<PAGE> 1
As filed with the Securities and Exchange Commission on July 29, 1997
REGISTRATION NO. 333-28749
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ACCEPTANCE INSURANCE COMPANIES INC.
AICI CAPITAL TRUST
(Exact name of Registrants as specified in their respective charters)
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<TABLE>
<S> <C>
DELAWARE 31-0742926
DELAWARE 91-6444761
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
222 S. 15TH STREET, SUITE 600 NORTH
OMAHA, NEBRASKA 68102
(402) 344-8800
(Address, including zip code, and telephone number, including area code, of each
Registrant's principal executive offices)
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WILLIAM J. GERBER
VICE PRESIDENT
ACCEPTANCE INSURANCE COMPANIES INC.
222 S. 15TH STREET, SUITE 600 NORTH
OMAHA, NEBRASKA 68102
(402) 344-8800
(Name, address, including zip code, and telephone number, including area code,
of agent for service for each Registrant)
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Copies to:
<TABLE>
<C> <C>
ROBERT S. RACHOFSKY, ESQ.
LARS BANG-JENSEN, ESQ. STEVEN KAPLAN, ESQ.
LEBOEUF, LAMB, GREENE & MACRAE, L.L.P. ARNOLD & PORTER
125 WEST 55TH STREET 555 12TH STREET, N.W.
NEW YORK, NEW YORK 10019 WASHINGTON, D.C. 20004
(212) 424-8000 (202) 942-5998
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
investment reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2)(3) PRICE(2)(3) FEE(2)
<S> <C> <C> <C> <C>
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Debt Securities of Acceptance Insurance
Companies Inc............................
- ---------------------------------------------------------------------------------------------------------------------------------
Preferred Securities of AICI Capital
Trust....................................
- ---------------------------------------------------------------------------------------------------------------------------------
Guarantee of Preferred Securities of AICI
Capital Trust by Acceptance Insurance
Companies Inc.(4)........................
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Total...................................... $94,875,000 100% $94,875,000 $28,750
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</TABLE>
(1) Debt Securities of Acceptance Insurance Companies Inc. may be issued and
sold to AICI Capital Trust, in which event such Debt Securities may later be
distributed to the holders of Preferred Securities of AICI Capital Trust
upon its dissolution and the distribution of the assets thereof. The amount
registered is in United States dollars or the equivalent thereof in any
other currency, currency unit or units, or composite currency or currencies.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457. Amount includes $22,652 previously paid to the
Commission. The aggregate offering price of the Debt Securities and
Preferred Securities registered hereby will not exceed $94,875,000.
(3) Exclusive of accrued interest and distributions, if any.
(4) Includes back-up undertakings, consisting of obligations of Acceptance
Insurance Companies Inc. to provide certain indemnities in respect of, and
pay and be responsible for certain expenses and debts of AICI Capital Trust.
No separate consideration will be received for the Guarantee or any back-up
undertakings.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALES OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 29, 1997
$82,500,000
AICI CAPITAL TRUST
% Preferred Securities
(Liquidation Amount $25 per Preferred Security)
AIC LOGO fully and unconditionally guaranteed, as described herein, by
ACCEPTANCE INSURANCE COMPANIES INC.
The Preferred Securities offered hereby represent preferred undivided
beneficial interests in the assets of AICI Capital Trust, a statutory business
trust created under the laws of the State of Delaware (the "Issuer Trust").
Acceptance Insurance Companies Inc., a Delaware corporation (the "Company"),
will be the holder of all of the beneficial interests represented by common
securities of the Issuer Trust (the "Common Securities" and, together with the
Preferred Securities, the "Trust Securities"). The Issuer Trust exists for the
sole purpose of issuing the Trust Securities and investing the proceeds thereof
in % Junior Subordinated Deferrable Interest Debentures (the "Junior
Subordinated Debentures", and together with the Trust Securities, the
"Securities") to be issued by the Company. The Junior Subordinated Debentures
will mature on , 2027, which date may be shortened (such date, as it
may be shortened, the "Stated Maturity") to a date not earlier than ,
2002, if certain conditions are met (such shortening of the maturity date, the
"Maturity Adjustment"). The Preferred Securities will have a preference under
certain circumstances over the Common Securities with respect to cash
distributions and amounts payable on liquidation, redemption or otherwise. See
"Description of Preferred Securities -- Subordination of Common Securities."
(Continued on next page)
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 13 HEREOF FOR CERTAIN INFORMATION THAT
SHOULD BE CAREFULLY CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE PREFERRED
SECURITIES.
------------------------------
THE COMPANY HAS MADE APPLICATION TO LIST THE PREFERRED SECURITIES ON THE NEW
YORK STOCK EXCHANGE (THE "NYSE") UNDER THE SYMBOL "AIF PRT." IF SUCH APPLICATION
IS APPROVED, TRADING IN THE PREFERRED SECURITIES IS EXPECTED TO COMMENCE WITHIN
A 30-DAY PERIOD AFTER THE INITIAL DELIVERY OF THE PREFERRED SECURITIES. SEE
"UNDERWRITING."
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) ISSUER TRUST(3)(4)
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<S> <C> <C> <C>
Per Preferred Security.................................... $25.00 (4) $25.00
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Total(5).................................................. $82,500,000 (4) $82,500,000
======================================================================================================================
</TABLE>
(1) Plus accrued Distributions, if any, from , 1997.
(2) The Company and the Issuer Trust have each agreed to indemnify the
Underwriters against certain liabilities under the Securities Act of 1933,
as amended (the "Securities Act").
(3) Before deduction of expenses payable by the Company estimated at $ .
(4) In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures, the
Company has agreed to pay to the Underwriters, as compensation for arranging
the investment therein of such proceeds, $ per Preferred Security (or
$ in the aggregate). See "Underwriting."
(5) The Company has granted the Underwriters an option, exercisable within 30
days after the date of this Prospectus, to purchase up to an additional
$12,375,000 aggregate liquidation amount of the Preferred Securities on the
same terms as set forth above, solely to cover over-allotments, if any. If
such over-allotment option is exercised in full, the total Price to Public
and Proceeds to Issuer Trust will be $ and $ ,
respectively. See "Underwriting."
------------------------------
The Preferred Securities are offered by the Underwriters subject to receipt
and acceptance by them, prior sale and the Underwriters' right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the Preferred Securities will be made in
book-entry form through the book-entry facilities of The Depository Trust
Company on or about , 1997, against payment therefor in immediately
available funds.
------------------------------
ADVEST, INC. EVEREN SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 3
(cover page continued)
The Preferred Securities will be represented by one or more global
securities registered in the name of a nominee of The Depository Trust Company,
as depositary ("DTC"). Beneficial interests in the global securities will be
shown on, and transfer thereof will be effected only through, records maintained
by DTC and its participants. Except as described under "Description of Preferred
Securities," Preferred Securities in definitive form will not be issued and
owners of beneficial interests in the global securities will not be considered
holders of the Preferred Securities. Application will be made to include the
Preferred Securities on the New York Stock Exchange. Settlement for the
Preferred Securities will be made in immediately available funds. The Preferred
Securities will trade in DTC's Same-Day Funds Settlement System, and secondary
market trading activity for the Preferred Securities will therefore settle in
immediately available funds.
Holders of the Preferred Securities will be entitled to receive
preferential cumulative cash distributions accumulating from , 1997
and payable quarterly in arrears on March 31, June 30, September 30 and December
31 of each year commencing , 1997, at the annual rate of % of
the Liquidation Amount of $25 per Preferred Security ("Distributions"). The
Company has the right to defer payment of interest on the Junior Subordinated
Debentures at any time or from time to time for a period not exceeding 20
consecutive quarterly periods with respect to each deferral period (each, an
"Extension Period"), provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures. No interest shall be due
and payable during any Extension Period, except at the end thereof. Upon the
termination of any such Extension Period and the payment of all amounts then
due, the Company may elect to begin a new Extension Period subject to the
requirements set forth herein. If interest payments on the Junior Subordinated
Debentures are so deferred, Distributions on the Preferred Securities will also
be deferred and the Company will not be permitted, subject to certain exceptions
described herein, to declare or pay any cash distributions with respect to the
Company's capital stock or with respect to debt securities of the Company that
rank pari passu in all respects with or junior to the Junior Subordinated
Debentures. During an Extension Period, interest on the Junior Subordinated
Debentures will continue to accrue (and the amount of Distributions to which
holders of the Preferred Securities are entitled will accumulate) at the rate of
% per annum, compounded quarterly, and holders of Preferred Securities will
be required to accrue interest income for United States federal income tax
purposes. See "Description of Junior Subordinated Debentures -- Option to Extend
Interest Payment Period" and "Certain Federal Income Tax Consequences -- US
Holders -- Interest Income and Original Issue Discount."
The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture (each as defined
herein), taken together, fully, irrevocably and unconditionally guaranteed all
the Issuer Trust's obligations under the Preferred Securities as described
below. See "Relationship Among the Preferred Securities, the Junior Subordinated
Debentures and the Guarantee -- Full and Unconditional Guarantee." The Guarantee
of the Company guarantees the payment of Distributions and payments on
liquidation or redemption of the Preferred Securities, but only in each case to
the extent of funds held by the Issuer Trust, as described herein (the
"Guarantee"). See "Description of Guarantee." If the Company does not make
payments on the Junior Subordinated Debentures held by the Issuer Trust, the
Issuer Trust will have insufficient funds to pay Distributions on the Preferred
Securities. The Guarantee does not cover payment of Distributions when the
Issuer Trust does not have sufficient funds to pay such Distributions. In the
event the Issuer Trust does not have sufficient funds to pay such Distributions,
a holder of Preferred Securities may institute a legal proceeding directly
against the Company to enforce payment of such Distributions to such holder. See
"Description of Junior Subordinated Debentures -- Enforcement of Certain Rights
by Holders of Preferred Securities." The obligations of the Company under the
Guarantee and the Preferred Securities are subordinate and junior in right of
payment to all Senior Indebtedness (as defined in "Description of Junior
Subordinated Debentures -- Subordination") of the Company.
The Preferred Securities are subject to mandatory redemption (i) in whole,
but not in part, upon repayment of the Junior Subordinated Debentures at Stated
Maturity or, at the option of the Company, their earlier redemption in whole
upon the occurrence of a Tax Event or an Investment Company Event (each as
defined herein) and (ii) in whole or in part at any time on or after
, 2002 contemporaneously with the optional redemption by the Company
of the Junior Subordinated Debentures in whole or in part. The
2
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Junior Subordinated Debentures are redeemable prior to maturity at the option of
the Company (i) on or after , 2002, in whole at any time or in part
from time to time, or (ii) in whole, but not in part, at any time within 90 days
following the occurrence and continuation of a Tax Event or an Investment
Company Event, at a redemption price set forth herein, which includes the
accrued and unpaid interest on the Junior Subordinated Debentures so redeemed to
the date fixed for redemption. See "Description of Junior Subordinated
Debentures -- Redemption" and "Description of Preferred Securities --
Redemption."
The holders of the outstanding Common Securities have the right at any time
to dissolve the Issuer Trust and, after satisfaction of liabilities to creditors
of the Issuer Trust as provided by applicable law, to cause the Junior
Subordinated Debentures to be distributed to the holders of the Preferred
Securities and Common Securities in liquidation of the Issuer Trust. See
"Description of Preferred Securities -- Liquidation Distribution Upon
Dissolution."
In the event of the dissolution of the Issuer Trust, after satisfaction of
liabilities to creditors of the Issuer Trust as provided by applicable law, the
holders of the Preferred Securities will be entitled to receive a Liquidation
Amount of $25 per Preferred Security plus accumulated and unpaid Distributions
thereon to the date of payment, subject to certain exceptions, which may be in
the form of a distribution of such amount in Junior Subordinated Debentures. See
"Description of Preferred Securities -- Liquidation Distribution Upon
Dissolution."
The Junior Subordinated Debentures are unsecured and subordinated to all
Senior Indebtedness of the Company. See "Description of Junior Subordinated
Debentures -- Subordination."
---------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED
SECURITIES OFFERED HEREBY, INCLUDING OVER-ALLOTTING THE PREFERRED SECURITIES AND
BIDDING FOR AND PURCHASING SUCH PREFERRED SECURITIES AT A LEVEL ABOVE THAT WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING." SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
---------------------------
FOR NORTH CAROLINA INVESTORS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA,
NOR HAS THE COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY OR ADEQUACY OF
THIS DOCUMENT.
---------------------------
FORWARD-LOOKING STATEMENTS
This Prospectus contains and incorporates by reference certain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 with respect to the results of operations and
businesses of the Company. These forward-looking statements involve certain
risks and uncertainties. Factors that may cause actual results to differ
materially from those contemplated or projected, forecast, estimated or budgeted
in such forward-looking statements include, among others, the following
possibilities: (i) heightened competition, including specifically the
intensification of price competition, the entry of new competitors and the
development of new products by new and existing competitors; (ii) adverse state
and federal legislation and regulation, including changes in federal crop
insurance laws, limitations on premium levels, increases in minimum capital and
reserves, and other financial viability requirements; (iii) failure to develop
new specialty insurance programs or maintain existing programs at current
levels; (iv) inability to carry out marketing and sales plans, including, among
others, changes to certain products and acceptance of the revised products in
the market; (v) loss of key executives; (vi) changes in interest rates causing a
reduction of investment income; (vii) general economic and business conditions
which are less favorable than expected; and (viii) unanticipated changes in
industry trends. See "Risk Factors."
3
<PAGE> 5
ACCEPTANCE INSURANCE COMPANIES INC. AND PRINCIPAL OPERATING SUBSIDIARIES
ORGANIZATIONAL STRUCTURE OF PRINCIPAL OPERATING SUBSIDIARIES
<TABLE>
<S><C>
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|Acceptance Insurance|
| Companies Inc. |
| ("Holdings") |
| (Delaware) |
----------------------
|
|
|
|
-----------------------------------------|--------------------------------------------------
| | |
| | |
| | |
---------------------------- ------------------------- -------------------------
| Acceptance | | Redland Insurance | | American |
| Insurance Company | | Company | | Agrisurance Inc. |
| ("Acceptance Insurance")| | ("Redland Insurance") | | ("Am Ag") |
| (Nebraska) | | (Iowa) | | (Iowa) |
---------------------------- ------------------------- -------------------------
| |
| |
| |
---------------------------- ---------------------------------
| | | |
| | | |
| | | |
- ------------------------ ------------------------- ----------------------- ---------------------------
|Acceptance Indemnity | | Phoenix Indemnity | | American Growers | | Acceptance Casualty |
| Insurance Company | | Insurance Company | | Insurance Company | | Insurance Company |
| ("Acceptance | | ("Phoenix Indemnity") | |("American Growers") | | ("Acceptance Casualty") |
| Indemnity") | | (Arizona) | | (Nebraska) | | (Texas) |
| (Nebraska) | | | | | | |
- ------------------------ ------------------------- ----------------------- ---------------------------
</TABLE>
Principle Business Written:
[ ] Crop Insurance Division
[ ] Specialty Property and Casualty Division
4
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and the notes thereto
contained elsewhere or incorporated by reference in this Prospectus. Unless
otherwise indicated, information contained in this Prospectus is based on the
assumption that the Underwriters (as defined herein) do not exercise their
over-allotment option. See "Glossary of Selected Insurance Terms" for
explanations of certain insurance terms used herein.
Unless the context indicates otherwise, (i) the "Company" or "Acceptance"
refers to Acceptance Insurance Companies Inc., a Delaware corporation and its
subsidiaries, (ii) the "Insurance Companies" collectively refers to the
Company's insurance company subsidiaries: Acceptance Insurance Company
("Acceptance Insurance"), Acceptance Indemnity Insurance Company ("Acceptance
Indemnity"), Acceptance Casualty Insurance Company ("Acceptance Casualty"),
American Growers Insurance Company ("American Growers"), Phoenix Indemnity
Insurance Company ("Phoenix Indemnity"), and Redland Insurance Company ("Redland
Insurance"), and (iii) "Am Ag" refers to American Agrisurance Inc.
THE COMPANY
Acceptance through its six insurance subsidiaries underwrites specialty
property and casualty coverages throughout most of the United States. The
Company's principal insurance divisions are the Crop Insurance Division, which
provides Multi-Peril Crop Insurance ("MPCI") and crop hail insurance, and the
Specialty Property and Casualty Division, which provides: (i) specialty property
and casualty coverages through a network of general agents ("General Agency"),
(ii) tailored coverages for specific industries written primarily through agents
specializing in such coverages ("Program"), and (iii) non-standard automobile
coverages for private passenger automobiles principally in the southwestern
United States ("Non-Standard Automobile").
The Company's total revenues and net income were $381.4 million and $30.3
million, respectively, for the year ended December 31, 1996. As of March 31,
1997, the Company had $848.6 million of total assets and $211.1 million of total
equity.
The Company's strategy is to leverage its expertise and relationships
developed in the property and casualty insurance business by focusing on niche
markets not adequately served by other insurers. In furtherance of this
strategy, the Company seeks (i) to identify capacity shortages or other
dislocations in the market and to develop the opportunities presented by these
shortages; and (ii) to establish relationships with agents and other individuals
who have established books of business with a proven track record in niche
markets. The Company's goal is to maintain a diversified mix of business which
has the potential to mitigate the volatility of the Company's underwriting
results. In an effort to limit its exposure to large losses, the Company
implements underwriting standards and reinsurance programs specific to its
business lines.
Crop Insurance Division. The Company is the fourth largest writer of MPCI
premiums in the United States with an approximate 15% market share, based on
premium information compiled in 1996 by the Federal Crop Insurance Corporation
("FCIC") and National Crop Insurance Services, Inc. The Company, through Redland
Insurance, has written MPCI since the opening of this federally subsidized
insurance program to private insurers in 1980. MPCI has historically provided a
yield guarantee mechanism for farmers who suffer an insured crop loss due to
weather or other natural perils. The Company developed a new crop insurance
product, Crop Revenue Coverage ("CRC"), which was approved by the FCIC and
introduced in Iowa and Nebraska for corn and soybeans as part of the MPCI
program in 1996. CRC provides farmers with a minimum guaranteed revenue return
by combining the traditional yield guarantee of the standard MPCI program with a
price protection element. CRC was made available for wheat in six states and for
corn and soybeans in eleven additional states for the 1997 crop year. CRC will
be available for all wheat states in 1998.
The Company believes that recent changes in the law in 1994 and 1996
generally have encouraged more farmers to participate in the MPCI program, which
has led to an increase in the number of farm acres insured and growth in the
national MPCI market. These recent changes in law have permitted the United
States
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<PAGE> 7
Department of Agriculture ("USDA") to limit its role in the delivery system for
MPCI by reducing the availability of MPCI through USDA field offices, and
provided the Company the opportunity to realize increased revenues from the
distribution of its MPCI and CRC product. In addition, many lending institutions
require farmers to purchase crop insurance. These events resulted in an increase
in the Company's MPCI Premiums to $248.3 million in 1996 from $183.3 million in
1995 and $128.4 million in 1994. The Company's gross premiums written and income
before income taxes from its Crop Insurance Division were $242.9 million and
$42.1 million, respectively, for the year ended December 31, 1996. For further
information about the Company's MPCI business, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General -- Crop
Insurance Division" and "Risk Factors -- Risk Factors Relating to the Company --
Nature of Crop Insurance Business."
Specialty Property and Casualty Division. The Company's other principal
insurance segment is its Specialty Property and Casualty Division, which
consists of the Company's General Agency, Program, and Non-Standard Automobile
operations. The Company's gross premiums written and loss before income taxes
from its Specialty Property and Casualty Division were $408.1 million and $8.6
million, respectively, for the year ended December 31, 1996.
General Agency. The Company offers a variety of specialty property and
casualty insurance coverages in its General Agency operations which are
marketed through a network of approximately 120 general agents who write
business in specific geographic territories and who have binding
authority for specific lines of business. The general agents provide the
Company access to many niche areas through their familiarity with local
and regional markets. The principal lines of business within General
Agency operations are surplus lines liability and substandard property,
specialty automobile, and complex general liability risks.
Program. The Company's Program operations provide coverage written for
selected classes of business through focused independent agents who
specialize in that particular class of business. Transportation programs
include property and casualty insurance for long haul truckers and upper
Midwest regional and national trucking companies hauling rural products.
The Company offers insurance in rural areas through rural agents for
farm owners, automobiles, livestock mortality, as well as limited
commercial coverages. Other programs provide tailored coverages for
condominiums, temporary help agencies, daily auto rental, family
restaurants, and fine arts. The Company continually evaluates
underwriting performance and opportunities in this area and seeks growth
through new programs.
Non-Standard Automobile. The Company's Non-Standard Automobile
operations provide non-standard private passenger automobile coverages
written principally in non-urban areas in the southwestern United States
through approximately 600 independent agents. Insureds are usually
unable to obtain coverage from standard carriers for any one of several
reasons, including the insured's prior driving record and other
underwriting criteria and market conditions. Non-standard auto insurance
is generally provided on a basic limits of liability basis, and premium
rates are usually higher than those offered for preferred or standard
risk drivers. The Company intends to expand its Non-Standard Automobile
business to a broader geographic area where the Company currently writes
other lines of business.
For additional information, see "Business -- Specialty Property and
Casualty Division."
Each of the Insurance Companies is rated "A-" (Excellent) by A.M. Best
Company, Inc. ("A.M. Best"), with the exception of American Growers for which as
a crop insurance company there is no applicable A.M. Best rating. A.M. Best
bases its ratings upon factors that concern policyholders and agents and not
upon factors related to investor protection.
The Company's principal executive offices are located at 222 South 15th
Street, Suite 600 North, Omaha, Nebraska 68102, and its telephone number is
(402) 344-8800.
6
<PAGE> 8
AICI CAPITAL TRUST
The Issuer Trust is a statutory business trust formed under Delaware law
for the exclusive purposes of (i) issuing and selling the Preferred Securities
and Common Securities, (ii) using the proceeds from the sale of Preferred
Securities and Common Securities to acquire the Junior Subordinated Debentures
issued by the Company and (iii) engaging in only those other activities
necessary, advisable or incidental thereto (such as registering the transfer of
the Preferred Securities). The principal executive office of the Issuer Trust is
222 South 15th Street, Suite 600 North, Omaha, Nebraska 68102, and its telephone
number is (402) 344-8800. See "AICI Capital Trust."
7
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1992 1993 1994 1995(1) 1996 1996 1997
---- ---- ---- ------- ---- ---- ----
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:(2)
Gross premiums written........... $152,091 $256,042 $447,483 $537,349 $651,060 $123,729 $125,345
Net premiums written............. 84,085 137,505 229,176 286,183 366,949 70,834 71,315
Net premiums earned.............. 79,164 128,082 202,659 271,584 348,653 67,504 71,062
Net investment income............ 8,220 10,844 13,276 20,651 26,491 6,464 6,520
Net realized capital gains....... 1,046 2,250 554 2,707 5,216 1,181 1,311
Agency income.................... 3,992 4,119 3,629 2,863 1,035 629 --
Real estate revenues............. 2,610 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total revenues............... 95,032 145,295 220,118 297,805 381,395 75,778 78,893
Operating profit(1).............. 4,641 10,566 19,676 8,105 39,296 7,555 6,518
Net income (loss) from continuing
operations..................... $ (826) $ 7,586 $ 21,075 $ 4,155 $ 30,280 $ 4,478 $ 3,914
GAAP RATIOS:(3)
Loss and LAE ratio............... 75.8% 72.5% 70.5% 78.2% 69.8% 68.0% 70.1%
Expense ratio.................... 29.7 28.8 26.0 26.7 27.5 31.5 31.0
-------- -------- -------- -------- -------- -------- --------
Combined ratio................... 105.5% 101.3% 96.5% 104.9% 97.3% 99.5% 101.1%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Investments...................... $124,311 $187,986 $264,743 $368,001 $405,926 $385,002 $432,253
Total assets..................... 257,734 409,385 543,087 781,034 884,380 734,500 848,617
Loss and loss adjustment expense
reserves....................... 127,666 211,600 221,325 369,244 432,173 324,998 380,529
Unearned Premiums................ 41,709 60,114 97,170 124,122 140,217 130,653 145,700
Borrowings and term debt(4)...... 33,567 18,951 29,000 69,000 69,000 69,000 69,000
Stockholders' equity............. 34,523 95,717 159,754 177,787 207,820 178,943 211,062
OTHER DATA:
Statutory surplus of Insurance
Companies(4)(5)................ $ 34,527 $ 73,910 $126,272 $169,628 $191,455 $172,425 $194,632
Ratio of earnings to fixed
charges(6)..................... 1.07x 4.07x 8.07x 2.52x 6.63x 5.03x 4.48x
</TABLE>
- ------------
(1) Operating profit was reduced in 1995 by an increase in loss reserves in the
amount of approximately $22.3 million for 1994 and prior year losses
primarily in the commercial auto liability and general liability and
commercial multi-peril lines of insurance. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations -- Year Ended December 31, 1995 Compared to Year Ended December
31, 1994" and "Business -- Loss and Loss Adjustment Expense Reserves." As
used in this Prospectus, operating profit refers to net income from
continuing operations before interest expense, other income or expense, net,
and income taxes.
(2) For a discussion of the accounting treatment of the Company's MPCI business,
the results of which are included beginning July 1, 1993, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- General -- Crop Insurance Division."
(3) The loss and loss adjustment expense ("LAE") ratio is calculated by dividing
losses and loss adjustment expenses by net premiums earned. The expense
ratio is calculated by dividing underwriting expenses by net premiums
earned. The combined ratio is the sum of the loss and LAE and expense
ratios. The Company's loss, expense and combined ratios include the results
of the Crop Insurance Division.
8
<PAGE> 10
(4) Reflects statutory surplus of the Insurance Companies on a consolidated
basis. On June 30, 1997, one of the Company's insurance subsidiaries issued
a surplus note to the Company in exchange for $20.0 million. As of March 31,
1997 the pro forma statutory surplus of the Insurance Companies would have
been $214.6 million as adjusted for this surplus note. The Company's
investment was funded through an increase in its borrowings under the
Company's Revolving Credit Facility (as defined herein) which aggregated
$90.0 million at June 30, 1997. See "Management's Discussion and Analysis of
Operating Results -- General -- Crop Insurance Division."
(5) Statutory data has been derived from the separate financial statements of
the Insurance Companies prepared in accordance with Statutory Accounting
Principles ("SAP").
(6) For the purpose of computing the ratio of earnings to fixed charges, (i)
"earnings" consist of income (loss) from continuing operations before income
taxes and minority interests plus fixed charges and (ii) "fixed charges"
consist of all interest expense and the interest portion of rents.
RECENT DEVELOPMENTS
The following table presents the Company's condensed results of operations
for the six-month periods ended June 30, 1996 and 1997.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1996 1997
---- ----
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:(1)
Gross premiums written...................................... $268.8 $271.2
Net premiums written........................................ 166.2 143.2
Net premiums earned......................................... 144.4 144.0
Net investment income....................................... 13.0 13.3
Net realized capital gains.................................. 2.8 3.3
------ ------
Total revenues......................................... 160.2 160.6
------ ------
Operating profit............................................ 12.9 13.7
------ ------
Net income.................................................. $ 7.5 $ 8.2
====== ======
GAAP RATIOS:(2)
Loss and LAE ratio.......................................... 70.0% 71.1%
Expense ratio............................................... 31.3 30.2
------ ------
Combined ratio.............................................. 101.3% 101.3%
</TABLE>
- ---------------
(1) For a discussion of the accounting treatment of the Company's MPCI business,
see "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- General -- Crop Insurance Division."
(2) The loss and LAE ratio is calculated by dividing losses and loss adjustment
expenses by net premiums earned. The expense ratio is calculated by dividing
underwriting expenses by net premiums earned. The combined ratio is the sum
of the loss and LAE and expense ratios. The Company's loss, expense and
combined ratios include the results of the Crop Insurance Division.
9
<PAGE> 11
THE OFFERING
Securities Offered............ The $82,500,000 aggregate liquidation amount of
Preferred Securities offered hereby represents
preferred undivided beneficial interests in the
Issuer Trust's assets, which will consist
solely of the Junior Subordinated Debentures.
The Trust has granted the Underwriters an
option, exercisable within 30 days after the
date of this Prospectus, to purchase up to an
additional $12,375,000 aggregate liquidation
amount of Preferred Securities at the offering
price, solely to cover over-allotments, if any.
Offering Price................ $25 per Preferred Security (Liquidation Amount
$25), plus accumulated Distributions, if any,
from , 1997.
Distributions................. Distributions payable on each Preferred
Security will be fixed at a rate per annum of
% of the stated liquidation amount per
Preferred Security, will be cumulative, will
accrue from , 1997, the date of
issuance of the Preferred Securities, and will
be payable quarterly in arrears on March 31,
June 30, September 30 and December 31 of each
year, commencing , 1997. See
"Description of Preferred Securities --
Distributions."
Junior Subordinated
Debentures.................... The Issuer Trust will invest the proceeds from
the issuance of the Preferred Securities and
Common Securities in an equivalent amount of
% Junior Subordinated Debentures of the
Company. The Junior Subordinated Debentures
will mature on , 2027, subject to
the Maturity Adjustment. The Junior
Subordinated Debentures will rank subordinate
and junior in right of payment to all Senior
Indebtedness of the Company to the extent and
in the manner set forth in the Junior
Subordinated Indenture. In addition, the
Company's obligations under the Junior
Subordinated Debentures will be structurally
subordinated to all existing and future
liabilities and obligations of its
subsidiaries.
Guarantee..................... Under the terms of the Guarantee, the Company
has guaranteed the payment of Distributions and
payments on liquidation or redemption of the
Preferred Securities, but only in each case to
the extent of funds held by the Issuer Trust
described herein. The Company and the Issuer
Trust believe that the obligations of the
Company under the Guarantee, the Trust
Agreement, the Junior Subordinated Debentures
and the Junior Subordinated Indenture taken
together, fully, irrevocably and
unconditionally guarantee all of the Issuer
Trust's obligations relating to the Preferred
Securities. The obligations of the Company
under the Guarantee and the Preferred
Securities are subordinate and junior in right
of payment to all Senior Indebtedness. See
"Description of Guarantee."
Right to Defer Interest....... So long as no Debenture Event of Default (as
defined herein) has occurred and is continuing,
the Company has the right, at any time, to
defer payments of interest on the Junior
Subordinated Debentures for a period not
exceeding 20 consecutive quarters; provided
that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated
Debentures. As a consequence of the Company's
extension of the interest payment period,
quarterly
10
<PAGE> 12
Distributions on the Preferred Securities will
be deferred (though such Distribution would
continue to accrue with interest thereon
compounded quarterly, since interest will
continue to accrue and compound on the Junior
Subordinated Debentures during any such
Extension Period). During an Extension Period,
the Company will be prohibited, subject to
certain exceptions described herein, from
declaring or paying any cash distributions with
respect to its capital stock or debt securities
that rank pari passu with or junior to the
Junior Subordinated Debentures. Upon the
termination of any Extension Period and the
payment of all amounts then due, the Company
may commence a new Extension Period, subject to
the foregoing requirements. See "Description of
Junior Subordinated Debentures -- Option to
Extend Interest Payment Period."
Should an Extension Period occur, Preferred
Security holders will continue to accrue
interest income (and de minimis original issue
discount, if any) for United States federal
income tax purposes. See "Certain Federal
Income Tax Consequences -- US Holders --
Interest Income and Original Issue Discount."
Redemption.................... The Preferred Securities are subject to
mandatory redemption (i) in whole, but not in
part, at the Stated Maturity upon repayment of
the Junior Subordinated Debentures, (ii) in
whole, but not in part, contemporaneously with
the optional redemption at any time by the
Company of the Junior Subordinated Debentures
upon the occurrence and continuation of a Tax
Event or an Investment Company Event and (iii)
in whole or in part at any time on or after
, 2002, contemporaneously with
the optional redemption by the Company of the
Junior Subordinated Debentures in whole or in
part, in each case at the applicable Redemption
Price (as defined herein). See "Description of
Preferred Securities -- Redemption."
Liquidation of the Issuer
Trust......................... The Company, as holder of the Common
Securities, has the right at any time to
dissolve the Issuer Trust and cause the Junior
Subordinated Debentures to be distributed to
holders of Preferred Securities in liquidation
of the Issuer Trust. See "Description of
Preferred Securities -- Liquidation
Distribution Upon Dissolution."
Limited Voting Rights......... Generally, the holders of the Preferred
Securities will have limited voting rights. See
"Description of Preferred Securities -- Voting
Rights; Amendment of Trust Agreement" and "Risk
Factors -- Risk Factors Relating to the
Offering -- Limited Voting Rights."
Use of Proceeds............... The proceeds from the sale of the Preferred
Securities offered hereby will be used by the
Issuer Trust to purchase the Junior
Subordinated Debentures issued by the Company.
The proceeds received by the Company from the
sale of the Junior Subordinated Debentures will
be used to reduce or, in the event the
Underwriters' over-allotment option is
exercised, repay all of the Company's existing
bank debt under the Revolving Credit Facility,
the balance of which is currently $90.0 million
in principal amount. See "Use of Proceeds."
11
<PAGE> 13
ERISA Considerations.......... Prospective purchasers must carefully consider
the information set forth under "Certain ERISA
Considerations."
Ratings....................... The Preferred Securities have been rated "Ba1"
by Moody's Investors Service, Inc. ("Moody's")
and "BB+" by Standard & Poor's Ratings Group
("Standard & Poor's"). A security rating is not
a recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by the assigning rating
organization.
Symbol........................ Application has been made to have the Preferred
Securities approved for listing on the New York
Stock Exchange under the symbol "AIF PrT."
RISK FACTORS
Prospective investors should carefully consider the matters set forth under
"Risk Factors," beginning on page 13.
12
<PAGE> 14
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Preferred Securities offered by this Prospectus. Certain statements in this
Prospectus and documents incorporated herein by reference are forward-looking
and are identified by the use of forward-looking words or phrases. These
forward-looking statements are based on the Company's current expectations. To
the extent any of the information contained in this Prospectus constitutes a
"forward-looking statement" as defined in Section 27A(i)(1) of the Securities
Act, the risk factors set forth below are cautionary statements identifying
important factors that could cause results to differ materially from those in
the forward-looking statement. See "Forward-Looking Statements."
RISK FACTORS RELATING TO THE OFFERING
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES
The obligations of the Company under the Guarantee issued by the Company
for the benefit of the holders of Preferred Securities and under the Junior
Subordinated Debentures are subordinate and junior in right of payment to all
Senior Indebtedness of the Company (as defined herein). The Senior Indebtedness
of the Company aggregated $90.0 million as of June 30, 1997. None of the Junior
Subordinated Indenture, the Guarantee or the Trust Agreement places any
limitation on the amount of secured or unsecured debt, including Senior
Indebtedness, that may be incurred by the Company. See "Description of Guarantee
- --Status of the Guarantee" and "Description of Junior Subordinated Debentures --
Subordination."
The ability of the Issuer Trust to pay amounts due on the Preferred
Securities is solely dependent upon the Company's making payments on the Junior
Subordinated Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
So long as no Event of Default (as defined in the Junior Subordinated
Indenture) with respect to the Junior Subordinated Debentures (a "Debenture
Event of Default") has occurred and is continuing, the Company has the right
under the Junior Subordinated Indenture to defer the payment of interest on the
Junior Subordinated Debentures at any time or from time to time for a period not
exceeding 20 consecutive quarterly periods with respect to each Extension
Period, provided that no Extension Period may extend beyond the Stated Maturity
of the Junior Subordinated Debentures. See "Description of Junior Subordinated
Debentures -- Option to Extend Interest Payment Period." As a consequence of any
such deferral, quarterly Distributions on the Preferred Securities by the Issuer
Trust will be deferred during any such Extension Period. Distributions to which
holders of the Preferred Securities are entitled will accumulate additional
Distributions thereon during any Extension Period at the rate of % per annum,
compounded quarterly from the relevant payment date for such Distributions,
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. Additional Distributions payable
for each full Distribution period will be computed by dividing the rate per
annum by four. The term "Distribution" as used herein shall include any such
additional Distributions. During any such Extension Period, the Company may not
(i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of the Company's
capital stock, or (ii) make any payment of principal of or interest of or
premium, if any, on or repay, repurchase or redeem any debt securities of the
Company that rank pari passu in all respects with or junior in interest to the
Junior Subordinated Debentures (other than (a) repurchases, redemptions or other
acquisitions of shares of capital stock of the Company in connection with any
employment contract, benefit plan or other similar arrangement with or for the
benefit of any one or more employees, officers, directors or consultants, in
connection with a dividend reinvestment or stockholder stock purchase plan or in
connection with the issuance of capital stock of the Company (or securities
convertible into or exercisable for such capital stock) as consideration in an
acquisition transaction entered into prior to the applicable Extension Period,
(b) as a result of an exchange or conversion of any class or series of the
Company's capital stock (or any capital stock of a subsidiary of the Company)
for any class or series of the Company's capital stock or of any class or series
of the Company's indebtedness for any class or series of the Company's capital
stock, (c) the purchase of fractional interests in
13
<PAGE> 15
shares of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(d) any declaration of a dividend in connection with any stockholder's rights
plan, or the issuance of rights, stock or other property under any stockholder's
rights plan, or the redemption or purchase of rights pursuant thereto, or (e)
any dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock). Prior to the termination of any
such Extension Period, the Company may further defer the payment of interest,
provided that no Extension Period may exceed 20 consecutive quarterly periods or
extend beyond the Stated Maturity of the Junior Subordinated Debentures. Upon
the termination of any Extension Period and the payment of all interest then
accrued and unpaid (together with interest thereon at the annual rate of %,
compounded quarterly, to the extent permitted by applicable law), the Company
may elect to begin a new Extension Period subject to the above conditions. No
interest shall be due and payable during an Extension Period, except at the end
thereof. The Company must give the holders of the Preferred Securities and the
Issuer Trustees (as defined herein) notice of its election to begin an Extension
Period at least one Business Day (as defined herein) prior to the earlier of (i)
the date the Distributions on the Preferred Securities would have been payable
but for the election to begin such Extension Period and (ii) the date the
Property Trustee (as defined herein) is required to give notice to holders of
the Preferred 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. The Property Trustee will give notice of the Company's election to begin a
new Extension Period to the holders of the Preferred Securities. Subject to the
foregoing, there is no limitation on the number of times that the Company may
elect to begin an Extension Period. See "Description of Preferred Securities --
Distributions" and "Description of Junior Subordinated Debentures -- Option to
Extend Interest Payment Period."
Should an Extension Period occur, a holder of Preferred Securities will
continue to accrue income (in the form of original issue discount ("OID")) for
United States federal income tax purposes in respect of its pro rata share of
the Junior Subordinated Debentures held by the Issuer Trust, which will include
a holder's pro rata share of both the stated interest and de minimus OID, if
any, on the Junior Subordinated Debentures. As a result, a holder of Preferred
Securities will include such OID in gross income for United States federal
income tax purposes in advance of the receipt of cash, and will not receive the
cash related to such income from the Issuer Trust if the holder disposes of the
Preferred Securities prior to the record date for the payment of Distributions.
See "Certain Federal Income Tax Consequences -- US Holders -- Interest Income
and Original Issue Discount" and "-- Sales of Preferred Securities."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures. However, should the Company elect to exercise such
right in the future, the market price of the Preferred Securities is likely to
be affected. A holder that disposes of its Preferred Securities during an
Extension Period, therefore, might not receive the same return on its investment
as a holder that continues to hold its Preferred Securities. In addition, as a
result of the existence of the Company's right to defer interest payments, the
market price of the Preferred Securities (which represent preferred undivided
beneficial interests in the assets of the Issuer Trust) may be more volatile
than the market prices of other securities on which OID or interest accrues that
are not subject to such deferrals.
TAX EVENT OR INVESTMENT COMPANY EVENT REDEMPTION
Upon the occurrence and during the continuation of a Tax Event or an
Investment Company Event the Company has the right to redeem the Junior
Subordinated Debentures in whole, but not in part, at any time within 90 days
following the occurrence of such Tax Event or an Investment Company Event and
thereby cause a mandatory redemption of the Preferred Securities. Any such
redemption shall be at a price equal to the liquidation amount of the Preferred
Securities, together with accumulated Distributions to but excluding the date
fixed for redemption. See "Description of Junior Subordinated Debentures --
Redemption" and "Description of Preferred Securities -- Liquidation Distribution
Upon Dissolution."
14
<PAGE> 16
A "Tax Event" means the receipt by the Issuer Trust of an opinion of
counsel to the Company experienced in such matters to the effect that, as a
result of any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, or as a result of
any official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement, action or decision is announced on or after
the date of issuance of the Preferred Securities, there is more than an
insubstantial risk that (i) the Issuer Trust is, or will be within 90 days of
the delivery of such opinion, subject to United States federal income tax with
respect to income received or accrued on the Junior Subordinated Debentures,
(ii) interest payable by the Company on the Junior Subordinated Debentures is
not, or within 90 days of the delivery of such opinion will not be, deductible
by the Company, in whole or in part, for United States federal income tax
purposes, or (iii) the Issuer Trust is, or will be within 90 days of the
delivery of the opinion, subject to more than a de minimis amount of other
taxes, duties or other governmental charges.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
the Issuer Trust is or will be considered an "investment company" that is
required to be registered under the Investment Company Act of 1940, as amended
(the "Investment Company Act"), which change or prospective change becomes
effective or would become effective, as the case may be, on or after the date of
the issuance of the Preferred Securities.
See "-- Proposed Tax Law Changes" and "Certain Federal Income Tax
Consequences -- Proposed Tax Law Changes" for a discussion of certain
legislative proposals that, if adopted, could give rise to a Tax Event, which
may permit the Company to cause a redemption of the Preferred Securities prior
to , 2002.
EXCHANGE OF PREFERRED SECURITIES FOR JUNIOR SUBORDINATED DEBENTURES
The holders of all the outstanding Common Securities have the right at any
time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Preferred
Securities in liquidation of the Issuer Trust. See "Description of Preferred
Securities -- Liquidation Distribution Upon Dissolution."
Under current United States federal income tax law and interpretations and
assuming, as expected, that the Issuer Trust will not be taxable as a
corporation, a distribution of the Junior Subordinated Debentures upon a
liquidation of the Issuer Trust will not be a taxable event to holders of the
Preferred Securities. However, if a Tax Event were to occur that would cause the
Issuer Trust to be subject to United States federal income tax with respect to
income received or accrued on the Junior Subordinated Debentures, a distribution
of the Junior Subordinated Debentures by the Issuer Trust would be a taxable
event to the Issuer Trust and the holders of the Preferred Securities. See
"Certain Federal Income Tax Consequences -- US Holders -- Receipt of Junior
Subordinated Debentures or Cash Upon Liquidation of the Issuer Trust."
RIGHTS UNDER THE GUARANTEE
Bankers Trust Company will act as the trustee (the "Trustee" or the
"Guarantee Trustee") under the Guarantee and will hold the Guarantee for the
benefit of the holders of the Preferred Securities. Bankers Trust Company will
also act as the debenture trustee (the "Debenture Trustee") for the Junior
Subordinated Debentures and as property trustee (the "Property Trustee") under
the Trust Agreement. Bankers Trust (Delaware) will act as Delaware Trustee under
the Trust Agreement. The Guarantee guarantees to the holders of the Preferred
Securities the following payments, to the extent not paid by or on behalf of the
Issuer Trust: (i) any accumulated and unpaid Distributions required to be paid
on the Preferred Securities, to the extent that the Issuer Trust has funds on
hand available therefor at the payment date, (ii) the Redemption Price with
respect to any Preferred Securities called for redemption, to the extent that
the Issuer Trust has funds on hand available therefor at such time, and (iii)
upon a voluntary or involuntary dissolution, winding up
15
<PAGE> 17
or liquidation of the Issuer Trust (unless the Junior Subordinated Debentures
are distributed to holders of the Preferred Securities), the lesser of (a) the
aggregate of the Liquidation Amount (as defined herein) and all accumulated and
unpaid Distributions required to be paid on the Preferred Securities to the
extent that the Issuer Trust has funds on hand available therefor at such time,
and (b) the amount of assets of the Issuer Trust remaining available for
distribution to holders of the Preferred Securities on liquidation of the Issuer
Trust. The Guarantee is subordinated as described under "-- Ranking of
Subordinated Obligations Under the Guarantee and the Junior Subordinated
Debentures" and "Description of Guarantee -- Status of the Guarantee." The
holders of not less than a majority in aggregate Liquidation Amount of the
outstanding Preferred Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of the Guarantee or to direct the exercise of any trust power
conferred upon the Guarantee Trustee under the Guarantee. Any holder of the
Preferred Securities may institute a legal proceeding directly against the
Company to enforce its rights under the Guarantee without first instituting a
legal proceeding against the Issuer Trust, the Guarantee Trustee or any other
person or entity.
If the Company were to default on its obligation to pay amounts payable
under the Junior Subordinated Debentures, the Issuer Trust may lack funds for
the payment of Distributions or amounts payable on redemption of the Preferred
Securities or otherwise, and, in such event, holders of the Preferred Securities
would not be able to rely upon the Guarantee for payment of such amounts.
Instead, if a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the payment date on which
such payment is due and payable, then a holder of Preferred Securities may
institute a legal proceeding directly against the Company for enforcement of
payment to such holder of any amounts payable in respect of such Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Preferred Securities of such holder (a "Direct
Action"). In connection with such Direct Action, the Company will have a right
of set-off under the Junior Subordinated Indenture to the extent of any payment
made by the Company to such holder of Preferred Securities in the Direct Action.
Except as described herein, holders of Preferred Securities will not be able to
exercise directly any other remedy available to the holders of the Junior
Subordinated Debentures or assert directly any other rights in respect of the
Junior Subordinated Debentures. See "Description of Junior Subordinated
Debentures -- Enforcement of Certain Rights by Holders of Preferred Securities"
and "-- Debenture Events of Default," and "Description of Guarantee." The Trust
Agreement provides that each holder of Preferred Securities by acceptance
thereof agrees to the provisions of the Guarantee and the Junior Subordinated
Indenture.
LIMITED VOTING RIGHTS
Holders of Preferred Securities will have limited voting rights relating
generally to the modification of the Preferred Securities and the Guarantee and
the exercise of the Issuer Trust's rights as holder of the Junior Subordinated
Debentures. Holders of Preferred Securities will not be entitled to appoint,
remove or replace the Property Trustee or the Delaware Trustee except upon the
occurrence of certain events specified in the Trust Agreement. The Property
Trustee and the holders of all the Common Securities may, subject to certain
conditions, amend the Trust Agreement without the consent of holders of
Preferred Securities to cure any ambiguity or make other provisions not
inconsistent with the Trust Agreement or to ensure that the Issuer Trust (i)
will not be taxable as a corporation for United States federal income tax
purposes, or (ii) will not be required to register as an "investment company"
under the Investment Company Act. See "Description of Preferred Securities --
Voting Rights; Amendment of Trust Agreement" and "-- Removal of Issuer Trustees;
Appointment of Successors," and "Description of Guarantee -- Amendments and
Assignment."
ABSENCE OF PRIOR MARKET
The Company has made application to list the Preferred Securities on the
NYSE. However, there can be no assurance that an active trading market for the
Preferred Securities will develop or continue or that the market price of the
Preferred Securities will not decline below the price to public set forth on the
cover page of this Prospectus. See "Underwriting."
16
<PAGE> 18
MARKET PRICES
There can be no assurance as to the market prices for Preferred Securities,
or the market prices for Junior Subordinated Debentures that may be distributed
in exchange for Preferred Securities if a liquidation of the Issuer Trust
occurs. Accordingly, the Preferred Securities or the Junior Subordinated
Debentures that a holder of Preferred Securities may receive on liquidation of
the Issuer Trust may trade at a discount to the price that the investor paid to
purchase the Preferred Securities offered hereby. Because holders of Preferred
Securities may receive Junior Subordinated Debentures on termination of the
Issuer Trust, prospective purchasers of Preferred Securities are also making an
investment decision with regard to the Junior Subordinated Debentures and should
carefully review all the information regarding the Junior Subordinated
Debentures contained herein. See "Description of Junior Subordinated
Debentures."
PROPOSED TAX LAW CHANGES
On February 6, 1997, President Clinton released his budget proposals for
fiscal year 1998. One of the tax proposals therein (the "Tax Proposal") would
generally deny corporate issuers a deduction for interest related to certain
debt obligations that have a maximum term in excess of 15 years and are not
shown as indebtedness on the separate balance sheet of the issuer or, where the
instrument is issued to a related party (other than a corporation), where the
holder of some other related party issues a related instrument that is not shown
as indebtedness on the issuer's consolidated balance sheet. As drafted, the Tax
Proposal would be effective generally for instruments issued on or after the
date of first Congressional committee action. The House of Representatives has
passed the Revenue Reconciliation Act of 1997 (the "Revenue Act"), which does
not contain any provision similar to the Tax Proposal except for debt
instruments payable in stock of the issuer or a related party. The version of
the Revenue Act passed by the Senate also does not contain any provision similar
to the Tax Proposal denying the deduction of interest on debt instruments
because they may contain equity features. Accordingly, the Revenue Act in its
current form, as passed by the House of Representatives and the Senate, does not
apply to the Junior Subordinated Debentures. There can be no assurance, however,
that the Revenue Act, if enacted, will be enacted as currently drafted or that
other legislation enacted after the date hereof will not adversely affect the
tax treatment of the Junior Subordinated Debentures or cause a Tax Event,
resulting in the distribution of the Junior Subordinated Debentures to holders
of Preferred Securities. See "Description of Preferred Securities --
Redemption." Such a change could give rise to a Tax Event, which may permit the
Company to cause a redemption of the Preferred Securities before ,
2002. See "Description of Junior Subordinated Debentures -- Redemption" and
"Description of Preferred Securities -- Redemption." See also "Certain Federal
Income Tax Consequences -- Proposed Tax Law Changes." Under current law, the
Company will be able to deduct interest on the Junior Subordinated Debentures.
RISK FACTORS RELATING TO THE COMPANY
NATURE OF BUSINESS; COMPETITION
Insurers compete based on a number of factors, including pricing and other
terms, service provided to agents and policyholders, and ratings. Since the last
half of the 1980s, there has been severe competition in pricing and terms of
coverage in the property and casualty insurance industry, resulting in
underwriting losses for the industry. The Company continues to experience
pricing competition in certain segments of its business as the conditions of
heightened price competition and impaired underwriting performance continue in
the industry as a whole. In addition, many of the Company's competitors have
substantially greater financial and other resources, and some offer a broader
variety of coverages than those offered by the Company. The continuation of
these market conditions for many property and casualty lines may result in
additional competitors seeking to write business in certain of the Company's
specialized lines. In addition, since the Company acquires books of business in
niche insurance markets in which it has limited experience in underwriting the
risk involved, the Company may encounter difficulty in underwriting and pricing
such policies, which in turn may lead to unfavorable underwriting results.
17
<PAGE> 19
The Company's results are also influenced by other factors affecting the
insurance industry generally and which are largely beyond the Company's control.
Such factors include: (a) weather-related and other catastrophes; (b) taxation
and regulatory reform at both the federal and state levels; (c) changes in
industry standards regarding rating and policy forms; (d) changes in law as a
result of court decisions and in judicial attitudes toward liability claims; and
(e) changes in the rate of inflation, interest rates and general economic
conditions.
Property and casualty insurance is a capital intensive business. The
Company must maintain minimum levels of surplus in the Insurance Companies in
order to continue to write business and at the same time meet the standards
established by state insurance regulatory authorities and insurance rating
bureaus. Without additional capital, the Company could be required to curtail
growth or even to reduce its volume of premium writings in order to satisfy
state regulations or to maintain the current ratings from A.M. Best for the
Insurance Companies.
The Company's growth has resulted in part from acquisitions and other
equity investments, and the Company intends to continue to pursue additional
opportunities in the insurance business. Such growth requires capital, and as a
result the Company may seek additional debt or equity financing in the future,
the amounts of which may be significant. There can be no assurance that the
Insurance Companies will have access to sufficient capital in future periods to
continue their growth and also satisfy the capital requirements of rating
agencies and regulators. Such growth has also involved and may continue to
involve entering new lines of insurance in which the Company has limited prior
operating experience. Although the Company follows the practice of hiring
experienced personnel to manage its new lines of business, there can be no
assurance that it will be successful in writing such new lines.
NATURE OF CROP INSURANCE BUSINESS
The Company's operating results from its crop insurance program can vary
substantially from period to period as a result of various factors, including
timing and severity of losses from storms, droughts, floods, freezes and other
natural perils and the timing of crop production cycles. Therefore, the results
for any quarter or year are not necessarily indicative of results for any future
period. The underwriting results of the crop insurance business primarily are
recognized by the Company in the third and fourth quarter of the year.
The Company's operating results may also be significantly affected by
legislative and regulatory changes in the MPCI program or in the terms of the
annual contract with the FCIC. The MPCI program has historically been subject to
modification since its establishment in 1980, and certain of these modifications
have significantly affected the Company's crop insurance business. No assurance
can be given that future changes will not significantly affect the MPCI program
and the Company's crop insurance business.
The Federal Crop Insurance Reform Act of 1994 (the "1994 Reform Act")
reduced the expense reimbursement rate payable to the Company for its costs of
servicing MPCI policies that exceed the minimum available level of MPCI (such
policies, "Buy-up Coverage") for the 1997, 1998 and 1999 crop years to 29%, 28%
and 27.5% of MPCI Premiums written, respectively, which is a decrease from the
31% level established for the 1994, 1995 and 1996 crop years. CRC policies,
which have a higher premium base, will receive a 25% expense reimbursement rate
in 1997. Although the 1994 Reform Act directs the FCIC to alter program
procedures and administrative requirements so that the administrative and
operating costs of private insurance companies participating in the MPCI program
will be reduced in an amount that corresponds to the reduction in the expense
reimbursement rate, there can be no assurance that the Company's actual costs
will not exceed the reimbursement rate.
The Company is currently participating in discussions with the FCIC
regarding the 1998 contract. The government currently proposes to reduce the
expense reimbursement on standard MPCI and CRC coverages and change the profit
sharing arrangement to increase participation in profit and loss by private
insurance companies. The Company's MPCI Premiums in respect of standard MPCI
Buy-up Coverages and CRC coverages were approximately $185.5 million and $35.0
million, respectively, for 1996. The Company intends to take steps to mitigate
the effect of any reduction in the expense reimbursement formula, including cost
containment and additional MPCI or CRC policy sales. Any reduction in the
expense reimbursement terms
18
<PAGE> 20
which are not (i) offset by higher attendant premiums, (ii) able to be mitigated
by the Company, or (iii) offset by cost reductions of the MPCI program by the
FCIC as discussed above, or any combination thereof, may adversely affect the
Company's results of operations for this component of the MPCI program.
The 1994 Reform Act also directs the FCIC to establish adequate premiums
for all MPCI coverages at such rates as the FCIC determines are actuarially
sufficient to attain a targeted loss ratio. Since 1980, the average MPCI loss
ratio has exceeded this target ratio. There can be no assurance that the FCIC
will not increase rates to farmers in order to achieve the targeted loss ratio
in a manner that could adversely affect participation by farmers in the MPCI
program.
The Federal Agricultural Improvement and Reform Act of 1996 (the "1996
Reform Act") provides that MPCI coverage is not required for federal farm
program benefits if producers sign a written waiver that waives eligibility for
emergency crop loss assistance. There can be no assurance as to the ultimate
effect that the 1996 Reform Act may have on the business or operations of the
Company.
Total MPCI Premium for each farmer depends upon the type of crops grown,
acreage planted and other factors determined by the FCIC. Each year, the FCIC
sets, by crop, the maximum per unit commodity price ("Price Election") to be
used in computing MPCI Premiums. Any reduction of the Price Election by the FCIC
will reduce the MPCI Premium charged per policy, and accordingly will adversely
impact MPCI Premium volume.
A significant portion of the MPCI premiums written by the Company in 1997
relate to CRC policies. In view of the recent introduction of CRC and the
limited experience of the Company, the FCIC and the industry in underwriting
this product, there can be no assurance as to the adequacy of the pricing and
future loss experience related to this product.
The Company's crop insurance business is also affected by market conditions
in the agricultural industry which vary depending on such factors as federal
legislation and administration policies, foreign country policies relating to
agricultural products and producers, demand for agricultural products, weather,
natural disasters, technological advances in agricultural practices,
international agricultural markets and general economic conditions both in the
United States and abroad. For example, the number of MPCI Buy-up Coverage
policies written has historically tended to increase after a year in which a
major natural disaster adversely affecting crops occurs, and to decrease
following a year in which favorable weather conditions prevail.
For further information about the Company's MPCI business, see "Business --
Crop Insurance."
LOSS RESERVES
The reserves for losses and LAE established by the Company are estimates of
amounts needed to pay reported and unreported claims and related LAE based on
facts and circumstances then known. Reserves are based on estimates of trends in
claims severity, judicial theories of liability and other factors.
The Company underwrites both property and casualty coverages in a number of
specialty areas of business which may involve greater risks than standard
property and casualty lines, including the risks associated with the absence of
a long-term, reliable historical claims experience. These risk components may
make more difficult the task of estimating reserves for losses, and cause the
Company's underwriting results to fluctuate.
The establishment of appropriate reserves is an inherently uncertain
process, and it has been necessary, and over time may continue to be necessary,
to revise estimated loss reserve liabilities. Adverse loss experience related to
prior years resulted in a strengthening of loss reserves in each of 1994, 1995
and 1996, in the amounts of $5.1 million, $22.3 million and $9.5 million,
respectively. There can be no assurance that the ultimate liability will not
materially exceed the Company's loss and LAE reserves and have a material
adverse effect on the Company's results of operations and financial condition in
the future. Conditions and trends that have affected the development of loss
reserves in the past may not necessarily occur in the future. See "Business --
Loss and Loss Adjustment Expense Reserves."
19
<PAGE> 21
REINSURANCE
In order to reduce risk and to increase its underwriting capacity, the
Company purchases reinsurance. Reinsurance does not relieve the Company of
liability to its insureds for the risks ceded to reinsurers. As such, the
Company is subject to credit risk with respect to the risks ceded to reinsurers.
Although the Company places its reinsurance with reinsurers it believes to be
financially stable, a significant reinsurer's insolvency or inability to make
payments under the terms of a reinsurance treaty could have a material adverse
effect on the Company.
The amount and cost of reinsurance available to companies writing property
and casualty insurance are subject, in large part, to prevailing market
conditions beyond the control of such companies. The Company's ability to
provide insurance at competitive premium rates and coverage limits on a
continuing basis depends upon its ability to obtain adequate reinsurance in
amounts and at rates that will not adversely affect its competitive position.
Due to continuing market uncertainties regarding reinsurance capacity, no
assurances can be given as to the Company's ability to maintain its current
reinsurance facilities, which generally are subject to annual renewal. If the
Company is unable to renew such facilities upon their expiration and is
unwilling to bear the associated increase in net exposures, the Company may need
to reduce the levels of its underwriting commitments. See "Business --
Reinsurance."
INVESTMENTS
All of the Company's securities investment portfolio has been designated as
available-for-sale pursuant to Statement of Financial Accounting Standards No.
115 ("SFAS 115") relating to accounting for investments. SFAS 115 requires that
unrealized gains and losses in the estimated value of the available-for-sale
portfolio be "marked to market" and reflected as a separate item in
stockholders' equity (net of tax). Stockholders' equity will continue to reflect
the unrealized gains and losses (net of tax) of these investments. There can be
no assurance that the market value of the Company's investment portfolio will
not decline, causing a corresponding decline in stockholders' equity.
Management believes that several factors will affect the market values of
the Company's investment portfolio. These include, but are not limited to,
changes in interest rates or expectations of changes, the degree of volatility
in the securities markets, inflation rates or expectations of inflation and the
slope of the interest rate yield curve. (The yield curve refers to the
differences between longer-term and shorter-term interest rates. A positively
sloped yield curve means shorter-term rates are lower than longer-term rates.)
Also, the passage of time will affect the market values of the securities, in
that the closer they are to maturing, the closer the market price should be to
par value. In addition to the foregoing, there are other factors that impact
specific categories of the portfolio differently. See "Business -- Investments."
REGULATION
The Company's insurance business is subject to comprehensive regulation
throughout the United States, under statutes which delegate regulatory,
supervisory and administrative powers to state insurance commissioners. The
primary purpose of such regulation and supervision is the protection of
policyholders and claimants rather than stockholders or other investors.
Depending on whether the insurance company is domiciled in the state and whether
it is an admitted or non-admitted insurer, such authority may extend to such
things as: (i) periodic reporting of the insurer's financial condition; (ii)
periodic financial examination; (iii) approval of rates and policy forms; (iv)
loss reserve adequacy; (v) insurer solvency; (vi) the licensing of insurers and
their agents; (vii) restrictions on the payment of dividends and other
distributions; (viii) approval of changes in control; and (ix) the type and
amount of permitted investments.
The Company also is subject to laws governing insurance holding companies
in Nebraska, Iowa, Arizona and Texas, where the Insurance Companies are
domiciled. These laws, among other things, require the Company to file periodic
information with state regulatory authorities including information concerning
its capital structure, ownership, financial condition and general business
operations; regulate certain transactions
20
<PAGE> 22
between the Company, its affiliates and the Insurance Companies, including the
amount of dividends and other distributions and the terms of surplus notes; and
restrict the ability of any one person to acquire certain levels of the
Company's voting securities (generally 10%) without prior regulatory approval.
Insurance regulatory agencies and the National Association of Insurance
Commissioners ("NAIC") reexamine from time to time existing laws and regulations
and their application to insurance companies. In addition, the Company's MPCI
and CRC programs are regulated and are subject to oversight by the federal
government, including the FCIC. The MPCI and CRC programs require compliance
with federal guidelines with respect to all aspects of the MPCI and CRC program,
and the Company is required to perform continuous internal audits and is subject
to audit by several federal government agencies. There can be no assurance that
existing insurance-related laws and regulations will not become more restrictive
in the future or that laws and regulations enacted in the future at the state or
federal level will not be more restrictive or otherwise have a material adverse
effect on the Company. For further information as to regulatory issues affecting
the Insurance Companies, see "Business -- Regulation" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
HOLDING COMPANY STRUCTURE; DIVIDENDS AND OTHER RESTRICTIONS
The Company is an insurance holding company with assets consisting
primarily of the capital stock of its subsidiaries, surplus notes issued by two
of the Insurance Companies and investment assets held at the holding company
level. Following the Offering, the ability of the Company to make interest
payments on the Junior Subordinated Debentures will be dependent upon the
receipt of interest payments on the surplus notes, payments from the profit
sharing arrangement with Am Ag, tax sharing payments from its subsidiaries, net
investment income from, and proceeds from the sale of, holding company
investments, and dividends or other distributions from the subsidiaries of the
Company. Dividends from the Insurance Companies are regulated by the regulatory
authorities of the states in which each subsidiary is domiciled. The laws of
such states generally restrict dividends from insurance companies to parent
companies to certain statutorily approved limits. In 1997, the statutory
limitation on dividends from the Insurance Companies to the Company without
further insurance department approval is approximately $10.4 million, none of
which has been paid. Although the Company believes that amounts required for it
to meet its financial and operating obligations will be available, there can be
no assurance in this regard. For further information about the Company's sources
of cash flow and restrictions thereon, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The maximum dividend permitted by law is not necessarily indicative of an
insurer's actual ability to pay dividends or other distributions to a parent
company, which also may be constrained by business and regulatory
considerations, such as the impact of dividends on surplus, which could affect
an insurer's competitive position, the amount of premiums that can be written
and the ability to pay future dividends. Further, state insurance laws and
regulations require that the statutory surplus of an insurance company following
any dividend or distribution by such company be reasonable in relation to its
outstanding liabilities and adequate for its financial needs.
DEPENDENCE ON KEY PERSONNEL
The future success of the Company depends significantly upon the efforts of
Kenneth C. Coon, Chairman and Chief Executive Officer of the Company, John P.
Nelson, President and Chief Operating Officer of the Company, Richard C. Gibson,
Chief Executive Officer of Am Ag, Bruce W. Slaughter, Senior Vice President of
Redland Insurance, and Thomas D. Stamm, Senior Vice President of Acceptance
Insurance. The loss of any of these officers or of the business derived from the
efforts of these officers could adversely affect the Company's business. Messrs.
Coon, Nelson, and Gibson are each employed under an employment agreement which
is automatically renewed from calendar year to calendar year, unless terminated
by either party with one year's notice.
21
<PAGE> 23
AICI CAPITAL TRUST
The Issuer Trust is a statutory business trust created under Delaware law
pursuant to the filing of a Certificate of Trust with the Delaware Secretary of
State on June 5, 1997. The Issuer Trust will be governed by the Trust Agreement
among the Company, as Depositor, Bankers Trust (Delaware), as Delaware Trustee,
and Bankers Trust Company, as Property Trustee (together with the Delaware
Trustee, the "Issuer Trustees"). Two individuals will be selected by the holder
of the Common Securities to act as administrators with respect to the Issuer
Trust (the "Administrators"). The Company, while holder of the Common
Securities, intends to select two individuals who are employees or officers of
or affiliated with the Company to serve as the Administrators. See "Description
of Preferred Securities -- Miscellaneous." The Issuer Trust exists for the
exclusive purposes of (i) issuing and selling the Trust Securities, (ii) using
the proceeds from the sale of the Trust Securities to acquire the Junior
Subordinated Debentures and (iii) engaging in only those other activities
necessary, advisable or incidental thereto (such as registering the transfer of
the Trust Securities). Accordingly, the Junior Subordinated Debentures will be
the sole assets of the Issuer Trust, and payments under the Junior Subordinated
Debentures will be the sole source of revenue of the Issuer Trust.
All the Common Securities will be owned by the Company. The Common
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Preferred Securities, except that upon the occurrence and during the
continuation of a Debenture Event of Default arising as a result of any failure
by the Company to pay any amounts in respect of the Junior Subordinated
Debentures when due, the rights of the holder of the Common Securities to
payment in respect of Distributions and payments upon liquidation, redemption or
otherwise will be subordinated to the rights of the holders of the Preferred
Securities. See "Description of Preferred Securities -- Subordination of Common
Securities." The Company will acquire Common Securities in an aggregate
liquidation amount equal to 3% of the total capital of the Issuer Trust. The
Issuer Trust has a term of 31 years, but may terminate earlier as provided in
the Trust Agreement. The address of the Delaware Trustee is Bankers Trust
(Delaware), 1001 Jefferson Street, Wilmington, Delaware 19801, telephone number
(302) 576-3301. The address of the Property Trustee, the Guarantee Trustee and
the Debenture Trustee is Bankers Trust Company, Four Albany Street, 4th Floor,
New York, New York 10006, telephone number (212) 250-2500.
ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer Trust will be treated as a
subsidiary of the Company and, accordingly, the accounts of the Issuer Trust
will be included in the consolidated financial statements of the Company. The
Preferred Securities will be included in the consolidated balance sheets of the
Company and appropriate disclosures about the Preferred Securities, the
Guarantee and the Junior Subordinated Debentures will be included in the notes
to the consolidated financial statements of the Company. For financial reporting
purposes, Distributions on the Preferred Securities will be recorded in the
consolidated statements of income of the Company.
USE OF PROCEEDS
All the proceeds to the Issuer Trust from the sale of the Preferred
Securities will be invested by the Issuer Trust in the Junior Subordinated
Debentures. The Company intends to use the net proceeds it receives from the
sale of the Junior Subordinated Debentures to reduce or, in the event the
Underwriters' over-allotment option is exercised, repay all of its outstanding
bank debt which at June 30, 1997 aggregated $90.0 million in principal amount.
As of March 31, 1997, the average interest rate of borrowings under the
Company's Revolving Credit Facility was 6.7%. The Company may from time to time
engage in additional financings of a character and in amounts to be determined.
22
<PAGE> 24
CAPITALIZATION
The following table sets forth (i) the consolidated capitalization of the
Company at March 31, 1997, (ii) the pro forma consolidated capitalization of the
Company, as of March 31, 1997, after giving effect to additional borrowings of
$21.0 million by the Company subsequent to March 31, 1997, and (iii) the pro
forma consolidated capitalization of the Company as adjusted to reflect the
issuance of the Preferred Securities hereby offered by the Issuer Trust and
application by the Company of the net proceeds from the corresponding sale of
the Junior Subordinated Debentures to the Issuer Trust as if the sale of the
Preferred Securities had been consummated on March 31, 1997.
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------------
PRO AS
ACTUAL FORMA ADJUSTED
------ ----- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Borrowings and term debt.................................. $ 69,000 $ 90,000 $ 11,000(1)
Company-obligated mandatorily redeemable Preferred
Securities of AICI Capital Trust, holding solely Junior
Subordinated Debentures of the Company(2)............... -- -- 82,500
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 5,000,000 shares
authorized, none issued.............................. -- -- --
Common stock, $0.40 par value; 20,000,000 shares
authorized, 15,329,548 shares issued................. 6,109 6,109 6,109
Capital in excess of par value.......................... 196,259 196,259 196,259
Unrealized loss on available for sale securities, net of
tax.................................................. (2,323) (2,323) (2,323)
Retained earnings.................................... 15,346 15,346 15,346
LESS:
Treasury stock, at cost, 38,680 shares.................... (1,629) (1,629) (1,629)
Contingent stock, 240,000 shares(3)....................... (2,700) (2,700) (2,700)
-------- -------- --------
Total stockholders' equity.............................. 211,062 211,062 211,062
-------- -------- --------
Total capitalization............................... $280,062 $301,062 $304,562
======== ======== ========
</TABLE>
- ------------
(1) Assumes the Company will use approximately $79.0 million of the net proceeds
from the sale of the Junior Subordinated Debentures to pay down existing
bank debt.
(2) Preferred Securities representing beneficial interests in an aggregate
principal amount of $82.5 million of the % Junior Subordinated
Debentures of the Company. The Junior Subordinated Debentures will mature on
, 2027 subject to the Maturity Adjustment.
(3) Contingent stock represents shares issued by the Company as part of the
consideration for the Redland acquisition which are currently held in escrow
as a fund against which the Company may assert certain claims arising out of
the acquisition.
For additional information regarding the Company's Revolving Credit
Facility and other capital resources, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
23
<PAGE> 25
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected consolidated financial data
and should be read in conjunction with, and is qualified in its entirety by, the
Consolidated Financial Statements and the notes thereto incorporated by
reference in this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere herein. This
selected consolidated financial data has been derived from the audited and
unaudited Consolidated Financial Statements of the Company and its subsidiaries.
