SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number
December 31, 1997 1-7801
----------------
ORION CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-6069054
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9 Farm Springs Road, Farmington, Connecticut 06032
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 860-674-6600
-------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, $1 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
(Title of Class)
9.125% Senior Notes due September 1, 2002
7.25% Senior Notes due July 15, 2005
8.73% Trust Preferred Capital Securities due January 1, 2037
(issued by a wholly-owned Trust of the Registrant)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ]
The aggregate market value of the voting stock of the registrant held by
non-affiliates was $1,445,510,000 as of March 24, 1998.
As of March 24, 1998, 27,533,525 Shares of Common Stock, $1.00 par value,
of registrant were outstanding exclusive of shares held by registrant and its
subsidiaries.
<PAGE> DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III is incorporated by reference from
registrant's definitive proxy statement for its Annual Meeting to be held on
May 28, 1998. Registrant intends to file the proxy material, which involves
the election of directors, not later than 120 days after the close of its
fiscal year.
Table of Contents
Page
Part I
Item 1: Business 3
General 3
Regional Operations 10
Special Programs 11
Guaranty National Companies 16
Insurance Industry Characteristics 17
Miscellaneous Operations 29
Item 2: Properties 29
Item 3: Legal Proceedings 29
Item 4: Submission of Matters to a Vote of Security Holders 29
Information concerning Executive Officers of the Company 29
Part II
Item 5: Market for Registrant's Common Equity and Related 32
Stockholder Matters
Item 6: Selected Financial Data 33
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations 34
Item 7A: Quantitative and Qualitative Disclosures About Market Risk 47
Item 8: Financial Statements and Supplementary Data 48
Item 9: Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 82
Part III
Item 10: Directors and Executive Officers of the Registrant 82
Item 11: Executive Compensation 82
Item 12: Security Ownership of Certain Beneficial Owners
and Management 82
Item 13: Certain Relationships and Related Transactions 82
Part IV
Item 14: Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 82
Signatures 88
Exhibit Index 91
Forward-Looking Statements
All statements made in this Annual Report on Form 10-K that do not
reflect historical information are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or
achievements of Orion Capital Corporation and its consolidated subsidiaries
to be materially different from any future results, performance or
achievements, expressed or implied by the forward-looking statements. Such
risks, uncertainties and other factors include, among other things, (i)
general economic and business conditions; (ii) interest rate and financial
market changes; (iii) competition and the regulatory environment in which
we operate (iv) claims frequency; (v) claims severity; (vi) medical cost
inflation; (vii) increases in the cost of property repair; (viii) the
number of new and renewal policy applications submitted to us; and (ix)
other factors over which we have little or no control. Orion Capital
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Corporation disclaims any obligation to update or to publicly announce the
impact of any such factors or revisions to any forward-looking statements
to reflect future events or developments. Some of these factors are
discussed further in this report in Part I, Item 1: Business, and Part II,
Item 7: Managements' Discussion and Analysis of Financial Condition and
Results of Operations.
PART I
ITEM 1. BUSINESS
GENERAL
Our Operations
Orion Capital Corporation is an insurance holding company. We have
the ability, through our seventeen wholly-owned insurance subsidiaries and
investments in other insurance companies, to write almost all types of
property and casualty insurance nation-wide and throughout Canada.
However, our operations are highly specialized. We currently only
underwrite and sell the following specialized insurance products and
services:
- workers compensation products and related services primarily
through EBI Companies;
- professional liability coverage for architects, engineers,
environmental consultants, lawyers and accountants through DPIC
Companies;
- special property and casualty insurance programs tailored to the
risks associated with selected types of businesses, including
commercial nonstandard automobile insurance, through Orion
Specialty;
- personal nonstandard automobile insurance through Guaranty
National; and
- underwriting management of insurance pools focusing on ocean cargo,
inland marine and related property coverage through Wm. H. McGee.
As of December 1997, we own 100% of Guaranty National Corporation.
Guaranty National and its subsidiaries sell nonstandard automobile
insurance, and specialty property and casualty insurance coverages which
are not readily available in traditional insurance markets. Prior to
December 1997, we owned slightly more than 80% of Guaranty National, but
during that month we brought all the remaining shares of Guaranty National
we did not own at $36.00 per share in a public tender offer. The total
cost of the new shares was $116,082,000, of which $104,429,000 was paid in
cash.
After completion of the acquisition of Guaranty National, in January
1998 the Company shifted Guaranty National's commercial lines to a newly
formed unit, Orion Specialty. At that same time, we also shifted the
company's program business specialist unit, Connecticut Specialty Group,
to the new unit and began the integration of the two operations. This
action transformed Guaranty National into a personal lines only company.
In November 1996, we exited the assumed reinsurance business when we
sold the ongoing operations of our subsidiary, Security Reinsurance
Company. The purchaser was Hartford Fire Insurance Company acting for
HartRe, the Hartford Insurance Group's reinsurance operation. As a result
of the sale, Security Reinsurance Company discontinued actively writing
business and became an inactive company.
3
<PAGE>
We have also invested in a publicly traded insurance holding company
called Intercargo Corporation. We own 24.7% of Intercargo. Intercargo's
subsidiaries are insurance companies that specialize in international trade
and transportation coverages. Intercargo operates as an independent
company and we select one member of its seven-member board of directors.
We have agreed with Intercargo that, without its approval, until June 30,
2000, we will not increase our ownership above 35%, and until June 30,
2005, we will not increase our ownership above 49%.
We own insurance companies, as well as brokerage companies and
insurance management and service companies. Those companies have licenses
to transact business nationwide and in all Canadian provinces. In general
we do not sell our insurance products directly to our policyholders. We
obtain substantially all our business through independent insurance agents
and brokers. We have approximately 3,600 employees. Substantially all of
our employees work in our insurance or insurance-related operations. The
Company is not a party to any collective bargaining agreements and believes
its relationship with its employees to be good.
Orion Capital Corporation was incorporated in the State of Delaware in
1960, and its wholly-owned insurance subsidiaries are incorporated in the
States of California, Connecticut, Colorado, Oklahoma, South Carolina,
Texas and Wisconsin. Our principal executive offices are located 9 Farm
Springs Road, Farmington, Connecticut 06032 and the telephone numbers are
(860) 674-6600 and (800) 243-7060.
Orion Capital Corporation - Capital Structure
We have simplified our debt and capital structure over the past
several years. This simplified structure has permitted us to take
advantage of lower interest rates, reduce the cost of capital and eliminate
sinking fund payments until the maturity of our senior notes. In June 1997,
to increase the trading liquidity and affordability of our common stock, we
declared a 2-for-1 stock split. At year end, the only securities that Orion
Capital Corporation had outstanding were:
- 27,605,544 shares of Common Stock;
- $110,000,000 face amount of 9.125% Senior Notes, due
September 1, 2002;
- $100,000,000 face amount of 7.25% Senior Notes, due July 15,
2005; and
- $125,000,000 of 8.73% Trust Preferred Capital Securities, due
January 1, 2037.
On January 13, 1997, Orion Capital Corporation issued $125,000,000 of
8.73% Junior Subordinated Deferrable Interest Debentures, due January 1,
2037, to Orion Capital Trust I, a Delaware statutory business trust we
sponsored. The Trust simultaneously sold, in a private placement,
$125,000,000 of the Trust's 8.73% Preferred Capital Securities, which have
substantially the same terms as the 8.73% Debentures. The proceeds from
the sale of the securities were used, in part, to purchase Guaranty
National in December 1997. The securities were registered with the
Securities and Exchange Commission in April, 1997.
On February 2, 1998, similar to the prior year's issuance of trust
preferred securities, Orion Capital Corporation issued $125,000,000 of
7.701% Junior Subordinated Deferrable Interest Debentures, due April 15,
2028, to Orion Capital Trust II, a Delaware statutory business trust we
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sponsored. Trust II then simultaneously sold $125,000,000 of the Trust's
7.701% Preferred Capital Securities, which have substantially the same
terms as the 7.701% Debentures, in a private placement. Approximately
$100,000,000 of the net proceeds from the sale were used to retire the bank
indebtedness of Guaranty National. We agreed to register the 7.701%
Preferred Capital Securities under the Securities Act of 1933, and will
file a registration statement with the Securities and Exchange Commission.
While the two trust preferred issuances have complicated structures,
they give us all the advantages of preferred stock with the tax
deductibility feature of debt. The securities provide a low after-tax cost
of financing for our business growth. See Notes H and R to the
consolidated Financial Statements.
Segment Reporting
The Securities and Exchange Commission requires registered companies
to report their results in segments by type of business, geographic
distribution or other meaningful breakdown. Our insurance operations are
divided into three insurance segments. In addition, the miscellaneous
income and expenses of our parent company are reported as a fourth segment.
The four segments are as follows:
I. Regional Operations - this segment includes the workers
compensation insurance products and services sold by the EBI
Companies.
II. Special Programs - this segment includes five operations:
1. DPIC Companies, which markets our professional liability
insurance;
2. Orion Specialty (formerly known as Connecticut
Specialty through December 31, 1997) which writes our
specialty insurance programs and our commercial nonstandard
automobile insurance;
3. Wm. H. McGee & Co., Inc., our underwriting management
company that specializes in ocean marine, inland marine
and related property insurance;
4. our 24.7% interest in Intercargo Corporation, which sells
insurance coverages for international trade; and
5. SecurityRe - the run-off operations of our assumed
reinsurance business.
III. Guaranty National Companies - which specializes primarily in
personal nonstandard automobile insurance and other property
insurance.
IV. Other - miscellaneous income and expenses of the parent
company.
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<PAGE>
Net Earnings
Our net earnings and per share amounts for the past three years, were
as follows:
1997 1996 1995
Net earnings............ $115,806,000 $86,631,000 $67,622,000
Net earnings per basic
share................. $ 4.24 $ 3.16 $ 2.41
Net earnings per diluted
share................. $ 4.15 $ 3.12 $ 2.38
Earnings per share has been calculated based upon a new accounting
standard, SFAS No. 128 "Earnings per Share." Diluted earnings per share is
the same as per share amounts previously reported. Additionally, all
shares and per share amounts have been restated for the 2-for-1 stock split
issued on July 7, 1997.
The above basic per share figures were based on weighted average
common shares outstanding of 27,333,000 in 1997, 27,400,000 in 1996 and
28,110,000 in 1995.
The above diluted per share figures were based on weighted average
common shares and diluted equivalent outstanding of 27,900,000 in 1997,
27,788,000 in 1996 and 28,374,000 in 1995. See "Management's Discussion
and Analysis of Financial Conditions and Results of Operations."
In the following pages of this report, Orion Capital Corporation is
referred to as "Orion" or the "parent corporation," while Orion and its
consolidated subsidiaries are collectively referred to as the "Company."
The following tables present condensed financial information showing
revenues, pre-tax earnings (loss) and other financial data and ratios of
the four segments for each of the three years in the period ended December
31, 1997. Identifiable assets, by segment, are included in Note O to the
Consolidated Financial Statements, "Industry Segment Information."
6
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1996 1995
---- ---- ----
(000s omitted)
<S> <C> <C> <C>
REVENUES:
Regional Operations -
Premiums earned ................... $ 362,127 $ 356,809 $322,098
Net investment income ............. 41,787 38,226 35,750
Realized investment gains ......... 13,776 6,804 4,636
Other income ...................... 338 176 188
---------- ---------- --------
Total Regional Operations........ 418,028 402,015 362,672
---------- ---------- --------
Special Programs -
Premiums earned ................... 448,923 462,295 426,905
Net investment income ............. 68,700 62,646 59,584
Realized investment gains ......... 22,222 11,066 7,781
Other income ...................... 19,726 22,658 13,564
---------- ---------- --------
Total Special Programs .......... 559,571 558,665 507,834
---------- ---------- --------
Guaranty National Companies -
Premiums earned ................... 546,630 481,648 -
Net investment income ............. 43,613 39,439 -
Realized investment gains ......... 11,984 8,455 -
---------- ---------- --------
Total Guaranty National
Companies........................ 602,227 529,542 -
---------- ---------- --------
Other ............................... 10,709 3,227 3,774
---------- ---------- --------
$1,590,535 $1,493,449 $874,280
========== ========== ========
EARNINGS (LOSS):
Regional Operations ................. $ 86,807 $ 68,371 $ 57,830
Special Programs .................... 49,700 44,052 43,241
Guaranty National Companies.......... 56,249 35,727 4,466
---------- ---------- --------
Total property and casualty
operations......................... 192,756 148,150 105,537
Other................................ (16,576) (20,794) (17,502)
---------- ---------- --------
176,180 127,356 88,035
Federal income taxes................. (46,481) (32,033) (20,413)
Minority interest expense............ (13,893) (8,692) -
---------- ---------- --------
Net earnings........................... $ 115,806 $ 86,631 $ 67,622
========== ========== ========
7
<PAGE> <CAPTION>
The following table sets forth, on a consolidated basis, certain
insurance ratios for the Company:
Year Ended December 31,
--------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Loss and loss adjustment expenses to
premiums earned ....................... 66.7% 67.9% 68.4%
Policy acquisition and other insurance
expenses to premiums earned ........... 31.2 30.1 29.0
----- ----- -----
Total before policyholders' dividends.. 97.9 98.0 97.4
Policyholders' dividends to premiums
earned ................................ 1.8 1.8 2.9
----- ----- -----
Combined ratio......................... 99.7% 99.8% 100.3%
===== ===== =====
</TABLE>
One or more of Orion's insurance subsidiaries are licensed to transact
business in each of the 50 states of the United States, the District of
Columbia, Puerto Rico and all provinces of Canada. In 1997, approximately
14.8% of the Company's consolidated direct premiums written was generated in
California, 7.7% in Pennsylvania, 6.4% in New York, 5.6% in Texas and 5.5% in
Florida. The large increase in California premiums in 1997 and 1996 is from
nonstandard private passenger automobile coverages written by Guaranty
National. Also significant in California is architects and engineers
professional liability insurance. The primary line of business in
Pennsylvania and Texas is workers compensation. New York's primary line is
ocean and inland marine business written by McGee. The primary lines of
business in Florida are private passenger and commercial automobile, and
commercial multiple peril. The following table shows the geographical
distribution of direct premiums written by the Company in 1997, 1996 and 1995,
including Guaranty National's premiums for 1997 and 1996:
<TABLE> <CAPTION>
Geographical Distribution of Direct Premiums Written
Year Ended December 31,
-------------------------------------------------------
State 1997 Pct. 1996 Pct. 1995 Pct.
