is a trustee together with
Kathleen Watson and E.B. Lyons, III.
EXHIBIT B
EXHIBIT C
USF&G CORPORATION
SENIOR EXECUTIVE SEVERANCE PLAN
I. Preamble and Statement of Purpose.
The purpose of this Plan is to assure USF&G Corporation (together with its
subsidiaries, "the Corporation") that it will have the continued dedication,
loyalty, and service of, and the availability of objective advice and counsel
from, senior executives of the Corporation notwithstanding the possibility,
threat or occurrence of a bid or other action to take over control of the
Corporation.
In the event the Corporation receives any proposals from a third party
concerning a possible business combination with the Corporation, or acquisition
of the Corporation's equity securities, the Board of Directors of the
Corporation (the "Board") believes it imperative that the Corporation and the
Board be able to rely upon the Corporation's senior executives to continue in
their positions and be available for advice, if requested, without concern that
those individuals might be distracted by the personal uncertainties and risks
created by such a proposal, or be influenced to consider other employment
opportunities or prospects because of such uncertainties or risks.
Should the Corporation receive any such proposals, in addition to their
regular duties, such senior executives, in light of their experience and
knowledge gained within that portion of the business in which they are
principally engaged, may be called upon to assist in the assessment of
proposals, advise management and the Board as to whether such proposals would be
in the best interest of the Corporation and its shareholders, and to take such
other actions as the Board might determine to be appropriate.
II. Eligible Executives.
Participants under this Plan shall consist of those senior executives of
the Corporation who are from time to time designated to be included within this
Plan by the Board, acting on the advice of its Compensation Committee.
Participation in this Plan, and the senior executive's agreement to the terms
and conditions of such participation, shall be evidenced by a letter agreement
in the form, or substantially in the form, of Exhibit A. A Participant who is no
longer employed by the Corporation, shall cease to be a Participant in the Plan
except that a Participant shall not cease to be a Participant in the Plan by
virtue of cessation of employment (except as provided in the Plan) if employment
ceases, (i) within two years after the Effective Date (as hereinafter defined)
in question or (ii) during any period of time when the Board has knowledge that
any third person has taken steps reasonably calculated to effect a Change of
Control (as hereinafter defined) until, in the opinion of the Board, the third
party has abandoned or terminated its efforts to effect a Change of Control. Any
decision by the Board that a third party has or has not taken steps reasonably
calculated to effect a Change of Control or that the third person has abandoned
or terminated its efforts to effect a Change of Control shall be conclusive and
binding on the Participants.
III. Plan Provisions
3.1 Services during Certain Events.
3.1.1. Continuation of Services. Each Participant, by executing the letter
agreement in the form, or substantially in the form, of Exhibit A, shall agree
that in the event a third party begins a tender or exchange offer, circulates a
proxy to shareholders, makes a public announcement of its intention to take
steps to seek or cause a Change of Control, or takes other steps seeking to
effect a Change of Control, the Participant will not voluntarily leave the
employ of the Corporation, except for Good Reason (as defined in Section 3.3.2),
and will render the services contemplated in this Plan (including the preamble
and statement of purpose in Part I), until the third party has abandoned or
terminated his or its efforts to effect a Change of Control or until twelve (12)
months after the Effective Date (as defined below) has occurred.
3.1.2. Definition of Change in Control. For purposes of this Plan, a
"Change of Control" shall be deemed to have taken place on the earliest of the
date (i) of the first purchase of shares of the Common Stock of the Corporation
pursuant to a tender offer or an exchange offer (other than one made by the
Corporation or holding company for the Corporation) for all or any part of the
Corporation's Common Stock; (ii) of approval of the shareholders of the
Corporation of a merger, consolidation, sale, statutory or other share exchange,
or disposition of all or substantially all of the Corporation's assets in which
the Corporation (or a holding company for the Corporation) will not survive as a
publicly-owned corporation operating the business it operated prior to such
transaction; or (iii) on which any entity, person or group acquires beneficial
ownership of shares of the Corporation's Common Stock (whether in one or a
series of transactions), directly or indirectly, amounting to 30% or more of the
outstanding shares of such class. A "holding company for the Corporation" means,
in the foregoing sentence, an entity that becomes a holding company for the
Corporation without altering or planning to alter in any material respect the
shareholders of the Corporation or the business of the Corporation as a whole,
other than a case in which an acquisition of another company by the Corporation
or the holding company is being accomplished concurrently. In each case the
determination of whether or not a "Change in Control" is deemed to have taken
place shall be made without regard to whether such events or occurrences were
approved or concurred in by the Board.
3.1.3. Definition of Effective Date. For purposes of this Plan, "Effective
Date" shall mean the date on which a Change of Control occurs. In the event of a
subsequent Change of Control within two years of the prior Change in Control,
"Effective Date" shall mean the date on which the subsequent Change in Control
occurs. Anything in this Plan to the contrary notwithstanding, if a Change of
Control occurs, and if the Participant's employment with the Corporation had
terminated prior to the date on which the Change of Control occurred, and if it
is reasonably demonstrated by the Participant that such termination of
employment either was at the request of a third party who had taken steps
reasonably calculated to effect the Change of Control or otherwise arose in
connection with or in anticipation of the Change of Control, then, for all
purposes of this Plan, the term "Effective Date" shall mean, with respect to
such Participant only, the date immediately prior to the date of such
termination of employment.
3.2 Termination after Effective Date.
3.2.1. Triggering Event. In the event the Participant's employment with the
Corporation is terminated without Cause by the Corporation, or for Good Reason
by the Participant, on or within two years after the Effective Date, or in the
event the Participant terminates employment with the Corporation for any reason
(other than death, Disability or retirement at a normal retirement age) within
the Window Period, the Corporation shall (in addition to any compensation or
benefits to which the Participant may otherwise be entitled under any other
agreement, plan or arrangement with the Corporation, other than amounts excluded
by Section 3.5.2) make the payments and shall provide the benefits to the
Participant specified under Sections 3.2.2, 3.2.3, 3.2.4 and 3.2.5, and, if
applicable, the payments contemplated under Section 3.4 of this Plan. For
purposes of this Section 3.2.1, a Participant's employment with the Corporation
will be deemed to have terminated on the earlier of the date the Participant's
employment with the Corporation ceases or the date that written notice of any
such termination is received by the Participant or by the Corporation, as the
case may be, even though the parties may agree in connection therewith that the
Participant's employment with the Corporation will continue for a specified
period thereafter. The failure by the Participant or the Corporation to set
forth in any such notice sufficient facts or circumstances showing Good Reason
or Cause, as the case may be, shall not waive any right of the Participant or
the Corporation or preclude either party from asserting such facts or
circumstances in the enforcement of any such right.