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------ --------------------
1992 1993 1994 1995(1) 1996 1996 1997
---- ---- ---- ------- ---- ---- ----
(IN THOUSANDS, EXCEPT RATIOS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:(2)
Insurance Revenues:
Gross premiums written.............. $152,091 $256,042 $447,483 $537,349 $651,060 $123,729 $125,345
Net premiums written................ 84,085 137,505 229,176 286,183 366,949 70,834 71,315
Net premiums earned................. 79,164 128,082 202,659 271,584 348,653 67,504 71,062
Net investment income............... 8,220 10,467 12,864 19,851 25,677 6,285 6,347
Net realized capital gains.......... 1,046 2,250 554 2,531 5,206 1,181 1,311
Agency income....................... 3,992 4,119 3,629 2,863 1,035 629 --
-------- -------- -------- -------- -------- -------- --------
Insurance revenues................ 92,422 144,918 219,706 296,829 380,571 75,599 78,720
Non-insurance revenues................ 2,610 377 412 976 824 179 173
-------- -------- -------- -------- -------- -------- --------
Total revenues.................. $ 95,032 $145,295 $220,118 $297,805 $381,395 $ 75,778 $ 78,893
======== ======== ======== ======== ======== ======== ========
Insurance expenses:
Losses and loss adjustment
expenses.......................... $ 60,025 $ 92,805 $142,951 $212,337 $243,257 $ 45,883 $ 49,807
Underwriting and other expenses..... 23,523 36,905 52,627 72,602 95,803 21,274 22,044
Agency expenses..................... 3,736 3,794 3,180 2,596 1,024 531 --
-------- -------- -------- -------- -------- -------- --------
Insurance expenses.................. 87,284 133,504 198,758 287,535 340,084 67,688 71,851
Non-insurance expenses................ 3,107 1,225 1,684 2,165 2,015 535 524
-------- -------- -------- -------- -------- -------- --------
Total expenses.................. $ 90,391 $134,729 $200,442 $289,700 $342,099 $ 68,223 $ 72,375
======== ======== ======== ======== ======== ======== ========
Operating profit(1)................... 4,641 10,566 19,676 8,105 39,296 7,555 6,518
Other expense:
Interest expense.................... 4,428 2,235 1,693 2,591 4,896 1,253 1,157
Other expense, net.................. 823 340 271 171 910 6 38
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before income taxes and
minority interests................ (610) 7,991 17,712 5,343 33,490 6,296 5,323
Provision (benefit) for income
taxes(3)............................ -- 167 (3,443) 1,188 3,210 1,818 1,409
Minority interests in net income of
consolidated subsidiaries........... 216 238 80 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss) from continuing
operations.......................... $ (826) $ 7,586 $ 21,075 $ 4,155 $ 30,280 $ 4,478 $ 3,914
======== ======== ======== ======== ======== ======== ========
GAAP RATIOS:(4)
Loss ratio............................ 75.8% 72.5% 70.5% 78.2% 69.8% 68.0% 70.1%
Expense ratio......................... 29.7 28.8 26.0 26.7 27.5 31.5 31.0
-------- -------- -------- -------- -------- -------- --------
Combined loss and expense ratio....... 105.5% 101.3% 96.5% 104.9% 97.3% 99.5% 101.1%
======== ======== ======== ======== ======== ======== ========
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------------------------------ --------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Investments......................... $124,311 $187,986 $264,743 $368,001 $405,926 $385,002 $432,253
Total assets........................ 257,734 409,385 543,087 781,034 884,380 734,500 848,617
Loss and loss adjustment expense
reserves.......................... 127,666 211,600 221,325 369,244 432,173 324,998 380,529
Unearned premiums................... 41,709 60,114 97,170 124,122 140,217 130,653 145,700
Borrowings and term debt(5)......... 33,567 18,951 29,000 69,000 69,000 69,000 69,000
Stockholders' equity................ 34,523 95,717 159,754 177,787 207,820 178,943 211,062
OTHER DATA:
Statutory surplus of Insurance
Companies(5)(6)................... $ 34,527 $ 73,910 $126,272 $169,628 $191,455 $172,425 $194,632
Ratio of earnings to fixed
charges(7).......................... 1.07x 4.07x 8.07x 2.52x 6.63x 5.03x 4.48x
</TABLE>
Footnotes on following page
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<PAGE> 26
- ------------
(1) Operating profit was reduced in 1995 by an increase in loss reserves in the
amount of approximately $22.3 million for 1994 and prior year losses
primarily in the commercial auto liability and general liability and
commercial multi-peril lines of insurance. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations -- Year Ended December 31, 1995 Compared to Year Ended December
31, 1994" and "Business -- Loss and Loss Adjustment Expense Reserves." As
used in this Prospectus, operating profit refers to net income from
continuing operations before interest expense, other income or expense, net,
and income taxes.
(2) For a discussion of the accounting treatment of the Company's MPCI business,
the results of which are included beginning July 1, 1993, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
General -- Crop Insurance Division."
(3) Results for 1994 and 1993 reflect the utilization of tax loss carryforwards
and other temporary differences resulting from prior non-insurance
operations.
(4) The loss and LAE ratio is calculated by dividing losses and loss adjustment
expenses by net premiums earned. The expense ratio is calculated by dividing
underwriting expenses by net premiums earned. The combined ratio is the sum
of the loss and LAE and expense ratios. The Company's loss, expense and
combined ratios include the results of the Crop Insurance Division.
(5) Reflects statutory surplus of the Insurance Companies on a consolidated
basis. On June 30, 1997, one of the Company's insurance subsidiaries issued
a surplus note to the Company in exchange for $20 million. As of March 31,
1997 the pro forma statutory surplus of the Insurance Companies would have
been $214.6 million as adjusted for this surplus note. The Company's
investment was funded through an increase in its borrowings under the
Company's Revolving Credit Facility which aggregated $90.0 million at June
30, 1997. See "Management's Discussion and Analysis of Operating Results --
General -- Crop Insurance Division."
(6) Statutory data has been derived from the separate financial statements of
the Insurance Companies prepared in accordance with SAP.
(7) For the purpose of computing the ratio of earnings to fixed charges, (i)
"earnings" consist of income (loss) from continuing operations before income
taxes and minority interests plus fixed charges and (ii) "fixed charges"
consist of all interest expense and the interest portion of rents.
25
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
historical financial statements and the other information incorporated herein by
reference. See "Available Information" and "Incorporation of Certain Documents
by Reference."
GENERAL
The Company's business is conducted in two principal divisions, the Crop
Insurance Division and the Specialty Property and Casualty Division. The
Specialty Property and Casualty Division consists of the Company's General
Agency, Program, and Non-Standard Automobile operations. The following table
presents historical segment data for the Company's Crop Insurance and Specialty
Property and Casualty Divisions.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------- -------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
CROP INSURANCE DIVISION:(1)
Gross premiums written................... $161,614 $174,184 $242,917 $ 21,044 $23,636
Net premiums written..................... 34,592 46,950 66,649 3,414 501
Net premiums earned...................... 34,592 46,950 66,649 3,414 501
Income (loss) before income taxes........ 9,780 14,891 42,129 3,064 1,217
SPECIALTY PROPERTY AND CASUALTY DIVISION:
GENERAL AGENCY:
Gross premiums written................ 165,158 208,847 225,690 55,809 52,413
Net premiums written.................. 114,635 135,125 162,156 35,640 36,080
Net premiums earned................... 94,664 132,327 155,334 35,001 36,624
Income (loss) before income taxes..... 505 (10,107) 3,776 3,214 3,302
PROGRAM:
Gross premiums written................ 90,524 124,966 139,739 37,001 36,475
Net premiums written.................. 50,070 75,279 95,806 21,886 22,055
Net premiums earned................... 44,123 64,281 89,488 20,883 23,792
Income (loss) before income taxes..... 6,020 (1,225) (8,821) 48 856
NON-STANDARD AUTOMOBILE:
Gross premiums written................ 30,187 29,352 42,714 9,875 12,821
Net premiums written.................. 29,879 28,829 42,338 9,897 12,679
Net premiums earned................... 29,280 28,026 37,182 8,206 10,145
Income (loss) before income taxes..... 1,407 1,784 (3,594) (30) (52)
GAAP RATIOS (SPECIALTY PROPERTY AND
CASUALTY ONLY):
Loss and LAE ratio....................... 71.4% 80.6% 78.0% 70.4% 70.4%
Expense ratio............................ 30.8 32.0 33.3 33.5 32.0
-------- -------- -------- -------- -------
Combined ratio........................... 102.2% 112.6% 111.3% 103.9% 102.4%
</TABLE>
- ------------
(1) See "-- Crop Insurance Division" for a discussion of the accounting
treatment of the Company's MPCI business. Net premiums and profit and loss
on MPCI business are recognized primarily in the second half of the year.
Crop Insurance Division
The principal products of the Crop Insurance Division are Multi Peril Crop
Insurance, including Crop Revenue Coverage, and crop hail insurance. MPCI is a
government-sponsored program with accounting
26
<PAGE> 28
treatment that differs from more traditional property and casualty insurance
lines. For income statement purposes, gross premiums written includes only the
aggregate amount of MPCI premiums paid by farmers, and does not include any
related federal premium subsidies or expense reimbursement. The Company's profit
or loss from its MPCI business is determined after the crop season ends, on the
basis of a profit sharing formula established by law and the Risk Management
Agency ("RMA"). For income statement purposes, any such profit share earned by
the Company, net of the cost of third party reinsurance, is shown as net
premiums written, which equals net premiums earned for MPCI business; whereas,
any share of losses payable by the Company is charged to losses and loss
adjustment expenses. Due principally to crop production cycles, the profit or
loss on MPCI premiums is primarily recognized in the second half of the calendar
year. The Company relies on loss information from the field to determine the
level of losses that should be considered in estimating the profit or loss
during this period. Based upon available loss information, the Company records
an estimate of the profit or loss during the third quarter and then re-evaluates
the estimate using additional loss information available at year-end to
determine any remaining portion to be recorded in the fourth quarter. All
expense reimbursements received are credited to underwriting expenses.
Certain characteristics of the Company's crop business may affect
comparisons to other specialty property and casualty insurance companies,
including: (i) the seasonal nature of the business whereby profits or losses are
generally recognized in the second half of the year; (ii) the nature of crop
business whereby losses are known within a short time period; and (iii) the
limited amount of investment income associated with crop business. In addition,
cash flows from such business differ from cash flows from certain more
traditional lines. See "-- Liquidity and Capital Resources" below. The seasonal
and short term nature of the Company's crop business, as well as the impact on
such business of weather and other natural perils, may produce more volatility
in the Company's operating results on a quarter to quarter or year to year basis
than would certain other insurance lines. The accounting treatment accorded to
the MPCI business also affects the comparability of the Company's loss, expense
and combined ratios.
Specialty Property and Casualty Division
The Company's Specialty Property and Casualty Division includes General
Agency, Program and Non-Standard Automobile operations. Premiums are generally
recognized as income over the terms of the related policies. Certain costs of
acquiring insurance business, principally commissions, premium taxes, and other
underwriting expenses, have been deferred and are amortized as related premiums
are earned. Changes in estimated reserve liabilities relating to prior years
will be reflected in the results of operations for the period in which the
change in the estimate occurs. See "Business -- Reserves."
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
The Company's gross premiums written increased 1.3% in the first quarter of
1997 to $125.3 million from $123.7 million in the 1996 quarter. Net premiums
written increased 0.7% in the 1997 period to $71.3 million from $70.8 million in
the 1996 period. Net premiums earned increased by 5.3% to $71.1 million, from
$67.5 million in the 1996 period. As shown in the table above, there were modest
changes in the revenue mix among the Company's lines of business in the quarter
to quarter comparison.
The Company's investment income increased 0.9% to $6.52 million during the
first quarter of 1997 from $6.46 million in the first quarter of 1996. This
increase resulted from an increase in the average size of the Company's
portfolio from $380.8 million during the three months ended March 31, 1996 to
$423.7 million during the three months ended March 31, 1997, which was largely
offset by a decrease in the annualized investment yield of the portfolio from
6.8% during the first three months of 1996 to 6.2% during the same period in
1997. This decrease in annualized investment yields was principally a result of
an increase in the amount of tax-advantaged securities in the Company's
portfolio during the first quarter of 1997 as compared to the first quarter of
1996. At March 31, 1997, 25.8% of the Company's total invested assets were
invested in municipal bonds and 15.8% in preferred stocks, while at March 31,
1996 the percentages for these two classes of securities were 17.4% and 13.3%,
respectively. The impact of this shift is reflected in the reduction in the
27
<PAGE> 29
Company's effective income tax rate during the two periods, as described below.
The Company's net realized capital gains also increased slightly to $1.3 million
in the first quarter of 1997 from $1.2 million in the 1996 quarter.
The Company's operating profit and net income both decreased 12.6% during
the three months ended March 31, 1997 as compared to the same period in 1996.
The decrease in operating profit was approximately $1.0 million, decreasing from
$7.5 million in the first quarter of 1996 to $6.5 million in the first quarter
of 1997, while the decrease in net income was approximately $0.6 million,
decreasing from $4.5 million during the first quarter of 1996 to $3.9 million
during the first quarter of 1997. During the first quarter of 1996, the
Company's operating profit benefitted from $2.8 million of underwriting profits
in the Company's Crop Insurance Division. The principal component of this $2.8
million profit was the recording in that quarter of $3.8 million in profit
sharing from 1995 in the Company's MPCI business, which had been affected by
changes in FCIC rules, unusual weather conditions, and an unusually late
harvest. During the first quarter of 1997, the Company had underwriting profits
of approximately $0.9 million in its Crop Insurance Division. The Company
believes that the crop results for the first quarter of 1997 were more typical
seasonal results than those experienced in the first quarter of 1996.
The decrease in operating income from the Crop Insurance Division was
partially offset by improved operating results in the Specialty Property and
Casualty Division. During the first three months of 1997, the Specialty Property
and Casualty Division recorded a combined ratio of 102.4% as compared to a
combined ratio of 103.9% during the same period in 1996. This improvement
resulted from a reduction in the Company's underwriting expense ratio from 33.4%
to 32.0% as the Company's loss ratio in this Division remained approximately
constant at 70.4% during both periods. The Division's underwriting results
during the first three months of 1997 were adversely affected by results in its
commercial automobile lines of business. The adverse loss experience for
commercial automobile lines was offset by improvement in loss ratios in certain
other property and casualty business lines, most notably the General Agency,
Rural America, and special products lines of business.
During the first three months of 1997, interest expense decreased
approximately $0.09 million to $1.16 million from $1.25 million in the 1996
quarter. This decrease resulted from a decrease in the Company's average
interest rate under its bank credit facility from 7.3% during the three months
ended March 31, 1996 to 6.7% during the three months ended March 31, 1997. The
principal amount of the Company's outstanding borrowings under the Revolving
Credit Facility was $69.0 million during both periods.
Net income benefitted from a lower effective income tax rate during the
first quarter of 1997 as compared to the first quarter of 1996, as the rate
decreased from 28.9% during the first quarter of 1996 to 26.5% during the same
period in 1997. This reduction in the Company's income tax rate reflected
additional income from tax-advantaged securities in the Company's investment
portfolio such as preferred stocks and municipal bonds as noted above.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
The Company's gross premiums written increased by $113.8 million, or 21.2%,
to $651.1 million in 1996 from $537.3 million in 1995. This increase resulted
from a $68.8 million, or 39.5% increase, in the Crop Insurance Division, and a
$45.0 million, or 12.4% increase, in the Specialty Property and Casualty
Division. Net premiums written increased $80.7 million, or 28.2%, in 1996 to
$366.9 million from $286.2 million in 1995, primarily as a result of a $27.0
million increase in the General Agency business, a $20.5 million increase in the
Program business, and a $19.7 million increase in the Crop Insurance Division.
Net premiums earned increased $77.1 million, or 28.4%, to $348.7 million in 1996
from $271.6 million in 1995, primarily due to a $23.0 million increase in the
General Agency business, a $25.2 million increase in the Program business, and a
$19.7 million increase in the Crop Insurance Division.
The Company's investment income increased 28.3% to $26.5 million in 1996
from $20.7 million in 1995. The increase in investment income was principally
due to an increase in the average size of the investment portfolio. The average
size of the Company's investment portfolio increased by 25.3% from $321.3
million for the twelve months ended December 31, 1995 to $402.4 million for the
twelve months ended December 31,
28
<PAGE> 30
1996, while the pre-tax yield on the portfolio increased from 6.4% in 1995 to
6.6% in 1996. The size of the Company's investment portfolio increased from
retained earnings and positive cash flows from operations. Realized investment
gains increased to $5.2 million in 1996 from $2.7 million in 1995.
The Company experienced a somewhat higher expense ratio during 1996 than in
1995. This ratio increased from 26.7% in 1995 to 27.5% in 1996 primarily due to
higher net commission expense in the Program operations of the Company. This
higher net commission expense was a result of a changing mix of business with a
lesser percentage of Program premiums produced in lower commission programs such
as workers' compensation and transportation and a higher percentage of premiums
produced in higher commission lines of business. In addition, the Company
decreased the use of quota share reinsurance in the Program operations during
1996, reducing ceding commissions. Underwriting expenses increased 32.0% to
$95.8 million in 1996 from $72.6 million in 1995 as a result of increased
premium volumes and the foregoing increase in the expense ratio.
The Company's operating profit increased from $8.1 million in the year
ended December 31, 1995 to $39.3 million in the year ended December 31, 1996,
while its net income increased for such periods from $4.2 million to $30.3
million. These increases resulted from improved underwriting results from the
Company's Crop Insurance Division and General Agency operations, growth in
premium revenues, increased investment income and realized gains, and a decrease
in the effective tax rate of the Company. These positive factors were offset by
a decline in operating profit from the Company's Program operations, increased
interest expense, and a somewhat higher expense ratio for the Company. Further,
increases in prior year reserves for losses and loss adjustment expenses
significantly affected 1995 results.
The most significant contribution to the improved results was made by the
Company's Crop Insurance Division. The Crop Insurance Division increased its
MPCI Premiums from $183.3 million for the year ended December 31, 1995 to $248.3
million for 1996. In addition to this growth in MPCI Premiums, the Company
increased MPCI Retention (the portion of MPCI Premiums on which the Company
retains the risk of loss) from $104.3 million in 1995 to $161.4 million in 1996.
This growth was due in part to an increase in commodity prices for the major
crops insured by the Company, leading to higher premiums under the relevant MPCI
program formulas, and the Company's introduction of CRC policies, which generate
higher premiums per policy than the traditional MPCI policy. Improved weather
conditions also contributed significantly to the improved results in the Crop
Insurance Division as the Company's MPCI profit sharing percentage (the ratio of
profit sharing received to MPCI Retention) during 1996 increased to 23.5% from
13.4% during 1995. In addition, the 1996 year benefitted from $4.3 million of
additional profit sharing realized in 1996 as final results of the late 1995
harvest were available. Crop Insurance Division results also were influenced by
changes in the MPCA Program, described under "Business -- General" and "-- Crop
Insurance."
Underwriting results in the General Agency lines also improved in 1996 as
compared to 1995, as the Company's combined ratio in this division improved from
116.4% in 1995 to 106.9% in 1996. The Company's 1995 results were affected by a
$22.3 million strengthening of reserves for prior year losses (see "-- Year
Ended December 31, 1995 Compared to Year Ended December 31, 1994"), of which
$16.5 million was attributable to the General Agency business, contributing to
the 116.4% combined ratio recorded during 1995. However, when comparing accident
year loss ratios for 1995 and 1996 in General Agency Operations, the results
were relatively stable; the General Agency 1995 accident year loss ratio was
69.8% as compared to a 1996 accident year loss ratio of 69.9%. The General
Agency business was also able to improve its combined ratio through a reduction
in expenses during 1996, as its expense ratio fell to 31.9% in 1996 as compared
to 34.1% in 1995.
The positive results of the Crop Insurance Division and the General Agency
business were partially offset by underwriting results in the Company's Program
operations. The combined ratio for this business increased from 113.6% during
1995 to 117.5% during 1996. A variety of factors contributed to the
deterioration in the underwriting results, including (i) in the Rural America
line (which provides standard property and casualty coverages for the rural
market) of the Program business, storms in areas where the Company had
concentrations of farm business adversely affected the Company's loss ratio and
(ii) in the special products line of business, prolonged sub-zero temperatures
in the greater Chicago area increased the number and
29
<PAGE> 31
severity of freeze losses experienced in the Company's condominium program. The
Company has taken steps to reduce its geographic concentrations in its Rural
America business, and is making changes in the reinsurance structure of both of
these departments in order to reduce volatility and improve net underwriting
results.
Program results were also affected by a change in the Company's strategy in
its workers' compensation underwriting activities during 1996. In 1995 and
previous years, the Company had followed a strategy of depopulating assigned
risk pools through the application of intensive case management techniques to
risks which had become unacceptable to the standard market due to frequency
rather than severity of loss. With the improvement of workers' compensation
results for the industry as a whole, more companies were willing to write
workers' compensation, and therefore, the number of risks fitting the Company's
profile for removal from assigned risk pools was substantially reduced. As a
result, during 1996 the Company moved to a strategy of partnership arrangements
with select agencies in which the agent accepts part of the underwriting risk in
return for an enhanced profit sharing from the Company. Due to the competitive
market, this strategy is developing slowly, and the Company experienced a 65%
decrease in its direct written premiums in this line of business in 1996. The
initial implementation of this change in strategy resulted in the increase in
the expense ratio in this line of business to more than 100%.
The foregoing factors were offset in part by improved results in the
transportation line of the Program business. Within transportation, the
Company's combined ratio improved from 120.6% during the year ended December 31,
1995 to 103.6% during 1996. The improvement in the foregoing ratios resulted in
part from the positive effects of actions taken during 1995 and 1996 to
reorganize this line of business.
The Company's Non-Standard Automobile underwriting activities experienced
unprofitable results for the first time in six years as a result of an increase
in both the severity and frequency of losses, particularly in the area of
physical damage losses. In an effort to address these problems, the Company has
instituted rate increases beginning in 1996 and continuing into 1997, reduced
commissions in certain areas with poor experience, and canceled agents with loss
ratios not consistent with the Company's expectations.
The Company's interest expense increased during 1996 to $4.9 million as
compared to $2.6 million in 1995. This increase was due to an increase in the
Company's borrowings under its bank facility from an average of $34.3 million
during the 1995 to $69.0 million during 1996. Offsetting this increase in the
size of borrowings was a decline in the average interest rate under the bank
facility from 7.6% during 1995 to 7.1% during 1996. The additional borrowings
under the bank facility were contributed to the Company's subsidiaries in order
to support underwriting activities and maintain capital adequacy ratios at a
level commensurate with the Insurance Companies' current "A-" rating by A.M.
Best.
While the Company's income tax expense increased from $1.2 million for 1995
to $3.2 million for 1996, the effective tax rate declined from 22.2% in 1995 to
9.6% in 1996. The Company's 1996 taxes were positively affected by a decrease in
the valuation allowance relating to the unrealized loss from the Company's
investment in Major Realty Corporation, an unconsolidated real estate company in
which the Company owns a 33% equity interest ("Major Realty").
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
The Company's gross premiums written increased $89.8 million, or 20.1%, to
$537.3 million in 1995 from $447.5 million in 1994. This increase principally
resulted from a $43.7 million increase in the General Agency business and a
$34.4 million increase in the Program business. Net premiums written increased
$57.0 million, or 24.9% to $286.2 million in 1995 from $229.2 million in 1994,
primarily as a result of a $20.5 million increase in the General Agency business
and a $25.2 million increase in the Program business. Net premiums earned
increased $68.9 million, or 34.0%, to $271.6 million in 1995, from $202.7
million in 1994, primarily due to a $37.7 million increase in the General Agency
business, and a $20.2 million increase in the Program business.
Net investment income increased 55.6% from $13.3 million in 1994 to $20.7
million in 1995 while the Company's net realized capital gains increased from
$0.6 million in 1994 to $2.7 million in 1995. Investment income increased due to
both an increase in the average size of the Company's investment portfolio as
well as
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<PAGE> 32
an increase in the average yield on the Company's fixed income investments. The
average size of the investment portfolio increased from $220.1 million in 1994
to $321.3 million in 1995 while the Company's pre-tax yield on its portfolio
increased from 6.0% in 1994 to 6.4% in 1995. The size of the investment
portfolio increased due to additional borrowings under the Company's credit
facility, positive cash flows from operations; and funds from the exercise of
warrants in December 1994, as well as from retained earnings. Investment yields
increased as the overall interest rate environment provided higher yields during
1995 than in 1994.
The Company's operating profit declined 58.8% to $8.1 million in 1995 from
$19.7 million in 1994, and its net income fell 80.3% to $4.2 million in 1995
from $21.1 million in 1994. These reductions principally resulted from higher
than expected losses in the General Agency and Program operations, including an
increase in the Company's reserves for unpaid losses and LAE related to prior
years of $22.3 million in 1995, an increase in the Company's expense ratio and a
change in the Company's tax status, which more than offset premium growth in
General Agency and Program operations, an increase in investment income, and an
increase in underwriting profits from the Crop Insurance Division.
The Crop Insurance Division experienced strong premium growth in 1995 as
gross written premiums increased 7.8% to $174.2 million in 1995 from $161.6
million in 1994. This premium growth resulted from changes in the Federal MPCI
program, as well as from increases in premium levels under the Company's crop
hail insurance program resulting from an increase in rates and the writing of
more exposure units in certain states. In late 1994, Congress expanded the MPCI
program by enacting the 1994 Reform Act (as defined herein). This Act sought to
encourage farmers to participate in the MPCI program and thereby reduce
dependency on traditional disaster relief measures. As a result, the Company's
MPCI Premium increased 42.8% from $128.4 million in 1994 to $183.3 million in
1995, and its MPCI Retention also increased from $77.4 million in 1994 to $104.3
million in 1995. Further, the crop insurance industry had experienced several
years of adverse experience in the crop hail business prior to 1995, and as a
result, crop hail rates increased while capacity decreased. Therefore, the
Company was able to increase its crop hail writings from $46.5 million in direct
written premiums in 1994 to $62.8 million in direct written premiums for 1995.
While 1995 was a difficult growing season, the Company's underwriting
income in its Crop Insurance Division increased from $12.3 million in 1994 to
$14.9 million in 1995. This increase was a result of the growth in MPCI Premium
and improved results in the Company's crop hail business, offsetting unfavorable
results in the Company's named peril crop programs principally from an active
storm season in California during 1995. The 1995 growing season in the upper
Midwest was affected by wet weather during the planting season resulting in
delayed planting of crops, followed by periods of severe heat in July, damaging
newly emerging crops, and an early frost in September 1995. More favorable
weather prevailed in 1994. In addition, among the changes in the MPCI program
that were made by the 1994 Reform Act was an increase in the insurer's share of
profit and loss sharing, particularly for companies accepting risks in the
commercial pool. See "Business -- Crop Insurance" and "-- Reinsurance." These
two factors combined to change the percentage of the Company's profit sharing
under the MPCI program from 22.0% in 1994 to 13.4% in 1995. The Company's
reported results from the MPCI program for 1995 do not include additional profit
sharing in respect of 1995 which was recognized in 1996 when certain Federal
rules governing the program for 1995 were finalized.
The Company experienced strong premium growth in its General Agency
operations as gross premiums written increased 26.5% to $208.8 million for the
year ended December 31, 1995 from $165.2 million for the year ended December 31,
1994, and net premiums earned grew 39.8% to $132.3 million in 1995 from $94.7
million in 1994. Earned premiums grew more rapidly than written premiums as
premium growth slowed progressively in each quarter of 1995. The growth in this
division came from the continued growth in new business produced from the
Company's Scottsdale office which was established in late 1993. The rate of
premium growth in 1995 slowed due to an increase in the competitive environment
for General Agency lines of business.
The Company's Program operations also experienced strong premium growth
during 1995 as gross premiums written increased to $125.0 million in 1995 from
$90.5 million in 1994, an increase of 38.0%. Net earned premium increased at a
rate of 45.7% from $44.1 million in 1994 to $64.3 million in 1995. This premium
growth was principally from new programs established during 1994 and 1995.
31
<PAGE> 33
The foregoing positive factors were offset, however, by higher than
expected losses in the Company's General Agency and Program operations,
including losses resulting from the strengthening of reserves during 1995 for
prior year losses. During the second quarter of 1995, the Company experienced a
deterioration in the loss ratio of its commercial automobile liability business.
At that time, this deterioration was principally attributable to a more rapid
emergence of losses from the 1994 year than had been expected by the Company.
This trend continued in the third quarter of 1995, and while the noted
deterioration was principally in the automobile liability business, the Company
believed that similar deviations were likely to appear in other lines of
business which develop more slowly than automobile, and therefore, the Company
chose in the third quarter to evaluate all major lines of business. After an
extensive study by the Company in consultation with its independent actuaries, a
pre-tax charge of $17.5 million was made in the third quarter for prior year
losses. For the year, the Company increased its reserves for 1994 and prior year
losses by $22.3 million pre-tax.
After the Company completed its review of prior year losses, the new loss
development pattern assumptions were used to estimate ultimate losses for the
then-current 1995 accident year. These new assumptions, together with the
effects of severe wind and hail storms in Texas during the second quarter of the
year, and adverse results in a few of the Company's business lines such as
nursing home liability, homeowners business in South Carolina and used car
dealer business in California, combined to create a $5.7 million underwriting
loss in the Specialty Property and Casualty Division for the 1995 accident year.
Management intends to continue to closely monitor statistical and other
information with respect to loss reserves, in particular those lines of
insurance that are more difficult to predict. However, estimates of loss
reserves are inherently uncertain and such estimates may continue to change as
more information becomes available.
The Company's Non-Standard Auto premiums remained relatively stable with
$29.4 million in gross written premium during 1995 as compared to $30.2 million
in 1994. This lack of growth resulted primarily from the Company's desire to
implement a shift to new computer software for its Non-Standard Automobile
business before seeking additional growth opportunities.
Underwriting expenses increased from $52.6 million in 1994 to $72.6 million
in 1995, resulting in an increase when expressed as a percentage of earned
premium from 26.0% during 1994 to 26.7% during 1995. General and administrative
expenses also increased by $0.5 million from 1994 to 1995. Expenses in the Crop
Insurance Division net of ceding commissions from reinsurers and expense
reimbursements from the Federal Government under the MPCI program decreased
slightly from $0.8 million in 1994 to $0.7 million in 1995. The increase in
underwriting expense levels in the Specialty Property and Casualty Division was
principally attributable to increases in Non-Standard Automobile expenses
related to the implementation of new computer software designed to make the
Company's product more saleable in the marketplace and to reduce expense ratios
in future years as these operations grow. In addition, the Company sought to
strengthen its information systems and audit procedures within the Program and
General Agency lines, also increasing expenses. The cost of implementation of
several new programs in the Program business also added to the higher expense
ratio for 1995 as compared to 1994.
The Company's net income during 1995 was also affected by the impact of
income taxes. The Company received a benefit of $3.4 million from income taxes
in 1994 as opposed to an expense of $1.2 million from income taxes in 1995. As a
result of prior non-insurance operations, the Company generated significant tax
loss carryforwards and other temporary differences, all of which were used by
the end of 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company - Parent Only
As an insurance holding company, the Company's assets consist primarily of
the capital stock of its subsidiaries, surplus notes issued by two of the
Insurance Companies, and investments held at the holding company level. The
Company's primary sources of liquidity are receipt of interest payments on the
surplus notes, payments from the profit sharing agreement with Am Ag, tax
sharing payments from its subsidiaries, net investment income from, and proceeds
from the sale of, holding company investments, and dividends and other
distributions from the subsidiaries of the Company. The Company's liquidity
needs are primarily to service debt, pay operating expenses and taxes, and make
investments in subsidiaries. The Company currently
32
<PAGE> 34
has $10.0 million in borrowing capacity available under the Revolving Credit
Facility. Following the repayment of a portion of the outstanding principal
balance of the Revolving Credit Facility with the net proceeds of the offering,
and a reduction in the amount available under the Revolving Credit Facility as a
result of the offering as described below, the Company will have approximately
$56.0 million in borrowing capacity available under the Revolving Credit
Facility. Under the Am Ag profit sharing agreement, following a profitable crop
insurance year Am Ag will receive approximately 50% of the crop insurance profit
based on a formula established by the Company and approved by the Nebraska
Department of Insurance. Any loss year will result in a carryover loss to the Am
Ag profit share amount in future years.
Dividends from the insurance subsidiaries of the Company are regulated by
the regulatory authorities of the states in which each subsidiary is domiciled.
The laws of such states generally restrict dividends from insurance companies to
parent companies to certain statutorily approved limits. In 1997, the statutory
limitation on dividends from the Insurance Companies to the Company without
further insurance departmental approval is approximately $10.4 million. See
"Business -- Regulation."
The Company currently holds three surplus notes, each in the amount of $20
million, issued by two of the Insurance Companies bearing interest at the rate
of 9% per annum, payable semi-annually and quarterly. Although repayment of all
or part of the principal of these surplus notes requires prior insurance
department approval, no prior approval of interest payments is currently
required.
The Company is a party to a tax sharing agreement with its subsidiaries,
under which such subsidiaries pay the Company amounts in general equal to the
federal income tax that would be payable by such subsidiaries on a stand-alone
basis.
The Company is also a party to a Credit Agreement which provides a
five-year revolving credit facility (the "Revolving Credit Facility"), with a
final maturity of 2002, in amounts not to exceed $100 million. Under the
Revolving Credit Facility, interest is payable quarterly at a rate selected by
the Company equal to either the "Floating Rate" (defined as the higher of the
agent bank's corporate base rate and 1% over the federal funds rate) or LIBOR
plus a margin which varies depending on the Company's ratio of funded debt to
total capitalization. The Credit Agreement for the Revolving Credit Facility
includes certain restrictions and covenants customary for this type of
borrowing. They include, among other things, certain minimum financial ratios,
minimum statutory surplus requirements for the Insurance Companies, minimum
consolidated equity requirements for the Company and certain investment,
dividend and indebtedness limitations. The common stock of certain of the
Company's subsidiaries has been pledged as collateral for the Revolving Credit
Facility. At June 30, 1997, the outstanding balance under the Revolving Credit
Facility was $90.0 million, with an interest cost of 6.7%. Borrowings under the
facility were used to provide capital for the Insurance Companies and to repay
other debt. The commitment under the Revolving Credit Facility is required to be
permanently reduced in an amount equal to 40% of the proceeds of most debt and
equity financing including this offering.
Insurance Companies
The principal liquidity needs of the Insurance Companies are to fund losses
and loss adjustment expense payments and to pay underwriting expenses, including
commissions and other expenses. The available sources to fund these requirements
are net premiums received and, to a lesser extent, cash flows from the Company's
investment activities, which together have been adequate to meet such
requirements on a timely basis. The Company monitors the cash flows of the
Insurance Companies and attempts to maintain sufficient cash to meet current
operating expenses, and to structure its investment portfolio at a duration
which approximates the estimated cash requirements for the payment of loss and
loss adjustment expenses.
The Company's profit or loss from its MPCI business is determined after the
crop season ends on the basis of a profit sharing formula established by law and
the RMA. At such time, the Company receives a profit share in cash, with any
amount in excess of 15% of its MPCI Retention for the current year carried
forward to future years, or it must pay its share of losses.
In the crop hail insurance business, premiums are generally not received
until after the harvest, while losses and other expenses are paid throughout the
year.
33
<PAGE> 35
The NAIC has established a Risk Based Capital ("RBC") formula for property
and casualty insurance companies. The RBC initiative is designed to enhance the
current regulatory framework for the evaluation of the capital adequacy of a
property and casualty insurer. The formula requires an insurer to compute the
amount of capital necessary to support four areas of risk facing property and
casualty insurers: (a) asset risk (default on fixed income assets and market
decline), (b) credit risk (losses from unrecoverable reinsurance and inability
to collect agents' balances and other receivables), (c) underwriting risk
(premium pricing and reserve estimates), and (d) off balance sheet/growth risk
(excessive premium growth and unreported liabilities). The Insurance Companies
have reviewed and applied the RBC formula for the 1996 year and have exceeded
these requirements.
CONSOLIDATED FINANCIAL CONDITION AND CASH FLOWS
The Company's stockholders' equity increased by approximately $3.2 million
at March 31, 1997 as compared to December 31, 1996. The principal components of
this increase were net income of $3.9 million in the first quarter of 1997 and
an increase in the unrealized loss on available for sale securities, net of tax,
in the Company's investment portfolio of approximately $0.8 million. This
increase consisted of an increase of $1.7 million net of tax in the unrealized
loss on the Company's fixed maturity portfolio as the general interest rate
environment rose and an increase of $0.9 million net of tax in the unrealized
gains on the Company's equity portfolio.
Through an equity rights offering in 1993 and the exercise in 1994 of
warrants issued as part of the rights offering, the Company realized net
proceeds of $31.2 million and $53.4 million, respectively. These proceeds were
used to reduce the Company's indebtedness and to increase the capital surplus of
its insurance subsidiaries.
Cash flows from operating activities increased from $19.4 million during
the first three months of 1996 to $25.2 million during the same three months in
1997. The largest component of net cash provided by operating activities in both
periods was profit sharing payments received from the federal government's MPCI
program. During the first three months of 1996 this component of operating cash
flows was $15.9 million while in the first three months of 1997 it was $25.5
million.
Cash flows from the Company's MPCI and crop hail businesses differ in
certain respects from cash flows associated with more traditional property and
casualty lines. MPCI premiums are not received from farmers until the covered
crops are harvested, and when received are promptly remitted by the Company in
full to the government. Covered losses are paid by the Company during the
growing season as incurred, with such expenditures reimbursed by the government
within three business days. Policy acquisition and administration expenses are
paid by the Company as incurred during the year. The Company periodically
throughout the year receives a payment in reimbursement of its policy
acquisition and administration expenses.
INFLATION
The Company does not believe that inflation has had a material impact on
its financial condition or results of operations.
34
<PAGE> 36
BUSINESS
GENERAL
Acceptance, through its six insurance subsidiaries underwrites specialty
property and casualty coverages throughout most of the United States. The
Company's principal insurance divisions are the Crop Insurance Division, which
provides MPCI and crop hail insurance, and the Specialty Property and Casualty
Division, which provides: (i) specialty property and casualty coverages through
a network of general agents (General Agency), (ii) tailored coverages for
specific industries written primarily through agents specializing in such
coverages (Program), and (iii) non-standard automobile coverages for private
passenger automobiles principally in the southwestern United States
(Non-Standard Automobile).
The Company's total revenues and net income were $381.4 million and $30.3
million, respectively, for the year ended December 31, 1996. As of March 31,
1997, the Company had $848.6 million of total assets and $211.1 million of total
equity.
The insurance operations of the Company have been developed and expanded
through strategic acquisitions and the addition of experienced underwriters and
other managers with proven expertise in certain specialty lines. Since 1992, the
Company has focused exclusively on its insurance operations which have been
managed by the Chief Executive Officer of the Company since 1979. In July 1993,
the Company acquired The Redland Group, Inc. ("Redland"), an Iowa based property
and casualty insurance group specializing in MPCI and crop hail insurance.
Redland's principal operating subsidiaries consist of Redland Insurance and Am
Ag. Redland's insurance business was founded in 1979 by the Company's current
President and Chief Operating Officer to write crop hail insurance and other
insurance products marketed to the rural community through rural agents. Redland
began offering MPCI after the establishment of the MPCI program under the
Federal Crop Insurance Act in 1980. In August 1993 and October 1994, the Company
also expanded its specialty property and casualty insurance business by hiring
experienced executives who brought significant underwriting expertise, agency
contacts, and premium growth to the Company. In April 1994, the Company acquired
the exclusive general agent for the Company's non-standard automobile insurance
business, including the remaining minority interest of this general agent in
Phoenix Indemnity, a non-standard automobile insurer which had been jointly
owned by the Company and this general agent.
The Company's objective is to write business on both an admitted and a
non-admitted basis in each state in which it operates. The Company believes that
this ability is a competitive advantage since certain lines of specialty
insurance can be written more effectively on a non-admitted, or excess and
surplus lines, basis. The Company's insurance subsidiaries write business in 47
states, the District of Columbia, Puerto Rico and the Virgin Islands, with 66.7%
of direct premiums for the year ended December 31, 1996 written on an admitted
basis and 33.3% written on a non-admitted basis.
The following table sets forth the Company's premiums written and income
(loss) before income taxes by line of business for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1994 1995 1996
----------------------------------- ----------------------------------- --------
(IN THOUSANDS)
GROSS NET INCOME (LOSS) GROSS NET INCOME (LOSS) GROSS
PREMIUMS PREMIUMS BEFORE INCOME PREMIUMS PREMIUMS BEFORE INCOME PREMIUMS
WRITTEN WRITTEN TAXES WRITTEN WRITTEN TAXES WRITTEN
-------- -------- ------------- -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Crop Insurance(1).... $161,614 $ 34,592 $ 9,780 $174,184 $ 46,950 $ 14,891 $242,917
Specialty Property
and Casualty
Insurance:
General Agency...... 165,158 114,635 505 208,847 135,125 (10,107) 225,690
Program............. 90,524 50,070 6,020 124,966 75,279 (1,225) 139,739
Non-Standard
Automobile.......... 30,187 29,879 1,407 29,352 28,829 1,784 42,714
-------- -------- ------- -------- -------- -------- --------
Total............. $447,483 $229,176 $17,712 $537,349 $286,183 $ 5,343 $651,060
======== ======== ======= ======== ======== ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
------------------------ ENDED MARCH 31,
1996 1997
------------------------ -----------------------------------
(IN THOUSANDS)
NET INCOME (LOSS) GROSS NET INCOME (LOSS)
PREMIUMS BEFORE INCOME PREMIUMS PREMIUMS BEFORE INCOME
WRITTEN TAXES WRITTEN WRITTEN TAXES
-------- ------------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Crop Insurance(1).... $ 66,649 $42,129 $ 23,636 $ 501 $1,217
Specialty Property
and Casualty
Insurance:
General Agency...... 162,156 3,776 52,413 36,080 3,302
Program............. 95,806 (8,821) 36,475 22,055 856
Non-Standard
Automobile.......... 42,338 (3,594) 12,821 12,679 (52)
-------- ------- -------- ------- ------
Total............. $366,949 $33,490 $125,345 $71,315 $5,323
======== ======= ======== ======= ======
</TABLE>
- ------------
(1) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- General -- Crop Insurance Division" for discussion of
seasonal factors affecting the crop insurance business.
35
<PAGE> 37
STRATEGY
The Company's strategy is to leverage its expertise and relationships
developed in the property and casualty insurance business by focusing on niche
markets not adequately served by other insurers. In furtherance of this
strategy, the Company seeks (i) to identify capacity shortages or other
dislocations in the market and to develop the opportunities presented by these
shortages; and (ii) to establish relationships with agents and individuals who
have established books of business with a proven track record in niche markets.
The Company's goal is to maintain a diversified mix of business which has the
potential to mitigate the volatility of the Company's underwriting results. The
Company's business mix can be expected to vary over time as it changes the
emphasis among its lines of business and develops new opportunities. In an
effort to limit its exposure to large losses, the Company implements
underwriting standards and reinsurance programs specific to its business lines.
The Company has experienced significant revenue growth over the last five
years through growth in existing programs and through acquisition of insurance
operations or books of business. The Company regularly explores new
opportunities where it can obtain business by establishing relationships with
agents and other individuals with an established record in a particular line of
business.
CROP INSURANCE
Industry Background
MPCI is a federally-subsidized program which is designed to provide
insurance to participating farmers who suffer insured crop losses as result of
adverse weather or other natural perils. All of the material terms of the MPCI
program and of the participation of private insurers, such as the Company, in
the program are set by the FCIC under applicable law. In 1980, the delivery
system for MPCI was expanded to permit private insurance companies and licensed
agents and brokers to sell MPCI policies, and the FCIC was authorized to
reimburse participating companies for their administrative expenses and to
provide federal reinsurance for the majority of the risk assumed by such private
companies.
The 1994 Reform Act required farmers for the first time to purchase at
least a basic level of MPCI coverage, CAT Coverage, in order to be eligible for
other federally sponsored farm benefits, including, but not limited to, low
interest loans and crop price supports. The 1994 Reform Act also limited the
local USDA offices to the marketing and selling of CAT Coverage. These changes
contributed significantly to an increase in the Company's MPCI Premiums to
$183.3 million in 1995 from $128.4 million in 1994.
Farmers may purchase CAT Coverage upon payment of a small fixed
administrative fee. CAT Coverage insures 50% of historic crop yield at 60% of
the FCIC-set crop price for the applicable commodities standard unit of measure,
i.e., bushel, pound, etc. CAT Coverage can be obtained from private insurers
such as the Company. For purposes of the profit-sharing formula described below,
the insurer is credited with an imputed premium amount in respect of each CAT
Coverage written.
In addition to CAT Coverage, Buy-up Coverage, which refers to MPCI policies
that provide a greater level of protection than the CAT Coverage level, is also
offered. Most farmers purchasing MPCI have historically purchased at Buy-up
Coverage levels, with the most frequently sold policy providing coverage for 65%
of historic crop yield at 100% of the FCIC-set crop price per bushel. Buy-up
Coverages require payment by the insured of a premium in an amount determined by
formula set by the FCIC. For purposes of the profit-sharing formula described
below, the insurer is also credited with a federal premium subsidy for each
Buy-up Coverage written. Buy-up Coverage can only be purchased from private
insurers.
The 1996 Reform Act permitted the USDA to limit its role in the delivery of
MPCI by reducing the availability of MPCI through USDA field offices and also
eliminated the linkage between the required purchase of at least CAT Coverage
and qualification for certain federal farm program benefits. In accordance with
the 1996 Reform Act, the USDA announced in July, 1996, the following 14 states
in which CAT Coverage will no longer be available through USDA offices but
rather will be solely available through private insurers: Arizona, Colorado,
Illinois, Indiana, Iowa, Kansas, Minnesota, Montana, Nebraska, North Carolina,
North Dakota, South Dakota, Washington and Wyoming. The Company believes that
any future potential
36
<PAGE> 38
negative impact of the delinkage mandated by the 1996 Reform Act will be
mitigated by, among other factors, the likelihood that farmers will continue to
purchase MPCI to provide basic protection against natural disasters since ad hoc
federal disaster relief programs are less likely to be available for farmers. In
addition, the Company believes that (i) lending institutions will likely
continue to require this coverage as a condition to crop lending and (ii) many
of the farmers who entered the MPCI program as a result of the 1994 Reform Act
have come to appreciate the reasonable price of the protection afforded by the
MPCI Program and will remain with the program regardless of delinkage.
The Company is the fourth largest writer of MPCI premiums in the United
States with an approximate 15% market share, based on premium information
compiled in 1996 by the FCIC and National Crop Insurance Services, Inc. The
Company, through Redland Insurance, has written MPCI since the opening of this
federally subsidized insurance program to private insurers in 1980. MPCI has
historically provided a yield guarantee mechanism for farmers who suffer an
insured crop loss due to weather or other natural perils. In 1996, the Company
developed a new crop insurance product, CRC, which was approved by the FCIC and
introduced in Iowa and Nebraska for corn and soybeans as part of the MPCI
program. CRC provides farmers with a minimum guaranteed revenue return by
combining the traditional yield guarantee of the standard MPCI program with a
price protection element. CRC was made available for wheat in six states and for
corn and soybeans in eleven additional states for the 1997 crop year. CRC will
be available for all wheat states in 1998.
Strategy
The Company's strategy is to enhance underwriting profits and reduce the
volatility of its crop insurance business through the appropriate allocation of
risks among the federal reinsurance pools and the effective use of federal and
third-party catastrophic reinsurance arrangements. In addition, the Company
continues to develop and maintain a proprietary knowledge-based underwriting
system which utilizes a database of Company-specific underwriting guidelines,
and has sought to strengthen its independent agency network by using technology
to provide fast, efficient service to its agencies and application documentation
designed for simplicity and convenience. The Company also maintains an
established relationship with a large number of independent full time claims
adjusters in order to promptly adjust its losses. The Company continues to
explore growth opportunities and product diversification through new specialty
coverages, including Crop Revenue Coverage.
Marketing; Distribution Network
The Company markets its crop insurance products to the owners and operators
of farms in 37 states through approximately 10,000 agents associated with
approximately 3,700 independent insurance agencies, with a substantial portion
of its retained risk in the states of Nebraska, Iowa, and Minnesota. The Company
is currently developing software that will provide on-line communication with
its agency force.
Mechanics of MPCI
The Company, like other private insurers participating in the MPCI program,
participates in a profit-sharing arrangement in which it receives from the
government a portion of the aggregate profit, or pays a portion of the aggregate
loss, in respect of the business it writes. In addition, the Company receives
administrative fees for marketing, issuing and administering policies.
Products
The principal lines of the Company's Crop Insurance Division are MPCI,
including CRC, and crop hail insurance.
Standard MPCI Coverages. MPCI provides coverage for insured crops against
substantially all natural perils. Purchasing an MPCI policy permits a farmer to
insure against the risk that his crop yield for any growing season will be less
than 50% to 75% (as selected by the farmer at the time of policy application or
renewal) of his historic crop yield. If a farmer's crop yield for the year is
greater than the yield coverage he
37
<PAGE> 39
selected, no payment is made to the farmer under the MPCI program. However, if a
farmer's crop yield for the year is less than the yield coverage selected, MPCI
entitles the farmer to payment equal to the yield shortfall multiplied by 60% to
100% of the price for such crop (as selected by the farmer at the time of policy
application or renewal) for that season as set by the FCIC.
Crop Revenue Coverage. In 1996, the Company developed and launched CRC. In
contrast to standard MPCI coverage, which features a yield guarantee or coverage
for the loss of production, CRC provides the insured with a guaranteed revenue
stream by combining both yield and price variability protection. CRC protects
against a grower's loss of revenue resulting from fluctuating crop prices and/or
low yields by providing coverage when any combination of crop yield and price
results in revenue that is less than the revenue guarantee provided by the
policy. CRC was approved by the FCIC as a pilot program for revenue insurance
coverage plans for the 1996 crop year, and was available for corn and soybeans
in all counties in Iowa and Nebraska beginning with such crop year. CRC policies
represented approximately 32% of the total MPCI policies written by the Company
in Iowa and Nebraska for the 1996 crop year. In July, 1996, the FCIC announced
that CRC would be made available in 1997 for wheat in six additional states, and
for corn and soybeans in eleven additional states. CRC will be available in all
wheat states in 1998. Since the FCIC generally regulates CRC as one of its own
programs, the material aspects of the CRC program are substantially similar to
those of other federal programs such as MPCI, including the FCIC profit-sharing
arrangement, standardized pricing, the use of reinsurance pools and expense
reimbursement payments paid by the FCIC.
CRC uses the policy terms and conditions of the Actual Production History
("APH") plan of MPCI as the basic provisions for coverage. The APH provides the
yield component by utilizing the insured's historic yield records. The CRC
revenue guarantee is the producer's approved APH times the coverage level, times
the higher of the spring futures price or harvest futures price (in each case,
for post-harvest delivery) of the insured crop for each unit of farmland. The
spring futures price is used to establish the initial policy revenue guarantee
and premium, and the harvest futures price is used to establish the crop value
to count against the revenue guarantee and to recompute the revenue guarantee
(and resulting indemnity payments) when the harvest price is higher than the
spring price. The coverage levels and exclusions in a CRC policy are similar to
those in a standard MPCI policy. As with MPCI policies, the Company receives
from the FCIC an expense reimbursement payment in respect of each CRC policy it
writes. For CRC, this payment will be equal to 25% of an insurer's MPCI Premiums
in respect of CRC coverages written in 1997. The amount of the expense
reimbursement payment for the 1998 and 1999 crop years is currently under
discussion. See "Risk Factors -- Nature of Crop Insurance Business."
The Company's share of profit or loss on the MPCI business it writes
(including CRC) is determined under a complex profit sharing formula established
by the FCIC. Under this formula, the primary factors that determine the
Company's MPCI profit or loss share are (i) the gross premiums the Company is
credited with having written; (ii) the amount of such credited premiums retained
by the Company after ceding premiums to certain federal reinsurance pools (the
"commercial pool" where the Company generally retains 100% of the risk, the
"developmental pool" where the Company generally retains 35% of the risk, and
the "assigned risk pool" where the Company retains 20% of the risk); and (iii)
the loss experience of the Company's insureds. For the year ended December 31,
1996, the Company was the fourth largest writer of MPCI business in the United
States with a market share of approximately 15%.
Crop Hail and Named Peril. The Company offers stand alone crop hail
insurance, which insures growing crops against damage resulting from hail storms
and which involves no federal participation. The Company also sells a small
volume of insurance against damage to specific crops from other named perils.
SPECIALTY PROPERTY AND CASUALTY
General Agency
The Company offers a variety of specialty property and casualty insurance
coverages in its General Agency operations, which include the following
principal lines: surplus lines liability and substandard property coverages;
specialty automobile; and complex general liability risks. Specialty automobile
coverage includes
38
<PAGE> 40
liability and physical damage coverages for local haulers of specialized
freight, and other classes of motor vehicles not normally underwritten by
standard carriers. Surplus lines liability and substandard property coverages
include general liability, garage excess liability, liquor liability, property
and commercial multi-peril coverages for small businesses which normally do not
satisfy the underwriting criteria of standard carriers. Complex general
liability risks include products and professional liability. These coverages are
underwritten by the Company and marketed through a network of approximately 120
general agents who write business in specific geographic territories and who
have binding authority for specific lines of business. The general agents
provide the Company access to many niche programs due to their expertise and
knowledge of the local and regional markets they serve.
The Company significantly increased its underwriting expertise in this
segment in August of 1993, through the hiring of a new senior vice president,
who was employed by a large national specialty property and casualty insurer and
managed a division which underwrote a substantial book of specialty insurance
premiums similar to the book the Company has historically written, and his key
staff. Since their addition, the Company has grown to a staff of 90 in its
Scottsdale branch office, has appointed approximately 30 new general agents with
whom previous business relationships existed, and has written approximately
$100.0 million of additional gross premiums.
Program
The Company's Program operations provide coverage written for selected
classes of business through focused independent agents who specialize in that
particular class of business. The three largest segments of the Program business
are transportation, Rural America and workers' compensation. Transportation
programs include property and casualty insurance for long haul truckers and
upper Midwest regional and national trucking companies hauling rural products.
Rural America consists of standard property and casualty coverages offered
through Redland's agents, which includes farm owners, automobile, livestock
mortality, and limited commercial coverages. The workers' compensation program
is based principally in Minnesota, Illinois, Iowa, and Maine and focuses
principally on medium and larger risks where specialized underwriting and claims
techniques can be effectively implemented to reduce loss ratios. Other programs
provide tailored coverage for specialty areas, including greyhound race tracks,
condominiums, temporary help agencies, daily auto rental, family restaurants,
and fine arts.
The Company seeks to develop marketing programs by recruiting individuals
who have a proven expertise in a particular line of business, and who bring an
established book of business to the Company. The Company conducts periodic
reviews of each of these lines of business. In addition, the Company has
terminated contracts and eliminated underwriting authority generally for agents
whose underwriting results did not meet the Company's expectations.
Non-Standard Automobile
The Company's Non-Standard Automobile operations provide non-standard
private passenger automobile coverages written principally in non-urban areas in
the southwestern United States. Non-standard insureds are those individuals who
are unable to obtain insurance through standard market carriers due to factors
such as poor premium payment history, driving experience, record of prior
accidents or driving violations, particular occupation or type of vehicle.
Premium rates for nonstandard risks are higher than for standard risks.
Nonstandard policies have relatively short policy periods and low limits of
liability. The Company underwrites this line of business through approximately
600 independent agents.
Marketing
The Company markets its property and casualty insurance products through a
network of independent general agents who process and accept applications for
insurance coverages from retail agents who sell insurance to insurance buyers.
The Company also markets a portion of its property and casualty insurance
products through a network of retail agents who specialize in the lines of
insurance marketed by them. The Company compensates its agents through
commissions based on a percentage of premiums produced. The
39
<PAGE> 41
Company also offers most of its agents a contingent commission based on volume
and profitability and other programs designed to encourage agents to enhance the
placement of profitable business with the Company.
The Company attempts to foster strong service relationships with its
agencies and customers. The Company is currently developing software that will
provide on-line communication with its agency force. In addition, to deliver
prompt service with more consistent underwriting, the Company offers rating
software to its agents in some states which permits them to evaluate risks in
their offices. Generally, the agent has the authority to sell and bind insurance
coverages in accordance with procedures established by the Company, which is a
common practice in the property and casualty insurance business. The Company
promptly reviews all coverages bound by the agents and generally accepts all
coverages which fall within its stated underwriting criteria. In most
jurisdictions, the Company has the right within a specified time period to
cancel any policy even if the risk falls within its underwriting criteria.
The following table presents direct premiums written for the top five
states for the Specialty Property and Casualty Division for the years ended
December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
STATE 1994 1995 1996
----- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Texas....................................................... $ 35,789 $ 47,164 $ 52,500
California.................................................. 37,167 40,627 41,791
Arizona..................................................... 20,047 21,011 28,928
Illinois.................................................... 13,456 30,709 28,660
Florida..................................................... 12,531 19,219 24,517
Other States................................................ 159,417 194,824 212,379
-------- -------- --------
Total.................................................. $278,407 $353,554 $388,775
======== ======== ========
</TABLE>
Underwriting
The Company organizes its underwriting staff by product line, enabling
underwriters to focus on the unique risks associated with the specialty
coverages written by the Company. The Company seeks to ensure that each
specialty product or program fits into the Company's goals through a strategic
planning process whereby divisional managers evaluate the historical and
expected levels of underwriting profitability of the coverages written by such
division. The Company then allocates its capital among product lines where it
believes the best underwriting opportunities exist.
Within each division, each underwriter is required to comply with risk
parameters, retention limits and rates and forms prescribed by the Company. All
underwriting operations of the Company are subject to review by the Company's
home office personnel and the reinsurers who accept a portion of these risks.
Generally, the Company grants general agents the authority to sell and bind
insurance coverages in accordance with detailed procedures and limitations
established by the Company. The Company promptly reviews coverages bound by
agents, decides whether the insurance is written in accordance with such
procedures and limitations, and, subject to state law limits and policy terms,
may cancel coverages that are not in compliance.
Within the General Agency operations, Acceptance Risk Managers and
Professional Liability Insurance Managers, insurance agency operations that are
not owned by the Company but currently write exclusively for Acceptance,
underwrite more difficult casualty and professional lines business and grant no
underwriting authority to general agents. Instead, each risk must be submitted
to the underwriter for individual consideration.
The Company grants limited binding authority to certain independent agents
in certain of its Program lines of business, and requires that all other Program
agents submit all quotes to the Company's underwriting staff in order for such
coverages to be bound. Business that is outside an agent's binding authority
must be submitted to the Company's underwriting staff to obtain approval to bind
such coverages.
40
<PAGE> 42
Claims
The Company's claims department administers all claims and directs all
legal and adjustment aspects of the claims handling process. To assist in
settling claims the Company regularly uses independent adjusters, attorneys and
investigators. The Company's claims department is organized into two parts, each
supervised by a senior claims vice president. The Litigation Department, which
is broken down by geographic area, handles larger litigation claims files and
other complex and serious claims. The Claims Department, which is also broken
down by geographic area, handles the other claims files and supervises the
claims handlers. The Company emphasizes the use of internal staff rather than
independent adjusters, improving claims processing systems and rapid response
mechanisms. These systems have significantly reduced the number of claims
handled by each claims examiner. The Company believes that this structure will
continue to reduce loss adjustment expense, shorten the life of open claim files
and permit the Company to estimate more rapidly and consistently future claim
liabilities.
COMBINED RATIOS
The statutory combined ratio, which reflects underwriting results before
taking into account investment income, is a traditional measure of the
underwriting performance of a property and casualty insurer. A combined ratio of
less than 100% indicates underwriting profitability whereas a combined ratio in
excess of 100% indicates unprofitable underwriting. The following table reflects
the statutory loss ratios, expense ratios and combined ratios of the Company's
Specialty Property and Casualty Division; the Company overall, including the
Crop Insurance Division; and the property and casualty insurance industry,
computed in accordance with SAP, for the periods shown.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
------------------------------ ENDED MARCH 31,
1994 1995 1996 1997
---- ---- ---- ---------------
<S> <C> <C> <C> <C>
Specialty Property and Casualty Division
Loss Ratio......................................... 72.2% 80.6%(1) 78.0% 70.4%
Expense Ratio...................................... 30.4 31.2 32.9 32.5
----- ----- ----- -----
Combined Ratio..................................... 102.6% 111.8% 110.9% 102.9%
===== ===== ===== =====
The Company(2)
Loss Ratio......................................... 70.8% 78.2% 69.8% 70.1%
Expense Ratio...................................... 25.6 26.1 26.6 31.0
----- ----- ----- -----
Combined Ratio..................................... 96.4% 104.3% 96.4% 101.1%
===== ===== ===== =====
Industry Average(3)
Loss Ratio......................................... 81.0% 78.9% 78.6% 74.1%
Expense Ratio...................................... 27.3 27.5 27.3 27.1
----- ----- ----- -----
Combined Ratio..................................... 108.3% 106.4% 105.9% 101.2%
===== ===== ===== =====
</TABLE>
- ------------
(1) The $22.3 million loss reserve strengthening taken by the Company in 1995
with respect to prior years accounts for 9.9 percentage points of the loss
ratio for 1995. See "Loss and Loss Adjustment Expense Reserves."
(2) Includes loss, expense and combined ratios for crop insurance business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General -- Crop Insurance Division" for a discussion of the
accounting treatment accorded to MPCI business and its effect on the
calculation of such ratios.
(3) Source: Best's Aggregates & Averages - Property Casualty (1996 Edition).
Ratios for 1996 are from A.M. Best. Ratios for 1997 are from Insurance
Services Office, Inc.
LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES
In the property and casualty insurance industry, it is not unusual for
significant periods of time, ranging up to several years, to elapse between the
writing of the policy, the occurrence of an insured loss, the report of the loss
to the insurer and the insurer's payment of that loss. The liability for losses
and loss adjustment expenses is determined by management based on historical
patterns and expectations of claims reported and
41
<PAGE> 43
paid, losses which have occurred but which are not yet reported, trends in claim
experience, information available on an industry-wide basis, changes in the
Company's claim handling procedures and premium rates. The Company's lines of
specialty insurance business are considered less predictable than standard
insurance coverages. The effects of inflation are implicitly reflected in these
loss reserves through the industry data utilized in establishing such reserves.
The Company does not discount its reserves to estimated present value for
financial reporting purposes.
In examining reserve adequacy, historical data is reviewed, and, as
additional experience and other data become available and are reviewed,
estimates of reserves are revised, resulting in increases or decreases to
reserves for insured events of prior years. In 1994, 1995 and 1996 the Company
made additional provisions through a charge to earnings of $5.1 million, $22.3
million and $9.5 million, respectively, for its reestimated liability for losses
and loss adjustment expenses for prior accident years.
The liability established represents management's best estimate and is
based on sources of currently available evidence including an analysis prepared
by an independent actuary engaged by the Company. Even with such extensive
analyses, the Company believes that its ultimate liability may from time to time
vary from such estimates. There can be no assurance that the ultimate liability
will not materially exceed the Company's loss and LAE reserves and have a
material adverse effect on the Company's results of operations and financial
condition in the future.
The Company annually obtains an independent review of its loss reserving
process and reserve estimates by an independent professional actuary as part of
the annual audit of its financial statements.
The following table presents an analysis of the Company's reserves,
reconciling beginning and ending reserve balances for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Net loss and loss adjustment expense reserves at beginning
of year................................................... $115,714 $141,514 $201,356
Provisions for net losses and loss adjustment expenses for
claims occurring in the current year...................... 137,881 190,019 233,727
Increase in net reserves for claims occurring in prior
years(1).................................................. 5,070 22,318 9,530
-------- -------- --------
142,951 212,337 243,257
-------- -------- --------
Net losses and loss adjustment expenses paid for claims
occurring during:
The current year.......................................... (60,375) (80,281) (102,565)
Prior years............................................... (56,776) (72,214) (95,296)
-------- -------- --------
(117,151) (152,495) (197,861)
-------- -------- --------
Net loss and loss adjustment expense reserves at end of
year...................................................... 141,514 201,356 246,752
Reinsurance recoverable on unpaid losses and loss adjustment
expenses.................................................. 79,811 167,888 185,421
-------- -------- --------
Gross loss and loss adjustment expense reserves............. $221,325 $369,244 $432,173
======== ======== ========
</TABLE>
- ------------
(1) See "Risk Factors -- Loss Reserves" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations" for discussion concerning increase in reserves for claims
occurring in prior years.
The following table presents the development of balance sheet net loss
reserves from calendar years 1986 through 1996. The top line of the table shows
the loss reserves at the balance sheet date for each of the indicated years.
These amounts are the estimates of losses and loss adjustment expenses for
claims arising in all prior years that are unpaid at the balance sheet date,
including losses that had been incurred but not yet reported to the Company. The
middle section of the table shows the cumulative amount paid, expressed as a
percentage of the initial reserve amount, with respect to previously recorded
reserves as of the end of each succeeding year. The lower section of the table
shows the reestimated amount, expressed as a percentage of
42
<PAGE> 44
the initial reserve amount, of the previously recorded reserves based on
experience as of the end of each succeeding year. The estimate changes as more
information becomes known about the frequency and severity of claims for
individual years. The "Net cumulative redundancy (deficiency)" caption
represents the aggregate percentage increase or decrease in the initial reserves
estimated. The table presents the "run off" of balance sheet reserves, rather
than accident or policy year loss development. The Company computes the
cumulative redundancy (deficiency) annually on a calendar year basis.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1986 1987 1988 1989 1990 1991 1992 1993
---- ---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net reserves for
unpaid losses and
loss adjustment
expenses............. $17,373 $27,730 $34,092 $43,380 $58,439 $ 66,132 $ 77,627 $115,714
Cumulative amount of
net liability paid
through:
One year later....... 32.5% 30.6% 30.5% 30.0% 40.6% 45.7% 36.1% 49.1%
Two years later...... 63.1% 56.7% 52.1% 59.5% 70.8% 72.3% 73.6% 80.5%
Three years later.... 84.7% 72.9% 68.7% 76.1% 88.5% 96.6% 94.5% 100.9%
Four years later..... 93.4% 81.8% 77.0% 84.5% 101.2% 108.1% 109.0%
Five years later..... 100.1% 84.7% 81.5% 89.2% 107.5% 115.1%
Six years later...... 100.5% 87.1% 85.3% 93.4% 109.7%
Seven years later.... 100.9% 88.2% 89.8% 94.5%
Eight years later.... 102.2% 95.0% 90.3%
Nine years later..... 112.4% 95.2%
Ten years later...... 112.4%
Net reserves
reestimated as of:
One year later....... 99.3% 96.6% 97.9% 99.1% 100.3% 103.5% 103.3% 104.4%
Two years later...... 104.7% 97.6% 92.3% 95.2% 102.3% 109.9% 109.7% 114.5%
Three years later.... 107.3% 91.3% 87.3% 91.4% 107.4% 116.9% 117.9% 113.1%
Four years later..... 103.0% 89.7% 84.9% 92.5% 110.7% 120.1% 117.7%
Five years later..... 103.6% 88.1% 85.3% 94.0% 112.7% 119.9%
Six years later...... 102.5% 88.8% 86.6% 95.9% 112.0%
Seven years later.... 102.7% 88.9% 91.0% 95.4%
Eight years later.... 103.0% 95.4% 90.7%
Nine years later..... 112.7% 95.2%
Ten years later...... 112.4%
Net cumulative
redundancy
(deficiency)......... (12.4)% 4.8% 9.3% 4.6% (12.0)% (19.9)% (17.7)% (13.1)%
Gross reserves for
unpaid loss and loss
adjustment
expenses............. $127,666 $211,600
Reinsurance
recoverable on unpaid
loss and loss
adjustment
expenses............. 50,039 95,886
-------- --------
Net reserves for
unpaid loss and loss
adjustment
expenses............. 77,627 115,714
Reestimated gross
reserves for unpaid
loss and loss
adjustment
expenses............. 108.9% 112.4%
Reestimated
reinsurance
recoverable on unpaid
loss and loss
adjustment
expenses............. 95.2% 111.6%
-------- --------
Reestimated net
reserves for unpaid
loss and loss
adjustment
expenses............. 117.7% 113.1%
Gross cumulative
redundancy
(deficiency)......... (8.9)% (12.4)%
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net reserves for
unpaid losses and
loss adjustment
expenses............. $141,514 $201,356 $246,752
Cumulative amount of
net liability paid
through:
One year later....... 51.0% 47.3%
Two years later...... 86.1%
Three years later....
Four years later.....
Five years later.....
Six years later......
Seven years later....
Eight years later....
Nine years later.....
Ten years later......
Net reserves
reestimated as of:
One year later....... 115.8% 104.7%
Two years later...... 115.7%
Three years later....
Four years later.....
Five years later.....
Six years later......
Seven years later....
Eight years later....
Nine years later.....
Ten years later......
Net cumulative
redundancy
(deficiency)......... (15.7)%(1) (4.7)%
Gross reserves for
unpaid loss and loss
adjustment
expenses............. $221,325 $369,244 $432,173
Reinsurance
recoverable on unpaid
loss and loss
adjustment
expenses............. 79,811 167,888 $185,421
-------- -------- --------
Net reserves for
unpaid loss and loss
adjustment
expenses............. $141,514 $201,356 $246,752
Reestimated gross
reserves for unpaid
loss and loss
adjustment
expenses............. 116.6% 98.8%
Reestimated
reinsurance
recoverable on unpaid
loss and loss
adjustment
expenses............. 118.2% 91.7%
-------- --------
Reestimated net
reserves for unpaid
loss and loss
adjustment
expenses............. 115.7% 104.7%
Gross cumulative
redundancy
(deficiency)......... (16.6)% 1.2%
</TABLE>
- ------------
(1) Cumulative deficiencies appearing in the Company's reserve estimates for
1994 resulted from adverse development of losses occurring in 1994 and prior
accident years primarily in its commercial automobile, general liability and
commercial multi-peril lines of business. The actual loss experience of
these lines differed from estimated losses. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations -- Year Ended December 31, 1995 Compared To Year Ended December
31, 1994."
43
<PAGE> 45
The establishment of reserves is an inherently uncertain process. The
Company underwrites both property and casualty coverages in a number of
specialty areas of business which may involve greater risks than standard
property and casualty lines. These risk components may make more difficult the
task of estimating reserves for losses, and cause the Company's underwriting
results to fluctuate. Further, conditions and trends that have affected the
development of loss reserves in the past may not necessarily occur in the
future. Accordingly, it may not be appropriate to extrapolate future
redundancies or deficiencies based on this information.
The Company adopted Statement of Financial Accounting Standards No. 113
("SFAS #113"), "Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts," effective January 1, 1993. The application of SFAS
#113 resulted in the reclassification of amounts ceded to reinsurers, which
amounts were previously reported as a reduction in unearned premium and unpaid
losses and loss adjustment expenses, to assets on the consolidated balance
sheet. The table above includes a reconciliation of net loss and loss adjustment
expense reserves to amounts presented on the consolidated balance sheet after
reclassifications related to the adoption of SFAS #113. The reestimated gross
reserves and reestimated reinsurance recoverables are presented as of December
31, 1996. The gross cumulative deficiency is presented for 1992 through 1995,
the only years on the table for which the Company has restated amounts in
accordance with SFAS #113.
REINSURANCE
A significant component of the Company's business strategy involves the
structuring of reinsurance to reduce volatility in its business segments as well
as to avoid large or catastrophic loss exposure. Reinsurance involves an
insurance company transferring, or ceding, all or a portion of its exposure on
insurance to a reinsurer. The reinsurer assumes the ceded exposure in return for
a portion of the premium received by the insurance company. Reinsurance does not
discharge the insurer from its obligations to its insured. If the reinsurer
fails to meet its obligations, the ceding insurer remains liable to pay the
insured loss, but the reinsurer is liable to the ceding insurer to the extent of
the reinsured portion of any loss.
The Company limits its exposure under individual policies by purchasing
excess of loss and quota share reinsurance, as well as maintaining catastrophe
reinsurance to protect against catastrophic occurrences where claims can arise
under several policies from a single event, such as a hurricane, earthquake,
wind storm, riot, tornado or other extraordinary event.
The Company generally retains the first $500,000 of risk under its property
and casualty lines, ceding the next $1,500,000 (on a per risk basis) and
$2,500,000 (on an occurrence basis), respectively, to reinsurers. On its complex
liability and property exposures, the Company cedes losses in excess of
$1,000,000 to its excess reinsurers and maintains a separate 80% quota share
treaty on the first $1,000,000 of risk. To the extent that individual policies
exceed reinsurance treaty limits, the Company purchases reinsurance on a
facultative (specific policy) basis.
The Company maintains catastrophe reinsurance for its casualty lines which
provides coverages of $17 million in excess of $3 million of aggregate risk per
occurrence, and for its property lines, which provides catastrophe coverage
(with at least a 95% reinsurer participation) of 95% of $77.5 million in excess
of a retention of $2.5 million per occurrence. The Company reviews the
concentrations of property values in its property lines of business continually,
and models possible losses from catastrophic events through computer simulations
of different levels of storm activity, adjusting the required limit of the
liability or the concentrations of property coverages as appropriate.
In its workers' compensation line, the Company buys excess of loss
protection on a statutory basis in excess of a $500,000 per occurrence
retention.