- ----- ---- ---- ---- ---- ---- ----
(000s omitted - except for percentages)
<S> <C> <C> <C> <C> <C> <C>
California ........ $ 226,028 14.8% $ 171,962 12.0% $ 45,308 5.7%
Pennsylvania ...... 116,745 7.7 130,786 9.1 110,993 13.9
New York .......... 96,754 6.4 106,090 7.4 37,667 4.7
Texas ............. 85,250 5.6 84,939 5.9 62,426 7.8
Florida............ 84,149 5.5 52,307 3.7 36,226 4.5
All others (1) .... 912,389 60.0 885,366 61.9 506,664 63.4
---------- ----- ---------- ----- -------- -----
$1,521,315 100.0% $1,431,450 100.0% $799,284 100.0%
========== ===== ========== ===== ======== =====
<FN>
(1) In 1997, no other single state or country accounts for more than 5% of
total direct premiums written.
</TABLE>
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<PAGE>
For 1997, 27.8% of the Company's net premiums written was derived from
workers compensation insurance written primarily in twenty-four states; 27.3%
came from private passenger automobile insurance; 18.3% related to liability
insurance other than automobile, primarily professional liability insurance;
11.4% came from commercial automobile insurance and 5.1% was from marine
insurance coverages. No other line of business contributed in excess of 5% to
1997 net premiums written. The following table shows net premiums written for
the Company, including Guaranty National for 1997 and 1996, by major statutory
lines of business:
<TABLE>
<CAPTION>
Net Premiums Written
Year Ended December 31,
-------------------------------------------------------
1997 Pct. 1996 Pct. 1995 Pct.
---- ---- ---- ---- ---- ----
(000s omitted - except for percentages)
<S> <C> <C> <C> <C> <C> <C>
Workers compensation .. $ 380,789 27.8% $ 383,615 28.8% $355,691 47.0%
Private passenger
automobile .......... 373,076 27.3 307,533 23.0 33,161 4.4
Liability other than
automobile .......... 250,013 18.3 249,425 18.7 210,679 27.8
Commercial automobile . 155,646 11.4 147,287 11.0 64,874 8.6
Marine ................ 69,125 5.1 67,587 5.1 49,152 6.5
Commercial multiple
peril ............... 65,796 4.8 46,401 3.5 5,654 .7
All others ............ 72,623 5.3 132,273 9.9 38,225 5.0
---------- ----- ---------- ----- -------- -----
$1,367,068 100.0% $1,334,121 100.0% $757,436 100.0%
========== ===== ========== ===== ======== =====
</TABLE>
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REGIONAL OPERATIONS
The Regional Operations segment is mainly comprised of the EBI Companies
("EBI"), which provides workers compensation insurance as well as alternative
workers compensation services and related products. Through the addition of
alternative products and pricing approaches, entry into new states and
continued emphasis on its value-added services, EBI expects to further expand
its presence in the workers compensation market.
EBI is a specialist in workers compensation on a regional and national
basis. EBI continues to expand its nationwide presence in this market by
bringing its distinctive value-added approach to new states and a new customer
focus in the multi-state/national accounts segment. EBI operates on a
nationwide basis through 44 offices located in 24 states and plans further
expansion into new states in the coming year. It ranks among the 20 largest
writers of workers compensation insurance in the United States based on net
premiums written and has the lowest three year average loss ratio within this
group. Its headquarters is in Itasca, Illinois, a suburb of Chicago.
Information about EBI is available on the Internet at http://www.ebico.com.
EBI's competitive edge stems from its distinctive service-oriented
approach. EBI offices are staffed with underwriters, marketing
representatives, claim representatives, accident prevention consultants,
lawyers, medical and rehabilitation experts and other technical and
administrative personnel who work in a multidisciplinary team environment.
The team approach starts with the underwriting process. EBI's method of
underwriting is not merely to evaluate the risk, but also to assess and reduce
the likelihood of injury through accident prevention services. Accident
prevention and claims management personnel, as well as underwriters, have
direct responsibility for account selection and in underwriting each client.
Zero Accident Culture R
- -----------------------
The EBI team then works directly with the client and its employees to
identify the factors that affect their insurance costs, and to provide
services designed to reduce the frequency and severity of injuries. EBI's
approach to accident prevention requires insureds to establish and maintain a
Zero Accident Culture R, ("ZAC") designed to keep the work environment free of
accidents. EBI manages worker injuries through its team of claims personnel
and rehabilitation nurses to minimize the employee's disability and related
medical costs.
With a desire to influence and impact the work place environment to
reduce losses and long-range insurance costs, EBI's marketing targets
businesses where its ZAC philosophy and service-oriented approach can have the
greatest impact. EBI has concentrated its efforts on an ever-broadening array
of businesses in selected industries, including manufacturers, nursing homes,
hospitals, hotels, and school districts. EBI's expansion in recent years has
given it a much broader base of operations. Today, EBI is recognized as a
national workers compensation niche insurance carrier.
Continued Expansion
- -------------------
As EBI has continued to grow, it has refined its agency force by
strengthening relationships with large, regional and national insurance agents
and brokers. Approximately 1,000 independent agents and brokers produce all
of the direct business written in 1997 by EBI. These agents and brokers
receive commissions on the sale of insurance. No single independent agent or
broker contributed more than 10% of this segment's net written premiums.
EBI has recorded profitable underwriting results for the past five years
which has led it to continue its plan of geographic expansion. In 1997, it
added five new branch offices and expanded into three new states. It intends
to expand into five new states in 1998 utilizing a multi-disciplinary team
approach to select the states in which it operates. EBI's expansion strategy
has been, in part, to anticipate reform initiatives in various states and
establish a foothold in such new markets before reform benefits have been
realized. Expansion opportunities now also include multi-state/national
clients. EBI has been able to gain a strong reputation for service.
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Alternative workers compensation products and services are designed to
capitalize on EBI's expertise in traditional workers compensation. EBI
applies those skills to writing workers compensation for large accounts and
clients desiring large deductibles. Among the alternative products EBI offers
is a workers compensation excess coverage and an accompanying self-insured
administration program and an integrated employee benefit program.
What is Workers Compensation Insurance ?
- ----------------------------------------
A workers compensation policy obligates an insurance company to pay all
disability, medical, and other benefits for injured workers as may be required
by applicable state laws. The insurance policies currently written by EBI
provide workers compensation coverage with limits of liability set by the
provisions of state workers compensation laws. The benefits provided by these
laws vary with the nature and severity of the injury or disease, as well as
with the wage level, occupation, and age of the employee. Employers'
liability coverage is also provided to employers who may be subject to claims
for damages (not workers compensation benefits) due to an injury to a worker.
The amount of workers compensation premiums earned is directly dependent
upon wage levels as well as the number of employees on the payroll of each
policyholder and the job classifications of those employees. Premium rates
are revised annually in most states in which EBI does business. EBI uses the
rates and rating plans filed in the states where it does business. See
Industry Characteristics - Rates."
SPECIAL PROGRAMS
The Company's Special Programs segment is made up of five operations, all
of which are concentrated in highly specialized lines of business in the
property and casualty insurance field. The components are:
- DPIC Companies,
- Orion Specialty (formerly Connecticut Specialty
through December 31, 1997),
- Wm. H. McGee & Co., Inc.,
- the Company's 24.7% interest in Intercargo Corporation, and
- the run-off operations of SecurityRe.
DPIC
----
DPIC Companies ("DPIC") writes professional liability insurance for its
niche markets: architects, engineers, environmental consultants, accountants
and lawyers. It is the second largest underwriter of architect, engineer and
environmental consultants in North America. DPIC operates in offices
throughout the United States and Canada. It is headquartered in Monterey,
California. Information about DPIC can be found on the Internet at
http://www.dpic.com.
New Organizational Structure
- ----------------------------
DPIC's operations are organized to be directly aligned with its various
client markets, both geographically and by profession. Since its inception,
DPIC's claims operations have been set up in strategic geographical locations.
In July, 1997, DPIC's underwriting operations were decentralized, linking up
with its major regional claims offices to serve clients and agency
representatives more efficiently and effectively. DPIC underwriting/claims
offices are in New York City/Clifton, NJ; Norcross, GA; Itasca, IL; Denver, CO
and Toronto, ONT; DPIC claims offices can also be found in San Francisco, CA;
Newport Beach, CA, and Montreal, Quebec.
Professional liability insurance covers liability arising out of alleged
negligent performance of professional services. Underwriting and claims
management require a high level of knowledge and expertise. To limit risk
exposure, DPIC's specialized underwriters evaluate a great number of factors,
including the experience of an applicant firm's professional personnel, the
loss history of the firm, the employees covered, the type of work performed
and the firm's utilization of loss prevention measures. DPIC actively rewards
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<PAGE>
firms that participate in loss prevention education, risk management and
business practice improvement programs. It offers a series of client focused
professional liability education programs and provides financial incentives
for resolving disputes through mediation.
The professional liability coverage offered by DPIC is on a "claims-made"
policy form, a form which generally insures only those claims reported by the
insured during the policy term. With some exceptions in Canada, DPIC's
policies cap defense costs, primarily legal fees within the insured's stated
policy limits. This has resulted in a favorable impact in controlling legal
costs.
DPIC offers general liability insurance to architect, engineer and
environmental consulting firms that, in most cases, maintain their
professional liability coverage with DPIC. Coverage is usually written on an
occurrence basis, the industry standard, although some claims-made policies
exist when warranted by DPIC's underwriting.
ADR Emphasis
- ------------
DPIC's specialized claims staff stresses early intervention in disputes
to avoid litigation whenever mitigated loss is possible. DPIC has pioneered
the use of alternative dispute resolution ("ADR"), mediation in particular, to
resolve disputes promptly. Because of mediation's proven success in reducing
the costs of claims-time, money, relationships - over 25% of DPIC's claim
files are resolved through this technique. Additionally, DPIC has instituted
a program with a selected group of panel counsel to investigate alternative
fee structures and then channel more work to this group. As a result, there
has been a favorable impact on DPIC's operating results.
DPIC markets its products through 55 specialized agencies, each highly
knowledgeable about loss prevention and risk management for the professions
served. The agents are active in continuing education programs, sponsored by
DPIC and their professional association Professional Liability Agents Network
(PLAN) and participate extensively in their clients' professional societies.
Exclusive territory assignments and extensive support from DPIC lead to an
uncommon commitment to meet the insurance and loss prevention needs of the
professions served.
Orion Specialty - A New Unit
- ----------------------------
Upon completion of the December 1997 merger of Guaranty National into a
wholly-owned subsidiary of the Company, the Company formed a new business unit
in January 1998, Orion Specialty Group, Inc. ("Orion Specialty"). Orion
Specialty is the result of the consolidation of Connecticut Specialty
Insurance Group, Inc. ("Connecticut Specialty"), the Company's program
business specialist unit, and the commercial lines of Guaranty National.
Orion Specialty focuses exclusively on specialty commercial insurance,
utilizing three distinct underwriting divisions to allow its business partners
multiple options for placement of their business. This strategic initiative
by Orion Specialty creates a national commercial company capable of writing
and servicing virtually every line of business in every state. Through the
integration of Connecticut Specialty and Guaranty National's commercial lines,
Orion Specialty gains additional capabilities and efficiencies that enable it
to add more value to specialty commercial market producers and their
customers. Furthermore, the integration provides Orion Specialty the
opportunity for growth through leveraging its existing agency relationships to
expand the geographic and coverage scope of its products. Orion Specialty
maintains operations in Farmington, Connecticut and Englewood, Colorado.
Contracts and Brokerage Division
- --------------------------------
The Contracts and Brokerage Division of Orion Specialty serves, through
approximately 70 wholesale agents, the excess and surplus lines market for a
wide range of standard and nonstandard product lines and classes, including
commercial liability, property, transportation and umbrella risks. While in
the past the emphasis of this division's business has been commercial
automobile, it is moving rapidly toward a more balanced book. The non-
12
<PAGE>
standard commercial automobile risks are generally comprised of insurance for
local and intermediate trucking, such as sand and gravel haulers; garages,
such as used car dealers and automobile repair facilities; and public
vehicles, such as buses and limousines.
In addition to the automobile line, the Contracts and Brokerage Division
offers general liability coverage for premises liability protection needed by
business in higher risk classes and small artisan contractors. This division
writes property coverages on risks such as vacant buildings, bars, restaurants
and motor-truck cargo. It also writes commercial umbrella and excess coverage
across a broad spectrum of business classes, and standard commercial package
policies for small businesses in small cities and rural areas.
In addition to writing through general agents, the Contracts and
Brokerage Division is also an "open market" for submissions from other
producers.
Program Division
- ----------------
The Program Division of Orion Specialty develops customized programs of
insurance for affinity groups. It operates through general agents and program
administrators. This division administers the operation of approximately 28
specialized programs in industries as diverse as energy, emergency services,
professional services and transportation. Its lines of business include
general liability, property, contract surety, directors and officers
liability, professional liability, commercial auto, workers compensation and
umbrella coverages. The Program Division defines a "program" as the writing
of risks in a class of business not widely pursued, utilizing coverage,
pricing methodologies and risk management techniques tailored to the needs of
the customer.