3.2.2. Lump Sum Cash Payment. On or before the Participant's last day of
employment with the Corporation, the Corporation shall pay to the Participant as
compensation for services rendered to the Corporation a lump sum cash amount
(subject to any applicable payroll or other taxes required to be withheld) equal
to three times the sum of: (i) the Participant's actual annual rate of base
salary as in effect immediately prior to either the date of the Participant's
termination of employment with the Corporation or the Effective Date, whichever
is higher; (ii) the Participant's most recent annual bonus payment under the
Corporation's annual bonus plan (Management Incentive Plan), or if higher, the
target award for such Participant; and (iii) the Participant's most recent
regular long term incentive compensation payment under the Corporation's
long-term incentive plan (Long-Term Incentive Plan), or if higher, the target
award for such Participant. In determining actual base salary, annual bonus
payments and long-term incentive compensation payments, such sums shall be
adjusted to include the dollar value of any compensation that would have been
paid to the Participant but was deferred or excluded for Federal income tax
purposes (including, but not limited to, the dollar value of earned performance
awards under the Corporation's Long-Term Incentive Program which are deferred
thereunder, deferrals under the Corporation's Executive Deferred Bonus Payment
Plan and deferrals under the Corporation's Capital Accumulation Plan). Target
awards shall be based on the targets, the Participant's base salary and the
Participant's grade, all as in effect on the date immediately prior to the
Effective Date. The dollar value of any payments or awards which pursuant to the
applicable compensation plan are payable in shares of stock, shall be based on
the average of the high and low sales price of such stock as reported on the
principal stock exchange upon which such shares are traded on the Determination
Date. The "Determination Date" shall be (i) if the value is to be based on a
payment, the date of such award (i.e., the date generally used by the
Corporation to determine the value of such awards for federal income tax
purposes without regard to an individual Participant's exercise of a deferral
election); or (ii) if the value is to be based on a targeted award, the date
immediately prior to either the Effective Date or the date of such Participant's
termination, whichever would result in the greater value.
3.2.3. Deferred Compensation and Unvested Retirement Plan Benefit Payment.
On or before the Participant's last day of employment with the Corporation, the
Corporation shall pay to the Participant a lump sum cash amount (subject to any
applicable payroll or other taxes required to be withheld) equal to (i) the sum
of the lump sum actuarial present value of the Participant's accrued benefits as
of such day under all of the Corporation's plans, programs and arrangements
providing for nonqualified deferred compensation or nonqualified supplemental
retirement benefits ("Nonqualified Plans") plus (ii) the difference (if any)
between (I) the sum of the lump sum actuarial present value of the Participant's
accrued benefits as of such day under all of the Corporation's tax-qualified
retirement plans (including, but not limited to, the Retirement Pension Plan for
U.S.A. Employees of USF&G Corporation, the USF&G Capital Accumulation Plan and
any successor plans) ("Retirement Plans") and (II) the sum of the lump sum
actuarial present value of the Participant's vested accrued benefit as of such
day under the Retirement Plans. With respect to each Nonqualified Plan and
Retirement Plan which is not a defined contribution plan, the actuarial factors
specified in such plan shall be used to determine the lump sum actuarial present
value of accrued benefits or, if no such factors are specified, the factors to
be used under the Corporation's tax-qualified defined benefit plan, as then in
effect, shall be used. The amount payable under this Section 3.2.3 shall be in
full satisfaction of any and all amounts which may be payable to the Participant
under the Nonqualified Plans, and upon receipt of the amount specified in this
Section 3.2.3, neither the Participant nor any beneficiary of the Participant
shall have any rights to any further payments under such Nonqualified Plans. The
amounts payable under this Section 3.2.3 shall be determined without regard to
any tax benefits or income deferral otherwise available or applicable to the
Participant with respect to amounts paid or payable under the Nonqualified Plans
or the Retirement Plans.
3.2.4. Outstanding Long-Term Incentive and Annual Bonus Awards. On or
before the Participant's last day of employment with the Corporation, the
Corporation shall pay to the Participant as compensation for services rendered
to the Corporation a lump sum amount (subject to any applicable payroll or other
taxes required to be withheld) equal to a portion of any outstanding annual
bonus award pro rated (based on the number of whole months in the annual bonus
period) to the date of termination, based on an assumed achievement of 100% of
the targeted performance goal for such award. Within 30 days after the Effective
Date, the Corporation shall pay to the Participant as compensation for services
rendered to the Corporation a lump sum cash amount (subject to any applicable
payroll or other taxes required to be withheld) equal to a portion of all
outstanding long-term incentive awards, pro rated (based on the number of whole
months in the performance period) to the date of termination, based on an
assumed achievement of 100% of the targeted performance goal for such award.
Upon receipt of an amount specified under this Section 3.2.4, neither the
Participant nor any other person claiming any payment by reason of the
Participant's participation in the applicable long-term incentive or annual
bonus plan, shall have any right to any payment under such plan with respect to
any applicable award thereunder.
3.2.5. Welfare Benefit Continuation. The Participant's (and, where
applicable, members of the Participant's family's) participation in the group
medical, dental, life (including split dollar) and disability plans maintained
by the Corporation shall be continued on substantially the same basis as if the
Participant were an employee of the Corporation until the earlier of the third
anniversary of the Participant's termination or the last day of the month in
which the Participant commences employment with another employer (the "Coverage
Period"). In the event that the Corporation is unable for any reason to provide
for the Participant's (and, where applicable, the Participant's family's)
continued participation in one or more of such plans during the Coverage Period,
the Corporation shall pay or provide at its expense equivalent benefit coverage
for the remainder of the Coverage Period. The Corporation shall also pay to the
Participant at least annually an amount which shall be sufficient on an after
tax basis to compensate the Participant for all additional taxes incurred by
reason of any income realized as a result of the continued coverage under this
subparagraph, to the extent such taxes result from the Participant's status as a
non-employee and would not be incurred if Participant was an employee of the
Corporation, on a grossed-up basis at the highest marginal income tax rate for
individuals; provided, however, that no such payment shall be provided with
respect to continued coverage under any split dollar life insurance plan or
arrangement. The Coverage Period shall not be taken into account as a period of
continuation coverage for purposes of Part 6 of Title I of the Employee
Retirement Income Security Act of 1974 or for purposes of any other obligation
of the Corporation to provide any continued coverage to the Participant (and,
where applicable, members of the Participant's family) under any group medical,
dental, life or disability plan.
3.3 Certain Definitions. For purposes of this Plan:
3.3.1. "Cause" means (i) the Participant's willful and continued failure
substantially to perform the duties of his or her position (other than as a
result of Disability or as a result of termination by the Participant for Good
Reason) after written notice to the Participant by the Board specifying such
failure, provided that such "cause" shall have been found by a majority vote of
the Board after at least 10 days' written notice to the Participant specifying
the failure on the part of the Participant and after an opportunity for the
Participant to be heard at a meeting of the Board; (ii) any willful act or
omission by the Participant constituting dishonesty, fraud or other malfeasance,
and any act or omission by the Participant constituting immoral conduct, which
in any such case is injurious to the financial condition or business reputation
of the Corporation or any of its affiliates; or (iii) the Participant's
indictment of a felony under the laws of the United States or any state thereof
or any other jurisdiction in which the Corporation conducts business. For
purposes of this definition, no act or failure to act shall be deemed "willful"
unless effected by the Participant not in good faith and without a reasonable
belief that such action or failure to act was in or not opposed to the
Corporation's best interests.
3.3.2. "Good Reason" means (i) removal from, or failure to be reappointed
or reelected to, the Participant's principal positions immediately prior to the
Effective Date (other than as a result of a promotion); (ii) material diminution
in the Participant's title, position, duties or responsibilities, or the
assignment to the Participant of duties that are inconsistent, in a material
respect, with the scope of duties and responsibilities associated with the
Participant's position immediately prior to the Effective Date; (iii) reduction
in base salary or Incentive Compensation opportunity, including reduction in
level of participation in long term incentive, benefit and other plans for
senior executives as in effect immediately preceding the Effective Date, or
their equivalents; (iv) relocation of the Participant's principal workplace
without his or her consent to a location which is more than 50 miles from the
Participant's principal workplace on the Effective Date; or (v) any failure by
the Corporation to comply with and satisfy the requirements of Section 3.6.7,
provided that the successor shall have received at least ten days' prior written
notice from the Corporation or the Participant of the requirements of Section
3.6.7. For purposes of clauses (i), (ii) or (iii) of the preceding sentence, an
isolated, insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Corporation promptly after receipt of notice thereof given by
the Participant shall be excluded. For purposes of clause (ii), no material
diminution of title, position, duties or responsibilities shall be deemed to
occur solely because the Corporation becomes a subsidiary of another corporation
or change in the reporting hierarchy incident thereto.