The Company reinsures its MPCI business with various federal reinsurance
pools administered by the RMA. In 1996, the Company ceded to the RMA an
aggregate of 35% of its gross MPCI premium. The Company's net exposure on MPCI
business is further reduced by excess of loss reinsurance purchased from private
carriers. This excess of loss reinsurance generally provides coverage for 95% of
losses in excess of a
44
<PAGE> 46
$3,000,000 deductible after the Company's loss ratio reaches specified limits
for each line of business, specifically 77% on crop hail and named peril
business and 100% on MPCI business. Additionally 50% of the Company's crop hail
business is reinsured through quota share agreements.
At December 31, 1996, 93% of the Company's outstanding reinsurance
recoverables were from domestic reinsurance companies or the federal government,
98% of which was from reinsurance companies rated "A-" (excellent) or better by
A.M. Best or from the federal government. The balance was primarily placed with
major international reinsurers.
The following table provides information with respect to the Company's
principal reinsurers at December 31, 1996:
<TABLE>
<CAPTION>
REINSURANCE RECOVERABLES
REINSURERS A.M. BEST RATING AT DECEMBER 31, 1996
- ---------- ---------------- ------------------------
(IN THOUSANDS)
<S> <C> <C>
Federal Crop Insurance Corp.............................. N/A $ 79,866
Constitution Reinsurance Corp............................ A+ 30,469
Swiss Re American Reinsurance Co......................... A 10,218
Odyssey Reinsurance Corporation.......................... A- 8,898
Reliance Re Corp/Reliance Insurance Co................... A- 8,622
PMA Reinsurance Corp..................................... A+ 8,454
Zurich Reinsurance Centre, Inc........................... A 6,792
Christiania General Ins. Corp............................ A- 6,601
Re Capital Reinsurance Co................................ A 6,232
Continental Casualty Co.................................. A 4,505
-----------
$170,657
===========
</TABLE>
45
<PAGE> 47
INVESTMENTS
The Company's investment policy is to maximize the after-tax yield of the
portfolio while emphasizing the stability and preservation of the Company's
capital base. Further, the Company seeks to invest the portfolio in types of
securities and in an aggregate duration which reflect the nature of the
Company's liabilities and expected liquidity needs. The Company manages its
portfolio internally. The Company's fixed maturity securities are classified as
available-for-sale and carried at estimated fair value. The investment portfolio
at December 31, 1995, December 31, 1996, and March 31, 1997, consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------------------------- -----------------------------------
AMORTIZED ESTIMATED % AMORTIZED ESTIMATED %
TYPE OF INVESTMENT COST FAIR VALUE OF TOTAL COST FAIR VALUE OF TOTAL
------------------ --------- ---------- -------- --------- ---------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
FIXED MATURITY
SECURITIES:
U.S. Treasury and
government
securities........ $ 51,022 $ 51,689 14.0% $ 86,359 $ 86,253 21.2%
States,
municipalities and
political
subdivisions...... 69,433 71,194 19.3 93,293 94,607 23.3
Other debt
securities........ 27,484 28,197 7.7 34,581 34,309 8.5
Mortgage-backed
securities........ 72,359 67,220 18.3 60,138 52,835 13.0
-------- -------- ----- -------- -------- -----
Total fixed
maturity
securities.... 220,298 218,300 59.3 274,371 268,004 66.0
-------- -------- ----- -------- -------- -----
Common stocks....... 15,211 17,929 4.9 17,112 20,873 5.2
Preferred stocks.... 31,299 30,608 8.3 62,628 62,964 15.5
Commercial
mortgages......... 11,290 11,290 3.1 11,149 11,149 2.7
Real estate......... 3,354 3,354 0.9 3,342 3,342 0.8
Short-term
investments(1).... 86,520 86,520 23.5 39,594 39,594 9.8
-------- -------- ----- -------- -------- -----
Total........... $367,972 $368,001 100.0% $408,196 $405,926 100.0%
======== ======== ===== ======== ======== =====
<CAPTION>
MARCH 31, 1997
-----------------------------------
AMORTIZED ESTIMATED %
TYPE OF INVESTMENT COST FAIR VALUE OF TOTAL
------------------ --------- ---------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C>
FIXED MATURITY
SECURITIES:
U.S. Treasury and
government
securities........ $ 99,009 $ 98,328 22.8%
States,
municipalities and
political
subdivisions...... 112,245 112,567 26.0
Other debt
securities........ 59,650 51,538 11.9
Mortgage-backed
securities........ 32,588 32,080 7.4
-------- -------- -----
Total fixed
maturity
securities.... 303,492 294,513 68.1
-------- -------- -----
Common stocks....... 18,607 21,922 5.1
Preferred stocks.... 68,853 70,943 16.4
Commercial
mortgages......... 10,977 10,977 2.5
Real estate......... 3,339 3,339 0.8
Short-term
investments(1).... 30,559 30,559 7.1
-------- -------- -----
Total........... $435,827 $432,253 100.0%
======== ======== =====
</TABLE>
- ------------
(1) Due to the short-term nature of crop insurance, the Company must maintain
short-term investments to fund amounts due to pay losses. Historically,
these short-term funds are highest in the fall corresponding to the cash
flow in the agricultural industry.
The following table sets forth, as of December 31, 1995 and 1996 and March
31, 1997, the ratings assigned to the fixed maturity securities of the Company.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1995 1996 MARCH 31, 1997
--------------------- --------------------- ---------------------
ESTIMATED ESTIMATED ESTIMATED
RATING(1) FAIR VALUE PERCENT FAIR VALUE PERCENT FAIR VALUE PERCENT
--------- ---------- ------- ---------- ------- ---------- -------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Aaa or AAA............................. $167,835 76.9% $191,916 71.6% $211,505 71.8%
Aa or AA............................... 11,312 5.2 21,443 8.0 30,326 10.3
A...................................... 28,549 13.1 24,121 9.0 20,654 7.0
Baa or BBB............................. 3,276 1.5 14,406 5.4 16,204 5.5
Ba or BB............................... 1,378 0.6 5,888 2.2 3,901 1.3
Other below investment grade........... 3,573 1.6 6,400 2.4 6,083 2.1
Not rated.............................. 2,377 1.1 3,830 1.4 5,840 2.0
-------- ----- -------- ----- -------- -----
Total............................. $218,300 100.0% $268,004 100.0% $294,513 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
- ------------
(1) Ratings are assigned by Moody's, and when not available are based on ratings
assigned by Standard & Poor's.
46
<PAGE> 48
At March 31, 1997, the average duration of the Company's portfolio of fixed
maturity investments was 4.9 years. The following table sets forth, as of
December 31, 1996, the composition of the Company's fixed maturity securities
portfolio by time to maturity:
<TABLE>
<CAPTION>
ESTIMATED
MATURITY FAIR VALUE PERCENT
-------- ---------- -------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C>
1 year or less.............................................. $ 14,300 5.3%
More than 1 year through 5 years............................ 50,689 18.9
More than 5 years through 10 years.......................... 56,133 21.0
More than 10 years.......................................... 94,047 35.1
Mortgage-backed securities.................................. 52,835 19.7
-------- -----
Total.................................................. $268,004 100.0%
======== =====
</TABLE>
The Company's investment results for the periods indicated are set forth
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
---- ---- ----
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C>
Net investment income....................................... $ 13,276 $ 20,651 $ 26,491
Average investment portfolio(1)............................. 220,128 321,251 402,404
Pre-tax return on average investment portfolio.............. 6.0% 6.4% 6.6%
Net realized gains.......................................... $ 554 $ 2,707 $ 5,216
</TABLE>
- ------------
(1) Represents the average of the beginning and ending investment portfolio
(excluding real estate) computed on a quarterly basis.
A.M. BEST RATINGS
Each of the Insurance Companies is rated "A-" (Excellent) by A.M. Best,
with the exception of American Growers, for which, as a crop insurance company,
there is no applicable A.M. Best rating. A.M. Best bases its ratings upon
factors that concern policyholders and agents and not upon factors related to
investor protection. A.M. Best classifications include "A++" and "A+"
(superior), "A" and "A-" (excellent), "B++" and "B+" (very good), "B" and "B-"
(adequate), "C++" and "C+" (fair), "C" and "C-" (marginal), "D" (very
vulnerable), "E" (under state supervision), and "F" (in liquidation).
REGULATION
General
As a general rule, an insurance company must be licensed to transact
insurance business in each jurisdiction in which it operates, and almost all
significant operations of a licensed insurer are subject to regulatory scrutiny.
Licensed insurance companies are generally known as "admitted" insurers. Most
states provide a limited exemption from licensing for insurers issuing insurance
coverages that generally are not available from admitted insurers. Their
coverages are referred to as "surplus lines" insurance and these insurers as
"surplus lines" or "non-admitted" companies.
The Company, a holding company, underwrites its insurance products through
the Insurance Companies. Collectively, the Insurance Companies are admitted in
46 states and the District of Columbia, and operate on a non-admitted basis in
46 states, the District of Columbia, Puerto Rico and the Virgin Islands.
Acceptance Insurance, Acceptance Indemnity, and American Growers are insurance
companies domiciled in Nebraska; Acceptance Casualty is domiciled in Texas;
Redland is domiciled in Iowa; and Phoenix Indemnity is domiciled in Arizona. The
Company's insurance agency and insurance service subsidiaries principally write
and service insurance coverages placed with one of the Insurance Companies.
47
<PAGE> 49
The Company's admitted insurance business is subject to comprehensive,
detailed regulation throughout the United States, under statutes which delegate
regulatory, supervisory and administrative powers to state insurance
commissioners. The primary purpose of such regulations and supervision is the
protection of policyholders and claimants rather than stockholders or other
investors. Depending on whether the insurance company is domiciled in the state
and whether it is an admitted or non-admitted insurer, such authority may extend
to such things as (i) periodic reporting of the insurer's financial condition;
(ii) periodic financial examination; (iii) approval of rates and policy forms;
(iv) loss reserve adequacy; (v) insurer solvency; (vi) the licensing of insurers
and their agents; (vii) restrictions on the payment of dividends and other
distributions; (viii) approval of changes in control; and (ix) the type and
amount of permitted investments.
Insurance Holding Company Regulation
The Company also is subject to laws governing insurance holding companies
in Nebraska, Iowa, Arizona and Texas, where the Insurance Companies are
domiciled. These laws, among other things, require the Company to file periodic
information with state regulatory authorities including information concerning
its capital structure, ownership, financial condition and general business
operations; regulate certain transactions between the Company, its affiliates
and the Insurance Companies, including the amount of dividends and other
distributions and the terms of surplus notes; and restrict the ability of any
one person to acquire certain levels of the Company's voting securities
(generally 10%) without prior regulatory approval.
Except for interest on surplus notes issued by the Insurance Companies and
payments on the Am Ag profit sharing, the Company is dependent for funds to pay
its operating and other expenses upon dividends and other distributions from the
Insurance Companies, the payment of which are subject to review and
authorization by state insurance regulatory authorities. Under Nebraska law, no
domestic insurer may make a dividend or distribution which, together with
dividends or distributions paid during the preceding twelve months, exceeds the
greater of (i) 10% of such insurer's policyholders' surplus as of the preceding
December 31 or (ii) such insurer's statutory net income (excluding realized
capital gains) for the preceding calendar year, until either it has been
approved, or a thirty-day waiting period shall have passed during which it has
not been disapproved by the Nebraska Insurance Director. Iowa and Texas have
similar laws governing the payment of dividends or distributions of insurance
companies domiciled in their state. In any case, the maximum amount of dividends
the Insurance Companies may pay to Acceptance is limited to its earned surplus,
also known as unassigned funds. Under Arizona law, payment of dividends or
distributions by a domestic insurer is limited to the lesser of (i) 10% of such
insurer's policyholders' surplus as of the preceding December 31 or (ii) such
insurer's net investment income for the preceding calendar year. The tiered
structure of the Company's insurance subsidiaries (as shown in the
organizational chart which precedes the Prospectus Summary) effectively imposes
two levels of dividend restriction on the payment to the ultimate parent of
dividends from Acceptance Indemnity, Phoenix Indemnity, American Growers and
Acceptance Casualty. During 1997, the statutory limitation on dividends from the
Insurance Companies to Acceptance without further insurance department approval
is approximately $10.4 million.
Other regulatory and business considerations may further limit the ability
of the Insurance Companies to pay dividends. For example, the impact of
dividends on surplus could affect an insurers' competitive position, the amount
of premiums that it can write and its ability to pay future dividends. Further,
the insurance laws and regulations of Nebraska, Iowa, Arizona and Texas require
that the statutory surplus of an insurance company domiciled therein, following
any dividend or distribution by such company, be reasonable in relation to its
outstanding liabilities and adequate for its financial needs.
While the non-insurance company subsidiaries are not subject directly to
the dividend and other distribution limitations, insurance holding company
regulations govern the amount which a subsidiary within the holding company
system may charge any of the Insurance Companies for services (e.g., agents'
commissions).
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<PAGE> 50
Federal Crop Insurance Regulation
The Company's MPCI program is federally-regulated and supported by the
federal government by means of premium subsidies to farmers and expense
reimbursement and federal reinsurance pools for private insurers. Consequently,
the MPCI program is subject to oversight by the federal government, including
the RMA. The MPCI program regulations prescribe premiums which may be charged
and require compliance with federal guidelines with respect to all aspects of
the MPCI and CRC programs. The Company is required to perform periodic internal
audit procedures and is subject to audit by several federal government agencies.
See "Risk Factors -- Risk Factors Relating to the Company -- Nature of Crop
Insurance Business."
Underwriting and Market Restrictions
During the past several years, various regulatory and legislative bodies
have adopted or proposed new laws or regulations to deal with the cyclical
nature of the insurance industry, catastrophic events and insurance capacity and
pricing. These regulations include (i) the creation of "market assistance plans"
under which insurers are induced to provide certain coverages, (ii) restrictions
on the ability of insurers to cancel certain policies in mid-term, (iii) advance
notice requirements or limitations imposed for certain policy non-renewals and
(iv) limitations upon or decreases in rates permitted to be charged.
Risk Based Capital
The NAIC has approved and recommended that states adopt and implement
several regulatory initiatives designed to be used by regulators as an early
warning tool to identify deteriorating or weakly capitalized insurance companies
and to decrease the risk of insolvency of insurance companies. These initiatives
include the implementation of the RBC standards for determining adequate levels
of capital and surplus to support four areas of risk facing property and
casualty insurers: (a) asset risk (default on fixed income assets and market
decline), (b) credit risk (losses from unrecoverable reinsurance and inability
to collect agents' balances and other receivables), (c) underwriting risk
(premium pricing and reserve estimates), and (d) off-balance sheet/growth risk
(excessive premium growth and unreported liabilities). At December 31, 1996 the
Insurance Companies met the RBC requirements as promulgated by the domiciliary
states of the Insurance Companies and the NAIC.
Insurance Regulatory Information System
The NAIC has developed its Insurance Regulatory Information System ("IRIS")
to assist state insurance departments in identifying significant changes in the
operations of an insurance company, such as changes in its product mix, large
reinsurance transactions, increases or decreases in premiums received and
certain other changes in operations. Such changes may not result from any
problems with an insurance company but may merely indicate changes in certain
ratios outside ranges defined as normal by the NAIC. When an insurance company
has four or more ratios falling outside "normal ranges," state regulators may
investigate to determine the reasons for the variance and whether corrective
action is warranted. At December 31, 1996, none of the Insurance Companies had
more than three ratios falling outside "normal ranges."
Regulation of Surplus Lines Insurers
The eligibility of the Insurance Companies to write insurance on a surplus
lines basis is dependent on their compliance with certain financial standards,
including the maintenance of a requisite level of capital and surplus and the
establishment of certain statutory deposits. State surplus lines laws typically:
(i) require the insurance producer placing the business to show that he or she
was unable to place the coverage with admitted insurers; (ii) establish minimum
financial requirements for surplus lines insurers operating in the state; and
(iii) require the insurance producer to obtain a special surplus lines license.
In recent years, many jurisdictions have increased the minimum financial
standards applicable to surplus lines eligibility.
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<PAGE> 51
Guaranty Funds
The Insurance Companies also may be required under the solvency or guaranty
laws of most states in which they are licensed to pay assessments (up to certain
prescribed limits) to fund policyholder losses or liabilities of insolvent or
rehabilitated insurance companies. These assessments may be deferred or forgiven
under most guaranty laws if they would threaten an insurer's financial strength
and, in certain instances, may be offset against future premium taxes. Some
state laws and regulations further require participation by the Insurance
Companies in pools or funds to provide types of insurance coverages which they
would not ordinarily accept.
COMPETITION
The property and casualty insurance business is highly competitive, with
over 3,000 insurance companies in the United States, many of which have
substantially greater financial and other resources, and may offer a broader
variety of coverages than those offered by the Company. Beginning in the latter
half of the 1980s, there has been severe price competition in the insurance
industry which has resulted in a reduction in the volume of premiums written by
the Company in some of its lines of businesses, because of its unwillingness to
reduce prices to meet competition. The specialty property and casualty coverages
underwritten by the Company may involve greater risks than more standard
property and casualty lines. These risks may include a lack of predictability,
and in some instances, the absence of a long-term, reliable historical data base
upon which to estimate future losses. In the crop insurance business, the
Company competes with other crop insurance companies primarily on the basis of
service and commissions to agents.
EMPLOYEES
At March 31, 1997, the Company and its subsidiaries employed approximately
1,100 employees. The Company believes that relations with its employees are
good.
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<PAGE> 52
MANAGEMENT
Set forth below is certain information concerning directors and certain
executive officers of the Company. Each director holds office until the next
annual meeting of stockholders and until his or her successor has been elected
and qualified. The information concerning the directors has been furnished by
them to the Company.
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Company is currently composed of nine
members, each of whom serves for a term of one year. Executive officers are
elected annually by the directors of the Company.
The following table sets forth information with respect to the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
DIRECTOR/ DIRECTOR
EXECUTIVE OFFICER AGE(1) POSITION SINCE
----------------- ------ -------- --------
<S> <C> <C> <C>
Kenneth C. Coon............. 46 Chairman, Chief Executive Officer and Director 1992
John P. Nelson.............. 56 President, Chief Operating Officer and Director 1993
G. Thomas Bolton............ 51 Senior Vice President, Claims
Greg D. Ewald............... 43 Senior Vice President, Underwriting
William J. Gerber........... 39 Vice President, Investments and Investor Relations
Richard C. Gibson........... 61 Chief Executive Officer of American Agrisurance, Inc.
Robert W. Haney............. 55 Senior Vice President, Claims
Peter A. Knolla............. 50 Assistant Secretary
Georgia M. Mace............. 47 Treasurer and Chief Financial Officer
George P. Mang.............. 66 Senior Vice President and Chief Operating Officer of
Phoenix Indemnity
Mark R. Shapland............ 38 Vice President and Chief Actuary
Raymond N. Siebert.......... 49 Vice President, Administration
Bruce W. Slaughter.......... 60 Senior Vice President, Redland Insurance Company
Joseph G. Smith............. 42 Vice President, Budget, Audit and Strategic Planning
Thomas D. Stamm............. 50 Senior Vice President, Acceptance Insurance Company
John R. Svoboda............. 44 Vice President, Regulatory Affairs
Jay A. Bielfield............ 51 Director 1992
Edward W. Elliott, Jr. ..... 53 Director 1992
Robert LeBuhn............... 64 Director 1992
Michael R. McCarthy......... 45 Director 1992
R.L. Richards............... 48 Director 1991
David L. Treadwell.......... 42 Director 1992
Doug T. Valassis............ 44 Director 1992
</TABLE>
- ------------
(1) At April 29, 1997
BIOGRAPHICAL INFORMATION
Directors and Executive Officers of the Company. The principal occupation
of each director and executive officer of the Company is set forth below.
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<PAGE> 53
Kenneth C. Coon has been associated with the Company as an executive
officer since its inception in 1979. He has been Chairman and Chief Executive
Officer of the Company and has been a director of the Company since December
1992. He served as Interim Chief Executive Officer of the Company beginning in
February 1992, and as Chairman and President from December 1992 until March
1994, when he was elected Chairman and Chief Executive Officer. Mr. Coon has
been President and Chief Executive Officer, and a director, of Acceptance
Insurance Holdings Inc., a subsidiary of the Company, since its formation and of
each of its subsidiaries since their formation or acquisition; and, since August
1993 has served as a director of The Redland Group, Inc., and each of its
subsidiaries, all of which are subsidiaries of the Company. Mr. Coon also serves
as a director of Major Realty Corporation.
John P. Nelson has been President and Chief Operating Officer of the
Company since March 1994, and has been a director since August 1993. Mr. Nelson
has been President of Redland Insurance since its formation in 1979. Mr. Nelson
also serves as a director of Redland, and its insurance subsidiaries, all of
which are subsidiaries of the Company. Since August 1993 he has served as a
director of Acceptance Insurance Holdings Inc. and each of its subsidiaries.
G. Thomas Bolton has been Senior Vice President, Claims since January 1996.
Mr. Bolton came to Acceptance from Arthur Andersen LLP, where he was a Property
and Casualty Claims Consultant. Prior to that time he was employed for 16 years
by, and was the Eastern Territorial Claim Executive and Assistant Vice President
for the Home Insurance Group.
Greg D. Ewald has been Senior Vice President of Underwriting of the Company
since October 1993. Mr. Ewald has been Vice President of Underwriting for
Acceptance Insurance and Acceptance Indemnity since April 1990. Prior to that
time, Mr. Ewald was Vice President, Treaty Underwriting, at Underwriters
Reinsurance Company.
William J. Gerber has been Vice President, Investments and Investor
Relations of the Company since December 1992, and of Acceptance Insurance
Holdings Inc. since July 1, 1991. Beginning in August 1987, he was Director of
Financial Reporting and Acquisitions for the Company. Prior to that time, he was
a certified public accountant with Coopers & Lybrand.
Richard C. Gibson has been Executive Vice President of Redland, since
August 1993, and effective January 1996, President of American Growers and
Chairman and Chief Executive Officer of American Agrisurance, Inc., a
wholly-owned marketing subsidiary of the Company. Mr. Gibson served as President
of American Agrisurance, Inc., from its formation in November 1976 until January
1996. From 1973 through 1976, Mr. Gibson was Vice President and Marketing
Manager of Blakley Crop Hail and prior to that time, from 1964 through 1973,
Branch Manager of the Crop Division of the Insurance Company of North America.
Robert W. Haney has been Senior Vice President of Claims of the Company
since July 1993. For the prior 11 years, Mr. Haney was Assistant Vice President
of Claims for Empire Fire & Marine Insurance Company.
Peter A. Knolla has been Assistant Secretary of the Company since December
of 1992. He has been Secretary of the majority of the Acceptance subsidiaries
since July of 1991. Prior to that time he was associated with the Central
National Insurance Group and Empire Fire and Marine Insurance Company for 15
years.
Georgia M. Mace has been Treasurer and Chief Financial Officer of the
Company since May 1992. Ms. Mace has been Treasurer and Chief Financial Officer
of Acceptance Insurance since its formation and of each of the Acceptance
subsidiaries since their formation or acquisition. She also has served as a
director of Acceptance Insurance and Phoenix Indemnity since their formation.
Ms. Mace formerly was Treasurer of Cornhusker Casualty, a division of Berkshire
Hathaway.
George P. Mang has been Senior Vice President and Chief Operating Officer
of Phoenix Indemnity since April 1994. Mr. Mang served as Secretary of Phoenix
Indemnity from its organization in 1988 until 1994. Prior to that time, Mr. Mang
was Executive Vice President of Statewide Insurance for 25 years.
Mark R. Shapland has been Vice President and Chief Actuary since August
1996. During the preceding six years, Mr. Shapland was an actuary with Zurich
Insurance Company, and Vice President and Chief Actuary with Empire Fire &
Marine Insurance Company.
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<PAGE> 54
Raymond N. Siebert has been Vice President of Administration for the
Company since May 1995. Prior to that, Mr. Siebert was an Assistant Vice
President for Systems and Operations for the Home Insurance Company. Mr. Siebert
held various administrative and operations support positions at Home Insurance
for 13 years. He also has held positions in a similar capacity for the IL. FAIR
Plan, Chubb and Son, and Allstate Insurance Co., dating back to 1975.
Bruce W. Slaughter has been Senior Vice President of Redland Insurance
since October of 1995. Prior to coming to Acceptance in October of 1994, Mr.
Slaughter was Executive Vice President of Home Insurance Company. Prior to that
time he was Vice President with Chubb Insurance Group, having been with them for
24 years.
Joseph G. Smith has been Vice President of Budget, Audit and Strategic
Planning since August 1993. Mr. Smith served as Vice President and Treasurer of
Redland Insurance from September 1982 to October 1994. Prior to joining Redland
Insurance, Mr. Smith worked as a certified public accountant with Ernst &
Whinney for six years.
Thomas D. Stamm has been Senior Vice President of Acceptance Insurance
since October 1993. Prior to that time, Mr. Stamm was a founding officer and
Senior Vice President of Underwriting for the Scottsdale Insurance Company.
Prior to that time, Mr. Stamm was a Vice President of Underwriting for Great
Southwest Fire Insurance Company for 10 years.
John R. Svoboda has been Vice President of Regulatory Affairs for the
Company since July 1991. He has been with the Company since 1987. For the prior
13 years Mr. Svoboda was a Senior Examiner with the Nebraska Department of
Insurance.
Jay A. Bielfield has been a director of the Company since December 1992.
Mr. Bielfield is an employee of Little Ceasar International, Inc. Mr. Bielfield
is a director of Major Realty Corporation.
Edward W. Elliott, Jr. has been a director of the Company since December
1992. Mr. Elliot is Vice-Chairman and Chief Financial Officer of Franklin
Enterprises, Inc., a private investment management firm located in Deerfield,
Illinois.
Robert LeBuhn has been a director of the Company since December 1992. Mr.
LeBuhn is a private investor. He was Chairman of Investor International (U.S.),
Inc., an investment firm in New York, New York, until September 1994. Mr. LeBuhn
serves as a director of USAir Group, Inc., Cambrex Corp., New Jersey Steel, and
Enzon, Inc.
Michael R. McCarthy has been a director of the Company since December 1992.
Mr. McCarthy has been Chairman and a director of McCarthy & Co., a firm engaged
in the investment banking business in Omaha, Nebraska, since it was organized in
1986. He is also a director and Chairman of McCarthy Group, Inc., which is an
investment and merchant banking firm and the parent of McCarthy & Co. Mr.
McCarthy also serves as a director of Major Realty Corporation.
R.L. Richards has been a director of the Company since January 1991. Mr.
Richards serves as Managing Director of RDT Limited, a private investment
company located in Dublin, Ohio. Prior to the organization of RDT Limited in
December 1994, he served as President and director of its predecessor and has
held various positions with that company since 1978.
David L. Treadwell has been a director of the Company since December 1992.
Mr. Treadwell has been Chief Executive Officer of Major Realty since March 1992.
Mr. Treadwell also is President of Heritage Network, Incorporated, which is
responsible for a portfolio of investments, including operating businesses in
automotive supply, newspaper publishing, real estate development and residential
construction. Mr. Treadwell has also been Community Bank Director of Old Kent
Bank, SE, since April 1992.
Doug T. Valassis has been a director of the Company since December 1992.
Mr. Valassis is President and Chief Operating Officer and a director of Franklin
Enterprises, Inc., an investment management firm in Deerfield, Illinois. Mr.
Valassis serves as a director and officer of Lindner Investments, Massachusetts
Trust, a complex of six investment funds; Mr. Valassis serves as director for
each of the six funds.
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<PAGE> 55
DESCRIPTION OF PREFERRED SECURITIES
Pursuant to the terms of the Trust Agreement for the Issuer Trust, the
Issuer Trustees on behalf of the Issuer Trust will issue the Preferred
Securities and the Common Securities. The Preferred Securities will represent
preferred undivided beneficial interests in the assets of the Issuer Trust and
the holders thereof will be entitled to a preference in certain circumstances
with respect to Distributions and amounts payable on redemption or liquidation
over the Common Securities, as well as other benefits as described in the Trust
Agreement. This summary of certain provisions of the Preferred Securities and
the Trust Agreement does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the Trust
Agreement, including the definitions therein of certain terms. Wherever
particular defined terms of the Trust Agreement are referred to herein, such
defined terms are incorporated herein by reference. A copy of the form of the
Trust Agreement is available upon request from the Issuer Trustees.
GENERAL
The Preferred Securities will be limited to $82,500,000 aggregate
Liquidation Amount outstanding (which amount may be increased by up to
$12,375,000 aggregate liquidation amount of Preferred Securities for exercise of
the Underwriters' over-allotment option). See "Underwriting." The Preferred
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Common Securities except as described under "-- Subordination of Common
Securities." The Junior Subordinated Debentures will be registered in the name
of the Issuer Trust and held by the Property Trustee in trust for the benefit of
the holders of the Preferred Securities and Common Securities. The Guarantee
will be a guarantee on a subordinated basis with respect to the Preferred
Securities but will not guarantee payment of Distributions or amounts payable on
redemption or liquidation of such Preferred Securities when the Issuer Trust
does not have funds on hand available to make such payments. See "Description of
Guarantee."
DISTRIBUTIONS
The Preferred Securities represent preferred undivided beneficial interests
in the assets of the Issuer Trust, and Distributions on each Preferred Security
will be payable at the annual rate of % of the stated Liquidation Amount of
$25, payable quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year (each a "Distribution Date"), to the holders of the
Preferred Securities at the close of business on the 15th day of March, June,
September and December (whether or not a Business Day (as defined below)) next
preceding the relevant Distribution Date. Distributions on the Preferred
Securities will be cumulative. Distributions will accumulate from , 1997.
The first Distribution Date for the Preferred Securities will be , 1997.
The amount of Distributions payable for any period less than a full Distribution
period will 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 such period.
Distributions payable for each full Distribution period will be computed by
dividing the rate per annum by four. If any date on which Distributions are
payable on the Preferred Securities is not a Business Day, then payment of the
Distributions payable on such date will be made on the next succeeding day that
is a Business Day (without any additional Distributions or other payment in
respect of any such delay), with the same force and effect as if made on the
date such payment was originally payable.
So long as no Debenture Event of Default has occurred and is continuing,
the Company has the right under the Junior Subordinated Indenture to defer the
payment of interest on the Junior Subordinated Debentures at any time or from
time to time for an Extension Period, provided that no Extension Period may
extend beyond the Stated Maturity of the Junior Subordinated Debentures. As a
consequence of any such deferral, quarterly Distributions on the Preferred
Securities by the Issuer Trust will be deferred during any such Extension
Period. Distributions to which holders of the Preferred Securities are entitled
will accumulate additional Distributions thereon at the rate of % per annum,
compounded quarterly from the relevant payment date for such Distributions,
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. Additional Distributions payable
for each full Distribution period will be computed by dividing the rate per
annum by four. The term "Distributions" as used herein shall include any such
additional Distributions. During any such Extension Period, the Company may
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<PAGE> 56
not (i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the Company's
capital stock or (ii) make any payment of principal of or interest or premium,
if any, on or repay, repurchase or redeem any debt securities of the Company
that rank pari passu in all respects with or junior in interest to the Junior
Subordinated Debentures (other than (a) repurchases, redemptions or other
acquisitions of shares of capital stock of the Company in connection with any
employment contract, benefit plan or other similar arrangement with or for the
benefit of any one or more employees, officers, directors or consultants, in
connection with a dividend reinvestment or stockholder stock purchase plan or in
connection with the issuance of capital stock of the Company (or securities
convertible into or exercisable or exchangeable for such capital stock) as
consideration in an acquisition transaction entered into prior to the applicable
Extension Period, (b) as a result of an exchange or conversion of any class or
series of the Company's capital stock (or any capital stock of a subsidiary of
the Company) for any class or series of the Company's capital stock or of any
class or series of the Company's indebtedness for any class or series of the
Company's capital stock, (c) the purchase of fractional interests in shares of
the Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, (d) any
declaration of a dividend in connection with any stockholder's rights plan, or
the issuance of rights, stock or other property under any stockholder's rights
plan, or the redemption or repurchase of rights pursuant thereto, or (e) any
dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock). Prior to the termination of any
such Extension Period, the Company may further defer the payment of interest,
provided that no Extension Period may exceed 20 consecutive quarterly periods or
extend beyond the Stated Maturity of the Junior Subordinated Debentures. Upon
the termination of any such Extension Period and the payment of all amounts then
due, the Company may elect to begin a new Extension Period. No interest shall be
due and payable during an Extension Period, except at the end thereof. The
Company must give the holders of the Preferred Securities and the Issuer
Trustees notice of its election of such Extension Period at least one Business
Day prior to the earlier of (i) the date the Distributions on the Preferred
Securities would have been payable but for the election to begin such Extension
Period and (ii) the date the Property Trustee is required to give notice to
holders of the Preferred 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. The Property Trustee will give notice of the Company's
election to begin a new Extension Period to the holders of the Preferred
Securities. Subject to the foregoing, there is no limitation on the number of
times that the Company may elect to begin an Extension Period. See "Description
of Junior Subordinated Debentures -- Option To Extend Interest Payment Period"
and "Certain Federal Income Tax Consequences -- Interest Income and Original
Issue Discount."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
The revenue of the Issuer Trust available for distribution to holders of
the Preferred Securities will be limited to payments under the Junior
Subordinated Debentures in which the Issuer Trust will invest the proceeds from
the issuance and sale of the Preferred Securities. See "Description of Junior
Subordinated Debentures." If the Company does not make payments on the Junior
Subordinated Debentures, the Issuer Trust may not have funds available to pay
Distributions or other amounts payable on the Preferred Securities. The payment
of Distributions and other amounts payable on the Preferred Securities (if and
to the extent the Issuer Trust has funds legally available for and cash
sufficient to make such payments) is guaranteed by the Company on a limited
basis as set forth herein under "Description of Guarantee."
REDEMPTION
Upon the repayment or redemption, in whole or in part, of the Junior
Subordinated Debentures, whether at maturity or upon earlier redemption as
provided in the Junior Subordinated Indenture, the proceeds from such repayment
or redemption shall be applied by the Property Trustee to redeem a Like Amount
(as defined below) of the Preferred Securities, upon not less than 30 nor more
than 60 days' notice, at a redemption price (the "Redemption Price") equal to
the aggregate Liquidation Amount of such Preferred Securities plus
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<PAGE> 57
accumulated but unpaid Distributions thereon to the date of redemption (the
"Redemption Date") and the related amount of the premium, if any, paid by the
Company upon the concurrent redemption of such Junior Subordinated Debentures.
See "Description of Junior Subordinated Debentures -- Redemption." If less than
all the Junior Subordinated Debentures are to be repaid or redeemed on a
Redemption Date, then the proceeds from such repayment or redemption shall be
allocated to the redemption pro rata of the Preferred Securities and the Common
Securities. The amount of premium, if any, paid by the Company upon the
redemption of all or any part of the Junior Subordinated Debentures to be repaid
or redeemed on a Redemption Date shall be allocated to the redemption pro rata
of the Preferred Securities and the Common Securities.
The Company has the right to redeem the Junior Subordinated Debentures (i)
on or after , 2002, in whole at any time or in part from time to time, or
(ii) in whole, but not in part, at any time within 90 days following the
occurrence and during the continuation of a Tax Event or an Investment Company
Event. See "-- Liquidation Distribution Upon Dissolution." A redemption of the
Junior Subordinated Debentures would cause a mandatory redemption of a Like
Amount of the Preferred Securities and Common Securities at the Redemption
Price.
"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, New York or in the City
of Omaha, Nebraska 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.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount (as defined below) equal to that
portion of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Junior Subordinated Indenture,
allocated to the Common Securities and to the Preferred Securities based upon
the relative Liquidation Amounts of such classes and (ii) with respect to a
distribution of Junior Subordinated Debentures to holders of Trust Securities in
connection with a dissolution or liquidation of the Issuer Trust, Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Trust Securities of the holder to whom such Junior Subordinated
Debentures are distributed.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
"Tax Event" means the receipt by the Issuer Trust of an opinion of counsel
to the Company experienced in such matters to the effect that, as a result of
any amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official or administrative pronouncement or action 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 Preferred Securities, there is more than an insubstantial
risk that (i) the Issuer Trust is, or will be within 90 days of the delivery of
such opinion, subject to United States federal income tax with respect to income
received or accrued on the Junior Subordinated Debentures, (ii) interest payable
by the Company on the Junior Subordinated Debentures is not, or within 90 days
of the delivery of such opinion, will not be, deductible by the Company, in
whole or in part, for United States federal income tax purposes or (iii) the
Issuer Trust is, or will be within 90 days of the delivery of such opinion,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
the Issuer Trust is or will be considered an "investment company" that is
required to be registered under the Investment Company Act, which change or
prospective change becomes effective or would become effective, as the case may
be, on or after the date of the issuance of the Preferred Securities.
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If a Tax Event described in clause (i) or (iii) of the definition of Tax
Event above has occurred and is continuing and the Issuer Trust is the holder of
all the Junior Subordinated Debentures, the Company will pay Additional Sums (as
defined below), if any, on the Junior Subordinated Debentures.
"Additional Sums" means the additional amounts as may be necessary in order
that the amount of Distributions then due and payable by the Issuer Trust on the
outstanding Preferred Securities and Common Securities of the Issuer Trust will
not be reduced as a result of any additional taxes, duties and other
governmental charges to which the Issuer Trust has become subject as a result of
a Tax Event.
REDEMPTION PROCEDURES
Preferred Securities redeemed on each Redemption Date shall be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Junior Subordinated Debentures. Redemptions of the Preferred
Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Issuer Trust has funds on hand
available for the payment of such Redemption Price. See also "-- Subordination
of Common Securities."
If the Issuer Trust gives a notice of redemption in respect of the
Preferred Securities, then, by 12:00 noon, New York City time, on the Redemption
Date, to the extent funds are available, in the case of Preferred Securities
held in book-entry form, the Property Trustee will deposit irrevocably with DTC
funds sufficient to pay the applicable Redemption Price and will give DTC
irrevocable instructions and authority to pay the Redemption Price to the
holders of the Preferred Securities. With respect to Preferred Securities not
held in book-entry form, the Property Trustee, to the extent funds are
available, will irrevocably deposit with the paying agent for the Preferred
Securities funds sufficient to pay the applicable Redemption Price and will give
such paying agent irrevocable instructions and authority to pay the Redemption
Price to the holders thereof upon surrender of their certificates evidencing the
Preferred Securities. Notwithstanding the foregoing, Distributions payable on or
prior to the Redemption Date for any Preferred Securities called for redemption
shall be payable to the holders of the Preferred Securities on the relevant
record dates for the related Distribution Dates. If notice of redemption shall
have been given and funds deposited as required, then upon the date of such
deposit, all rights of the holders of such Preferred Securities so called for
redemption will cease, except the right of the holders of such Preferred
Securities to receive the Redemption Price, but without interest on such
Redemption Price, and such Preferred Securities will cease to be outstanding. If
any date fixed for redemption of Preferred Securities is not a Business Day,
then payment of the Redemption Price payable on such date will be made on the
next succeeding day which is a Business Day (without any interest or other
payment in respect of any such delay), except that, if such Business Day falls
in the next calendar year, such payment will be made on the immediately
preceding Business Day. In the event that payment of the Redemption Price in
respect of Preferred Securities called for redemption is improperly withheld or
refused and not paid either by the Issuer Trust or by the Company pursuant to
the Guarantee as described under "Description of Guarantee," Distributions on
such Preferred Securities will continue to accumulate at the then applicable
rate, from the Redemption Date originally established by the Issuer Trust for
such Preferred Securities to the date such Redemption Price is actually paid, in
which case the actual payment date will be the date fixed for redemption for
purposes of calculating the Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities laws), the Company or its affiliates may at any time and from
time to time purchase outstanding Preferred Securities by tender, in the open
market or by private agreement, and may resell such securities.
If less than all the Preferred Securities and Common Securities are to be
redeemed on a Redemption Date, then the aggregate Liquidation Amount of such
Preferred Securities and Common Securities to be redeemed shall be allocated pro
rata to the Preferred Securities and the Common Securities based upon the
relative Liquidation Amounts of such classes. The particular Preferred
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
Preferred Securities not previously called for redemption, or if the Preferred
Securities are then held in the form of a global Preferred Security, in
accordance with DTC's customary procedures. The Property Trustee shall promptly
notify the securities registrar for the Trust Securities in writing of the
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Preferred Securities selected for redemption and, in the case of any Preferred
Securities selected for partial redemption, the Liquidation Amount thereof to be
redeemed. For all purposes of the Trust Agreement, unless the context otherwise
requires, all provisions relating to the redemption of Preferred Securities
shall relate, in the case of any Preferred Securities redeemed or to be redeemed
only in part, to the portion of the aggregate Liquidation Amount of Preferred
Securities which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each registered holder of Preferred
Securities to be redeemed at its address appearing on the securities register
for the Trust Securities. Unless the Company defaults in payment of the
Redemption Price on the Junior Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on the Junior Subordinated
Debentures or portions thereof (and, unless payment of the Redemption Price in
respect of the Preferred Securities is withheld or refused and not paid either
by the Issuer Trust or the Company pursuant to the Guarantee, Distributions will
cease to accumulate on the Preferred Securities or portions thereof) called for
redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, and the
Liquidation Distribution (as defined herein) in respect of, the Preferred
Securities and Common Securities, as applicable, shall be made pro rata based on
the Liquidation Amount of such Preferred Securities and Common Securities.
However, if on any Distribution Date or Redemption Date a Debenture Event of
Default has occurred and is continuing as a result of any failure by the Company
to pay any amounts in respect of the Junior Subordinated Debentures when due, no
payment of any Distribution on, or Redemption Price of, or Liquidation
Distribution in respect of, any of the Common Securities, and no other payment
on account of the redemption, liquidation or other acquisition of such Common
Securities, shall be made unless payment in full in cash of all accumulated and
unpaid Distributions on all the outstanding Preferred 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 the
outstanding Preferred Securities then called for redemption, shall have been
made or provided for, and all funds available to the Property Trustee shall
first be applied to the payment in full in cash of all Distributions on, or
Redemption Price of, the Preferred Securities then due and payable.
In the case of any Event of Default (as defined below) resulting from a
Debenture Event of Default, the holders of the Common Securities will be deemed
to have waived any right to act with respect to any such Event of Default under
the Trust Agreement until the effects of all such Events of Default with respect
to such Preferred Securities have been cured, waived or otherwise eliminated.
See "-- Events of Default; Notice" and "Description of Junior Subordinated
Debentures -- Debenture Events of Default." Until all such Events of Default
under the Trust Agreement with respect to the Preferred Securities have been so
cured, waived or otherwise eliminated, the Property Trustee will act solely on
behalf of the holders of the Preferred Securities and not on behalf of the
holders of the Common Securities, and only the holders of the Preferred
Securities will have the right to direct the Property Trustee to act on their
behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
The amount payable on the Preferred Securities in the event of any
liquidation of the Issuer Trust is $25 per Preferred Security plus accumulated
and unpaid Distributions, subject to certain exceptions, which may be in the
form of a distribution of such amount in Junior Subordinated Debentures.
The holders of all the outstanding Common Securities have the right at any
time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Preferred
Securities and Common Securities in liquidation of the Issuer Trust.
Pursuant to the Trust Agreement, the Issuer Trust will automatically
dissolve upon expiration of its term or, if earlier, will dissolve on the first
to occur of: (i) certain events of bankruptcy, dissolution or liquidation of the
Company or the holder of the Common Securities, (ii) the distribution of a Like
Amount of the Junior Subordinated Debentures to the holders of the Trust
Securities, if the holders of Common Securities have
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given written direction to the Property Trustee to dissolve the Issuer Trust
(which direction, subject to the foregoing restrictions, is optional and wholly
within the discretion of the holders of Common Securities), (iii) the repayment
of all the Preferred Securities in connection with the redemption of all the
Trust Securities as described under "-- Redemption" and (iv) the entry of an
order for the dissolution of the Issuer Trust by a court of competent
jurisdiction.
If dissolution of the Issuer Trust occurs as described in clause (i), (ii)
or (iv) above, the Issuer Trust will be liquidated by the Property Trustee as
expeditiously as the Property Trustee determines to be possible by distributing,
after satisfaction of liabilities to creditors of the Issuer Trust as provided
by applicable law, to the holders of such Trust Securities a Like Amount of the
Junior Subordinated Debentures, unless such distribution is not practical, in
which event such holders will be entitled to receive out of the assets of the
Issuer Trust available for distribution to holders, after satisfaction of
liabilities to creditors of the Issuer Trust as provided by applicable law, an
amount equal to, in the case of holders of Preferred Securities, the aggregate
of the Liquidation Amount plus accumulated and unpaid Distributions thereon to
the date of payment (such amount being the "Liquidation Distribution"). If such
Liquidation Distribution can be paid only in part because the Issuer Trust has
insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by the Issuer Trust on its
Preferred Securities shall be paid on a pro rata basis. The holders of the
Common Securities will be entitled to receive distributions upon any such
liquidation pro rata with the holders of the Preferred Securities, except that
if a Debenture Event of Default has occurred and is continuing as a result of
any failure by the Company to pay any amounts in respect of the Junior
Subordinated Debentures when due, the Preferred Securities shall have a priority
over the Common Securities. See "-- Subordination of Common Securities."
After the liquidation date fixed for any distribution of Junior
Subordinated Debentures (i) the Preferred Securities will no longer be deemed to
be outstanding, (ii) DTC or its nominee, as the registered holder of Preferred
Securities, will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution with respect to Preferred Securities held by DTC or its nominee and
(iii) any certificates representing the Preferred Securities not held by DTC or
its nominee will be deemed to represent the Junior Subordinated Debentures
having a principal amount equal to the stated Liquidation Amount of the
Preferred Securities and bearing accrued and unpaid interest in an amount equal
to the accumulated and unpaid Distributions on the Preferred Securities until
such certificates are presented to the security registrar for the Trust
Securities for transfer or reissuance.
If the Company does not redeem the Junior Subordinated Debentures prior to
maturity and the Issuer Trust is not liquidated and the Junior Subordinated
Debentures are not distributed to holders of the Preferred Securities, the
Preferred Securities will remain outstanding until the repayment of the Junior
Subordinated Debentures and the distribution of the Liquidation Distribution to
the holders of the Preferred Securities.
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Preferred Securities if a dissolution and liquidation of the Issuer
Trust were to occur. Accordingly, the Preferred Securities that an investor may
purchase, or the Junior Subordinated Debentures that the investor may receive on
dissolution and liquidation of the Issuer Trust, may trade at a discount to the
price that the investor paid to purchase the Preferred Securities offered
hereby.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under the
Trust Agreement (an "Event of Default") with respect to the Preferred Securities
(whatever the reason for such Event of Default and whether it is voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description of
Junior Subordinated Debentures -- Debenture Events of Default"); or
(ii) default by the Issuer Trust in the payment of any Distribution when
it becomes due and payable, and continuation of such default for a
period of 30 days; or
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(iii) default by the Issuer Trust in the payment of any Redemption Price
of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees in the Trust
Agreement (other than a covenant or warranty a default in the
performance of which or the breach of which is dealt with in clause
(ii) or (iii) above), and continuation of such default or breach for
a period of 60 days after there has been given, by registered or
certified mail, to the Issuer Trustees and the Company by the holders
of at least 25% in aggregate Liquidation Amount of the outstanding
Preferred Securities, a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice
is a "Notice of Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee if a successor Property Trustee has
not been appointed within 90 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of Trust Securities and the
Administrators, unless such Event of Default has been cured or waived. The
Company, as Depositor, and the Administrators are required to file annually with
the Property Trustee a certificate as to whether or not they are in compliance
with all the conditions and covenants applicable to them under the Trust
Agreement.
If a Debenture Event of Default has occurred and is continuing as a result
of any failure by the Company to pay any amounts in respect of the Junior
Subordinated Debentures when due, the Preferred Securities will have a
preference over the Common Securities with respect to payments of any amounts in
respect of the Preferred Securities as described above. See "-- Subordination of
Common Securities," "-- Liquidation Distribution Upon Dissolution" and
"Description of Junior Subordinated Debentures -- Debenture Events of Default."
REMOVAL OF ISSUER TRUSTEES; APPOINTMENT OF SUCCESSORS
The holders of at least a majority in aggregate Liquidation Amount of the
outstanding Preferred Securities may remove an Issuer Trustee for cause or, if a
Debenture Event of Default has occurred and is continuing, with or without
cause. If an Issuer Trustee is removed by the holders of the outstanding
Preferred Securities, the successor may be appointed by the holders of at least
25% in Liquidation Amount of the outstanding Preferred Securities. If an Issuer
Trustee resigns, such Trustee will appoint its successor. If an Issuer Trustee
fails to appoint a successor, the holders of at least 25% in Liquidation Amount
of the outstanding Preferred Securities may appoint a successor. If a successor
has not been appointed by the holders, any holder of Preferred Securities or
Common Securities or the other Issuer Trustee may petition a court in the State
of Delaware to appoint a successor. Any Delaware Trustee must meet the
applicable requirements of Delaware law. Any Property Trustee must be a national
or state-chartered bank, and at the time of appointment have securities rated in
one of the three highest rating categories by a nationally recognized
statistical rating organization and have capital and surplus of at least $50.0
million. No resignation or removal of an Issuer Trustee and no appointment of a
successor trustee shall be effective until the acceptance of appointment by the
successor trustee in accordance with the provisions of the Trust Agreement.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any entity into which the Property Trustee or the Delaware Trustee may be
merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which such Issuer
Trustee is a party, or any entity succeeding to all or substantially all the
corporate trust business of such Issuer Trustee, will be the successor of such
Issuer Trustee under the Trust Agreement, provided such entity is otherwise
qualified and eligible.
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MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE ISSUER TRUST
The Issuer Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any entity, except as described below or as
otherwise set forth in the Trust Agreement. The Issuer Trust may, at the request
of the holders of the Common Securities and with the consent of the holders of
at least a majority in aggregate Liquidation Amount of the outstanding Preferred
Securities, merge with or into, consolidate, amalgamate, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to a trust organized as such under the laws of any State, so long as (i) such
successor entity either (a) expressly assumes all the obligations of the Issuer
Trust with respect to the Preferred Securities or (b) substitutes for the
Preferred Securities other securities having substantially the same terms as the
Preferred Securities (the "Successor Securities") so long as the Successor
Securities have the same priority as the Preferred Securities with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii) a
trustee of such successor entity, possessing the same powers and duties as the
Property Trustee, is appointed to hold the Junior Subordinated Debentures, (iii)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not cause the Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical rating
organization, if then rated, (iv) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Preferred Securities (including
any Successor Securities) in any material respect, (v) such successor entity has
a purpose substantially identical to that of the Issuer Trust, (vi) prior to
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease, the Issuer Trust has received an opinion from independent counsel
experienced in such matters to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Preferred
Securities (including any Successor Securities) in any material respect and (b)
following such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease, neither the Issuer Trust nor such successor entity will be
required to register as an investment company under the Investment Company Act,
and (vii) the Company or any permitted successor or assignee owns all the common
securities of such successor entity and guarantees the obligations of such
successor entity under the Successor Securities at least to the extent provided
by the Guarantee. Notwithstanding the foregoing, the Issuer Trust may not,
except with the consent of holders of 100% in aggregate Liquidation Amount of
the Preferred Securities, consolidate, amalgamate, merge with or into, or be
replaced by or convey, transfer or lease its properties and assets substantially
as an entirety to, any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause the
Issuer Trust or the successor entity to be taxable as a corporation for United
States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided above and under "-- Removal of Issuer Trustees;
Appointment of Successors" and "Description of Guarantee -- Amendments and
Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Preferred Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the holders of a
majority of the Common Securities and the Property Trustee, without the consent
of the holders of the Preferred Securities, (i) to cure any ambiguity, correct
or supplement any provisions in the Trust Agreement that may be inconsistent
with any other provision, or to make any other provisions with respect to
matters or questions arising under the Trust Agreement, provided that any such
amendment does not adversely affect in any material respect the interests of any
holder of Trust Securities, or (ii) to modify, eliminate or add to any
provisions of the Trust Agreement to such extent as may be necessary to ensure
that the Issuer Trust will not be taxable as a corporation for United States
federal income tax purposes at any time that any Trust Securities are
outstanding or to ensure that the Issuer Trust will not be required to register
as an "investment company" under the Investment Company Act, and any amendments
of the Trust Agreement will become effective when notice of such amendment is
given to the holders of Trust Securities. The Trust Agreement may be amended by
the holders of a majority of the Common Securities and the Property Trustee with
(i) the consent of holders representing
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not less than a majority in aggregate Liquidation Amount of the outstanding
Preferred Securities and (ii) receipt by the Issuer Trustees of an opinion of
counsel to the effect that such amendment or the exercise of any power granted
to the Issuer Trustees in accordance with such amendment will not affect the
issuer Trust's not being taxable as a corporation for United States federal
income tax purposes or the Issuer Trust's exemption from status as an
"investment company" under the Investment Company Act, except that, without the
consent of each holder of Trust Securities affected thereby, the Trust Agreement
may not be amended to (i) change the amount or timing of any Distribution on the
Trust Securities or otherwise adversely affect the amount of any Distribution
required to be made in respect of the Trust Securities as of a specified date or
(ii) restrict the right of a holder of Trust Securities to institute suit for
the enforcement of any such payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Issuer Trust,
the Property Trustee will not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
execute any trust or power conferred on the Property Trustee with respect to the
Junior Subordinated Debentures, (ii) waive any past default that is waiveable
under Section 5.13 of the Junior Subordinated Indenture, (iii) exercise any
right to rescind or annul a declaration that the Junior Subordinated Debentures
shall be due and payable or (iv) consent to any amendment, modification or
termination of the Junior Subordinated Indenture or the Junior Subordinated
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the holders of at least a majority in aggregate
Liquidation Amount of the outstanding Preferred Securities, except that, if a
consent under the Junior Subordinated Indenture would require the consent of
each holder of Junior Subordinated Debentures affected thereby, no such consent
will be given by the Property Trustee without the prior consent of each holder
of the Preferred Securities. The Property Trustee may not revoke any action
previously authorized or approved by a vote of the holders of the Preferred
Securities except by subsequent vote of the holders of the Preferred Securities.
The Property Trustee will notify each holder of Preferred Securities of any
notice of default with respect to the Junior Subordinated Debentures. In
addition to obtaining the foregoing approvals of the holders of the Preferred
Securities, before taking any of the foregoing actions, the Property Trustee
will obtain an opinion of counsel experienced in such matters to the effect that
the Issuer Trust will not be taxable as a corporation for United States federal
income tax purposes on account of such action.
Any required approval of holders of Preferred Securities may be given at a
meeting of holders of Preferred Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be given
to each registered holder of Preferred Securities in the manner set forth in the
Trust Agreement.
No vote or consent of the holders of Preferred Securities will be required
to redeem and cancel Preferred Securities in accordance with the Trust
Agreement.
Notwithstanding that holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
Securities that are owned by the Company, the Issuer Trustees or any affiliate
of the Company or any Issuer Trustees, will, for purposes of such vote or
consent, be treated as if they were not outstanding.
EXPENSES AND TAXES
In the Junior Subordinated Indenture, the Company, as borrower, has agreed
to pay all debts and other obligations (other than with respect to the Preferred
Securities) and all costs and expenses of the Issuer Trust (including costs and
expenses relating to the organization of the Issuer Trust, the fees and expenses
of the Issuer Trustees and the costs and expenses relating to the operation of
the Issuer Trust) and to pay any and all taxes and all costs and expenses with
respect thereto (other than United States withholding taxes) to which the Issuer
Trust might become subject. The foregoing obligations of the Company under the
Junior Subordinated Indenture are for the benefit of, and shall be enforceable
by, any person to whom any such debts, obligations, costs, expenses and taxes
are owed (a "Creditor") whether or not such Creditor has received notice
thereof. Any such Creditor may enforce such obligations of the Company directly
against the Company,
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and the Company has irrevocably waived any right or remedy to require that any
such Creditor take any action against the Issuer Trust or any other person
before proceeding against the Company. The Company has also agreed in the Junior
Subordinated Indenture to execute such additional agreements as may be necessary
or desirable to give full effect to the foregoing.
BOOK ENTRY, DELIVERY AND FORM
The Preferred Securities will be issued in the form of one or more fully
registered global securities which will be deposited with, or on behalf of, DTC
and registered in the name of DTC's nominee. Unless and until it is exchangeable
in whole or in part for the Preferred Securities in definitive form, a global
security may not be transferred except as a whole by DTC to a nominee of DTC or
by a nominee of DTC to DTC or another nominee of DTC or by DTC or any such
nominee to a successor of such Depository or a nominee of such successor.
Ownership of beneficial interests in a global security will be limited to
persons that have accounts with DTC or its nominee ("Participants") or persons
that may hold interests through Participants. The Company expects that, upon the
issuance of a global security, DTC will credit, on its book-entry registration
and transfer system, the Participants' accounts with their respective principal
amounts of the Preferred Securities represented by such global security.
Ownership of beneficial interests in such global security will be shown on, and
the transfer of such ownership interests will be effected only through, records
maintained by DTC (with respect to interests of Participants) and on the records
of Participants (with respect to interests of Persons held through
Participants). Beneficial owners will not receive written confirmation from DTC
of their purchase, but are expected to receive written confirmations from the
Participants through which the beneficial owner entered into the transaction.
Transfers of ownership interests will be accomplished by entries on the books of
Participants acting on behalf of the beneficial owners.
So long as DTC, or its nominee, is the registered owner of a global
security, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Preferred Securities represented by such global security
for all purposes under the Junior Subordinated Indenture. Except as provided
below, owners of beneficial interests in a global security will not be entitled
to receive physical delivery of the Preferred Securities in definitive form and
will not be considered the owners or holders thereof under the Junior
Subordinated Indenture. Accordingly, each person owning a beneficial interest in
such a global security must rely on the procedures of DTC and, if such person is
not a Participant, on the procedures of the Participant through which such
person owns its interest, to exercise any rights of a holder of Preferred
Securities under the Junior Subordinated Indenture. The Company understands
that, under DTC's existing practices, in the event that the Company requests any
action of holders, or an owner of a beneficial interest in such a global
security desires to take any action which a holder is entitled to take under the
Junior Subordinated Indenture, DTC would authorize the Participants holding the
relevant beneficial interests to take such action, and such Participants would
authorize beneficial owners owning through such Participants to take such action
or would otherwise act upon the instructions of beneficial owners owning through
them. Redemption notices will also be sent to DTC. If less than all of the
Preferred Securities are being redeemed, the Company understands that it is
DTC's existing practice to determine by lot the amount of the interest of each
Participant to be redeemed.
Distributions on the Preferred Securities registered in the name of DTC or
its nominee will be made to DTC or its nominee, as the case may be, as the
registered owner of the global security representing such Preferred Securities.
None of the Company, the Issuer Trustees, the Administrators, any Paying Agent
or any other agent of the Company or the Issuer Trustees will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global
security for such Preferred Securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Disbursements of Distributions to Participants shall be the responsibility of
DTC. DTC's practice is to credit Participants' accounts on a payable date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payment on the payable date. Payments
by Participants to beneficial owners will be governed by standing instructions
and customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, the Company, the Issuer
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Trustees, the Paying Agent or any other agent of the Company, subject to any
statutory or regulatory requirements as may be in effect from time to time.
DTC may discontinue providing its services as securities depository with
respect to the Preferred Securities at any time by giving reasonable notice to
the Company or the Issuer Trustees. If DTC notifies the Company that it is
unwilling to continue as such, or if it is unable to continue or ceases to be a
clearing agency registered under the Exchange Act and a successor depository is
not appointed by the Company within ninety days after receiving such notice or
becoming aware that DTC is no longer so registered, the Company will issue the
Preferred Securities in definitive form upon registration of transfer of, or in
exchange for, such global security. In addition, the Company may at any time and
in its sole discretion determine not to have the Preferred Securities
represented by one or more global securities and, in such event, will issue
Preferred Securities in definitive form in exchange for all of the global
securities representing such Preferred Securities.
DTC has advised the Company and the Issuer Trust as follows: DTC is a
limited purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book entry changes to accounts of its Participants, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers (such as the Underwriter), banks, trust companies and clearing
corporations and may include certain other organizations. Certain of such
Participants (or their representatives), together with other entities, own DTC.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through, or maintain a custodial
relationship with a Participant, either directly or indirectly.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Preferred Securities will be made by the Underwriters in
immediately available funds.
Secondary trading in Preferred Securities of corporate issuers is generally
settled in clearinghouse or next-day funds. In contrast, the Preferred
Securities will trade in DTC's Same-Day Funds Settlement System, and secondary
market trading activity in the Preferred Securities will therefore be required
by DTC to settle in immediately available funds. No assurance can be given as to
the effect, if any, of settlement in immediately available funds on trading
activity in the Preferred Securities.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities will be made to DTC, which
will credit the relevant accounts at DTC on the applicable Distribution Dates
or, if the Preferred Securities are not held by DTC, such payments will be made
by check mailed to the address of the holder entitled thereto as such address
appears on the securities register for the Trust Securities. The paying agent
(the "Paying Agent") will initially be the Property Trustee and any co-paying
agent chosen by the Property Trustee and acceptable to the Administrators. The
Paying Agent will be permitted to resign as Paying Agent upon 30 days' written
notice to the Property Trustee and the Administrators. If the Property Trustee
is no longer the Paying Agent, the Property Trustee will appoint a successor
(which must be a bank or trust Company reasonably acceptable to the
Administrators) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Preferred Securities.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of the Issuer Trust, but upon payment of any tax or other
governmental charges that may be imposed in connection with any transfer or
exchange. The Issuer Trust will not be required to register or cause to be
registered the transfer of the Preferred Securities after the Preferred
Securities have been called for redemption.
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INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of
an Event of Default, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, after such Event of Default, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the Property
Trustee is under no obligation to exercise any of the powers vested in it by the
Trust Agreement at the request of any holder of Preferred Securities unless it
is offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
MISCELLANEOUS
The Administrators and the Property Trustee are authorized and directed to
conduct the affairs of and to operate the Issuer Trust in such a way that the
Issuer Trust will not be deemed to be an "investment company" required to be
registered under the Investment Company Act or taxable as a corporation for
United States federal income tax purposes and so that the Junior Subordinated
Debentures will be treated as indebtedness of the Company for United States
federal income tax purposes. In this connection, the Property Trustee and the
holders of Common Securities are authorized to take any action, not inconsistent
with applicable law, the certificate of trust of the Issuer Trust or the Trust
Agreement, that the Property Trustee and the holders of Common Securities
determine in their discretion to be necessary or desirable for such purposes, as
long as such action does not materially adversely affect the interests of the
holders of the Preferred Securities.
Holders of the Preferred Securities have no preemptive or similar rights.
The Issuer Trust may not borrow money, issue debt or mortgage or pledge any
of its assets.
GOVERNING LAW
The Trust Agreement will be governed by and construed in accordance with
the laws of the State of Delaware.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under the Junior
Subordinated Indenture, under which Bankers Trust Company is acting as Debenture
Trustee. This summary of certain terms and provisions of the Junior Subordinated
Debentures and the Junior Subordinated Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all the
provisions of the Junior Subordinated Indenture, including the definitions
therein of certain terms. Whenever particular defined terms of the Junior
Subordinated Indenture (as amended or supplemented from time to time) are
referred to herein, such defined terms are incorporated herein by reference. A
copy of the form of Junior Subordinated Indenture is available from the
Debenture Trustee upon request.
GENERAL
Concurrently with the issuance of the Preferred Securities, the Issuer
Trust will invest the proceeds thereof, together with the consideration paid by
the Company for the Common Securities, in the Junior Subordinated Debentures
issued by the Company. The Junior Subordinated Debentures will bear interest,
accruing from , 1997, at the annual rate of % of the principal
amount thereof, payable quarterly in arrears on March 31, June 30, September 30
and December 31 of each year (each, an "Interest Payment Date"), commencing
, 1997, to the person in whose name each Junior Subordinated
Debenture is registered at the close of business on the 15th day of March, June,
September or December (whether or not a Business Day) next preceding such
Interest Payment Date. It is anticipated that, until the liquidation, if any, of
the Issuer Trust, each Junior Subordinated Debenture will be registered in the
name of the Issuer Trust and held by the Property Trustee in trust for the
benefit of the holders of the Trust Securities. The amount of interest payable
for any period less than a full interest period will be computed on the basis of
a
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360-day year of twelve 30-day months and the actual days elapsed in a partial
month in such period. The amount of interest payable for any full interest
period will be computed by dividing the rate per annum by four. If any date on
which interest is payable on the Junior Subordinated Debentures is not a
Business Day, then payment of the interest payable on such date will be made on
the next succeeding day that is a Business Day (without any interest or other
payment in respect of any such delay), with the same force and effect as if made
on the date such payment was originally payable. Accrued interest that is not
paid on the applicable Interest Payment Date will bear additional interest on
the amount thereof (to the extent permitted by law) at the rate per annum of
%, compounded quarterly and 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. The
amount of additional interest payable for any full interest period will be
computed by dividing the rate per annum by four. The term "interest" as used
herein includes quarterly interest payments, interest on quarterly interest
payments not paid on the applicable Interest Payment Date (as defined below) and
Additional Sums, as applicable.
The Junior Subordinated Debentures will mature on , 2027,
subject to the Maturity Adjustment (such date, as it may be shortened by the
Maturity Adjustment is referred to herein as the Stated Maturity). The Maturity
Adjustment represents the right of the Company to shorten the maturity date once
at any time to any date not earlier than , 2002. In the event the
Company elects to shorten the Stated Maturity of the Junior Subordinated
Debentures, it will give notice to the registered holders of the Junior
Subordinated Debentures, the Debenture Trustee and the Issuer Trust of such
shortening no less than 90 days prior to the effectiveness thereof. The Property
Trustee must give notice to the holders of the Trust Securities of the
shortening of the Stated Maturity at least 30 but not more than 60 days before
such date.
The Junior Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior Indebtedness of the
Company. The Junior Subordinated Debentures will not be subject to a sinking
fund. The Junior Subordinated Indenture does not limit the incurrence or
issuance of other secured or unsecured debt by the Company, including Senior
Indebtedness, whether under the Junior Subordinated Indenture or any existing or
other indenture that the Company may enter into in the future or otherwise. See
"-- Subordination."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default has occurred and is continuing,
the Company has the right at any time during the term of the Junior Subordinated
Debentures to defer the payment of interest at any time or from time to time for
a period not exceeding 20 consecutive quarterly periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. During any such Extension Period
the Company shall have the right to make partial payments of interest on any
interest payment date. At the end of such Extension Period, the Company must pay
all interest then accrued and unpaid (together with interest thereon at the
annual rate of %, compounded quarterly and 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, to the extent permitted by applicable law). The amount of
additional interest payable for any full interest period will be computed by
dividing the rate per annum by four. During an Extension Period, interest will
continue to accrue and holders of Junior Subordinated Debentures (or holders of
Preferred Securities while outstanding) will be required to accrue interest
income for United States federal income tax purposes. See "Certain Federal
Income Tax Consequences -- Interest Income and Original Issue Discount."
During any such Extension Period, the Company may not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu in
all respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Company in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of any one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or stockholder stock purchase plan or in connection with the
issuance of capital stock of the Company (or securities convertible into or
exercisable or exchangeable for such capital
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stock) as consideration in an acquisition transaction entered into prior to the
applicable Extension Period, (b) as a result of an exchange or conversion of any
class or series of the Company's capital stock (or any capital stock of a
subsidiary of the Company) for any class or series of the Company's capital
stock or of any class or series of the Company's indebtedness for any class or
series of the Company's capital stock, (c) the purchase of fractional interests
in shares of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(d) any declaration of a dividend in connection with any stockholder's rights
plan, or the issuance of rights, stock or other property under any stockholders
rights plan, or the redemption or repurchase of rights pursuant thereto, or (e)
any dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock). Prior to the termination of any
such Extension Period, the Company may further defer the payment of interest,
provided that no Extension Period may exceed 20 consecutive quarterly periods or
extend beyond the Stated Maturity of the Junior Subordinated Debentures. Upon
the termination of any such Extension Period and the payment of all amounts then
due, the Company may elect to begin a new Extension Period subject to the above
conditions. No interest shall be due and payable during an Extension Period,
except at the end thereof. The Company must give the Issuer Trustees notice of
its election of such Extension Period at least one Business Day prior to the
earlier of (i) the date the Distributions on the Preferred Securities would have
been payable but for the election to begin such Extension Period and (ii) the
date the Property Trustee is required to give notice to holders of the Preferred
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. The Property
Trustee will give notice of the Company's election to begin a new Extension
Period to the holders of the Preferred Securities. There is no limitation on the
number of times that the Company may elect to begin an Extension Period.
REDEMPTION
The Junior Subordinated Debentures are redeemable prior to maturity at the
option of the Company (i) on or after , 2002, in whole at any
time or in part from time to time, or (ii) in whole, but not in part, at any
time within 90 days following the occurrence and during the continuation of a
Tax Event or an Investment Company Event (each as defined under "Description of
Preferred Securities -- Redemption"), at the redemption price described below.
The proceeds of any such redemption will be used by the Issuer Trust to redeem
the Preferred Securities.
The redemption price for Junior Subordinated Debentures is the outstanding
principal amount of the Junior Subordinated Debentures plus accrued interest
(including any Additional Interest or any Additional Sums) thereon to but
excluding the date fixed for redemption.
ADDITIONAL SUMS
The Company has covenanted in the Junior Subordinated Indenture that, if
and for so long as (i) the Issuer Trust is the holder of all Junior Subordinated
Debentures and (ii) the Issuer Trust is required to pay any additional taxes,
duties or other governmental charges as a result of a Tax Event, the Company
will pay as additional sums ("Additional Sums") on the Junior Subordinated
Debentures such amounts as may be required so that the Distributions payable by
the Issuer Trust will not be reduced as a result of any such additional taxes,
duties or other governmental charges. See "Description of Preferred Securities
- --Redemption."
REGISTRATION, DENOMINATION AND TRANSFER
The Junior Subordinated Debentures will initially be registered in the name
of the Issuer Trust. If the Junior Subordinated Debentures are distributed to
holders of Preferred Securities, it is anticipated that the depositary
arrangements for the Junior Subordinated Debentures will be substantially
identical to those in effect for the Preferred Securities. See "Description of
Preferred Securities -- Book Entry, Delivery and Form."
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Although DTC has agreed to the procedures described above, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days of receipt of notice from DTC to such effect, the
Company will cause the Junior Subordinated Debentures to be issued in definitive
form.
Payments on Junior Subordinated Debentures represented by a global security
will be made to Cede & Co., the nominee for DTC, as the registered holder of the
Junior Subordinated Debentures, as described under "Description of Preferred
Securities -- Book Entry, Delivery and Form." If Junior Subordinated Debentures
are issued in certificated form, principal and interest will be payable, the
transfer of the Junior Subordinated Debentures will be registrable, and Junior
Subordinated Debentures will be exchangeable for Junior Subordinated Debentures
of other authorized denominations of a like aggregate principal amount, at the
corporate trust office of the Debenture Trustee in New York, New York or at the
offices of any paying agent or transfer agent appointed by the Company, provided
that payment of interest may be made at the option of the Company by check
mailed to the address of the persons entitled thereto. However, a holder of $1
million or more in aggregate principal amount of Junior Subordinated Debentures
may receive payments of interest (other than interest payable at the Stated
Maturity) by wire transfer of immediately available funds upon written request
to the Debenture Trustee not later than 15 calendar days prior to the date on
which the interest is payable.
Junior Subordinated Debentures will be exchangeable for other Junior
Subordinated Debentures of like tenor, of any authorized denominations, and of a
like aggregate principal amount.
Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar appointed under the
Junior Subordinated Debenture or at the office of any transfer agent designated
by the Company for such purpose without service charge and upon payment of any
taxes and other governmental charges as described in the Junior Subordinated
Indenture. The Company will appoint the Debenture Trustee as securities
registrar under the Junior Subordinated Indenture. The Company may at any time
designate additional transfer agents with respect to the Junior Subordinated
Debentures.