A key aspect to the business of the Program Division is the strategic
alliances it has formed with what it believes are knowledgeable and well
respected agents in the specialty insurance field. Each of its general agents
has superior knowledge of its markets and has earned customer loyalty by
providing quality services and support. To compliment the services and
support provided by its producers, the Program Division adds value to its
products with services ranging from loss control expertise to administrative,
actuarial and legal support, from forms and filing services to risk management
analysis and reports, each in a mix that best fits the particular program or
customer.
Alternative Risk Transfer Insurance Strategies
- ----------------------------------------------
Orion Specialty's third division, ARTIS (Alternative Risk Transfer
Insurance Strategies), offers an alternative market approach, allowing
producers and/or their clients to participate in the underwriting risk of
their insurance programs. ARTIS custom designs its alternative programs
utilizing traditional captives, rent-a-captives, joint equity captives, self-
insured retentions, large deductibles, portfolio transfers and finite
reinsurance.
While workers compensation is the largest component of its business,
Artis also offers coverage in general liability, automobile liability,
property, inland marine, surety, and professional liability lines of business.
Orion Specialty strives to provide its customers with services ranging
from loss control expertise to administrative, actuarial and legal support and
from forms and filing services to risk management analysis reports, each in a
mix that best fits a particular program or customer.
Orion Specialty utilizes a profit-sharing approach in writing its
special programs whereby a portion of the agent's compensation is tied to the
13
<PAGE>
profitability of the program. Orion Specialty closely monitors its programs
throughout their existence to ensure that profit potential is maximized.
The specialty nature of Orion Specialty's business provides some
insulation against the competitive pressures of the overall insurance market.
Enhanced automation designed for each general agent promotes efficiency and
effectiveness for both the agent and Orion Specialty. This relationship with
the general agent creates a competitive advantage in the insurance marketplace
and also directly impacts the cost of entry by competitors.
Orion Specialty is aggressively streamlining its processes and upgrading
its technology in order to better serve its customer base and expand in its
strongest programs.
McGee
- -----
In 1995, the Company acquired Wm. H. McGee & Co., Inc. ("McGee"), a
leading ocean cargo, inland marine and commercial property insurance
underwriter. McGee has been in business for over 110 years. Security
Insurance Company of Hartford ("Security"), a subsidiary of the Company, has
been represented by McGee since 1894. McGee provides all related services in
connection with this business, including policy issuance, claim settlement,
accounting and placement of reinsurance. Operations are conducted in the
United States, through its headquarters in New York and twenty branch offices
throughout the country. Activities in Canada, Bermuda and Puerto Rico are
managed by McGee's subsidiaries located in those jurisdictions and they
perform substantially similar services.
In the United States, McGee ranks among the top 10 writers of ocean cargo
insurance and among the 20 largest writers of inland marine insurance. Ocean
cargo insurance covers cargo against the perils of the sea and is usually
broadened to include loss or damage to the goods while in transit until they
arrive at the destination specified in the policy. Inland marine insurance
covers property while being transported, property of a movable nature and
property instrumental to transportation or communication. Some common
examples of property covered by inland marine insurance are cargo being
shipped by train, truck or airplane; mobile equipment; bridges and tunnels;
radio and television transmitting equipment; personal jewelry and furs; art
collections; livestock and medical equipment.
Each insurer represented by McGee participates in either the United
States or Canadian Inter-Office Reinsurance Agreement (the "McGee Pools"). It
is through these underwriting pooling agreements that premiums and risk
are allocated among the various participating insurers. The insurers
participating in the McGee Pools and the percentage allocated to each insurer
is reviewed and revised annually. Security is a member and clearing company
in both the United States and Canadian pools. For the year ending December
31, 1997, McGee underwrote approximately $200 million of premiums on behalf of
the insurers participating in the McGee Pools. The Company's participation in
the United States pool was 52%, 37% and 15% in 1997, 1996 and 1995,
respectively. Participation in the Canadian pool was approximately 61% in
1997, 49% in 1996 and 15% in 1995. The Company will increase its
participation in the McGee Pools during 1998 to approximately 72% in both the
United States and Canadian pools.
14
<PAGE>
In addition to its long standing prominence in the ocean and inland
marine markets, McGee provides innovative coverages that respond to the often
distinctive exposures of the property being insured. McGee's strategy is to
identify and serve those clients which require strong technical problem
solving and risk management support. McGee's strong underwriting and claim
capabilities allow it to tackle unusual risks, such as armored car and jewelry
store chains, bringing a highly specialized resource to those markets.
McGee, as an underwriting manager, does not directly solicit business
from insureds but instead relies on a production force consisting of insurance
brokers and agents appointed to represent the portion of the insurers'
business which McGee manages. McGee is compensated for its services by the
insurers it represents based upon a combination of factors, including a
percentage of the premiums written, the profitability of the business written
and the management services provided.
Intercargo Corporation
- ----------------------
The Special Programs segment also includes the Company's 24.7% interest
in Intercargo Corporation ("Intercargo"). Intercargo is an insurance holding
company whose subsidiaries specialize in international trade and
transportation coverages. Its principal product lines are U.S. customs bonds
and marine cargo insurance sold to importers and exporters through customs
brokers and other service firms engaged in the international shipment of
goods. Intercargo operates as an independent entity and a pro rata share of
any profit or loss is reflected in the Company's consolidated financial
statements, based on the Company's equity interest in Intercargo.
SecurityRe Companies
- --------------------
In November 1996, the Company exited the assumed reinsurance business and
sold for cash the ongoing business of its subsidiary, Security Reinsurance
Company ("SecurityRe"). SecurityRe primarily underwrote a diverse book of
casualty business, using reinsurance intermediaries, with exposures largely
concentrated in the domestic market. SecurityRe's premiums in recent years
had been principally concentrated in the treaty segment reinsuring small to
medium-sized regional and specialty companies in various lines of business
(primarily automobile and commercial coverages). Facultative coverage was
provided on an excess of loss basis for casualty and property exposures.
Generally, the largest net amount insured by SecurityRe was $1,000,000. As a
result of the sale, SecurityRe discontinued writing business. The Company
kept the reserves with respect to the outstanding business and will continue
to manage the settlement of claims arising out of that business.
15
<PAGE>
GUARANTY NATIONAL COMPANIES
Guaranty National Companies ("Guaranty National") writes nonstandard
personal automobile insurance, surplus lines insurance, and specialty property
and casualty coverages which are not readily available in traditional
insurance markets. Information about Guaranty National Companies can be found
on the Internet at http://www.gnic.com.
On December 10, 1997, the Company purchased the remaining 19.7% or
2,970,000 shares of Guaranty National common stock that it did not already own
for $36 per share in cash. Immediately following that purchase, Guaranty
National was merged into a wholly-owned subsidiary of the Company and delisted
as a publicly traded company on the New York Stock Exchange. In January 1998,
the Company shifted Guaranty National's commercial insurance operations to its
new unit, Orion Specialty. After that transfer, Guaranty National became
substantially only a personal nonstandard automobile insurance carrier.
Approximately 84% of Guaranty National's net premiums written during 1997
was derived from writing personal and commercial automobile insurance. Other
types of insurance products which were sold by Guaranty National include
general liability, standard multi-peril, umbrella, excess insurance and
property. Guaranty National has historically focused their operations on the
nonstandard markets. Nonstandard risks require specialized underwriting,
claims management and other skills and experience. Approximately 7 percent of
the Guaranty National net premiums written consists of standard commercial
coverage.
Nonstandard risks generally involve a potential for poor claims
experience because of increased risk exposure. Premium levels for nonstandard
risks are substantially higher than for preferred or standard risks. In
personal lines, Guaranty National's loss exposure is limited by the fact that
its insureds typically purchase low liability limits, often at a state's
statutory minimum. The nonstandard insurance industry is also characterized
by the insurer's ability to minimize its exposure to unprofitable business by
effecting timely changes in premium rates and policy terms in response to
changing loss and other experiences.
Guaranty National's personal lines principally writes nonstandard
automobile insurance, insurance (i) for drivers usually unacceptable to other
insurers for, among other reasons, adverse driving or accident history, age or
vehicle type, or (ii) for customers who can only afford a low down payment or
are transitioning from an uninsured to an insured status. This insurance
coverage is sold primarily in the State of California and the Rocky Mountain
and Pacific Northwest regions and the Southeastern United States. In general,
this insurance is sold through approximately 8,600 independent agents located
in 28 states.
Overall, Guaranty National seeks to distinguish itself from its personal
lines competitors by providing a superior, highly automated and responsive
level of service to its agents and insureds. In addition to high quality
service, the Guaranty National personal lines business unit provides ease of
payment for insureds through low monthly installments.
In underwriting nonstandard automobile risks, Guaranty National sets
premium rates which are substantially higher than standard rates. Policy
coverage periods are generally one or six months on personal automobile
policies. The business of Guaranty National is not materially dependent upon
any single customer, group of customers, or group of agents.
Customer service and policy processing operations are a critical part of
the personal lines business unit. Operation centers are currently located in
Freeport, Illinois; Denver, Colorado; Salt Lake City, Utah; and Salem, Oregon.
16
<PAGE>
Multiple locations in multiple time zones contribute to efficient volume
routing, as well as providing a convenient disaster recovery mechanism. In
the customer service area, use of the Interactive Voice Response system
permits efficient, automated answering of routine agent and customer
questions.
Colorado Casualty Insurance Company ("CCIC"), an insurance subsidiary of
Guaranty National, writes primarily standard commercial lines business. CCIC
writes small, standard commercial package policies. The standard commercial
business is primarily written in the Rocky Mountain region, but has recently
expanded to states mainly in the southeast region of the United States. CCIC
has been successful in serving a niche market of approximately 600 small to
medium retail agents. In addition, CCIC utilizes seven general agents as
branch offices.
New Acquisitions
- -----------------
On December 16, 1997, Guaranty National purchased Unisun Insurance
Company ("Unisun") from Michigan Mutual Insurance Company for $26,000,000 in
cash and incurred acquisition expenses of $170,000. Unisun is the largest
automobile insurance facility carrier in South Carolina. Total net premiums
written by Unisun for 1997 were approximately $20,000,000.
In November 1997, Guaranty National entered in an agreement to acquire
the nonstandard private passenger automobile insurance business of North
Carolina-based Strickland Insurance Group ("Strickland") for $42,600,000 in
cash. Pursuant to the agreement, Guaranty National made a nonrefundable
purchase price deposit of $2,000,000 to Strickland and incurred acquisition
costs of $94,000 as of December 31, 1997. In 1997, Strickland had total
private passenger automobile net premiums written of approximately
$46,000,000. The acquisition is expected to be completed in the second
quarter of 1998, subject to regulatory approval.
INSURANCE INDUSTRY CHARACTERISTICS
Loss Reserves
- -------------
The Company establishes reserve liabilities for reported losses, incurred
but not reported ("IBNR") losses, and claim settlement and administration
expenses. Reserves for reported losses and loss adjustment expenses are
estimates of the ultimate costs of claims reported to the Company but not
settled. IBNR loss reserves are estimates for both unreported claims and
additional development of previously reported claims. Reserves are based on
the circumstances surrounding each claim, the Company's historical experience
with losses arising from claims not yet reported and the particular experience
associated with the line of business and type of risk involved. Consideration
is also given to expected changes in costs for property, repairs to property,
benefit changes for injured workers, medical care, and litigation and other
legal costs. The Company regularly monitors the factors affecting its reserves
to better control claim costs, which also provides a base of information to
reevaluate reserve estimates. Reserve estimates are regularly reviewed and
adjusted to consider all pertinent information as it becomes available. Such
reevaluation is a normal, recurring activity that is inherent in the process
of loss reserve estimation.
Several methods are used for reviewing reserves, including paid and
incurred loss development, and incurred claim counts and average claim costs.
These methods can be subject to variability in reserve estimation for a number
of reasons, including improved claims department operating procedures,
accelerated claims settlement due to the use of alternate dispute resolution,
and expedited resolution of civil suits in litigation. Other factors that are
17
<PAGE>
analyzed and are considered in the determination of loss reserves include:(i)
claim emergence and settlement patterns and changes in these patterns from
year to year, (ii) trends in the frequency and severity of paid and incurred
losses, (iii) changes in policy limits and changes in reinsurance coverages,
(iv) changes in the mix and classes of business, and (v) changes in claims
handling procedures.
Management revises its reserve estimates as appropriate and believes that
the loss and loss adjustment expense reserves of the Company's insurance
subsidiaries make reasonable and sufficient provision for the ultimate cost of
all losses and claims incurred. However, no assurances can be given that
reserve development will not occur in the future.
Accident Year Loss and Loss Adjustment Expense Analysis
- -------------------------------------------------------
Accident year is a period of exposure that is used to accumulate loss and
loss adjustment experience by the year in which an incident giving rise to a
claim occurs. Accident year information is used for loss reserving and in
establishing premium rates. The accident year loss experience is updated in
subsequent calendar years until all losses and loss adjustment expenses
related to that given accident year have been settled. Accident year loss
ratio relates losses associated with incidents giving rise to claims occurring
within a given calendar year to premiums earned during the same calendar year.
Presented below are loss reserve development tables for the five years ended
December 31, 1997 prepared in accident year format.