3.3.3. "Window Period" means the 60-day period immediately following the
first anniversary of the Effective Date.
3.3.4. "Disability" means either (i) "total disability" as defined for
purposes of the Corporation's Long-Term disability benefit plan; or (ii) the
Participant's inability, as a result of physical or mental incapacity, to
perform the Participant's duties for a period of six consecutive months or for
an aggregate of six months in any twelve consecutive month period.
3.3.5. "Incentive Compensation" includes any bonus or award received under
any corporate incentive plan or under any corporate long-term incentive plan
maintained by the Corporation (or any successor to any such plan).
3.4 Certain Additional Payments by the Corporation.
3.4.1. Excise Tax Protection. In the event it shall be determined that any
payment or distribution by the Corporation to or for the benefit of the
Participant (whether paid or payable or distributed or distributable pursuant to
the terms of this Plan or otherwise, but determined without regard to any
additional payments required under this Section 3.4) (a "Payment") would be
subject to the excise tax imposed by Section 4999 (or any successor provision)
of the Internal Revenue Code of 1986, as amended, or any interest or penalties
are incurred by the Participant with respect to such excise tax (such excise
tax, together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Corporation shall pay to the
Participant an additional amount (a "Gross-Up Payment") such that, after payment
by the Participant of all income taxes and Excise Tax imposed upon the Gross-Up
Payment, the Participant will retain an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments.
3.4.2. Determinations. Subject to the provisions of Section 3.4.3 below,
all determinations required to be made under this Section 3.4, including whether
and when a Gross-Up Payment is required, the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Piper & Marbury L.L.P. (the "Law Firm"), which shall provide detailed
supporting calculations both to the Corporation and the Participant within 15
business days of the receipt of notice from the Participant that there has been
a Payment, or such earlier time as may be requested by the Corporation. The Law
Firm may employ and rely upon the opinions of actuarial or accounting
professionals to the extent it deems necessary or advisable. In the event that
the Law Firm determines for any reason that it is unable to perform such
services, or declines to do so, the Corporation shall select another nationally
recognized law firm to make the determinations required under this section
(which law firm shall then be referred to as the Law Firm hereunder). All fees
and expenses of the Law Firm shall be borne solely by the Corporation. Any
Gross-Up Payment determined pursuant to this Section 3.4 shall be paid by the
Corporation to the Participant within five business days of the Corporation's
receipt of the Law Firm's determinations. If the Law Firm determines that no
Excise Tax should be payable by the Participant, the Law Firm shall be requested
to furnish the Participant with a written opinion that failure to report the
Excise Tax on the Participant's applicable federal income tax return would not
result in the imposition of a negligence or similar penalty. Any determination
by the Law Firm shall be binding upon the Corporation and the Participant. As a
result of possible uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Law Firm hereunder, it is possible
that Gross-Up Payments which will not have been made by the Corporation should
have been made or that the Gross-Up Payments which are made by the Corporation
will be insufficient to satisfy the Excise Taxes and/or all applicable income
taxes incurred by the Participant on the Gross-Up Payments (in either case, an
"Underpayment"), consistent with the calculations required to be made hereunder.
In the event that the Corporation exhausts its remedies pursuant to Section
3.4.3, and the Participant thereafter is required to make a payment of any
Excise Tax, the Law Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Corporation to
or for the benefit of the Participant.
3.4.3. Underpayments. The Participant shall notify the Corporation in
writing of any claim by the Internal Revenue Service that, if successful, would
result in the assessment or collection of any Underpayment with respect to the
Participant. Such notification shall be given as soon as practicable but no
later than ten business days after the Participant is informed in writing of
such claim and shall apprise the Corporation of the nature of such claim and the
date on which such claim is requested to be paid; provided, however, that a
failure by the Participant to give notice timely shall not relieve the
Corporation of its obligations hereunder except to the extent it shall have been
materially prejudiced. The Participant shall not pay such claim prior to the
expiration of the 30-day period following the date on which it gives such notice
to the Corporation (or such shorter period ending on the date that any payment
of taxes with respect to such claim is due). If the Corporation notifies the
Participant in writing prior to the expiration of such period that it desires to
contest such claim, the Participant shall:
(i) give the Corporation any information reasonably requested by
the Corporation relating to such claim,
(ii) take such action in connection with contesting such claim as the
Corporation shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect
to such claim by the Law Firm or any other law firm selected by the
Corporation,
(iii) cooperate with the Corporation in good faith in order to
effectively to contest such claim, and
(iv) permit the Corporation to participate in any proceedings
relating to such claim;
provided, however, that the Corporation shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Participant
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses.
3.4.4. Refunds. If, after the receipt by the Participant of any amount paid
or advanced by the Corporation in connection with a contest undertaken pursuant
to Section 3.4.3, the Participant becomes entitled to receive any refund or
credit with respect thereto, the Participant shall (subject to the Corporation's
complying with the requirements of Section 3.4.3) promptly pay to the
Corporation the amount of such refund or credit (together with any interest paid
or credited thereon after taxes applicable thereto).
3.5 Terms and Conditions of Participation
3.5.1. Conditions of Participation. As a condition to being covered by the
Plan, each Participant, by executing the letter agreement in the form, or
substantially in the form, of Exhibit A, shall acknowledge and agree that (i)
except as may otherwise be expressly provided under any other executed agreement
between the Participant and the Corporation, nothing contained in this Plan
(including, but not limited to using the term "Cause" to determine benefits
under this Plan) is intended to change the fact that the employment of the
Participant by the Corporation is "at will" and, prior to the Effective Date,
may be terminated by either the Participant or the Corporation at any time, (ii)
in accordance with the Corporation's Alternative Dispute Resolution Policy (as
in effect from time to time), disputes regarding the Participant's employment
with the Corporation (regardless of whether such dispute involves the terms of
this Plan) shall be subject to arbitration as provided in Section 3.6.9 of this
Plan, and (iii) the Participant shall be bound by, and comply with, the
requirements of Sections 3.6.3, 3.6.4 and 3.6.5 of this Plan. Moreover, if prior
to the Effective Date, the Participant's employment with the Corporation
terminates, then the Participant shall have no further rights under this Plan.
3.5.2. Non-Duplication. As a condition of being covered by this Plan, and
notwithstanding any other agreement to the contrary, each Participant, by
executing the letter agreement in the form, or substantially in the form, of
Exhibit A, shall agree that (i) the payments under this Plan shall be in lieu of
any severance or similar payments that otherwise might be payable under any
plan, program, policy or agreement, and (ii) except for amounts payable under
the Retirement Plans, if any, the payments under Sections 3.2.3 and 3.2.4 are in
full and complete satisfaction of all liabilities of the Corporation with
respect to the Participant under the plans, programs and agreements described in
those Sections.
3.5.3. Amendment and Termination. The Plan may not be amended or terminated
after the Effective Date. Prior to the Effective Date, the Board may, in its
sole discretion, modify or amend this Plan in any respect, or terminate the Plan
(including with respect to individuals then participating in the Plan), provided
(i) such action is taken and becomes effective at least one (1) year prior to
the Effective Date and such action is communicated to the Participants prior to
the Effective Date, (ii) the Board, in its sole discretion, determines that such
actions are necessary, in its opinion, to permit any business combination that
is authorized by the Board to comply with requirements for treatment as a
pooling of interests transaction for accounting purposes under generally
accepted accounting principles, if such transaction is intended to meet, and is
conditioned upon compliance with, such requirements, or (iii) such actions do
not reduce the amount or defer the receipt of any payment or benefit provided
under this Plan.