In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of the Junior
Subordinated Debentures to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption or (ii) transfer or
exchange any Junior Subordinated Debentures so selected for redemption, except,
in the case of any Junior Subordinated Debentures being redeemed in part, any
portion thereof not to be redeemed.
Any monies deposited with the Debenture Trustee or any paying agent, or
then held by the Company in trust, for the payment of the principal of (and
premium, if any) or interest on any Junior Subordinated Debenture and remaining
unclaimed for two years after such principal (and premium, if any) or interest
has become due and payable shall, at the request of the Company, be repaid to
the Company and the holder of such Junior Subordinated Debenture shall
thereafter look, as a general unsecured creditor, only to the Company for
payment thereof.
RESTRICTIONS ON CERTAIN PAYMENTS; CERTAIN COVENANTS OF THE COMPANY
The Company has covenanted that it will not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu in
all respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Company in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of any one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or stockholder stock purchase plan or in connection with the
issuance of capital stock of
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the Company (or securities convertible into or exercisable or exchangeable for
such capital stock) as consideration in an acquisition transaction entered into
prior to the applicable Extension Period or other event referred to below, (b)
as a result of an exchange or conversion of any class or series of the Company's
capital stock (or any capital stock of a subsidiary of the Company) for any
class or series of the Company's capital stock or of any class or series of the
Company's indebtedness for any class or series of the Company's capital stock,
(c) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged, (d) any declaration of a dividend in
connection with any stockholder's rights plan, or the issuance of rights, stock
or other property under any stockholder's rights plan, or the redemption or
repurchase of rights pursuant thereto, or (e) any dividend in the form of stock,
warrants, options or other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is the same stock as
that on which the dividend is being paid or ranks pari passu with or junior to
such stock), if at such time (i) there has occurred any event (a) of which the
Company has actual knowledge that with the giving of notice or the lapse of
time, or both, would constitute a Debenture Event of Default and (b) that the
Company has not taken reasonable steps to cure, (ii) if the Junior Subordinated
Debentures are held by the Issuer Trust, the Company is in default with respect
to its payment of any obligations under the Guarantee or (iii) the Company has
given notice of its election of an Extension Period as provided in the Junior
Subordinated Indenture and has not rescinded such notice, or such Extension
Period, or any extension thereof, is continuing.
The Company has covenanted in the Junior Subordinated Indenture (i) to
continue to hold, directly or indirectly, 100% of the Common Securities,
provided that certain successors that are permitted pursuant to the Junior
Subordinated Indenture may succeed to the Company's ownership of the Common
Securities, (ii) as holder of the Common Securities, not to voluntarily
terminate, windup or liquidate the Issuer Trust, other than (a) in connection
with a distribution of Junior Subordinated Debentures to the holders of the
Preferred Securities in liquidation of the Issuer Trust or (b) in connection
with certain mergers, consolidations or amalgamations permitted by the Trust
Agreement and (iii) to use its reasonable efforts, consistent with the terms and
provisions of the Trust Agreement, to cause the Issuer Trust to continue not to
be taxable as a corporation for United States federal income tax purposes.
MODIFICATION OF JUNIOR SUBORDINATED INDENTURE
From time to time, the Company and the Debenture Trustee may, without the
consent of any of the holders of the outstanding Junior Subordinated Debentures,
amend, waive or supplement the provisions of the Junior Subordinated Indenture
to: (1) evidence succession of another corporation or association to the Company
and the assumption by such person of the obligations of the Company under the
Junior Subordinated Debentures, (2) add further covenants, restrictions or
conditions for the protection of holders of the Junior Subordinated Debentures,
(3) cure ambiguities or correct the Junior Subordinated Debentures in the case
of defects or inconsistencies in the provisions thereof, so long as any such
cure or correction does not adversely affect the interest of the holders of the
Junior Subordinated Debentures in any material respect, (4) change the terms of
the Junior Subordinated Debentures to facilitate the issuance of the Junior
Subordinated Debentures in certificated or other definitive form, (5) evidence
or provide for the appointment of a successor Debenture Trustee, or (6) qualify,
or maintain the qualification of, the Junior Subordinated Indentures under the
Trust Indenture Act. The Junior Subordinated Indenture contains provisions
permitting the Company and the Debenture Trustee, with the consent of the
holders of not less than a majority in principal amount of the Junior
Subordinated Debentures, to modify the Junior Subordinated Indenture in a manner
affecting the rights of the holders of the Junior Subordinated Debentures,
except that no such modification may, without the consent of the holder of each
outstanding Junior Subordinated Debenture so affected, (i) change the Stated
Maturity of the Junior Subordinated Debentures, or reduce the principal amount
thereof, the rate of interest thereon or any premium payable upon the redemption
thereof, or change the place of payment where, or the currency in which, any
such amount is payable or impair the right to institute suit for the enforcement
of any Junior Subordinated Debenture or (ii) reduce the percentage of principal
amount of Junior Subordinated Debentures, the holders of which are required to
consent to any such modification of the Junior Subordinated Indenture.
Furthermore, so long as any of the Preferred Securities remain outstanding, no
such modification may be made that adversely affects the holders of such
Preferred
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Securities in any material respect, and no termination of the Junior
Subordinated Indenture may occur, and no waiver of any Debenture Event of
Default or compliance with any covenant under the Junior Subordinated Indenture
may be effective, without the prior consent of the holders of at least a
majority of the aggregate Liquidation Amount of the outstanding Preferred
Securities unless and until the principal of (and premium, if any, on) the
Junior Subordinated Debentures and all accrued and unpaid interest thereon have
been paid in full and certain other conditions are satisfied.
DEBENTURE EVENTS OF DEFAULT
The Junior Subordinated Indenture provides that any one or more of the
following described events with respect to the Junior Subordinated Debentures
that has occurred and is continuing constitutes an "Event of Default" with
respect to the Junior Subordinated Debentures:
(i) failure to pay any interest on the Junior Subordinated Debentures when
due 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
(ii) failure to pay any principal of or premium, if any, on the Junior
Subordinated Debentures when due whether at the Stated Maturity or
otherwise; or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Junior Subordinated Indenture for 90 days
after written notice to the Company from the Debenture Trustee or the
holders of at least 25% in aggregate outstanding principal amount of
the outstanding Junior Subordinated Debentures; or
(iv) the Company consents to the appointment of a receiver or other similar
official in any liquidation, insolvency or similar proceeding with
respect to the Company or all or substantially all its property.
For purposes of the Trust Agreement and this Prospectus, each such Event of
Default under the Junior Subordinated Debenture is referred to as a "Debenture
Event of Default." As described in "Description of Preferred Securities --
Events of Default; Notice," the occurrence of a Debenture Event of Default will
also constitute an Event of Default in respect of the Trust Securities.
The holders of at least a majority in aggregate principal amount of
outstanding Junior Subordinated Debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debenture Trustee. The Debenture Trustee or the holders of not less than 25% in
aggregate principal amount of outstanding Junior Subordinated Debentures may
declare the principal due and payable immediately upon a Debenture Event of
Default, and, should the Debenture Trustee or such holders of Junior
Subordinated Debentures fail to make such declaration, the holders of at least
25% in aggregate Liquidation Amount of the outstanding Preferred Securities
shall have such right. The holders of a majority in aggregate principal amount
of outstanding Junior Subordinated Debentures may annul such declaration and
waive the default if all defaults (other than the non-payment of the principal
of Junior Subordinated Debentures which has become due solely by such
acceleration) have been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee. Should the holders of Junior
Subordinated Debentures fail to annul such declaration and waive such default,
the holders of a majority in aggregate Liquidation Amount of the outstanding
Preferred Securities shall have such right.
The holders of at least a majority in aggregate principal amount of the
outstanding Junior Subordinated Debentures affected thereby may, on behalf of
the holders of all the Junior Subordinated Debentures, waive any past default,
except a default in the payment of principal (or premium, if any) or interest
(unless such default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee) or a default in respect of a covenant
or provision which under the Junior Subordinated Indenture cannot be modified or
amended without the consent of the holder of each outstanding Junior
Subordinated Debenture affected thereby. See "-- Modification of Junior
Subordinated Indenture." The Company is required to file annually with the
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Debenture Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Junior Subordinated Indenture.
If a Debenture Event of Default occurs and is continuing, the Property
Trustee will have the right to declare the principal of and the interest on the
Junior Subordinated Debentures, and any other amounts payable under the Junior
Subordinated Indenture, to be forthwith due and payable and to enforce its other
rights as a creditor with respect to the Junior Subordinated Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the date such amounts are
otherwise payable, a registered holder of Preferred Securities may institute a
Direct Action against the Company for enforcement of payment to such holder of
an amount equal to the amount payable in respect of Junior Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount
of the Preferred Securities held by such holder. The Company may not amend the
Junior Subordinated Indenture to remove the foregoing right to bring a Direct
Action without the prior written consent of the holders of all the Preferred
Securities. The Company will have the right under the Junior Subordinated
Indenture to set-off any payment made to such holder of Preferred Securities by
the Company in connection with a Direct Action.
The holders of the Preferred Securities are not able to exercise directly
any remedies available to the holders of the Junior Subordinated Debentures
except under the circumstances described in the preceding paragraph. See
"Description of Preferred Securities -- Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Junior Subordinated Indenture provides that the Company may 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
may consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, unless (i) if
the Company consolidates with or merges into another Person or conveys or
transfers its properties and assets substantially as an entirety to any Person,
the successor Person is organized under the laws of the United States or any
state or the District of Columbia, and such successor Person expressly assumes
the Company's obligations in respect of the Junior Subordinated Debentures; (ii)
immediately after giving effect thereto, no Debenture Event of Default, and no
event which, after notice or lapse of time or both, would constitute a Debenture
Event of Default, has occurred and is continuing; and (iii) certain other
conditions as prescribed in the Junior Subordinated Indenture are satisfied.
The provisions of the Junior Subordinated Indenture do not afford holders
of the Junior Subordinated Debentures protection in the event of a highly
leveraged or other transaction involving the Company that may adversely affect
holders of the Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Junior Subordinated Indenture provides that when, among other things,
all Junior Subordinated Debentures not previously delivered to the Debenture
Trustee for cancellation (i) have become due and payable, (ii) will become due
and payable at the Stated Maturity within one year, and the Company deposits or
causes to be deposited with the Debenture Trustee funds, in trust, for the
purpose and in an amount sufficient to pay and discharge the entire indebtedness
on the Junior Subordinated Debentures not previously delivered to the Debenture
Trustee for cancellation, for the principal (and premium, if any) and interest
to the date of the deposit or to the Stated Maturity, as the case may be, then
the Junior Subordinated Indenture will cease to be of further effect (except as
to the Company's obligations to pay all other sums due pursuant to the Junior
Subordinated Indenture and to provide the officers' certificates and opinions of
counsel described therein), and the Company will be deemed to have satisfied and
discharged the Junior Subordinated Indenture.
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SUBORDINATION
The Junior Subordinated Debentures will be subordinate and junior in right
of payment, to the extent set forth in the Junior Subordinated Indenture, to all
Senior Indebtedness (as defined below) of the Company. If the Company defaults
in the payment of any principal, premium, if any, or interest, if any, or any
other amount payable on any Senior Indebtedness when the same becomes due and
payable, whether at maturity or at a date fixed for redemption or by declaration
of acceleration or otherwise, then, unless and until such default has been cured
or waived or has ceased to exist or all Senior Indebtedness has been paid, no
direct or indirect payment (in cash, property, securities, by setoff or
otherwise) may be made or agreed to be made on the Junior Subordinated
Debentures, or in respect of any redemption, repayment, retirement, purchase or
other acquisition of any of the Junior Subordinated Debentures.
As used herein, "Senior Indebtedness" means, whether recourse is to all or
a portion of the assets of the Company and whether or not contingent, (i) every
obligation of the Company for money borrowed; (ii) every obligation of the
Company evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of the Company with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of the Company; (iv) every obligation of the Company issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of the Company; (vi) every
obligation of the Company for claims (as defined in Section 101(4) of the United
States Bankruptcy Code of 1978, as amended) in respect of derivative products
such as interest and foreign exchange rate contracts, commodity contracts and
similar arrangements; and (vii) every obligation of the type referred to in
clauses (i) through (vi) of another person and all dividends of another person
the payment of which, in either case, the Company has guaranteed or is
responsible or liable, directly or indirectly, as obligor or otherwise; provided
that Senior Indebtedness shall not include (i) any obligations which, by their
terms, are expressly stated to rank pari passu in right of payment with, or to
not be superior in right of payment to, the Junior Subordinated Debentures, (ii)
any Senior Indebtedness of the Company which when incurred and without respect
to any election under Section 1111(b) of the United States Bankruptcy Code of
1978, as amended, was without recourse to the Company, (iii) any indebtedness of
the Company to any of its subsidiaries, (iv) indebtedness to any executive
officer or director of the Company, or (v) any indebtedness in respect of debt
securities issued to any trust, or a trustee of such trust, partnership or other
entity affiliated with the Company that is a financing entity of the Company in
connection with the issuance of such financing entity of securities that are
similar to the Preferred Securities.
In the event of (i) certain events of bankruptcy, dissolution or
liquidation of the Company or the holder of the Common Securities, (ii) any
proceeding for the liquidation, dissolution or other winding up of the Company,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (iii) any assignment by the Company for the benefit of creditors or
(iv) any other marshalling of the assets of the Company, all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made on account of the
Junior Subordinated Debentures. In such event, any payment or distribution on
account of the Junior Subordinated Debentures, whether in cash, securities or
other property, that would otherwise (but for the subordination provisions) be
payable or deliverable in respect of the Junior Subordinated Debentures will be
paid or delivered directly to the holders of Senior Indebtedness in accordance
with the priorities then existing among such holders until all Senior
Indebtedness (including any interest thereon accruing after the commencement of
any such proceedings) has been paid in full.
In the event of any such proceeding, after payment in full of all sums
owing with respect to Senior Indebtedness, the holders of Junior Subordinated
Debentures, together with the holders of any obligations of the Company ranking
on a parity with the Junior Subordinated Debentures, will be entitled to be paid
from the remaining assets of the Company the amounts at the time due and owing
on the Junior Subordinated Debentures and such other obligations before any
payment or other distribution, whether in cash, property or otherwise, will be
made on account of any capital stock or obligations of the Company ranking
junior to the Junior Subordinated Debentures and such other obligations. If any
payment or distribution on account of the
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Junior Subordinated Debentures of any character or any security, whether in
cash, securities or other property is received by any holder of any Junior
Subordinated Debentures in contravention of any of the terms hereof and before
all the Senior Indebtedness has been paid in full, such payment or distribution
or security will be received in trust for the benefit of, and must be paid over
or delivered and transferred to, the holders of the Senior Indebtedness at the
time outstanding in accordance with the priorities then existing among such
holders for application to the payment of all Senior Indebtedness remaining
unpaid to the extent necessary to pay all such Senior Indebtedness in full. By
reason of such subordination, in the event of the insolvency of the Company,
holders of Senior Indebtedness may receive more, ratably, and holders of the
Junior Subordinated Debentures may receive less, ratably, than the other
creditors of the Company. Such subordination will not prevent the occurrence of
any Event of Default in respect of the Junior Subordinated Debentures.
The Junior Subordinated Indenture places no limitation on the amount of
additional Senior Indebtedness that may be incurred by the Company. The Company
expects from time to time to incur additional indebtedness constituting Senior
Indebtedness.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee, other than during the occurrence and continuance of
a default by the Company in performance of its obligations under the Junior
Subordinated Debenture, is under no obligation to exercise any of the powers
vested in it by the Junior Subordinated Indenture at the request of any holder
of Junior Subordinated Debentures, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities that might be incurred
thereby. The Debenture Trustee is not required to expend or risk its own funds
or otherwise incur personal financial liability in the performance of its duties
if the Debenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
GOVERNING LAW
The Junior Subordinated Indenture and the Junior Subordinated Debentures
will be governed by and construed in accordance with the laws of the State of
New York.
DESCRIPTION OF GUARANTEE
The Guarantee will be executed and delivered by the Company concurrently
with the issuance of Preferred Securities by the Issuer Trust for the benefit of
the holders from time to time of the Preferred Securities. Bankers Trust Company
will act as Guarantee Trustee under the Guarantee. This summary of certain
provisions of the Guarantee does not purport to be complete and is subject to,
and qualified in its entirety by reference to, all the provisions of the
Guarantee, including the definitions therein of certain terms. A copy of the
form of Guarantee is available upon request from the Guarantee Trustee. The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
Preferred Securities.
GENERAL
The Company will irrevocably and unconditionally agree to pay in full on a
subordinated basis, to the extent set forth in the Guarantee and described
herein, the Guarantee Payments (as defined below) to the holders of the
Preferred Securities, as and when due, regardless of any defense, right of
set-off or counterclaim that the Issuer Trust may have or assert other than the
defense of payment. The following payments with respect to the Preferred
Securities, to the extent not paid by or on behalf of the Issuer Trust (the
"Guarantee Payments"), will be subject to the Guarantee: (i) any accrued and
unpaid Distributions required to be paid on such Preferred Securities, to the
extent that the Issuer Trust has funds on hand available therefor at such time,
(ii) the Redemption Price with respect to any Preferred Securities called for
redemption, to the extent that the Issuer Trust has funds on hand available
therefor at such time, and (iii) upon a voluntary or involuntary termination,
winding up or liquidation of the Issuer Trust (unless the Junior Subordinated
Debentures are distributed to holders of the Preferred Securities), the lesser
of (a) the aggregate of the Liquidation Amount and all accumulated and unpaid
Distributions to the date of payment, to the extent that the Issuer Trust has
funds on hand available therefor at such time, and (b) the amount of assets of
the Issuer Trust remaining
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available for distribution to holders of the Preferred Securities on liquidation
of the Issuer Trust. The Company's obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by the Company to the
holders of the Preferred Securities or by causing the Issuer Trust to pay such
amounts to such holders.
The Guarantee will be an irrevocable guarantee of payment on a subordinated
basis of the Issuer Trust's obligations under the Preferred Securities, but will
apply only to the extent that the Issuer Trust has funds sufficient to make such
payments, and is not a guarantee of collection.
If the Company does not make payments on the Junior Subordinated Debentures
held by the Issuer Trust, the Issuer Trust will not be able to pay any amounts
payable in respect of the Preferred Securities and will not have funds legally
available therefor. The Guarantee will rank subordinate and junior in right of
payment to all Senior Indebtedness of the Company. See "-- Status of the
Guarantee." The Guarantee does not limit the incurrence or issuance of other
secured or unsecured debt of the Company, including Senior Indebtedness, whether
under the Junior Subordinated Indenture, any other indenture that the Company
may enter into in the future or otherwise.
The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture, taken together,
fully, irrevocably and unconditionally guaranteed all the Issuer Trust's
obligations under the Preferred Securities on a subordinated basis. No single
document standing alone or operating in conjunction with fewer than all the
other documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer Trust's obligations in respect of the
Preferred Securities. See "Relationship Among the Preferred Securities, the
Junior Subordinated Debentures and the Guarantee."
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior Indebtedness
of the Company in the same manner as the Junior Subordinated Debentures.
The Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Preferred Securities. The Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by the Issuer
Trust or distribution to the holders of the Preferred Securities of the Junior
Subordinated Debentures.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Preferred Securities (in which case no consent will
be required), the Guarantee may not be amended without the prior approval of the
holders of not less than a majority of the aggregate Liquidation Amount of the
outstanding Preferred Securities. The manner of obtaining any such approval will
be as set forth under "Description of Preferred Securities -- Voting Rights;
Amendment of Trust Agreement." All guarantees and agreements contained in the
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the holders of
the Preferred Securities then outstanding.
EVENTS OF DEFAULT; RIGHTS OF HOLDERS OF PREFERRED SECURITIES
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder, or to
perform any non-payment obligation if such non-payment default remains
unremedied for 30 days.
The holders of not less than a majority in aggregate Liquidation Amount of
the outstanding Preferred Securities have the right to direct the time, method
and place of conducting any proceeding for any remedy
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available to the Guarantee Trustee in respect of the Guarantee or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under the
Guarantee.
Any registered holder of Preferred Securities may institute a legal
proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Issuer Trust,
the Guarantee Trustee or any other person or entity.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with all
the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of
a default by the Company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the Guarantee and, after the
occurrence of an event of default with respect to the Guarantee, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by the
Guarantee at the request of any holder of the Preferred Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the Preferred Securities, upon full
payment of the amounts payable with respect to the Preferred Securities upon
liquidation of the Issuer Trust or upon distribution of Junior Subordinated
Debentures to the holders of the Preferred Securities in exchange for all of the
Preferred Securities. The Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of the Preferred
Securities must restore payment of any sums paid under the Preferred Securities
or the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Preferred Securities
(to the extent the Issuer Trust has funds available for such payment) are
irrevocably guaranteed, on a subordinated basis, by the Company as and to the
extent set forth under "Description of Guarantee." Taken together, the Company's
obligations under the Junior Subordinated Debentures, the Junior Subordinated
Indenture, the Trust Agreement and the Guarantee provide, in the aggregate, a
full, irrevocable and unconditional guarantee of payments of Distributions and
other amounts due on the Preferred Securities. No single document standing alone
or operating in conjunction with fewer than all the other documents constitutes
such guarantee. It is only the combined operation of these documents that has
the effect of providing full, irrevocable and unconditional guarantee of the
Issuer Trust's obligations in respect of the Preferred Securities. If and to the
extent that the Company does not make payments on the Junior Subordinated
Debentures, the Issuer Trust will not have sufficient funds to pay Distributions
or other amounts due on the Preferred Securities. The Guarantee does not cover
payment of amounts payable with respect to the Preferred Securities when the
Issuer Trust does not have sufficient funds to pay such amounts. In such event,
the remedy of a holder of the Preferred Securities is to institute a legal
proceeding directly against the Company for enforcement of payment of the
Company's obligations under Junior Subordinated Debentures having a principal
amount equal to the Liquidation Amount of the Preferred Securities held by such
holder.
The obligations of the Company under the Junior Subordinated Debentures and
the Guarantee are subordinate and junior in right of payment to all Senior
Indebtedness.
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SUFFICIENCY OF PAYMENTS
As long as payments are made when due on the Junior Subordinated
Debentures, such payments will be sufficient to cover Distributions and other
payments distributable on the Preferred Securities, primarily because (i) the
aggregate principal amount of the Junior Subordinated Debentures will be equal
to the sum of the aggregate stated Liquidation Amount of the Preferred
Securities and Common Securities; (ii) the interest rate and interest and other
payment dates on the Junior Subordinated Debentures will match the Distribution
rate, Distribution Dates and other payment dates for the Preferred Securities;
(iii) the Company will pay for any and all costs, expenses and liabilities of
the Issuer Trust except the Issuer Trust's obligations to holders of the Trust
Securities; and (iv) the Trust Agreement further provides that the Issuer Trust
will not engage in any activity that is not consistent with the limited purposes
of the Issuer Trust.
Notwithstanding anything to the contrary in the Junior Subordinated
Indenture, the Company has the right to set-off any payment it is otherwise
required to make thereunder against and to the extent the Company has
theretofore made, or is concurrently on the date of such payment making, a
payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES
A holder of any Preferred Security may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Guarantee Trustee, the Issuer
Trust or any other person or entity. See "Description of Guarantee."
A default or event of default under any Senior Indebtedness of the Company
would not constitute a default or Event of Default in respect of the Preferred
Securities. However, in the event of payment defaults under, or acceleration of,
Senior Indebtedness of the Company, the subordination provisions of the Junior
Subordinated Indenture provide that no payments may be made in respect of the
Junior Subordinated Debentures until such Senior Indebtedness has been paid in
full or any payment default thereunder has been cured or waived. See
"Description of Junior Subordinated Debentures -- Subordination."
LIMITED PURPOSE OF ISSUER TRUST
The Preferred Securities represent preferred undivided beneficial interests
in the assets of the Issuer Trust, and the Issuer Trust exists for the sole
purpose of issuing its Preferred Securities and Common Securities and investing
the proceeds thereof in Junior Subordinated Debentures. A principal difference
between the rights of a holder of a Preferred Security and a holder of a Junior
Subordinated Debenture is that a holder of a Junior Subordinated Debenture is
entitled to receive from the Company payments on Junior Subordinated Debentures
held, while a holder of Preferred Securities is entitled to receive
Distributions or other amounts distributable with respect to the Preferred
Securities from the Issuer Trust (or from the Company under the Guarantee) only
if and to the extent the Issuer Trust has funds available for the payment of
such Distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution of the Issuer Trust, other
than any such dissolution involving the distribution of the Junior Subordinated
Debentures, after satisfaction of liabilities to creditors of the Issuer Trust
as required by applicable law, the holders of the Preferred Securities will be
entitled to receive, out of assets held by the Issuer Trust, the Liquidation
Distribution in cash. See "Description of Preferred Securities -- Liquidation
Distribution Upon Dissolution." Upon any voluntary or involuntary liquidation or
bankruptcy of the Company, the Issuer Trust, as registered holder of the Junior
Subordinated Debentures, would be a subordinated creditor of the Company,
subordinated and junior in right of payment to all Senior Indebtedness as set
forth in the Junior Subordinated Indenture, but entitled to receive payment in
full of all amounts payable with respect to the Junior Subordinated Debentures
before any stockholders of the Company receive payments or distributions. Since
the Company is the guarantor under the Guarantee and has agreed under the Junior
Subordinated Indenture to pay for all costs, expenses and liabilities of the
Issuer Trust (other than the Issuer Trust's obligations to the holders of the
Trust Securities), the positions of a holder of
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the Preferred Securities and a holder of such Junior Subordinated Debentures
relative to other creditors and to stockholders of the Company in the event of
liquidation or bankruptcy of the Company are expected to be substantially the
same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations thereunder, and administrative and judicial
interpretations thereof, each as of the date hereof, all of which are subject to
change, possibly on a retroactive basis. The authorities on which this summary
is based are subject to various interpretations, and the opinions of Tax Counsel
are not binding on the Internal Revenue Service (the "IRS") or the courts,
either of which could take a contrary position. Moreover, no rulings have been
or will be sought from the IRS with respect to the transactions described
herein. Accordingly, there can be no assurance that the IRS will not challenge
the opinions expressed herein or that a court would not sustain such a
challenge.
Except as otherwise stated, this summary deals only with the Preferred
Securities held as a capital asset by a holder who or which (i) purchased the
Preferred Securities upon original issuance (an "Initial Holder") at their
original offering price and (ii) is a US Holder (as defined below). This summary
does not address all the tax consequences that may be relevant to a US Holder,
nor does it address the tax consequences, except as stated below, to holders
that are not US Holders ("Non-US Holders") or to holders that may be subject to
special tax treatment (such as banks, thrift institutions, real estate
investment trusts, regulated investment companies, insurance companies, brokers
and dealers in securities or currencies, other financial institutions,
tax-exempt organizations, persons holding the Preferred Securities as a position
in a "straddle," or as part of a "synthetic security," "hedging," as part of a
"conversion" or other integrated investment, persons having a functional
currency other than the U.S. Dollar and certain United States expatriates).
Further, this summary does not address (a) the income tax consequences to
shareholders in, or partners or beneficiaries of, a holder of the Preferred
Securities, (b) the United States federal alternative minimum tax consequences
of the purchase, ownership or disposition of the Preferred Securities, or (c)
any state, local or foreign tax consequences of the purchase, ownership and
disposition of Preferred Securities.
A "US Holder" is a holder of the Preferred Securities who or which is (i) a
citizen or individual resident (or is treated as a citizen or individual
resident) of the United States for income tax purposes, (ii) a corporation or
partnership created or organized (or treated as created or organized for income
tax purposes) in or under the laws of the United States or any political
subdivision thereof, (iii) an estate the income of which is includible in its
gross income for United States federal income tax purposes without regard to its
source, or (iv) a trust if (a) a court within the United States is able to
exercise primary supervision over the administration of the trust and (b) one or
more United States trustees have the authority to control all substantial
decisions of the trust.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER
TAX LAWS.
US HOLDERS
CHARACTERIZATION OF THE ISSUER TRUST. In connection with the issuance of
the Preferred Securities, Tax Counsel will render its opinion generally to
effect that, under then current law and based on the representations, facts and
assumptions set forth in this Prospectus, and assuming full compliance with the
terms of the Trust Agreement (and other relevant documents), and based on
certain assumptions and qualifications referenced in the opinion, the Issuer
Trust will be characterized for United States federal income tax purposes as a
grantor trust and will not be characterized as an association taxable as a
corporation. Accordingly, for
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United States federal income tax purposes, each holder of the Preferred
Securities generally will be considered the owner of an undivided interest in
the Junior Subordinated Debentures and each US Holder will be required to
include in gross income all interest on (OID accrued) or gain recognized for
United States federal income tax purposes with respect to its allocable share of
the Junior Subordinated Debentures.
CHARACTERIZATION OF THE JUNIOR SUBORDINATED DEBENTURES. The Company and the
Issuer Trust will agree to treat the Junior Subordinated Debentures as
indebtedness for all United States federal income tax purposes. In connection
with the issuance of the Junior Subordinated Debentures, Tax Counsel will render
its opinion generally to the effect that, under then current law and based on
the representations, facts and assumptions set forth in this Prospectus, and
assuming full compliance with the terms of the Junior Subordinated Indenture
(and other relevant documents) and based on certain assumptions and
qualifications referenced in the opinion, the Junior Subordinated Debentures
will be characterized for United States federal income tax purposes as debt of
the Company.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT. Under recently issued Treasury
regulations (the "Regulations") applicable to all debt instruments that, like
the Junior Subordinated Debentures, are issued on or after August 13, 1996,
remote contingencies that stated interest will not be timely paid are ignored in
determining whether a debt instrument is issued with OID, which determination
depends in part on whether interest is "unconditionally payable" on the debt
instrument. OID must be included in income by all holders as it accrues
economically on a daily basis, without regard to when it is paid in cash or
whether a particular holder generally uses the cash method of accounting. The
Company has concluded that the likelihood of its exercising its option to defer
payments of interest is remote. This conclusion is based on the Company's
analysis, as of the date of issue of the Junior Subordinated Debentures, of
various facts and circumstances deemed relevant to exercising such deferral
option, including, among other things, the inability of the Company to declare
dividends on its stock while interest on the Junior Subordinated Debentures is
being deferred, and the likely impact of the non-payment of dividends upon the
ratings of the Company's securities if the deferral option is exercised. Based
upon this conclusion and in the absence of any specific definition of "remote"
in the applicable income tax regulations, the Company intends to take the
position that the Junior Subordinated Debentures do not include OID. As a
consequence, holders of the Preferred Securities should report interest under
their own methods of accounting (e.g., cash or accrual) instead of under the
daily economic accrual rules for OID instruments.
Under the Regulations, if the Company exercises its option to defer
payments of interest, the Junior Subordinated Debentures would be treated as
redeemed and reissued for OID purposes and the sum of the remaining interest
payments (and any de minimis OID) on the Junior Subordinated Debentures would
thereafter be treated as OID, which would accrue, and be includible in a US
Holder's taxable income, on an economic accrual basis (regardless of the US
Holder's method of accounting for income tax purposes) over the remaining term
of the Junior Subordinated Debentures (including any period of interest
deferral), without regard to the timing of payments under the Junior
Subordinated Debentures. A holder who disposes of the Preferred Securities
during such a Deferral Period may suffer a loss because the market value of the
Preferred Securities will likely fall if the Company exercises its option to
defer payments of interest on the Junior Subordinated Debentures. Furthermore,
the market value of the Preferred Securities may not reflect the accumulated
distribution that will be paid at the end of the Deferral Period, and a holder
who sells the Preferred Securities during the Deferral Period will not receive
from the Company any cash related to the interest (OID) income the holder
accrued and included in its taxable income under the OID rules (because that
cash will be paid to the holder of record at the end of the Deferral Period).
If the possibility of the Company's exercise of its option to defer
payments of interest is not remote, the Junior Subordinated Debentures would be
treated as initially issued with OID in an amount equal to the aggregate stated
interest (plus any de minimis OID) over the term of the Junior Subordinated
Debentures. That OID would generally be includible in a US Holder's taxable
income, over the term of the Junior Subordinated Debentures, on an economic
accrual basis.
The Regulations have not been addressed in any rulings or other
interpretations by the Internal Revenue Service other than the preamble to the
Treasury Decision that issued the new Regulations, which added the
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concept of "remote contingencies" to existing definitions used to determine
whether interest payable under a debt instrument is "unconditionally payable."
The new Regulations could be viewed as a favorable reversal of the Internal
Revenue Service's previous position, as expressed in a 1995 Revenue Ruling that
has not been withdrawn. It is possible that the IRS could take a position
contrary to the interpretation herein.
CHARACTERIZATION OF INCOME. Because the income underlying the Preferred
Securities will not be characterized as dividends for income tax purposes,
corporate holders of the Preferred Securities will not be entitled to a
dividends-received deduction for any income recognized with respect to the
Preferred Securities.
MARKET DISCOUNT AND BOND PREMIUM. Holders of the Preferred Securities other
than Initial Holders may be considered to have acquired their undivided
interests in the Junior Subordinated Debentures with market discount or
acquisition premium (as each phrase is defined for United States federal income
tax purposes).
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE
ISSUER TRUST. Under certain circumstances described herein (See "Description of
the Preferred Securities -- Liquidation Distribution Upon Dissolution"), the
Issuer Trust may distribute the Junior Subordinated Debentures to holders in
exchange for the Preferred Securities and in liquidation of the Issuer Trust.
Except as discussed below, such a distribution would not be a taxable event for
United States federal income tax purposes, and each US Holder would have an
aggregate adjusted basis in its Junior Subordinated Debentures for United States
federal income tax purposes equal to such holder's aggregate adjusted basis in
its Preferred Securities. For United States federal income tax purposes, a US
Holder's holding period in the Junior Subordinated Debentures received in such a
liquidation of the Issuer Trust would include the period during which the
Preferred Securities were held by the holder. If, however, the relevant event is
a Tax Event which results in the Issuer Trust being treated as an association
taxable as a corporation, the distribution would constitute a taxable event to
both the Issuer Trust and US Holders of the Preferred Securities for United
States federal income tax purposes.
Under certain circumstances described herein (see "Description of the
Preferred Securities"), the Junior Subordinated Debentures may be redeemed for
cash and the proceeds of such redemption distributed to holders in redemption of
their Preferred Securities. Such a redemption would be taxable for United States
federal income tax purposes, and a US Holder would recognize gain or loss as if
it had sold the Preferred Securities for cash. See "-- Sales of Preferred
Securities" below.
SALES OF PREFERRED SECURITIES. A holder that sells Preferred Securities
will recognize gain or loss equal to the difference between its adjusted tax
basis in the Preferred Securities and the amount realized on the sale of such
Preferred Securities. To the extent of any accrued but unpaid interest the
amount realized on the sale of such Preferred Securities will be treated as
ordinary income. Assuming the Company does not defer interest on the Junior
Subordinated Debentures by extending the interest payment period, a holder's
adjusted tax basis in the Preferred Securities generally will equal its initial
purchase price. Subject to the market discount rules described above and the
discussion below regarding accrued and unpaid interest, such gain or loss
generally will be a capital gain or loss and generally will be a long-term
capital gain or loss if the Preferred Securities have been held for more than
one year.
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying Junior
Subordinated Debentures. If the Company exercises its right to defer payments of
interest, the Junior Subordinated Debentures will become OID instruments and a
holder who disposes of Preferred Securities between record dates for payments of
distributions thereon will be required to include in income as ordinary income,
accrued and unpaid interest on the Junior Subordinated Debentures through the
date of disposition, and to add such amount to such holder's adjusted tax basis
in its pro rata share of the underlying Junior Subordinated Debentures deemed
disposed of. To the extent the selling price is less than the holder's adjusted
tax basis (which will include all accrued but unpaid interest) a holder will
recognize a capital loss. Subject to certain limited exceptions, capital losses
cannot be applied to offset ordinary income for United States federal income tax
purposes. Accrual basis taxpayers would be subjected to similar treatment
without regard to the Company's election to defer.
79
<PAGE> 81
PROPOSED TAX LAW CHANGES
On February 6, 1997, President Clinton released his budget proposals for
fiscal year 1998. One Tax Proposal therein would generally deny corporate
issuers a deduction for interest related to certain debt obligations that have a
maximum term in excess of 15 years and are not shown as indebtedness on the
separate balance sheet of the issuer or, where the instrument is issued to a
related party (other than a corporation), where the holder of some other related
party issues a related instrument that is not shown as indebtedness on the
issuer's consolidated balance sheet. As drafted, the Tax Proposal would be
effective generally for instruments issued on or after the date of first
Congressional committee action. The House of Representatives has passed the
Revenue Act, which does not contain any provision similar to the Tax Proposal
except for debt instruments payable in stock of the issuer or a related party.
The Junior Subordinated Debentures were described in a filing with the
Securities and Exchange Commission made prior to June 8, 1997 and such filing
was required solely by reason of their distribution. The version of the Revenue
Act passed by the Senate does not contain any provision similar to the Tax
Proposal denying the deduction of interest on debt instruments because they may
contain equity features. Accordingly, the Revenue Act in its current form, as
passed by the House of Representatives and the Senate, does not apply to the
Junior Subordinated Debentures. There can be no assurance, however, that the
Revenue Act, if enacted, will be enacted as currently drafted rule or that other
legislation enacted after the date hereof will not adversely affect the tax
treatment of the Junior Subordinated Debentures or cause a Tax Event, resulting
in the distribution of the Junior Subordinated Debentures to holders of
Preferred Securities. See "Description of Preferred Securities -- Redemption."
NON-US HOLDERS
The following discussion applies to a Non-US Holder.
Payments to a holder of a Preferred Security which is a Non-US Holder will
generally not be subject to withholding of income tax, provided that (a) the
beneficial owner of the Preferred Security does not (directly or indirectly,
actually or constructively) own 10% or more of the total combined voting power
of all classes of stock of the Company entitled to vote, (b) the beneficial
owner of the Preferred Security is not a controlled foreign corporation that is
related to the Company through stock ownership, and (c) either (i) the
beneficial owner of the Preferred Securities certifies to the Issuer Trust or
its agent, under penalties of perjury, that it is a Non-US Holder and provides
its name and address, or (ii) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business (a "Financial Institution"), and holds the Preferred
Security in such capacity, certifies to the Issuer Trust or its agent, under
penalties of perjury, that such a statement has been received from the
beneficial owner by it or by another Financial Institution between it and the
beneficial owner in the chain of ownership, and furnishes the Issuer Trust or
its agent with a copy thereof.
As discussed above (see "-- Proposed Tax Law Changes"), changes in
legislation affecting the income tax consequences of the Junior Subordinated
Debentures are possible, and could adversely affect the ability of the Company
to deduct the interest payable on the Junior Subordinated Debentures. Moreover,
any such legislation could adversely affect Non-US Holders by characterizing
income derived from the Junior Subordinated Debentures as dividends, generally
subject to a 30% income tax (on a withholding basis) when paid to a Non-US
Holder, rather than as interest which, as discussed above, is generally exempt
from income tax in the hands of a Non-US Holder.
A Non-US Holder of a Preferred Security will generally not be subject to
withholding of income tax on any gain realized upon the sale or other
disposition of a Preferred Security.
A Non-US Holder which holds the Preferred Securities in connection with the
active conduct of a United States trade or business will be subject to income
tax on all income and gains recognized with respect to its proportionate share
of the Junior Subordinated Debentures.
80
<PAGE> 82
INFORMATION REPORTING
In general, information reporting requirements will apply to payments made
on, and proceeds from the sale of, the Preferred Securities held by a
noncorporate US Holder within the United States. In addition, payments made on,
and payments of the proceeds from the sale of, the Preferred Securities to or
through the United States office of a broker are subject to information
reporting unless the holder thereof certifies as to its Non-United States status
or otherwise establishes an exemption from information reporting and backup
withholding. See "-- Backup Withholding." Taxable income on the Preferred
Securities for a calendar year should be reported to US Holders on the
appropriate forms (Forms 1099) by the following January 31st.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Preferred Securities
may be subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification or exemption requirements. Any amounts so withheld
will be allowed as a credit against the holder's income tax liability, or
refunded, provided the required information is provided to the IRS.
THE PRECEDING DISCUSSION IS ONLY A SUMMARY AND DOES NOT ADDRESS THE
CONSEQUENCES TO A PARTICULAR HOLDER OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF THE PREFERRED SECURITIES. POTENTIAL HOLDERS OF THE PREFERRED SECURITIES ARE
URGED TO CONTACT THEIR OWN TAX ADVISORS TO DETERMINE THEIR PARTICULAR TAX
CONSEQUENCES.
CERTAIN ERISA CONSIDERATIONS
The Company and certain affiliates of the Company may each be considered a
"party in interest" within the meaning of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or a "disqualified person" within the
meaning of Section 4975 of the Code with respect to certain employee benefit
plans ("Plans") that are subject to ERISA or Section 4975 of the Code. The
purchase of the Preferred Securities by a Plan that is subject to the fiduciary
responsibility provisions of ERISA or the prohibited transaction provisions of
Section 4975(e)(1) of the Code and with respect to which the Company, or any
affiliate of the Company is a service provider (or otherwise is a party in
interest or a disqualified person) may constitute or result in a prohibited
transaction under ERISA or Section 4975 of the Code, unless the Preferred
Securities are acquired pursuant to and in accordance with an applicable
exemption. Any pension or other employee benefit plan proposing to acquire any
Preferred Securities should consult with its counsel.
81
<PAGE> 83
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") dated , 1997, among the Company, the Issuer
Trust and the underwriters named therein (the "Underwriters"), for whom Advest,
Inc. and EVEREN Securities, Inc. are acting as Representatives, the Issuer Trust
has agreed to sell to the Underwriters, and the Underwriters have severally
agreed to purchase from the Issuer Trust, the following respective aggregate
Liquidation Amount of Preferred Securities at the public offering price:
<TABLE>
<CAPTION>
LIQUIDATION AMOUNT OF
UNDERWRITER: PREFERRED SECURITIES:
------------ ---------------------
<S> <C>
Advest, Inc................................................. $
EVEREN Securities, Inc......................................
-----------
Total....................................................... $82,500,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the Preferred Securities offered hereby if any
of such Preferred Securities are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the Preferred Securities to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not in excess of $ per Preferred Security. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per Preferred Security to certain other dealers. After the public
offering, the offering price and other selling terms may be changed by the
Underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to an
additional $12,375,000 aggregate Liquidation Amount of the Preferred Securities
at the public offering price. To the extent that the Underwriters exercise such
option, the Company will be obligated, pursuant to the option, to sell such
Preferred Securities to the Underwriters. The Underwriters may exercise such
option only to cover over-allotments made in connection with the sale of the
Preferred Securities offered hereby. If purchased, the Underwriters will offer
such additional Preferred Securities on the same terms as those on which the
$82,500,000 aggregate Liquidation Amount of the Preferred Securities are being
offered. The Company has further agreed not to otherwise sell any securities
substantially similar to the Preferred Securities during the 180 day period
following the completion of the sale of the Preferred Securities.
In connection with the offering of the Preferred Securities, the
Underwriters and any selling group members and their respective affiliates may
engage in transactions effected in accordance with Rule 104 of the Securities
and Exchange Commission's Regulation M that are intended to stabilize, maintain
or otherwise affect the market price of the Preferred Securities. Such
transactions may include over-allotment transactions in which the Underwriters
create a short position for their own account by selling more Preferred
Securities than they are committed to purchase from the Issuer Trust. In such a
case, to cover all or part of the short position, the Underwriters may exercise
the over-allotment option described above or may purchase Preferred Securities
in the open market following completion of the initial offering of the Preferred
Securities. The Underwriters also may engage in stabilizing transactions in
which they bid for, and purchase, shares of the Preferred Securities at a level
above that which might otherwise prevail in the open market for the purpose of
preventing or retarding a decline in the market price of the Preferred
Securities. The Underwriters also may reclaim any selling concessions allowed to
an Underwriter or dealer if the Underwriters repurchase shares distributed by
that Underwriter or dealer. Any of the foregoing transactions may result in the
maintenance of a price for the Preferred Securities at a level above that which
might otherwise prevail in the open market. Neither the Company nor any of the
Underwriters makes any representation or prediction as to the direction
82
<PAGE> 84
or magnitude of any effect that the transactions described above may have on the
price of the Preferred Securities. The Underwriters are not required to engage
in any of the foregoing transactions and, if commenced, such transactions may be
discontinued at any time without notice.
In view of the fact that the proceeds from the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures issued by
the Company, the Underwriting Agreement provides that the Company will pay as
compensation for the Underwriter's arranging the investment therein of such
proceeds an amount of $. per Preferred Security (or $ ($ if the
over-allotment option is exercised in full) in the aggregate).
Because the National Association of Securities Dealers, Inc. ("NASD") is
expected to view the Preferred Securities as interests in a direct participation
program, the offering of the Preferred Securities is being made in compliance
with the applicable provisions of Rule 2810 of the NASD's Conduct Rules.
The Company has made application to list the Preferred Securities on the
NYSE. However, there can be no assurance that an active trading market for the
Preferred Securities will develop or continue or that the market price of the
Preferred Securities will not decline below the price to public set forth on the
cover page of this Prospectus. If such application is approved, trading in the
Preferred Securities is expected to commence within a 30-day period after the
initial delivery of the Preferred Securities.
The Company and the Issuer Trust have each agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
Certain of the Underwriters may in the future perform various services to
the Company, including investment banking services, for which they may receive
customary fees for such services.
83
<PAGE> 85
VALIDITY OF SECURITIES
The validity of the Guarantee and the Junior Subordinated Debentures and
certain tax matters will be passed upon for the Company by LeBoeuf, Lamb, Greene
& MacRae, L.L.P., a limited liability partnership including professional
corporations, New York, New York, and certain legal matters will be passed upon
for the Underwriters by Arnold & Porter, Washington, D.C. and New York, New
York. Certain matters of Delaware law relating to the validity of the Preferred
Securities, the enforceability of the Trust Agreement and the creation of the
Issuer Trust will be passed upon by Richards, Layton & Finger, special Delaware
counsel to the Company and the Issuer Trust. LeBoeuf, Lamb, Greene & MacRae,
L.L.P. and Arnold & Porter will rely as to certain matters of Delaware law on
the opinion of Richards, Layton & Finger.
EXPERTS
The consolidated financial statements and the related financial statement
schedules of the Company incorporated by reference in its Annual Report of Form
10-K for the year ended December 31, 1996, have been audited by Deloitte &
Touche LLP, independent auditors, as set forth in their reports thereon
incorporated by reference or set forth therein and incorporated herein by
reference in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, 13th Floor, Suite
1300, New York, New York 10048 and Suite 1400, Citicorp Center, 14th Floor, 500
West Madison Street, Chicago, Illinois 60661. Copies of such material can also
be obtained at prescribed rates by writing to the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material
also may be accessed electronically by means of the Commission's home page on
the Internet at http://www.sec.gov. The Common Stock of the Company is listed on
the New York Stock Exchange and such reports, proxy statements, and other
information concerning the Company can be inspected at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
The Company has filed a Registration Statement on Form S-3 (the
"Registration Statement") with the Commission pursuant to the Securities Act
with respect to the Preferred Securities, the Debentures, and the Guarantee.
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules filed as a part thereof,
as permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Preferred Securities, the
Debentures, and the Guarantee, reference is hereby made to the Registration
Statement, including the exhibits and schedules filed as a part thereof.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to herein are not necessarily complete and where such
contract or other document is an exhibit to the Registration Statement, each
such statement is qualified in all respects by the provisions of such exhibit,
to which reference is hereby made for a full statement of the provisions
thereof. The Registration Statement, including the exhibits and schedules filed
as a part thereof, may be inspected without charge at the public reference
facilities maintained by the Commission as set forth in the preceding paragraph.
Copies of these documents may be obtained at prescribed rates from the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549.
No separate financial statements of the Issuer Trust have been included or
incorporated by reference herein. The Company and the Issuer Trust do not
consider that such financial statements would be material to holders of the
Preferred Securities because the Issuer Trust is a newly formed special purpose
entity, has no operating history or independent operations and is not engaged in
and does not propose to engage in any activity other than holding as trust
assets the Junior Subordinated Debentures and issuing the Trust Securities.
84
<PAGE> 86
See "AICI Capital Trust," "Description of Preferred Securities," "Description of
Junior Subordinated Debentures" and "Description of Guarantee." In addition, the
Company does not expect that the Issuer Trust will be filing reports under the
Exchange Act with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company (File No. 1-7461)
with the Commission pursuant to the Exchange Act, and are incorporated herein by
reference:
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1996;
2. The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997; and
3. The Company's Current Report on Form 8-K filed July 29, 1997.
In addition, all documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the
termination of the offering hereunder shall be deemed to be incorporated by
reference in this Prospectus and to be part hereof from the date of filing of
such documents. Any statement contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for all purposes to the
extent that a statement contained herein or in any other subsequently filed
document which is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as modified or superseded, to constitute a part of this
Prospectus.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of any and all of the documents incorporated by reference (not including
the exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents). Requests for such copies should be
directed to William J. Gerber, Vice President, Acceptance Insurance Companies
Inc., 222 S. 15th Street, Suite 600 North, Omaha, Nebraska 68102, or by
telephone at (402) 344-8800 or facsimile at (402) 345-9190.
85
<PAGE> 87
GLOSSARY OF SELECTED INSURANCE TERMS
Admitted Insurer.............. An insurance company licensed by a state
regulatory authority to transact insurance
business in that state. An admitted insurer is
subject to the rules and regulations of each
state in which it is licensed governing
virtually all aspects of its insurance
operations and financial condition. A
non-admitted insurer, also known as an excess
and surplus lines insurer, is not licensed to
transact insurance business in a given state
but may be permitted to write certain business
in that state in accordance with the provisions
of excess and surplus lines insurance laws
which generally involve less rate, form and
operational regulation.
Buy-up Coverage............... Multi-Peril Crop Insurance policy providing
coverage in excess of that provided by CAT
Coverage. Buy-up Coverage is offered only
through private insurers.
CAT Coverage (CAT)............ The minimum available level of Multi-Peril Crop
Insurance, providing coverage for 50% of a
farmer's historical yield for eligible crops at
60% of the price per unit for such crop set by
the FCIC. This coverage is offered through
private insurers and, in some states, USDA
field offices.
Combined Ratio................ The sum of the expense ratio and the loss ratio
determined in accordance with GAAP or SAP.
Crop Revenue Coverage (CRC)... An extension of the MPCI program that provides
a producer of crops with varying levels of
insurance protection against loss of revenues
caused by changes in crop prices, low yields,
or a combination of the two.
Direct Written Premiums....... Total premiums collected in respect of policies
issued by an insurer during a given period
without any reduction for premiums ceded to
reinsurers.
Excess of Loss Reinsurance.... A form of reinsurance in which the reinsurer,
subject to a specified limit, agrees to
indemnify the ceding company for the amount of
each loss, on a defined class of business, that
exceeds a specified retention.
Expense Ratio................. Under statutory accounting, the ratio of
underwriting expenses to net premiums written.
Under GAAP accounting, the ratio of
underwriting expenses to net premiums earned.
Federal Crop Insurance
Corporation
(FCIC)........................ A wholly-owned federal government corporation
within the Farm Services Agency.
Generally Accepted Accounting
Principles (GAAP)............. Accounting practices as set forth in opinions
and pronouncements of the Accounting Principles
Board of American Institute of Certified Public
Accountants and statements and pronouncements
of the Financial Accounting Standards Board and
which are applicable in the circumstances as of
the date in question.
Gross Written Premiums........ Direct written premiums plus premiums collected
in respect of policies assumed, in whole or in
part, from other insurance carriers.
86
<PAGE> 88
Insurance Regulatory
Information
System (IRIS)................. A system of ratio analysis developed by the
NAIC primarily intended to assist state
insurance departments in executing their
statutory mandates to oversee the financial
condition of insurance companies.
Loss Adjustment Expenses
(LAE)......................... Expenses incurred in the settlement of claims,
including outside adjustment expenses, legal
fees and internal administrative costs
associated with the claims adjustment process,
but not including general overhead expenses.
Loss Ratio.................... The ratio of losses and LAE incurred to
premiums earned.
Loss Reserves................. Liabilities established by insurers to reflect
the estimated ultimate cost of claim payments
as of a given date.
MPCI Premium.................. For purposes of the profit/loss sharing
arrangement with the federal government, the
amount of premiums credited to the Company for
all Buy-up and Crop Revenue Coverages paid by
farmers, plus the amount of any related federal
premium subsidies.
MPCI Retention................ The aggregate amount of MPCI Premium and, in
respect of CAT Coverages, imputed MPCI premium
on which the Company retains risk after
allocating farms to the three federal
reinsurance pools.
Multi-Peril Crop Insurance
(MPCI)........................ A federally-regulated subsidized crop insurance
program that insures a producer of crops with
varying levels of protection against loss of
yield from substantially all natural perils to
growing crops.
NAIC.......................... The National Association of Insurance
Commissioners.
Net Premiums Earned........... The portion of net premiums written applicable
to the expired period of policies and,
accordingly, recognized as income during a
given period.
Net Premiums Written.......... Total premiums for insurance written (less any
return premiums) during a given period, reduced
by premiums ceded in respect to liability
reinsured by other carriers.
Policyholders' or Statutory
Surplus....................... As determined under SAP (hereinafter defined),
the excess of total admitted assets over total
liabilities.
Price Election................ The maximum per unit commodity price by crop to
be used in computing MPCI Premiums (other than
for Crop Revenue Coverage), which is set each
year by the FCIC.
Quota Share Reinsurance....... A form of reinsurance whereby the reinsurer
agrees to indemnify the cedent for a stated
percentage of each loss, subject to a specified
limit the cedent pays, on a defined class of
business.
Reinsurance................... The practice whereby a company called the
"reinsurer" assumes, for a share of the
premium, all or part of a risk originally
undertaken by another insurer called the
"ceding" company or "cedent." Reinsurance may
be effected by "treaty" reinsurance, where a
standing agreement between the ceding and
reinsuring companies automatically covers all
risks of a defined category, amount and type,
or by "facultative" reinsurance where
reinsurance is negotiated and accepted on a
risk-by-risk basis.
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<PAGE> 89
Retention..................... The amount of liability, premiums or losses
which an insurance company keeps for its own
account after application of reinsurance.
Risk-based Capital (RBC)...... Capital requirements for property and casualty
insurance companies adopted by the NAIC to
assess minimum capital requirements and to
raise the level of protection that statutory
surplus provides for policyholder obligations.
Risk Management Agency
(RMA)......................... A division of the United State Department of
Agriculture ("USDA") which, along with the
Federal Crop Insurance Corporation ("FCIC")
administers and provides reinsurance for the
federally-regulated MPCI and CRC programs.
Statutory Accounting
Principles (SAP).............. Accounting practices which consist of recording
transactions and preparing financial statements
in accordance with the rules and procedures
prescribed or permitted by state regulatory
authorities. Statutory accounting emphasizes
solvency rather than matching revenues and
expenses during an accounting period.
Surplus Lines Insurance....... The business of insuring risks for which
insurance is generally unavailable from
admitted insurers in whole or in part. Such
business is placed by the broker or agent with
nonadmitted insurers in accordance with the
excess and surplus lines provisions of state
insurance laws.
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<PAGE> 90
=========================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE ISSUER TRUST OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-Looking Statements................ 3
Prospectus Summary........................ 5
Risk Factors.............................. 13
AICI Capital Trust........................ 22
Accounting Treatment...................... 22
Use of Proceeds........................... 22
Capitalization............................ 23
Selected Consolidated Financial Data...... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 26
Business.................................. 35
Management................................ 51
Description of Preferred Securities....... 54
Description of Junior Subordinated
Debentures.............................. 65
Description of Guarantee.................. 73
Relationship Among the Preferred
Securities, the Junior Subordinated
Debentures and the Guarantee............ 75
Certain Federal Income Tax Consequences... 77
Certain ERISA Considerations.............. 81
Underwriting.............................. 82
Validity of Securities.................... 84
Experts................................... 84
Available Information..................... 84
Incorporation of Certain Documents by
Reference............................... 85
Glossary of Selected Insurance Terms...... 86
</TABLE>
=========================================================
=========================================================
$82,500,000
AIC LOGO
AICI CAPITAL TRUST
% PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER
PREFERRED SECURITY)
GUARANTEED, AS DESCRIBED
HEREIN, BY
ACCEPTANCE INSURANCE
COMPANIES INC.
------------------------------
PROSPECTUS
------------------------------
ADVEST, INC.
EVEREN SECURITIES, INC.
, 1997
=========================================================
<PAGE> 91
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the distribution of the Preferred
Securities are set forth in the following table. All amounts except the
Securities and Exchange Commission registration fee are estimated. The expenses
set forth below will be borne by the Company.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 28,750
NASD filing fee............................................. 7,975
Listing fee................................................. 44,300
Trustee's fees and expenses................................. 3,000
Legal fees and expenses..................................... 250,000
Accountants' fees and expenses.............................. 35,000
Printing and engraving expenses............................. 125,000
Rating agencies' fees....................................... 54,000
Blue Sky fees and expenses.................................. 5,000
Miscellaneous............................................... 6,075
--------
Total..................................................... 560,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Certificate of Incorporation and Bylaws provide for
indemnification of directors and officers of the Registrant to the full extent
permitted by Delaware law.
Section 145 of the General Corporation Law of the State of Delaware
provides generally that a corporation may indemnify any person who was or is a
part or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was a director,
officer, employee or agent of the corporation, or is or was serving at its
request in such capacity in another corporation or business association, against
expenses (including attorneys fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he or she acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
In addition, pursuant to the authority of Delaware law, the Certificate of
Incorporation of the Registrant also eliminates the monetary liability of
directors to the fullest extent permitted by Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers or persons
controlling the Registrant pursuant to the foregoing provisions, the Registrant
has been informed that in the opinion of the Securities and Exchange Commission
(the "Commission") such indemnification is against public policy as expressed in
the Act and is therefore unenforceable.
II-1
<PAGE> 92
ITEM 16. EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
</TABLE>
1.1 Form of Underwriting Agreement
4.1 Restated and Amended Certificate of Incorporation of
Acceptance Insurance Companies Inc. (Exhibit 3.1 to
Acceptance Insurance Companies Inc.'s March 31, 1997 10-Q)
4.2 Restated By-laws of Acceptance Insurance Companies Inc.
(Exhibit 3.2 to Acceptance Insurance Companies Inc.'s March
31, 1997 10-Q)
4.3 Form of Preferred Security (included in Exhibit 4.8)
4.4 Form of Guarantee Agreement Between Acceptance Insurance
Companies Inc. and Bankers Trust Company
4.5 Form of Junior Subordinated Indenture Between Acceptance
Insurance Companies Inc. and Bankers Trust Company
4.6 Certificate of Trust of AICI Capital Trust**
4.7 Trust Agreement between Acceptance Insurance Companies Inc.
and Bankers Trust (Delaware)
4.8 Form of Amended and Restated Trust Agreement among
Acceptance Insurance Companies Inc., Bankers Trust Company
and Bankers Trust (Delaware)
5.1 Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
5.2 Opinion of Richards, Layton & Finger
8.1 Tax Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
10.1 Intercompany Federal Income Tax Allocation Agreement between
Acceptance Insurance Holdings Inc. and its subsidiaries and
Registrant dated April 12, 1990, and related agreements
(Exhibit 10.2 to Acceptance Insurance Companies Inc.'s
December 31, 1996 10-K)
10.2 Employment Agreement dated February 19, 1990 between
Acceptance Insurance Holdings Inc., Registrant and Kenneth
C. Coon (Exhibit 10.3 to Acceptance Insurance Companies
Inc.'s December 31, 1996 10-K)
10.3 Employment Agreement dated July 2, 1993, between Redland
Insurance Group, Inc., and John P. Nelson (Exhibit 10.4 to
Acceptance Insurance Companies Inc.'s December 31, 1996
10-K)
10.4 Employment Agreement dated July 2, 1993 between Redland
Insurance Group, Inc., and Richard C. Gibson (Exhibit 10.5
to Acceptance Insurance Companies Inc.'s December 31, 1996
10-K)
10.5 $100,000,000 Amended and Restated Credit Agreement By and
Among the Company, The First National Bank of Chicago,
Comerica Bank, First National Bank of Omaha, First Bank,
N.A., Wells Fargo Bank, National Association and Mercantile
Bank, N.A. and The First National Bank of Chicago, As Agent,
and Comerica Bank, First National Bank of Omaha, and First
Bank, N.A., As Co-Agents, dated as of June 6, 1997**
10.6 Employment Agreement dated July 2, 1993 between Registrant
and Richard C. Gibson (Exhibit 10.7 to Acceptance Insurance
Companies Inc.'s December 31, 1996 10-K)
12.1 Computation of Ratio of Earnings to Fixed Charges
23.1 Independent Auditors' Consent -- Deloitte & Touche LLP**
23.2 Independent Auditor's Consent -- Deloitte & Touche LLP**
23.3 Independent Auditors' Consent -- Deloitte & Touche LLP
23.4 Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P (included
in Exhibit 5.1)
23.5 Consent of Richards, Layton & Finger (included in Exhibit
5.2)
24.1 Powers of Attorney**
II-2
<PAGE> 93
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
25.1 Statement of Eligibility on Form T-1 under the Trust
Indenture Act of 1939, as amended, of Bankers Trust Company
as Trustee under the Junior Subordinated Indenture**
25.2 Statement of Eligibility on Form T-1 under the Trust
Indenture Act of 1939, as amended, of Bankers Trust Company
as Trustee of the Preferred Securities of AICI Capital Trust
(included in Exhibit 25.1)
25.3 Statement of Eligibility on Form T-1 under the Trust
Indenture Act of 1939, as amended, of Bankers Trust Company
as Trustee of the Preferred Securities Guarantee of
Acceptance Insurance Companies Inc. for the benefit of
holders of Preferred Securities of AICI Capital Trust
(included in Exhibit 25.1)
</TABLE>
- ------------
** Previously filed.
ITEM 17. UNDERTAKINGS
A. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
B. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
C. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 94
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, AICI Capital
Trust certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3 and that it has duly caused this
Registration Statement or amendment thereto to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Omaha and State of
Nebraska on July 29, 1997.
AICI CAPITAL TRUST
By: /s/ WILLIAM J. GERBER
------------------------------------
William J. Gerber
Administrator
By: /s/ KENNETH C. COON
------------------------------------
Kenneth C. Coon
Administrator
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Omaha, State of Nebraska, on July 29, 1997.
ACCEPTANCE INSURANCE COMPANIES INC.
By: /s/ KENNETH C. COON
------------------------------------
Kenneth C. Coon
Chairman and Chief Executive Officer
By: /s/ GEORGIA M. MACE
------------------------------------
Georgia M. Mace
Chief Financial Officer and
Treasurer
II-4
<PAGE> 95
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated as of July 29, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* Chairman, Chief Executive Officer and Director
- --------------------------------------------- (Principal Executive Officer)
Kenneth C. Coon
* President, Chief Operating Officer and Director
- ---------------------------------------------
John P. Nelson
* Treasurer and Chief Financial Officer
- --------------------------------------------- (Principal Financial and Accounting Officer)
Georgia M. Mace
* Director
- ---------------------------------------------
Jay A. Bielfield
* Director
- ---------------------------------------------
Edward W. Elliott, Jr.
* Director
- ---------------------------------------------
Robert LeBuhn
* Director
- ---------------------------------------------
Michael R. McCarthy
* Director
- ---------------------------------------------
R. L. Richards
* Director
- ---------------------------------------------
David L. Treadwell
* Director
- ---------------------------------------------
Doug T. Valassis
*By /s/ WILLIAM J. GERBER
---------------------------------------
As Attorney in Fact
</TABLE>
II-5
<PAGE> 96
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S> <C>
</TABLE>
1.1 Form of Underwriting Agreement
4.1 Restated and Amended Certificate of Incorporation of
Acceptance Insurance Companies Inc. (Exhibit 3.1 to
Acceptance Insurance Companies Inc.'s March 31, 1997 10-Q)
4.2 Restated By-laws of Acceptance Insurance Companies Inc.
(Exhibit 3.2 to Acceptance Insurance Companies Inc.'s March
31, 1997 10-Q)
4.3 Form of Preferred Security (included in Exhibit 4.8)
4.4 Form of Guarantee Agreement Between Acceptance Insurance
Companies Inc. and Bankers Trust Company
4.5 Form of Junior Subordinated Indenture Between Acceptance
Insurance Companies Inc. and Bankers Trust Company
4.6 Certificate of Trust of AICI Capital Trust**
4.7 Trust Agreement between Acceptance Insurance Companies Inc.
and Bankers Trust (Delaware)
4.8 Form of Amended and Restated Trust Agreement among
Acceptance Insurance Companies Inc., Bankers Trust Company
and Bankers Trust (Delaware)
5.1 Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
5.2 Opinion of Richards, Layton & Finger
8.1 Tax Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
10.1 Intercompany Federal Income Tax Allocation Agreement between
Acceptance Insurance Holdings Inc. and its subsidiaries and
Registrant dated April 12, 1990, and related agreements
(Exhibit 10.2 to Acceptance Insurance Companies Inc.'s
December 31, 1996 10-K)
10.2 Employment Agreement dated February 19, 1990 between
Acceptance Insurance Holdings Inc., Registrant and Kenneth
C. Coon (Exhibit 10.3 to Acceptance Insurance Companies
Inc.'s December 31, 1996 10-K)
10.3 Employment Agreement dated July 2, 1993, between Redland
Insurance Group, Inc., and John P. Nelson (Exhibit 10.4 to
Acceptance Insurance Companies Inc.'s December 31, 1996
10-K)
10.4 Employment Agreement dated July 2, 1993 between Redland
Insurance Group, Inc., and Richard C. Gibson (Exhibit 10.5
to Acceptance Insurance Companies Inc.'s December 31, 1996
10-K)
10.5 $100,000,000 Amended and Restated Credit Agreement By and
Among the Registrant, The First National Bank of Chicago,
Comerica Bank, First National Bank of Omaha, First Bank,
N.A., Wells Fargo Bank, National Association and Mercantile
Bank, N.A. and The First National Bank of Chicago, As Agent,
and Comerica Bank, First National Bank of Omaha, and First
Bank, N.A., As Co-Agents, dated as of June 6, 1997**
10.6 Employment Agreement dated July 2, 1993 between Registrant
and Richard C. Gibson (Exhibit 10.7 to Acceptance Insurance
Companies Inc.'s December 31, 1996 10-K)
12.1 Computation of Ratio of Earnings to Fixed Charges
23.1 Independent Auditors' Consent -- Deloitte & Touche LLP**
23.2 Independent Auditor's Consent -- Deloitte & Touche LLP**
23.3 Independent Auditor's Consent -- Deloitte & Touche LLP
23.4 Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P (included
in Exhibit 5.1)
23.5 Consent of Richards, Layton & Finger (included in Exhibit
5.2)
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S> <C>
24.1 Powers of Attorney**
25.1 Statement of Eligibility on Form T-1 under the Trust
Indenture Act of 1939, as amended, of Bankers Trust Company
as Trustee under the Junior Subordinated Indenture**
25.2 Statement of Eligibility on Form T-1 under the Trust
Indenture Act of 1939, as amended, of Bankers Trust Company
as Trustee of the Preferred Securities of AICI Capital Trust
(included in Exhibit 25.1)
25.3 Statement of Eligibility on Form T-1 under the Trust
Indenture Act of 1939, as amended, of Bankers Trust Company
as Trustee of the Preferred Securities Guarantee of
Acceptance Insurance Companies Inc. for the benefit of
holders of Preferred Securities of AICI Capital Trust
(included in Exhibit 25.1)
</TABLE>
- ------------
** Previously filed.
<PAGE> 1
EXHIBIT 1.1
$82,500,000*
AICI CAPITAL TRUST
ACCEPTANCE INSURANCE COMPANIES INC.
% Preferred Securities
(Liquidation Amount $25 per Preferred Security)
UNDERWRITING AGREEMENT
July ___, 1997
ADVEST, INC.
EVEREN SECURITIES, INC.
As Representatives of the Several
Underwriters
c/o ADVEST, INC.
One Rockefeller Plaza, 20th Floor
New York, New York 10020
Ladies and Gentlemen:
AICI Capital Trust (the "Trust"), a statutory business trust organized
under the Business Trust Act (the "Delaware Act") of the State of Delaware
(Chapter 38, Title 12, of the Delaware Business Code, 12 Del. C. Section 3801 et
seq.), and Acceptance Insurance Companies Inc., a Delaware corporation (the
"Company"), as depositor of the Trust and as guarantor, hereby confirm their
agreement with you and the several underwriters, on whose behalf you have been
duly authorized to act as their representatives (the "Representatives"), as
follows:
SECTION 1. Introduction. The Company and the Trust agree, upon the terms
and conditions set forth in this Underwriting Agreement (this "Agreement"), to
issue and sell to the several underwriters identified in Schedule A annexed
hereto (the "Underwriters"), who are acting severally and not jointly, an
aggregate liquidation amount of $82,500,000 (the "Firm Securities") of the
Trust's % preferred securities (the
______________________
* Plus an option to acquire up to an additional $12,375,000 aggregate
liquidation amount of Preferred Securities from the Trust to cover
over-allotments, if any.
<PAGE> 2
"Preferred Securities"). The Trust and the Company also propose to issue and
sell to the Underwriters, at the Underwriters' option, up to an additional
$12,375,000 aggregate Liquidation Amount of Preferred Securities (the "Option
Securities") in proportion to the amounts set forth opposite their respective
names in Schedule A hereto. The term "Preferred Securities" as used herein,
unless indicated otherwise, shall mean the Firm Securities and the Option
Securities.
The Preferred Securities and the Common Securities (as defined herein) are
to be issued pursuant to the terms of an Amended and Restated Trust Agreement
dated as of August ___, 1997 (the "Trust Agreement"), among the Company, as
depositor, (and, together with the Trust, the "Offerors"), Bankers Trust Company
("Trust Company"), a New York banking corporation, as property trustee
("Property Trustee"), and Bankers Trust (Delaware) ("Trust Delaware"), a
Delaware banking corporation, as Delaware trustee ("Delaware Trustee"). The
Preferred Securities will be guaranteed by the Company on a subordinated basis
and subject to certain limitations with respect to distributions and payments
upon liquidation, redemption or otherwise (the "Guarantee") pursuant to the
Guarantee Agreement dated as of August ___, 1997 (the "Guarantee Agreement"),
between the Company and the Trust Company, as Trustee (the "Guarantee Trustee").
The assets of the Trust will consist of % Junior Subordinated Deferrable
Interest Debentures, due ______, 2027 (the "Junior Subordinated Debentures") of
the Company which will be issued under a Junior Subordinated Indenture dated as
of August ___, 1997 (the "Indenture"), between the Company and the Trust
Company, as Trustee (the "Indenture Trustee"). Under certain circumstances, the
Junior Subordinated Debentures will be distributable to the holders of undivided
beneficial interests in the assets of the Trust. The entire proceeds from the
sale of the Preferred Securities will be combined with the entire proceeds from
the sale by the Trust to the Company of the Trust's common securities (the
"Common Securities"), and will be used by the Trust to purchase an equivalent
amount of the Junior Subordinated Debentures.