<TABLE>
<CAPTION>
For each accident year, the following table presents premiums earned, and
the provision for loss and loss adjustment expenses as a percentage of
premiums earned (the "loss ratios") as established in the initial accident
year and cumulative as of December 31, 1997:
Loss and Loss Adjustment
Expense Development
-------------------------------
Accident Premiums
Year Earned Initial Cumulative
- -------- -------- ------- ----------
(000s omitted)
<S> <C> <C> <C>
1993 $ 617,404 70.4% 68.5%
1994 691,223 69.6 69.0
1995 749,003 66.8 67.3
1996 1,300,752 67.2 67.7
1997 1,357,680 66.0 -
<CAPTION>
The table set forth below indicates premiums earned, the cumulative loss
ratio for each accident year, the ratio of policy acquisition costs and other
insurance expenses to premiums earned (the "expense ratio"), the ratio of
policyholders' dividends to premiums earned (the "policyholders' dividend
ratio") and the total of the ratios (the "combined ratio") at December 31,
1997:
Accident Premiums Loss Expense Policyholders' Combined
Year Earned Ratio Ratio Dividend Ratio Ratio
- -------- -------- ----- ------- -------------- --------
(000s omitted)
<S> <C> <C> <C> <C> <C>
1993 $ 617,404 68.5% 26.8% 2.0% 97.3%
1994 691,223 69.0 27.0 2.1 98.1
1995 749,003 67.3 29.0 2.9 99.2
1996 1,300,752 67.7 30.1 1.8 99.6
1997 1,357,680 66.0 31.2 1.8 99.0
18
<PAGE>
<CAPTION>
Calendar Year Loss Reserve Analysis
- -----------------------------------
An analysis of the Company's calendar year loss and loss adjustment
expense reserves, net of reinsurance, is presented in the following table.
The 1996 current year provision includes favorable loss development for
Guaranty National of $995,000 and 1996 current year payments include
$144,775,000 attributable to periods prior to the consolidation of Guaranty
National's results in the Company's financial statements.
Year Ended December 31,
------------------------------------
1997 1996 1995
---- ---- ----
(000s omitted)
<S> <C> <C> <C>
Beginning of year ..................... $1,368,420 $ 993,978 $ 891,542
Effect of acquisitions................. 8,996 286,339 -
---------- ---------- ----------
1,377,416 1,280,317 891,542
---------- ---------- ----------
Provision:
Current year ........................ 896,226 874,123 500,514
Prior years ......................... 9,232 8,869 11,719
---------- ---------- ----------
905,458 882,992 512,233
---------- ---------- ----------
Payments:
Current year ........................ 370,907 499,176 146,540
Prior years ......................... 521,240 295,713 263,257
---------- ---------- ----------
892,147 794,889 409,797
---------- ---------- ----------
End of year ........................... $1,390,727 $1,368,420 $ 993,978
========== ========== ==========
<CAPTION>
Cumulative reserve development for the Company's majority-owned insurance subsidiaries
(including Guaranty National for 1997 and 1996) as of December 31, 1997 for the calendar
years 1992 through 1997 is shown in the table that follows:
December 31,
----------------------------------------------------------------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
(000s omitted)
<S> <C> <C> <C> <C> <C> <C>
Gross liability.. $1,081,396 $1,140,403 $1,181,329 $1,274,982 $1,785,664 $1,871,711
Reinsurance
recoverable.... 335,098 309,598 289,787 281,004 417,244 480,984
---------- ---------- ---------- ---------- ---------- ----------
Net liability.... $ 746,298 $ 830,805 $ 891,542 $ 993,978 $1,368,420 $1,390,727
========== ========== ========== ========== ========== ==========
Gross re-estimated
liability...... $1,155,675 $1,153,751 $1,196,821 $1,283,304 $1,805,102 $ -
Re-estimated
recoverable.... 333,036 297,781 293,704 280,073 427,450 -
---------- ---------- ---------- ---------- ---------- ----------
Net re-estimated
liability...... $ 822,639 $ 855,970 $ 903,117 $1,003,231 $1,377,652 $ -
========== ========== ========== ========== ========== ==========
Gross deficiency. $ (74,279) $ (13,348) $ (15,492) $ (8,322) $ (19,438) $ -
========== ========== ========== ========== ========== ==========
19
<PAGE>
<CAPTION>
Cumulative reserve development, net of reinsurance, for the Company's majority-owned insurance
subsidiaries (including Guaranty National for 1997 and 1996) as of December 31, 1997 for the calendar
years 1987 through 1997 is shown in the table that follows:
December 31, 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- -------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(000,000s omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net liability for
unpaid loss and
loss adjustment
expenses.......... $401.7 $520.3 $602.5 $595.5 $668.5 $746.3 $830.8 $891.5 $ 994.0 $1,368.4 $1,390.7
Paid (cumulative)
as of:
One year later .... 178.1 236.7 281.2 261.5 240.3 249.6 303.3 263.3 295.7 521.2 -
Two years later.... 318.9 403.1 438.3 408.6 378.5 429.5 445.4 434.7 495.6 - -
Three years later.. 414.6 488.4 526.2 493.2 484.3 514.2 543.7 553.4 - - -
Four years later .. 457.2 544.4 581.9 567.1 540.3 577.5 625.7 - - - -
Five years later .. 491.0 582.5 633.4 605.0 580.1 634.2 - - - - -
Six years later ... 515.5 624.4 660.6 629.7 625.0 - - - - - -
Seven years later.. 551.1 643.4 676.9 666.5 - - - - - - -
Eight years later.. 564.0 653.8 706.7 - - - - - - - -
Nine years later .. 577.8 680.6 - - - - - - - - -
Ten years later ... 595.4 - - - - - - - - - -
Net liability
reestimated as of:
One year later .... 469.1 573.6 647.6 657.1 694.9 770.6 848.1 903.3 1,002.8 1,377.7 -
Two years later ... 504.8 624.3 695.2 685.7 715.0 782.3 855.0 903.0 1,003.2 - -
Three years later.. 548.9 658.0 722.6 705.5 732.0 786.0 855.3 903.1 - - -
Four years later .. 568.1 687.8 741.8 741.1 744.3 801.2 856.0 - - - -
Five years later .. 597.1 705.5 770.4 756.5 763.7 822.6 - - - - -
Six years later ... 610.1 733.8 788.3 786.6 782.5 - - - - - -
Seven years later.. 637.3 747.5 812.4 802.7 - - - - - - -
Eight years later.. 651.4 771.4 831.5 - - - - - - - -
Nine years later .. 677.3 794.7 - - - - - - - - -
Ten years later ... 700.0 - - - - - - - - -
Net deficiency ...... (298.3) (274.4) (229.0) (207.3) (114.0) (76.3) (25.2) (11.6) (9.3) (9.2) -
</TABLE>
20
<PAGE>
The preceding loss reserve development tables indicate the aggregate year-
end liability for loss and loss adjustment expenses net of reinsurance, the cu-
mulative amounts paid attributable to those reserves through December 31, 1997
, the re-estimate of the aggregate liability as of December 31 of each subsequ-
ent year and the cumulative development of prior years' reserves. Information
is also provided on a gross basis for 1992 through 1997. Consistent with indu-
stry practice, certain claims for long-term disability workers compensation
benefits are carried at discounted values. At December 31, 1997 and 1996, long-
term disability workers compensation loss reserves are carried at $52,907,000
and $54,832,000, respectively, in the consolidated financial statements at net
present value using a statutory interest rate of 3.5%.
The Company's IBNR loss and loss adjustment expense reserves and other bulk
reserves for losses and loss adjustment expenses for which claim files have not
been established, net of reinsurance, were $686,352,000, $690,574,000 and
$508,872,000 as of December 31, 1997, 1996 and 1995, respectively. The in-
crease in IBNR for 1996 includes $132,280,000 from the consolidation of
Guaranty National's reserves.
During 1997, the Company strengthened loss reserves and experienced
development for prior years' business of $9,232,000. Adverse development for
various pools and associations of $11,358,000 (other than from the McGee opera-
tions), reinsurance of $12,173,000 and certain cancelled program business of
$20,889,000 in 1997 was partly offset by favorable development from workers
compensation of $34,348,000 and other lines of business of $840,000. Adverse
development relating to the Company's pools and associations business is based
on their experience, which is generally recorded as the information is reported
to the Company and relates primarily to environmental reserves. The development
from reinsurance relates to the Company's assumed reinsurance business. In 1996
the Company sold the renewal book of business of its reinsurance operations.
The adverse development from cancelled programs is largely due to an ocean
marine program cancelled in 1997 which experienced high claim frequency and
severity. The favorable development from the workers compensation and other
lines of business is the result of continued improvement from the application
ofloss prevention and loss control procedures.
Loss reserve estimates are based on forecasts of the ultimate settlement
of claims and are subject to uncertainty with respect to future events.
Loss reserve amounts are based on management's informed estimates and judg-
ments, using data currently available. Reserve amounts and the underlying
actuarial factors and assumptions are regularly analyzed and adjusted to
reflect new information. The significantly decreased level of adverse
development during more recent years is consistent with the strengthening of
loss reserves and the strong performance of the Company's ongoing lines of
business. Current operations are more focused on underwriting risks where
the Company has specialized knowledge and can provide enhanced service to
reduce loss costs. This concentration, and the specialized knowledge and
growing experience in its selected lines of business arising from such con-
centration, have enabled the Company to implement improvements in its claims
administration and underwriting procedures which have enhanced the Company's
ability to analyze data and project reserve trends.
21
<PAGE>
The following table presents the differences between loss and loss adjust-
ment expense reserves reported in the consolidated financial statements in
accordance with generally accepted accounting principles ("GAAP"), and those
reported in the combined annual statement filed with state insurance depart-
ments in accordance with statutory accounting practices ("SAP"):
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1996
---- ----
(000s omitted)
<S> <C> <C>
Liability on SAP basis ...................... $1,380,612 $1,357,813
Estimated salvage and subrogation
recoveries recorded on a cash basis for
SAP and on an accrual basis for
GAAP (related to acquisition of Unisun).. (1,160) -
Foreign subsidiary reserves ............... 11,275 10,607
---------- ----------
Liability on GAAP basis, net of reinsurance.. 1,390,727 1,368,420
Reinsurance and deductible recoverables
on GAAP reserves........................... 480,984 417,244
--------- ---------
Liability on GAAP basis ..................... $1,871,711 $1,785,664
========== ==========
</TABLE>
Investments
- -----------
The Company derives a significant part of its income from its investments.
The investment portfolio of the Company's insurance subsidiaries must comply
with applicable insurance laws and regulations of the respective states in
which such companies are domiciled and other jurisdictions in which they con-
duct business. Neither Orion nor any of its non-insurance subsidiaries is con-
strained by investment restrictions set forth in state insurance laws.
The Company maintains a diversified portfolio representing a broad spec-
trum of industries and types of securities. Investments are managed to achieve
a superior total return after taxes, while maintaining a proper balance of
safety, liquidity, maturity and marketability. Investments are made based on
long-term economic value rather than short-term market conditions. Approximate-
ly 50% of the Company's fixed maturity portfolio is invested in tax advantaged
securities at December 31, 1997. Except for investments in securities of the
United States Government and its agencies, the Company did not have any
other investments in any one issuer that exceeded $25,000,000 at December 31,
1997.
22
<PAGE>
The Company has the ability to hold its fixed maturity investments to
term since its operating cash flow and its short-term investment portfolio pro-
vide the Company with substantial liquidity. Fixed maturity investments that
the Company has the positive intent to hold to maturity are recorded at amortiz-
ed cost. Fixed maturity investments which may be sold in response to, among
other things, changes in interest rates, prepayment risk, income tax strategies
, or liquidity needs are classified as available-for-sale and are carried at
market value, with unrealized gains and losses reflected in stockholders'
equity. Equity securities are stated at market value. Both the fixed
maturities and the equity investments consist primarily of readily marketable
securities.
The following table shows the composition of the investment portfolio of
the Company as of December 31, 1997 and 1996, and the quality ratings for the
Company's fixed maturity investments. The investments shown below are listed at
their cost, market and financial statement (book) values.
<TABLE>
<CAPTION>
December 31, 1997 Cost Market Value Book Value
- ----------------- ------------------ ------------------ ------------------
(000s omitted - except for percentages)
<S> <C> <C> <C> <C> <C> <C>
Fixed Maturities:
AAA ............. $ 700,796 29.5% $ 730,574 28.7% $ 725,595 28.7%
AA .............. 417,005 17.5 441,247 17.3 437,564 17.3
A ............... 198,910 8.4 212,231 8.3 211,855 8.3
BBB ............. 147,392 6.2 151,384 5.9 150,857 5.9
BB .............. 73,429 3.1 76,883 3.0 76,848 3.0
B and Below ..... 137,585 5.8 145,699 5.7 145,699 5.7
Not Rated ....... 33,074 1.3 34,223 1.3 34,198 1.3
---------- ----- ---------- ----- ---------- -----
Sub-total ..... 1,708,191 71.8 1,792,241 70.2 1,782,616 70.2
Equity Securities.. 346,597 14.6 438,501 17.2 438,501 17.2
Other Long-Term
Investments ..... 94,339 4.0 94,339 3.7 94,339 3.7
Short-Term
Investments ..... 228,277 9.6 228,277 8.9 228,277 8.9
---------- ----- ---------- ----- ---------- -----
$2,377,404 100.0% $2,553,358 100.0% $2,543,733 100.0%
========== ===== ========== ===== ========== =====
<CAPTION>
December 31, 1996 Cost Market Value Book Value
- ----------------- ------------------ ------------------ ------------------
(000s omitted - except for percentages)
<S> <C> <C> <C> <C> <C> <C>
Fixed Maturities:
AAA ............. $ 610,930 27.7% $ 622,076 26.9% $ 618,338 26.8%
AA .............. 369,190 16.8 385,071 16.6 381,548 16.5
A ............... 170,853 7.8 176,308 7.6 175,896 7.6
BBB ............. 133,756 6.1 137,135 5.9 136,894 5.9
BB .............. 76,156 3.5 77,348 3.3 77,348 3.4
B and Below ..... 102,080 4.6 107,122 4.6 107,122 4.6
Not Rated ....... 33,688 1.5 35,003 1.5 35,003 1.5
---------- ----- ---------- ----- ---------- -----
Sub-total ..... 1,496,653 68.0 1,540,063 66.4 1,532,149 66.3
Equity Securities.. 288,070 13.1 361,593 15.6 361,593 15.7
Other Long-Term
Investments ..... 90,129 4.1 90,144 3.9 90,129 3.9
Short-Term
Investments ..... 325,896 14.8 325,896 14.1 325,896 14.1
---------- ----- ---------- ----- ---------- -----
$2,200,748 100.0% $2,317,696 100.0% $2,309,767 100.0%
========== ===== ========== ===== ========== =====
23
<PAGE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Yield on average
investments:
Pre-tax ......... 7.0% 6.9%
=== ===
After-tax ....... 5.3% 5.4%
=== ===
</TABLE>
Included in other long-term investments on December 31, 1997 were
investments in limited partnerships carried at $90,791,000. The assets of
these partnerships are managed by outside entities. Individual partnerships
may invest in a variety of investment vehicles, including but not limited to
U.S. and foreign bonds and equities, both public and private, and real estate.