3.6 General.
3.6.1. Indemnification. If litigation or arbitration shall be brought to
enforce or interpret any provision of this Plan which relates to the
Corporation's obligation to make payments hereunder, then the Corporation, to
the extent permitted by applicable law and the Corporation's Charter, shall
indemnify the Participant for his reasonable attorneys' fees and disbursements
incurred in such proceedings, and shall pay pre-judgment interest on any money
judgment obtained by the Participant calculated at the prime rate of interest
published from time to time by The Wall Street Journal ("Prime Rate") from the
date that payment(s) to him or her should have been made under this Plan.
3.6.2. Payment Obligations; Overdue Payments. The Corporation's obligations
to make the payments and provide the benefits to the Participant under this Plan
shall be absolute and unconditional and shall not be affected in any way by any
circumstances, including, without limitation, any asserted violation of Sections
3.6.3, 3.6.4 or 3.6.5 of this Plan or any offset, counterclaim, recoupment,
defense or other right which the Corporation may have against the Participant or
anyone else, provided, however, that as a condition to payment of amounts under
this Plan, the Participant shall execute a general release and waiver
("Waiver"), in form and substance reasonably satisfactory to the Corporation, of
all claims relating to the Participant's employment by the Corporation and the
termination of such employment, including, but not limited to, discrimination
claims, employment-related tort claims, contract claims and claims under this
Plan (other than claims with respect to benefits under the Corporation's
tax-qualified retirement plans, continuation of coverage or benefits solely as
required by Part 6 of Title I of the Employee Retirement Income Security Act of
1974 or any obligation of the Corporation to provide future performance under
Section 3.2.5 and Section 3.4). All amounts payable by the Corporation hereunder
shall be paid without notice or demand, except as may be required with respect
to the Waiver. Each and every payment made hereunder by the Corporation shall be
final and the Corporation will not seek to recover all or any part of such
payment from the Participant or from whosoever may be entitled thereto, for any
reason whatsoever. The Participant shall not be obligated to seek other
employment in mitigation of the amounts payable or arrangements made under any
provision of this Plan, and the obtaining of any such other employment shall in
no event effect any reduction of the Corporation's obligations to make the
payments and provide the benefits required under this Plan. The Participant
shall be entitled to receive interest at the Prime Rate on any payments under
this Plan that are overdue, provided, however, that no payments shall be deemed
to be overdue until the Participant executes the Waiver and any recision period
with respect to such Waiver has expired.
3.6.3. Confidential Information. The Participant shall at all times hold in
a fiduciary capacity for the benefit of the Corporation all secret, confidential
or proprietary information, knowledge or data relating to the Corporation, and
its respective businesses, which shall have been obtained by the Participant
during the Participant's employment by the Corporation and which shall not be or
become public knowledge (other than by acts by the Participant or
representatives of the Participant in violation of this Plan) including, but not
limited to, information regarding clients, customers, policyholders, vendors,
consultants and agents of the Corporation ("Confidential Information"). During
the Participant's employment with the Corporation and after termination of such
employment at any time or for any reason, and regardless of whether any payments
are made to the Participant under this Plan as a result of such termination, the
Participant shall not, without the prior written consent of the Corporation or
as may otherwise be required by law or legal process, communicate or divulge any
Confidential Information to any person other than the Corporation and those
designated by it or use any Confidential Information except for the benefit of
the Corporation. Immediately upon termination of the Participant's employment
with the Corporation at any time or for any reason, the Participant shall return
to the Corporation all Confidential Information, including, but not limited to,
any and all copies, reproductions, notes or extracts of Confidential
Information.
3.6.4. Solicitation of Employees. During the Participant's employment with
the Corporation and for a period of twelve (12) months after termination of such
employment at any time and for any reason, and regardless of whether any
payments are made to the Participant under this Plan as a result of such
termination, the Participant shall not solicit, participate in or promote the
solicitation of any person who was employed by the Corporation at the time of
the Participant's termination of employment with the Corporation to leave the
employ of the Corporation, or, on behalf of himself or any other person, hire,
employ or engage any such person. The Participant further agrees that, during
such time, if an employee of the Corporation contacts the Participant about
prospective employment, the Participant will inform such employee that he or she
cannot discuss the matter further without informing the Corporation.
3.6.5. Solicitation of Clients, Customers, Etc. During the Participant's
employment with the Corporation and for a period of twelve (12) months after
termination of the Participant's employment under circumstances which result in
payment of any amounts to the Participant under this Plan, the Participant shall
not, directly or indirectly, solicit any person who, at the time of the
termination of the Participant's employment with the Corporation, was a client,
customer, policyholder, vendor, consultant or agent of the Corporation to
discontinue business, in whole or in part, with the Corporation. The Participant
further agrees that, during such time, if such a client, customer, policyholder,
vendor, or consultant or agent contacts the Participant about discontinuing
business with the Corporation and/or moving that business elsewhere, the
Participant will inform such client, customer, policyholder, vendor, consultant
or agent that he or she cannot discuss the matter further without informing the
Corporation.
3.6.6. Application of Restrictions Respecting Confidential Information and
Solicitation of Employees, Clients, Customers, etc. The requirements and
obligations of the Participant under Sections 3.6.3, 3.6.4 and 3.6.5 shall be in
addition to and not a limitation under any other requirements and obligations of
the Participant, at law or otherwise. The term "person" for purposes of Sections
3.6.3, 3.6.4 and 3.6.5 shall include any individual or entity, including any
corporation, trust or partnership.
3.6.7. Successors. All right under this Plan are personal to the
Participant and without the prior written consent of the Corporation shall not
be assignable by the Participant otherwise than by will or the laws of descent
and distribution. This Plan shall inure to the benefit of and be enforceable by
the Participant's legal representative. This Plan shall inure to the benefit of
and be binding upon the Corporation and its successors and assigns. The
Corporation will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Corporation to assume expressly and agree to perform this
Plan in the same manner and to the same extent that the Corporation would be
required to perform it if no such event resulting in a successor had taken
place. As used in this Plan, "Corporation" shall mean the Corporation and any
successor to its business and/or assets as aforesaid which assumes and agrees,
or is otherwise obligated, to perform this Plan by operation of law, or
otherwise.
3.6.8. Controlling Law. This Plan shall in all respects be governed by, and
construed in accordance with, the laws of the State of Maryland (without regard
to the principles of conflicts of laws).
3.6.9. Arbitration. IN ACCORDANCE WITH THE CORPORATION'S ALTERNATIVE
DISPUTE RESOLUTION POLICY (AS IN EFFECT FROM TIME TO TIME), DISPUTES REGARDING
THE PARTICIPANT'S EMPLOYMENT WITH THE CORPORATION, INCLUDING, WITHOUT
LIMITATION, ANY DISPUTE HEREUNDER, WHICH CANNOT BE RESOLVED BY NEGOTIATIONS
BETWEEN THE CORPORATION AND THE PARTICIPANT SHALL BE SUBMITTED TO, AND SOLELY
DETERMINED BY, FINAL AND BINDING ARBITRATION CONDUCTED BY JAMS/ENDISPUTE, INC.