The Offerors have filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-28749) and a related
preliminary prospectus for the registration of the Preferred Securities, the
Guarantee and the Junior Subordinated Debentures under the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations
thereunder (the "Securities Act Regulations"). The Offerors have prepared and
filed such amendments thereto, if any, and such amended preliminary
prospectuses, if any, as may have been required to the date hereof, and will
file such additional amendments thereto and such amended prospectuses as may
hereafter be required. The registration statement has been declared
- 2 -
<PAGE> 3
effective under the Securities Act by the Commission. The registration
statement as amended at the time it became effective (including the prospectus
and all information deemed to be a part of the registration statement at the
time it became effective pursuant to Rule 430A(b) of the Securities Act
Regulations) is hereinafter called the "Registration Statement," except that, if
the Company files a post-effective amendment to such registration statement
which becomes effective prior to the Closing Date (as defined below),
"Registration Statement" shall refer to such registration statement as so
amended. Each prospectus included in the registration statement, or amendments
thereof, before it became effective under the Securities Act and any prospectus
filed with the Commission by the Company with the consent of the Underwriters
pursuant to Rule 424(a) of the Securities Act Regulations (including the
documents incorporated by reference therein) is hereinafter called the
"Preliminary Prospectus." The term "Prospectus" means the final prospectus
(including the documents incorporated by reference therein, if any), as first
filed with the Commission pursuant to paragraph (1) or (4) of Rule 424(b) of the
Securities Act Regulations. The Commission has not issued any order preventing
or suspending the use of any Preliminary Prospectus.
SECTION 2. Representations and Warranties. Each of the Offerors
represents and warrants to, and agrees with, each of the Underwriters as
follows:
(a) The Company is duly incorporated and validly existing as a
corporation in good standing under the laws of the State of Delaware with power
and authority (corporate and other) to own, lease, and operate its properties
and conduct its business as described in the Prospectus (as defined in Section
2(e) of this Agreement); the Company's principal operating subsidiaries are
Acceptance Insurance Company, a Nebraska corporation, Acceptance Indemnity
Insurance Company, a Nebraska corporation, Phoenix Indemnity Insurance Company,
an Arizona corporation, Redland Insurance Company, an Iowa corporation, American
Growers Insurance Company, a Nebraska corporation, Acceptance Casualty Insurance
Company, a Texas corporation and American Agrisurance Inc., an Iowa corporation
(each a "Subsidiary"); the Company owns, directly or indirectly, beneficially
and of record all of the outstanding capital stock of each Subsidiary free and
clear of any claim, lien, encumbrance or security interest, except as described
in the Prospectus. The Company and each of its Subsidiaries is duly qualified
to do business and is in good standing as a foreign corporation in each
jurisdiction in which any of them own or lease properties, has an office, or in
which the business conducted by any of them make such qualification necessary,
except where the failure to so qualify would not have a material adverse effect
on the condition (financial or otherwise), business, prospects,
- 3 -
<PAGE> 4
assets, properties, results of operations, or net worth of the Company and its
Subsidiaries taken as a whole ("Material Adverse Effect"); and no proceeding has
been instituted in any jurisdiction revoking, limiting or curtailing, or seeking
to revoke, limit or curtail, such power and authority or qualification.
(b) The Preferred Securities will be duly and validly authorized for
issuance and sale to the Underwriters pursuant to this Agreement and, when
executed and authenticated in accordance with the terms of the Trust Agreement
and delivered to the Underwriters against payment of the consideration set forth
herein, will constitute valid and binding obligations of the Trust enforceable
in accordance with their terms and entitled to the benefits provided by the
Trust Agreement (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, receivership, moratorium, fraudulent
conveyance or similar laws relating to or affecting creditors' rights generally
or general equity principles (whether considered in a proceeding in equity or at
law)). The Trust Agreement has been duly authorized and, when executed by the
proper officers of the Trust and delivered by the Trust, will have been duly
executed and delivered by the Trust and will constitute a valid and binding
instrument of the Trust, enforceable in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, moratorium, fraudulent conveyance or similar laws
relating to or affecting creditors' rights generally or general equity
principles (whether considered in a proceeding in equity or at law)). The
Junior Subordinated Debentures have been duly and validly authorized for
delivery by the Company and, when duly authenticated in accordance with the
terms of the Indenture and delivered to the Trust against payment of the
consideration set forth herein, will constitute valid and binding obligations of
the Company enforceable against the Company in accordance with their terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, receivership, moratorium, fraudulent conveyance or
similar laws relating to or affecting creditors' rights generally or general
equity principles (whether considered in a proceeding in equity or at law)).
The Indenture has been duly authorized and, when executed by the proper officers
of the Company and delivered by the Company, will have been duly executed and
delivered by the Company and will constitute a valid and binding instrument of
the Company, enforceable in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization , receivership, moratorium, fraudulent conveyance or similar laws
relating to or affecting creditors' rights generally or general equity
principles (whether considered in a proceeding in equity or at law). The Trust
Agreement, the Guarantee Agreement, and the Indenture have
- 4 -
<PAGE> 5
been duly qualified under the Trust Indenture Act; and the Preferred Securities,
the Common Securities, the Trust Agreement, the Guarantee Agreement, the Junior
Subordinated Debentures and the Indenture conform in all material respects to
the descriptions thereof contained in the Registration Statement and the
Prospectus.
(c) Neither the Trust nor the Company or any Subsidiary, is, or with
the giving of notice or lapse of time or both will be, in violation or breach
of, or in default under, nor will the execution or delivery of, or the
performance and consummation of the transactions contemplated by this Agreement
(including the offer, sale, or delivery of the Preferred Securities), conflict
with, or result in a violation or breach of, or constitute a default under, any
provision of the organization documents of the Trust or the Certificate of
Incorporation, Bylaws (as amended or restated) of the Company, or other
governing documents of the Trust, the Company or any Subsidiary, or of any
provision of any agreement, contract, mortgage, deed of trust, lease, loan
agreement, indenture, note, bond, or other evidence of indebtedness, or other
material agreement or instrument to which the Trust, the Company or any
Subsidiary is a party or by which any of them is bound or to which any of their
properties is subject, nor will the performance by the Offerors of their
obligations hereunder violate any rule, regulation, order, or decree, applicable
to the Trust, the Company or any Subsidiary of any court or any regulatory body,
administrative agency, or other governmental body having jurisdiction over the
Trust, the Company or any Subsidiary or any of their respective properties, or
any order of any court or governmental agency or authority entered in any
proceeding to which the Trust, the Company or any Subsidiary was or is now a
party or by which it is bound, except those, if any, described in the Prospectus
or which are not material to the Company and the Subsidiaries taken as a whole.
No consent, approval, filing, authorization, registration, qualification, or
order, including with or by any insurance regulatory agency, is required for the
execution, delivery, and performance of this Agreement or the consummation of
the transactions contemplated by this Agreement, other than such that have been
obtained or made, except for compliance with the Securities Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Blue Sky Laws
applicable to the public offering of the Preferred Securities by the
Underwriters, the clearance of such offering and the underwriting arrangements
evidenced hereby with the National Association of Securities Dealers, Inc.
("NASD"), and the listing of the Preferred Securities on the New York Stock
Exchange ("NYSE"). This Agreement has been duly authorized, executed and
delivered by the Company and the Trust and constitutes a valid and binding
obligation of the Company and the Trust and is enforceable against the Company
and the Trust in accordance with its terms,
- 5 -
<PAGE> 6
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, receivership, moratorium, fraudulent conveyance or
similar laws relating to or affecting creditors' rights generally or general
equity principles (whether considered in a proceeding in equity or at law)) and
except as the obligations of the Company under the indemnification and
contribution provisions of Section 11 under this Agreement may be limited by
laws or unenforceable as against public policy and an implied covenant of good
faith and fair dealing.
(d) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus, and each Preliminary Prospectus complies
in all material respects with the requirements of the Securities Act and the
Securities Act Regulations. As of the effective date of the Registration
Statement, and at all times subsequent thereto up to the Closing Date or any
Option Closing Date (as defined below), the Registration Statement and the
Prospectus, and any amendments or supplements thereto, contained or will contain
all material statements that are required to be stated therein in accordance
with the Securities Act and the Securities Act Regulations and conformed or will
conform in all material respects to the requirements of the Securities Act and
the Securities Act Regulations, and neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto included or will include any
untrue statement of a material fact or omitted or will omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that no representation or warranty is made as
to information contained in or omitted from the Registration Statement, the
Prospectus or any amendment or supplement in reliance upon and in conformity
with written information furnished to the Company and the Trust by or on behalf
of the Underwriters.
(e) Deloitte & Touche LLP which has audited, reviewed, and expressed
its opinion with respect to certain of the financial statements and schedules
filed with the Commission as a part of the Registration Statement and included
or to be included, as the case may be, in the Prospectus and in the Registration
Statement, and whose report is included in the Prospectus and the Registration
Statement are independent accountants as required by the Securities Act and the
Securities Act Regulations.
(f) The financial statements and schedules and the related notes
thereto included or incorporated by reference in the Registration Statement, the
Preliminary Prospectus, and the Prospectus present fairly the financial position
of the entities purported to be shown thereby as of the respective dates of such
financial statements and schedules, and the results of operations and changes in
equity and in cash flows of the entities purported
- 6 -
<PAGE> 7
to be shown thereby for the respective periods covered thereby, all in
conformity with generally accepted accounting principles consistently applied
throughout the periods involved, except as may be disclosed in the Prospectus.
All adjustments necessary for a fair presentation of the results of such periods
have been made. The Company had an outstanding capitalization as set forth under
the heading "Capitalization" in the Prospectus as of the date indicated therein
and there has been no material change therein since such date except as
disclosed in the Prospectus. The financial, operating, and statistical
information set forth in the Prospectus under the headings "Prospectus Summary,"
"Selected Consolidated Financial Data," "Use of Proceeds," "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and "Management" are fairly presented and prepared on a
basis consistent with the audited financial statements of the Company.
(g) There is no litigation or governmental proceeding, action, or
investigation pending or, to the knowledge of the Trust or the Company,
threatened, to which the Trust, the Company or any Subsidiary is or may be a
party or to which property owned or leased by the Company or any Subsidiary is
or may be subject, or related to environmental or discrimination matters, which
is required to be disclosed in the Registration Statement or the Prospectus by
the Securities Act or the Securities Act Regulations and is not so disclosed, or
which questions the validity of this Agreement or any action taken or to be
taken pursuant hereto.
(h) Either the Company or a Subsidiary, as the case may be, has good
and marketable title in fee simple to all items of real property and good and
marketable title to all the personal properties and assets reflected as owned by
the Company or a Subsidiary in the Prospectus (or elsewhere in the Registration
Statement), in each case clear of all liens, mortgages, pledges, charges, or
encumbrances of any kind or nature except those, if any, reflected in the
financial statements described above (or elsewhere in the Registration
Statement) or which are not material to the Company and its Subsidiaries taken
as a whole; all properties held or used by the Company or a Subsidiary under
leases, licenses, franchises or other agreements are held by them under valid,
existing, binding, and enforceable leases, franchises, licenses, or other
agreements with respect to which it is not in default.
(i) Neither the Trust nor the Company or any Subsidiary has taken or
will take, directly or indirectly, any action designed to cause or result in, or
which has constituted or which might reasonably be expected to constitute,
stabilization or
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<PAGE> 8
manipulation, under the Exchange Act or otherwise, of the price of the Preferred
Securities.
(j) Except as reflected or incorporated by reference in the
Registration Statement, since the respective dates as of which information is
given in the Registration Statement and as of the Closing Date and Option
Closing Date (as such terms are hereinafter defined):
(i) neither the Company nor any Subsidiary has incurred any
material liabilities or obligations, direct or contingent, or entered into any
material transaction not in the ordinary course of business without the prior
consent of the Representatives;
(ii) the Company has not declared any dividend or other
distribution with respect to its capital stock and neither the Company nor any
Subsidiary has or will be delinquent in the payment of principal or interest on
any outstanding debt obligations; and
(iii) there has not been and will not be any change in the
capital stock or any material change in the indebtedness of the Company or any
Subsidiary (except as may result from the closing of the transactions
contemplated by this Agreement), or any adverse change in the condition
(financial or otherwise), or any development involving a prospective adverse
change in their respective businesses (resulting from litigation or otherwise),
prospects, properties, condition (financial or otherwise), net worth, or results
of operations which is in either case material to the Company and its
Subsidiaries taken as a whole.
(k) There is no material contract or other document, transaction, or
relationship required to be described in the Registration Statement, or to be
filed as an exhibit to the Registration Statement, by the Securities Act or by
the Securities Act Regulations that has not been described or filed as required.
(l) All documents delivered or to be delivered by the Offerors or any
of their representatives in connection with the issuance and sale of the
Preferred Securities were on the dates on which they were delivered, or will be
on the dates on which they are to be delivered, true, complete, and correct in
all material respects.
(m) The Company and each Subsidiary have filed all necessary federal
and all state and foreign income and franchise tax returns and paid all taxes
shown as due thereon; and no tax deficiency has been asserted or to the
knowledge of the Company
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<PAGE> 9
threatened against the Company or any Subsidiary that would have a Material
Adverse Effect, except as described in the Prospectus.
(n) The Company and each Subsidiary has filed, or has had filed on
its behalf, on a timely basis, all materials reports, documents and information,
including, but not limited to annual reports and reports of examination with
each applicable insurance regulatory authority, board of agency, which are
required to be filed by it, except where the failure to have timely filed such
materials, reports, documents and information would not have a Material Adverse
Effect.
(o) Neither the Trust nor the Company or any Subsidiary has, directly
or indirectly, at any time:
(i) made any unlawful contribution to any candidate for
political office, or failed to disclose any contribution in violation of law; or
(ii) made any payment to any federal, state, local, or foreign
government officer or official, or other person charged with similar public or
quasi-public duties, other than payments required or permitted by the laws of
the United States or any jurisdiction thereof or applicable foreign
jurisdictions.
(p) The Company or a Subsidiary owns or possesses adequate rights to
use all material patents, patent applications, trademarks, service marks, trade
names, trademark registrations, servicemark registrations, copyrights, and
licenses necessary for the conduct of the business of the Company and the
Subsidiaries or ownership of their respective properties, and neither the
Company nor any Subsidiary has received notice of conflict with the asserted
rights of others in respect thereof which has not been resolved.
(q) The Company and each Subsidiary have and hold, and at the Closing
Date or Option Closing Date will have and hold, and are operating in compliance
with, and have fulfilled and performed all of their material obligations with
respect to, all material permits, certificates, franchises, grants, easements,
consents, licenses, approvals, charters, registrations, authorizations, and
orders (collectively, "Permits") required under all laws, rules, and regulations
(including, without limitation, laws, rules and regulations applicable to
insurance companies) in connection with their respective businesses, and all of
such Permits are in full force and effect; and there is no pending proceeding,
and neither the Company nor any Subsidiary has received notice of any threatened
proceeding, relating to the revocation or modification of any such Permits.
Neither the Company nor any Subsidiary is (by virtue of any action, omission
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<PAGE> 10
to act, contract to which it is a party or by which it is bound, or any
occurrence or state of facts whatsoever) in violation of any applicable federal,
state, municipal, or local statutes, laws, ordinances, rules, regulations and/or
orders issued pursuant to foreign, federal, state, municipal, or local statutes,
laws, ordinances, rules, or regulations (including those relating to any aspect
of insurance, environmental protection, occupational safety and health, and
equal employment practices) heretofore or currently in effect, except such
violation that has been fully cured or satisfied without recourse or that is not
reasonably likely to have a Material Adverse Effect.
(r) The provisions of any employee pension benefit plan ("Pension
Plan") as defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), in which the Company or any Subsidiary is a
participating employer are in substantial compliance with ERISA, and neither the
Company nor any Subsidiary is in violation of ERISA. The Company, each
Subsidiary, or the plan sponsor thereof, as the case may be, has duly and timely
filed the reports required to be filed by ERISA in connection with the
maintenance of any Pension Plans in which the Company or any Subsidiary is a
participating employer, and no facts, including any "reportable event" as
defined by ERISA and the regulations thereunder, exist in connection with any
Pension Plan in which the Company or any Subsidiary is a participating employer
which might constitute grounds for the termination of such plan by the Pension
Benefit Guaranty Corporation or for the appointment by the appropriate U.S.
District Court of a trustee to administer any such plan. The provisions of any
employee benefit welfare plan, as defined in Section 3(1) of ERISA, in which the
Company or any Subsidiary is a participating employer, are in substantial
compliance with ERISA, and the Company, any Subsidiary, or the plan sponsor
thereof, as the case may be, has duly and timely filed the reports required to
be filed by ERISA in connection with the maintenance of any such plans.
(s) Neither the Company nor the Trust is an open-end investment
company, unit investment trust or face-amount certificate company that is, or is
required to be, registered under Section 8 of the Investment Company Act of
1940, as amended, or subject to regulation under such Act.
(t) Neither this Agreement nor any certificate, statement or other
document delivered or to be delivered by the Offerors or any Subsidiary contains
or will contain any untrue statement of a material fact or omits or will omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
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<PAGE> 11
(u) The Company is not aware of any threatened or pending downgrading
in the rating of any Subsidiary by A.M. Best Company, Inc., and the Preferred
Securities have received the ratings set forth in the Registration Statement.
Any certificate signed by any director or officer of the Company or the
Trust, as the case may be, and delivered to the Representatives or to counsel
for the Underwriters shall be deemed a representation and warranty of the
Company or the Trust, as the case may be, to the Underwriters as to the matters
covered thereby.
Any certificate delivered by the Company or the Trust, as the case may be,
to their respective counsel for purposes of enabling such counsel to render an
opinion pursuant to Section 8 will also be furnished to the Representatives and
counsel for the Underwriters and shall be deemed to be additional
representations and warranties to the Underwriters by the Company and the Trust
as to the matters covered thereby.
SECTION 3. Purchase, Sale and Delivery to Underwriters, Closing. On the
basis of the representations and warranties herein contained and subject to the
terms and conditions herein set forth, the Trust and the Company agree that the
Trust will issue and sell to the Underwriters, and each of the Underwriters
agrees, severally and not jointly to purchase from the Trust, the number of Firm
Securities set forth opposite the name of such Underwriter in Schedule A at a
purchase price of $25 per Firm Security.
Payment of the purchase price for, and delivery of, the Firm Securities
shall be made at the offices of Arnold & Porter, 399 Park Avenue, New York, New
York, or at such other place as shall be agreed upon by the Representatives, the
Trust and the Company, at 9:00 A.M. local time, on the third or fourth business
day (unless postponed in accordance with the provisions of Section 14) following
the date of this Agreement, or such other time not later than ten (10) business
days after such date as shall be agreed upon by the Representatives, the Trust
and the Company (such time and date of payment and delivery being herein called
the "Closing Date").
As compensation (the "Underwriting Commission") for the commitments of the
Underwriters contained in this Section 3, the Company hereby agrees to pay to
the Underwriters an amount equal to $ ___ per Preferred Security. Such payment
will be made on the Closing Date or on the Option Closing Date (as defined
below) with respect to the Option Securities.
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<PAGE> 12
Payment for the Firm Securities shall be made to the Trust by wire transfer
of immediately available funds, against delivery to the Underwriter of the Firm
Securities to be purchased by it. The Firm Securities shall be issued in the
form of one or more fully registered global securities (the "Global Securities")
in book-entry form in such denominations and registered in the name of the
nominee of The Depository Trust Company (the "DTC") or in such names as the
Representatives may request in writing at least two business days before the
Closing Date. The Global Securities representing the Firm Securities shall be
made available for examination by the Representatives and counsel to the
Underwriters not later than 9:30 A.M. local time on the last business day prior
to the Closing Date.
In addition, on the basis of the representations, warranties, and
agreements contained herein, but subject to the terms and conditions set forth
herein, the Trust hereby grants to the Underwriters an option to purchase,
severally and not jointly, from the Trust the Option Securities in the same
proportion as the number of Preferred Securities set forth opposite their names
on Schedule A bears to the total number of Firm Securities, at the same purchase
price per Preferred Security to be paid for the Firm Securities, for use solely
in covering any over-allotments made by the Underwriters in the sale and
distribution of the Firm Securities. The option granted hereunder may be
exercised at any time (but not more than once) within thirty (30) days after the
date of this Agreement, upon notice by the Representatives to the Trust which
sets forth the aggregate liquidation amount of Option Securities as to which the
Underwriters are exercising the option, and the time and place at which the
certificate representing the Option Securities will be delivered. Such time of
delivery may not be earlier than the Closing Date and herein is called the
"Option Closing Date." The Option Closing Date shall be determined by the
Representatives, but if at any time other than the Closing Date, shall not be
earlier than three nor later than five full business days after delivery of such
notice to exercise. Certificates for the Option Securities will be made
available for inspection at least 24 hours prior to the Option Closing Date at
the offices of the DTC, or its designated custodian, or at such other location
as specified by the Representatives. The manner of payment for a delivery of
the Option Securities shall be the same as for the Firm Securities as specified
in this Section 3.
SECTION 4. Representations and Warranties of the Underwriters. The
Representatives, on behalf of the Underwriters, represent and warrant to the
Company that the information set forth on the inside front cover page of the
Prospectus relating to stabilization and in the first (including the table
thereunder), second, fifth and seventh paragraphs of the section in the
Prospectus entitled "Underwriting" was the only written
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<PAGE> 13
information furnished to the Company by and on behalf of any Underwriter
expressly for use in connection with the preparation of the Registration
Statement, and is correct and complete in all material respects and does not
include 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
not misleading.
SECTION 5. Offering by the Underwriters. The Trust and the Company are
advised by the Representatives that the Underwriters propose to make a public
offering of the Preferred Securities, on the terms and conditions set forth in
the Registration Statement from time to time as and when the Underwriters deem
advisable after the Registration Statement becomes effective. Because the NASD
is expected to view the Preferred Securities as interests in a direct
participation program, the offering of the Preferred Securities is being made in
compliance with the applicable provisions of Rule 2810 of the NASD's Conduct
Rules.
SECTION 6. Agreements of the Offerors. Each of the Offerors covenants and
agrees with the Underwriter that:
(a) If any information shall have been omitted from the Registration
Statement in reliance upon Rule 430A, the Company, at the earliest possible
time, will furnish the Representatives with a copy of the Prospectus to be filed
by the Offerors with the Commission to comply with Rule 424(b) and Rule 430A
under the Securities Act, and, will file such Prospectus with the Commission in
compliance with such Rules. Upon compliance with such Rules, the Company will
so advise the Representatives promptly. The Company will advise the
Representatives and counsel to the Underwriters promptly of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of the institution of any proceedings for that purpose, or of any
notification received by the Company of the suspension of qualification of the
Preferred Securities for sale in any jurisdiction or the initiation or
threatening of any proceedings for that purpose. The Company also will advise
the Representatives and counsel to the Underwriters promptly of any request of
the Commission for amendment or supplement of the Registration Statement, of any
Preliminary Prospectus, or of the Prospectus, or for additional information, and
the Offerors will not file any amendment or supplement to the Registration
Statement (either before or after it becomes effective), to any Preliminary
Prospectus, or to the Prospectus (including a prospectus filed pursuant to Rule
424(b)) if the Representatives have not been furnished with a copy prior to such
filing or if the Representatives reasonably object to such filing.
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<PAGE> 14
(b) For the period during which a Prospectus relating to the
Preferred Securities is required to be delivered under the Securities Act, the
Offerors shall comply with all requirements imposed on them by the Securities
Act, as now and hereafter amended, and by the Securities Act Regulations, as
from time to time in force, so far as is necessary to permit the continuance of
sales or dealings in the Preferred Securities as contemplated by the provisions
hereof and the Prospectus. If any event occurs as a result of which the
Prospectus, including any subsequent amendment or supplement, would include an
untrue statement of a material fact, or would omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
it becomes necessary at any time during the delivery period referred to in the
preceding sentence to amend the Prospectus, including any amendment or
supplement thereto, to comply with the Securities Act, the Company promptly will
advise the Representatives and counsel to the Underwriters thereof and the
Offerors will promptly prepare and file with the Commission an amendment or
supplement that will correct such statement or omission or an amendment that
will effect such compliance; and, if any Underwriter is required to deliver a
prospectus nine (9) months or more after the effective date of the Registration
Statement, the Company, upon request of the Representatives but at the expense
of such Underwriter, will prepare promptly such prospectus or prospectuses as
may be necessary to permit compliance with the requirements of Section 10(a)(3)
of the Securities Act.
(c) The Offerors will not, prior to the Option Closing Date or thirty
(30) days after the date of this Agreement, whichever occurs first, without the
prior consent of the Representatives, incur any material liability or
obligation, direct or contingent, or enter into any material transaction, other
than in the ordinary course of business, or any transaction with a related party
which is required to be disclosed in the Prospectus pursuant to Item 404 of
Regulation S-K under the Securities Act, except as contemplated by the
Prospectus.
(d) The Company will make generally available to its security holders
and the Representatives an earnings statement of the Company as soon as
practicable, but in no event later than fifteen (15) months after the end of the
Company's current fiscal quarter, covering a period of twelve (12) consecutive
calendar months beginning after the effective date of the Registration
Statement, but beginning not later than four (4) months after such effective
date, which will satisfy the provisions of the last subsection of Section 11(a)
of the Securities Act and Rule 158 promulgated thereunder.
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<PAGE> 15
(e) During such period as a prospectus is required by law to be
delivered in connection with sales by an underwriter or dealer, the Company will
furnish to the Representatives, at the expense of the Company, copies of the
Registration Statement, the Prospectus, any Preliminary Prospectus, and all
amendments and supplements to any such documents in each case as soon as
available and in such quantities as the Representatives may reasonably request,
for the purposes contemplated by the Securities Act.
(f) The Offerors will use their best efforts to take or cause to be
taken in cooperation with the Representatives and counsel to the Underwriters
all actions required in qualifying or registering the Preferred Securities for
sale under the Blue Sky Laws of such jurisdictions as the Representatives may
reasonably designate, provided the Offerors shall not be required to qualify
generally as foreign corporations or as a dealer in securities or to consent
generally to the service of process under the law of any such state (except with
respect to the offering and sale of the Preferred Securities), and will continue
such qualifications or registrations in effect so long as reasonably requested
by the Representatives to effect the distribution of the Preferred Securities
(including, without limitation, compliance with all undertakings given pursuant
to such qualifications or registrations). In each jurisdiction where any of the
Preferred Securities shall have been qualified as provided above, the Offerors
will file such reports and statements as may be required to continue such
qualification for a period of not less than one (1) year from the date of this
Agreement.
(g) The Company will furnish to its security holders annual reports
containing financial statements audited by independent public accountants.
During the period ending three (3) years after the date of this Agreement, (i)
as soon as practicable after the end of the fiscal year, the Company will
furnish to the Representatives two copies of the annual report of the Company
containing the audited consolidated balance sheet of the Company as of the close
of such fiscal year and corresponding audited consolidated statements of
earnings, stockholders' equity and cash flows for the year then ended, and (ii)
the Company will file promptly copies of all reports and any definitive proxy or
information statements required to be filed by the Company with the Commission
pursuant to Section 13, 14, or 15 of the Exchange Act. During such three-year
period the Company also will furnish to the Representatives one copy of the
following:
(i) as soon as practicable after the filing thereof, each
document referenced in clause (ii) above or other document filed by the Company
with the Commission;
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<PAGE> 16
(ii) as soon as practicable after the filing thereof, all
reports, statements, other documents and financial statements furnished by the
Company to the New York Stock Exchange ("NYSE") pursuant to requirements of or
agreements with the NYSE; and
(iii) as soon as available, each report, statement, or other
document of the Company mailed to its stockholders.
(h) The Offerors will use their best efforts to satisfy or cause to
be satisfied the conditions to the obligations of the Underwriters in Section 8
hereof.
(i) The Offerors shall take all necessary or appropriate action
within their power to obtain the qualification or listing of the Preferred
Securities on the NYSE.
(j) The Trust shall comply in all respects with the undertakings
given by the Trust in connection with the qualification or registration of the
Preferred Securities for offering and sale under the Blue Sky Laws.
(k) The Trust shall apply the proceeds from its sale of the Preferred
Securities, combined with the entire proceeds from the sale by the Trust to the
Company of the Trust's Common Securities, to purchase an equivalent amount of
Junior Subordinated Debentures. All the proceeds to be received by the Company
from the sale of the Junior Subordinated Debentures will be used in the manner
and for the purposes specified under the heading "Use of Proceeds" in the
Prospectus. The Offerors shall file, and will furnish or cause to be furnished
to the Underwriters and counsel to the Underwriters copies of all reports as may
be required in accordance with Rule 463 under the Securities Act.
(l) Except for the sale of Preferred Securities pursuant to this
Agreement, neither the Company nor any Subsidiary shall, directly or indirectly,
offer, sell, contract to sell, issue, distribute, grant any option, right, or
warrant to purchase or otherwise dispose of any shares of the Preferred
Securities or substantially similar securities, in the open market or otherwise,
for a period of one hundred eighty (180) days after the later of the effective
date of the Registration Statement or the date of this Agreement, without the
express prior written consent of the Representatives.
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<PAGE> 17
SECTION 7. Payment of Expenses and Fees
Whether or not the transactions contemplated hereunder are
consummated, or if this Agreement is terminated for any reason, the Company will
pay or cause to be paid the costs, fees, and expenses incurred in connection
with the offering of the Preferred Securities as follows:
(i) All costs, fees, and expenses incurred in connection with
the performance of the Company's and the Trust's obligations hereunder,
including all fees and expenses of the Company's and the Trust's accountants and
counsel, all costs and expenses incurred in connection with the preparation,
printing, filing, and distribution (including delivery and shipping costs) of
the Registration Statement, each Preliminary Prospectus, and the Prospectus
(including all amendments and exhibits thereto and the financial statements
therein), and amendments and supplements provided for herein, this Agreement and
other underwriting documents, including various Underwriters' letters, and the
Preliminary and Supplemental Blue Sky Memoranda.
(ii) All filing and registration fees and expenses, including
the legal fees and disbursements of counsel, incurred in connection with
qualifying or registering all or any part of the Preferred Securities, the
Guarantee and the Junior Subordinated Debentures for offer and sale under the
Blue Sky Laws.
(iii) All fees and expenses of the Offerors' registrar and
transfer agent; all transfer taxes, if any, incurred in connection with the sale
and delivery of the Preferred Securities to the Underwriters.
(iv) All fees and expenses incurred in connection with obtaining
ratings for the Preferred Securities from Moody's Investor Services, Inc. and
Standard and Poor's Rating Services.
(v) All fees paid to the NASD relating to its review of the
proposed underwriting arrangements for the Preferred Securities.
(vi) The filing fees of the NYSE and applicable fees charged by
NYSE for listing of the Preferred Securities on the NYSE.
(vii) All other reasonable costs and expenses incident to the
performance of the Company's and the Trust's obligations hereunder which are not
otherwise provided for in this Section 7.
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<PAGE> 18
SECTION 8. Conditions to the Obligations of the Underwriters. The
obligations of the Underwriters under this Agreement shall be subject to the
accuracy in all material respects of the representations and warranties on the
part of the Company and the Trust set forth herein as of the Closing Date, and
if applicable, as of the Option Closing Date, as the case may be, to the
accuracy in all material respects of the statements of the Offerors' directors
and officers, to the performance in all material respects by the Company and the
Trust of their obligations hereunder, and to the following additional
conditions, except to the extent expressly waived in writing by the
Representatives:
(a) The Registration Statement and all post-effective amendments
thereto shall have been declared effective by the Commission no later than 5:30
p.m. eastern time, on the date of this Agreement, or such later time as shall
have been consented to by the Representatives, but in any event not later than
5:30 p.m., eastern time, on the third full business day following the date
hereof; if the Offerors omitted information from the Registration Statement at
the time it became effective in reliance on Rule 430A under the Securities Act,
the Prospectus shall have been filed with the Commission in compliance with Rule
424(b) and Rule 430A under the Securities Act; no stop order suspending the
effectiveness of the Registration Statement or any amendment or supplement
thereto shall have been issued; no proceeding for the issuance of such an order
shall have been initiated or shall be pending or, to the knowledge of the
Offerors or the Representatives, threatened or contemplated by the Commission;
and any request of the Commission for additional information (to be included in
the Registration Statement or the Prospectus or otherwise) shall have been
disclosed to the Representatives and complied with to the Representatives'
satisfaction.
(b) The Preferred Securities, the Guarantee and the Junior
Subordinated Debentures shall have been qualified or registered for sale, or
subject to an available exemption from such qualification or registration, under
the Blue Sky Laws of such jurisdictions as shall have been reasonably specified
by the Representatives and the offering contemplated by this Agreement shall
have been cleared by the NASD.
(c) Since the dates as of which information is given in the
Registration Statement:
(i) There shall not have been any material adverse change, or
any development involving a prospective material adverse change, in the ability
of the Company or any Subsidiary to conduct their respective business (whether
by reason of any court, legislative, other governmental action, order,
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<PAGE> 19
decree, or otherwise), or in the general affairs, condition (financial and
otherwise) business, prospects, properties, management, financial position or
earnings, results of operations, or net worth of the Company or any Subsidiary,
whether or not arising from transactions in the ordinary course of business; and
(ii) Neither the Company nor any Subsidiary shall have sustained
any loss or interference from any labor dispute, strike, fire, flood, windstorm,
accident, or other calamity (whether or not insured) or from any court or
governmental action, order, or decree.
The effect of which on the Company or any Subsidiary, in any such case described
in clause (c)(i) or (ii) above, is in the reasonable opinion of the
Representatives so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the Preferred
Securities on the terms and in the manner contemplated in the Registration
Statement and the Prospectus.
(d) There shall have been furnished to the Representatives on the
Closing Date, except as otherwise expressly provided below:
(i) An opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P.,
counsel to the Company, dated as of the Closing Date and any Option Closing
Date, in form and substance substantially in the form attached hereto as Exhibit
A.
(ii) The favorable opinion, dated the Closing Date, of White &
Case, counsel to the Trust Company and Trust Delaware, substantially in the form
attached hereto as Exhibit B.
(iii) The favorable opinion, dated the Closing Date, of
Richards, Layton & Finger, special Delaware counsel to the Company and the
Trust, substantially to the effect and in the form attached hereto as Exhibit C.
(iv) The favorable opinion, dated the Closing Date, of Arnold &
Porter, counsel to the Underwriters as to such matters as the Representatives
shall reasonably request.
In rendering such opinions specified in clause (d)(ii), (iii) or
(iv) above, counsel may rely upon an opinion or opinions, each dated the Closing
Date, of other counsel retained by them or the Company as to laws of any
jurisdiction other than the United States or the State of New York or the
General Corporation Law of the State of Delaware, provided that (A) such
reliance is expressly authorized by each opinion so relied upon and a copy of
each such opinion is delivered to the
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<PAGE> 20
Representatives, and (B) counsel shall state in their opinion that they believe
that they and the Underwriters are justified in relying thereon. Insofar as
such opinions involve factual matters, such counsel may rely, to the extent such
counsel deems proper, upon certificates of officers of the Company, its
subsidiaries and the Trust and certificates of public officials.
(e) At the time this Agreement is executed and also on the Closing
Date and the Option Closing Date, as the case may be, there shall be delivered
to the Representatives a letter addressed to the Representatives from Deloitte &
Touche LLP, the Company's independent accountants, the first letter to be dated
the date of this Agreement, the second letter to be dated the Closing Date, and
the third letter to be dated the Option Closing Date, if any, which shall be in
form and substance reasonably satisfactory to the Representatives and shall
contain information as of a date within five days of the date of such letter.
There shall not have been any change set forth in any letter referred to in this
subsection (e) that makes it impracticable or inadvisable in the judgment of the
Representatives to proceed with the public offering or purchase of the Preferred
Securities as contemplated hereby.
(f) On the Closing Date, a certificate signed by the Chairman of the
Board, the President, a Vice Chairman of the Board or any Executive or Senior
Vice President and the principal financial or accounting officer of the Company,
dated the Closing Date, to the effect that the signers of such certificate have
carefully examined the Registration Statement and this Agreement and that:
(i) The representations and warranties of the Offerors in this
Agreement are true and correct in all material respects on and as of the Closing
Date with the same effect as if made on the Closing Date and the Offerors have
complied in all material respects with all the agreements and satisfied in all
material respects all the conditions on its part to be performed or satisfied at
or prior to the Closing Date;
(ii) The Commission has not issued an order preventing or
suspending the use of the Prospectus or any Preliminary Prospectus or any
amendment thereto; no stop order suspending the effectiveness of the
Registration Statement has been issued; and, to the knowledge of the respective
signatories, no proceeding for that purpose has been instituted or is pending or
contemplated under the Securities Act;
(iii) Each of the respective signatories of the certificate has
carefully examined the Registration Statement, the Prospectus, and any
amendments or supplements thereto and neither
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<PAGE> 21
the Registration Statement nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and, since the date on which the Registration Statement was initially filed, no
event has occurred that was required to be set forth in an amended or
supplemented prospectus or in an amendment to the Registration Statement that
has not been so set forth; provided, however, that no representation need be
made as to information contained in or omitted from the Registration Statement
or any amendment or supplement in reliance upon and in conformity with written
information furnished to the Company and the Trust by or on behalf of any
Underwriter through the Representatives; and
(iv) Since the date on which the Registration Statement was
initially filed with the Commission, there has not been any material adverse
change or a development that is reasonably likely to result in a prospective
material adverse change in the business, properties, financial condition, or
earnings of the Company and its Subsidiaries taken as a whole, whether or not
arising from transactions in the ordinary course of business, except as
disclosed in the Registration Statement as heretofore amended or (but only if
the Representatives expressly consent thereto in writing) as disclosed in an
amendment or supplement thereto filed with the Commission and delivered to the
Representatives after the execution of this Agreement; since such date and
except as so disclosed or in the ordinary course of business, neither the
Company nor any Subsidiary has incurred any liability or obligation, direct or
indirect, or entered into any transaction that is material to the Company or
such Subsidiary, as the case may be, not contemplated in the Prospectus; since
such date and except as so disclosed there has not been any change in the
outstanding capital stock of the Company, or any change that is material to the
Company and its Subsidiaries taken as a whole in the short-term debt or
long-term debt of the Company or any Subsidiary; since such date and except as
so disclosed, neither the Company nor any of its Subsidiaries have incurred any
material contingent obligations, and no material litigation is pending or, to
their knowledge threatened against the Company or any Subsidiary.
(g) The Preferred Securities shall have received a rating from each
of Moody's Investor Service, Inc. and Standard & Poor's Rating Services, each
such rating to be not less than the rating set forth in the Registration
Statement, and no downgrading in the rating accorded the Preferred Securities or
any other debt securities of the Company by any "nationally recognized
statistical rating organization" (as that term is defined by the Securities
Exchange Commission for the purposes of Rule 436(g)(2) under the Securities Act)
shall have occurred, or any public
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<PAGE> 22
announcement that any such organization has under surveillance or review their
ratings of the Preferred Securities or any other debt securities of the Company
(other than an announcement with positive implications of a possible upgrading,
and no implication of a possible downgrading, of such rating), and if, in any
such case, the effect thereof in the reasonable judgment of the Representatives
makes it impracticable or inadvisable to proceed with the offering of the
Preferred Securities.
(h) Prior to the Closing Date, the Company shall have furnished to
the Representatives such further information, certificates and documents as the
Representatives may reasonably request in connection with the offering of the
Preferred Securities.
If any condition specified in this Section shall not have been fulfilled
when and as required to be fulfilled, this Agreement may be terminated by the
Underwriters by notice from the Representatives to the Company at any time
without liability on the part of any Underwriters, including the
Representatives, or the Company, except for expenses to be paid by the Company
pursuant to Section 7 hereof or reimbursed by the Company pursuant to Section 9
and except to the extent provided in Section 11.
SECTION 9. Reimbursement of Underwriters' Expenses. If the sale of the
Preferred Securities to the Underwriters on the Closing Date is not consummated
because the offering is terminated or indefinitely suspended by the Company or
by the Representatives for any reason permitted by this Agreement, other than a
default of any Underwriter pursuant to Section 12 hereto, the Company will
reimburse the Underwriters for the Underwriters' reasonable out- of-pocket
expenses, including fees and disbursements of their counsel, that shall have
been incurred by the Underwriters in connection with the proposed purchase and
sale of the Preferred Securities in an aggregate amount not to exceed $150,000.
Any such termination or suspension shall be without liability of any party to
the other except that the provisions of this Section 9, and Sections 7 and 11
shall remain effective and shall apply.
SECTION 10. Maintain Effectiveness of Registration Statement. The
Representatives and the Company will use their respective best efforts to
prevent the issuance of any stop order or other such order suspending the
effectiveness of the Registration Statement and, if such stop order is issued,
to obtain the lifting thereof as soon as possible.
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<PAGE> 23
SECTION 11. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages, expenses, liabilities, or actions in respect thereof ("Claims"), joint
or several to which such Underwriter or each such controlling person may become
subject under the Securities Act, the Exchange Act, the Securities Act
Regulations, Blue Sky Laws or other federal or state statutory laws or
regulations, at common law or otherwise (including payments made in settlement
of any litigation, if such settlement is effected with the written consent of
the Company, which consent shall not be unreasonably withheld), insofar as such
Claims arise out of or are based upon the inaccuracy or breach of any
representation, warranty, or covenant of the Company or the Trust contained in
this Agreement, any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or in any application filed
under any Blue Sky Law or other document executed by the Offerors for that
purpose or based upon written information furnished by the Offerors and filed in
any state or other jurisdiction to qualify or register any or all of the
Preferred Securities under the securities laws thereof (any such document,
application, or information being hereinafter called a "Blue Sky Application"),
or arise out of or are based upon the omission or alleged omission to state in
any of the foregoing a material fact required to be stated therein or necessary
to make the statements therein not misleading. The Company agrees to reimburse
each Underwriter and each such controlling person promptly for any reasonable
legal fees or other expenses incurred by such Underwriter or any such
controlling person in connection with investigating or defending any such Claim
or appearing as a third-party witness in connection with any such Claim;
provided, however, that the Company will not be liable in any such case to the
extent that:
(i) Any such Claim arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto or in any Blue Sky Application in reliance upon
and in conformity with the written information furnished by or on behalf of the
Underwriters to the Offerors expressly for use therein pursuant to Section 4 of
this Agreement; or
(ii) Such statement or omission was contained or made in any
Preliminary Prospectus and corrected in the Prospectus and (1) any such Claim
suffered or incurred by any Underwriter (or
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<PAGE> 24
any person who controls such Underwriter) resulted from an action, claim, or
suit by any person who purchased Preferred Securities that are the subject
thereof from such Underwriter in the offering of the Preferred Securities, and
(2) such Underwriter failed to deliver a copy of the Prospectus (as then amended
if the Offerors shall have amended the Prospectus) to such person at or prior to
the confirmation of the sale of such Preferred Securities in any case where such
delivery is required by the Securities Act, unless such failure was due to
failure by the Company to provide copies of the Prospectus (as so amended) to
the Underwriter as required by this Agreement.
(b) Each Underwriter severally, but not jointly, agrees to indemnify
and hold harmless the Offerors, each of their directors, each of their officers
who sign the Registration Statement, and each person who controls the Company or
the Trust within the meaning of the Securities Act, against any Claim to which
the Offerors, or any such director, officer, or controlling person may become
subject under the Securities Act, the Exchange Act, the Securities Act
Regulations, Blue Sky Laws, or other federal or state statutory laws or
regulations, at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter and the Representatives, which consent shall not be unreasonably
withheld), insofar as such Claim arises out of or is based upon any untrue or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or in any Blue Sky Application, or arises out of or is based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or in any Blue Sky Application, in reliance
upon and in conformity with the written information furnished by or on behalf of
such Underwriter to the Offerors pursuant to Section 4 of this Agreement. Each
Underwriter will severally reimburse any legal fees or other expenses reasonably
incurred by the Offerors, or any such director, officer, or controlling person
in connection with investigating or defending any such Claim, and from any and
all Claims resulting from failure of such Underwriter to deliver a copy of the
Prospectus, if the person asserting such Claim purchased Preferred Securities
from such Underwriter and a copy of the Prospectus (as then amended if the
Offerors shall have amended the Prospectus) was not sent or given by or on
behalf of such Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of
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<PAGE> 25
the Preferred Securities to such person, and if the Prospectus (as so amended)
would have cured the defect giving rise to such Claim (unless such failure was
due to a failure by the Company and the Trust to provide sufficient copies of
the Prospectuses (as so amended) to each Underwriter).
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) of this Section 11 of notice of the commencement of any action in
respect of a Claim, such indemnified party will, if a Claim in respect thereof
is to be made against an indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof. In case any such
action is brought against any indemnified party, and such indemnified party
notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in and, to the extent that it may wish,
jointly with all other indemnifying parties, similarly notified, assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to the
indemnified party and/or other indemnified parties that are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties.
(d) Upon receipt of notice from the indemnifying party to such
indemnified party of the indemnifying party's election to assume the defense of
such action and upon approval by the indemnified party of counsel selected by
the indemnifying party, the indemnifying party will not be liable to such
indemnified party under subsection (a) or (b) of this Section 11 for any legal
fees or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof, unless:
(i) the indemnified party shall have employed separate counsel
in connection with the assumption of legal defenses in accordance with the
proviso to the last sentence of subsection (c) of this Section 11 (it being
understood, however, that the indemnified party shall not be liable for the
legal fees and expenses of more than one separate counsel (plus local counsel),
approved by the Representatives if one or more of the Underwriters or their
controlling persons are the indemnified parties); or
(ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party
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<PAGE> 26
to represent the indemnified party within a reasonable time after the
indemnified party's notice to the indemnifying party of commencement of the
action;
(e) If the indemnification provided for in this Section 11 is
unavailable to an indemnified party or insufficient to hold harmless an
indemnified party under subsection (a) or (b) of this Section 11 in respect of
any Claim referred to therein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall, subject, to the limitations
hereinafter set forth, contribute to the amount paid or payable by such
indemnified party as a result of such Claim:
(i) in such proportion as is appropriate to reflect the relative
benefits received by the Offerors on the one hand and the Underwriters on the
other hand from the offering of the Preferred Securities; or
(ii) if the allocation provided by clause (e)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (e)(i) above, but also the
relative fault of the Offerors on the one hand and the Underwriters on the other
hand in connection with the statements or omissions that resulted in such Claim,
as well as any other relevant equitable considerations.
The respective relative benefits received by the Offerors on the one hand
and the Underwriters on the other hand shall be deemed to be in such proportion
that the Underwriters are responsible for that portion of a Claim represented by
the percentage that the amount of the Underwriting Commission bears to the
public offering price of the Preferred Securities, and the Company (including
the Company's directors, officers, and controlling persons) is responsible for
the remaining portion of such Claim.
The relative fault of the Offerors on the one hand and the Underwriters on
the other hand shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Offerors on the one hand or the Underwriters on the other hand and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such untrue statement or omission. The amount paid or payable by a
party as a result of the Claims referred to above shall be deemed to include,
subject to the limitations set forth in subsections (c) and (d) of this Section
11, any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim.
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<PAGE> 27
(f) The Offerors and the Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section 11 were determined by pro
rata or per capita allocation or by any other method or allocation that does not
take into account the equitable considerations referred to in subsection (e) of
this Section 11. Notwithstanding the other provisions of this Section 11, no
underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Preferred Securities underwritten by it
and distributed to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligation to contribute pursuant to this
Section 11 are several in proportion to their respective underwriting
commitments and not joint.
(g) The obligations of the Company, the Trust and the Underwriters
under this Section 11 shall be in addition to any liability that the Company,
the Trust or the Underwriters may otherwise have.
SECTION 12. Default of Underwriters. It shall be a condition to this
Agreement and to the obligations of the Trust to sell and deliver the Preferred
Securities hereunder, and to the obligations of each Underwriter to purchase the
Preferred Securities in the manner described herein, that, except as hereinafter
provided in this Section 12, each of the Underwriters (except a defaulting
Underwriter) shall purchase and pay for all the Preferred Securities agreed to
be purchased by such Underwriter hereunder upon tender to the Representatives of
all such Preferred Securities in accordance with the terms hereof. If any
Underwriter or Underwriters default in its or their obligations to purchase
Preferred Securities hereunder on either the Closing Date or the Option Closing
Date and the aggregate number of Preferred Securities that such defaulting
Underwriter or Underwriters agreed but failed to purchase does not exceed ten
percent (10%) of the liquidation amount of Preferred Securities the Underwriters
are obligated to purchase on such Closing Date, the Representatives may make
arrangements for the purchase of such Preferred Securities by other persons,
including any of the Underwriters, but if no such arrangements are made by such
Closing Date or Option Closing Date the nondefaulting Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the Preferred Securities such defaulting Underwriters agreed but failed
to purchase on such Closing Date or Option Closing Date. If any Underwriter or
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<PAGE> 28
Underwriters so default and the liquidation amount of Preferred Securities with
respect to which such default or defaults occur is greater than the above
percentage and arrangements satisfactory to the Representatives for the purchase
of such Preferred Securities by other person are not made within thirty-six (36)
hours after such default, this Agreement will terminate without liability on the
part of any nondefaulting Underwriter or the Company including under Section 7,
except to the extent provided in Section 11.
If Preferred Securities to which a default relates are to be purchased by
the nondefaulting Underwriters or by another party or parties, the
Representatives or the Company shall have the right to postpone the Closing Date
or Option Closing Date, as the case may be, for not more than seven (7) business
days in order that the necessary changes, if any, in the Registration Statement,
Prospectus, and any other documents, as well as any other arrangements, may be
effected. As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 12. Nothing herein will
relieve a defaulting Underwriter from liability for its default.
SECTION 13. Effective Date. This Agreement shall become effective
immediately on the date hereof.
SECTION 14. Termination. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof, this Agreement may be
terminated by the Representatives prior to the Closing Date and the option from
the Company and the Trust referred to in Section 3, if exercised, may be
canceled by the Representatives at any time prior to the Option Closing Date,
if:
(a) The Offerors shall have failed, refused, or been unable, at or
prior to the Closing Date or Option Closing Date, as the case may be to perform
any agreement on its part to be performed hereunder.
(b) Any other condition to the obligations of the Underwriters
hereunder is not fulfilled; or
(c) In the Representatives' reasonable judgment, payment for and
delivery of the Preferred Securities is rendered impracticable or inadvisable
because:
(i) Additional governmental restrictions, not in force and
effect on the date hereof, shall have been imposed upon trading in securities
generally or minimum or maximum prices shall have been generally established on
any national securities exchange or over-the-counter market, or trading in
securities generally shall have been suspended on any national securities
exchange or on the Nasdaq Stock Market, or a general banking
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<PAGE> 29
moratorium shall have been established by federal or state authorities;
(ii) Any event shall have occurred or shall exist that makes
untrue or incorrect in any material respect any statement or information
contained in the Registration Statement or that is not reflected in the
Registration Statement but should be reflected therein to make the statements or
information contained therein not misleading in any material respect; or
(iii) Any outbreak or escalation of major hostilities or other
national or international calamity or any substantial change in political,
financial or economic conditions shall have occurred or shall have accelerated
to such extent, in the Representatives' reasonable judgment, as to have a
material adverse effect on the general securities market or make it
impracticable or inadvisable to proceed with completion of the sale and payment
for the Preferred Securities as provided in this Agreement.
Any termination pursuant to this Section 14 shall be without liability on
the part of any Underwriter to the Company or on the part of the Company to any
Underwriter (except for expenses to be paid by the Company pursuant to Section 7
or reimbursed by the Company pursuant to Section 9 and except as to
indemnification and contribution to the extent provided in Section 11).
SECTION 15. Representations and Indemnities to Survive Delivery. The
respective indemnity and contribution agreements of the Company and the
Underwriters, and the representations, warranties, covenants, other statements
of the Offerors and of their directors and officers set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation made by or on behalf of any Underwriter, the Offerors, or any
of its or their partners, officers, directors, or any controlling person, as the
case may be, and will survive delivery of and payment for the Preferred
Securities sold hereunder. The respective indemnity and contribution of the
Company and the Underwriters, the provisions of Section 7(a) and Section 9 of
this Agreement, and the representations and warranties of the Offerors will
survive the termination or cancellation of this Agreement.
SECTION 16. Notices. All communications hereunder shall be in writing
and, if sent to the Representatives, will be mailed, delivered, or telecopied
(with receipt confirmed) to Advest, Inc., at 90 State House Square, Hartford,
Connecticut 06103, Attention: David T.W. Minot, Managing Director (Fax No. (860)
509-2131) with a copy to Steven Kaplan, Arnold & Porter, 555 Twelfth Street,
N.W., Washington, D.C. 20004, (Fax No. (202) 942-5999); and if
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<PAGE> 30
sent to the Company or the Trust will be mailed, delivered, or telecopied (with
receipt confirmed) to Acceptance Insurance Companies Inc., 222 South 15th
Street, Suite 600 North, Omaha, Nebraska 68102, Attention: William J. Gerber
(Fax No. (402) 345-9190) with a copy to Robert S. Rachofsky, LeBoeuf, Lamb,
Greene & MacRae, L.L.P., 125 West 55th Street, New York, New York 10019 (Fax No.
(212) 424-8500).
SECTION 17. Successors. This Agreement will inure to the benefit of and
be binding upon the parties hereto and their respective successors or assigns,
and to the benefit of the directors and officers (and their personal
representatives) and controlling persons referred to in Section 11, and no other
person shall acquire or have any right or obligation hereunder. The terms
"successors or assigns," as used in this Agreement, shall not include any
purchaser of the Preferred Securities from any Underwriter merely by reason of
such purchase.
SECTION 18. Partial Unenforceability. If any section, subsection, clause,
or provision of this Agreement is for any reason determined to be invalid or
unenforceable, such determination shall not affect the validity or
enforceability of any other section, subsection, clause, or provision hereof.
SECTION 19. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
SECTION 20. Entire Agreement. This Agreement embodies the entire
agreement among the parties hereto with respect to the transactions contemplated
herein, and there have not been and are no agreements among the parties with
respect to such transactions other than as set forth or provided for herein.
SECTION 21. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
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<PAGE> 31
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed counterparts hereof, whereupon it will
become a binding agreement among the Company, the Trust and the Underwriters,
including the Representatives, in accordance with its terms.
Very truly yours,
ACCEPTANCE INSURANCE COMPANIES INC.
By: ________________________________
Title: _____________________________
AICI CAPITAL TRUST
By: ACCEPTANCE INSURANCE COMPANIES INC.
as Depositor
By: ________________________________
Title: _____________________________
ADVEST, INC.
EVEREN SECURITIES, INC.
As representatives of the several
Underwriters named in Schedule A hereto.
BY ADVEST, INC.
By: ________________________________
Title: _____________________________
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<PAGE> 32
AICI CAPITAL TRUST
ACCEPTANCE INSURANCE COMPANIES INC.
SCHEDULE A
Liquidation Amount of
Firm Securities to be
Name of Underwriter Purchased
- ------------------- ---------------------
Advest, Inc............................................. $
EVEREN Securities, Inc..................................
Aggregate Liquidation Amount............................ $82,500,000
===========
<PAGE> 33
EXHIBIT A
The opinion of special counsel to the Company to be delivered pursuant to
Section 8(d)(i) of the Underwriting Agreement shall be substantially to the
effect that:
1. The Company and each Subsidiary are validly existing as corporations in good
standing under the laws of their jurisdiction of incorporation, with corporate
power and authority necessary to own, lease, and operate their respective
properties and conduct their respective businesses as described in the
Registration Statement.
2. The Company has corporate power and authority necessary to execute, deliver,
and perform the Underwriting Agreement and to issue, sell, and deliver the
Preferred Securities to be sold by it to the Underwriters as provided herein;
the Underwriting Agreement has been duly authorized, executed and delivered by
the Company and constitutes a valid and binding obligation the Company and is
enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, receivership, moratorium,
fraudulent conveyance or similar laws relating to or affecting creditors' rights
generally and to general principles of equity (whether considered in a
proceeding in equity or in law) and except as the obligations of the Company
under the indemnification and contribution provisions of Section 11 under this
Agreement may be limited by laws or be unenforceable as against public policy,
as to which no opinion is expressed.
3. The Trust Agreement has been duly authorized, executed and delivered by the
Company, and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, receivership, moratorium,
fraudulent conveyance or similar laws relating to or affecting creditors' rights
generally and to general principles of equity (whether considered in a
proceeding in equity or in law).
4. The Guarantee Agreement has been duly authorized, executed and delivered by
the Company and constitutes a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency,
<PAGE> 34
reorganization, receivership, moratorium, fraudulent conveyance or similar laws
relating to or affecting creditors' rights generally and to general principles
of equity (whether considered in a proceeding in equity or in law).
5. The Indenture has been duly authorized, executed and delivered by the
Company, has been duly qualified under the Trust Indenture Act, and constitutes
a valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, receivership, moratorium, fraudulent conveyance or similar laws
relating to or affecting creditors' rights generally and to general principles
of equity (whether considered in a proceeding in equity or in law).
6. The Junior Subordinated Debentures have been duly authorized, executed and
delivered by the Company and when duly authenticated in accordance with the
Indenture and delivered and paid for in accordance with the Junior Subordinated
Debenture Purchase Agreement dated as of August ___, 1997, by and between the
Company and the Trust, will constitute valid and binding obligations of the
Company, entitled to the benefits of the Indenture and enforceable against the
Company in accordance with their terms, subject to applicable bankruptcy,
insolvency, reorganization, receivership, moratorium, fraudulent conveyance or
similar laws relating to or affecting creditors' rights generally and to general
principles of equity (whether considered in a proceeding in equity or in law).
7. The Trust is not an "investment company" or an entity "controlled" by an
"investment company," as such terms are defined in Investment Company Act of
1940, as amended.
8. The statements set forth in the Prospectus under the headings, "Description
of Preferred Securities," "Description of Junior Subordinated Debentures,"
"Description of Guarantee" and "Relationship Among the Preferred Securities, the
Junior Subordinated Debentures and the Guarantee," insofar as they purport to
constitute summaries of the terms of such documents referred to therein, fairly
summarize the terms of such documents in all material respects.
9. The statements in the Prospectus under the headings "Certain Federal Income
Tax Consequences," "Risk Factors -- Risk Factors Relating to the Company --
Regulation"
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<PAGE> 35
and "Business -- Regulation," insofar as they constitute a summary of the legal
matters referred to therein, fairly present subject to assumptions and
conditions described therein, the information contained therein with respect to
such legal matters.
10. The Registration Statement was declared effective under the Securities Act
as of the date and time specified in such opinion and, to such counsel's
knowledge, no stop order suspending the effectiveness of the Registration
Statement has been issued under the Securities Act and no proceedings therefor
have been initiated or threatened by the Commission.
11. The Registration Statement and the Prospectus and any amendment or
supplement thereto made by the Company prior to the Closing Date or any Option
Closing Date (other than the financial statements and the notes thereto and
financial and statistical information and data included or referred to therein,
and the Statement of Eligibility and Qualification of Indenture Trustee under
the Indenture, the Guarantee Trustee under the Guarantee and the Property
Trustee under the Trust Agreement as to which no opinion need be rendered), when
it or they became effective or were filed with the Commission, as the case may
be, and in each case at the Closing Date or any Option Closing Date, complied as
to form in all material respects with the requirements of the Securities Act,
the Trust Indenture Act and the applicable rules and regulations under said
acts.
12. No approval, authorization, consent, registration, qualification or other
order of any public board or body is required under the Delaware General
Corporation law, the laws of the State of New York, the insurance laws of the
States of Arizona, Iowa, Nebraska and Texas or the Federal laws of the United
States in connection with the execution and delivery of this Agreement, the
Trust Agreement, the Guarantee Agreement, and the Indenture or the issuance and
sale of the Preferred Securities or the consummation by the Company of the other
transactions contemplated by this Agreement, the Trust Agreement, the Guarantee
Agreement, or the Indenture, except such as have been obtained under the
Securities Act, the Exchange Act and the Trust Indenture Act or such as may be
required under the blue sky or securities laws of various states in connection
with the offering and sale of the Preferred Securities (as to which such counsel
need express no opinion).
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<PAGE> 36
13. The execution and delivery of this Agreement, the Trust Agreement, the
Guarantee Agreement, and the Indenture, the issue and sale of the Preferred
Securities and the Junior Subordinated Debentures, the compliance by the Company
with the provisions of the Preferred Securities, the Junior Subordinated
Debentures, the Indenture and this Agreement and the consummation of the
transactions herein and therein contemplated will not conflict with or
constitute a breach of, or default under, the Certificate of incorporation or
by-laws of the Company or a breach or default under any contract, indenture,
mortgage, loan agreement, note, lease or other instrument known to such counsel
to which either the Company or any Subsidiary is a party or by which either of
them or any of their respective properties may be bound except for such breaches
as would not have a material adverse effect on the Company and its Subsidiaries
considered as one enterprise, nor will such action result in a violation on the
part of the Company or any Subsidiary of the Delaware General Corporation law,
or any applicable law or regulation of the State of New York, or any applicable
insurance law or regulation of the States of Arizona, Iowa, Nebraska and Texas
or the Federal laws or regulations of the United States or of any
administrative, regulatory or court decree known to such counsel.
In rendering the opinion expressed in paragraph 11 above, such counsel may
state that they necessarily assume the correctness and completeness of the
statements by the Company made or incorporated by reference in the Registration
Statement and Prospectus and no responsibility therefore. In the course of the
preparation of the Registration Statement and the Prospectus, such counsel had
conferences with certain of the officers and employees of the Company and with
independent auditors for the Company and reviewed certain corporate records,
documents and proceedings. Based upon such counsel's examination of the
Registration Statement and the above-described procedures, such counsel has no
reason to believe that the Registration Statement (it being understood that such
counsel has not been requested to comment and does not express any comment with
respect to the financial statements and the notes thereto and the related
statements, supporting schedules and other financial and statistical information
included or referred to therein or omitted therefrom, or as to the Statement of
Eligibility and Qualification of the Indenture Trustee under the Indenture, the
Guarantee Trustee under the Guarantee or the Property Trustee under the Trust
Agreement), at the time the Registration Statement became effective, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to
<PAGE> 37
make the statements therein not misleading, or that the Prospectus (it being
understood that such counsel has not been requested to comment and does not
express any comment with respect to the financial statements and the notes
thereto and the related statements, supporting schedules and other financial and
statistical information included or referred to therein or omitted therefrom, or
as to the Statement of Eligibility and Qualification of the Indenture Trustee
under the Indenture, the Guarantee Trustee under the Guarantee or the Property
Trustee under the Trust Agreement), at the time it was filed with the Commission
or at the Closing Date or any Option Closing Date, contained an untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
- 5 -
<PAGE> 38
EXHIBIT B
The opinion of counsel to the Trust Company and Trust Delaware to be delivered
pursuant to Section 8(d)(ii) of the Underwriting Agreement shall be
substantially to the effect that:
1. The Trust Company is duly incorporated and is validly existing in good
standing as a banking corporation with trust powers under the laws of the State
of New York.
2. The Indenture Trustee has the requisite power and authority to execute,
deliver and perform its obligations under the Indenture, and has taken all
necessary corporate action to authorize the execution, delivery and performance
by it of the Indenture.
3. The Guarantee Trustee has the requisite power and authority to execute,
deliver and perform its obligations under the Guarantee Agreement, and has taken
all necessary corporate action to authorize the execution, delivery and
performance by it of the Guarantee Agreement.
4. The Property Trustee has the requisite power and authority to execute and
deliver the Trust Agreement, and has taken all necessary corporate action to
authorize the execution and delivery of the Trust Agreement.
5. Each of the Indenture and the Guarantee Agreement has been duly executed and
delivered by the Indenture Trustee and the Guarantee Trustee, respectively, and
constitutes a valid and binding obligation of the Indenture Trustee and the
Guarantee Trustee, respectively, enforceable against the Indenture Trustee and
the Guarantee Trustee, respectively in accordance with its respective terms,
except that certain payment obligations may be enforceable solely against the
assets of the Trust and except that such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium, liquidation, fraudulent
conveyance and transfer or other similar laws affecting the enforcement of
creditors' rights generally, and by general principles of equity, including,
without limitation, concepts of materiality, reasonableness, good faith and fair
dealing (regardless of whether such enforceability is considered in a proceeding
in equity or at law), and by the effect of applicable public policy on the
<PAGE> 39
enforceability of provisions relating to indemnification or contribution.
6. The Junior Subordinated Debentures delivered on the date hereof have
been duly authenticated by the Indenture Trustee in accordance with the terms of
the Indenture.
- 2 -
<PAGE> 40
EXHIBIT C
The opinion of counsel, as special Delaware counsel to the Company and the Trust
to be delivered pursuant to Section 8(d)(iii) of the Underwriting Agreement
shall be substantially to the effect that:
1. The Trust has been duly created and is validly existing in good standing as
a business trust under the Delaware Business Trust Act, 12 Del. C. Section 3801
et seq. (the "Delaware Act"), and all filings required under the laws of the
State of Delaware with respect to the creation and valid existence of the Trust
as a business trust have been made.
2. Under the Delaware Act and the Trust Agreement the Trust has the trust power
and authority to own its property and to its conduct its business, all as
described in the Prospectus.
3. The Trust Agreement constitutes a valid and binding obligation of the
Company and the Property Trustee and the Delaware Trustee, and is enforceable
against the Company and the Trustees, in accordance with its terms.
4. Under the Delaware Act and the Trust Agreement, the Trust has the trust
power and authority to execute and deliver, and to perform its obligations
under, the Underwriting Agreement and to issue and perform its obligations under
the Preferred Securities and the Common Securities.
5. Under the Delaware Act and the Trust Agreement, the execution and delivery
by the Trust of the Underwriting Agreement, and the performance by the Trust of
its obligations thereunder, have been duly authorized by all necessary trust
action on the part of the Trust.
6. The Preferred Securities have been duly authorized by the Trust Agreement
and are duly and validly issued and, subject to the qualifications set forth
herein, fully paid and nonassessable undivided beneficial interests in the
assets of the Trust and are entitled to the benefits of the Trust Agreement.
The Holders, as beneficial owners of the Trust, will be entitled to the same
limitation of personal liability extended to stockholders of private
corporations for profit organized under the General Corporation Law of the State
of Delaware. We note that the Holders may be obligated
<PAGE> 41
pursuant to the Trust Agreement, (i) to provide indemnity and/or security in
connection with and pay taxes or governmental charges arising from transfers or
exchanges of Preferred Securities certificates and the issuance of replacement
Preferred Securities certificates, and (ii) to provide security or indemnity in
connection with requests of or directions to the Property Trustee to exercise
its rights and powers under the Trust Agreement.
7. Under the Delaware Act and the Trust Agreement, the issuance of the
Preferred Securities and Common Securities is not subject to preemptive rights.
8. The Common Securities have been duly authorized by the Trust Agreement and
are duly and validly issued undivided beneficial interests in the assets of the
Trust and are entitled to the benefits of the Trust Agreement.
9. The issuance and sale by the Trust of the Preferred Securities and Common
Securities, the purchase by the Trust of the Junior Subordinated Debentures, the
execution, delivery and performance by the Trust of the Underwriting Agreement,
the consummation by the Trust of the transactions contemplated by the
Underwriting Agreement and the compliance by the Trust with its obligations
thereunder will not violate (i) any of the provisions of the Certificate of
Trust or the Trust Agreement or (ii) any applicable Delaware law or Delaware
administrative regulation.
10. Trust Delaware is duly incorporated and is validly existing in good
standing as a banking corporation with trust powers under the laws of the State
of Delaware.
11. Trust Delaware has the requisite power and authority to execute and deliver
the Trust Agreement, and the Trust Agreement has been duly authorized, executed
and delivered by Trust Delaware.
- 2 -
<PAGE> 1
EXHIBIT 4.4
_______________________________________________________________________________
GUARANTEE AGREEMENT
Between
ACCEPTANCE INSURANCE COMPANIES INC.
(as Guarantor)
and
BANKERS TRUST COMPANY
(as Trustee)
dated as of
August __, 1997
_______________________________________________________________________________
AICI CAPITAL TRUST
Certain Sections of this Guarantee Agreement relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
<TABLE>
<CAPTION>
Trust Indenture Guarantee Agreement
Act Section Section
- --------------- -------------------
<S> <C> <C>
Section 310 (a) (1)........................ 4.1 (a)
(a) (2)........................ 4.1 (a)
(a) (3)........................ Not Applicable
(a) (4)........................ Not Applicable
(b)............................ 2.8, 4.1 (c)
Section 311 (a)............................ Not Applicable
(b)............................ Not Applicable
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
Section 312 (a)............................ 2.2 (a)
(b)............................ 2.2 (b)
(c)............................ Not Applicable
Section 313 (a)............................ 2.3
(a) (4)........................ 2.3
(b)............................ 2.3
(c)............................ 2.3
(d)............................ 2.3
Section 314 (a)............................ 2.4
(b)............................ 2.4
(c) (1)........................ 2.5
(c) (2)........................ 2.5
(c) (3)........................ 2.5
(e)............................ 1.1, 2.5, 3.2
Section 315 (a)............................ 3.1 (d)
(b)............................ 2.7
(c)............................ 3.1 (c)
(d)............................ 3.1 (d)
(e)............................ Not Applicable
Section 316 (a)............................ 1.1, 2.6, 5.4
(a) (1) (A).................... 5.4
(a) (1) (B).................... 5.4
(a) (2)........................ Not Applicable
(b)............................ 5.3
(c)............................ Not Applicable
Section 317 (a) (1)........................ Not Applicable
(a) (2)........................ Not Applicable
(b)............................ Not Applicable
Section 318 (a)............................ 2.1
</TABLE>
Note: This reconciliation and tie shall not, for any purpose, be
deemed to be a part of the Guarantee Agreement.
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. DEFINITIONS
Section 1.1. Definitions........................... 2
ARTICLE II. TRUST INDENTURE ACT
Section 2.1. Trust Indenture Act; Application...... 5
Section 2.2. List of Holders....................... 6
Section 2.3. Reports by the Guarantee Trustee...... 6
Section 2.4. Periodic Reports to Guarantee
Trustee............................... 6
Section 2.5. Evidence of Compliance with
Conditions Precedent.................. 6
Section 2.6. Events of Default; Waiver............. 7
Section 2.7. Event of Default; Notice.............. 7
Section 2.8. Conflicting Interests................. 7
ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE GUARANTEE
TRUSTEE
Section 3.1. Powers and Duties of the Guarantee
Trustee............................... 7
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 3.2. Certain Rights of Guarantee Trustee... 9
Section 3.3. Indemnity............................. 11
Section 3.4. Expenses.............................. 11
ARTICLE IV. GUARANTEE TRUSTEE
Section 4.1. Guarantee Trustee; Eligibility........ 11
Section 4.2. Appointment, Removal and Resignation
of the Guarantee Trustee.............. 12
ARTICLE V. GUARANTEE
Section 5.1. Guarantee............................. 13
Section 5.2. Waiver of Notice and Demand........... 13
Section 5.3. Obligations Not Affected.............. 14
Section 5.4. Rights of Holders..................... 15
Section 5.5. Guarantee of Payment.................. 15
Section 5.6. Subrogation........................... 15
Section 5.7. Independent Obligations............... 16
ARTICLE VI. COVENANTS AND SUBORDINATION
Section 6.1. Subordination......................... 16
Section 6.2. Pari Passu Guarantees................. 16
ARTICLE VII. TERMINATION
Section 7.1. Termination........................... 16
ARTICLE VIII. MISCELLANEOUS
Section 8.1. Successors and Assigns................ 17
Section 8.2. Amendments............................ 17
Section 8.3. Notices............................... 17
Section 8.4. Benefit............................... 18
Section 8.5. Interpretation........................ 19
Section 8.6. Governing Law......................... 19
Section 8.7. Counterparts.......................... 19
</TABLE>
GUARANTEE AGREEMENT
-------------------
This GUARANTEE AGREEMENT, dated as of August __, 1997 is executed and
delivered by ACCEPTANCE INSURANCE COMPANIES INC., a Delaware corporation (the
"Guarantor"), having its principal office at 222 South 15th Street, Suite 600
North, Omaha, Nebraska 68102, and BANKERS TRUST COMPANY, 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 Preferred Securities (as
defined herein) of AICI Capital Trust, a Delaware statutory business trust (the
"Issuer Trust").