Such partnerships are carried at the Company's interest in the underlying net
assets of the limited partnerships. The Company's portion of the
partnerships' earnings or losses are recorded in net investment income in the
Company's statement of earnings. Net investment income from these
partnerships was $17,074,000, $15,954,000 and $9,065,000 for 1997, 1996 and
1995, respectively.
The Company strives to enhance the average return of its portfolio by
investing a small percentage of it in a diversified group of non-investment
grade fixed maturity securities, or securities that are not rated. In the
non-investment grade segment of the investment portfolio, the Company
maintains a high degree of diversity, with an average investment per issuer of
approximately $1,740,000 at December 31, 1997.
The Company closely monitors the financial stability of issuers of
securities that it owns. When conditions are deemed appropriate, the Company
ceases to accrete discount, or accrue interest and dividends. In cases where
the value of investments are deemed to be other than temporarily impaired, the
Company recognizes losses. During 1997 provisions for such losses were
$400,000 for equity securities and $2,018,000 for fixed maturity investments.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Net Investment Income and Realized Investment Gains."
Reinsurance
- -----------
In the ordinary course of business, the Company's insurance subsidiaries
enter into reinsurance contracts with other insurers which serve to provide
greater diversification of business and to limit the Company's maximum loss
from catastrophes, large risks or unusually hazardous risks. Ceding
reinsurance reduces an insurer's operating leverage ratio.
A large portion of the Company's reinsurance protection is provided by
reinsurance contracts or treaties under which all risks meeting prescribed
criteria are automatically covered. In other instances, reinsurance is
obtained by negotiation for individual risks, or facultative reinsurance. The
Company's insurance subsidiaries have certain excess-of-loss and catastrophe
treaties with unaffiliated insurers or reinsurers which provide protection
against a specified part or all of certain types of losses over stipulated
dollar amounts arising from one or more occurrences. The amount of each risk
retained by an insurer is subject to maximum limits which vary by line of
business and type of coverage. Retention limits are periodically revised as
the capacity of the Company's insurance subsidiaries to retain risk varies and
as reinsurance prices change. Reinsurance contracts do not relieve the
Company of its obligation to the policyholders. The collectibility of
reinsurance is subject to the solvency of the reinsurers. The Company is very
selective as to its reinsurers, placing reinsurance with only those reinsurers
considered to be in sound financial condition and having satisfactory
underwriting ability. Many of the Company's reinsurance agreements are
subject to annual renewal as to coverage, limits and price. The financial
strength of its reinsurers is continually monitored by the Company. The
Company's insurance subsidiaries, to their knowledge, have no material
24
<PAGE>
exposure to potential unrecognized losses due to reinsurers that are in known
financial difficulties.
The Company's insurance subsidiaries have reinsurance protection for
workers compensation losses in excess of $1,500,000 up to $100,000,000. DPIC
has reinsurance for 85% of losses from architect and engineer liability in
excess of $1,000,000 up to $5,000,000. Policy limits greater than $5,000,000
up to $10,000,000 for DPIC are reinsured by a facultative agreement. Most of
the Company's program business is protected by per event coverage for 85% of
losses over $1,000,000 up to $5,000,000 and 100% of losses above $5,000,000 up
to $10,000,000. Certain commercial auto and general liability program
policies are also reinsured for losses in excess of $500,000 up to $1,000,000.
Guaranty National has coverages for losses above $400,000 on casualty losses,
$300,000 on property losses and $600,000 on catastrophe losses through
December 31, 1997. In addition to the foregoing, the Company's insurance
subsidiaries also maintain other reinsurance arrangements in support of their
specific business needs.
Government Regulation
- ---------------------
Similar to other insurance companies, the Company's insurance
subsidiaries are subject to comprehensive regulation by insurance authorities.
In particular, the Company is subject to regulation by the insurance
departments of the states of incorporation of all of the Company's insurance
subsidiaries. These states include California, Connecticut, Colorado,
Oklahoma, Texas, Wisconsin and South Carolina. All insurance companies must
file annual statements and other reports with state regulatory agencies and
are subject to regular and special examinations by those agencies. Regular
periodic examinations of the Company's insurance subsidiaries, covering their
operations and statutory financial statements are conducted on a regular basis
by the state of domicile of each insurance company and may include other
states insurance departments in which they are licensed. The last periodic
examinations of the Company's insurance subsidiaries were completed for
periods ending from December 31, 1993 to December 31, 1996. No significant
adjustments resulted from the examinations of any of the Company's insurances
subsidiaries.
Each of the Company's insurance subsidiaries is also subject to
regulation by other jurisdictions in which it sells insurance, including
Puerto Rico, certain Canadian provinces and Bermuda. States regulate the
insurance business through supervisory agencies which have broad
administrative powers, including powers relating to, among other things
- the standards of solvency which must be met and maintained;
- the licensing of insurers and their agents;
- restrictions on the amount of risk which may be insured under a
single policy;
- the approval of premium rates;
- the form and content of the insurance policy and sales literature;
- the form and content of financial statements;
- reserve requirements;
- the imposition of monetary penalties for rules violation; and
- the nature of and limitations on permitted investments.
In general, such regulations are for the protection of policyholders rather
than stockholders.
In some instances, particularly in connection with workers compensation
insurance, various states routinely require deposits of assets for the
protection of policyholders and their employee claimants located in those
states. As of December 31, 1997 and 1996, securities representing
approximately 9% and 10%, respectively, of the book value of the Company's
investment portfolio were on deposit with various state treasurers or
custodians. Such deposits consist of securities of the types which comply
with standards established by each state.
The Company is also subject to state laws regulating insurance holding
company systems. Most states have enacted legislation and adopted
25
<PAGE>
administrative regulations affecting insurance holding companies and the
acquisition of control of insurance companies, as well as transactions between
insurance companies and their affiliates. The nature and extent of
such legislation and regulations currently in effect vary from state to
state. Most states currently require administrative approval of the
acquisition of 10% or more of the outstanding shares of an insurance
company incorporated in the state or the acquisition of 10% or more of an
insurance holding company whose insurance subsidiary is incorporated in the
state. The acquisition of 10% of such shares is deemed to be the acquisition
of "control" for the purpose of most holding company statutes
and requires the filing of detailed information concerning the acquiring
parties and the plan of acquisition and administrative approval prior to such
acquisition. Material transactions between insurance companies and affiliated
members of the holding company system are generally required to be "fair and
reasonable" and in some cases are subject to administrative approval.
Other states, in addition to an insurance company's state of domicile,
may regulate affiliated transactions and the acquisition of control of
licensed insurers. The State of California, for example, presently treats
certain insurance subsidiaries of the Company which are not domiciled in
California as though they were domestic insurers for insurance holding company
purposes. Such subsidiaries are required to comply with the holding company
provisions of the California Insurance Code, certain of which provisions may
be more restrictive than the comparable laws of the insurance company's state
of domicile.
All state jurisdictions in which the Company is authorized to transact
business require participation in guaranty funds. Insurers authorized to
transact business in those jurisdictions can be assessed by a state guaranty
fund a percentage (usually from 1% to 2%) of direct premiums written in that
jurisdiction each year to pay claims on behalf of insolvent insurers. The
likelihood and amount of any future assessment cannot be estimated until after
an insolvency has occurred. For the years ended December 31, 1997 and 1996
the Company's insurance subsidiaries were assessed approximately $708,000 and
$543,000, respectively (net of estimated future recoveries) as a result of
known insolvencies. Insurance companies are required by certain states in
which they do business to participate in automobile insurance plans and
workers compensation plans. These plans provide insurance on risks which are
not written in the voluntary market. Participation in these plans has usually
been unprofitable for the Company.
A number of state legislatures and the United States Congress have for
years been considering, or have now enacted, some type of legislative
proposals which alter the rules for tort claims and increase the states'
authority to regulate insurance companies. These initiatives have ex-
panded, in some instances, the states' regulation over rates (See "Rates"
below) and also have increased data reporting requirements. In recent years
the state insurance regulatory framework has come under federal scrutiny, and
certain state legislatures have considered or enacted laws that alter, and in
many cases increase, state authority to regulate insurance companies and
insurance holding company systems.
The National Association of Insurance Commissioners ("NAIC") and state
regulators are re-examining existing laws and regulations relating to the
solvency of insurers. The NAIC has adopted risk based capital ("RBC")
requirements for property and casualty insurers. RBC refers to the
determination of the amount of statutory capital required for an insurer
based on the risks assumed by the insurer (including, for example, investment
risks, credit risks relating to reinsurance recoverables and underwriting
risks) rather than just the amount of net premiums written by the insurer. A
formula that applies prescribed factors to the various risk elements in an
insurer's business is used to determine the minimum statutory capital
requirement for the insurer. The statutory capital of each of the Company's
active insurance subsidiaries at December 31, 1997 exceeds the RBC
requirements.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the
26
<PAGE>
business in a variety of ways. There are various current, proposed and
tabled federal measures which may significantly affect the Company's
insurance business, including, among other proposals:
- Superfund reform;
- tort liability reform, including limitation on punitive damages
and "loser pays" litigation expense costs;
- regulatory reform concerning financial services modernization;
- revocation of the antitrust exemption provided by the
McCarran-Ferguson Act and the ensuing federal regulation of
the business of insurance; and
- suggested changes of the nation's health care system that, if
enacted, might negatively affect the Company's workers
compensation and automobile liability businesses
The economic and competitive effects of any such proposals upon the Company
would depend upon the final form such legislation might take. The Company is
unable to predict what regulatory proposals may be adopted in the future or
the effect any such proposals might have on the Company's businesses if
adopted.
Limitations on Payments from Insurance Subsidiaries
- ---------------------------------------------------
The principal sources of cash available to Orion are dividends,
reimbursement of various administrative charges, and tax payments from its
subsidiaries. The payment of dividends to Orion by its insurance subsidiaries
is subject to state regulation. No state restricts dividend payments by Orion
or Guaranty National to its stockholders.
The ability of the Company's insurance subsidiaries to declare dividends
is governed primarily by the insurance laws of such subsidiaries state of
domicile. Generally, such laws currently provide that, unless prior approval
is obtained, dividends of a property and casualty insurance company in any
consecutive 12-month period shall not exceed the greater of its net income for
the preceding calendar year or 10% of its policyholders' surplus as of the
preceding December 31, determined on a statutory accounting basis. Dividends
and distributions by the Company's insurance subsidiaries are also subject to
a requirement that statutory policyholders' surplus be reasonable in relation
to outstanding liabilities and adequate to meet the companies' financial needs
following the declaration of any dividends or distributions. State insurance
regulators, however, have broad discretionary authority with respect to
approving the payment of dividends by insurance companies. Under current
regulations, the maximum dividends permitted at December 31, 1997 for the
ensuing twelve months, without prior approval, aggregated $129,342,000. Orion
received $42,822,000 in the aggregate in dividends from its subsidiaries in
1997. Since it is difficult to predict future levels of statutory
policyholders' surplus or earnings, the amount of dividends that could be paid
in the future without prior approval cannot be determined at this time.
Rates
- -----
The Company's insurance subsidiaries are generally subject to regulation
as to rates. Most states have insurance laws requiring that rate schedules
and other information be filed with or made available to the state's
regulatory authority, either directly or through a rating organization with
which the insurer is affiliated. The regulatory authority may, in most
states, disapprove a rate filing if it finds that the rates are inadequate,
excessive or unfairly discriminatory. Rates, which are not necessarily
uniform for all insurers, vary by class of business, hazard assumed and size
of risk. Subject to regulatory requirements, the Company's management
determines the prices charged for its policies based on a variety of factors
including recent historical claims experience, inflation, competition, tax law
and anticipated changes in the legal environment, both judicial and
legislative. Methods for arriving at rates vary by type of business, exposure
assumed and size of risk. Underwriting profitability is affected by the
accuracy of these assumptions, by the willingness of insurance regulators to
27
<PAGE>
approve changes in those rates which they control and by such other matters as
underwriting selectivity and expense control.
Some states have adopted open rating systems for workers compensation
which permit insurers to set premium rates independently without the prior
approval of the insurance commissioners. A number of other states permit
insurers to deviate from standard rates for workers compensation insurance
after receiving prior approval. In insuring professional liability risks DPIC
is generally not limited to the standard rates of a rating organization but
establishes its own rates because of the unique nature of the risks being
underwritten. Ocean marine insurance rates are exempt from regulation.
Nonstandard and special risks, including nonstandard automobile insurance
rates, are generally not limited to the standard rates of national rating
bureaus. Guaranty National is permitted to file rates which are usually
higher than those charged for standard risks, reflecting the higher
probability of loss. Several states have recently adopted laws or their
legislatures are considering proposed laws which, among other things, limit
the ability of insurance companies to effect rate increases and to cancel,
reduce or not renew coverage with respect to existing policies, particularly
personal auto insurance.
Competition
- -----------
The insurance industry is highly competitive. Over 3,000 property and
casualty insurance companies write business in the United States, but most of
the business is written by about 900 companies. No single company or
group has more than 10% of the market. The Company's insurance subsidiaries
are in competition with numerous stock and mutual property and casualty
insurance companies, as well as state-run workers compensation insurance
funds, many of which are substantially larger and have significantly greater
resources than the Company.