OR ANY SUCCESSOR THERETO, IN ACCORDANCE WITH JAMS/ENDISPUTE, INC.'S ARBITRATION
RULES APPLICABLE TO EMPLOYMENT DISPUTES, AND THE PARTIES AGREE TO BE BOUND BY
THE FINAL AWARD OF THE ARBITRATOR IN ANY SUCH PROCEEDING. THE ARBITRATOR SHALL
APPLY THE LAWS OF THE STATE OF MARYLAND WITH RESPECT TO THE INTERPRETATION OR
ENFORCEMENT OF ANY MATTER RELATING TO THIS PLAN; IN ALL OTHER CASES THE
ARBITRATOR SHALL APPLY THE LAWS OF THE STATE SPECIFIED IN THE CORPORATION'S
ALTERNATIVE DISPUTE RESOLUTION POLICY. ARBITRATION MAY BE HELD IN BALTIMORE,
MARYLAND OR SUCH OTHER PLACE AS THE PARTIES HERETO MAY MUTUALLY AGREE, AND SHALL
BE CONDUCTED SOLELY BY A FORMER JUDGE. JUDGMENT UPON THE AWARD BY THE ARBITRATOR
MAY BE ENTERED IN ANY COURT HAVING JURISDICTION THEREOF.
3.6.10. Severability. Any provision in this Plan which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Date: February 27, 1997
/s/ NORMAN P. BLAKE, JR.
Norman P. Blake, Jr.
Chairman, President, and
Chief Executive Officer
SENIOR EXECUTIVE SEVERANCE PLAN
Dear ____________:
On February 26, 1997, the Board of Directors approved the enclosed Senior
Executive Severance Plan (the "Plan"). The Board, upon recommendation of the
Compensation Committee, has designated you to be a Participant in the Plan.
Please review the provisions of the Plan and its stated purposes carefully,
including particularly the terms and conditions stated in Sections 3.1.1
(Continuation of Services), 3.5 (Terms and Conditions of Participation), 3.6.3
(Confidential Information), 3.6.4 (Solicitation of Employees), 3.6.5
(Solicitation of Clients, Customers, Etc.) and 3.6.9 (Arbitration) of the Plan,
to which you will agree by executing this letter agreement. In order to be
entitled to the benefits and agree to your obligations provided in the Plan,
please execute the enclosed copy of this letter and return it to John A.
MacColl, Executive Vice President and General Counsel, whereupon the Plan and
this letter will become a legally binding agreement between you and the
Corporation.
Very truly yours,
-------------------------
I hereby confirm my agreement with the foregoing:
- -------------------------------
Date:___________________________
<PAGE>
USF&G CORPORATION
KEY EXECUTIVE SEVERANCE PLAN
I. Preamble and Statement of Purpose.
The purpose of this Plan is to assure USF&G Corporation (together with its
subsidiaries, "the Corporation") that it will have the continued dedication,
loyalty, and service of, and the availability of objective advice and counsel
from, key employees of the Corporation notwithstanding the possibility, threat
or occurrence of a bid or other action to take over control of the Corporation.
In the event the Corporation receives any proposals from a third party
concerning a possible business combination with the Corporation, or acquisition
of the Corporation's equity securities, the Board of Directors of the
Corporation (the "Board") believes it imperative that the Corporation and the
Board and its senior management be able to rely upon key employees to continue
in their positions and be available for advice, if requested, without concern
that those individuals might be distracted by the personal uncertainties and
risks created by such a proposal, or be influenced to consider other employment
opportunities or prospects because of such uncertainties or risks.
Should the Corporation receive any such proposals, in addition to their
regular duties, such key employees, in light of their experience and knowledge
gained within that portion of the business in which they are principally
engaged, may be called upon to assist in the assessment of proposals, advise
senior management and the Board as to whether such proposals would be in the
best interest of the Corporation and its shareholders, and to take such other
actions as the Board or senior management might determine to be appropriate.
II. Eligible Executives.
Participants under this Plan shall consist of those key employees of the
Corporation who are from time to time designated as key employees to be included
within this Plan by the Chief Executive Officer of the Corporation with the
concurrence of the Compensation Committee of the Board. Participation in this
Plan, the amount of the Lump Sum Cash Payment under Section 3.2.2 of this Plan,
and the key employee's agreement to the terms and conditions of such
participation, shall be evidenced by a letter agreement in the form, or
substantially in the form, of Exhibit A. A Participant who is no longer employed
by the Corporation, shall cease to be a Participant in the Plan except that a
Participant shall not cease to be a Participant in the Plan by virtue of
cessation of employment (except as provided in the Plan) if employment ceases,
(i) within two years after the Effective Date (as hereinafter defined) in
question or (ii) during any period of time when the Board has knowledge that any
third person has taken steps reasonably calculated to effect a Change of Control
(as hereinafter defined) until, in the opinion of the Board, the third party has
abandoned or terminated its efforts to effect a Change of Control. Any decision
by the Board that a third party has or has not taken steps reasonably calculated
to effect a Change of Control or that the third person has abandoned or
terminated its efforts to effect a Change of Control shall be conclusive and
binding on the Participants.
III. Plan Provisions
3.1 Services during Certain Events.
3.1.1. Continuation of Services. Each Participant, by executing the letter
agreement in the form, or substantially in the form, of Exhibit A, shall agree
that in the event a third party begins a tender or exchange offer, circulates a
proxy to shareholders, makes a public announcement of its intention to take
steps to seek or cause a Change of Control, or takes other steps seeking to
effect a Change of Control, the Participant will not voluntarily leave the
employ of the Corporation, except for Good Reason (as defined in Section 3.3.2),
and will render the services contemplated in this Plan (including the preamble
and statement of purpose in Part I), until the third party has abandoned or
terminated his or its efforts to effect a Change of Control or until twelve (12)
months after the Effective Date (as defined below) has occurred.
3.1.2. Definition of Change in Control. For purposes of this Plan, a
"Change of Control" shall be deemed to have taken place on the earliest of the
date (i) of the first purchase of shares of the Common Stock of the Corporation
pursuant to a tender offer or an exchange offer (other than one made by the
Corporation or holding company for the Corporation) for all or any part of the
Corporation's Common Stock; (ii) of approval of the shareholders of the
Corporation of a merger, consolidation, sale, statutory or other share exchange,
or disposition of all or substantially all of the Corporation's assets in which
the Corporation (or a holding company for the Corporation) will not survive as a
publicly-owned corporation operating the business it operated prior to such
transaction; or (iii) on which any entity, person or group acquires beneficial
ownership of shares of the Corporation's Common Stock (whether in one or a
series of transactions), directly or indirectly, amounting to 30% or more of the
outstanding shares of such class. A "holding company for the Corporation" means,
in the foregoing sentence, an entity that becomes a holding company for the
Corporation without altering or planning to alter in any material respect the
shareholders of the Corporation or the business of the Corporation as a whole,
other than a case in which an acquisition of another company by the Corporation
or the holding company is being accomplished concurrently. In each case the
determination of whether or not a "Change in Control" is deemed to have taken
place shall be made without regard to whether such events or occurrences were
approved or concurred in by the Board.
3.1.3. Definition of Effective Date. For purposes of this Plan, "Effective
Date" shall mean the date on which a Change of Control occurs. In the event of a
subsequent Change of Control within two years of the prior Change in Control,
"Effective Date" shall mean the date on which the subsequent Change in Control
occurs. Anything in this Plan to the contrary notwithstanding, if a Change of
Control occurs, and if the Participant's employment with the Corporation had
terminated prior to the date on which the Change of Control occurred, and if it
is reasonably demonstrated by the Participant that such termination of
employment either was at the request of a third party who had taken steps
reasonably calculated to effect the Change of Control or otherwise arose in
connection with or in anticipation of the Change of Control, then, for all
purposes of this Plan, the term "Effective Date" shall mean, with respect to
such Participant only, the date immediately prior to the date of such
termination of employment.