WHEREAS, pursuant to an Amended and Restated Trust Agreement (the "Trust
Agreement"), dated as of August __, 1997, among Acceptance Insurance Companies
Inc., as Depositor, Bankers Trust Company, as Property Trustee (the "Property
Trustee"), Bankers Trust (Delaware), as Delaware Trustee (the "Delaware
Trustee") (collectively, the "Issuer Trustees") and the Holders from time to
time of preferred undivided beneficial ownership interests in the assets of the
Issuer Trust, the Issuer Trust is issuing up to $94,875,000 aggregate
Liquidation Amount (as defined herein) of its ____% Preferred Securities,
Liquidation Amount $25 per capital security (the "Preferred Securities"),
representing preferred undivided beneficial ownership interests in the assets of
the Issuer Trust and having the terms set forth in the Trust Agreement;
WHEREAS, the Preferred Securities will be issued by the Issuer Trust and
<PAGE> 4
the proceeds thereof, together with the proceeds from the issuance of the Issuer
Trust's Common Securities (as defined herein), will be used to purchase the
Junior Subordinated Debentures due September 30, 2027 or such shorter period (as
defined in the Trust Agreement) (the "Junior Subordinated Debentures") of the
Guarantor which will be deposited with Bankers Trust Company, as Property
Trustee under the Trust Agreement, as trust assets; and
WHEREAS, as incentive for the Holders to purchase Preferred Securities
the Guarantor desires irrevocably and unconditionally to agree, to the extent
set forth herein, to pay to the Holders of the Preferred 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 of Preferred Securities
by each Holder, which purchase the Guarantor hereby acknowledges shall benefit
the Guarantor, and intending to be legally bound hereby, the Guarantor executes
and delivers this Guarantee Agreement for the benefit of the Holders from time
to time of the Preferred 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
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.
"Additional Amounts" has the meaning specified in the Trust
Agreement.
"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.
"Common Securities" means the securities representing common undivided
beneficial interests in the assets of the Issuer Trust.
"Distributions" means preferential cumulative cash distributions
accumulating from August __, 1997 and payable quarterly in arrears on March 31,
June 30, September 30, and December 31 of each year, commencing June 30, 1997,
at the annual rate of ____% of the Liquidation Amount.
"Event of Default" means (i) a default by the Guarantor in any of its
payment obligations under this Guarantee Agreement, or (ii) a default by the
Guarantor in any other obligation hereunder that remains unremedied for 30 days.
"Guarantee Agreement" means this Guarantee Agreement, as modified,
amended or supplemented from time to time.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Preferred Securities, to the extent not
paid or made by or on behalf of the Issuer Trust: (i) any accrued and unpaid
<PAGE> 5
Distributions (as defined in the Trust Agreement) required to be paid on the
Preferred Securities, to the extent the Issuer Trust shall have funds on hand
available therefor at such time, (ii) the Redemption Price, with respect to the
Preferred Securities called for redemption by the Issuer Trust to the extent
that the Issuer Trust 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 Trust, unless Junior Subordinated Debentures are distributed to
the Holders, the lesser of (a) the aggregate of the Liquidation Amount and all
accumulated and unpaid Distributions to the date of payment to the extent the
Issuer Trust shall have funds on hand available to make such payment at such
time and (b) the amount of assets of the Issuer Trust remaining available for
distribution to Holders in liquidation of the Issuer Trust (in either case, the
"Liquidation Distribution").
"Guarantee Trustee" means Bankers Trust Company, 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.
"Guarantor" shall have the meaning specified in the first paragraph of
this Guarantee Agreement.
"Holder" means any holder, as registered on the books and records of the
Issuer Trust, of any Preferred Securities; provided, however, that, in
determining whether the holders of the requisite percentage of Preferred
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 August __, 1997, between Acceptance Insurance Companies Inc.
and Bankers Trust Company, as trustee, as may be modified, amended
or supplemented from time to time.
"Issuer Trust" shall have the meaning specified in the first paragraph of
this Guarantee Agreement.
"Liquidation Amount" means the stated amount of $25 per
Preferred Security.
"Majority in Liquidation Amount of the Preferred Securities" means,
except as provided by the Trust Indenture Act, Preferred Securities representing
more than 50% of the aggregate Liquidation Amount of all then outstanding
Preferred Securities issued by the Issuer Trust.
"Like Amount" means (a) with respect to a redemption of Preferred
Securities, Preferred Securities having a Liquidation Amount equal to the
principal amount of Junior Subordinated Debentures to be contemporaneously
redeemed in accordance with the Indenture, the proceeds of which will be used to
pay the Redemption Price of such Preferred Securities, (b) with respect to a
distribution of Junior Subordinated Debentures to Holders of Preferred
Securities in connection with a dissolution or liquidation of the Issuer Trust,
Junior Subordinated Debentures having a principal amount equal to the
Liquidation Amount of the Preferred Securities of the Holder to whom such Junior
Subordinated Debentures are distributed, and (c) with respect to any
distribution of Additional Amounts to Holders of Preferred Securities, Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Preferred Securities in respect of which such distribution is
<PAGE> 6
made.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chairman and Chief Executive Officer, President or a Vice
President, and by the Treasurer, an Associate 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 by each officer signing the Officers' Certificate
that such officer 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 such officer in
rendering the Officers' Certificate;
(c) a statement that 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 such officer, such
condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"Preferred Securities" shall have the meaning specified in the first
recital of this Guarantee Agreement.
"Redemption Date" means, with respect to any Preferred Security to be
redeemed, the date fixed for such redemption by or pursuant to the Trust
Agreement; provided that each Junior Subordinated Debenture Redemption Date (as
such term is defined in the Indenture) and the stated maturity of the Junior
Subordinated Debentures shall be a Redemption Date for a Like Amount of
Preferred Securities.
"Redemption Price" shall have the meaning specified in the
Trust Agreement.
"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 having direct responsibility for the administration of
this Indenture, 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.
"Senior Indebtedness" shall have the meaning specified in
the Indenture.
"Successor Guarantee Trustee" means a successor Guarantee Trustee
<PAGE> 7
possessing the qualifications to act as Guarantee Trustee under Section 4.1.
"Trust Agreement" means the Amended and Restated Trust Agreement, dated
August __, 1997, executed by Acceptance Insurance Companies Inc., as Depositor,
Bankers Trust (Delaware), as Delaware Trustee, and Bankers Trust Company, as
Property Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939
(15 U.S.C. Sections 77aaa-77bbbb), as amended.
ARTICLE II. TRUST INDENTURE ACT
SECTION 2.1. Trust Indenture Act; Application.
If any provision hereof limits, qualifies or conflicts with a provision
of the Trust Indenture Act that is required under such Act to be a part of and
govern this Guarantee Agreement, the provision of the Trust Indenture Act shall
control. If any provision of this Guarantee Agreement modifies or excludes any
provision of the Trust Indenture Act that may be so modified or excluded, the
latter provision shall be deemed to apply to this Guarantee Agreement as so
modified or excluded, as the case may be.
SECTION 2.2. List of Holders.
(a) The Guarantor will furnish or cause to be
furnished to the Guarantee Trustee:
(i) semi-annually, not more than 15 days after June 15 and
December 15 in each year, a list, in such form as the Guarantee Trustee may
reasonably require, of the names and addresses of the Holders as of such date;
and
(ii) 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 similar form and content as of a date not more than 15 days
prior to the time such list is furnished.
(b) The Guarantee Trustee shall comply with the requirements of
Section 312(b) of the Trust Indenture Act.
SECTION 2.3. Reports by the Guarantee Trustee.
Not later than January 31 of each year, commencing January 31, 1998, the
Guarantee Trustee shall provide to the Holders such reports, if any, as are
required by Section 313 of the Trust Indenture Act 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, 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
<PAGE> 8
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 Preferred
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 received 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 hereunder. The right, title and interest of the
Guarantee Trustee, as such, hereunder 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
<PAGE> 9
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 be obligated to perform only such duties as are specifically set forth in
this Guarantee Agreement (including pursuant to Section 2.1), and no implied
covenants shall be read into this Guarantee Agreement against the Guarantee
Trustee. If 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 (including pursuant to Section 2.1), 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 (including
pursuant to Section 2.1); 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 Preferred 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
<PAGE> 10
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 adequate indemnity
against such risk or liability is not reasonably 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 which, upon receipt of such
request from the Guarantee Trustee, shall be promptly delivered by the
Guarantor.
(iv) The Guarantee Trustee may consult with legal counsel, and
the advice or written 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 as would satisfy a
reasonable person in the position of the Guarantee Trustee, 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.
(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
<PAGE> 11
through its agents or attorneys, and the Guarantee Trustee shall not be
responsible for any negligence or wilful misconduct 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 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.
(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. Indemnity.
The Guarantor agrees to indemnify the Guarantee Trustee for, and to hold
it harmless against, any loss, liability or expense incurred without negligence,
wilful misconduct 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.
SECTION 3.4. Expenses.
The Guarantor shall from time to time reimburse the Guarantee Trustee for
its reasonable expenses and costs (including reasonable attorneys' or agents'
fees) incurred in connection with the performance of its duties hereunder.
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
<PAGE> 12
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(b).
(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) No resignation or removal of the Guarantee Trustee and no
appointment of a Successor Guarantee Trustee pursuant to this Article shall
become effective until the acceptance of appointment by the Successor Guarantee
Trustee by written instrument executed by the Successor Guarantee Trustee and
delivered to the Holders and the Guarantee Trustee.
(b) Subject to the immediately preceding paragraph, a Guarantee
Trustee may resign at any time by giving written notice thereof to the Holders.
The Guarantee Trustee shall appoint a successor by requesting from at least
three Persons meeting the eligibility requirements such Person's expenses and
charges to serve as the Guarantee Trustee, and selecting the Person who agrees
to the lowest expenses and charges, subject to the prior consent of the
Depositor which consent shall not be unreasonably withheld. If the instrument of
acceptance by the Successor Guarantee Trustee shall not have been delivered to
the Guarantee Trustee within 60 days after the giving of such notice of
resignation, the Guarantee Trustee may petition, at the expense of the
Guarantor, any court of competent jurisdiction for the appointment of a
Successor Guarantee Trustee.
(c) The Guarantee Trustee may be removed for cause at any time by
Act (within the meaning of Section 6.8 of the Trust Agreement) of the Holders of
at least a Majority in Liquidation Amount of the Preferred Securities, delivered
to the Guarantee Trustee.
(d) If a resigning Guarantee Trustee shall fail to appoint a
successor, or if a Guarantee Trustee shall be removed or become incapable of
acting as Guarantee Trustee, or if any vacancy shall occur in the office of any
Guarantee Trustee for any cause, the Holders of the Preferred Securities, by Act
of the Holders of record of not less than 25% in aggregate Liquidation Amount of
the Preferred Securities then outstanding delivered to such Guarantee Trustee,
shall promptly appoint a successor Guarantee Trustee. If no Successor Guarantee
Trustee shall have been so appointed by the Holders of the Preferred Securities
and such appointment accepted by the Successor Guarantee Trustee, any Holder, on
behalf of himself and all others similarly situated, may petition any court of
competent jurisdiction for the appointment of a Successor Guarantee Trustee.
ARTICLE V. GUARANTEE
SECTION 5.1. Guarantee.
The Guarantor irrevocably and unconditionally agrees to pay in full on a
subordinated basis as set forth in Section 6.1 hereof to the Holders the
Guarantee Payments (without duplication of amounts theretofore paid by or on
<PAGE> 13
behalf of the Issuer Trust), as and when due, regardless of any defense, right
of set-off or counterclaim which the Issuer Trust may have or assert, except 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 Trust to pay such amounts to the Holders. The
Guarantor shall give prompt written notice to the Guarantee Trustee in the event
it makes any direct payment hereunder.
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, the Issuer Trust 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 Trust of any express or implied
agreement, covenant, term or condition relating to the Preferred Securities to
be performed or observed by the Issuer Trust;
(b) the extension of time for the payment by the Issuer Trust 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 Junior Subordinated Debentures as so provided in the Indenture),
Redemption Price, Liquidation Distribution or any other sums payable under the
terms of the Preferred Securities or the extension of time for the performance
of any other obligation under, arising out of, or in connection with, the
Preferred 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 Preferred Securities, or
any action on the part of the Issuer Trust 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 Trust or any of the
assets of the Issuer Trust;
(e) any invalidity of, or defect or deficiency in,
the Preferred 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 (other than
payment of the underlying obligation), it being the intent of this Section 5.3
<PAGE> 14
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 Preferred 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 Guarantee Trustee, the Issuer
Trust 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 Trust) or upon the distribution of Junior Subordinated Debentures
to Holders as provided in the Trust Agreement.
SECTION 5.6. Subrogation.
The Guarantor shall be subrogated to all rights (if any) of the Holders
against the Issuer Trust in respect of any amounts paid to the Holders by the
Guarantor under this Guarantee Agreement; 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, 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 Trust with respect to the Preferred 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.
<PAGE> 15
This Guarantee Agreement will constitute an unsecured obligation of the
Guarantor and will rank subordinate and junior in right of payment to all Senior
Indebtedness of the Guarantor to the extent and in the manner set forth in the
Indenture with respect to the Junior Subordinated Debentures, and the provisions
of Article XIII of the Indenture will apply, mutatis mutandis, to the
obligations of the Guarantor hereunder. The obligations of the Guarantor
hereunder do not constitute Senior Indebtedness of the Guarantor.
SECTION 6.2. Pari Passu Guarantees.
The obligations of the Guarantor under this Guarantee Agreement shall
rank pari passu with any similar guarantee agreements issued by the Guarantor on
behalf of the holders of preferred or capital securities issued by the Issuer
Trust and with any other security, guarantee or other obligation that is
expressly stated to rank pari passu with the obligations of the Guarantor under
this Guarantee Agreement.
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 Preferred
Securities, (ii) the distribution of Junior Subordinated Debentures to the
Holders in exchange for all of the Preferred Securities or (iii) full payment of
the amounts payable in accordance with Article IX of the Trust Agreement upon
liquidation of the Issuer Trust. 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 is required to repay any sums paid with respect to
Preferred 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 Preferred
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 assignee agrees in writing to perform the
Guarantor's obligations hereunder, the Guarantor shall not assign its
obligations hereunder, and any purported assignment that is not in accordance
with these provisions shall be void.
SECTION 8.2. Amendments.
Except with respect to any changes that do not materially adversely
affect the rights of the Holders (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 the
Preferred 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.
<PAGE> 16
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 or telecopy number set
forth below or such other address or telecopy number or to the attention of such
other Person as the Guarantor may give notice to the Holders:
Acceptance Insurance Companies Inc.
222 South 15th Street
Suite 600 North
Omaha, Nebraska 68102
Facsimile No.: 402-345-9190
Attention: William J. Gerber
(b) if given to the Issuer Trust, in care of the Guarantee Trustee,
at the Issuer Trust's (and the Guarantee Trustee's) address set forth below or
such other address or telecopy number or to the attention of such other Person
as the Guarantee Trustee on behalf of the Issuer Trust may give notice to the
Holders:
c/o Acceptance Insurance Companies Inc.
222 South 15th Street
Suite 600 North
Omaha, Nebraska 68102
Facsimile No.: 402-345-9190
Attention: William J. Gerber
with a copy to:
Bankers Trust Company
Four Albany Street - 4th Floor
New York, New York 10006
Facsimile No.: (212) 250-6961
Attention: Corporate Trust and Agency Group;
Corporate Market Services
(c) if given to the Guarantee Trustee:
Bankers Trust Company
Four Albany Street - 4th Floor
New York, New York 10006
Facsimile No.: (212) 250-6961
Attention: Corporate Trust and Agency Group
Corporate Market Services
(d) if given to any Holder, at the address set forth
on the books and records of the Issuer Trust.
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.
<PAGE> 17
This Guarantee Agreement is solely for the benefit of the Holders and is
not separately transferable from the Preferred 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 WITHOUT REGARD
TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
SECTION 8.7. Counterparts.
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.
ACCEPTANCE INSURANCE COMPANIES INC.
By:____________________________
Name:
Title:
<PAGE> 18
BANKERS TRUST COMPANY,
as Guarantee Trustee
and not in its individual
capacity
By:____________________________
Name:
Title:
<PAGE> 1
EXHIBIT 4.5
_______________________________________________________________________________
JUNIOR SUBORDINATED INDENTURE
Between
<PAGE> 2
ACCEPTANCE INSURANCE COMPANIES INC.
and
BANKERS TRUST COMPANY
(as Trustee)
dated as of
August __, 1997
_______________________________________________________________________________
AICI CAPITAL TRUST
Certain Sections of this Junior Subordinated Indenture relating
to Sections 310 through 318 of the
Trust Indenture Act of 1939:
<TABLE>
<CAPTION>
Trust Indenture Junior Subordinated
Act Section Indenture Section
- --------------- -------------------
<S> <C>
Section 310(a)(1).......................... 6.9
(a)(2).......................... 6.9
(a)(3).......................... Not Applicable
(a)(4).......................... Not Applicable
(a)(5).......................... 6.9
(b)............................. 6.8, 6.10
Section 311(a)............................. 6.13
(b)............................. 6.13
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
(b)(2).......................... 7.3(a)
Section 312(a)............................. 7.1, 7.2(a)
(b)............................. 7.2(b)
(c)............................. 7.2(c)
Section 313(a)............................. 7.3(a)
(a)(4).......................... 7.3(a)
(b)............................. 7.3(b)
(c)............................. 7.3(a)
(d)............................. 7.3(c)
Section 314(a)............................. 7.4
(b)............................. 7.4
(c)(1).......................... 1.2
(c)(2).......................... 1.2
(c)(3).......................... Not Applicable
(e)............................. 1.2
Section 315(a)............................. 6.1(a)
(b)............................. 6.2, 7.3
(c)............................. 6.1(b)
(d)............................. 6.1(c)
(e)............................. 5.14
Section 316(a)............................. 5.12
(a)(1)(A)....................... 5.12
(a)(1)(B)....................... 5.13
(a)(2).......................... Not Applicable
(b)............................. 5.8
(c)............................. 1.4(f)
Section 317(a)(1).......................... 5.3
(a)(2).......................... 5.4
(b)............................. 10.3
Section 318(a)............................. 1.7
</TABLE>
Note: This reconciliation and tie shall not, for any purpose,
be deemed to be a part of the Indenture.
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I. DEFINITIONS AND OTHER PROVISIONS OF
GENERAL APPLICATION....................... 2
SECTION 1.1. Definitions............................... 2
SECTION 1.2. Compliance Certificate and Opinions....... 12
SECTION 1.3. Forms of Documents Delivered to Trustee... 13
SECTION 1.4. Acts of Holders........................... 14
SECTION 1.5. Notices, Etc. to Trustee and Company...... 16
SECTION 1.6. Notice to Holders; Waiver................. 17
SECTION 1.7. Conflict with Trust Indenture Act......... 17
SECTION 1.8. Effect of Headings and Table of Contents.. 17
SECTION 1.9. Successors and Assigns.................... 18
SECTION 1.10. Separability Clause....................... 18
SECTION 1.11. Benefits of Indenture..................... 18
SECTION 1.12. Governing Law............................. 18
SECTION 1.13. Non-Business Days......................... 18
ARTICLE II. SECURITY FORMS............................ 19
SECTION 2.1. Forms Generally........................... 19
SECTION 2.2. Form of Face of Security.................. 20
SECTION 2.3. Form of Reverse of Security............... 24
SECTION 2.4. Additional Provisions Required in Global
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
Security.................................. 28
SECTION 2.5. Form of Trustee's Certificate
of Authentication......................... 28
ARTICLE III. THE SECURITIES
SECTION 3.1. Title and Terms........................... 29
SECTION 3.2. Denominations............................. 32
SECTION 3.3. Execution, Authentication, Delivery
and Dating................................ 32
SECTION 3.4. Temporary Securities...................... 34
SECTION 3.5. Global Securities......................... 35
SECTION 3.6. Registration, Transfer and Exchange
Generally; Certain Transfers and
Exchanges; Securities Act Legends......... 36
SECTION 3.7. Mutilated, Lost and Stolen Securities..... 40
SECTION 3.8. Payment of Interest and Additional
Interest; Interest Rights Preserved....... 41
SECTION 3.9. Persons Deemed Owners..................... 42
SECTION 3.10. Cancellation.............................. 43
SECTION 3.11. Computation of Interest................... 43
SECTION 3.12. Deferrals of Interest Payment Dates....... 43
SECTION 3.13. Right of Set-Off.......................... 45
SECTION 3.14. Agreed Tax Treatment...................... 45
SECTION 3.15. Shortening or Extension of Stated
Maturity.................................. 45
SECTION 3.16. CUSIP Numbers............................. 46
ARTICLE IV. SATISFACTION AND DISCHARGE................ 46
SECTION 4.1. Satisfaction and Discharge of Indenture... 46
SECTION 4.2. Application of Trust Money................ 48
ARTICLE V. REMEDIES.................................. 48
SECTION 5.1. Events of Default......................... 48
SECTION 5.2. Acceleration of Maturity; Rescission
and Annulment............................. 49
SECTION 5.3. Collection of Indebtedness and Suits
for Enforcement by Trustee................ 51
SECTION 5.4. Trustee May File Proofs of Claim.......... 51
SECTION 5.5. Trustee May Enforce Claim Without
Possession of Securities.................. 52
SECTION 5.6. Application of Money Collected............ 53
SECTION 5.7. Limitation on Suits....................... 53
SECTION 5.8. Unconditional Right of Holders to
Receive Principal, Premium and
Interest; Direct Action by Holders
of Preferred Securities................... 54
SECTION 5.9. Restoration of Rights and Remedies........ 55
SECTION 5.10. Rights and Remedies Cumulative............ 55
SECTION 5.11. Delay or Omission Not Waiver.............. 55
SECTION 5.12. Control by Holders........................ 56
SECTION 5.13. Waiver of Past Defaults................... 56
SECTION 5.14. Undertaking for Costs..................... 57
SECTION 5.15. Waiver of Usury, Stay or Extension Laws... 57
ARTICLE VI. THE TRUSTEE............................... 58
SECTION 6.1. Certain Duties and Responsibilities....... 58
SECTION 6.2. Notice of Defaults........................ 59
SECTION 6.3. Certain Rights of Trustee................. 59
SECTION 6.4. Not Responsible for Recitals or
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
Issuance of Securities.................... 60
SECTION 6.5. May Hold Securities....................... 61
SECTION 6.6. Money Held in Trust....................... 61
SECTION 6.7. Compensation and Reimbursements........... 61
SECTION 6.8. Disqualification; Conflicting
Interests................................. 62
SECTION 6.9. Corporate Trustee Required;
Eligibility............................... 62
SECTION 6.10. Resignation and Removal; Appointment
of Successor.............................. 63
SECTION 6.11. Acceptance of Appointment by
Successor................................. 65
SECTION 6.12. Merger, Conversion, Consolidation or
Succession to Business.................... 66
SECTION 6.13. Preferential Collection of Claims Against
Company................................... 67
SECTION 6.14. Appointment of Authenticating Agent....... 67
ARTICLE VII. HOLDER'S LISTS AND REPORTS BY TRUSTEE,
PAYING AGENT AND COMPANY.................. 69
SECTION 7.1. Company to Furnish Trustee Names and
Addresses of Holders...................... 69
SECTION 7.2. Preservation of Information,
Communications to Holders ................ 69
SECTION 7.3. Reports by Trustee and Paying Agent....... 70
SECTION 7.4. Reports by Company........................ 70
ARTICLE VIII. CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE......................... 70
SECTION 8.1. Company May Consolidate, Etc., Only
on Certain Terms.......................... 70
SECTION 8.2. Successor Company Substituted............. 71
ARTICLE IX. SUPPLEMENTAL INDENTURES................... 72
SECTION 9.1. Supplemental Indentures Without Consent
of Holders................................ 72
SECTION 9.2. Supplemental Indentures With Consent of
Holders................................... 74
SECTION 9.3. Execution of Supplemental Indentures...... 75
SECTION 9.4. Effect of Supplemental Indentures......... 76
SECTION 9.5. Conformity with Trust Indenture Act....... 76
SECTION 9.6. Reference in Securities to Supplemental
Indentures................................ 76
ARTICLE X. COVENANTS................................. 76
SECTION 10.1. Payment of Principal, Premium
and Interest.............................. 76
SECTION 10.2. Maintenance of Office or Agency........... 76
SECTION 10.3. Money for Security Payments to be Held in
Trust..................................... 77
SECTION 10.4. Statement as to Compliance................ 79
SECTION 10.5. Waiver of Certain Covenants............... 79
SECTION 10.6. Additional Sums........................... 79
SECTION 10.7. Additional Covenants...................... 80
SECTION 10.8. Original Issue Discount................... 81
ARTICLE XI. REDEMPTION OF SECURITIES.................. 82
SECTION 11.1. Applicability of This Article............. 82
SECTION 11.2. Election to Redeem; Notice of Trustee..... 82
SECTION 11.3. Selection of Securities to be Redeemed.... 82
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C>
SECTION 11.4. Notice of Redemption...................... 83
SECTION 11.5. Deposit of Redemption Price............... 84
SECTION 11.6. Payment of Securities Called for
Redemption................................ 84
SECTION 11.7. Right of Redemption of Securities
Initially Issued to an Issuer Trust....... 85
ARTICLE XII. SINKING FUNDS............................. 85
ARTICLE XIII. SUBORDINATION OF SECURITIES............... 85
SECTION 13.1. Securities Subordinate to Senior
Indebtedness.............................. 85
SECTION 13.2. No Payment When Senior Indebtedness
in Default; Payment Over of Proceeds
Upon Dissolution, Etc..................... 86
SECTION 13.3. Payment Permitted if no Default........... 88
SECTION 13.4. Subrogation to Rights of Holders of
Senior Indebtedness....................... 88
SECTION 13.5. Provisions Solely to Define Relative
Rights.................................... 89
SECTION 13.6. Trustee to Effectuate Subordination....... 89
SECTION 13.7. No Waiver of Subordination Provisions..... 89
SECTION 13.8. Notice to Trustee......................... 90
SECTION 13.9. Reliance on Judicial Order or
Certificate of Liquidating Agent.......... 91
SECTION 13.10. Trustee Not Fiduciary for Holders of
Senior Indebtedness....................... 91
SECTION 13.11. Rights of Trustee as Holder of Senior
Indebtedness; Preservation of Trustee's
Rights.................................... 91
SECTION 13.12. Article Applicable to Paying Agents....... 92
SECTION 13.13. Certain Conversions or Exchanges
Deemed Payment............................ 92
</TABLE>
ANNEX A FORM OF RESTRICTED SECURITIES CERTIFICATE
JUNIOR SUBORDINATED INDENTURE
-----------------------------
THIS JUNIOR SUBORDINATED INDENTURE, dated as of August __, 1997,
between ACCEPTANCE INSURANCE COMPANIES INC., a Delaware Corporation
(the "Company"), having its principal office 222 South 15th Street,
Suite 600 North, Omaha, Nebraska 68102, and BANKERS TRUST COMPANY,
as Trustee, having its principal office at Four Albany Street,
4th Floor, New York, New York 10006 (the "Trustee").
RECITALS OF THE COMPANY
WHEREAS, 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
Securities issued to evidence loans made to the Company from the proceeds from
the issuance from time to time by one or more business trusts (each an "Issuer
Trust") of undivided preferred beneficial interests in the assets of such Issuer
Trusts (the "Preferred Securities") and common undivided interests in the assets
of such Issuer Trusts (the "Common Securities" and, collectively with the
<PAGE> 7
Preferred Securities, the "Trust Securities"), and to provide the terms and
conditions upon which the Securities are to be authenticated, issued and
delivered; and
WHEREAS, all things necessary to make this Indenture a valid agreement of
the Company, in accordance with 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 (as such term is defined in Section 1.1 hereof)
thereof, it is mutually covenanted and agreed, for the equal and proportionate
benefit of all Holders of the Securities or of any series thereof, and intending
to be legally bound hereby, 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 that are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(3) The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation";
(4) All accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles as
in effect at the time of computation;
(5) Whenever the context may require, any gender shall be
deemed to include the other;
(6) 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
Indenture; and
(7) The words "hereby", "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(a).
"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.
<PAGE> 8
"Additional Taxes" means any additional taxes, duties and other
governmental charges to which an Issuer Trust has become subject from time to
time as a result of a Tax Event.
"Administrator" means, in respect of any Issuer Trust, each Person
appointed in accordance with the related Trust Agreement, solely in such
Person's capacity as Administrator of such Issuer Trust 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. 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
Depositary.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Security or beneficial interest therein, the
rules and procedures of the Depositary for such Global 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.
"Board of Directors" means the board of directors of the Company or the
Executive Committee of the board of directors of the Company (or any other
committee of the board of directors of the Company performing similar functions)
or, for purposes of this Indenture, a committee designated by the board of
directors of the Company (or such committee), comprised of two or more members
of the board of directors of the Company or officers of the Company, or both.
"Board Resolution" means a copy of a resolution certified by the
Secretary or any Assistant Secretary of the Company to have been duly adopted by
the Board of Directors, or such committee of 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 or the Borough of
Boyertown are authorized or required by law or executive order to remain closed,
or (iii) day on which the Corporate Trust Office of the Trustee, or, with
respect to the Securities of a series initially issued to an Issuer Trust, the
"Corporate Trust Office" (as defined in the related Trust Agreement) of the
Property Trustee or the Delaware Trustee under the related Trust Agreement, is
closed for business.
"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.
<PAGE> 9
"Common Securities" has the meaning specified in the first
recital of this Indenture.
"Common Stock" means the common stock, par value $0.40 per
share, of the Company.
"Company" means the Person named as the "Company" in the first paragraph
of this instrument until a successor entity shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor entity.
"Company Request" and "Company Order" mean, respectively, the written
request or order signed in the name of the Company by any Chairman of the Board
of Directors, any Vice Chairman of the Board of Directors, its President or a
Vice President, and by its Chief Financial Officer, its Treasurer, its Secretary
or an Assistant Secretary, and delivered to the Trustee.
"Corporate Trust Office" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be administered.
"Creditor" has the meaning specified in Section 6.7(c).
"Defaulted Interest" has the meaning specified in Section 3.8.
"Delaware Trustee" means, with respect to any Issuer Trust, the Person
identified as the "Delaware Trustee" in the related Trust Agreement, solely in
its capacity as Delaware Trustee of such Issuer Trust under such Trust Agreement
and not in its individual capacity, or its successor in interest in such
capacity, or any successor Delaware trustee appointed as therein provided.
"Depositary" means, with respect to the Securities of any series issuable
or issued in whole or in part in the form of one or more Global Securities, the
Person designated as Depositary by the Company pursuant to Section 3.1 with
respect to such series (or any successor thereto).
"Discount Security" means any security that provides for an amount less
than the principal amount thereof to be due and payable upon a declaration of
acceleration of the Maturity thereof pursuant to Section 5.2.
"Dollar" or "$" 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.
The term "entity" includes a bank, corporation, association, company,
limited liability company, joint-stock company or business trust.
"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.
"Expiration Date" has the meaning specified in Section 1.4(f).
"Extension Period" has the meaning specified in Section 3.12.
<PAGE> 10
"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 Depositary or
its nominee for such series, and registered in the name of such Depositary or
its nominee.
"Guarantee" means, with respect to any Issuer Trust, the Guarantee
Agreement executed by the Company for the benefit of the Holders of the
Preferred Securities issued by such Issuer Trust as modified, amended or
supplemented from time to time.
"Holder" means a Person in whose name a Security is registered in the
Securities Register.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof
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.
"Interest Payment Date" means, as to each series of Securities, the
Stated Maturity of an installment of interest on such Securities.
"Investment Company Act" means the Investment Company Act of 1940 and any
statute successor thereto, in each case as amended from time to time.
"Investment Company Event" means the receipt by an Issuer 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 the occurrence of a change
in law or regulation or a written change (including any annnounced prospective
change) in interpretation or application of law or regulation by any
legislative body, court, governmental agency or regulatory authority, there
is more than an insubstantial risk that such Issuer Trust is or will be
considered an "investment company" that is required to be registered under
the Investment Company Act, which change or prospective change becomes
effective or would become effective, as the case may be, on or after
the date of the issuance of the Preferred Securities of such Issuer Trust.
"Issuer Trust" has the meaning specified in the first
recital of this Indenture.
"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.
"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 and Chief Executive Officer, President or a Vice President, and by the
Chief Financial Officer, the Treasurer, an Assistant Treasurer, the Secretary or
an Assistant Secretary, of the Depositor, and delivered to the party provided
herein. Any Officers' Certificate delivered with respect to compliance with a
condition or covenant provided for in this Trust Agreement shall include:
<PAGE> 11
(a) a statement by each officer signing the Officers' Certificate that
such officer 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 such officer in
rendering the Officers' Certificate;
(c) a statement that 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, who may be
counsel for or an employee of the Company or any Affiliate of the Company.
"Original Issue Date" means the date of issuance specified as such in
each Security.
"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 that 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 (other
than, for the avoidance of doubt, the Issuer Trust to which Securities of
the applicable series were initially issued) 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 that
the Trustee knows to be so owned shall be so disregarded. Securities so
owned that 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 (other than, for the
avoidance of doubt, such Issuer Trust). 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
<PAGE> 12
obligor (other than, for the avoidance of doubt, such Issuer Trust), 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 (or premium, if any) or interest on, or other amounts in
respect of 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 Section 3.1.
"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. For the purposes of this definition, any security
authenticated and delivered under Section 3.7 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.
"Preferred Securities" has the meaning specified in the
first recital of this Indenture.
"Proceeding" has the meaning specified in Section 13.2.
"Property Trustee" means, with respect to any Issuer Trust, the Person
identified as the "Property Trustee" in the related Trust Agreement, solely in
its capacity as Property Trustee of such Issuer 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 or the
terms of such Security.
"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 such series, the close of
business on March 15, June 15, September 15 or December 15 next preceding such
Interest Payment Date (whether or not a Business Day).
"Responsible Officer", when used with respect to the Property Trustee
means 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
having direct responsibility for the administration of this Indenture, 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.
<PAGE> 13
"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 A.
"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 any 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 any class or series of capital
stock of the Company which rights (i) are deemed to be transferred with such
shares of such Common Stock, (ii) are not exercisable, and (iii) are also issued
in respect of future issuances of such Common Stock, in each case until the
occurrence of a specified event or events.
"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, as modified, amended
or supplemented from time to time.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 3.6(a).
"Senior Indebtedness" means, whether recourse is to all or a portion of
the assets of the Company and whether or not contingent, (i) every obligation of
the Company for money borrowed; (ii) every obligation of the Company evidenced
by bonds, debentures, notes or other similar instruments, including obligations
incurred in connection with the acquisition of property, assets or businesses;
(iii) every reimbursement obligation of the Company with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account of the
Company; (iv) every obligation of the Company issued or assumed as the deferred
purchase price of property of services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business); (v) every
capital lease obligation of the Company; (vi) every obligation of the Company
for claims (as defined in Section 101(4) of the United States Bankruptcy Code of
1978, as amended) in respect of derivative products such as interest and foreign
exchange rate contracts, commodity contracts and similar arrangements; and (vii)
every obligation of the type referred to in clauses (i) through (vi) of another
person and all dividends of another person the payment of which, in either case,
the Company has guaranteed or is responsible or liable, directly or indirectly,
as obligor or otherwise; provided that "Senior Indebtedness" shall not include
(i) any obligations which, by their terms, are expressly stated to rank pari
passu in right of payment with, or to not be superior in right of payment to,
the Junior Subordinated Debentures, (ii) any Senior Indebtedness of the Company
which when incurred and without respect to any election under Section 1111(b) of
the United States Bankruptcy Code of 1978, as amended, was without recourse to
the Company, (iii) any indebtedness of the Company to any of its subsidiaries,
(iv) indebtedness to any executive officer or director of the Company, or (v)
any indebtedness in respect of debt securities issued to any trust, or a trustee
of such trust, partnership or other entity affiliated with the Company that is a
financing entity of the Company in connection with the issuance of such
financing entity of securities that are similar to the Preferred Securities.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.8.
<PAGE> 14
"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 fixed date on which the principal
of such Security or such installment of principal or interest is due and
payable, as such date may, in the case of such principal, be shortened or
extended as provided pursuant to the terms of such Security and this Indenture.
"Subsidiary" means an entity 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 that 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 3.7 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 an Issuer 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 or administrative pronouncement or action or
judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or which pronouncement, action or decision
is announced on or after the date of issuance of the Preferred Securities
of such Issuer Trust, there is more than an insubstantial risk that
(i) such Issuer Trust is, or will be within 90 days of the delivery 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 Issuer Trust,
(ii) interest payable by the Company on such corresponding series of
Securities is not, or within 90 days of the delivery 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 Issuer Trust is, or will be within 90
days of the delivery of such Opinion of Counsel, subject to more than a de
minimis amount of other taxes, duties or other governmental charges.
"Trust Agreement" means, with respect to any Issuer Trust, the trust
agreement or other governing instrument of such Issuer Trust.
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this Indenture, solely in its capacity as such and not in its individual
capacity, 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, as modified,
amended or supplemented from time to time, except as provided in Section 9.5.
"Trust Securities" has the meaning specified in the first
recital of this Indenture.
"Vice President," when used with respect to the Company, means any duly
<PAGE> 15
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 constitutes 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 by each individual signing such certificate or
opinion that such individual 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 of such individual
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he or she
has made such examination or investigation as is necessary to enable him
or her 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 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 or her 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.
<PAGE> 16
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 or her the execution thereof.
Where such execution is by a Person acting in other than his or her individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his or her 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 provided in any other manner that 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 succeeding 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 defined below) by Holders of the requisite principal amount of Outstanding
<PAGE> 17
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 cancelled 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 cancelled 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 that sets such record date 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 1.6 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 that 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.
<PAGE> 18
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 Preferred 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
Preferred 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. If, by reason of the suspension
of or irregularities in regular mail services 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. 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. 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 hereof limits, qualifies or conflicts with a provision
of the Trust Indenture Act that is required under such Act to be a part of and
govern this Indenture, the provision of the Trust Indenture Act shall control.
If any provision of this Indenture modifies or excludes any provision of the
Trust Indenture Act that may be so modified or excluded, the latter provision
shall be deemed to apply to this Indenture as so modified or to be excluded, as
the case may be.
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.
<PAGE> 19
SECTION 1.10. Separability Clause.
If 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 Preferred 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.
If 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) or other amounts in respect of such Security need not be made
on such date, but may be made on the next succeeding Business Day (and no
interest shall accrue in respect of the amounts whose payment is so delayed 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 certificates of authentication shall be substantially in
the form set forth in this Article.
<PAGE> 20
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 Global Preferred Securities (as
defined in the applicable Trust Agreement) upon the dissolution of an Issuer
Trust shall be distributed in the form of one or more Global Securities
registered in the name of a Depositary or its nominee, and deposited with the
Securities Registrar, as custodian for such Depositary, or with such Depositary,
for credit by the Depositary 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 Preferred Securities other than
Global Preferred Securities upon the dissolution of an Issuer 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.
ACCEPTANCE INSURANCE COMPANIES INC.
[Title of Security]
[If the Security is a Restricted Security, insert -- THE SECURITIES
EVIDENCED HEREBY HAVE NOT BEEN 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 ANY INITIAL INVESTOR THAT IS NOT A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT,
(I) TO A PERSON WHO THE TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER 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, OR (III) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE), OR (B) BY AN INITIAL INVESTOR THAT IS A QUALIFIED
INSTITUTIONAL BUYER OR BY ANY SUBSEQUENT INVESTOR, AS SET FORTH IN (A) ABOVE
AND, IN ADDITION, TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND, IN EACH
CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER
JURISDICTIONS OF THE UNITED STATES. THE HOLDER OF THIS SECURITY AGREES THAT IT
WILL COMPLY WITH THE FOREGOING RESTRICTIONS. SECURITIES OWNED BY AN INITIAL
INVESTOR THAT IS NOT A QUALIFIED INSTITUTIONAL BUYER MAY NOT BE HELD IN GLOBAL
FORM AND MAY NOT BE TRANSFERRED WITHOUT CERTIFICATION THAT THE TRANSFER COMPLIES
WITH THE FOREGOING RESTRICTIONS, AS PROVIDED IN THE INDENTURE REFERRED TO BELOW.
NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED
BY RULE 144 FOR RESALES OF THE SECURITIES.]
No. $
ACCEPTANCE INSURANCE COMPANIES INC., a Delaware corporation (hereinafter
called the "Company", which term includes any successor Person under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to ______________________, or registered assigns, the principal sum of _________
Dollars on ________, [if the Security is a Global Security, then insert, if
applicable--, or such other principal amount represented hereby as may be set
forth in the records of the Securities Registrar hereinafter referred to in
accordance with the Indenture,] [; provided that the Company may (i) shorten the
<PAGE> 21
Stated Maturity of the principal of this Security to a date not earlier than
___________, and (ii) extend the Stated Maturity of the principal of this
Security at any time on one or more occasions, subject to certain conditions
specified in Section 3.15 of the Indenture, but
in no event to a date later than _________]. The Company further promises to pay
interest on said principal from ______________, or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, [monthly]
[quarterly] [semi-annually] [if applicable, insert--(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, [if applicable
insert--together with Additional Sums, if any, as provided in Section 10.6 of
the Indenture,] until the principal hereof is paid or duly provided for or made
available for payment [if applicable, insert--; provided that any overdue
principal, premium or Additional Sums and any overdue installment of interest
shall bear Additional Interest at the rate of __% per annum (to the extent that
the payment of such interest shall be legally enforceable), compounded [monthly]
[quarterly] [semi-annually], from the dates such amounts are due until they are
paid or made available for payment, and such interest shall be payable on
demand]. The amount of interest payable for any period less than a full interest
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. The amount of
interest payable for any full interest period shall be computed by dividing the
applicable rate per annum by [twelve/four/two]. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Security (or
one or more Predecessor Securities) is registered at the close of business on
the Regular Record Date for such interest installment [if applicable, insert--,
which shall be the [__________ or ____________] (whether or not a Business Day),
as the case may be, next preceding such Interest Payment Date]. Any such
interest not so punctually paid or duly provided for shall forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof shall 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.
[If applicable, insert--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, from time to time to defer the payment of interest on this
Security for up to _________ consecutive [monthly] [quarterly] [semi-annual]
interest payment periods with respect to each deferral period (each an
"Extension Period") [if applicable, insert--, 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 including Additional Interest, as provided
below; provided, however, that no Extension Period shall extend beyond the
Stated Maturity of the principal of this Security [If Stated Maturity can be
shortened or extended, insert--, as then in effect,] and no such Extension
Period may end on a date other than an Interest Payment Date; and provided,
further, however, that during any such Extension Period, the Company shall not
(i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the Company's
capital stock, or (ii) make any payment of principal of or interest or premium,
if any, on or repay, repurchase or redeem any debt securities of the Company
that rank pari passu in all respects with or junior in interest to this Security
(other than (a) repurchases, redemptions or other acquisitions of shares of
<PAGE> 22
capital stock of the Company in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of any one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or stockholder stock purchase plan or in connection with the
issuance of capital stock of the Company (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (b) as a
result of an exchange or conversion of any class or series of the Company's
capital stock (or any capital stock of a Subsidiary of the Company) for any
class or series of the Company's capital stock or of any class or series of the
Company's indebtedness for any class or series of the Company's capital stock,
(c) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged, (d) any declaration of a dividend in
connection with any Rights Plan, or the issuance of rights, stock or other
property under any Rights Plan, or the redemption or repurchase of rights
pursuant thereto, or (e) any dividend in the form of stock, warrants, options or
other rights where the dividend stock or the stock issuable upon exercise of
such warrants, options or other rights is the same stock as that on which the
dividend is being paid or ranks pari passu with or junior to such stock). Prior
to the termination of any such Extension Period, the Company may further defer
the payment of interest, provided that no Extension Period shall exceed _______
consecutive [monthly] [quarterly] [semi-annual] interest payment periods, extend
beyond the Stated Maturity of the principal of this Security or end on a date
other than an Interest Payment Date. Upon the termination of any such Extension
Period and upon the payment of all accrued and unpaid interest and any
Additional Interest then due on any Interest Payment Date, the Company may elect
to begin a new Extension Period, subject to the above conditions. No interest
shall be due and payable during an Extension Period, except at the end thereof,
but each installment of interest that would otherwise have been due and payable
during such Extension Period shall bear Additional Interest (to the extent that
the payment of such interest shall be legally enforceable) at the rate of __%
per annum, compounded [monthly] [quarterly] [semi-annually] and calculated as
set forth in the first paragraph of this Security, from the date on which such
amounts would otherwise have been due and payable until paid or made available
for payment. The Company shall give the Holder of this Security and the Trustee
notice of its election to begin any Extension Period at least one Business Day
prior to the next succeeding Interest Payment Date on which interest on this
Security would be payable but for such deferral [if applicable, insert--or so
long as such securities are held by [insert name of applicable Issuer Trust], at
least one Business Day prior to the earlier of (i) the next succeeding date on
which Distributions on the Preferred Securities of such Issuer Trust would be
payable but for such deferral, and (ii) the date on which the Property Trustee
of such Issuer Trust is required to give notice to holders of such Preferred
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.]
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 [if applicable, insert--; 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) if to a Holder of $1,000,000 or more in aggregate principal
amount of this Security, by wire transfer in immediately available funds upon
written request to the Trustee not later than 15 calendar days prior to the date
on which the interest is payable].
The indebtedness evidenced by this Security is, to the extent provided in
<PAGE> 23
the Indenture, subordinate and subject 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 or her behalf to take such actions as
may be necessary or appropriate to effectuate the subordination so provided, and
(c) appoints the Trustee his or her attorney-in-fact for any and all such
purposes. Each Holder hereof, by his or her 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.
ACCEPTANCE INSURANCE COMPANIES INC.
By:________________________________
Name:
Title:
Attest:
____________________________________
Secretary or Assistant Secretary
SECTION 2.3. Form of 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 the Junior Subordinated Indenture, dated as of June __, 1997
(herein called the "Indenture"), between the Company and Bankers Trust Company,
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 Company, the
Trustee, the holders of Senior Indebtedness 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 [if
applicable, insert--, limited in aggregate principal amount to $ _______].
All terms used in this Security that are defined in the Indenture [if
applicable, insert-- or in [insert name of trust agreement], dated as of June
__, 1997 (as modified, amended or supplemented from time to time the "Trust
<PAGE> 24
Agreement"), relating to [insert name of Issuer Trust] [the ("Issuer Trust")
among the Company, as Depositor, the Trustees named therein and the Holders from
time to time of the Trust Securities issued pursuant thereto] shall have the
meanings assigned to them in the Indenture [if applicable, insert--or the Trust
Agreement, as the case may be].
[If applicable, insert--The Company has the right to redeem this Security
(i) on or after _________, in whole at any time or in part from time to time, or
(ii) in whole (but not in part), at any time within 90 days following the
occurrence and during the continuation of a Tax Event or an Investment
Company Event at the Redemption Price described below. The Redemption
Price shall equal 100% of the principal amount hereof being redeemed,
together with accrued interest to but excluding the date fixed for redemption.]
[If the Security is subject to redemption of any kind, insert--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.]
[If applicable, insert--The Indenture contains provisions for defeasance
at any time [of the entire indebtedness of this Security] [or] [certain
restrictive covenants and Events of Default with respect to this Security] [, in
each case] 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.
[If the Security is not a Discount Security, insert--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 aggregate 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) [if applicable, insert--, provided that, if
upon an Event of Default, the Trustee or such Holders fail to declare the
principal of all the outstanding Securities of this series to be immediately due
and payable, the holders of at least 25% in aggregate Liquidation Amount of the
Preferred Securities then outstanding shall have the right to make such
declaration 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.]
<PAGE> 25
[If the Security is a Discount Security, insert--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 aggregate principal amount of the Outstanding Securities of this
series may declare an amount of principal of 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) [if applicable, insert--, provided that, if upon an
Event of Default, the Trustee or such Holders fail to declare such principal
amount of the Outstanding Securities of this series to be immediately due and
payable, the Holders of at least 25% in aggregate Liquidation Amount of the
Preferred Securities then outstanding shall have the right to make such
declaration by a notice in writing to the Company and the Trustee. The principal
amount payable upon such acceleration shall be equal to--insert formula for
determining the amount]. Upon any such declaration, such amount of the principal
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 such principal and interest (including any Additional
Interest) on all the Securities of this series shall remain subordinated to the
extent provided in Article XIII of the Indenture. Upon payment (i) of the amount
of principal so declared due and payable and (ii) of interest on any overdue
principal, premium and interest (in each case to the extent that the payment of
such interest shall be legally enforceable), all of the Company's obligations in
respect of the payment of the principal of and premium and interest, if any, on
this Security shall terminate.]
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 (including Additional 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
for such purpose, 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 such Holder's attorney duly authorized in
writing, and thereupon one or more new Securities of this series, of like tenor,
of authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form
without coupons in denominations of $_________ and any integral multiple of
$________ 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 this series and of like tenor
of a different authorized denomination, as requested by the Holder surrendering
the same.
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 may treat
the Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
<PAGE> 26
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 agrees that for United States Federal, state and
local tax purposes it is intended that this Security constitute indebtedness.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
THIS SECURITY IS A DIRECT AND UNSECURED OBLIGATION OF THE COMPANY, DOES
NOT EVIDENCE DEPOSITS AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER INSURER OR GOVERNMENT AGENCY.
SECTION 2.4. Additional Provisions Required in Global
Security.
Unless otherwise specified as contemplated by Section 3.1, 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
DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE
FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE INDENTURE AND MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE
DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY, EXCEPT
IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
SECTION 2.5. Form of Trustee's Certificate of
Authentication.
The Trustee's certificates of authentication shall be in substantially
the following form:
This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.
Dated: --------------------- BANKERS TRUST COMPANY,
as Trustee
By: -------------------------
Authorized Signatory
ARTICLE III
THE SECURITIES
SECTION 3.1. Title and Terms.
The aggregate principal amount of Securities that 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, subject to Section 3.3,
set forth or determined in the manner provided, in an Officers' Certificate, or
established in one or more indentures supplemental hereto, prior to the issuance
<PAGE> 27
of Securities as 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 that 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 that, 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 Person to whom any interest on a Security of the series shall be
payable, if other than 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;
(d) the Stated Maturity or Maturities on which the principal of the
Securities of such series is payable or the method of determination thereof, and
any dates on which or circumstances under which, the Company shall have the
right to extend or shorten such Stated Maturity or Maturities;
(e) 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 with respect to any Securities of such
series, the date or dates from which any such interest or Additional Interest
shall accrue, 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;
(f) the place or places where the principal of (and premium, if any) and
interest or Additional 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, any restrictions that may be
applicable to any such transfer or exchange in addition to or in lieu of those
set forth herein 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;
(g) 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, and if other than by a Board Resolution, the manner in which any
election by the Company to redeem such Securities shall be evidenced;
(h) 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;
(i) the denominations in which any Securities of such
series shall be issuable;
<PAGE> 28
(j) if other than Dollars, the currency or currencies (including any
currency unit or units) in which the principal of (and premium, if any) and
interest and Additional 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;
(k) 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;
(l) 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;
(m) if the principal amount payable at the Stated Maturity of any
Securities of the series will not be determinable as of any one or more dates
prior to the Stated Maturity, the amount which shall be deemed to be the
principal amount of such Securities as of any such date for any purpose
thereunder or hereunder, including the principal amount thereof which shall be
due and payable upon any Maturity other than the Stated Maturity or which shall
be deemed to be Outstanding as of any date prior to the Stated Maturity (or, in
any such case, the manner in which such amount deemed to be the principal amount
shall be determined);
(n) if applicable, that the Securities of the series, in whole or in any
specified part, shall be defeasible and, if other than by a Board Resolution,
the manner in which any election by the Company to defease such Securities shall
be evidenced;
(o) 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;
(p) 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;
(q) 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 Depositaries for such Global Securities, the form of any legend
or legends that 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 Depositary for such Global Security or a nominee
thereof;
(r) the appointment of any Paying Agent or agents for the
Securities of such series;
(s) 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;
(t) if such Securities are to be issued to an Issuer Trust, the form or
<PAGE> 29
forms of the Trust Agreement and Guarantee relating thereto;
(u) if, other than as set forth herein, the relative degree, if any, to
which the Securities or 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;
(v) any addition to or change in the Events of Default which applies to
any Securities of the series and any change in the right of the Trustee or the
requisite Holders of such Securities to declare the principal amount thereof due
and payable pursuant to Section 5.2;
(w) any addition to or change in the covenants set forth
in Article X which applies to Securities of the series; and
(x) any other terms of the Securities of such series (which terms shall
not be inconsistent with the provisions of this Indenture, except as permitted
by Section 9.1(6)).
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, or determined in the manner
provided, in such Officers' Certificate or in any 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.
SECTION 3.2. Denominations.
The Securities of each series shall be in registered form without coupons
and shall be issuable in denominations specified as contemplated by Section
3.1(i).
SECTION 3.3. Execution, Authentication, Delivery and
Dating.
The Securities shall be executed on behalf of the Company by its Chairman
of the Board, its Vice Chairman of the Board, its President or one of its Vice
Presidents, 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
<PAGE> 30
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 that
is not reasonably acceptable to the Trustee.
Notwithstanding the provisions of Section 3.1 and 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 or signatories, 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 receipt of a Company Order the Trustee shall
authenticate and deliver, temporary Securities that are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any denomination,
<PAGE> 31
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 Indenture shall be registered
in the name of the Depositary designated by the Company for such Global Security
or a nominee thereof and delivered to such Depositary or a nominee thereof or
custodian therefor, and each such Global Security shall constitute a single
Security for all purposes of this Indenture.
(b) Notwithstanding any other provision in this Indenture, 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 Depositary for such Global Security or a nominee
thereof unless (i) such Depositary advises the Trustee in writing that such
Depositary is no longer willing or able to properly discharge its
responsibilities as Depositary with respect to such Global Security, and the
Company is unable to locate a qualified successor, (ii) the Company executes and
delivers to the Trustee a Company Order stating that the Company elects to
terminate the book-entry system through the Depositary, or (iii) there shall
have occurred and be continuing an Event of Default.
(c) If any Global Security is to be exchanged for other Securities or
cancelled in whole, it shall be surrendered by or on behalf of the Depositary or
its nominee to the Securities Registrar for exchange or cancellation as provided
in this Article III. If any Global Security is to be exchanged for other
Securities or cancelled 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 or increased by an amount equal to the portion thereof to be so
exchanged or cancelled, 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 Securities
Registrar, whereupon the Trustee, in accordance with the Applicable Procedures,
shall instruct the Depositary or its authorized representative to make a
corresponding adjustment to its records. Upon any such surrender or adjustment
of a Global Security by the Depositary, accompanied by registration
instructions, the Trustee shall, subject to Section 3.6(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 Depositary. The Trustee shall not be liable for any
delay in delivery of such instructions and may conclusively rely on, and shall
<PAGE> 32
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 Depositary for such Global Security or a nominee thereof.
(e) The Depositary or its nominee, as the 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 Depositary or its nominee or agent. Neither the
Trustee nor the Securities Registrar shall have any liability in respect of any
transfers effected by the Depositary.
(f) The rights of owners of beneficial interests in a Global Security
shall be exercised only through the Depositary and shall be limited to those
established by law and agreements between such owners and the Depositary 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
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
offices or agencies 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 like tenor and aggregate principal
amount 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 like tenor and
aggregate principal amount 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 that 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 Trustee) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
<PAGE> 33
Company and the Securities Registrar, duly executed by the Holder thereof or
such Holder's 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, (i) 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 selection for redemption of Securities of that series
pursuant to Article XI and ending at the close of business on the day of mailing
of the notice of redemption, or (ii) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except, in the case of
any such 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 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 Securities Registrar of (A) such Security
as provided in Section 3.6(a) and instructions satisfactory to the
Securities 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 such Holder's attorney duly authorized in writing, then the Securities
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 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,
the Securities Registrar shall have received a Restricted Securities
Certificate duly executed by the transferor Holder or such Holder's
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
<PAGE> 34
Investor or Investors as if such transfer or exchange were not an initial
transfer or exchange; provided that written certification shall be
provided by the transferee and transferor of such Securities to the
Securities Registrar that such transfer or exchange does not involve a
change in beneficial ownership.
(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 that is exchanged, upon transfer or
otherwise, for a Global Security or any portion thereof shall bear the
Restricted Securities Legend while represented thereby;
(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, if such new Security is required
pursuant to Section 3.6(b)(ii) or (iii) to be issued in the form of a
Restricted Security, bear a Restricted Securities Legend;
(iii) a new Security (other than a Global Security) that does not
bear a Restricted Securities Legend may be issued in exchange for or in
lieu of a Restricted Security or any portion thereof that 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;
(iv) 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 Preferred Securities upon
dissolution of an Issuer Trust shall bear a Restricted Securities Legend
if the Preferred Securities so
held bear a similar legend.
SECTION 3.7. Mutilated, 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 series,
of like tenor and aggregate principal amount, bearing the same legends, 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
<PAGE> 35
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 series, of like tenor and aggregate principal amount and bearing the
same legends as such destroyed, lost or stolen Security, and bearing a number
not contemporaneously outstanding.
If 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 3.7, 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 of such series 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 and Additional Interest;
Interest Rights Preserved.
Interest and Additional Interest on any Security of any series that 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 that 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 that is due and 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
<PAGE> 36
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 2, 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 interest, that 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
shall 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 Depositary shall have any rights under this Indenture with respect
to such Global Security, and such Depositary 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 Depositary or impair, as between a Depositary and
such holders of beneficial interests, the operation of customary practices
governing the exercise of the rights of the Depositary (or its nominee) as
Holder of any Security.
<PAGE> 37
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 that 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 destroyed by the
Trustee and the Trustee shall deliver to the Company a certificate of such
destruction.
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
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 any 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 (each an "Extension Period") not to
exceed the number of consecutive quarterly, semi-annual or other periods that
equal five years with respect to each Extension Period, during which Extension
Periods the Company shall, if so specified as contemplated by Section 3.1, 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; and provided further, however, that, during any such Extension Period,
the Company shall not (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire or make a liquidation payment with respect to, any of
the Company's capital stock, or (ii) make any payment of principal of or
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company that rank pari passu in all respects with or junior in
interest to the Securities of such series (other than (a) repurchases,
redemptions or other acquisitions of shares of capital stock of the Company in
connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of any one or more employees, officers,
directors or consultants, in connection with a dividend reinvestment or
stockholder stock purchase plan or in connection with the issuance of capital
stock of the Company (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into prior
to the applicable Extension Period, (b) as a result of an exchange or conversion
of any class or series of the Company's capital stock (or any capital stock of a
Subsidiary of the Company) for any class or series of the Company's capital
<PAGE> 38
stock or of any class or series of the Company's indebtedness for any class or
series of the Company's capital stock, (c) the purchase of fractional interests
in shares of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(d) any declaration of a dividend in connection with any Rights Plan, or the
issuance of rights, stock or other property under any Rights Plan, or the
redemption or repurchase of rights pursuant thereto, or (e) any dividend in the
form of stock, warrants, options or other rights where the dividend stock or the
stock issuable upon exercise of such warrants, options or other rights is the
same stock as that on which the dividend is being paid or ranks pari passu with
or junior to such stock). Prior to that termination of any such Extension
Period, the Company may further defer the payment of interest, provided that no
Event of Default has occurred and is continuing and provided further that no
Extension Period shall exceed the period or periods specified in such
Securities, extend beyond the Stated Maturity of the principal of such
Securities or end on a date other than an Interest Payment Date. Upon the
termination of any such Extension Period and upon the payment of all accrued and
unpaid interest and any Additional Interest then due on any Interest Payment
Date, the Company may elect to begin a new Extension Period, subject to the
above conditions. No interest or Additional Interest shall be due and payable
during an Extension Period, except at the end thereof, but each installment of
interest that would otherwise have been due and payable during such Extension
Period shall bear Additional Interest as and to the extent as may be specified
as contemplated by Section 3.1. The Company shall give the Holders of the
Securities of such series and the Trustee notice of its election to begin any
such Extension Period at least one Business Day prior to the next succeeding
Interest Payment Date on which interest on Securities of such series would be
payable but for such deferral or, with respect to any Securities of a series
issued to an Issuer Trust, so long as any such Securities are held by such
Issuer Trust, at least one Business Day prior to the earlier of (i) the next
succeeding date on which Distributions on the Preferred Securities of such
Issuer Trust would be payable but for such deferral, and (ii) the date on which
the Property Trustee of such Issuer Trust is required to give notice to holders
of such Preferred 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.
The Trustee 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 initially issued to an Issuer
Trust, notwithstanding anything to the contrary herein, the Company shall have
the right to set off any payment it is otherwise required to make 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 Guarantee
relating to such Security or to a holder of Preferred Securities pursuant to an
action undertaken under Section 5.8 of this Indenture.
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. Shortening or Extension of Stated Maturity.
<PAGE> 39
If specified as contemplated by Section 2.1 or Section 3.1 with respect
to the Securities of a particular series, the Company shall have the right to
(i) shorten the Stated Maturity of the principal of the Securities of such
series at any time to any date and (ii) extend the Stated Maturity of the
principal of the Securities of such series at any time at its election for one
or more periods, provided that, if the Company elects to shorten the Stated
Maturity of the principal of the Securities of such series, pursuant to clause
(i) above, the Company shall give notice to the Holders, the Trustee and, in the
case of Securities of a series issued to an Issuer Trust, the Issuer Trust of
such shortening no less than 90 days prior to the effectiveness thereof, and
provided further that, if the Company elects to exercise its right to extend the
Stated Maturity of the principal of the Securities of such series pursuant to
clause (ii) above, at the time such election is made and at the time of
extension, such conditions as may be specified in such Securities shall have
been satisfied.
SECTION 3.16 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 notice
of redemption and other similar or related materials as a convenience to
Holders; provided that any such notice or other materials 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 materials
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.
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 that have been destroyed, lost or stolen
and that have been replaced or paid as provided in Section 3.7 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
<PAGE> 40
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving
of notice of redemption by the Trustee in the name, and at the
expense, of the Company,
and the Company, in the case of subclause (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 the principal (and
premium, if any) and interest (including any Additional Interest) to the
date of such deposit (in the case of Securities that 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, 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 and Additional 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 (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 (subject to the deferral of any due date in the
case of an Extension Period); or
<PAGE> 41
(2) default in the payment of the principal of (or
premium, if any, on) any Security of that series at its
Maturity; or
(3) failure on the part of the Company duly to observe or perform
any other of the covenants or agreements on the part of the Company in
the Securities of that series or in this Indenture for a period of 90
days after the date on which written notice of such failure, requiring
the Company to remedy the same, shall have been given to the Company by
the Trustee by registered or certified mail or to the Company and the
Trustee by the Holders of at least 25% in aggregate principal amount of
the Outstanding Securities of that series; or
(4) the occurrence of the appointment of a receiver or other similar
official in any liquidation, insolvency or similar proceeding with
respect to the Company or all or substantially all of its property; or a
court or other governmental agency shall enter a decree or order
appointing a receiver or similar official and such decree or order shall
remain unstayed and undischarged for a period of 60 days; or
(5) 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)) 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 aggregate 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 an Issuer 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 such series fail to declare the principal of all
the Outstanding Securities of such 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 related series of Preferred Securities issued by
such Issuer Trust then outstanding shall have the right to make such declaration
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. If an Event of Default
specified in Section 5.1(4) with respect to Securities of any series at the time
Outstanding occurs, the principal amount of all the Securities of such series
(or, if the Securities of such 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. 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.
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
<PAGE> 42
Article provided, the Holders of a majority in aggregate 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 on all
Securities of such series;
(B) any accrued Additional Interest on all
Securities of such series;
(C) the principal of (and premium, if any, on) any Securities
of such series that have become due otherwise than by such declaration of
acceleration and interest and Additional Interest thereon at the rate
borne by the Securities; and
(D) 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
that 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 initially issued to an Issuer
Trust, if the Holders of such Securities fail to annul such declaration and
waive such default, the holders of a majority in aggregate Liquidation Amount
(as defined in the related Trust Agreement) of the related series of Preferred
Securities issued by such Issuer Trust then outstanding 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 of any series 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 (and premium, if any) and
interest (including any Additional Interest), and, in addition thereto,
all amounts owing the Trustee under Section 6.7.
<PAGE> 43
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 such Securities and collect the
monies 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 any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial or
administrative 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 or administrative proceedings;
and
(ii) in particular, the Trustee shall be authorized to collect and
receive any monies 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,
conservator (or other similar official) in any such judicial or administrative
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 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
<PAGE> 44
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, subject to
Article XIII and 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 under Section 6.7;
SECOND: Subject to Article XIII, to the payment of the amounts then due
and unpaid upon Securities of such series 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.
Subject to Section 5.8, 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 aggregate 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;
<PAGE> 45
(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 aggregate 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 Preferred
Securities.
Notwithstanding any other provision in this Indenture, the Holder of any
Security of any series shall have the right, which is absolute and
unconditional, to receive payment of the principal of (and premium, if any) and
(subject to Sections 3.8 and 3.12) 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 an Issuer Trust, any registered holder of the series of Preferred Securities
issued by such Issuer 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 Sections 3.8 and 3.12) interest
(including any Additional Interest) on the Securities having a principal amount
equal to the aggregate Liquidation Amount (as defined in the related Trust
Agreement) of such Preferred Securities held by such holder.
SECTION 5.9. Restoration of Rights and Remedies.
If the Trustee, any Holder or any holder of Preferred Securities issued
by any Issuer Trust 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 Preferred Securities, then, and in every such case, the Company, the
Trustee, such Holders and such holder of Preferred 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, such Holder and such holder of Preferred 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 3.7, no
right or remedy herein conferred upon or reserved to the Trustee or 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
<PAGE> 46
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 with
respect to the Securities of the related series or any holder of any Preferred
Security to exercise any right or remedy accruing upon any Event of Default with
respect to the Securities of the related series 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 Preferred
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 Preferred
Securities, as the case may be.
SECTION 5.12. Control by Holders.
The Holders of not less than a majority in aggregate 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 that 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 aggregate principal amount of
the Outstanding Securities of any series affected thereby and, in the case of
any Securities of a series initially issued to an Issuer Trust, the holders of a
majority in aggregate Liquidation Amount (as defined in the related Trust
Agreement) of the Preferred Securities issued by such Issuer 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 such default has been cured and the Company has paid to or
deposited with the Trustee a sum sufficient to pay all matured
installments of interest (including Additional Interest) and all
principal of (and premium, if any, on) all Securities of that series due
otherwise than by acceleration), or
(2) in respect of a covenant or provision hereof that under Article
IX cannot be modified or amended without the consent of each Holder of
<PAGE> 47
any 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 waiver by holders of Preferred
Securities issued by such Issuer Trust, by all holders of Preferred Securities
issued by such Issuer 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,
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 aggregate 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 that by
<PAGE> 48
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 or her 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 a 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 that is, or after notice or lapse of time or both
would become, an Event of Default with respect to Securities of such series.
<PAGE> 49
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 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 that 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; and
(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.
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.
<PAGE> 50
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 with the Company.
SECTION 6.7. Compensation and Reimbursement.
(a) The Company agrees to pay the Trustee from time to time reasonable
compensation 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).
(b) The Company agrees 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.
(c) Since the Issuer Trust is being formed solely to facilitate an
investment in the Preferred Securities, the Company, as Holder of the Common
Securities, hereby covenants to pay all debts and obligations (other than with
respect to the Preferred Securities and the Common Securities) and all
reasonable costs and expenses of the Issuer Trust (including without limitation
all costs and expenses relating to the organization of the Issuer Trust, the
fees and expenses of the trustees and all reasonable costs and expenses relating
to the operation of the Issuer Trust) and to pay any and all taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed on the Issuer Trust by the United States, or any taxing
authority, so that the net amounts received and retained by the Issuer Trust and
the Property Trustee after paying such expenses will be equal to the amounts the
Issuer Trust and the Property Trustee would have received had no such costs or
expenses been incurred by or imposed on the Issuer Trust. The foregoing
obligations of the Company are for the benefit of, and shall be enforceable by,
any person to whom any such debts, obligations, costs, expenses and taxes are
owed (each, a "Creditor") whether or not such Creditor has received notice
thereof. Any such Creditor may enforce such obligations directly against the
Company, and the Company irrevocably waives any right or remedy to require that
any such Creditor take any action against the Issuer Trust or any other person
before proceeding against the Company. The Company shall execute such additional
agreements as may be necessary or desirable to give full effect to the
foregoing.
(d) The Company shall indemnify the Trustee for, and hold it harmless
against, any loss, liability 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 reasonable costs and expenses of defending itself against any
<PAGE> 51
claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder. This indemnification shall survive the termination
of this Indenture or the resignation or removal of the Trustee.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 5.1(4) 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) an entity organized and doing business under the laws of the United
States of America or of any state or territory thereof or of the District of
Columbia, authorized under such laws to exercise corporate trust powers and
subject to supervision or examination by Federal, state, territorial or District
of Columbia authority, or
(b) an entity 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
entity 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 entity
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 any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such
<PAGE> 52
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 aggregate principal amount
of the Outstanding Securities of such series, delivered to the Trustee and to
the Company.
(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 the Securities of all
series issued hereunder, 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
such Holder and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee with respect to the Securities of
all series issued hereunder 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 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 aggregate 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 of such series for at least six months may, subject to Section 5.14, on
behalf of such Holder 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.
<PAGE> 53
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 (but not all) 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 indenture supplemental hereto
wherein each successor Trustee shall accept such appointment and which (1) 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, (2)
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
(3) 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 supplemental indenture shall constitute such Trustees or 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 supplemental
indenture the resignation or removal of the retiring Trustee shall become
effective to the extent provided therein and each removal of the retiring
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 qualified and eligible under
this Article.
SECTION 6.12. Merger, Conversion, Consolidation or
Succession to Business.
<PAGE> 54
Any entity into which the Trustee may be merged or converted or with
which it may be consolidated, or any entity resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any entity
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such entity
shall be otherwise qualified and eligible under this Article, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto. In 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 an entity organized and doing business under
the laws of the United States of America, or of any state or territory thereof
or of 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 entity into which an Authenticating Agent may be merged or converted
or with which it may be consolidated, or any entity resulting from any merger,
conversion or consolidation to which such Authenticating Agent shall be a party,
or any entity succeeding to all or substantially all of the corporate trust
business of an Authenticating Agent shall be the successor Authenticating Agent
hereunder, provided such entity 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.
<PAGE> 55
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 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, and the Trustee
shall be entitled to be reimbursed for such payment, subject to the provisions
of Section 6.7.
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: __________________ BANKERS TRUST COMPANY,
as Trustee
By: _____________________________
As Authenticating Agent
Name:
Title:
By: _____________________________
Authorized Signatory
Name:
Title:
ARTICLE VII
HOLDER'S LISTS AND REPORTS BY TRUSTEE,
PAYING AGENT 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:
<PAGE> 56
(a) quarterly, not more than 15 days after March 15, June 15, September
15, and December 15 in each year, a list, in such form as the Trustee may
reasonably require, of the names and addresses of the Holders as of such dates,
excluding from any such list names and addresses received by the Trustee in its
capacity as Securities Registrar, 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 and Paying Agent.
(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 January 31 in each calendar
year, commencing with the first January 31 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 notify the
Trustee when any Securities are listed on any securities exchange.
(d) The Paying Agent shall comply with all withholding, backup
withholding, tax and information reporting requirements under the Internal
Revenue Code of 1986, as amended, and the Treasury Regulations issued thereunder
with respect to payments on, or with respect to, the Securities.
SECTION 7.4. Reports by Company.
The Company shall file or cause to be filed 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
<PAGE> 57
Act. In the case of information, documents or reports required to be filed with
the Commission pursuant to Section 13(a) or Section 15(d) of the Exchange Act,
the Company shall file or cause the filing of such information documents or
reports with the Trustee within 15 days after the same is required to be filed
with the Commission.
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) If 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 entity formed by such
consolidation or into which the Company is merged or the Person that
acquires by conveyance or transfer, or that leases, the properties and
assets of the Company substantially as an entirety shall be an entity
organized and existing under the laws of the United States of America or
any state thereof or the District of Columbia and shall expressly assume,
by an indenture supplemental hereto, executed and delivered to the
Trustee, in form 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 of every series
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 that, after notice or lapse of time, or
both, would constitute an Event of Default, shall have occurred and be
continuing; and
(3) 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, in the case of a transaction subject to this Section
8.1 but not requiring a supplemental indenture under paragraph (1) of
this Section 8.1, an Officer's Certificate or Opinion of Counsel to the
effect that the surviving, resulting or successor entity is legally bound
by the Indenture and the Securities; and the Trustee, subject to Section
6.1, may rely upon such Officers' Certificates and Opinions of Counsel as
conclusive evidence that such transaction complies with this Section 8.1.