Competition may take the form of lower premiums, specialized products,
more complete and complex product lines, greater pricing flexibility,
superior service, different marketing methods, higher policyholder dividend
rates or better agent compensation. Superior service and marketing methods
are of particular importance in workers compensation. Competition might also
come from service organizations which administer self-insured workers
compensation programs.
The Company relies on multiple distribution channels to market its
insurance products. The Company's insurance subsidiaries sell their insurance
principally through independent agents, brokers and general agents, who
typically also represent one or more competing insurance companies. They are
paid commissions based on premiums collected from insureds. Commission rates
vary according to the type and amount of insurance sold. Some competitors in
certain lines obtain their business at a lower direct cost through the use of
salaried personnel rather than independent agents and brokers.
Rating
- ------
A.M. Best Company rates the Company's active insurance subsidiaries "A
(Excellent)," and it rates Viking Insurance Company of Wisconsin and its
affiliate as "A- (Excellent)." In general, A.M. Best Company's ratings are
based on an analysis of the financial condition and operation of an insurance
company as it relates to the industry. These ratings are not primarily
designed for investors and do not constitute recommendations to buy, sell or
hold any security. A.M. Best Company has upgraded the ratings of the
Company's wholly-owned subsidiaries three times in the last eight years.
Management believes that a significant change in its A.M. Best ratings
could affect the business of the subsidiary where ratings were altered,
including its relationship with its independent agents, positive in the case
of an upgrade or negative in the case of a downgrade.
28
<PAGE>
MISCELLANEOUS OPERATIONS
The Company's fourth business segment consists primarily of the
miscellaneous income and expense (principally interest and general and
administrative expenses) of Orion Capital itself. For financial reporting
purposes, the Company applies federal income taxes and benefits, as if fully
utilizable, to its segments. Any consolidating elimination entries are
accounted for in this fourth segment.
ITEM 2. PROPERTIES
The Company's executive office is located at 9 Farm Springs Road,
Farmington, Connecticut. The Company's executive office facility consists of
approximately 140,000 square feet and is leased at an annual rental of
approximately $4,100,000. DPIC owns its office building, which consists of
approximately 42,000 square feet, in Monterey, California. Guaranty National
owns facilities in Englewood, Colorado; Salem, Oregon; and Freeport, Illinois.
Those facilities consist, in the aggregate, of approximately 208,000 square
feet.
All of the other insurance operations of the Company are conducted from
leased premises in or adjacent to major urban centers throughout the
United States, Puerto Rico, Canada and in Bermuda. These operations, in the
aggregate, occupy approximately 903,000 square feet, at an annual rental of
approximately $13,650,000.
The Company believes that its current facilities are suitable and
adequate for their present use and anticipated requirements.
ITEM 3. LEGAL PROCEEDINGS
In August of 1997, several of the Company's subsidiaries were named as
defendants in a class action lawsuit titled Bristol Hotel Management
Corporation, et al., vs. Aetna Casualty & Surety Company, a/k/a Aetna Group,
et al., which was filed in the U.S. District Court for the Southern District
of Florida. The suit also named many other workers compensation insurers who
did business in Florida. The lawsuit, brought on behalf of an alleged class
of retrospectively rated workers compensation purchasers, claims among other
allegations, a conspiracy among insurers to charge illegally high prices for
workers compensation insurance, breach of contract and fraud. Since that
time, additional class action lawsuits with similar allegations have been
brought against various subsidiaries of the Company in Georgia, Illinois, New
Jersey, Pennsylvania and Tennessee as well as many other insurers who did
business in those states. The Company intends to vigorously defend these
lawsuits.
The Company is routinely engaged in litigation incidental to its
businesses. In the judgment of the Company's management, there are no
significant legal proceedings pending against the Company which, net of
reserves established therefor, are likely to result in judgments for amounts
that are material to the financial condition, liquidity or results of
operations of Orion and its consolidated subsidiaries, taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
INFORMATION CONCERNING EXECUTIVE OFFICERS OF THE COMPANY
The following is a summary of certain information regarding the current
executive officers of Orion Capital. All officers of Orion Capital and its
29
<PAGE>
subsidiaries serve at the pleasure of their respective Boards of Directors.
W. Marston Becker, Chairman and Chief Executive Officer of Orion Capital
since January 1997; Vice Chairman of the Board from March, 1996 to December
1996; President and Chief Executive Officer of the DPIC Companies from July
1994 to June 1996; and Senior Vice President of Orion Capital and the Orion
Capital Companies ("OC Companies") from July 1994 to March 1996; President and
Chief Executive Officer of McDonough Caperton Insurance Group, an insurance
brokerage firm, from March 1987 to July 1994; age 45.
Donald W. Ebbert, Jr., Executive Vice President and Chief Financial
Officer of Orion Capital effective March 25, 1998; Senior Vice President -
Comprehensive Risk Management of PNC Bank Corp. from 1996 to March 1998;
Senior Vice President, Treasurer and Director of Investor Relations of
Midlantic Corporation form 1990 to 1995; age 53.
Raymond W. Jacobsen, Executive Vice President of Orion Capital since
December 1997; Senior Vice President of Orion Capital from July 1994 to
December 1997; Vice President of Orion from March 1990 to July 1994; Chairman
of EBI since July 1996; President and Chief Executive Officer of EBI from June
1993 to July 1996; Acting President and Chief Executive Officer of Connecticut
Specialty from October 1995 to November 1996; Executive Vice President of EBI
from December 1989 to May 1993; Senior Vice President of the OC Companies
since March 1990; age 45.
James R. Pouliot, Executive Vice President of Orion Capital since
December 1997; President and Chief Executive Officer of Guaranty National
Corporation since December 1996; President and Chief Executive Officer of
Viking Insurance Company from October 1992 to December 1996; age 44.
Stephen M. Mulready, Senior Vice President of Orion Capital since
December 1997; President of Orion Specialty Group, Inc., previously known as
Connecticut Specialty, since November 1996; Vice President of Orion Capital
from January 1997 to December 1997; Senior Vice President - Strategic
Underwriting and Product Development of Travelers/Aetna Property Casualty
Corporation from January 1996 to November 1996; Senior Vice President -
National Commercial Accounts of Aetna Life & Casualty from 1994 to 1996; Vice
President, Field Operations - National Commercial Accounts of Aetna Life &
Casualty from 1991 to 1994; age 48.
Thomas M. Okarma, Senior Vice President of Orion Capital since December,
1997; Vice President of Orion Capital from January 1997 to December, 1997;
President and Chief Executive Officer of DPIC Companies since July 1996; Chief
Claims Officer of DPIC Companies from December 1995 to June 1996; President of
Professional Concepts Insurance Agency and Executive Vice President of AVA
Insurance Agency Inc. from February 1989 to September 1994; age 48.
Claudia F. Lindsey, Senior Vice President of Orion Capital since December
1997; Vice President of Orion Capital from January 1997 to December 1997; Vice
President - Business Development of the OC Companies since September 1996;
President of Strategic Marketing & Research, Inc. and Vice President of Anthem
Financial from 1994 to 1996; Director, Managing Partner & Chief Financial
Officer of McDonough Caperton Insurance Group from 1985 to 1994; age 42.
Michael P. Maloney, Senior Vice President, General Counsel and Secretary
of Orion Capital since January 1997; Vice President, General Counsel and
Secretary from August 1979 to December 1996; Senior Vice President of OC
Companies since March 1987; age 53.
William G. McGovern, Senior Vice President and Chief Actuary of Orion
Capital since December 1997; Vice President and Chief Actuary of Orion Capital
from March 1990 to December 1997; Senior Vice President and Chief Actuary of
OC Companies since October 1989; age 45.
30
<PAGE>
Vincent T. Papa, Senior Vice President of Orion Capital since January 1997;
Vice President and Treasurer of Orion Capital from June 1985 to December 1996;
Chairman and Chief Executive Officer of McGee since September 1995; Senior
Vice President of OC Companies since March 1987 and Treasurer from December
1990 to March 1996; age 51.
Raymond J. Schuyler, Senior Vice President and Chief Investment Officer of
Orion Capital since January 1997; Vice President-Investments from June 1984 to
December 1996; Senior Vice President of OC Companies since March 1986; age 62.
David B. Semeraro, Senior Vice President of Orion Capital since December
1997; Vice President of Orion Capital from January 1997 to December 1997; Vice
President and Chief Information Officer of OC Companies since April 1996; Vice
President - Business & Technology Solutions of Connecticut Mutual Life
Insurance Company from November 1990 to April 1996; age 50.
Philip H. Urban, Senior Vice President of Orion Capital since December
1997; President-Personal Lines of Guaranty National Corporation since November
1996; Senior Vice President-Personal Lines of Great American Insurance from
September 1990 to October 1996; age 45.
Robert T. Claiborne, Vice President, Portfolio Manager and Director of
Investment Research of Orion Capital since January 1997; Assistant Vice
President and Portfolio Manager, Director of Research from March 1994 to
December 1996; Investment Analyst from September 1990 to March 1994; age 42.
Craig A. Nyman, Vice President and Treasurer of Orion Capital since
January 1997; Assistant Vice President and Assistant Treasurer from June 1988
to December 1996; Vice President and Treasurer of OC Companies since March
1996; Vice President and Assistant Treasurer of OC Companies from January 1991
to March 1996; Assistant Vice President and Assistant Treasurer of OC
Companies from March 1987 to January 1991; Assistant Treasurer of OC Companies
from March 1985 to March 1987; age 42.
Michael L. Pautler, Vice President of Corporate Development of Orion
Capital since December 1997; Senior Vice President-Finance and Treasurer of
Guaranty National Corporation from September 1988 to February 1998; age 43.
Kevin W. Sullivan, Vice President and Assistant Chief Investment Officer
of Orion Capital since January 1997; Assistant Vice President and Assistant
Chief Investment Officer from 1989 to December 1996; age 42.
Susan B. Sweeney, Vice President-Finance of Orion Capital since March 2,
1998; Independent Consultant from 1997 to 1998; Vice President Planning and
Analysis of Travelers Property and Casualty Corporation in Hartford, from 1996
to 1997; Managing Director, Strategic Planning Property/Casualty Finance of
Aetna Life & Casualty Company from 1994 to 1996; Managing Director of
Corporate Finance of Aetna Life & Casualty Company from 1991 to 1994; age 45.
Peter M. Vinci, Vice President, Chief Accounting Officer and Controller
of Orion Capital since December 1997; Vice President and Controller of OC
Companies since January 1997; Vice President of OC Companies from July 1988 to
January 1997; age 45.
31
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Principal Market. The principal market on which Orion's Common
Stock is traded is the New York Stock Exchange.
(b) Stock Price and Dividend Information. The table below presents
the high and low market prices and dividend information for Orion's Common
Stock for 1997 and 1996.
Cash
Stock Prices Dividends
High Low Declared
---- --- ---------
1997:
Quarter Ended December 31........ $51.000 $42.375 $ .16
Quarter Ended September 30....... 45.750 36.720 .16
Quarter Ended June 30............ 37.625 30.813 .16
Quarter Ended March 31........... 33.875 30.000 .14
------
Total........................ $ .62
======
1996:
Quarter Ended December 31........ $31.500 $25.125 $ .140
Quarter Ended September 30....... 25.938 23.938 .125
Quarter Ended June 30............ 25.500 21.313 .125
Quarter Ended March 31........... 23.875 21.250 .125
------
Total........................ $ .515
======
Note: Stock prices and cash dividends declared are restated for the 2-
for-1 stock split of the Company's common stock issued on July 7, 1997.
Cash dividends have been paid on Orion's Common stock in every quarter
since the fourth quarter of 1978, when dividends were first commenced.
(c) Approximate Number of Holders of Common Stock. The number of
holders of record of Orion's Common Stock as of March 19, 1998 was 1,900.
32
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes information with respect to the operations and
financial condition of Orion and its subsidiaries. Common stock and per common share data
have been restated to give effect to the 2-for-1 stock split issued on July 7, 1997 and
the 5-for-4 stock split issued on November 15, 1993. All of Orion's $2.125 Preferred
Stock and Adjustable Rate Preferred Stock were converted into common stock or redeemed
during 1993. The Company owned slightly less than 50% of Guaranty National until the
Company increased its ownership to 81% in July 1996 and 100% in December 1997. Guaranty
National is included in the financial statements of the Company on a consolidated basis
beginning on January 1, 1996 with recognition of minority interest expense for the portion
of Guaranty National's earnings attributable to shares not owned by the Company. For 1993
through 1995 the Company's investment in Guaranty National was accounted for using the
equity method.
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(000s omitted-except for per share data)
<S> <C> <C> <C> <C> <C>
Year ended December 31:
Total revenues ..............$1,590,535 $1,493,449 $ 874,280 $ 780,947 $ 720,155
After-tax investment gains... 30,115 13,687 7,708 2,427 5,888
Operating earnings........... 85,691 72,944 59,914 52,818 51,100
Earnings before cumulative
effect of change in
accounting principles...... 115,806 86,631 67,622 55,245 56,988
Net earnings................. 115,806 86,631 67,622 55,245 68,813
Operating earnings per
diluted common share ...... 3.07 2.63 2.11 1.84 1.74
Earnings per diluted common
share before cumulative
effect of changes in
accounting principles ..... 4.15 3.12 2.38 1.93 1.94
Net earnings per common share
Basic ..................... 4.24 3.16 2.41 1.94 2.37
Diluted ................... 4.15 3.12 2.38 1.93 2.34
Dividends declared-
Adjustable rate preferred
share ................... - - - - 1.10
$2.125 preferred share .... - - - - .12
Common share .............. .62 .51 .43 .38 .34
Weighted average number of
common shares and diluted
equivalents outstanding.... 27,900 27,788 28,374 28,696 29,196
As of December 31:
Total cash and investments...$2,553,008 $2,321,374 $1,606,445 $1,325,241 $1,328,969
Total assets ................ 3,884,058 3,464,357 2,473,588 2,112,761 2,117,454
Total policy liabilities .... 2,443,796 2,304,402 1,596,033 1,450,835 1,412,285
Notes payable and debentures 310,228 310,904 209,148 152,382 160,372
Minority interest............ - 45,231 - - -
Trust preferred securities... 125,000 - - - -
Stockholders' equity......... 723,110 576,733 490,903 365,088 394,195
Common shares outstanding.... 27,606 27,538 27,906 28,082 28,744
Book value per common share..$ 26.19 $ 20.94 $ 17.59 $ 13.00 $ 13.71
</TABLE>
33
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Orion Capital Corporation ("Orion") and its wholly-owned subsidiaries
(collectively the "Company") operate principally in the property and casualty
insurance business. The Company reports its insurance operations in three
segments. In addition, the miscellaneous income and expenses (primarily
interest, general and administrative expenses and other consolidating
elimination entries) of the parent company are reported as a fourth segment.