3.2 Termination after Effective Date.
3.2.1. Triggering Event. In the event the Participant's employment with the
Corporation is terminated without Cause by the Corporation, or for Good Reason
by the Participant, on or within two years after the Effective Date, the
Corporation shall (in addition to any compensation or benefits to which the
Participant may otherwise be entitled under any other agreement, plan or
arrangement with the Corporation, other than amounts excluded by Section 3.4.2,
but subject to the limitations set forth in Section 3.2.6) make the payments and
shall provide the benefits to the Participant specified under Sections 3.2.2,
3.2.3, 3.2.4 and 3.2.5. For purposes of this Section 3.2.1, a Participant's
employment with the Corporation will be deemed to have terminated on the earlier
of the date the Participant's employment with the Corporation ceases or the date
that written notice of any such termination is received by the Participant or by
the Corporation, as the case may be, even though the parties may agree in
connection therewith that the Participant's employment with the Corporation will
continue for a specified period thereafter. The failure by the Participant or
the Corporation to set forth in any such notice sufficient facts or
circumstances showing Good Reason or Cause, as the case may be, shall not waive
any right of the Participant or the Corporation or preclude either party from
asserting such facts or circumstances in the enforcement of any such right.
3.2.2. Lump Sum Cash Payment. On or before the Participant's last day of
employment with the Corporation, the Corporation shall pay to the Participant as
compensation for services rendered to the Corporation a lump sum cash amount
(subject to any applicable payroll or other taxes required to be withheld) equal
to the amount specified in the letter agreement with the Participant in the
form, or substantially in the form, of Exhibit A.
3.2.3 Deferred Compensation and Unvested Retirement Plan Benefit Payment.
On or before the Participant's last day of employment with the Corporation, the
Corporation shall pay to the Participant a lump sum cash amount (subject to any
applicable payroll or other taxes required to be withheld) equal to (i) the sum
of the lump sum actuarial present value of the Participant's accrued benefits,
as of such day under all of the Corporation's plans, programs and arrangements
providing for nonqualified deferred compensation or nonqualified supplemental
retirement benefits ("Nonqualified Plans") plus (ii) the difference (if any)
between (I) the sum of the lump sum actuarial present value of the Participant's
accrued benefits as of such day under all of the Corporation's tax-qualified
retirement plans (including, but not limited to, the Retirement Pension Plan for
U.S.A. Employees of USF&G Corporation, the USF&G Capital Accumulation Plan and
any successor plans) ("Retirement Plans") and (II) the sum of the lump sum
actuarial present value of the Participant's vested accrued benefit as of such
day under the Retirement Plans. With respect to each Nonqualified Plan and
Retirement Plan which is not a defined contribution plan, the actuarial factors
specified in such plan shall be used to determine the lump sum actuarial present
value of accrued benefits or, if no such factors are specified, the factors to
be used under the Corporation's tax-qualified defined benefit plan, as then in
effect, shall be used. The amount payable under this Section 3.2.3 shall be in
full satisfaction of any and all amounts which may be payable to the Participant
under the Nonqualified Plans, and upon receipt of the amount specified in this
Section 3.2.3, neither the Participant nor any beneficiary of the Participant
shall have any rights to any further payments under such Nonqualified Plans. The
amounts payable under this Section 3.2.3 shall be determined without regard to
any tax benefits or income deferral otherwise available or applicable to the
Participant with respect to amounts paid or payable under the Nonqualified Plans
or the Retirement Plans.
3.2.4. Outstanding Long-Term Incentive and Annual Bonus Awards. On or
before the Participant's last day of employment with the Corporation, the
Corporation shall pay to the Participant as compensation for services rendered
to the Corporation a lump sum amount (subject to any applicable payroll or other
taxes required to be withheld) equal to a portion of any outstanding annual
bonus award pro rated (based on the number of whole months in the annual bonus
period) to the date of termination, based on an assumed achievement of 100% of
the targeted performance goal for such award. Within 30 days after the Effective
Date, the Corporation shall pay to the Participant as compensation for services
rendered to the Corporation a lump sum cash amount (subject to any applicable
payroll or other taxes required to be withheld) equal to a portion of all
outstanding long-term incentive awards, pro rated (based on the number of whole
calendar months in the performance period) to the date of termination, based on
an assumed achievement of 100% of the targeted performance goal for such award.
Upon receipt of an amount specified under this Section 3.2.4, neither the
Participant nor any other person claiming any payment by reason of the
Participant's participation in the applicable long-term incentive or annual
bonus plan, shall have any right to any payment under such plan with respect to
any applicable award thereunder.
3.2.5. Welfare Benefit Continuation. The Participant's (and, where
applicable, members of the Participant's family's) participation in the group
medical, dental, life (including split dollar) and disability plans maintained
by the Corporation shall be continued on substantially the same basis as if the
Participant were an employee of the Corporation until the earlier of the first
anniversary of the Participant's termination or the last day of the month in
which the Participant commences employment with another employer (the "Coverage
Period"). In the event that the Corporation is unable for any reason to provide
for the Participant's (and, where applicable, the Participant's family's)
continued participation in one or more of such plans during the Coverage Period,
the Corporation shall pay or provide at its expense equivalent benefit coverage
for the remainder of the Coverage Period. The Corporation shall also pay to the
Participant an amount which shall be sufficient on an after tax basis to
compensate the Participant for all additional taxes incurred by reason of any
income realized as a result of the continued coverage under this subparagraph,
to the extent such taxes result from the Participant's status as a non-employee
and would not be incurred if Participant was an employee of the Corporation, on
a grossed-up basis at the highest marginal income tax rate for individuals;
provided, however, that no such payment shall be provided with respect to
continued coverage under any split dollar life insurance plan or arrangement.
The Coverage Period shall not be taken into account as a period of continuation
coverage for purposes of Part 6 of Title I of the Employee Retirement Income
Security Act of 1974 or for purposes of any other obligation of the Corporation
to provide any continued coverage to the Participant (and, where applicable,
members of the Participant's family) under any group medical, dental, life or
disability plan.
3.2.6 Certain Reduction of Payments. Notwithstanding any other provisions
herein to the contrary, in the event that it shall be determined that any
payment or distribution by the Corporation to or for the benefit of a
Participant (whether or not such payment or distribution is provided hereunder)
(a "Payment") would be nondeductible by the Corporation for Federal income tax
purposes because of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), then (i) the payment under Section 3.2.2, (ii) that
portion of the payment under Section 3.2.3 which is determined under clause (ii)
of Section 3.2.3, and (iii) that portion of the payment under Section 3.2.4
which is attributable to the annual bonus award (such payments to or for the
benefit of the Participant, or the specified portions thereof, under Sections
3.2.2, 3.2.3 and 3.2.4 referred to in the aggregate as "Plan Payments") shall be
reduced, but not below zero, to the maximum amount which is determined not to
cause any Payment to be nondeductible to the Corporation because of Section 280G
of the Code (the "Safe Harbor Amount"). All determinations required to be made
under this Section 3.2.6 shall be made by Piper & Marbury L.L.P. (the "Law
Firm") which shall provide detailed supporting calculations both to the
Corporation and the Participant. The Law Firm may employ and rely upon the
opinions of actuarial or accounting professionals to the extent it deems
necessary or advisable. In the event that the Law Firm determines for any reason
that it is unable to perform such services, or declines to do so, the
Corporation shall select another nationally recognized law firm to make the
determinations required under this section (which law firm shall then be
referred to as the Law Firm hereunder). Any such determination by the Law Firm
shall be binding on the Corporation and the Participant.