SECTION 8.2. Successor Company 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 entity 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
<PAGE> 58
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.
Such successor Person may cause to be executed, and may issue either in
its own name or in the name of the Company, any or all of the Securities
issuable hereunder that 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 that 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 that such successor Person thereafter shall cause
to be executed 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.
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 amend
or waive any provision of this Indenture or 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 facilitate the issuance of Securities of any series
in certificated or other definitive form; or
(5) 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 the series specified) or to
surrender any right or power herein conferred upon the Company; or
(6) 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
Defaults are to be for the benefit of less than all series of Securities,
stating that such additional Events of Default are expressly being included
<PAGE> 59
solely for the benefit of the series specified); or
(7) to change or eliminate any of the provisions of this Indenture,
provided that any such change or elimination shall (a) become effective only
when there is no Security Outstanding of any series created prior to the
execution of such supplemental indenture that is entitled to the benefit of such
provision or (b) not apply to any Outstanding Securities; or
(8) to cure any ambiguity, to correct or supplement any provision herein
that 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 (8) 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 an
Issuer Trust and for so long as any of the corresponding series of Preferred
Securities issued by such Issuer Trust shall remain outstanding, the holders of
such Preferred Securities; or
(9) 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
(10) 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 aggregate
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 of each series affected thereby,
(1) 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 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 aggregate 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
<PAGE> 60
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 an Issuer Trust, so long as any of the corresponding series of
Preferred Securities issued by such Issuer Trust remains outstanding, (i)
no such amendment shall be made that adversely affects the holders of
such Preferred 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 (as defined in the related Trust Agreement)
of such Preferred Securities then outstanding unless and until the
principal of (and premium, if any, on) 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 Preferred Securities issued by an
Issuer Trust provided therein without the prior consent of the holders of
each such Preferred Security then outstanding unless and until the
principal of (and premium, if any, on) 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 any corresponding
series of Preferred Securities of an Issuer Trust that holds the Securities of
any series, or that modifies the rights of the Holders of Securities of such
series or holders of such Preferred Securities of such corresponding 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 of any other series or
holders of Preferred Securities of any other such corresponding 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 herein provided for relating to such action have
been complied with. The Trustee may, but shall not be obligated to, enter into
any such supplemental indenture that affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
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.
<PAGE> 61
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 (including any Additional 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, where Securities of that series may be surrendered
for registration of 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 (including Additional Interest)
<PAGE> 62
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 (including Additional 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
premium, if any) or interest, including Additional Interest on any Securities,
deposit with a Paying Agent a sum sufficient to pay the principal (and premium,
if any) or interest, including Additional 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, including Additional 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 (including Additional Interest) on the Securities
of a series 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 such Securities) in the making of any payment of principal (and
premium, if any) or interest (or Additional Interest) in respect of any Security
of any Series;
(3) at any time during the continuance of any default with respect to a
series of Securities, upon the written request of the Trustee, forthwith pay to
the Trustee all sums so held in trust by such Paying Agent with respect to such
series; 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 (including Additional Interest) on any Security and remaining
unclaimed for two years after such principal (and premium, if any) or interest
(including Additional Interest) has become due and payable shall (unless
otherwise required by mandatory provision of applicable escheat or abandoned or
unclaimed property law) 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,
<PAGE> 63
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 covering the preceding calendar year, stating whether or not to the
best knowledge of the signers thereof of 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 or requirement of notice
provided pursuant to the terms of this Indenture.
SECTION 10.5. Waiver of Certain Covenants.
Subject to the rights of holders of Preferred Securities specified in
Section 9.2, if any, 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 aggregate 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 initially issued to an Issuer
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, if (i) an
Issuer Trust is the Holder of all of the Outstanding Securities of such series,
and (ii) a Tax Event described in clause (i) or (iii) of the definition of "Tax
Event" in Section 1.1 hereof has occurred and is continuing in respect of such
Issuer Trust, the Company shall pay to such Issuer Trust (and its permitted
successors or assigns under the related Trust Agreement) for so long as such
Issuer Trust (or its permitted successor or assignee) is the registered holder
of the Outstanding 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)) then due and payable by such
Issuer Trust on the related Preferred Securities and Common Securities that at
any time remain outstanding in accordance with the terms thereof shall not be
reduced as a result of such 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
<PAGE> 64
provisions hereof shall not be construed as excluding Additional Sums in those
provisions hereof where such express mention is not made; provided, however,
that the deferral of the payment of interest pursuant to Section 3.12 or the
Securities shall not defer the payment of any Additional Sums that may be due
and payable.
SECTION 10.7. Additional Covenants.
The Company covenants and agrees with each Holder of Securities of each
series that it shall not (x) 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, or (y) make any payment of principal of
or interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company that rank pari passu in all respects with or junior in
interest to the Securities of such series (other than (a) repurchases,
redemptions or other acquisitions of shares of capital stock of the Company in
connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of any one or more employees, officers,
directors or consultants, in connection with a dividend reinvestment or
stockholder stock purchase plan or in connection with the issuance of capital
stock of the Company (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into prior
to the applicable Extension Period or other event referred to below, (b) as a
result of an exchange or conversion of any class or series of the Company's
capital stock (or any capital stock of a Subsidiary of the Company) for any
class or series of the Company's capital stock or of any class or series of the
Company's indebtedness for any class or series of the Company's capital stock,
(c) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged, (d) any declaration of a dividend in
connection with any Rights Plan, or the issuance of rights, stock or other
property under any Rights Plan, or the redemption or repurchase of rights
pursuant thereto, or (e) any dividend in the form of stock, warrants, options or
other rights where the dividend stock or the stock issuable upon exercise of
such warrants, options or other rights is the same stock as that on which the
dividend is being paid or ranks pari passu with or junior to such stock) if at
such time (i) there shall have occurred any event (A) of which the Company has
actual knowledge that 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) which the Company shall not have taken reasonable steps to cure,
(ii) if the Securities of such series are held by an Issuer Trust, the Company
shall be in default with respect to its payment of any obligations under the
Guarantee relating to the Preferred Securities issued by such Issuer 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.
The Company also covenants with each Holder of Securities of a series
issued to an Issuer Trust (i) to hold, directly or indirectly, 100% of the
Common Securities of such Issuer Trust, provided that any permitted successor of
the Company as provided under Section 8.2 may succeed to the Company's ownership
of such Common Securities, (ii) as holder of such Common Securities, not to
voluntarily terminate, windup or liquidate such Issuer Trust, other than (a) in
connection with a distribution of the Securities of such series to the holders
of the related Preferred Securities in liquidation of such Issuer 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 Issuer
Trust to continue not to be taxable as a corporation for United States Federal
<PAGE> 65
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 authorized
minimum denomination of principal amount at Stated Maturity of outstanding
Securities during such year, if any.
ARTICLE XI
REDEMPTION OF SECURITIES
SECTION 11.1. Applicability of This Article.
Redemption of Securities of any series 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.
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, the Company shall, not less than 30 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
an Issuer Trust, the Property Trustee under the related Trust Agreement, of such
date and of the principal amount of Securities of the applicable series to be
redeemed and provide the additional information required to be included in the
notice or notices contemplated by Section 11.4; provided that, in the case of
any series of Securities initially issued to an Issuer Trust, for so long as
such Securities are held by such Issuer Trust, such notice shall be given not
less than 45 nor more than 75 days prior to such Redemption Date (unless a
shorter notice shall be satisfactory to the Property Trustee under the related
Trust Agreement). 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.
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,
provided that the unredeemed portion of the principal amount of any Security
shall be in an authorized denomination (which shall not be less than the minimum
authorized denomination) for such Security.
The Trustee shall promptly notify the Company in writing of the
Securities selected for partial redemption and the principal amount thereof to
<PAGE> 66
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 that has been or is to be
redeemed.
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 such series to be redeemed, each notice of
redemption 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 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) such other provisions as may be required in respect of
the terms of a particular series of Securities; and
(g) that the redemption is for a sinking fund, if such is
the case.
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 be irrevocable.
The notice, if mailed in the manner provided above, 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
<PAGE> 67
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 (or portions thereof) that 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 (including Additional 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 3.8.
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 any Security called for redemption shall not be so paid under
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 of Securities Initially
Issued to an Issuer Trust.
In the case of the Securities of a series initially issued to an Issuer
Trust, except as otherwise specified as contemplated by Section 3.1, the
Company, at its option, may redeem such Securities (i) on or after the date
specified in such Security, in whole at any time or in part from time to time,
or (ii) upon the occurrence and during the continuation of a Tax Event or
an Investment Company Event, at any time within 90 days following the
occurrence and during the continuation of such Tax Event or an Investment
Company Event, in whole (but not in part), in each case at a Redemption Price
specified in such Security, together with accrued interest (including
Additional Interest) to the Redemption Date.
If less than all the Securities of any such series are to be redeemed,
the aggregate principal amount of such Securities remaining Outstanding after
giving effect to such redemption shall be sufficient to satisfy any provisions
of the Trust Agreement related to the Issuer Trust to which such Securities were
issued.
ARTICLE XII
SINKING FUNDS
Except as may be provided in any supplemental or amended indenture, no
sinking fund shall be established or maintained for the retirement of Securities
<PAGE> 68
of any series.
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 of each and every series are hereby expressly
made subordinate and subject in right of payment to the prior payment in full of
all Senior Indebtedness.
SECTION 13.2. No Payment When Senior Indebtedness in
Default; Payment Over of Proceeds Upon
Dissolution, Etc.
If the Company shall default in the payment of any principal of (or
premium, if any) or interest on any Senior Indebtedness when the same becomes
due and payable, whether at maturity or at a date fixed for prepayment or by
declaration of acceleration or otherwise, then, upon written notice of such
default to the Company by the holders of Senior Indebtedness or any trustee
therefor, unless and until such default shall have been cured or waived or shall
have ceased to exist, no direct or indirect payment (in cash, property,
securities, by set-off or otherwise) shall be made or agreed to be made on
account of the principal of (or premium, if any) or interest (including
Additional Interest) on any of the Securities, or in respect of any redemption,
repayment, retirement, purchase or other acquisition of any of the Securities.
In the event of (i) any insolvency, bankruptcy, receivership,
liquidation, reorganization, readjustment, composition or other similar
proceeding relating to the Company, its creditors or its property, (ii) any
proceeding for the liquidation, dissolution or other winding up of the Company,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (iii) any assignment by the Company for the benefit of creditors or
(iv) any other marshalling of the assets of the Company (each such event, if
any, herein sometimes referred to as a "Proceeding"), all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made to any Holder of
any of the Securities on account thereof.
Any payment or distribution, whether in cash, securities or other property
(other than securities of the Company or any other entity provided for by a plan
of reorganization or readjustment, the payment of which is subordinate, at least
to the extent provided in these subordination provisions with respect to the
indebtedness evidenced by the Securities, to the payment of all Senior
Indebtedness at the time outstanding and to any securities issued in respect
thereof under any such plan of reorganization or readjustment), which would
otherwise (but for these subordination provisions) be payable or deliverable in
respect of the Securities of any series shall be paid or delivered directly to
the holders of Senior Indebtedness in accordance with the priorities then
existing among such holders until all Senior Indebtedness (including any
interest thereon accruing after the commencement of any Proceeding) shall have
been paid in full.
In the event of any Proceeding, after payment in full of all sums owing
<PAGE> 69
with respect to Senior Indebtedness, the Holders of the Securities, together
with the holders of any obligations of the Company ranking on a parity with the
Securities, shall be entitled to be paid from the remaining assets of the
Company the amounts at the time due and owing on account of unpaid principal of
(and premium, if any) and interest on the Securities and such other obligations
before any payment or other distribution, whether in cash, property or
otherwise, shall be made on account of any capital stock or any obligations of
the Company ranking junior to the Securities, and such other obligations. If,
notwithstanding the foregoing, any payment or distribution of any character or
any security, whether in cash, securities or other property (other than
securities of the Company or any other entity provided for by a plan of
reorganization or readjustment the payment of which is subordinate, at least to
the extent provided in these subordination provisions with respect to the
indebtedness evidenced by the Securities, to the payment of all Senior
Indebtedness at the time outstanding and to any securities issued in respect
thereof under any plan of reorganization or readjustment), shall be received by
the Trustee or any Holder in contravention of any of the terms hereof and before
all Senior Indebtedness shall have been paid in full, such payment or
distribution or security shall be received in trust for the benefit of, and
shall be paid over or delivered and transferred to, the holders of the Senior
Indebtedness at the time outstanding in accordance with the priorities then
existing among such holders for application to the payment of all Senior
Indebtedness remaining unpaid, to the extent necessary to pay all such Senior
Indebtedness in full. In the event of the failure of the Trustee or any Holder
to endorse or assign any such payment, distribution or security, each holder of
Senior Indebtedness is hereby irrevocably authorized to endorse or assign the
same.
The Trustee and the Holders shall take such action (including, without
limitation, the delivery of this Indenture to an agent for the holders of Senior
Indebtedness or consent to the filing of a financing statement with respect
hereto) as may, in the opinion of counsel designated by the holders of a
majority in principal amount of the Senior Indebtedness at the time outstanding,
be necessary or appropriate to assure the effectiveness of the subordination
effected by these provisions.
The provisions of this Section 13.2 shall not impair any rights,
interests, remedies or powers of any secured creditor of the Company in respect
of any security interest the creation of which is not prohibited by the
provisions of this Indenture.
The securing of any obligations of the Company, otherwise ranking on a
parity with the Securities or ranking junior to the Securities shall not be
deemed to prevent such obligations from constituting, respectively, obligations
ranking on a parity with the Securities or ranking junior to the Securities.
SECTION 13.3. 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 pendency of the conditions described in the first paragraph of Section 13.2
or of any Proceeding referred to in Section 13.2, 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 monies
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.
<PAGE> 70
SECTION 13.4. Subrogation to Rights of Holders of Senior
Indebtedness.
Subject to the payment in full of all amounts due or to become due on 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 that 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 (including Additional Interest) on the Securities
shall be paid in full. For purposes of such subrogation, 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 13.5. 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 and the Holders of the
Securities, the obligations of the Company, which are absolute and
unconditional, 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 their rights
in relation to the holders of Senior Indebtedness; or (c) prevent the Trustee or
the Holder of any Security (or to the extent expressly provided herein, the
holder of any Preferred Security) from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, including 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 13.6. 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 13.7. 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
<PAGE> 71
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such 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 time to
time, without the consent of or notice to the Trustee or the Holders of the
Securities of any series, without incurring responsibility to such Holders of
the Securities and without impairing or releasing the subordination provided in
this Article or the obligations hereunder of such 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 extent the time of payment of,
or renew or alter, 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 13.8. Notice to Trustee.
The Company shall give prompt written notice to a Responsible Officer of
the Trustee of any fact known to the Company that 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 that
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; 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, the payment of the principal of (and
premium, if any, on) 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 they were received and shall not be affected
by any notice to the contrary that 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 or
attorney-in-fact 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 13.9. Reliance on Judicial Order or Certificate of
<PAGE> 72
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, conservator,
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 13.10. 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.
SECTION 13.11. 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 that
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.
SECTION 13.12. 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.
SECTION 13.13. Certain Conversions or Exchanges Deemed
Payment.
For purposes of this Article only, (a) the issuance and delivery of
junior securities upon conversion or exchange of Securities of any series shall
not be deemed to constitute a payment or distribution on account of the
principal of (or premium, if any, on) or interest (including any Additional
Interest) on such Securities or on account of the purchase or other acquisition
of such Securities, and (b) the payment, issuance or delivery of cash, property
or securities (other than junior securities) upon conversion or exchange of a
Security of any series shall be deemed to constitute payment on account of the
principal of such security. For the purposes of this Section, the term "junior
securities" means (i) shares of any stock of any class of the Company, and (ii)
securities of the Company that are subordinated in right of payment to all
Senior Indebtedness that may be outstanding at the time of issuance or delivery
of such securities to substantially the same extent as, or to a greater extent
<PAGE> 73
than, the Securities are so subordinated as provided in this Article.
* * * *
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, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
Attest: __________________ ACCEPTANCE INSURANCE COMPANIES INC.
By: ____________________________________
Name:
Title:
Attest: __________________ BANKERS TRUST COMPANY, as
Trustee
By: ___________________________________
Name:
Title:
ANNEX A
FORM OF RESTRICTED SECURITIES CERTIFICATE
RESTRICTED SECURITIES CERTIFICATE
(For transfers pursuant to Section 3.6(b) of
the Indenture referred to below)
[ ],
as Securities Registrar
[address]
Re: [Title of Securities] of Acceptance Insurance
Companies Inc. (the "Securities")
Reference is made to the Junior Subordinated Indenture, dated as of
August __, 1997 (the "Indenture"), between Acceptance Insurance Companies
Inc., a Delaware corporation, and Bankers Trust Company, 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 here as so defined.
<PAGE> 74
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 GLOBAL 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 Depositary 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 that
(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
<PAGE> 75
(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 know that the transaction has been prearranged
with a buyer in the United States;
(D) no directed selling efforts within the meaning of Rule 902
of Regulation S 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 two
years (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), or such shorter
period as Rule 144 may hereinafter require, 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;
(B) the transfer is occurring after a holding period by the Owner of
at least three 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; or
(C) the Owner is a Qualified Institutional Buyer under Rule 144A or
has acquired the Securities otherwise in accordance with Sections (1),
(2) or (3) hereof and is transferring the Securities to an institutional
accredited investor in a transaction exempt from the requirements of the
Securities Act.
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 Trust Agreement relating to the Issuer Trust to which
the Securities were initially issued).
(Print the name of the Undersigned, as
such term is defined in the second
paragraph of this certificate.)
Dated: ________________ 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.)
<PAGE> 1
EXHIBIT 4.7
TRUST AGREEMENT
This TRUST AGREEMENT, dated as of June 5, 1997 (this "Trust
Agreement"), between ACCEPTANCE INSURANCE COMPANIES INC., a Delaware corporation
(the "Depositor"), and BANKERS TRUST (DELAWARE), a Delaware banking corporation
(the "Trustee"). The Depositor and the Trustee hereby agree as follows:
1. The trust created hereby (the "Trust") shall be known as "AICI
Capital Trust" in which name the Trustee, or the Depositor to the extent
provided herein, may engage in the transactions contemplated hereby, make and
execute contracts, and sue and be sued.
2. The Depositor hereby assigns, transfers, conveys and sets over
to the Trustee the sum of $10. The Trustee hereby acknowledges receipt of such
amount in trust from the Depositor, which amount shall constitute the initial
trust estate. The Trustee hereby declares that it will hold the trust estate
in trust for the Depositor. It is the intention of the parties hereto that the
Trust created hereby constitute a business trust under Chapter 38 of Title 12
of the Delaware Code, 12 Del. C. Section 3801 et. seq. (the "Business Trust
Act"), and that this document constitutes the governing instrument of the
Trust. The Trustee is hereby authorized and directed to execute and file a
certificate of trust with the Secretary of State of the State of Delaware in
accordance with the provisions of the Business Trust Act.
3. The Depositor and the Trustee will enter into an amended and
restated Trust Agreement, satisfactory to each such party and substantially in
the form included as an exhibit to the 1933 Act Registration Statement (as
defined below), to provide for the contemplated operation of the Trust created
hereby and the issuance of the Preferred Securities and Common Securities
referred to therein. Prior to the execution and delivery of such amended and
restated Trust Agreement, the Trustee shall not have any duty or obligation
hereunder or with respect to the trust estate, except as otherwise required by
applicable law or as may be necessary to obtain prior to such execution and
delivery any licenses, consents or approvals required by applicable law or
otherwise.
4. The Depositor and the Trustee hereby authorize and direct the
Depositor, as the sponsor of the Trust, (i) to file with the Securities
and Exchange Commission (the "Commission") and execute, in each case on behalf
of the Trust, (a) the Registration Statement on Form S-3 (the "1933 Act
Registration Statement"), including any pre-effective or post-effective
amendments to the 1933 Act Registration Statement (and any registration
statement filed pursuant to Rule 462 promulgated pursuant to the Securities Act
of 1933, as amended), relating to the registration under the Securities Act of
1933, as amended, of the Preferred Securities of the Trust and possibly certain
other securities and (b) a Registration Statement on Form 8-A (the "1934 Act
Registration Statement") (including all pre-effective and post-effective
amendments thereto) relating to the registration of the Preferred Securities of
the Trust under Section 12(b) of the Securities Exchange Act of 1934, as
amended; (ii) to file with the New York Stock Exchange or any other national
stock exchange or The Nasdaq National
<PAGE> 2
Market (each, an "Exchange") and execute on behalf of the Trust one or more
listing applications and all other applications, statements, certificates,
agreements and other instruments as shall be necessary or desirable to cause
the Preferred Securities to be listed on any of the Exchanges; (iii) to file and
execute on behalf of the Trust such applications, reports, surety bonds,
irrevocable consents, appointments of attorney for service of process and other
papers and documents as shall be necessary or desirable to register the
Preferred Securities under the securities or blue sky laws of such
jurisdictions as the Depositor on behalf of the Trust, may deem necessary or
desirable and (iv) to execute and deliver on behalf of the Trust that certain
Underwriting Agreement relating to the Preferred Securities, among the Trust,
the Depositor and the several Underwriters named therein, substantially in the
form included an exhibit to the 1933 Act Registration Statement. In
connection with the filings referred to above, the Depositor hereby constitutes
and appoints Kenneth C. Coon and William J. Gerber, and each of them, as its
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for the Depositor or in the Depositor's name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to the 1933 Act Registration Statement (and any
registration statement filed pursuant to Rule 462 promulgated pursuant to the
Securities Act of 1933, as amended) and the 1934 Act Registration Statement and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Commission, any Exchange and administrators of state
securities or blue sky laws granting unto said attorneys-in-fact and agents
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as the Depositor might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their respective substitute or substitutes, shall do or cause to be
done by virtue hereof.
5. This Trust Agreement may be executed in one or more
counterparts.
6. The number of Trustees initially shall be one (1) and
thereafter the number of Trustees shall be such number as shall be fixed from
time to time by a written instrument signed by the Depositor which may increase
or decrease the number of Trustees; provided, however, that to the extent
required by the Business Trust Act, one Trustee shall either be a natural
person who is a resident of the State of Delaware or, if not a natural person,
an entity which has its principal place of business in the State of Delaware and
otherwise meets the requirements of applicable Delaware law. Subject to the
foregoing, the Depositor is entitled to appoint or remove without cause any
Trustee at any time. The Trustees may resign upon thirty (30) days' prior
notice to the Depositor.
7. This Trust Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware (without regard to conflict
of laws principles).
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed as of the day and year first above written.
ACCEPTANCE INSURANCE COMPANIES,
INC.,
as Depositor
By: /s/ WILLIAM J. GERBER
-------------------------
Name: William J. Gerber
Title: Vice President
BANKERS TRUST (DELAWARE),
as Trustee
By: /s/ M. LISA WILKINS
-------------------------
Name: M. Lisa Wilkins
Title: Assistant Secretary
-3-
<PAGE> 1
EXHIBIT 4.8
- -------------------------------------------------------------------------------
AMENDED AND RESTATED TRUST AGREEMENT
among
ACCEPTANCE INSURANCE COMPANIES INC.
(as Depositor)
and
BANKERS TRUST COMPANY
(as Property Trustee)
and
BANKERS TRUST (DELAWARE),
(as Delaware Trustee)
Dated as of August __, 1997
AICI CAPITAL TRUST
- -------------------------------------------------------------------------------
<PAGE> 2
Certain Sections of this Trust Agreement relating, to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
Trust Indenture Act Trust Agreement Section
<PAGE> 3
Section
- ------------------- -----------------------
Section 310(a)(1).................. 8.7
(a)(2).................. 8.7
(a)(3).................. 8.9
(a)(4).................. 2.7(a)(ii)
(b)..................... 8.8, 10.10(b)
Section 311(a)..................... 8.13, 10.10(b)
(b)..................... 8.13, 10.10(b)
Section 312(a)..................... 10.10(b)
(b)..................... 10.10(b), (f)
(c)..................... 5.7
Section 313(a)..................... 8.15(a)
(a)(4).................. 10.10(c)
(b)..................... 8.15(c), 10.10(c)
(c)..................... 10.8, 10.10(c)
(d)..................... 10.10(c)
Section 314(a)..................... 8.16, 10.10(d)
(b)..................... Not Applicable
(c)(1).................. 8.17, 10.10(d), (e)
(c)(2).................. 8.17, 10.10(d), (e)
(c)(3).................. 8.17, 10.10(d), (e)
(e)..................... 8.17, 10.10(e)
Section 315(a)..................... 8.1(d)
(b)..................... 8.2
(c)..................... 8.1(c)
(d)..................... 8.1(d)
(e)..................... Not Applicable
Section 316(a)..................... Not Applicable
(a)(1)(A)............... Not Applicable
(a)(1)(B)............... Not Applicable
(a)(2).................. Not Applicable
(b)..................... 5.13
(c)..................... 6.7
Section 317(a)(1).................. Not Applicable
(a)(2).................. 8.14
(b)..................... 5.10
Section 318(a)..................... 10.10(a)
Note: This reconciliation and tie shall not, for any purpose, be
deemed to be a part of the Trust Agreement.
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I. DEFINED TERMS
SECTION 1.1. Definitions............................ 2
ARTICLE II. CONTINUATION OF THE ISSUER TRUST
SECTION 2.1. Name................................... 13
SECTION 2.2. Office of the Delaware Trustee;
Principal Place of Business.......... 14
<PAGE> 4
SECTION 2.3. Initial Contribution of Trust Property,
Organizational Expenses.............. 14
SECTION 2.4. Issuance of Preferred Securities....... 14
SECTION 2.5. Issuance of the Common Securities;
Subscription and Purchase of Junior
Subordinated Debentures.............. 15
SECTION 2.6. Declaration of Trust................... 16
SECTION 2.7. Authorization to Enter into Certain
Transactions......................... 16
SECTION 2.8. Assets of Trust........................ 20
SECTION 2.9. Title to Trust Property................ 20
ARTICLE III. PAYMENT ACCOUNT
SECTION 3.1. Payment Account........................ 20
ARTICLE IV. DISTRIBUTIONS; REDEMPTION
SECTION 4.1. Distributions.......................... 21
SECTION 4.2. Redemption............................. 22
SECTION 4.3. Subordination of Common Securities..... 25
SECTION 4.4. Payment Procedures..................... 26
SECTION 4.5. Tax Returns and Reports................ 26
SECTION 4.6. Payment of Taxes, Duties, Etc.
of the Issuer Trust.................. 27
SECTION 4.7. Payments under Indenture or Pursuant
to Direct Actions.................... 27
SECTION 4.8. Liability of the Holder of Common
Securities........................... 27
ARTICLE V. TRUST SECURITIES CERTIFICATES
SECTION 5.1. Initial Ownership...................... 27
SECTION 5.2. The Trust Securities Certificates...... 27
SECTION 5.3. Execution and Delivery of Trust
Securities Certificates.............. 28
SECTION 5.4. Global Preferred Security.............. 28
SECTION 5.5. Registration of Transfer and Exchange
Generally; Certain Transfers and
Exchanges; Preferred Securities
Certificates......................... 30
SECTION 5.6. Mutilated, Destroyed, Lost or Stolen
Trust Securities Certificates........ 32
SECTION 5.7. Persons Deemed Holders................. 32
SECTION 5.8. Access to List of Holders'
Names and Addresses.................... 32
SECTION 5.9. Maintenance of Office or Agency........ 33
SECTION 5.10. Appointment of Paying Agent............ 33
SECTION 5.11. Ownership of Common Securities
by Depositor......................... 34
SECTION 5.12. Notices to Clearing Agency............. 34
SECTION 5.13. Rights of Holders...................... 34
ARTICLE VI. ACTS OF HOLDERS; MEETINGS; VOTING
SECTION 6.1. Limitations on Holder's Voting
Rights.............................. 37
SECTION 6.2. Notice of Meetings..................... 38
SECTION 6.3. Meetings of Holders.................... 38
SECTION 6.4. Voting Rights.......................... 39
SECTION 6.5. Proxies, etc........................... 39
SECTION 6.6. Holder Action by Written Consent....... 40
SECTION 6.7 Record Date for Voting and Other
Purposes............................. 40
<PAGE> 5
SECTION 6.8. Acts of Holders........................ 40
SECTION 6.9. Inspection of Records.................. 41
ARTICLE VII. REPRESENTATIONS AND WARRANTIES
SECTION 7.1. Representations and Warranties
of the Property Trustee and
the Delaware Trustee................. 42
SECTION 7.2. Representations and Warranties of
Depositor............................ 43
ARTICLE VIII. THE ISSUER TRUSTEES; THE ADMINISTRATORS
SECTION 8.1. Certain Duties and Responsibilities.... 44
SECTION 8.2. Certain Notices........................ 47
SECTION 8.3. Certain Rights of Property Trustee..... 47
SECTION 8.4. Not Responsible for Recitals
or Issuance of Securities............ 49
SECTION 8.5. May Hold Securities.................... 49
SECTION 8.6. Compensation; Indemnity; Fees.......... 50
SECTION 8.7. Corporate Property Trustee Required;
Eligibility of Trustees and
Administrators....................... 51
SECTION 8.8. Conflicting Interests.................. 52
SECTION 8.9. Co-Trustees and Separate Trustee....... 52
SECTION 8.10. Resignation and Removal; Appointment
of Successor......................... 54
SECTION 8.11. Acceptance of Appointment by
Successor.............................. 55
SECTION 8.12. Merger, Conversion, Consolidation or
Succession to Business............... 56
SECTION 8.13. Preferential Collection of Claims
Against Depositor or Issuer Trust.... 56
SECTION 8.14. Trustee May File Proofs of Claims...... 56
SECTION 8.15. Reports by Property Trustee............ 57
SECTION 8.16. Reports to the Property Trustee........ 58
SECTION 8.17. Evidence of Compliance with Conditions
Precedent............................ 58
SECTION 8.18. Number of Issuer Trustees.............. 58
SECTION 8.19. Delegation of Power.................... 59
SECTION 8.20. Appointment of Administrators.......... 59
ARTICLE IX. DISSOLUTION, LIQUIDATION AND MERGER
SECTION 9.1. Dissolution Upon Expiration Date....... 60
SECTION 9.2. Early Termination...................... 60
SECTION 9.3. Dissolution............................ 61
SECTION 9.4. Liquidation............................ 61
SECTION 9.5. Mergers, Consolidations, Amalgamations
or Replacements of the Issuer Trust.. 63
ARTICLE X. MISCELLANEOUS PROVISIONS
SECTION 10.1. Limitation of Rights of Holders........ 64
SECTION 10.2. Amendment.............................. 64
SECTION 10.3. Separability........................... 66
SECTION 10.4. Governing Law.......................... 66
SECTION 10.5. Payments Due on Non-Business Day....... 66
SECTION 10.6. Successors............................. 66
SECTION 10.7. Headings............................... 67
SECTION 10.8. Reports, Notices and Demands........... 67
SECTION 10.9. Agreement Not to Petition.............. 67
SECTION 10.10. Trust Indenture Act; Conflict with
Trust Indenture Act.................. 68
<PAGE> 6
SECTION 10.11. Acceptance of Terms of Trust Agreement,
Guarantee and Indenture.............. 70
Exhibit A Certificate of Trust
Exhibit B Form of Certificate Depositary Agreement
Exhibit C Form of Common Securities Certificate
Exhibit D Form of Preferred Securities Certificate
AGREEMENT
Amended and Restated Trust Agreement, dated as of August __, 1997, among
(i) Acceptance Insurance Companies Inc., a Delaware corporation (including any
successors or assigns, the "Depositor"), (ii) Bankers Trust Company, 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) Bankers Trust (Delaware), a Delaware
banking corporation, as Delaware trustee (the "Delaware Trustee") (the Property
Trustee and the Delaware Trustee are referred to collectively herein as the
"Issuer Trustees") and (iv) the several Holders, as hereinafter defined.
WITNESSETH
WHEREAS, the Depositor and the Delaware Trustee have heretofore duly
declared and established a business trust named "AICI Capital Trust" (the
"Issuer Trust") pursuant to the Delaware Business Trust Act by the entering into
a certain Trust Agreement, dated as of June 5, 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 5, 1997 (the "Certificate of Trust"), attached as Exhibit A; and
WHEREAS, the Depositor and the Delaware Trustee 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 Issuer Trust to the Depositor, (ii) the issuance and sale of the Preferred
Securities by the Issuer Trust pursuant to the Underwriting Agreement, (iii) the
acquisition by the Issuer Trust from the Depositor of all of the right, title
and interest in the Junior Subordinated Debentures, (iv) the appointment of the
Property Trustee and (v) 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 are hereby acknowledged, each party, for the benefit of the
other parties and for the benefit of the Holders, hereby amends and restates the
Original Trust Agreement in its entirety and agrees, intending to be legally
bound, as follows:
ARTICLE I
DEFINED TERMS
SECTION 1.1. Definitions.
For all purposes of this Trust Agreement, except as otherwise expressly
<PAGE> 7
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) The words "include," "includes" and "including" shall
be deemed to be followed by the phrase "without limitation";
(d) All accounting terms used but not defined herein have the meanings
assigned to them in accordance with United States generally accepted accounting
principles as in effect at the time of computation;
(e) 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;
(f) 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; and
(g) all references to the date the Preferred Securities were originally
issued shall refer to the date the Preferred Securities were originally issued.
"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 Person appointed in accordance with Section
8.20 solely in such Person's capacity as Administrator of the Issuer Trust
heretofore formed and continued hereunder and not in such Person's individual
capacity, or any successor Administrator appointed as herein provided; with the
initial Administrators being Kenneth C. Coon and William J. Gerber.
"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 Global Preferred Security or beneficial interest
therein, the rules and procedures of the Depositary for such Preferred 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.
<PAGE> 8
"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 of Directors" means the board of directors of the Depositor or the
Executive Committee of the board of directors of the Depositor (or any other
committee of the board of directors of the Depositor performing similar
functions) or a committee designated by the board of directors of the Depositor
(or any such committee), comprised of two or more members of the board of
directors of the Depositor or officers of the Depositor, or both.
"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 Issuer Trustees.
"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, New York or in the City
of Omaha, Nebraska 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 Delaware Trustee's Corporate Trust Office or the Corporate Trust
Office of the Debenture Trustee is closed for business.
"Certificate Depositary Agreement" means the agreement among the Issuer
Trust, the Depositor and DTC, as the initial Clearing Agency, dated as of the
Closing Date, substantially in the form attached as Exhibit B, as the same may
be amended and supplemented from time to time.
"Certificate of Trust" has the meaning specified in the
preamble to this Trust Agreement.
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. DTC
shall be the initial Clearing Agency.
<PAGE> 9
"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 for the Firm Securities, 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 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 at such time.
"Common Securities Certificate" means a certificate evidencing ownership
of Common Securities, substantially in the form attached as Exhibit C.
"Common Security" means an undivided beneficial interest in the assets of
the Issuer Trust, having a Liquidation Amount of $25 and having the rights
provided therefor in this Trust Agreement, including the right to receive
Distributions and a Liquidation Distribution as provided herein.
"Corporate Trust Office" means the principal office of the Property
Trustee located in the City of New York, New York, which at the time of the
execution of this Trust Agreement is located at Four Albany Street, New York,
New York 10006; Attention: Corporate Trust and Agency Group - Corporate Market
Services.
"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 of such Debentures
under the Indenture.
"Debenture Trustee" means Bankers Trust Company, a New York banking
corporation and any successor, as trustee under the Indenture.
"Delaware Business Trust Act" means Chapter 38 of Title 12
of the Delaware Code, 12 Del. C. 3801, et seq., as it may be
amended from time to time.
"Delaware Trustee" means the corporation identified as the "Delaware
Trustee" in the preamble to this Trust Agreement solely in its capacity as
Delaware Trustee of the Issuer Trust continued
hereunder and not in its individual capacity, or its successor in interest in
such capacity, or any successor trustee appointed as herein provided.
"Depositary" means the Depository Trust Company or any
successor thereto.
"Depositor" has the meaning specified in the preamble to
this Trust Agreement.
"Distribution Date" has the meaning specified in
Section 4.1(a).
<PAGE> 10
"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 Issuer Trust in the payment of any Distribution when
it becomes due and payable, and continuation of such default for a period of 30
days; or
(c) default by the Issuer 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 Issuer Trustees in this Trust Agreement (other
than a covenant or warranty a default in the performance of which or the breach
of which is dealt with in clause (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 Issuer Trustees and the Depositor by the
Holders of at least 25% in aggregate Liquidation Amount of the Outstanding
Preferred 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 any Bankruptcy Event with respect to the Property
Trustee or all or substantially all of its property if a successor Property
Trustee has not been appointed within a period of 90 days thereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and any successor statute thereto, in each case as amended from time to
time.
"Expiration Date" has the meaning specified in Section 9.1.
"Firm Securities" means an aggregate Liquidation Amount of $82,500,000 of
the Issuer Trust's ____% Preferred Securities.
"Global Preferred Securities Certificate" means a Preferred
Securities Certificate evidencing ownership of Global Preferred
Securities.
"Global Preferred Security" means a Preferred Security, the ownership and
transfers of which shall be made through book entries by a Clearing Agency as
described in Section 5.4.
"Guarantee Agreement" means the Guarantee Agreement executed and
delivered by the Depositor and Bankers Trust Company, as trustee,
contemporaneously with the execution and delivery of this Trust Agreement, for
the benefit of the Holders of the Preferred Securities, as amended from time to
<PAGE> 11
time.
"Holder" means a Person in whose name a Trust Security or Trust
Securities is registered in the Securities Register; any such Person shall be
deemed to be a beneficial owner within the meaning of the Delaware Business
Trust Act.
"Indenture" means the Junior Subordinated Indenture, dated as of
August __, 1997, between the Depositor and the Debenture Trustee (as amended
or supplemented from time to time) relating to the issuance of the Junior
Subordinated Debentures.
"Investment Company Act" means the Investment Company Act of 1940, as
amended.
"Investment Company Event" means the receipt by the Issuer Trust of an
Opinion of Counsel experienced in such matters to the effect that, as a result
of the occurrence of a change in law or regulation or a written change
(including any announced prospective change) in interpretation or application
of law or regulation by any legislative body, court, governmental agency or
regulatory authority, there is more than an insubstantial risk that the Issuer
Trust is or will be considered an "investment company" that is required to be
registered under the Investment Company Act, which change or prospective change
becomes effective or would become effective, as the case may be, on or after
the date of the issuance of the Preferred Securities.
"Issuer Trust" means AICI Capital Trust.
"Issuer Trustees" means, collectively, the Property Trustee and the
Delaware Trustee.
"Junior Subordinated Debentures" means the aggregate principal amount
of the Depositor's ____% junior subordinated deferrable interest debentures due
September 30, 2027, which date maybe shortened once at any time by the Company
to any date not earlier than September 30, 2002, issued pursuant to the
Indenture.
"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 that portion
of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Common Securities and to the Preferred Securities based upon the relative
Liquidation Amounts of such classes and (b) with respect to a distribution of
Junior Subordinated Debentures to Holders of Trust Securities in connection
with a dissolution or liquidation of the Issuer Trust, Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the Holder to whom such Junior Subordinated Debentures are
distributed.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
"Liquidation Date" means the date on which Junior Subordinated
Debentures are to be distributed to Holders of Trust Securities in connection
with a dissolution and liquidation of the Issuer Trust pursuant to Section 9.4.
<PAGE> 12
"Liquidation Distribution" has the meaning specified in Section 9.4(d).
"Majority in Liquidation Amount of the Preferred Securities" or
"Majority in Liquidation Amount of the Common Securities" means, except as
provided by the Trust Indenture Act, Preferred Securities or Common Securities,
as the case may be, representing more than 50% of the aggregate Liquidation
Amount of all then Outstanding Preferred Securities or Common Securities, as
the case may be.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board and Chief Executive Officer, President or a Vice President, and by
the Chief Financial Officer, the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary, of the Depositor, and delivered to the
party provided herein. Any Officers' Certificate delivered with respect to
compliance with a condition or covenant provided for in this Trust Agreement
shall include:
(a) a statement by each officer signing the Officers' Certificate that
such officer 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 such officer in rendering the Officers'
Certificate;
(c) a statement that 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, who may be
counsel for or an employee of the Depositor or any Affiliate of the Depositor.
"Option Closing Date" shall have the meaning provided in the
Underwriting Agreement.
"Option Securities" means an aggregate Liquidation Amount of
$12,375,000 of the Issuer Trust's ____% preferred securities, issuable to the
Underwriter, at its option, solely to cover over-allotments, if any,
exercisable no later than the 30th day after the date of the Prospectus,
subject to certain conditions set forth in the Underwriting Agreement.
"Original Trust Agreement" has the meaning specified in the preamble to
this Trust Agreement.
"Outstanding," 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 Preferred 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
<PAGE> 13
(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, 5.6 and 5.13; provided, however, that in determining whether
the Holders of the requisite Liquidation Amount of the Outstanding Preferred
Securities have given any request, demand, authorization, direction, notice,
consent or waiver hereunder, Preferred Securities owned by the Depositor, any
Issuer Trustee, any Administrator or any Affiliate of the Depositor shall be
disregarded and deemed not to be Outstanding, except that (a) in determining
whether any Issuer Trustee shall be protected in relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only Preferred
Securities that such Issuer Trustee or such Administrator, as the case may be,
knows to be so owned shall be so disregarded and (b) the foregoing shall not
apply at any time when all of the outstanding Preferred Securities are owned by
the Depositor, one or more of the Issuer Trustees, one or more of the
Administrators and/or any such Affiliate. Preferred 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 Preferred 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 Global
Preferred 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 Property Trustee.
"Payment Account" means a segregated non-interest-bearing corporate
trust account maintained by the Property Trustee with the Property Trustee in
its trust department for the benefit of the Holders in which all amounts paid
in respect of the Junior Subordinated Debentures will be held and from which
the Property Trustee, through the Paying Agent, shall make payments to the
Holders in accordance with Sections 4.1 and 4.2.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, company,
limited liability company, trust, unincorporated organization or government or
any agency or political subdivision thereof, or any other entity of whatever
nature.
"Preferred Securities Certificate" means a certificate evidencing
ownership of Preferred Securities, substantially in the form attached as
Exhibit D.
"Preferred Security" means a Firm Security or an Option Security, each
constituting a preferred undivided beneficial interest in the assets of the
Issuer Trust, having a Liquidation Amount of $25 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein.
"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 Issuer Trust 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.
"Quotation Agent" means Advest, Inc. and its successors;
<PAGE> 14
provided, however, that if the foregoing shall cease to be a primary U.S.
Government securities dealer in New York City (a "Primary Treasury Dealer"),
the Depositor shall substitute therefor another Primary Treasury Dealer.
"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 Junior Subordinated Debenture Redemption Date and
the stated maturity of the Junior Subordinated Debentures shall be a Redemption
Date for a Like Amount of Trust Securities, including but not limited to any
date of redemption pursuant to the occurrence of any Tax Event or Investment
Company Event.
"Redemption Price" means with respect to a redemption of any Trust
Security, the Liquidation Amount of such Trust Security, together with
accumulated but unpaid Distributions to but excluding the date fixed for
redemption, plus the related amount of the premium, if any, paid by the
Depositor upon the concurrent redemption of a Like Amount of Junior
Subordinated Debentures.
"Relevant Trustee" has the meaning specified in Section 8.10.
"Responsible Officer" when used with respect to the Property Trustee
means 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 having direct responsibility for the administration of
the Indenture, 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.
"Securities Act" means the Securities Act of 1933, as amended, and any
successor statute thereto, in each case as amended from time to time.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 5.5.
"Successor Preferred Securities" of any particular Preferred Securities
Certificate means every Preferred Securities Certificate issued after, and
evidencing all or a portion of the same beneficial interest in the Issuer Trust
as that evidenced by, such particular Preferred Securities Certificate; and, for
the purposes of this definition, any Preferred Securities Certificate executed
and delivered under Section 5.6 in exchange for or in lieu of a mutilated,
destroyed, lost or stolen Preferred Securities Certificate shall be deemed to
evidence the same beneficial interest in the Issuer Trust as the mutilated,
destroyed, lost or stolen Preferred Securities Certificate.
"Tax Event" means the receipt by the Issuer Trust of an Opinion of
Counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement, action or decision is announced on or after
the date of issuance of the Preferred Securities, there is more than an
insubstantial risk that (i) the Issuer Trust is, or will be within 90 days of
the delivery of such Opinion of Counsel, subject to United States Federal income
<PAGE> 15
tax with respect to income received or accrued on the Junior Subordinated
Debentures, (ii) interest payable by the Depositor on the Junior Subordinated
Debentures is not, or within 90 days of the delivery of such Opinion of Counsel
will not be, deductible by the Depositor, in whole or in part, for United States
federal income tax purposes, or (iii) the Issuer Trust is, or will be within 90
days of the delivery of such Opinion of Counsel, subject to more than a de
minimis amount of other taxes, duties or other governmental changes.
"Time of Delivery" means 10:00 a.m. Eastern Standard Time, either (i)
with respect to the Firm Securities or Common Securities, on the third Business
Day following the date of execution of the Underwriting Agreement, or such
other time not later than ten Business Days after such date as shall be agreed
upon by the Underwriters, the Issuer Trust and the Company, or (ii) with
respect to the Option Securities, the Option Closing Date.
"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 Amended and Restated Trust Agreement any such
modification, amendment or supplement, the provisions of the Trust Indenture
Act that are deemed to be a part of and govern this Amended and Restated Trust
Agreement and any modification, amendment or supplement, respectively.
"Trust Indenture Act" means the Trust Indenture Act of 1939 or any
successor statute, in each case as amended from time to time.
"Trust Property" means (a) the Junior Subordinated Debentures, (b) any
cash on deposit in, or owing to, the Payment Account, and (c) 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 Securities Certificate" means any one of the Common Securities
Certificates or the Preferred Securities Certificates.
"Trust Security" means any one of the Common Securities or the
Preferred Securities.
"Underwriter" has the meaning specified in the Underwriting Agreement.
"Underwriting Agreement" means the Underwriting Agreement, dated as of
July __, 1997, among the Issuer Trust, the Depositor and the Underwriter, as
the same may be amended from time to time.
ARTICLE II
CONTINUATION OF THE ISSUER TRUST
SECTION 2.1. Name.
The Issuer Trust continued hereby shall be known as "AICI Capital
Trust", as such name may be modified from time to time by the Administrators
following written notice to the Holders of Trust Securities and the Issuer
Trustees, in which name the Administrators and the Issuer Trustees may engage
in the transactions contemplated hereby, make and execute contracts and other
instruments on behalf of the Issuer Trust and sue and be sued.
SECTION 2.2. Office of the Delaware Trustee; Principal
<PAGE> 16
Place of Business.
The address of the Delaware Trustee in the State of Delaware is Bankers
Trust (Delaware), 1001 Jefferson Street, Suite 550, Wilmington, DE 19801,
Attention: Lisa Wilkins, or such other address in the State of Delaware as the
Delaware Trustee may designate by written notice to the Holders and the
Depositor. The principal executive office of the Issuer Trust is in care of
Acceptance Insurance Companies Inc., 222 South 15th Street, Suite 600 North,
Omaha, Nebraska 68102 Attention: William J. Gerber.
SECTION 2.3. Initial Contribution of Trust Property, Organizational
Expenses.
The Property Trustee acknowledges receipt in trust from the Depositor
in connection with this Trust Agreement of the sum of $10, which constitutes
the initial Trust Property. The Depositor shall pay all organizational expenses
of the Issuer Trust as they arise or shall, upon request of any Issuer Trustee,
promptly reimburse such Issuer Trustee for any such expenses paid by such
reasonable Issuer Trustee. The Depositor shall make no claim upon the Trust
Property for the payment of such expenses.
SECTION 2.4. Issuance of the Preferred Securities.
On July __, 1997, the Depositor, both on its own behalf and on behalf
of the Issuer Trust pursuant to the Original Trust Agreement, executed and
delivered the Underwriting Agreement. Contemporaneously with the execution and
delivery of this Trust Agreement, an Administrator, on behalf of the Issuer
Trust, shall manually execute in accordance with Section 5.3 and the Property
Trustee shall authenticate in accordance with Section 5.3 and deliver to the
Underwriter, Firm Securities Certificates, registered in the names requested by
the Underwriter, in an aggregate amount of 3,300,000 Firm Securities having an
aggregate Liquidation Amount of $82,500,000, against receipt of the aggregate
purchase price of such Preferred Securities of $82,500,000, by the Property
Trustee. At the option of the Underwriter, exercisable not later than the 30th
day after the date of the Prospectus (or, if such 30th day shall be a Saturday,
Sunday or a holiday, on the next business day thereafter), solely for the
purpose of covering an over-allotment, if any, and subject to the condition set
forth in the Underwriting Agreement that the Company shall not be obligated to
sell any Option Securities to the Underwriter if the Company receives the
reasonable opinion of its counsel that there is more than an insubstantial risk
that interest payable by the Company on the Junior Subordinated Debentures will
not be deductible by the Company for federal income tax purposes, an
Administrator, on behalf of the Issuer Trust, shall manually execute in
accordance with Section 5.3 and the Property Trustee shall authenticate in
accordance with Section 5.4 and deliver to the Underwriter, Option Securities
Certificates, registered in the names requested by the Underwriter,
representing up to 495,000 Option Securities having an aggregate Liquidation
Amount of up to $12,375,000, against receipt of the aggregate purchase price of
such Option Securities of up to $12,375,000 by the Property Trustee.
SECTION 2.5. Issuance of the Common Securities; Subscription and
Purchase of Junior Subordinated Debentures.
Contemporaneously with the execution and delivery of this Trust
Agreement, an Administrator, on behalf of the Issuer Trust, shall execute or
cause to be executed in accordance with Section 5.2 and the Property Trustee
shall deliver to the Depositor Common Securities Certificates, registered in
the name of the Depositor, in an aggregate amount of 111,341 Common Securities
having an aggregate Liquidation Amount of $2,783,525 against receipt of the
aggregate purchase price of such Common Securities of $2,783,525 by the
Property Trustee.
<PAGE> 17
In the event of any exercise of an over-allotment option requiring issuance of
additional Preferred Securities Certificates, as described in Section 2.4 above,
a proportionate number of additional Common Securities Certificates, with
corresponding aggregate Liquidation Amount, shall be delivered to the Depositor.
Contemporaneously with the executions, and deliveries of Common Securities
Certificates and any Preferred Securities Certificates, an Administrator, on
behalf of the Issuer Trust, shall subscribe for and purchase from the Depositor
corresponding amounts of Junior Subordinated Debentures, registered in the name
of the Property Trustee and having an aggregate principal amount equal to
$85,283,525, plus, in the event of any exercise of the over-allotment option (i)
a corresponding additional number of Junior Subordinated Debentures not
exceeding an aggregate principal amount of $12,375,000 and (ii) a corresponding
number of Junior Subordinated Debentures not exceeding an aggregate principal
amount equal to the aggregate Liquidation Amount of Common Securities issued
pursuant to such exercise of an over-allotment option; and, in satisfaction of
the purchase price for such Junior Subordinated Debentures, the Property
Trustee, on behalf of the Issuer Trust, shall deliver to the Depositor the sum
of $85,283,525, plus any corresponding over-allotment option amount (being the
sum of the amounts delivered to the Property Trustee pursuant to (i) the second
sentence of Section 2.4, and (ii) the first and second sentences of this Section
2.5) and receive on behalf of the Issuer Trust the Junior Subordinated
Debentures.
SECTION 2.6. Declaration of Trust.
The exclusive purposes and functions of the Issuer Trust are to (a)
issue and sell Trust Securities and use the proceeds from such sale to acquire
the Junior Subordinated Debentures, and (b) engage in only those other
activities necessary or incidental thereto. The Depositor hereby appoints the
Issuer Trustees as trustees of the Issuer Trust, to have all the rights, powers
and duties to the extent set forth herein, and the Issuer 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 Issuer Trust and the Holders. The Depositor hereby
appoints the Administrators, with such Administrators having all rights, powers
and duties set forth herein with respect to accomplishing the purposes of the
Issuer Trust, and the Administrators hereby accept such appointment, provided,
however, that it is the intent of the parties hereto that such Administrators
shall not be trustees or fiduciaries with respect to the Issuer Trust and this
Agreement shall be construed in a manner consistent with such intent. The
Property Trustee shall have the right and power to perform those duties
assigned to the Administrators. 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 Issuer Trust
for the sole and limited purpose of fulfilling the requirements of Section 3807
of the Delaware Business Trust Act and for taking such actions as are required
to be taken by a Delaware trustee under the Delaware Business Trust Act.
SECTION 2.7. Authorization to Enter into Certain Transactions.
(a) The Issuer Trustees and the Administrators shall conduct the
affairs of the Issuer 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), (ii) and (iii),
the Issuer Trustees and the Administrators shall act as follows:
(i) Each Administrator shall:
<PAGE> 18
(A) comply with the Underwriting Agreement regarding
the issuance and sale of the Trust Securities;
(B) assist in compliance with the Securities Act, applicable state
securities or blue sky laws, and the Trust Indenture Act;
(C) assist in the listing of the Preferred Securities upon such
securities exchange or exchanges or upon the Nasdaq National Market as
shall be determined by the Depositor, with the registration of the
Preferred Securities under the Exchange Act, if required, and the
preparation and filing of all periodic and other reports and other
documents pursuant to the foregoing;
(D) execute and deliver an application for a taxpayer
identification number for the Issuer Trust;
(E) assist with the preparation of a registration statement and a
prospectus in relation to the Preferred Securities, including any
amendments thereto and the taking of any action necessary or desirable to
sell the Preferred Securities in a transaction or series of transactions
subject to the registration requirements of the Securities Act; and
(F) take any action incidental to the foregoing as necessary or
advisable to give effect to the terms of this Trust Agreement.
(ii) The Property Trustee shall have the power and authority to act on
behalf of the Issuer Trust with respect to the following matters:
(A) the establishment of the Payment Account;
(B) the receipt of the Junior Subordinated Debentures;
(C) the receipt and collection of interest, principal and any other
payments made in respect of the Junior Subordinated Debentures in the
Payment Account;
(D) the distribution of amounts owed to the Holders
in respect of the Trust Securities;
(E) the exercise of all of the rights, powers and
privileges of a holder of the Junior Subordinated
Debentures;
(F) the sending of notices of default and other
information regarding the Trust Securities and the Junior
Subordinated Debentures to the Holders 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 Issuer Trust and the
preparation, execution and filing of the certificate of cancellation with
the Secretary of State of the State of Delaware; and
(I) after an Event of Default (other than under paragraph (b), (c)
or (d) of the definition of such term if such Event of Default is by or
with respect to the Property Trustee), comply with the provisions of this
Trust Agreement and take any action to give effect to the terms of this
<PAGE> 19
Trust Agreement and protect and conserve the Trust Property for the
benefit of the Holders (without consideration of the effect of any such
action on any particular Holder); provided, however, that nothing in this
Section 2.7(a)(ii) shall require the Property Trustee to take any action
that is not otherwise required in this Trust Agreement.
(b) So long as this Trust Agreement remains in effect, the Issuer Trust
(or the Issuer Trustees or Administrators acting on behalf of the Issuer Trust)
shall not undertake any business, activities or transaction except as expressly
provided herein or contemplated hereby. In particular, neither the Issuer
Trustees nor the Administrators shall (i) acquire any investments 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 Holders, except as expressly
provided herein, (iii) take any action that would reasonably be expected to
cause the Issuer Trust to become taxable as a corporation for United States
Federal income tax purposes, (iv) incur any indebtedness for borrowed money or
issue any other debt, or (v) take or consent to any action that would result in
the placement of a Lien on any of the Trust Property. The Property Trustee 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 Issuer Trust or the
Holders in their capacity as Holders.
(c) In connection with the issue and sale of the Preferred Securities,
the Depositor shall have the right and responsibility to assist the Issuer Trust
with respect to, or effect on behalf of the Issuer 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 Issuer Trust of, and the execution and
delivery of, a registration statement, and a prospectus in relation to
the Preferred Securities, including any amendments thereto and the taking
of any action necessary or desirable to sell the Preferred Securities in
a transaction or a series of transactions subject to the registration
requirements of 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 Preferred
Securities and the determination of any and all such acts, other than
actions that must be taken by or on behalf of the Issuer Trust, and the
advice to the Issuer Trustees of actions they must take on behalf of the
Issuer Trust, and the preparation for execution and filing of any
documents to be executed and filed by the Issuer Trust or on behalf of
the Issuer 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 Preferred Securities;
(iii) the negotiation of the terms of, and the
execution and delivery of, the Underwriting Agreement
providing for the sale of the Preferred Securities;
(iv) the taking of any other actions necessary or
desirable to carry out any of the foregoing activities; and
(v) compliance with the listing requirements of the Preferred
Securities upon such securities exchange or exchanges, or upon the Nasdaq
National Market, as shall be determined by the Depositor, the
registration of the Preferred Securities under the Exchange Act, if
required, and the preparation and filing of all periodic and other
reports and other documents pursuant to the foregoing.
<PAGE> 20
(d) Notwithstanding anything herein to the contrary, the Administrators
and the Property Trustee are authorized and directed to conduct the affairs of
the Issuer Trust and to operate the Issuer Trust so that the Issuer Trust will
not be deemed to be an "investment company" required to be registered under the
Investment Company Act, and will not be taxable as a corporation for the United
States Federal income tax purposes and so that the Junior Subordinated
Debentures will be treated as indebtedness of the Depositor for United States
income tax purposes. In this connection, the Property Trustee and the Holders of
Common Securities are authorized to take any action, not inconsistent with
applicable law, the Certificate of Trust or this Trust Agreement, that the
Property Trustee and Holders of Common Securities determine in their 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
Outstanding Preferred Securities. In no event shall the Administrators or the
Issuer Trustees be liable to the Issuer Trust or the Holders for any failure to
comply with this section that results from a change in law or regulations or in
the interpretation thereof.
SECTION 2.8. Assets of Trust.
The assets of the Issuer Trust shall consist solely 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 Issuer Trust and the Holders 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 its agents 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
Holders 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 Junior Subordinated 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.
<PAGE> 21
(a) The Trust Securities represent undivided beneficial interests in
the Trust Property, and Distributions (including Distributions of Additional
Amounts) will be made on the Trust Securities at the rate and on the dates that
payments of interest (including payments of Additional Interest, as defined in
the Indenture) are made on the Junior Subordinated Debentures. Accordingly:
(i) Distributions on the Trust Securities shall be cumulative and
will accumulate whether or not there are funds of the Issuer Trust
available for the payment of Distributions. Distributions shall
accumulate from August __, 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
quarterly in arrears on March 31, June 30, September 30 and December 31
of each year, commencing on September 30, 1997. 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 (without any interest or other
payment in respect of any such delay), with the same force and effect as
if made on the date on which such payment was originally payable (each
date on which distributions are payable in accordance with this Section
4.1(a), a "Distribution Date").
(ii) The Trust Securities shall be entitled to Distributions payable
at a rate of ____% per annum of the Liquidation Amount of the Trust
Securities. The amount of Distributions payable for any period less than
a full Distribution 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
four. The amount of Distributions payable for any period shall include
any Additional Amounts in respect of such period.
(iii) So long as no Debenture Event of Default has occurred and is
continuing, the Depositor has the right under the Indenture to defer the
payment of interest on the Junior Subordinated Debentures at any time and
from time to time for a period not exceeding 20 consecutive quarterly
periods (an "Extension Period"), provided that no Extension Period may
extend beyond September 30, 2027. As a consequence of any such deferral,
quarterly Distributions on the Trust Securities by the Trust will also be
deferred (and the amount of Distributions to which Holders of the Trust
Securities are entitled will accumulate additional Distributions thereon
at the rate per annum of ____% per annum, compounded quarterly) from the
relevant payment date for such Distributions, 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. Additional Distributions payable for each
full Distribution period will be computed by dividing the rate per annum
by four (4). The term "Distributions" as used in Section 4.1 shall
include any such additional Distributions provided pursuant to this
Section 4.1(a)(iii).
(iv) 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 Issuer 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
<PAGE> 22
record date, which shall be at the close of business on the 15th day of March,
June, September or December (whether or not a Business Day).
SECTION 4.2. Redemption.
(a) On each Junior Subordinated Debenture Redemption Date and on the
stated maturity of the Junior Subordinated Debentures, the Issuer 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, or as soon as
practicable thereafter, that notice of such actual Redemption Price is
received pursuant to the Indenture);
(iii) the CUSIP number or CUSIP numbers of the
Preferred Securities affected;
(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 accumulate on and after said date,
except as provided in Section 4.2(d) below; and
(vi) the place or places where Trust Securities are to be
surrendered for the payment of the Redemption Price.
The Issuer Trust in issuing the Trust Securities shall use "CUSIP"
numbers, and the Property Trustee shall indicate the "CUSIP" numbers of the
Trust Securities in notices of redemption and related materials as a convenience
to Holders; provided that any such notice may state that no representation is
made as to the correctness of such numbers either as printed on the Trust
Securities or as contained in any notice of redemption and related material.
(c) The Trust Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the applicable proceeds from the
contemporaneous redemption of Junior Subordinated 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 Issuer 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 Preferred 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 Preferred Securities held in global form, irrevocably deposit with
<PAGE> 23
the Clearing Agency for such Preferred Securities, to the extent available
therefor, 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 of the Preferred Securities. With respect to
Preferred Securities that are not held in global form, the Property Trustee,
subject to Section 4.2(c), will irrevocably deposit with the Paying Agent, to
the extent available therefor, 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 Holder of the Preferred Securities upon
surrender of their Preferred 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 Holders holding Trust Securities so called
for redemption will cease, except the right of such Holders to receive the
Redemption Price and any Distribution payable in respect of the Trust Securities
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 applicable
Redemption Price is payable is not a Business Day, then payment of the
applicable 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 Issuer Trust or by the Depositor pursuant to the Guarantee
Agreement, Distributions on such Trust Securities will continue to accumulate,
as set forth in Section 4.1, from the Redemption Date originally established by
the Issuer Trust for such Trust Securities to the date such applicable
Redemption Price is actually paid, in which case the actual payment date will be
the date fixed for redemption for purposes of calculating the applicable
Redemption Price.
(e) Subject to Section 4.3(a), if less than all the Outstanding Trust
Securities are to be redeemed on a Redemption Date, then the particular
Preferred Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Property Trustee from the Outstanding
Preferred Securities not previously called for redemption in such a manner as
the Property Trustee shall deem fair and appropriate.
SECTION 4.3. Subordination of Common Securities.
(a) Payment of Distributions (including Additional Amounts, if
applicable) on, the Redemption Price of, and the Liquidation Distribution in
respect of, the Trust Securities, as applicable, shall be made, subject to
Section 4.2(e), pro rata among the Common Securities and the Preferred
Securities based on the Liquidation Amount of such Trust Securities; provided,
however, that if on any Distribution Date or Redemption Date any Event of
Default resulting from a Debenture Event of Default in Section 5.1(1) or 5.1(2)
of the Indenture shall have occurred and be continuing, no payment of any
Distribution (including any Additional Amounts) on, Redemption Price of, or
Liquidation Distribution in respect 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 any Additional Amounts) on all Outstanding
Preferred Securities for all Distribution periods terminating on or prior
thereto, or, in the case of payment of the Redemption Price, the full amount of
<PAGE> 24
such Redemption Price on all Outstanding Preferred Securities then called for
redemption, or in the case of payment of the Liquidation Distribution the full
amount of such Liquidation Distribution on all Outstanding Preferred Securities,
shall have been made or provided for, and all funds immediately available to the
Property Trustee shall first be applied to the payment in full in cash of all
Distributions (including any Additional Amounts) on, or the Redemption Price of,
Preferred Securities then due and payable. The existence of an Event of Default
does not entitle the Holders of Preferred Securities to accelerate the maturity
thereof.
(b) In the case of the occurrence of any Event of Default resulting from
any Debenture Event of Default, the Holder of the Common Securities shall have
no right to act with respect to any such Event of Default under this Trust
Agreement until the effects of all such Events of Default with respect to the
Preferred Securities have been cured, waived or otherwise eliminated. Until all
such Events of Default under this Trust Agreement with respect to the Preferred
Securities have been so cured, waived or otherwise eliminated, the Property
Trustee shall act solely on behalf of the Holders of the Preferred Securities
and not on behalf of the Holder of the Common Securities, and only the Holders
of the Preferred Securities will have the right to direct the Property Trustee
to act on their behalf.
SECTION 4.4. Payment Procedures.
Payments of Distributions (including any Additional Amounts) in respect
of the Preferred 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 Preferred Securities are held by a Clearing Agency, such
Distributions shall be made to the Clearing Agency in immediately available
funds, which will credit the relevant accounts on the applicable Distribution
Dates. Payments of Distributions to Holders of $1,000,000 or more in aggregate
Liquidation Amount of Preferred Securities may be made by wire transfer of
immediately available funds upon written request of such Holder of Preferred
Securities to the Securities Registrar not later than 15 calendar days prior to
the date on which the Distribution is payable. Payments in respect of the Common
Securities shall be made in such manner as shall be mutually agreed between the
Property Trustee and the Holder of the Common Securities.
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
Issuer Trust. In this regard, the Administrators shall (a) prepare and file (or
cause to be prepared and filed) all Internal Revenue Service forms required to
be filed in respect of the Issuer Trust in each taxable year of the Issuer Trust
and (b) prepare and furnish (or cause to be prepared and furnished) to each
Holder all Internal Revenue Service forms required to be provided by the Issuer
Trust. 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 Issuer Trustees shall comply with United States Federal
withholding and backup withholding tax laws and information reporting
requirements with respect to any payments to Holders under the Trust Securities.
On or before December 15 of each year during which any Preferred
Securities are outstanding, the Administrators shall furnish to the Paying Agent
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
<PAGE> 25
shall include the amount of original issue discount includible in income for
each outstanding Preferred Security during such year, if any.
SECTION 4.6. Payment of Taxes; Duties, Etc. of the Issuer Trust.
Upon receipt under the Junior Subordinated 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
Issuer 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 Preferred Securities
shall be reduced by the amount of any corresponding payment such Holder has
directly received pursuant to Section 5.8 of the Indenture or Section 5.13 of
this Trust Agreement.
SECTION 4.8. Liability of the Holder of Common Securities.
The Holder of Common Securities shall be liable for the debts and
obligations of the Issuer Trust as set forth in Section 6.7(c) of the Indenture
regarding allocation of expenses.
ARTICLE V
TRUST SECURITIES CERTIFICATES
SECTION 5.1. Initial Ownership.
Upon the formation of the Issuer 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 Issuer Trust.
SECTION 5.2. The Trust Securities Certificates.
(a) The Trust Securities Certificates shall be executed on behalf of
the Issuer Trust by manual or facsimile signature of at least one Administrator
except as provided in Section 5.3. Trust Securities Certificates bearing the
manual or facsimile signatures of individuals who were, at the time when such
signatures shall have been affixed, authorized to sign on behalf of the Issuer
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 Holder, and shall be entitled to the rights and subject to the
obligations of a Holder hereunder, upon due registration of such Trust
Securities Certificate in such transferee's name pursuant to Section 5.5.
(b) Upon their original issuance, Preferred Securities Certificates
shall be issued in the form of one or more fully registered Global Preferred
Securities Certificates which will be deposited with or on behalf of the
Depositary and registered in the name of the Depositary's nominee. Unless and
until it is exchangeable in whole or in part for the Preferred Securities in
definitive form, a global security may not be transferred except as a whole by
the Depositary to a nominee of the Depositary or by a nominee of the Depositary
<PAGE> 26
to the Depositary or another nominee of the Depositary or by the Depositary or
any such nominee to a successor of such Depositary or a nominee of such
successor.
(c) 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, an Administrator shall cause Trust Securities
Certificates, in an aggregate Liquidation Amount as provided in Sections 2.4
and 2.5, to be executed on behalf of the Issuer Trust and delivered to the
Property Trustee and upon such delivery the Property Trustee shall authenticate
such Trust Securities Certificates and deliver such Trust Securities
Certificates upon the written order of the Trust, executed by an Administrator
thereof, without further corporate action by the Trust, in authorized
denominations.
SECTION 5.4. Global Preferred Security.
(a) Any Global Preferred Security issued under this Trust Agreement
shall be registered in the name of the nominee of the Clearing Agency and
delivered to such custodian therefor, and such Global Preferred Security shall
constitute a single Preferred Security for all purposes of this Trust
Agreement.
(b) Notwithstanding any other provision in this Trust Agreement, a
Global Preferred Security may not be exchanged in whole or in part for
Preferred Securities registered, and no transfer of the Global Preferred
Security in whole or in part may be registered, in the name of any Person other
than the Clearing Agency for such Global Preferred Security, or its nominee
thereof unless (i) such Clearing Agency advises the Property Trustee in writing
that such Clearing Agency is no longer willing or able to properly discharge
its responsibilities as Clearing Agency with respect to such Global Preferred
Security, and the Depositor is unable to locate a qualified successor, (ii) the
Issuer Trust at its option advises the Depositary in writing that it elects to
terminate the book-entry system through the Clearing Agency, or (iii) there
shall have occurred and be continuing an Event of Default.
(c) If a Preferred Security is to be exchanged in whole or in part for
a beneficial interest in a Global Preferred Security, then either (i) such
Global Preferred Security shall be so surrendered for exchange or cancellation
as provided in this Article V or (ii) the Liquidation Amount thereof shall be
reduced or increased by an amount equal to the portion thereof to be so
exchanged or cancelled, or equal to the Liquidation Amount of such other
Preferred 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 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 any such
surrender or adjustment of a Global Preferred Security by the Clearing Agency,
accompanied by registration instructions, the Property Trustee shall, subject
to Section 5.4(b) and as otherwise provided in this Article V, authenticate and
deliver any Preferred Securities issuable in exchange for such Global Preferred
Security (or any portion thereof) in accordance with the instructions of the
Clearing Agency. The Property 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 Preferred Security authenticated and delivered upon
<PAGE> 27
registration of transfer of, or in exchange for or in lieu of, a Global
Preferred Security or any portion thereof, whether pursuant to this Article V or
Article IV or otherwise, shall be authenticated and delivered in the form of,
and shall be, a Global Preferred Security, unless such Global Preferred Security
is registered in the name of a Person other than the Clearing Agency for such
Global Preferred Security or a nominee thereof.
(e) The Clearing Agency or its nominee, as the registered owner of a
Global Preferred Security, shall be considered the Holder of the Preferred
Securities represented by such Global Preferred Security for all purposes under
this Trust Agreement and the Preferred Securities, and owners of beneficial
interests in such Global Preferred Security shall hold such interests pursuant
to the Applicable Procedures and, except as otherwise provided herein, shall
not be entitled to receive physical delivery of any such Preferred Securities
in definitive form and shall not be considered the Holders thereof under this
Trust Agreement. Accordingly, any such owner's beneficial interest in the
Global Preferred Security shall be shown only on, and the transfer of such
interest shall be effected only through, records maintained by the Clearing
Agency or its nominee. Neither the Property Trustee, the Securities Registrar
nor the Depositor shall have any liability in respect of any transfers effected
by the Clearing Agency.
(f) The rights of owners of beneficial interests in a Global Preferred
Security shall be exercised only through the Clearing Agency and shall be
limited to those established by law and agreements between such owners and the
Clearing Agency.
SECTION 5.5. Registration of Transfer and Exchange Generally; Certain
Transfers and Exchanges; Preferred Securities Certificates.