The three insurance segments as of December 31, 1997 are as follows:
Regional Operations - this segment includes the workers compensation
insurance products and services sold by the EBI Companies ("EBI").
Special Programs - this segment comprises the following:
- DPIC Companies ("DPIC"), which markets professional liability
insurance;
- Connecticut Specialty, a specialty insurance program writer;
- Wm. H. McGee ("McGee"), an underwriting management company that
specializes in ocean marine, inland marine and commercial property
insurance; and
- the Company's 24.7% interest in Intercargo Corporation ("Intercargo"),
which sells insurance coverages for international trade.
Guaranty National Companies ("Guaranty National") - this segment
specializes primarily in nonstandard automobile insurance and other
property and casualty insurance.
The Company completed two tender offers which increased its ownership of
Guaranty National from 49.5% to 81.0% in July 1996 and to 100% in December
1997. The Company has increased its ownership in Guaranty National to 100% to
provide Guaranty National with additional financing options, on terms that may
not be available to it as an independent entity, so that it can continue its
expansion in the nonstandard personal automobile business.
All revenues and expenses of Guaranty National from the beginning of
1996 have been consolidated with those of the Company. Minority interest
expense has been recorded for the portion of Guaranty National's earnings that
is attributable to the shares not owned by the Company in 1996 and 1997 until
Guaranty National became a wholly-owned subsidiary of the Company. For 1995
the Company's investment in Guaranty National is accounted for using the
equity method.
In 1997, Guaranty National completed the acquisition of a nonstandard
personal automobile insurance company and announced the acquisition of
another. On December 16, 1997, Guaranty National purchased Unisun Insurance
Company ("Unisun") from Michigan Mutual Insurance Company for $26,170,000 in
cash including expenses. Unisun is the largest servicing carrier for the
automobile insurance facility in South Carolina and also writes personal
automobile insurance in the states of Alabama, Georgia and North Carolina.
Unisun has been included in the Company's consolidated financial statements
from the date of acquisition. Total net premiums written by Unisun for 1997
are approximately $20,000,000.
In November 1997, Guaranty National entered into an agreement to acquire
the nonstandard personal automobile insurance business of North Carolina-based
Strickland Insurance Group ("Strickland") for $42,600,000 in cash. Strickland
is the second largest writer of nonstandard personal automobile insurance in
North Carolina and also writes business in Florida, Arkansas, Tennessee and
Virginia. In 1997, Strickland had total personal automobile net premiums
written of approximately $46,000,000. The Strickland acquisition is expected
to be completed by the second quarter of 1998, subject to regulatory approval.
The Strickland and Unisun acquisitions will permit the Company to begin
writing nonstandard personal automobile insurance in the southeastern region
of the United States, which is a new region for the Company.
34
<PAGE>
Beginning in 1998, the commercial business lines of Guaranty National has
merged with Connecticut Specialty to form a new company named Orion Specialty.
The Company believes that the integration of the closely related operations
will strengthen its commercial specialty insurance programs. Orion Specialty
has dual headquarters in Connecticut and Colorado.
RESULTS OF OPERATIONS
The Company's insurance operations have experienced favorable trends for
the past several years, as indicated by its combined ratio which has continued
to improve from 103.2% in 1993 to 101.2% in 1994, 100.3% in 1995, 99.8% in
1996 and 99.7% in 1997. The Company's operating earnings (earnings after
taxes excluding after-tax realized investment gains) are $85,691,000 for 1997,
$72,944,000 for 1996 and $59,914,000 for 1995. On a per share diluted basis,
operating earnings are $3.07, $2.63 and $2.11 for 1997, 1996 and 1995,
respectively. For the five year period ended December 31, 1997, the Company's
return on equity from operating earnings has averaged 13.8% per year.
Net earnings are $115,806,000 for 1997, $86,631,000 for 1996 and
$67,622,000 for 1995. On a per share diluted basis, net earnings are $4.15,
$3.12 and $2.38 for 1997, 1996 and 1995, respectively. Net earnings for 1997
include after-tax realized investment gains of $30,115,000, or $1.08 per
share, compared to $13,687,000, or $0.49 per share, in 1996 and $7,708,000 or
$0.27 per share in 1995.
Earnings per share has been calculated based upon a new accounting
standard, SFAS No. 128, "Earnings per Share." Additionally, all common stock
and per common share data presented in this document has been restated to give
effect to the 2-for-1 split of the Company's common stock issued on July 7,
1997.
<TABLE>
<CAPTION>
Earnings (loss) by segment before federal income taxes and minority
interest expense are summarized as follows:
1997 1996 1995
---- ---- ----
(000s omitted)
<S> <C> <C> <C>
Regional Operations .................. $ 86,807 $ 68,371 $ 57,830
Special Programs ..................... 49,700 44,052 43,241
Guaranty National..................... 56,249 35,727 4,466
-------- -------- --------
192,756 148,150 105,537
Other ................................ (16,576) (20,794) (17,502)
-------- -------- --------
$176,180 $127,356 $ 88,035
======== ======== ========
35
<PAGE>
REVENUES
Premiums
The Company's net premiums written by segment are as follows:
<CAPTION>
Percent Change
--------------
1997 1996 1995 97/96 96/95
---- ---- ---- ----- -----
(000s omitted)
<S> <C> <C> <C> <C> <C>
Regional Operations........ $ 365,050 $ 353,041 $332,598 3.4% 6.1%
Special Programs........... 436,898 489,848 424,838 (10.8) 15.3
Guaranty National.......... 565,120 491,232 - 15.0 n/a
---------- ---------- --------
$1,367,068 $1,334,121 $757,436 2.5% 76.1%
========== ========== ========
Pro forma excluding assumed
reinsurance business..... $1,356,501 $1,255,118 $684,990 8.1% n/a
========== ========== ========
</TABLE>
In November 1996, the Company sold the renewal book of business of its
assumed reinsurance operation to concentrate on businesses where the
Company can better service its specialized niche markets. Excluding
premiums from this operation, the Company's net premiums written
increased by 8.1% in 1997. The consolidation of Guaranty National
increased the Company's 1996 net premiums written by $491,232,000.
Excluding Guaranty National, the Company's net premiums written
increased by 11.3% in 1996.
Regional Operations
Net premiums written for Regional Operations increased by 3.4% for 1997
and 6.1% for 1996 from EBI's selective geographic expansion and
penetration, including a net increase of thirteen branch offices in
1995 through 1997. The offices were opened in territories where the
Company believes it will benefit from its service-oriented approach.
Additionally, the increase in net premiums written in 1997 includes
approximately $26,000,000 of growth generated by a national account
program started by EBI in the first quarter of 1997. The increases in
net premiums written are mitigated in part by the effects of legislative
reforms in certain states that have led to an increasingly competitive
workers compensation marketplace with lower premium rates as well as a
reduction in losses. As a result of the increasingly competitive workers
compensation marketplace, the 1997 premium rates have averaged 8% lower
than the 1996 levels.
Special Programs
Net premiums written from Special Programs are as follows:
Percent Change
--------------
1997 1996 1995 97/96 96/95
---- ---- ---- ----- -----
(000s omitted)
Connecticut Specialty... $170,463 $173,724 $153,285 (1.9)% 13.3%
DPIC.................... 198,765 195,546 184,130 1.7 6.2
McGee................... 57,103 41,575 14,977 37.4 177.6
-------- -------- --------
426,331 410,845 352,392 3.8 16.6
Assumed reinsurance..... 10,567 79,003 72,446 (86.6) 9.0
-------- -------- --------
$436,898 $489,848 $424,838 (10.8)% 15.3%
======== ======== ========
36
<PAGE>
Excluding premiums from the assumed reinsurance business sold in November
1996, this segment's net premiums written increased 3.8% and 16.6% for
1997 and 1996, respectively. Net premiums written by DPIC for
professional liability insurance, the largest special program,
increased 1.7% in 1997 and 6.2% in 1996. The increase in 1997 and 1996
is primarily attributable to continued high levels of policy renewals and
new business offset in part by rate reductions in a very competitive
professional liability insurance market.
Connecticut Specialty's net premiums written decrease of 1.9% is
primarily attributable to a cancelled ocean marine program resulting in
lower premiums in 1997 as compared to 1996 by $11,300,000, partly
offset by increases in premiums from transportation programs, and low
exposure professional liability programs. Further, net premiums written
for most Connecticut Specialty programs increased in 1997 from 1996 due
to higher retentions after a change in reinsurance effective May 1996.
Connecticut Specialty's premiums increase of 13.3% in 1996 is
attributable to higher premiums written in low exposure professional
liability programs and higher retention for most programs after a change
in reinsurance, partly reduced by lower premiums from its inland marine
programs.
Starting in 1998, Connecticut Specialty and the commercial lines of
Guaranty National have merged to form Orion Specialty. On a pro forma
basis, Orion Specialty's net written premiums decreased by $6,813,000 to
$402,809,000 in 1997 from $409,622,000 in 1996. As noted above, this
decrease is primarily due to management's efforts to eliminate under-
performing programs.
McGee's net premiums written increased 37.4% for 1997 and 177.6%
for 1996 reflecting the Company's greater participation in the
underwriting pools managed by McGee. The Company's participation in
McGee's United States pool is approximately 15%, 37% and 52% in 1995,
1996 and 1997, respectively. Participation in McGee's Canadian pool is
approximately 15% in 1995, 49% in 1996 and 61% in 1997. The Company has
agreed to increase its rate of participation for 1998 to 71% in
the United States pool and 72% in the Canadian pool.
The percentage of treaty and facultative reinsurance assumed to total net
premiums written for this segment is 2.4%, 16.1% and 17.1% in 1997, 1996
and 1995, respectively. This decline is due to the sale of the assumed
reinsurance business.
Guaranty National
Net premiums written for Guaranty National are as follows:
Percent Change
--------------
1997 1996 97/96 96/95
---- ---- ----- -----
(000s omitted)
Personal Lines.............. $332,774 $ 255,334 30.3% 30.4%
Commercial Lines............ 140,598 157,033 (10.5) 5.9
Collateral Protection....... 91,748 78,865 16.3 46.3%
-------- ---------
$565,120 $ 491,232 15.0% 23.5%
======== =========
The 30.3% net premiums written growth for Personal Lines in 1997 is due
to newly-enacted legislation in the state of California which requires
all drivers to maintain liability insurance. This change in
California law resulted in a 75% increase in the Personal
Lines one-month product business to approximately $155,000,000 in 1997.
37
<PAGE>
Commercial Lines net premiums written decreased by 10.5% in 1997 due to
lower production in nonstandard business, increased competition by
standard carriers in the nonstandard marketplace, and the effect of both
agent and program cancellations. The 16.3% premium volume growth for
Collateral Protection in 1997 comes from increased writing in mortgage
fire insurance and mechanical breakdown programs. Starting in 1998,
Commercial Lines and Collateral Protection will be part of Orion
Specialty and Guaranty National will be comprised of Personal Lines.
Guaranty National's net premiums written for 1996 were included in
the Company's consolidated financial statements as a result of the
Company's increase in ownership of Guaranty National to over 80% in 1996.
Net premiums written for Guaranty National are $397,899,000 in 1995. The
30.4% increase for Personal Lines in 1996 is the result of Guaranty
National's acquisition of Viking Insurance Company of Wisconsin in July
1995. The Commercial Lines premium increase of 5.9% in 1996, which
resulted from the expansion of automobile physical damage and property
programs, were partially offset by a planned reduction in commercial
automobile liability premiums. The 46.3% increase in Collateral
Protection for 1996 is primarily from two new products, automobile
financing GAP and mortgage fire insurance.
The Company's premiums earned increased 4.4% ($56,928,000) to
$1,357,680,000 in 1997 and increased 73.7% ($551,749,000) to $1,300,752,000 in
1996 from $749,003,000 in 1995. Premiums earned reflect the recognition of
income from the changing levels of net premium writings, as well as the
inclusion of Guaranty National's premiums earned of $481,648,000 in
1996.
INVESTMENT PERFORMANCE
The performance of the Company's investments, including net investment
income, net realized gains (losses) and unrealized appreciation
(depreciation) is as follows:
1997 1996 1995
---- ---- ----
(000s omitted)
Net investment income ..................... $164,908 $145,391 $ 99,040
-------- -------- --------
Net realized gains (losses):
Fixed maturities ........................ 3,986 2,067 (4,361)
Equity securities ....................... 43,789 22,113 16,246
-------- -------- --------
47,775 24,180 11,885
-------- -------- --------
Net unrealized appreciation (depreciation):
Fixed maturities ........................ 40,640 (16,414) 89,932
Equity securities ....................... 18,381 18,461 34,002
-------- -------- --------
59,021 2,047 123,934
-------- -------- --------
$271,704 $171,618 $234,859
======== ======== ========
Net Investment Income
Pre-tax net investment income is $164,908,000, $145,391,000 and
$99,040,000 in 1997, 1996 and 1995, respectively. The pre-tax yields on the
average investment portfolio are 7.0% in 1997, 6.9% in 1996 and 7.1% in
1995, with after-tax yields of 5.3%, 5.4% and 5.5%, respectively. Net
investment income increased 13.4% in 1997 primarily due to a higher investment
base and a slight increase in pre-tax investment yields. The higher investment
base for 1997 reflects the proceeds from the issuance of $125,000,000 of trust
preferred securities in January 1997 and the effects of positive operating
cash flow. These increases have been offset in part by the July 1996 cash
outlay of approximately $88,000,000 for the purchase of Guaranty National
common shares. Net investment income increased 46.8% in 1996 from the
inclusion of Guaranty National's net investment income of $40,089,000, as well
as by increased earnings on a higher investment base from positive operating
38
<PAGE>
cash flow. This increase occurred notwithstanding a growing portfolio of
lower yielding tax-advantaged securities and the cash outlay to acquire
Guaranty National common stock.