3.3 Certain Definitions. For purposes of this Plan:
3.3.1. "Cause" means (i) the Participant's willful and continued failure
substantially to perform the duties of his or her position (other than as a
result of Disability or as a result of termination by the Participant for Good
Reason) after written notice to the Participant by the Board specifying such
failure, provided that such "cause" shall have been found by a majority vote of
the Board after at least 10 days' written notice to the Participant specifying
the failure on the part of the Participant and after an opportunity for the
Participant to be heard at a meeting of the Board; (ii) any willful act or
omission by the Participant constituting dishonesty, fraud or other malfeasance,
and any act or omission by the Participant constituting immoral conduct, which
in any such case is injurious to the financial condition or business reputation
of the Corporation or any of its affiliates; or (iii) the Participant's
indictment of a felony under the laws of the United States or any state thereof
or any other jurisdiction in which the Corporation conducts business. For
purposes of this definition, no act or failure to act shall be deemed "willful"
unless effected by the Participant not in good faith and without a reasonable
belief that such action or failure to act was in or not opposed to the
Corporation's best interests.
3.3.2. "Good Reason" means (i) removal from, or failure to be reappointed
or reelected to, the Participant's principal positions immediately prior to the
Effective Date (other than as a result of a promotion); (ii) material diminution
in the Participant's title, position, duties or responsibilities, or the
assignment to the Participant of duties that are inconsistent, in a material
respect, with the scope of duties and responsibilities associated with the
Participant's position immediately prior to the Effective Date; (iii) reduction
in base salary or Incentive Compensation opportunity, including reduction in
level of participation in long term incentive, benefit and other plans for key
employees as in effect immediately preceding the Effective Date, or their
equivalents; (iv) relocation of the Participant's principal workplace without
his or her consent to a location which is more than 50 miles from the
Participant's principal workplace on the Effective Date; or (v) any failure by
the Corporation to comply with and satisfy the requirements of Section 3.5.7,
provided that the successor shall have received at least ten days' prior written
notice from the Corporation or the Participant of the requirements of Section
3.5.7. For purposes of clauses (i), (ii), (iii) of the preceding sentence, an
isolated, insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Corporation promptly after receipt of notice thereof given by
the Participant shall be excluded. For purposes of clause (ii), no material
diminution of title, position, duties or responsibilities shall be deemed to
occur solely because the Corporation becomes a subsidiary of another corporation
or change in the reporting hierarchy incident thereto.
3.3.3. "Disability" means either (i) "total disability" as defined for
purposes of the Corporation's Long-Term disability benefit plan; or (ii) the
Participant's inability, as a result of physical or mental incapacity, to
perform the Participant's duties for a period of six consecutive months or for
an aggregate of six months in any twelve consecutive month period.
3.3.4. "Incentive Compensation" includes any bonus or award received under
any corporate incentive plan or under any corporate long-term incentive plan
maintained by the Corporation (or any successor to any such plan).
3.4 Terms and Conditions of Participation
3.4.1. Conditions of Participation. As a condition to being covered by the
Plan, each Participant, by executing the letter agreement in the form, or
substantially in the form, of Exhibit A, shall acknowledge and agree that (i)
except as may otherwise be expressly provided under any other executed agreement
between the Participant and the Corporation, nothing contained in this Plan
(including, but not limited to using the term "Cause" to determine benefits
under this Plan) is intended to change the fact that the employment of the
Participant by the Corporation is "at will" and, prior to the Effective Date,
may be terminated by either the Participant or the Corporation at any time, (ii)
in accordance with the Corporation's Alternative Dispute Resolution Policy (as
in effect from time to time), disputes regarding the Participant's employment
with the Corporation (regardless of whether such dispute involves the terms of
this Plan) shall be subject to arbitration as provided in Section 3.5.9 of this
Plan, and (iii) the Participant shall be bound by, and comply with, the
requirements of Sections 3.5.3, 3.5.4 and 3.5.5 of this Plan. Moreover, if prior
to the Effective Date, the Participant's employment with the Corporation
terminates, then the Participant shall have no further rights under this Plan.
3.4.2. Non-Duplication. As a condition of being covered by this Plan, and
notwithstanding any other agreement to the contrary, each Participant, by
executing the letter agreement in the form, or substantially in the form, of
Exhibit A, shall agree that (i) the payments under this Plan shall be in lieu of
any severance or similar payments that otherwise might be payable under any
plan, program, policy or agreement and (ii) except for amounts payable under the
Retirement Plans, if any, the payments under Sections 3.2.3 and 3.2.4 are in
full and complete satisfaction of all liabilities of the Corporation with
respect to the Participant under the plans, programs and agreements described in
those Sections.
3.4.3. Amendment and Termination. The Plan may not be amended or terminated
after the Effective Date. Prior to the Effective Date, the Board may, in its
sole discretion, modify or amend this Plan in any respect, or terminate the Plan
(including with respect to individuals then participating in the Plan), provided
(i) such action is taken and becomes effective at least one (1) year prior to
the Effective Date and such action is communicated to the Participants prior to
the Effective Date, (ii) the Board, in its sole discretion, determines that such
actions are necessary, in its opinion, to permit any business combination that
is authorized by the Board to comply with requirements for treatment as a
pooling of interests transaction for accounting purposes under generally
accepted accounting principles, if such transaction is intended to meet, and is
conditioned upon compliance with, such requirements, or (iii) such actions do
not reduce the amount or defer the receipt of any payment or benefit provided
under this Plan.
3.5 General.
3.5.1. Indemnification. If litigation or arbitration shall be brought to
enforce or interpret any provision of this Plan which relates to the
Corporation's obligation to make payments hereunder, then the Corporation, to
the extent permitted by applicable law and the Corporation's Charter, shall
indemnify the Participant for his reasonable attorneys' fees and disbursements
incurred in such proceedings, and shall pay pre-judgment interest on any money
judgment obtained by the Participant calculated at the prime rate of interest
published from time to time by The Wall Street Journal ("Prime Rate") from the
date that payment(s) to him or her should have been made under this Plan.
3.5.2. Payment Obligations; Overdue Payments. The Corporation's obligations
to make the payments and provide the benefits to the Participant under this Plan
shall be absolute and unconditional and shall not be affected in any way by any
circumstances, including, without limitation, any asserted violation of Sections
3.5.3, 3.5.4 or 3.5.5 of this Plan or any offset, counterclaim, recoupment,
defense or other right which the Corporation may have against the Participant or
anyone else, provided, however, that as a condition to payment of amounts under
this Plan, the Participant shall execute a general release and waiver
("Waiver"), in form and substance reasonably satisfactory to the Corporation, of
all claims relating to the Participant's employment by the Corporation and the
termination of such employment, including, but not limited to, discrimination
claims, employment-related tort claims, contract claims and claims under this
Plan (other than claims with respect to benefits under the Corporation's
tax-qualified retirement plans, continuation of coverage or benefits solely as
required by Part 6 of Title I of the Employee Retirement Income Security Act of
1974 or any obligation of the Corporation to provide future performance under
Section 3.2.5). All amounts payable by the Corporation hereunder shall be paid
without notice or demand, except as may be required with respect to the Waiver.
Each and every payment made hereunder by the Corporation shall be final and the
Corporation will not seek to recover all or any part of such payment from the
Participant or from whosoever may be entitled thereto, for any reason
whatsoever. The Participant shall not be obligated to seek other employment in
mitigation of the amounts payable or arrangements made under any provision of
this Plan, and the obtaining of any such other employment shall in no event
effect any reduction of the Corporation's obligations to make the payments and
provide the benefits required under this Plan. The Participant shall be entitled
to receive interest at the Prime Rate on any payments under this Plan that are
overdue, provided, however, that no payments shall be deemed to be overdue until
the Participant executes the Waiver and any recision period with respect to such
Waiver has expired.