(a) The Property Trustee shall keep or cause to be kept at its
Corporate Trust Office a register or registers for the purpose of registering
Preferred Securities Certificates and transfers and exchanges of Preferred
Securities Certificates in which the registrar and transfer agent with respect
to the Preferred Securities (the "Securities Registrar"), subject to such
reasonable regulations as it may prescribe, shall provide for the registration
of Preferred Securities Certificates and Common Securities Certificates
(subject to Section 5.11 in the case of Common Securities Certificates) and
registration of transfers and exchanges of Preferred Securities Certificates as
herein provided. Such register is herein sometimes referred to as the
"Securities Register." The Property Trustee is hereby appointed "Securities
Registrar" for the purpose of registering Preferred Securities and transfers of
Preferred Securities as herein provided.
Upon surrender for registration of transfer of any Preferred Security
at the offices or agencies of the Property Trustee designated for that purpose,
the Depositor shall execute, and authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Preferred Securities of
the same series of any authorized denominations of like tenor and aggregate
principal amount and bearing such legends as may be required by this Trust
Agreement.
At the option of the Holder, Preferred Securities may be exchanged for
other Preferred Securities of any authorized denominations, of like tenor and
aggregate Liquidation Amount and bearing such legends as may be required by
this Trust Agreement, upon surrender of the Preferred Securities to be
exchanged at such office or agency. Whenever any securities are so surrendered
for exchange, the Property Trustee shall execute and authenticate and deliver
the Preferred Securities that the Holder making the exchange is entitled to
receive.
<PAGE> 28
All Preferred Securities issued upon any transfer or exchange of
Preferred Securities shall be the valid obligations of the Issuer Trust,
evidencing the same debt, and entitled to the same benefits under this Trust
Agreement, as the Preferred Securities surrendered upon such transfer or
exchange.
Every Preferred Security presented or surrendered for transfer or
exchange shall (if so required by the Property Trustee) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Property Trustee and the Securities Registrar, duly executed by the Holder
thereof or such Holder's attorney duly authorized in writing.
No service charge shall be made to a Holder for any transfer or
exchange of Preferred Securities, but the Property Trustee 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 Preferred Securities.
Neither the Issuer Trust nor the Property Trustee shall be required,
pursuant to the provisions of this Section, (i) to issue, register the transfer
of or exchange any Preferred Security during a period beginning at the opening
of business 15 days before the day of selection for redemption of Preferred
Securities pursuant to Article IV and ending at the close of business on the
day of mailing of the notice of redemption, or (ii) to register the transfer of
or exchange any Preferred Security so selected for redemption in whole or in
part, except, in the case of any such Preferred Security to be redeemed in
part, any portion thereof not to be redeemed.
(b) Certain Transfers and Exchanges. Trust Securities may only be
transferred, in whole or in part, in accordance with the terms and conditions
set forth in this Trust Agreement. Any transfer or purported transfer of any
Trust Security not made in accordance with this Trust Agreement shall be null
and void.
(i) Non Global Security to Non Global Security. A Trust Security
that is not a Global Preferred Security may be transferred, in whole or
in part, to a Person who takes delivery in the form of another Trust
Security that is not a Global Security as provided in Section 5.5(a).
(ii) Free Transferability. Subject to this Section
5.5, Preferred Securities shall be freely transferable.
(iii) Exchanges Between Global Preferred Security and Non-Global
Preferred Security. A beneficial interest in a Global Preferred Security
may be exchanged for a Preferred Security that is not a Global Preferred
Security as provided in Section 5.4.
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 Issuer Trust shall
execute and make available for delivery, and the Property Trustee shall
authenticate, in exchange for or in lieu of any such mutilated, destroyed, lost
or stolen Trust
<PAGE> 29
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
Issuer Trust corresponding to that evidenced by the lost, stolen or destroyed
Trust Certificate, 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 Holders.
The Issuer Trustees, the Securities Registrar or the Depositor shall
treat the Person in whose name any Trust Securities are issued as the owner of
such Trust Securities for the purpose of receiving Distributions and for all
other purposes whatsoever, and none of the Issuer Trustees, the Administrators,
the Securities Registrar nor the Depositor shall be bound by any notice to the
contrary.
SECTION 5.8. Access to List of Holders' Names and Addresses.
Each Holder and each Owner shall be deemed to have agreed not to hold
the Depositor, the Property Trustee, 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 Preferred Securities Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Issuer Trustees in respect of the Trust Securities
Certificates may be served. The Property Trustee initially designates its
Corporate Trust Office at Four Albany Street, New York, NY 10006, Attention:
Corporate Trust and Agency Group Corporate Market Services, as its corporate
trust office for such purposes. The Property Trustee shall give prompt written
notice to the Depositor, the Administrators and to the Holders 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 Holders 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 solely for the purpose of making the
Distributions referred to above. The Property Trustee may revoke such power and
remove any Paying Agent in its sole discretion. The Paying Agent shall
initially be the Property Trustee. 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 Property
Trustee 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 (which shall be a bank or trust company) that is reasonably
acceptable to the Administrators to act as Paying Agent. Such successor Paying
Agent or any additional Paying Agent appointed by the Administrators shall
execute and deliver to the Issuer Trustees an instrument in which such
successor Paying Agent or additional Paying Agent shall agree with the Issuer
Trustees that as Paying Agent, such successor Paying
<PAGE> 30
Agent or additional Paying Agent will hold all sums, if any, held by it for
payment to the Holders in trust for the benefit of the Holders entitled thereto
until such sums shall be paid to such Holders. The Paying Agent shall
return all funds unclaimed for two years 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 Trust Agreement to the
Paying Agent shall include any co-paying agent chosen by the Property Trustee
unless the context requires otherwise.
SECTION 5.11. Ownership of Common Securities by Depositor.
At each Time of Delivery, the Depositor shall acquire and retain
beneficial and record ownership of the Common Securities except (i) in
connection with a consolidation or merger of the Depositor into another
corporation 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, or (ii) a transfer to an Affiliate of the
Depositor in compliance with applicable law (including the Securities Act and
applicable state securities and blue sky laws). Otherwise, to the fullest
extent permitted by law, any attempted transfer of the Common Securities shall
be void. The Administrators shall cause each Common Securities Certificate
issued to the Depositor to contain a legend stating "THIS CERTIFICATE IS NOT
TRANSFERABLE EXCEPT TO A SUCCESSOR IN INTEREST TO THE DEPOSITOR OR AN AFFILIATE
OF THE DEPOSITOR IN COMPLIANCE WITH APPLICABLE LAW AND SECTION 5.11 OF THE
TRUST AGREEMENT."
SECTION 5.12. Notices to Clearing Agency.
To the extent that a notice or other communication to the Holders is
required under this Trust Agreement, for so long as Preferred Securities are
represented by a Global Preferred Securities Certificate, the Administrators
and the Issuer Trustees shall give all such notices and communications
specified herein to be given to the Clearing Agency, and shall have no
obligations to the Owners.
SECTION 5.13. Rights of Holders.
(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 Holders shall not have any right or title therein other than the undivided
beneficial ownership interest in the assets of the Issuer 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 Issuer 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 Holders against payment of the purchase price therefor will be
fully paid and nonassessable by the Issuer Trust. Except with respect to the
Holder of Common Securities as provided in Section 4.8, 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 Preferred 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 Junior Subordinated
Debentures fail to declare the principal of all of the Junior Subordinated
<PAGE> 31
Debentures to be immediately due and payable, the Holders of at least 25% in
Liquidation Amount of the Preferred Securities then Outstanding shall have such
right to make such declaration by a notice in writing to the Property Trustee,
the Depositor and the Debenture Trustee.
At any time after such a declaration of acceleration with respect to
the Junior Subordinated Debentures has been made and before a judgment or
decree for payment of the money due has been obtained by the Debenture Trustee
as provided in the Indenture, the Holders of a majority in Liquidation Amount
of the Preferred 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 on all of the
Junior Subordinated Debentures,
(B) any accrued Additional Interest on all of the
Junior Subordinated Debentures,
(C) the principal of (and premium, if any, on) any
Junior Subordinated Debentures which have become due otherwise
than by such declaration of acceleration and interest and
Additional Interest thereon at the rate borne by the Junior
Subordinated Debentures, and
(D) 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 Junior Subordinated
Debentures, other than the non-payment of the principal of the
Junior Subordinated Debentures which has become due solely by
such acceleration, have been cured or waived as provided in
Section 5.13 of the Indenture.
If the Property Trustee fails to annul any such declaration and waive
such default, the Holders of at least a Majority in Liquidation Amount of the
Preferred Securities shall also have the right to rescind and annul such
declaration and its consequences by written notice to the Depositor, the
Property Trustee and the Debenture Trustee, subject to the satisfaction of the
conditions set forth in Clause (i) and (ii) of this Section 5.13.
The Holders of at least a Majority in Liquidation Amount of the
Preferred Securities may, on behalf of the Holders of all the Preferred
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 Junior Subordinated Debentures. 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
Preferred Securities all or part of which is represented by Global Preferred
Securities, a record date shall be established for determining Holders of
Outstanding Preferred 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.
<PAGE> 32
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 Preferred 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 Preferred Securities
shall have the right to institute a proceeding directly against the Depositor,
pursuant to Section 5.8 of the Indenture, for enforcement of payment to such
Holder of the principal amount of or interest on Junior Subordinated Debentures
having an aggregate principal amount equal to the aggregate Liquidation Amount
of the Preferred Securities of such Holder (a "Direct Action"). Except as set
forth in Sections 5.13(b) and 5.13 (c) of this Trust Agreement, the Holders of
Preferred Securities shall have no right to exercise directly any right or
remedy available to the holders of, or in respect of, the Junior Subordinated
Debentures.
ARTICLE VI
ACTS OF HOLDERS; MEETINGS; VOTING
SECTION 6.1. Limitations on Holder's Voting Rights.
(a) Except as provided in this Trust Agreement and in the Indenture and
as otherwise required by law, no Holder of Preferred Securities shall have any
right to vote or in any manner otherwise control the administration, operation
and management of the Issuer 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 Holders from time
to time as members of an association.
(b) So long as any Junior Subordinated Debentures are held by the
Property Trustee on behalf of the Issuer Trust, the Property Trustee shall not
(i) direct the time, method and place of conducting any proceeding for any
remedy available to the Debenture Trustee, or executing any trust or power
conferred on the Property Trustee with respect to such Junior Subordinated
Debentures, (ii) waive any past default that may be waived under Section 5.13
of the Indenture, (iii) exercise any right to rescind or annul a declaration
that the principal of all the Junior Subordinated Debentures shall be due and
payable or (iv) consent to any amendment, modification or termination of the
Indenture or the Junior Subordinated Debentures, where 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 the Preferred Securities,
provided, however, that where a consent under the Indenture would require the
consent of each Holder of Junior Subordinated Debentures affected thereby, no
such consent shall be given by the Property Trustee without the prior written
consent of each Holder of Preferred Securities. The Property Trustee shall not
revoke any action
<PAGE> 33
previously authorized or approved by a vote of the Holders of Preferred
Securities, except by a subsequent vote of the Holders of Preferred
Securities. The Property Trustee shall notify all Holders of the Preferred
Securities of any notice of default received with respect to the Junior
Subordinated Debentures. In addition to obtaining the foregoing approvals of
the Holders of the Preferred Securities, prior to taking any of the foregoing
actions, the Issuer Trustees shall, at the expense of the Depositor, obtain an
Opinion of Counsel experienced in such matters to the effect that such action
will not cause the Issuer Trust to be taxable as a corporation for United
States Federal income tax purposes.
(c) If any proposed amendment to the Trust Agreement provides for, or
the Issuer Trust otherwise proposes to effect, (i) any action that would
adversely affect in any material respect the interests, powers, preferences or
special rights of the Preferred Securities, whether by way of amendment to the
Trust Agreement or otherwise, or (ii) the dissolution of the Issuer Trust,
other than pursuant to the terms of this Trust Agreement, then the Holders of
Outstanding Trust 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 Preferred 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 Issuer Trust to be taxable as a
corporation for United States Federal income tax purposes.
SECTION 6.2. Notice of Meetings.
Notice of all meetings of the Holders, stating the time, place and
purpose of the meeting, shall be given by the Property Trustee pursuant to
Section 10.8 to each Holder 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 Holders.
No annual meeting of Holders is required to be held. The Property
Trustee, however, shall call a meeting of Holders to vote on any matter upon
the written request of the Holders of record of 25% of the aggregate
Liquidation Amount of the Preferred Securities and the Administrators or the
Property Trustee may, at any time in their discretion, call a meeting of
Holders of Preferred Securities to vote on any matters as to which Holders are
entitled to vote.
Holders of at least a Majority in Liquidation Amount of the Preferred
Securities, present in person or represented by proxy, shall constitute a
quorum at any meeting of Holders of the Preferred Securities.
If a quorum is present at a meeting, an affirmative vote by the Holders
of record present, in person or by proxy, holding Preferred Securities
representing at least a Majority in Liquidation Amount of the Preferred
Securities held by the Holders present, either in person or by proxy, at such
meeting shall constitute the action of the Holders of Preferred Securities,
unless this Trust Agreement requires a greater number of affirmative votes.
SECTION 6.4. Voting Rights.
Holders shall be entitled to one vote for each $25 of Liquidation
Amount represented by their Outstanding Trust Securities in respect of any
matter as to which such Holders are entitled to vote.
<PAGE> 34
SECTION 6.5. Proxies, etc.
At any meeting of Holders, any Holder 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 Property Trustee, or with such other officer
or agent of the Issuer Trust as the Property Trustee may direct, for
verification prior to the time at which such vote shall be taken. Pursuant to a
resolution of the Property Trustee, proxies may be solicited in the name of the
Property Trustee or one or more officers of the Property Trustee. Only Holders
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 Holder 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. Holder Action by Written Consent.
Any action which may be taken by Holders at a meeting may be taken
without a meeting if Holders holding at least a Majority in Liquidation Amount
of all Trust Securities entitled to vote in respect of such action (or such
larger proportion thereof as shall be required by any other 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 Holders 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 Holders 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 Holders of record for such
purposes.
SECTION 6.8. Acts of Holders.
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 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 otherwise expressly provided herein,
such action shall become effective when such instrument or instruments are
delivered to the Property Trustee. 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 Trust Agreement and (subject to
Section 8.1) conclusive in favor of the Issuer 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
<PAGE> 35
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 Issuer Trustee or Administrator receiving the same deems
sufficient.
The ownership of Trust Securities shall be proved by the Securities
Register.
Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Trust Security shall bind every future Holder
of the same Trust Security and the Holder 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 Issuer
Trustees, the Administrators or the Issuer Trust in reliance thereon, whether
or not notation of such action is made upon such Trust Security.
Without limiting the foregoing, a Holder 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 among the Holders, the Administrators or the
Issuer Trustees with respect to the authenticity, validity or binding nature of
any request, demand, authorization, direction, consent, waiver or other Act of
such Holder or Issuer Trustee under this Article VI, then the determination of
such matter by the Property Trustee shall be conclusive with respect to such
matter.
A Holder may institute a legal proceeding directly against the
Depositor under the Guarantee Agreement to enforce its rights under the
Guarantee Agreement without first instituting a legal proceeding against the
Guarantee Trustee (as defined in the Guarantee Agreement), the Issuer Trust,
any Issuer Trustee, any Administrator or any person or entity.
SECTION 6.9. Inspection of Records.
Upon reasonable notice to the Administrators and the Property Trustee,
the records of the Issuer Trust shall be open to inspection by Holders during
normal business hours for any purpose reasonably related to such Holder's
interest as a Holder.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
SECTION 7.1. Representations and Warranties of the Property Trustee
and the Delaware Trustee.
The Property Trustee and the Delaware Trustee, each severally on behalf
of and as to itself, hereby represents and warrants for the benefit of the
Depositor and the Holders that:
(a) The Property Trustee is a banking corporation with trust powers,
duly organized, validly existing and in good standing under the laws of New
York, with trust power and authority to execute and deliver, and to carry out
and perform its obligations under the terms of this Trust Agreement.
<PAGE> 36
(b) The execution, delivery and performance by the Property Trustee of
this Trust Agreement has been duly authorized by all necessary corporate action
on the part of the Property Trustee; and this Trust Agreement has been duly
executed and delivered by the Property Trustee, and constitutes a legal, valid
and binding obligation of the Property Trustee, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, reorganization,
moratorium, insolvency, and other similar laws affecting creditors' rights
generally and to general principles of equity and the discretion of the court
(regardless of whether the enforcement of such remedies is considered in a
proceeding in equity or at law).
(c) The execution, delivery and performance of this Trust Agreement by
the Property Trustee does not conflict with or constitute a breach of the
certificate of incorporation or by-laws of the Property Trustee.
(d) At the Time of Delivery, the Property Trustee has not knowingly
created any liens or encumbrances on the Trust Securities.
(e) No consent, approval or authorization of, or registration with or
notice to, any New York State or federal banking authority is required for the
execution, delivery or performance by the Property Trustee, of this Trust
Agreement.
(f) The Delaware Trustee is duly organized, validly existing and in
good standing under the laws of the State of Delaware, with trust power and
authority to execute and deliver, and to carry out and perform its obligations
under the terms of, the Trust Agreement.
(g) The execution, delivery and performance by the Delaware Trustee of
this Trust Agreement has been duly authorized by all necessary corporate action
on the part of the Delaware Trustee; and this Trust Agreement has been duly
executed and delivered by the Delaware Trustee, and constitutes a legal, valid
and binding obligation of the Delaware Trustee, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, reorganization,
moratorium, insolvency, and other similar laws affecting creditors' right
generally and to general principles of equity and the discretion of the court
(regardless of whether the enforcement of such remedies is considered in a
proceeding in equity or at law).
(h) The execution, delivery and performance of this Trust Agreement by
the Delaware Trustee does not conflict with or constitute a breach of the
certificate of incorporation or by-laws of the Delaware Trustee.
(i) No consent, approval or authorization of, or registration with or
notice to any state or Federal banking authority is required for the execution,
delivery or performance by the Delaware Trustee, of this Trust Agreement.
(j) The Delaware Trustee is an entity which has its principal place of
business in the State of Delaware.
SECTION 7.2. Representations and Warranties of Depositor.
The Depositor hereby represents and warrants for the benefit of the
Holders that:
(a) the Trust Securities Certificates issued at the Time of Delivery on
behalf of the Issuer Trust have been duly authorized and will have been duly
and validly executed, and, subject to payment therefor, issued and delivered by
the Issuer Trustees pursuant to the terms and provisions of, and in accordance
with the requirements of, this Trust Agreement, and the Holders will be, as of
each
<PAGE> 37
such date, entitled to the benefits of this Trust Agreement; and
(b) there are no taxes, fees or other governmental charges payable by
the Issuer Trust (or the Issuer Trustees on behalf of the Issuer Trust) under
the laws of the State of Delaware or any political subdivision thereof in
connection with the execution, delivery and performance by either the Property
Trustee or the Delaware Trustee, as the case may be, of this Trust Agreement.
ARTICLE VIII
THE ISSUER TRUSTEES; THE ADMINISTRATORS
SECTION 8.1. Certain Duties and Responsibilities.
(a) The duties and responsibilities of the Issuer Trustees and the
Administrators shall be as provided by this Trust Agreement and, in the case of
the Property Trustee, by the Trust Indenture Act. Notwithstanding the
foregoing, no provision of this Trust Agreement shall require the Issuer
Trustees or the 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 against such risk or liability is not reasonably assured to it or
them. 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 Issuer Trustees or the Administrators shall be
subject to the provisions of this Section. Nothing in this Trust Agreement
shall be construed to release an Administrator from liability for his or its
own negligent action, his or its own negligent failure to act, or his or its
own willful misconduct. To the extent that, at law or in equity, an Issuer
Trustee or Administrator has duties and liabilities relating to the Issuer
Trust or to the Holders, such Issuer Trustee or Administrator shall not be
liable to the Issuer Trust or to any Holder for such Issuer Trustee's or
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 Issuer Trustees and Administrators otherwise
existing at law or in equity, are agreed by the Depositor and the Holders to
replace his or such other duties and liabilities of the Issuer Trustees and
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 Holder, by his or its acceptance of a Trust Security, agrees that he or it
will look solely to the revenue and proceeds from the Trust Property to the
extent legally available for distribution to it or him as herein provided and
that neither the Issuer Trustees nor the Administrators are personally liable
to it or him 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 Issuer Trustees expressly set forth
elsewhere in this Trust Agreement or, in the case of the Property Trustee, in
the Trust Indenture Act.
(c) The Property 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
Trust Agreement (including pursuant to Section 10.10), and no implied covenants
shall be read into this Trust Agreement against the Property Trustee. If an
Event of Default has occurred (that has not been cured or waived pursuant to
<PAGE> 38
Section 5.13 of the Indenture), the Property Trustee shall enforce this Trust
Agreement for the benefit of the Holders and shall exercise such of the rights
and powers vested in it by this Trust 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 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) 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 Property Trustee shall be
determined solely by the express provisions of this Trust Agreement
(including pursuant to Section 10.10), and the Property Trustee
shall not be liable except for the performance of such duties and
obligations as are specifically set forth in this Trust Agreement
(including pursuant to Section 10.10); and
(B) in the absence of bad faith on the part of the Property
Trustee, the Property Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Property
Trustee and conforming to the requirements of this Trust 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 Property Trustee, the Property
Trustee shall be under a duty to examine the same to determine
whether or not they conform to the requirements of this Trust
Agreement;
(ii) 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;
(iii) the Property Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of at least a Majority
in Liquidation Amount of the Preferred 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;
(iv) the Property Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the Junior
Subordinated 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;
(v) the Property Trustee shall not be liable for any interest
on any money received by it except as it may otherwise agree 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;
<PAGE> 39
(vi) 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 any
other Issuer Trustee, the Administrators or the Depositor; and
(vii) no provision of this Trust Agreement shall require the
Property Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties
or in the exercise of any of its rights or powers, if the Property
Trustee shall have reasonable grounds for believing that the
repayment of such funds or liability is not reasonably assured to it
under the terms of this Trust Agreement or adequate indemnity
against such risk or liability is not reasonably assured to it.
(e) The Administrators shall not be responsible for monitoring the
compliance by the Issuer Trustee or the Depositor with their respective duties
under this Trust Agreement, nor shall either Administrator be liable for the
default or misconduct of any other Administrator, the Issuer Trustees or the
Depositor.
SECTION 8.2. Certain Notices.
Within five Business 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 Holders and the Administrators,
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
Junior Subordinated 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 Holders and the Administrators, unless such
exercise shall have been revoked.
In the event the Property Trustee receives notice of the Depositor's
exercise of its right to shorten the stated maturity of the Junior Subordinated
Debentures as provided in Section 3.15 of the Indenture, the Property Trustee
shall give notice of such shortening of the stated maturity to the Holders at
least 30 but not more than 60 days before the effective date thereof.
SECTION 8.3. Certain Rights of Property Trustee.
Subject to the provisions of Section 8.1:
(a) the Property Trustee may rely and shall be fully 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) any direction or act of the Depositor contemplated by this Trust
Agreement shall be sufficiently evidenced by an Officers' Certificate;
(c) the Property Trustee shall have no duty to see to any recording,
filing or registration of any instrument (including any financing or
<PAGE> 40
continuation statement or any filing under tax or securities laws) or any
re-recording, refiling or reregistration thereof;
(d) the Property Trustee may consult with counsel of its own choosing
(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;
(e) 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 Holders pursuant to this Trust Agreement, unless such
Holders shall have offered to the Property Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction; provided that,
nothing contained in this Section 8.3(e) shall be taken to relieve the Property
Trustee, upon the occurrence of an Event of Default, of its obligation to
exercise the rights and powers vested in it by this Trust Agreement;
(f) 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 Holders, but the Property
Trustee may make such further inquiry or investigation into such facts or
matters as it may see fit;
(g) the Property Trustee may execute any of the trusts or powers
hereunder or perform any of its duties hereunder either directly or by or
through its agents or attorneys, provided that the Property Trustee shall not
be responsible for any misconduct or negligence on the part of any agent or
attorney appointed with due care by it hereunder;
(h) 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 (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; and
(i) 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.
No provision of this Trust Agreement shall be deemed to impose any duty
or obligation on any Issuer Trustee or Administrator 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 any Issuer Trustee or
Administrator shall be construed to be a duty.
<PAGE> 41
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 Issuer Trust, and the Issuer Trustees
and the Administrators do not assume any responsibility for their correctness.
The Issuer Trustees and the Administrators shall not be accountable for the use
or application by the Depositor of the proceeds of the Junior Subordinated
Debentures.
SECTION 8.5. May Hold Securities.
Except as provided in the definition of the term "Outstanding" in
Article I, the Administrators, any Issuer Trustee or any other agent of any
Issuer Trustee or the Issuer 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, may otherwise deal with the Issuer Trust with the same rights it
would have if it were not an Administrator, Issuer Trustee or such other agent.
SECTION 8.6. Compensation; Indemnity; Fees.
The Depositor, as borrower, agrees:
(a) to pay to the Issuer Trustees from time to time reasonable
compensation 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) to reimburse the Issuer Trustees upon request for all reasonable
expenses, disbursements and advances incurred or made by the Issuer Trustees in
accordance with any provision of this Trust Agreement (including the reasonable
compensation, expenses and disbursements of its agents and counsel), except any
such expense, disbursement or advance as may be attributable to their
negligence or willful misconduct; and
(c) to the fullest extent permitted by applicable law, to indemnify and
hold harmless (i) each Issuer Trustee, (ii) each Administrator, (iii) any
Affiliate of any Issuer Trustee, (iv) any officer, director, shareholder,
employee, representative or agent of any Issuer Trustee, and (v) any employee
or agent of the Issuer Trust, (referred to herein as an "Indemnified Person")
from and against any loss, damage, liability, tax (excluding income taxes,
other than taxes referred to in Sections 4.5 and 4.6 hereunder), penalty,
expense or claim of any kind or nature whatsoever incurred by such Indemnified
Person arising out of or in connection with the creation, operation or
dissolution of the Issuer Trust or any act or omission performed or omitted by
such Indemnified Person in good faith on behalf of the Issuer 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.
No Issuer 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, any Administrator and any Issuer Trustee may engage in
or possess an interest in other business ventures of any nature or description,
<PAGE> 42
independently or with others, similar or dissimilar to the business of the
Issuer Trust, and the Issuer 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 Issuer Trust, shall
not be deemed wrongful or improper. Neither the Depositor, any Administrator,
nor any Issuer Trustee shall be obligated to present any particular investment
or other opportunity to the Issuer Trust even if such opportunity is of a
character that, if presented to the Issuer Trust, could be taken by the Issuer
Trust, and the Depositor, any Administrator or any Issuer 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 Issuer 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 and has a combined capital and surplus of at least
$50,000,000. 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.
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. An employee, officer or Affiliate of the Depositor may serve
as an Administrator.
(c) There shall at all times be a Delaware Trustee. 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.
(a) 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.
(b) The Guarantee Agreement and the Indenture shall be deemed to be
sufficiently described in this Trust Agreement for the purposes of clause (i) of
the first proviso contained in Section 310(b) of the Trust Indenture Act.
<PAGE> 43
SECTION 8.9. Co-Trustees and Separate Trustee.
Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of the Trust Property may
at the time be located, the Property Trustee shall have power to appoint, and
upon the written request of the Property Trustee, the Depositor and the
Administrators shall for such purpose join with the Property Trustee 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. 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 by one or more Administrators,
and 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 Property Trustees specified hereunder, shall be exercised, solely by
the Property Trustee 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 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 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
<PAGE> 44
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 Issuer 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 paragraph, a Relevant Trustee may
resign at any time by giving written notice thereof to the Holders. The
Relevant Trustee shall appoint a successor by requesting from at least three
Persons meeting the eligibility requirements its expenses and charges to serve
as the successor Trustee on a form provided by the Administrators, and
selecting the Person who agrees to the lowest expenses and charges, subject to
the prior consent of the Depositor which consent shall not be unreasonably
withheld. If the instrument of acceptance by the successor Trustee required by
Section 8.11 shall not have been delivered to the Relevant Trustee within 60
days after the giving of such notice of resignation, the Relevant Trustee may
petition, at the expense of the Issuer Trust, any court of competent
jurisdiction for the appointment of a successor Trustee.
The Property Trustee or the Delaware Trustee may be removed at any time
by Act of the Holders of at least a Majority in Liquidation Amount of the
Preferred Securities, delivered to the Relevant Trustee (in its individual
capacity and on behalf of the Issuer Trust) (i) for cause or (ii) if a
Debenture Event of Default shall have occurred and be continuing at any time.
If a resigning Relevant Trustee shall fail to appoint a successor, or
if a Relevant Trustee shall be removed or become incapable of acting as Issuer
Trustee, or if any vacancy shall occur in the office of any Issuer Trustee for
any cause, the Holders of the Preferred Securities, by Act of the Holders of
record of not less than 25% in aggregate Liquidation Amount of the Preferred
Securities then Outstanding delivered to such Relevant Trustee, shall promptly
appoint a successor Trustee or Trustees, and such successor Issuer Trustee
shall comply with the applicable requirements of Section 8.11. If no successor
Trustee shall have been so appointed by the Holders of the Preferred Securities
and accepted appointment in the manner required by Section 8.11, any Holder, on
behalf of himself and all others similarly situated, or any other Issuer
Trustee, may petition any court in the State of Delaware for the appointment of
a successor Trustee.
The Property Trustee shall give notice of each resignation and each
removal of an a Relevant Trustee and each appointment of a successor Trustee to
all Holders in the manner provided in Section 10.8 and shall give notice to the
Depositor and to the Administrators. Each notice shall include the name of the
Relevant Trustee and the address of its Corporate Trust Office if it is the
Property Trustee.
<PAGE> 45
Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event any Delaware Trustee who is a natural person dies or
becomes, in the opinion of the Holders of the Common Securities, incompetent or
incapacitated, the vacancy created by such death, incompetence or incapacity
may be filled by the Property Trustee following the procedures regarding
expenses and charges set forth above (with the successor in each case being a
Person who satisfies the eligibility requirement for Administrators or Delaware
Trustee, as the case may be, set forth in Section 8.7).
SECTION 8.11. Acceptance of Appointment by Successor.
In case of the appointment hereunder of a successor Trustee, the
retiring Relevant Trustee and each such successor Trustee with respect to the
Trust Securities shall execute, acknowledge and deliver an amendment hereto
wherein each successor 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 Trustee all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Trust Securities
and the Issuer 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 Issuer Trust by more than one Relevant Trustee, it being
understood that nothing herein or in such amendment shall constitute such
Relevant 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 Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the Relevant Trustee; but, on request of the
Issuer Trust or any successor Trustee such Relevant Trustee shall duly assign,
transfer and deliver to such successor Trustee all Trust Property, all proceeds
thereof and money held by such Relevant Trustee hereunder with respect to the
Trust Securities and the Trust.
Upon request of any such successor Trustee, the Issuer Trust shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts
referred to in the first or second preceding paragraph, as the case may be.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 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 that 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
Issuer Trust.
If and when the Property Trustee shall be or become a creditor of the
Depositor (or any other obligor upon the Trust Securities), the Property
Trustee shall be subject to the provisions of the Trust Indenture Act regarding
the
<PAGE> 46
collection of claims against the Depositor (or any such other obligor) as is
required by the Trust Indenture Act.
SECTION 8.14. Trustee May File Proofs of Claim.
In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other similar judicial
proceeding relative to the Issuer Trust or any other obligor upon the Trust
Securities or the property of the Issuer Trust or of such other obligor, the
Property Trustee (irrespective of whether any Distributions on the Trust
Securities shall then be due and payable and irrespective of whether the
Property Trustee shall have made any demand on the Issuer 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 monies 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 8.15. Reports by Property Trustee.
(a) Not later than January 31 of each year commencing with January 31,
1998, the Property Trustee shall transmit to all Holders 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 Holders 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 as set forth in Section 10.10 of
<PAGE> 47
this Trust Agreement.
(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 8.16. Reports to the Property Trustee.
The Depositor and the Administrators on behalf of the Issuer Trust shall
provide to the Property Trustee such documents, reports and information as
required by Section 314 of the Trust Indenture Act 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, as set forth in Section 10.10 of this Trust Agreement. The Depositor and
the Administrators shall annually file with the Property Trustee a certificate
specifying whether such Person is in compliance with all the terms and covenants
applicable to such Person hereunder.
SECTION 8.17. Evidence of Compliance with Conditions
Precedent.
Each of the Depositor and the Administrators on behalf of the Issuer
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 as
set forth in Section 10.10 of this Trust Agreement. 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 8.18. Number of Issuer Trustees.
(a) The number of Issuer Trustees shall be two. The Property Trustee and
the Delaware Trustee may be the same Person, in which event the number of Issuer
Trustees shall be one.
(b) If an Issuer Trustee ceases to hold office for any reason, a vacancy
shall occur. The vacancy shall be filled with an Issuer Trustee appointed in
accordance with Section 8.10.
(c) The death, resignation, retirement, removal, bankruptcy, incompetence
or incapacity to perform the duties of an Issuer Trustee shall not operate to
annual the Issuer Trust.
SECTION 8.19. 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) or making any 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 Issuer 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.
SECTION 8.20. Appointment of Administrators.
(a) The Administrators (other than the initial Administrators) shall be
appointed by the Holders of a Majority in Liquidation Amount of the Common
<PAGE> 48
Securities and all Administrators (including the initial Administrators) may be
removed by the Holders of a Majority in Liquidation Amount of the Common
Securities or may resign 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 Holder who has been a Holder 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 8.20, 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.
(c) Notwithstanding the foregoing, or any other provision of this Trust
Agreement, in the event any Administrator or a Delaware Trustee who is a natural
person dies or becomes, in the opinion of the Holders of a Majority in
Liquidation Amount of the Common Securities, incompetent, or incapacitated, the
vacancy created by such death, incompetence or incapacity may be filled by the
remaining Administrators, if there were at least two of them prior to such
vacancy, and by the Depositor, if there were not two such Administrators
immediately prior to such vacancy (with the successor in each case being a
Person who satisfies the eligibility requirement for Administrators or Delaware
Trustee, as the case may be, set forth in Section 8.7).
(d) Except as otherwise provided in this Trust Agreement, or by
applicable law, any one Administrator may execute any document or otherwise take
any action which the Administrators are authorized to take under this Trust
Agreement.
ARTICLE IX
DISSOLUTION, LIQUIDATION AND MERGER
SECTION 9.1. Dissolution Upon Expiration Date.
Unless earlier dissolved, the Issuer Trust shall automatically dissolve
on September 30, 2028 (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 the appointment of a receiver or other similar
official in any liquidation, insolvency or similar proceeding with respect to
the Depositor or all or substantially all of its property, or a court or other
governmental agency shall enter a decree or order and such decree or order shall
remain unstayed and undischarged for a period of 60 days, unless the Depositor
shall transfer the Common Securities as provided by Section 5.11, in which case
this provision shall refer instead to any such successor Holder of the Common
Securities;
(b) the written direction to the Property Trustee from the Holder of the
Common Securities at any time to dissolve the Issuer Trust and to distribute the
Junior Subordinated Debentures to Holders in exchange for the Preferred
Securities (which direction, subject to Section 9.4(a), is optional and wholly
<PAGE> 49
within the discretion of the Holders of the Common Securities);
(c) the redemption of all of the Preferred Securities in connection
with the redemption of all the Junior Subordinated Debentures; and
(d) the entry of an order for dissolution of the Issuer Trust by a
court of competent jurisdiction.
SECTION 9.3. Termination.
The respective obligations and responsibilities of the Issuer Trustees,
the Administrators and the Issuer Trust created and continued hereby shall
terminate upon the latest to occur of the following: (a) the distribution by the
Property Trustee to Holders of all amounts required to be distributed hereunder
upon the liquidation of the Issuer Trust pursuant to Section 9.4, or upon the
redemption of all of the Trust Securities pursuant to Section 4.2, (b) the
payment of any expenses owed by the Issuer Trust, (c) the discharge of all
administrative duties of the Administrators, including the performance of any
tax reporting obligations with respect to the Issuer Trust or the Holders and
(d) the filing of a certificate of cancellation with the Delaware Secretary of
State pursuant to Section 3810 of the Delaware Business Trust Act.
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 Issuer Trust shall be
liquidated by the Property Trustee as expeditiously as the Property Trustee
determines to be possible by distributing, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, to each Holder a
Like Amount of Junior Subordinated 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 15 nor more than 45 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 Junior Subordinated Debentures; and
(iii) provide such information with respect to the mechanics by
which Holders may exchange Trust Securities Certificates for Junior Subordinated
Debentures, or if Section 9.4(d) applies receive a Liquidation Distribution, as
the Administrators or the Property Trustee shall deem appropriate.
(b) Except where Section 9.2(c) or 9.4(d) applies, in order to effect the
liquidation of the Issuer Trust and distribution of the Junior Subordinated
Debentures to Holders, the Property Trustee shall establish a record date for
such distribution (which shall be not more than 30 days prior to the Liquidation
Date) and, 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 Junior Subordinated 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)
the Clearing Agency for the Preferred Securities or its nominee, as the
<PAGE> 50
registered holder of the Global Preferred Securities Certificate, shall receive
a registered global certificate or certificates representing the Junior
Subordinated Debentures to be delivered upon such distribution with respect to
Preferred Securities held by the Clearing Agency or its nominee, and, (iii) any
Trust Securities Certificates not held by the Clearing Agency for the Preferred
Securities or its nominee as specified in clause (ii) above will be deemed to
represent Junior Subordinated Debentures having a principal amount equal to the
stated Liquidation Amount of the Trust Securities represented thereby and
bearing accrued and unpaid interest in an amount equal to the accumulated and
unpaid Distributions on such Trust Securities until such certificates are
presented to the Securities Registrar for transfer or reissuance.
(d) If, 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 Junior Subordinated Debentures is not
practical, or if any Early Termination Event specified in clause (c) of Section
9.2 occurs, the Trust Property shall be liquidated, and the Issuer Trust shall
be dissolved by the Property Trustee in such manner as the Property Trustee
determines. In such event, on the date of the dissolution of the Issuer Trust,
Holders will be entitled to receive out of the assets of the Issuer Trust
available for distribution to Holders, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, an amount equal to
the aggregate of 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, the Liquidation
Distribution can be paid only in part because the Issuer Trust has insufficient
assets available to pay in full the aggregate Liquidation Distribution, then,
subject to the next succeeding sentence, the amounts payable by the Issuer Trust
on the Trust Securities shall be paid on a pro rata basis (based upon
Liquidation Amounts). The Holders of the Common Securities will be entitled to
receive Liquidation Distributions upon any such dissolution pro rata (determined
as aforesaid) with Holders of Preferred Securities, except that, if a Debenture
Event of Default has occurred and is continuing, the Preferred Securities shall
have a priority over the Common Securities as provided in Section 4.3.
SECTION 9.5. Mergers, Consolidations, Amalgamations or Replacements of
the Issuer Trust.
The Issuer Trust may not merge with or into, consolidate, amalgamate, or
be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any entity, except pursuant to this Section
9.5. At the request of the Holders of the Common Securities, and with the
consent of the Holders of at least a Majority in Liquidation Amount of the
Preferred Securities, the Issuer 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, however, that (i) such successor entity either (a)
expressly assumes all of the obligations of the Issuer Trust with respect to the
Preferred Securities or (b) substitutes for the Preferred Securities other
securities having substantially the same terms as the Preferred Securities (the
"Successor Securities") so long as the Successor Securities have the same
priority as the Preferred Securities with respect to distributions and payments
upon liquidation, redemption and otherwise, (ii) a trustee of such successor
entity possessing the same powers and duties as the Property Trustee is
appointed to hold the Junior Subordinated Debentures, (iii) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
cause the Preferred Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization if the
Preferred Securities were rated by any nationally recognized statistical rating
organization immediately prior to such merger, consolidation, amalgamation,
<PAGE> 51
replacement, conveyance, transfer or lease, (iv) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Preferred
Securities (including any Successor Securities) in any material respect, (v)
such successor entity has a purpose substantially identical to that of the
Issuer Trust, (vi) prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, the Issuer Trustee has received an
Opinion of Counsel from independent counsel experienced in such matters to the
effect that (a) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights preferences
and privileges of the holders of the Preferred Securities (including any
Successor Securities) in any material respect, and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, neither
the Issuer Trust nor such successor entity will be required to register as an
"investment company" under the Investment Company Act and (vii) the Depositor or
any permitted transferee to whom it has transferred the Common Securities
hereunder own 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 Agreement.
Notwithstanding the foregoing, the Issuer Trust shall not, except with the
consent of holders of 100% in Liquidation Amount of the Preferred Securities,
consolidate, amalgamate, merge with or into, or be replaced by or convey,
transfer or lease its properties and assets substantially as an entirety to any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the Issuer Trust or the successor
entity to be taxable as a corporation for United States Federal income tax
purposes.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. Limitation of Rights of Holders.
Except as set forth in Section 9.2, 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 Holder 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. Any
merger or similar agreement shall be executed by the Administrators on behalf of
the Trust.
SECTION 10.2. Amendment.
(a) This Trust Agreement may be amended from time to time by the Property
Trustee and the Holders of a Majority in Liquidation Amount of the Common
Securities, without the consent of any Holder of the Preferred Securities (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,
provided, however, that such amendment shall not adversely affect in any
material respect the interests of any Holder 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 Issuer Trust will not be taxable as a corporation for United
States Federal income tax purposes at any time that any Trust Securities are
Outstanding or to ensure that the Issuer Trust will not be required to register
<PAGE> 52
as an investment company under the Investment Company Act.
(b) Except as provided in Section 10.2(c) hereof, any provision of this
Trust Agreement may be amended by the Property Trustee and the Holders of a
Majority in Liquidation Amount of the Common Securities with (i) the consent of
Holders of at least a Majority in Liquidation Amount of the Preferred Securities
and (ii) receipt by the Issuer Trustees of an Opinion of Counsel to the effect
that such amendment or the exercise of any power granted to the Issuer Trustees
in accordance with such amendment will not cause the Issuer Trust to be taxable
as a corporation for United States federal income tax purposes or affect the
Issuer Trust's exemption from status of an "investment company" under the
Investment Company Act.
(c) In addition to and notwithstanding any other provision in this Trust
Agreement, without the consent of each affected Holder (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 Holder to institute suit for the enforcement of any
such payment on or after such date.
(d) Notwithstanding any other provisions of this Trust Agreement, no
Issuer Trustee shall enter into or consent to any amendment to this Trust
Agreement which would cause the Issuer Trust to fail or cease to qualify for the
exemption from status as an "investment company" under the Investment Company
Act or be taxable as a corporation for United States Federal income tax
purposes.
(e) Notwithstanding anything in this Trust Agreement to the contrary,
without the consent of the Depositor and the Administrators, this Trust
Agreement may not be amended in a manner which imposes any additional obligation
on the Depositor or the Administrators.
(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. 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.
(h) Any amendments to this Trust Agreement shall become effective when
notice of such amendment is given to the holders of the Trust Securities.
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
HOLDERS, THE ISSUER TRUST, THE DEPOSITOR, THE ISSUER TRUSTEES AND THE
ADMINISTRATORS WITH RESPECT TO THIS TRUST AGREEMENT AND THE TRUST SECURITIES
<PAGE> 53
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
DELAWARE.
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 4.2(d)), with the same force and effect as though
made on the date fixed for such payment, and no Distributions shall accumulate
on such unpaid amount 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 Issuer Trust, the Administrators and any
Issuer 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 VIII 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 that by any provision
of this Trust Agreement is required or permitted to be given or served to or
upon any Holder 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 Holder
of Preferred Securities, to such Holder as such Holder's name and address may
appear on the Securities Register; and (b) in the case of the Holder of Common
Securities or the Depositor, to Acceptance Insurance Companies Inc., 222 South
15th Street, Suite 600 North, Omaha, Nebraska 68102, Attention: William J.
Gerber, or to such other address as may be specified in a written notice
by the Depositor to the Property Trustee. Such notice, demand or other
communication to or upon a Holder shall be deemed to have been sufficiently
given or made, for all purposes, upon hand delivery, mailing or transmission.
Such notice, demand or other communication to or upon the Depositor shall
be deemed to have been sufficiently given or made only upon actual receipt
of the writing by the Depositor.
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
Issuer Trust, the Property Trustee, the Delaware Trustee, the Administrators, or
the Issuer Trust shall be given in writing addressed (until another address is
published by the Issuer Trust) as follows: (a) with respect to the Property
Trustee to Bankers Trust Company, Four Albany Street, 4th Floor, New York, NY
10006, Attention: Corporate Trust and Agency Group Corporate Market Services;
(b) with respect to the Delaware Trustee to Bankers Trust (Delaware), 1001
Jefferson Street, Suite 550, Wilmington, Delaware 19801, Attention: Ms. Lisa
Wilkins; and (c) with respect to the Administrators, to them at the address
above for notices to the Depositor, marked "Attention: Secretary". Such notice,
demand or other communication to or upon the Issuer Trust or the Property
Trustee shall be deemed to have been sufficiently given or made only upon actual
receipt of the writing by the Issuer Trust, the Property Trustee, or such
<PAGE> 54
Administrator.
SECTION 10.9. Agreement Not to Petition.
Each of the Issuer Trustees, the Administrators and the Depositor agree
for the benefit of the Holders that, until at least one year and one day after
the Issuer Trust has been dissolved in accordance with Article IX, they shall
not file, or join in the filing of, a petition against the Issuer 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 Issuer 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 Holders, 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 Issuer 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 estopped and precluded therefrom and such
other defenses, if any, as counsel for the Issuer Trustee or the Issuer Trust
may assert. If any Issuer Trustee or Administrator takes action in violation of
this Section 10.9, the Depositor agrees, for the benefit of the Holders, 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 such Person against
the Depositor or the commencement of such action and raise the defense that such
Person has agreed in writing not to take such action and should be estopped and
precluded therefrom and such other defenses, if any, as counsel for the Issuer
Trustee or the Issuer 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) Trust Indenture Act; Application. (i) This Trust Agreement is subject
to the provisions of the Trust Indenture Act that are required to be a part of
this Trust Agreement and shall, to the extent applicable, be governed by such
provisions; (ii) if and to the extent that any provision of this Trust 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; (iii)
for purposes of this Trust Agreement, the Property Trustee, to the extent
permitted by applicable law and/or the rules and regulations of the Commission,
shall be the only Issuer Trustee which is a trustee for the purposes of the
Trust Indenture Act; and (iv) the application of the Trust Indenture Act to this
Trust Agreement shall not affect the nature of the Preferred Securities and the
Common Securities as equity securities representing undivided beneficial
interests in the assets of the Issuer Trust.
(b) Lists of Holders of Preferred Securities. (i) Each of the Depositor
and the Administrators on behalf of the Trust shall provide the Property Trustee
with such information as is required under Section 312(a) of the Trust Indenture
Act at the times and in the manner provided in Section 312(a) and (ii) the
Property Trustee shall comply with its obligations under Sections 310(b), 311
and 312(b) of the Trust Indenture Act.
(c) Reports by the Property Trustee. Within 60 days after May 15 of each
year, the Property Trustee shall provide to the Holders of the Trust Securities
such reports as are required by Section 313 of the Trust Indenture Act, if any,
in the form, in the manner and at the times provided by Section 313 of the Trust
Indenture Act. The Property Trustee shall also comply with the requirements of
Section 313(d) of the Trust Indenture Act.
<PAGE> 55
(d) Periodic Reports to Property Trustee. Each of the Depositor and the
Administrators on behalf of the Issuer Trust shall provide to the Property
Trustee, the Commission and the Holders of the Trust Securities, as applicable,
such documents, reports and information as required by Section 314(a)(1) - (3)
(if any) of the Trust Indenture Act and the compliance certificates required by
Section 314(a)(4) and (c) of the Trust Indenture Act (provided that any
certificate to be provided pursuant to Section 314(a)(4) of the Trust Indenture
Act shall be provided within 120 days of the end of each fiscal year of the
Issuer Trust.
(e) Evidence of Compliance with Conditions Precedent. Each of the
Depositor and the Administrators on behalf of the Issuer Trust shall provide to
the Property Trustee such evidence of compliance with any conditions precedent,
if any, provided for in this Trust Agreement which relate to any of the matters
set forth in Section 314(c) of the Trust Indenture Act. Any certificate or
opinion required to be given pursuant to Section 314(c) shall comply with
Section 314(e) of the Trust Indenture Act.
(f) Disclosure of Information. The disclosure of information as to the
names and addresses of the Holders of Trust Securities in accordance with
Section 312 of the Trust Indenture Act, regardless of the source from which such
information was derived, shall not be deemed to be a violation of any existing
law or any law hereafter enacted which does not specifically refer to Section
312 of the Trust Indenture Act, nor shall the Property Trustee be held
accountable by reason of mailing any material pursuant to a request made under
Section 312(b) of the Trust Indenture Act.
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 HOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY SIGNATURE OR
FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE
BY THE HOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN SUCH TRUST SECURITY
OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT, THE GUARANTEE AGREEMENT
AND THE INDENTURE, AND THE AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER
TERMS OF THE GUARANTEE AGREEMENT AND THE INDENTURE, AND SHALL CONSTITUTE THE
AGREEMENT OF THE ISSUER TRUST, SUCH HOLDER AND SUCH OTHERS THAT THE TERMS AND
PROVISIONS OF THIS TRUST AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS
BETWEEN THE ISSUER TRUST AND SUCH HOLDER AND SUCH OTHERS.
ACCEPTANCE INSURANCE COMPANIES INC.
as Depositor
By:
--------------------------------
Name:
Title:
BANKERS TRUST COMPANY,
as Property Trustee
By:
--------------------------------
Name:
Title:
<PAGE> 56
BANKERS TRUST (DELAWARE),
as Delaware Trustee and not
in its individual capacity
By:
--------------------------------
Name:
Title:
Subscribed to and Accepted by,
as the Initial Administrators:
- --------------------------------
[Name]
- --------------------------------
[Name]
EXHIBIT A
[INSERT CERTIFICATE OF TRUST FILED WITH DELAWARE]
EXHIBIT B
[INSERT FORM OF CERTIFICATE DEPOSITARY AGREEMENT]
EXHIBIT C
THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT
TO A SUCCESSOR IN INTEREST TO THE DEPOSITOR OR AN
AFFILIATE OF THE DEPOSITOR IN COMPLIANCE WITH
APPLICABLE LAW AND SECTION 5.11 OF THE TRUST AGREEMENT
<PAGE> 57
Certificate Number Number of Common Securities
C-__
Certificate Evidencing Common Securities
of
AICI Capital Trust
____% Common Securities
(liquidation amount $25 per Common Security)
AICI Capital Trust, a statutory business trust formed under the laws
of the State of Delaware (the "Issuer Trust"), hereby certifies that Acceptance
Insurance Companies Inc. (the "Holder") is the registered owner of _________
(_____) common securities of the Issuer Trust representing undivided beneficial
interests in the Issuer Trust and has designated the ____% Common Securities
(liquidation amount $25 per Common Security) (the "Common Securities"). Except
in accordance with Section 5.11 of the Trust Agreement (as defined below) the
Common Securities are not transferable and any attempted transfer hereof other
than in accordance therewith 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
Issuer Trust, dated as of August __, 1997, as the same may be amended from time
to time (the "Trust Agreement") among Acceptance Insurance Companies Inc., as
Depositor, Bankers Trust Company, as Property Trustee, Bankers Trust (Delaware),
as Delaware Trustee, and the Holders of Trust Securities, including the
designation of the terms of the Common Securities as set forth therein. The
Issuer Trust will furnish a copy of the Trust Agreement to the Holder without
charge upon written request to the Issuer 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.
Terms used but not defined herein have the meanings set forth in the
Trust Agreement.
IN WITNESS WHEREOF, one of the Administrators of the Issuer Trust has
executed this certificate this ___ day of --------------, ----.
AICI CAPITAL TRUST
By:
-----------------------------
Name:
Administrator
<PAGE> 58
COUNTERSIGNED AND REGISTERED:
BANKERS TRUST COMPANY,
as Securities Registrar
By:
----------------------------
Name:
Authorized Signatory
EXHIBIT D
[IF THE PREFERRED SECURITIES CERTIFICATE IS TO BE A GLOBAL PREFERRED
SECURITIES CERTIFICATE, INSERT -- This Preferred Securities Certificate is a
Global Preferred Securities Certificate within the meaning of the Trust
Agreement hereinafter referred to and is registered in the name of a Depositary
or a nominee of a Depositary. This Preferred Security Certificate is
exchangeable for Preferred Securities Certificates registered in the name of a
person other than the Depositary or its nominee only in the limited
circumstances described in the Trust Agreement and may not be transferred
except as a whole by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the
Depositary, except in the limited circumstances described in the Trust
Agreement.
Unless this Preferred Security Certificate is presented by an
authorized representative of The Depository Trust Company, a New York
Corporation ("DTC"), to AICI Capital Trust or its agent for registration of
transfer, exchange or payment, and any Preferred Security Certificate issued is
registered in the name of such nominee as is requested by an authorized
representative of DTC (and any payment is made to such entity as is requested
by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO A PERSON IS WRONGFUL inasmuch as the
registered owner hereof, has an interest herein.]
CERTIFICATE NUMBER NUMBER OF PREFERRED SECURITIES
P-__
CUSIP NO.
---------------------------
CERTIFICATE EVIDENCING PREFERRED SECURITIES
OF
AICI CAPITAL TRUST
____% PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
AICI Capital Trust, a statutory business trust formed under the laws of
the State of Delaware (the "Issuer Trust"), hereby certifies that (the
<PAGE> 59
"Holder") is the registered owner of) ( ) preferred securities of the Trust
representing a preferred undivided beneficial interest in the assets of the
Issuer Trust and has designated the AICI Capital Trust ____% Preferred
Securities (liquidation amount $25 per Preferred Security) (the "Preferred
Securities"). The Preferred Securities are transferable on the books and
records of the Issuer 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 Preferred Securities are set forth in, and this certificate
and the Preferred 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 Issuer Trust, dated as of August __, 1997, as the same
may be amended from time to time (the "Trust Agreement"), among Acceptance
Insurance Companies Inc., as Depositor, Bankers Trust Company, as Property
Trustee, Bankers Trust (Delaware), as Delaware Trustee, and the Holders of
Trust Securities, including the designation of the terms of the Preferred
Securities as set forth therein. The Holder is entitled to the benefits of the
Guarantee Agreement entered into by Acceptance Insurance Companies Inc., a
Delaware corporation, and Bankers Trust Company, as guarantee trustee, dated as
of August __, 1997 (the "Guarantee Agreement"), to the extent provided therein.
The Issuer Trust will furnish a copy of the Issuer Trust Agreement and the
Guarantee Agreement to the Holder without charge upon written request to the
Issuer 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 Issuer Trust
has executed this certificate this day of , .
AICI CAPITAL TRUST
By:
-------------------------------
Name:
Administrator
COUNTERSIGNED AND REGISTERED:
BANKERS TRUST COMPANY,
as Securities Registrar
By:
-----------------------
Name:
Authorized Signatory
<PAGE> 60
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this
Preferred Security to:
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax
identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
-------------------------------------------------
- --------------------------------------------------------------------------------
agent to transfer this Preferred Security Certificate on the books of the Issuer
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 Preferred 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.
<PAGE> 1
EXHIBIT 5.1
July 29, 1997
[Letterhead of LeBoeuf, Lamb, Greene & MacRae, L.L.P.]
Acceptance Insurance Companies Inc.
AICI Capital Trust
222 South 15th Street
Suite 600 North
Omaha, Nebraska 68102
RE: Acceptance Insurance Companies Inc. and AICI Capital Trust --
Registration Statement on Form S-3 (File No. 333-28749)
Dear Ladies and Gentlemen:
We are acting as special counsel for Acceptance Insurance Companies
Inc., a Delaware corporation (the "Company"), and AICI Capital Trust, a
statutory business trust formed under the laws of the State of Delaware (the
"Trust"), in connection with the proposed issue and sale of up to $94,875,000
aggregate principal amount of Junior Subordinated Deferrable Interest
Debentures (the "Debentures") of the Company, $94,875,000 aggregate liquidation
amount of Preferred Securities (the "Preferred Securities") of the Trust, and a
guarantee with respect to the Preferred Securities (the "Guarantee") executed
and delivered by the Company for the benefit of the holders of the Preferred
Securities, pursuant to the above captioned Registration Statement (the
"Registration Statement").
In so acting, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of the Registration Statement, the
Prospectus that is a part of the Registration Statement (the "Prospectus"), the
form of Indenture with respect to the Debentures, the form of the Debentures,
the form of the Preferred Securities Guarantee Agreement (which includes the
form of the Guarantee) and such corporate records, certificates and other
documents as we have considered necessary for the purposes hereof. In such
examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
the original documents of all documents submitted to us as copies and the
authenticity of the originals of such latter documents. In addition, we have
assumed that the Indenture and the Preferred Securities Guarantee Agreement
(including the form of Guarantee
<PAGE> 2
Acceptance Insurance Companies Inc.
AICI Capital Trust
July 29, 1997
Page 2
contained therein), when executed, will be in substantially the form reviewed by
us. As to any facts material to our opinion, we have, when relevant facts were
not independently established, relied upon the aforesaid records, certificates
and documents.
Based on the foregoing, we are of the opinion that:
1. The Debentures, upon issuance, delivery and payment therefor in
in the manner described in the Registration Statement and in accordance with the
terms of the Indenture (filed as Exhibit 4.5 to the Registration Statement),
will be duly and validly issued and will constitute valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, subject to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, rehabilitation, liquidation, moratorium or other similar laws
affecting the rights of the creditors generally and to general principles of
equity.
2. The Guarantee (filed as Exhibit 4.4 to the Registration
Statement), when executed, will constitute the valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, rehabilitation liquidation, moratorium or other similar laws
affecting the rights of creditors generally and to general principles of
equity.
Our opinion set forth herein is limited in all cases to matters arising
under the laws of the State of New York and the General Corporation Law of
the State of Delaware.
We understand that you have received an opinion from Richards, Layton &
Finger, L.L.P., special Delaware counsel for the Company and the Trust. We are
expressing no opinion with respect to the matters contained in such opinion.
We consent to the use of this opinion as an Exhibit to the Registration
Statement and to the reference to our firm under the caption "Validity of
Securities" in the Prospectus. In giving such consent, we do not thereby
concede that we are within the category of persons whose consent is required
under the Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Commission thereunder.
Very truly yours,
LEBOEUF, LAMB, GREENE & MACRAE, L.L.P.
<PAGE> 1
EXHIBIT 5.2
[LETTERHEAD OF RICHARDS, LAYTON & FINGER]
AICI Capital Trust
c/o Acceptance Insurance Companies Inc.
222 S. 15th Street, Suite 600 North
Omaha, Nebraska 68102
Re: AICI Capital Trust
Ladies and Gentlemen:
We have acted as special Delaware counsel for Acceptance Insurance
Companies Inc., a Delaware corporation (the "Company"), and AICI Capital Trust,
a Delaware business trust (the "Trust"), in connection with the matters set
forth herein. At your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) The Certificate of Trust of the Trust, dated as June 5, 1997 (the
"Certificate"), as filed in the office of the Secretary of State of the State
of Delaware (the "Secretary of State") on June 5, 1997;
(b) The Trust Agreement of the Trust, dated as of June 5, 1997,
between the Company and the trustee of the Trust named therein;
(c) Amendment No. 2 to the Registration Statement (the "Registration
Statement") on Form S-3, including a preliminary prospectus with respect to the
Trust (the "Prospectus"), relating to the Preferred Securities of the Trust
representing preferred undivided beneficial interests in the assets of the
Trust (each, a "Preferred Security" and collectively, the
<PAGE> 2
AICI Capital Trust
July 29, 1997
Page 2
"Preferred Securities"), filed by the Company and the Trust with the Securities
and Exchange Commission on or about July 29, 1997;
(d) A form of Amended and Restated Trust Agreement of the Trust, dated
as of ______, 1997 (including Exhibits C and D thereto), among the Company, the
trustees of the Trust named therein, and the holders, from time to time, of the
undivided beneficial interests in the assets of the Trust (the "Trust
Agreement") attached as an exhibit to the Registration Statement; and
(e) A Certificate of Good Standing for the Trust, dated July 29, 1997,
obtained from the Secretary of State.
Capitalized terms used herein and not otherwise defined are used as
defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any documents other
than the documents listed in paragraphs (a) through (e) above. In particular,
we have not reviewed any document (other than the documents listed in paragraphs
(a) through (e) above) that is referred to in or incorporated by reference into
the documents reviewed by us. We have assumed that there exists no provision in
any document that we have not reviewed that is inconsistent with the opinions
stated herein. We have conducted no independent factual investigation of our
own but rather have relied solely upon the foregoing documents, the statements
and information set forth therein and the additional matters recited or assumed
herein, all of which we have assumed to be true, complete and accurate in all
material respects.
With respect to all documents examined by us, we have assumed (i) the
authenticity of all documents submitted to us as authentic originals, (ii) the
conformity with the originals of all documents submitted to us as copies or
forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Trust
Agreement constitutes the entire agreement among the parties thereto with
respect to the subject matter thereof, including with respect to the creation,
operation and termination of the Trust, and that the Trust Agreement and the
Certificate are in full force and effect and have not been amended, (ii) except
to the extent provided in paragraph 1 below, the due creation, due formation or
due organization, as the case may be, and valid existence in good standing of
each party to the documents examined by us under the laws of the jurisdiction
governing its creation, formation or organization, (iii) the legal capacity of
natural person who are parties to the documents examined by us, (iv) that each
of the parties to the documents examined by us has the power and authority to
execute and deliver, and to perform its obligations under, such documents, (v)
that each of the parties to the documents examined by us has duly authorized,
executed and delivered the documents examined by us, (vi) the receipt by each
Person to whom a Preferred Security is to be issued by the Trust (collectively,
the "Preferred Security Holders") of a certificate evidencing
<PAGE> 3
AICI Capital Trust
July 29, 1997
Page 3
the Preferred Security (a "Preferred Security Certificate") and the payment for
the Preferred Security acquired by it, in accordance with the Trust Agreement
and as described in the Registration Statement, and (vii) that the Preferred
Securities are issued and sold to the Preferred Security Holders in accordance
with the Trust Agreement and as described in the Registration Statement. We
have not participated in the preparation of the Registration Statement and
assume no responsibility for its contents.
This opinion is limited to the laws of the State of Delaware (excluding
the securities laws of the State of Delaware), and we have not considered and
express no opinion on the laws of any other jurisdiction, including federal
laws and rules and regulations relating thereto. Our opinions are rendered
only with respect to Delaware laws and rules, regulations and orders thereunder
that are currently in effect.
Based upon the foregoing, and upon our examination of such questions of
law and statutes of the State of Delaware as we have considered necessary or
appropriate, and subject to the assumptions, qualifications, limitations and
exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Business Trust Act, 12 Del C.
Section 3801, et seq.
2. The Preferred Securties to be issued to the Preferred Security
Holders have been duly authorized by Trust Agreement and will be duly and
validly issued and, subject to the qualifications set forth in paragraph 3
below, fully paid and nonassessable undivided beneficial interests in the
assets of the Trust.
3. The Preferred Security Holders, as beneficial owners of the
Trust, will be entitled to the same limitation of personal liability extended
to stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware. We note that the Preferred Security
Holders may be obligated to make payments as set forth in the Trust Agreement.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. We hereby
consent to the use of our name under the heading "Validity of Securities" in the
Prospectus. In giving the foregoing consents, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder. Except as stated above, without
our
<PAGE> 4
AICI Capital Trust
July 29, 1997
Page 4
prior written consent, this opinion may not be furnished or quoted to, or
relied upon by, any other person for any purpose.
Very truly your,
Richards, Layton & Finger
CDK
<PAGE> 1
EXHIBIT 8.1
[Letterhead of LeBoeuf, Lamb, Greene & MacRae, L.L.P.]
July 29, 1997
Acceptance Insurance Companies Inc.
AICI Capital Trust
222 South 15th Street
Suite 600 North
Omaha, Nebraska 68102
Re: $82,500,000 AICI Capital Trust % Preferred Securities
Dear Ladies and Gentlemen:
We have acted as tax counsel to Acceptance Insurance Companies Inc., a
Delaware corporation ("Acceptance"), and AICI Capital Trust, a Delaware business
trust (the "Trust"), in connection with the issuance of securities by Acceptance
and by the Trust as described in the Registration Statement on Form S-3
(Registration No. 333-28749) filed with the Securities and Exchange Commission
(the "Commission") on June 6, 1997, as amended by Amendment No. 1 filed
with the Commission on July 18, 1997 (as so amended, the "Registration
Statement"), and the Prospectus contained therein (the "Prospectus"). All
capitalized terms not otherwise defined herein have the meaning set forth in
the Prospectus.
We understand that the transaction will consist of the following:
Acceptance, a domestic corporation, will issue Junior Subordinated
Debentures, which will be held by the Trust. The Trust will initially have the
following trustees (collectively, the "Trustees"): (a) a financial institution
that is unaffiliated with Acceptance and whose principal place of business is in
New York will serve as Guarantee Trustee, Debenture Trustee and Property
Trustee, and (b) a financial institution that is unaffiliated with Acceptance
and whose principal place of business is in Delaware will serve as Delaware
Trustee. The Trust Agreement, including any Amended and Restated Trust
Agreement, establishing the Trust (collectively, the "Agreement") authorizes
the Trustees to have the Trust issue (a) preferred securities (the "Preferred
Securities") representing beneficial undivided interests in the Trust and (b)
common securities (the "Common Securities") representing all residual
beneficial undivided interests in the Trust. All of the Common Securities will
be directly or indirectly owned by Acceptance. The Agreement will not permit
the issuance by the Trust of any securities or other beneficial interests other
than the Preferred Securities and the Common Securities issued on the Closing
Date (as defined in the Agreement). Pursuant to the Agreement, the Property
Trustee will hold a security interest in the Debentures owned by the Trust for
the benefit of the holders of the Preferred Securities and secondarily, the
Common Securities. The Property Trustee will also receive all interest
<PAGE> 2
Acceptance Insurance Companies Inc.
July 29, 1997
Page 2
and principal paid in respect of the Debentures and will maintain such funds in
a segregated non-interest bearing account pending distribution.
Holders of the Preferred Securities will be entitled to receive
preferential cumulative cash distributions ("Distributions") at the annual rate
of % of the liquidation amount of $25 per Preferred Security, accruing from
the date of original issuance and payable quarterly in arrears on March 31,
June 30, September 30 and December 31 of each year, commencing September 30,
1997. Acceptance will guarantee (the "Guarantee") the payment of
Distributions by the Trust if and to the extent the Trust has funds available
for such purpose. In the event the Trust does not have sufficient funds to pay
such Distributions, the holders of Preferred Securities, among other remedies,
may institute a legal proceeding directly against Acceptance to enforce payment
of such Distributions.
We understand that the Debentures will have a maturity of 30 years, and
will pay interest accruing from the date of original issuance and payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year, commencing September 30, 1997, at an annual rate equal to the annual rate
of interest on the Preferred Securities. So long as no Debenture Event of
Default has occurred and is continuing, Acceptance has the right, at any time,
to defer payments of interest on the Debentures for a period of up to 20
consecutive quarters (each group of consecutive periods a "Deferral Period").
If interest payments are so deferred, Distributions will also be deferred.
During such Deferral Period, Distributions will continue to accrue with
interest thereon (to the extent permitted by applicable law) at an annual rate
of % per annum compounded quarterly. We also understand that the
Debentures will be subordinate to all senior indebtedness of Acceptance, but
will rank pari passu with the general unsecured creditors of Acceptance and
will be senior to all classes of equity. The management of Acceptance
reasonably expects that, as of the date of issuance and throughout the term of
the Debentures, Acceptance will have assets and cash flow sufficient to service
the Debentures pursuant to their terms and that Acceptance has no current plan
or intention to exercise its right to defer payments of interest on the
Debentures. The terms of the Debentures, other than the option of Acceptance to
defer payment of interest for up to 20 consecutive quarterly periods, will
generally be consistent with other indebtedness of Acceptance.
In rendering our opinion, we have reviewed and relied upon (i) the
Registration Statement, (ii) the Prospectus, (iii) the Officer's Certificate of
Acceptance dated July , 1997 and (iv) such other documents, and have made such
further investigations as we have deemed necessary to render the opinion set
forth below. In performing our examination, as to any facts material to our
opinion, we have, when relevant facts were not independently established by us,
relied upon representations to us by representatives of Acceptance and the
Trust, and have assumed the truth and accuracy of the representations in the
documents and instruments described herein.
<PAGE> 3
Acceptance Insurance Companies Inc.
July 29, 1997
Page 3
Based upon the foregoing, and subject to the assumptions and
qualifications set forth herein, we are of the opinion that:
1. The Trust will be classified as a grantor trust for U.S.
Federal income tax purposes, rather than as an association taxable as a
corporation or as a partnership. Accordingly, each beneficial owner of the
Preferred Securities will be treated for U.S. Federal income tax purposes as
the owner of an undivided interest in the Debentures.
2. The Debentures will constitute indebtedness of
Acceptance for U.S. Federal income tax purposes.
3. The discussion set forth in the Prospectus under the heading
"Certain Federal Income Tax Consequences" is a fair and accurate summary of the
matters addressed therein, based upon current law and the assumptions stated or
referred to therein.
The above opinions are based upon provisions of the Internal Revenue
Code of 1986, as amended, its legislative history, the Treasury regulations,
and published rulings and court decisions in effect as of the date hereof, all
of which are subject to change, possibly retroactively, and no assurance can be
given that the Internal Revenue Service will not take contrary positions. We
are admitted to the practice of law in the State of New York, and we express no
opinion herein as to any laws other than the Federal tax laws of the United
States of America. The opinions rendered herein are for the sole benefit of
Acceptance and the Trust and may not be relied upon by any other party or in
any other transaction.
Very truly yours,
LEBOEUF, LAMB, GREENE & MACRAE, L.L.P.
<PAGE> 1
EXHIBIT 12.1
Acceptance Insurance Companies Inc.
Computation of Ratio of Earnings to Fixed Charges
(Amounts in thousands)
<TABLE>
<CAPTION>
Three Three
Months Months
Year Ended Year Ended Year Ended Year Ended Year Ended Ended Ended
December 31, December 31, December 31, December 31, December 31, March 31, March 31,
1992 1993 1994 1995 1996 1996 1997
---------- ------------- ----------- ------------ ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-tax income from
continuing operations..... $ (610) $ 7,991 $ 17,712 $ 5,343 $ 33,490 $ 6,296 $ 5,323
Add:
Share of net loss of
investee.................. 1,165 301 297 265 1,052 64 54
Fixed charges............... 4,766 2,625 2,536 3,686 6,134 1,578 1,545
Deduct:
Minority interest in net
income.................... (216) (238) (80) 0 0 0 0
Pre-tax income from
continuing operations
(adjusted)................ 5,105 10,679 20,465 9,294 40,676 7,938 6,922
Fixed charges:
Interest charges............ 4,428 2,235 1,693 2,591 4,896 1,253 1,157
Fixed charge component of
rental expense............ 338 390 843 1,095 1,238 325 388
Total Fixed charges......... 4,766 2,625 2,536 3,686 6,134 1,578 1,545
Ratio of earnings to
fixed charges............. 1.07x 4.07x 8.07x 2.52x 6.63x 5.03x 4.48x
Rental expense.............. 1,014 1,169 2,529 3,286 3,715 975 1,164
Fixed component % .......... 33.33% 33.33% 33.33% 33.33% 33.33% 33.33% 33.33%
Fixed charge component of
rental expense............ 338 390 843 1,095 1,238 325 388
</TABLE>
<PAGE> 1
Exhibit 23.3
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in this Amendment No. 2 to
Registration Statement No. 333-28749 of Acceptance Insurance Companies Inc. on
Form S-3 of our reports dated March 12, 1997 (which express an unqualified
opinion and include an explanatory paragraph relating to the adoption of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities"), appearing in and incorporated by reference in the Annual Report
on Form 10-K of Acceptance Insurance Companies Inc. for the year ended December
31, 1996 and to the reference to us under the heading "Experts" in the
Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche L.L.P.
DELOITTE & TOUCHE L.L.P.
Omaha, Nebraska
July 29,1997