3.5.3. Confidential Information. The Participant shall at all times hold in
a fiduciary capacity for the benefit of the Corporation all secret, confidential
or proprietary information, knowledge or data relating to the Corporation, and
its respective businesses, which shall have been obtained by the Participant
during the Participant's employment by the Corporation and which shall not be or
become public knowledge (other than by acts by the Participant or
representatives of the Participant in violation of this Plan) including, but not
limited to, information regarding clients, customers, policyholders, vendors,
consultants and agents of the Corporation ("Confidential Information"). During
the Participant's employment with the Corporation and after termination of such
employment at any time or for any reason, and regardless of whether any payments
are made to the Participant under this Plan as a result of such termination, the
Participant shall not, without the prior written consent of the Corporation or
as may otherwise be required by law or legal process, communicate or divulge any
Confidential Information to any person other than the Corporation and those
designated by it or use any Confidential Information except for the benefit of
the Corporation. Immediately upon termination of the Participant's employment
with the Corporation at any time or for any reason, the Participant shall return
to the Corporation all Confidential Information, including, but not limited to,
any and all copies, reproductions, notes or extracts of Confidential
Information.
3.5.4. Solicitation of Employees. During the Participant's employment with
the Corporation and for a period of twelve (12) months after termination of such
employment at any time and for any reason, and regardless of whether any
payments are made to the Participant under this Plan as a result of such
termination, the Participant shall not solicit, participate in or promote the
solicitation of any person who was employed by the Corporation at the time of
the Participant's termination of employment with the Corporation to leave the
employ of the Corporation, or, on behalf of himself or any other person, hire,
employ or engage any such person. The Participant further agrees that, during
such time, if an employee of the Corporation contacts the Participant about
prospective employment, the Participant will inform such employee that he or she
cannot discuss the matter further without informing the Corporation.
3.5.5. Solicitation of Clients, Customers, Etc. During the Participant's
employment with the Corporation and for a period of twelve (12) months after
termination of the Participant's employment under circumstances which result in
payment of any amounts to the Participant under this Plan, the Participant shall
not, directly or indirectly, solicit any person who, at the time of the
termination of the Participant's employment with the Corporation, was a client,
customer, policyholder, vendor, consultant or agent of the Corporation to
discontinue business, in whole or in part, with the Corporation. The Participant
further agrees that, during such time, if such a client, customer, policyholder,
vendor, consultant or agent contacts the Participant about discontinuing
business with the Corporation and/or moving that business elsewhere, the
Participant will inform such client, customer, policyholder, vendor, consultant
or agent that he or she cannot discuss the matter further without informing the
Corporation.
3.5.6. Application of Restrictions Respecting Confidential Information and
Solicitation of Employees, Clients, Customers, etc. The requirements and
obligations of the Participant under Sections 3.5.3, 3.5.4 and 3.5.5 shall be in
addition to and not a limitation under any other requirements and obligations of
the Participant, at law or otherwise. The term "person" for purposes of Sections
3.5.3, 3.5.4 and 3.5.5 shall include any individual or entity, including any
corporation, trust or partnership.
3.5.7. Successors. All right under this Plan are personal to the
Participant and without the prior written consent of the Corporation shall not
be assignable by the Participant otherwise than by will or the laws of descent
and distribution. This Plan shall inure to the benefit of and be enforceable by
the Participant's legal representative. This Plan shall inure to the benefit of
and be binding upon the Corporation and its successors and assigns. The
Corporation will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Corporation to assume expressly and agree to perform this
Plan in the same manner and to the same extent that the Corporation would be
required to perform it if no such event resulting in a successor had taken
place. As used in this Plan, "Corporation" shall mean the Corporation and any
successor to its business and/or assets as aforesaid which assumes and agrees,
or is otherwise obligated, to perform this Plan by operation of law, or
otherwise.
3.5.8. Controlling Law. This Plan shall in all respects be governed by, and
construed in accordance with, the laws of the State of Maryland (without regard
to the principles of conflicts of laws).
3.5.9. Arbitration. IN ACCORDANCE WITH THE CORPORATION'S ALTERNATIVE
DISPUTE RESOLUTION POLICY (AS IN EFFECT FROM TIME TO TIME), DISPUTES REGARDING
THE PARTICIPANT'S EMPLOYMENT WITH THE CORPORATION, INCLUDING, WITHOUT
LIMITATION, ANY DISPUTE HEREUNDER, WHICH CANNOT BE RESOLVED BY NEGOTIATIONS
BETWEEN THE CORPORATION AND THE PARTICIPANT SHALL BE SUBMITTED TO, AND SOLELY
DETERMINED BY, FINAL AND BINDING ARBITRATION CONDUCTED BY JAMS/ENDISPUTE, INC.
OR ANY SUCCESSOR THERETO, IN ACCORDANCE WITH JAMS/ENDISPUTE, INC.'S ARBITRATION
RULES APPLICABLE TO EMPLOYMENT DISPUTES, AND THE PARTIES AGREE TO BE BOUND BY
THE FINAL AWARD OF THE ARBITRATOR IN ANY SUCH PROCEEDING. THE ARBITRATOR SHALL
APPLY THE LAWS OF THE STATE OF MARYLAND WITH RESPECT TO THE INTERPRETATION OR
ENFORCEMENT OF ANY MATTER RELATING TO THIS PLAN; IN ALL OTHER CASES THE
ARBITRATOR SHALL APPLY THE LAWS OF THE STATE SPECIFIED IN THE CORPORATION'S
ALTERNATIVE DISPUTE RESOLUTION POLICY. ARBITRATION MAY BE HELD IN THE LARGEST
CITY WITHIN 50 MILES OF THE PARTICIPANT'S LOCATION OF EMPLOYMENT AT THE TIME OF
HIS OR HER TERMINATION OR SUCH OTHER PLACE AS THE PARTIES HERETO MAY MUTUALLY
AGREE, AND SHALL BE CONDUCTED SOLELY BY A FORMER JUDGE. JUDGMENT UPON THE AWARD
BY THE ARBITRATOR MAY BE ENTERED IN ANY COURT HAVING JURISDICTION THEREOF.
3.5.10. Severability. Any provision in this Plan which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Date: February 27, 1997
/s/ NORMAN P. BLAKE, JR.
Norman P. Blake, Jr.
Chairman, President, and
Chief Executive Officer
KEY EXECUTIVE SEVERANCE PLAN
Dear ____________:
The Board of Directors has approved the enclosed Key Executive Severance
Plan (the "Plan"). The Chief Executive Officer of the Corporation, with the
concurrence of the Compensation Committee of the Board, has designated you to be
a Participant in the Plan.
For purposes of Section 3.2.2, the amount of the Lump Sum Cash Payment in
the event you become entitled to benefits under the Plan shall be equal to
[Amount to be specified]. Such payment shall be subject to the limitations set
forth in Section 3.2.6 of the Plan, if applicable.
Please review the provisions of the Plan and its stated purposes carefully,
including particularly the terms and conditions stated in Sections 3.1.1
(Continuation of Services), 3.4 (Terms and Conditions of Participation), 3.5.3
(Confidential Information), 3.5.4 (Solicitation of Employees), 3.5.5
(Solicitation of Clients, Customers, Etc.) and 3.5.9 (Arbitration), to which you
will agree by executing this letter agreement. In order to be entitled to the
benefits and agree to your obligations provided in the Plan, please execute the
enclosed copy of this letter and return it to John A. MacColl, Executive Vice
President and General Counsel, whereupon the Plan and this letter will become a
legally binding agreement between you and the Corporation.
Very truly yours,
--------------------------
I hereby confirm my agreement with the foregoing:
- -------------------------------
Date:__________________________
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