The year-to-year changes in net investment income also reflect increases
from limited partnership investment equity earnings of $1,120,000, or 7.0%,
from 1996 to 1997 and $6,889,000, or 76.0%, from 1995 to 1996. Limited
partnership earnings increased in 1996 due to higher earnings from the largest
limited partnership investment and the inclusion of Guaranty National's
partnership earnings. The increase in limited partnership earnings for 1997
is primarily attributable to favorable performance for a majority of the
limited partnership investments partly offset by lower 1997 earnings as
compared to 1996 from the largest investment. Earnings from limited
partnership investments can vary considerably from year-to-year. The
Company's long-term experience with limited partnership investments has been
quite favorable; however, they represent only 3.6% and 3.8% of total
investments at December 31, 1997 and 1996, respectively. Net investment
income has also increased in both years by income generated from the
deployment of operating cash flow. The carrying value of the Company's
investment portfolio amounted to $2,543,733,000 at December 31, 1997 and
$2,309,767,000 at December 31, 1996.
Fixed maturity investments which the Company has both the positive intent
and the ability to hold to maturity are recorded at amortized cost. Fixed
maturity investments which may be sold in response to, among other things,
changes in interest rates, prepayment risk, income tax strategies or liquidity
needs are classified as available-for-sale and are carried at market value.
The carrying value of fixed maturity and short-term investments is
$2,010,893,000 and $1,858,045,000 at December 31, 1997 and 1996, respectively,
or approximately 78.8% and 80.0% of the Company's cash and investments.
The Company's investment philosophy is to achieve a superior rate of
return after taxes, while maintaining a proper balance of safety, liquidity,
maturity and marketability. The Company invests primarily in investment grade
securities and strives to enhance the average return of its portfolio through
limited investment in a diversified group of non-investment grade fixed
maturity securities or securities that are not rated. The risk of loss due to
default is generally considered greater for non-investment grade securities
than for investment grade securities because the former, among other things,
are often subordinated to other indebtedness of the issuer and are often
issued by highly leveraged companies. At December 31, 1997 and 1996, the
Company's investment in non-investment grade and non-rated fixed maturity
securities were carried at $256,745,000 and $219,473,000, respectively. These
investments represented a total of 10.1% and 9.5% of cash and investments and
6.6% and 6.3% of total assets at December 31, 1997 and 1996, respectively.
The Company monitors the financial condition of the issuers of securities
that it owns. When conditions are deemed appropriate, the Company ceases to
accrete discounts, or accrue interest and dividends and, in cases where the
value of such investments is deemed to be other than temporarily impaired,
recognizes losses. The Company's non-investment grade securities are highly
diversified, with an average investment per issuer of approximately $1,740,000
at December 31, 1997. The largest non-investment grade security had a
carrying value of $13,159,000 at December 31, 1997.
Realized Investment Gains
Net realized investment gains are $47,775,000 in 1997, $24,180,000 in
1996 and $11,885,000 in 1995. Sales of equity securities have resulted in net
gains of $44,189,000, $22,428,000 and $16,531,000 and sales of fixed maturity
investments have resulted in net gains (losses) of $6,004,000, $3,186,000 and
$(311,000) in 1997, 1996 and 1995, respectively. Realized investment gains
are reduced by provisions for losses on securities deemed to be other-than-
temporarily impaired. These provisions amounted to $400,000 in 1997, $315,000
39
<PAGE>
in 1996 and $285,000 in 1995 for equity securities and $2,018,000, $1,119,000
and $4,050,000 in 1997, 1996 and 1995, respectively, for fixed maturity
investments. Such provisions, based on available information at the time, are
made in consideration of the decline in the financial condition of the issuers
of these securities.
Realized gains (losses) vary from period to period, depending on market
conditions relative to the Company's investment holdings, the timing of
investment sales generating gains and losses, the occurrence of events which
give rise to other than temporary impairment of investments, and other
factors. At December 31, 1997 the Company held equity securities with
unrealized appreciation of $91,904,000 and the market value of the fixed
maturities portfolio exceeds amortized cost by $84,050,000. Such amounts can
vary significantly depending upon fluctuations in the financial markets.
Equity securities and fixed maturities had unrealized appreciation of
$18,381,000 and $40,640,000, respectively, for 1997, even after taking
$50,193,000 of realized net gains excluding impairment adjustments. The
increase in market values of fixed maturities during 1997 is primarily
attributable to a decline in interest rates during the year. The average
maturity of the Company's fixed maturities has increased from 7.1 years at
December 31, 1996 to 8.1 years at December 31, 1997.
EXPENSES AND OTHER
Operating Ratios
The following table sets forth certain ratios of insurance operating
expenses to premiums earned:
Year Ended December 31,
-------------------------------
1997 1996 1995
---- ---- ----
Loss and loss adjustment expenses ....... 66.7% 67.9% 68.4%
Policy acquisition and other insurance
expenses............................... 31.2 30.1 29.0
---- ---- -----
Total before policyholders' dividends.... 97.9 98.0 97.4
Policyholders' dividends ................ 1.8 1.8 2.9
---- ---- -----
Combined ratio........................... 99.7% 99.8% 100.3%
==== ==== =====
Loss and loss adjustment expenses:
Regional Operations.................... 53.7% 58.8% 62.4%
Special Programs....................... 73.7 72.6 72.9
Guaranty National...................... 69.5 70.1 75.3
The decrease in the 1997 ratio of loss and loss adjustment expense to
premiums earned (the "loss ratio") is attributed to improvements in both the
Regional Operations and Guaranty National segments, offset in part by higher
losses for Special Programs. The decrease in the 1996 loss ratio is
attributable to improvements in both the Regional Operations and Special
Programs segments, offset in part by the consolidation of Guaranty National in
1996. The Company's efforts to reduce its loss costs have had a positive
impact on profitability.
The continued improvement in the loss ratio for Regional Operations
results from the favorable loss development and loss experience achieved by
EBI through its service-oriented approach. EBI's service oriented approach is
to work with its customers to prevent losses and reduce claim costs.
The increase in the 1997 loss ratio for Special Programs is mainly
attributable to losses from certain programs cancelled by Connecticut
Specialty. The 1997 loss ratio increase has been partly offset by the
favorable effect of a change in this segment's mix of business, particularly
the lower premiums and losses from the assumed reinsurance business that the
Company exited in November 1996. The improvement in the 1996 loss ratio for
40
<PAGE>
this segment is primarily attributable to a lower loss ratio for Connecticut
Specialty, both from the change in its reinsurance during 1996 and the impact
on 1995 results of certain cancelled programs which had unfavorable loss
experience in 1995. These improvements are offset in part by reserve
strengthening for the Company's pools and associations and reinsurance
business in 1997 and 1996. As discussed above, the Company formed Orion
Specialty through the merger of Connecticut Specialty and the Commercial Lines
of Guaranty National. On a pro forma basis, Special Programs loss ratio for
1997 would be 72.1% with restatement to include Orion Specialty.
Guaranty National's loss ratio has declined due to an improvement in its
Personal Lines loss ratio to 70.0% for 1997 from 71.3% for 1996 and from the
more favorable effect of a change in this segments mix of business to Personal
Lines. This improvement has been partly offset by an increase in the
Commercial Line loss ratio from 72.1% for 1996 to 73.2% for 1997. The
improvement in the Personal Lines loss ratio for 1997 is primarily
attributable to lower claims frequency. This improvement has been offset in
part by costs incurred to improve claim handling and reduce insurance fraud in
Personal Lines and by higher estimates for losses and loss adjustment expenses
for the commercial automobile line of business. The lower loss ratio for 1996
as compared to 1995 was primarily attributable to Guaranty National having
significantly strengthened its loss reserves for both Personal and Commercial
Lines in 1995 in response to adverse claim trends during 1995. The 1995
adverse claims trends resulted in higher than expected development due to
higher claims severity in 1992 through 1994 for commercial automobile and
higher claims frequency for personal automobile lines of business. Also
during 1996, Personal Lines experienced lower claims severity and Commercial
Lines had lower overall claims severity and frequency.
The ratio of policy acquisition costs and other insurance expenses to
premiums earned (the "expense ratio") is 31.2%, 30.1% and 29.0% in 1997, 1996
and 1995, respectively. Policy acquisition costs include direct costs,
such as commissions, premium taxes, and salaries, that relate to and vary with
the production of new and renewal business. These costs are deferred and
amortized as the related premiums are earned, subject to a periodic test for
recoverability. The increases in the expense ratio are attributable to the
Company's continued investment in building its loss prevention competencies
and the costs of expanding in new territories and changing the EBI office
operations. Additionally, the increases are the result of higher commissions
for EBI and Connecticut Specialty, including a change in reinsurance in 1996
which provides for lower ceding commissions. The increase for 1996 also
reflects the consolidation of Guaranty National. The ratio of policyholders'
dividends to premiums earned (the "dividend ratio") is 1.8%, 1.8% and 2.9% in
1997, 1996 and 1995, respectively. The decrease in the dividend ratio for
1996 results from the consolidation of premiums from Guaranty National, which
does not have participating policies. The Company's consolidated combined
ratio is 99.7% in 1997, 99.8% in 1996 and 100.3% in 1995.
Provisions for losses and loss adjustment expenses include development of
loss and loss adjustment expense reserves relating to prior accident years,
which increased the calendar year combined ratio by 0.7 percentage points in
both 1997 and 1996 and 1.6 percentage points in 1995. The loss ratios are
adversely affected by loss development in the pools and associations,
reinsurance, certain discontinued lines and program business, reduced by
favorable development in the workers compensation insurance line of business
from the improved application of loss prevention and loss control procedures.
The Company's environmental claims principally relate to asbestos and
hazardous waste, arising from certain liability business written prior to the
mid 1980's, which business was never a major element of the Company's
operations. Environmental claims are also received from certain reinsurance
pools and associations where reserves are established based on information
reported to the Company by the managers of those pools and associations. The
Company discontinued its participation in these reinsurance pools and
associations in the mid 1980's.
41
<PAGE>
Establishing reserve liabilities for environmental claims is subject to
significant uncertainties that make reserve estimation difficult. Legal
decisions have tended to expand insurance coverage beyond the intent of the
policies. The disposition of such claims often requires lengthy and costly
litigation. Uncertainties as to required clean-up remedies and difficulties
in identifying the responsible parties add further to the complexity of
reserve estimation for these claims. In recent years, the Company has
intensified its efforts to settle and close environmental claims. In
recognition of these efforts, reserves have also been increased to provide for
the costs related to settling claims. To help minimize the cost of losses and
claims, the Company maintains a dedicated environmental claims staff which
administers and continually evaluates each claim and its defense and
settlement possibilities. In 1997, 1996 and 1995 (1995 excludes Guaranty
National), the Company paid $6,833,000, $4,771,000 and $5,675,000,
respectively, for the costs of defending and settling such claims. Payments
in 1997, 1996 and 1995 related to 209, 160 and 213 claims, respectively, for
the Company's direct business. Claim counts have been aggregated by year of
coverage for each occurrence for which policyholders are being defended, and
often include numerous claimants.
As of December 31, 1997 and 1996, the Company has environmental claims-
related loss and loss adjustment expense reserves, net of reinsurance
recoverables, of $67,879,000 and $57,028,000, respectively. Claims counts are
551 and 632 at December 31, 1997 and 1996, respectively, for direct business
written by the Company which excludes reinsurance pools and associations.
Following industry practice, claim counts are generally established for each
insured for each policy. For workers compensation claims, individual
claimants are counted in claim counts. Changes in claims counts for 1997 and
1996 are primarily attibutable to EBI, which is not a significant component of
the Company's environmental reserves. In estimating liabilities for
environmental-related claims, the Company considers all pertinent information
as it becomes available. The net reserve for environmental claims and IBNR
increased $10,851,000 in 1997 and $22,469,000 in 1996 primarily due to higher
claims reported to the Company by certain reinsurance pools and associations,
which is the basis of establishing such reserve, and higher loss reserve
estimates. The 1996 reserve increase also reflects the inclusion of Guaranty
National.
Management believes that the Company's reserves for loss and loss
adjustment expenses make reasonable and sufficient provision for the ultimate
cost of all losses on claims incurred. However, there can be no assurance
that changes in loss trends will not result in additional development of prior
years' reserves in the future. Variability in claim emergence and settlement
patterns and other trends in loss experience can result in future development
patterns different than expected. The Company believes that any such
development will continue at the low levels experienced in recent years,
considering actions that have been taken to increase reserving levels, improve
underwriting standards and emphasize loss prevention and control. The
Company's loss ratios in recent years, including development of prior years'
losses, have compared favorably with loss ratios experienced by the industry.
The Company limits both current losses and future development of losses
by ceding business to reinsurers. The Company continually monitors the
financial strength of its reinsurers and, to the Company's knowledge, has no
material exposure with regard to potential unrecognized losses due to
reinsurers having known financial difficulties.
Interest Expense
Interest expense is $24,704,000 in 1997, $24,687,000 in 1996 and
$15,943,000 in 1995, increasing 0.1% in 1997 and 54.8% in 1996. Interest
expense increased in 1996 due to the inclusion of interest on Guaranty
National's $100,000,000 bank debt, and higher average debt outstanding after
the issuance of $100,000,000 of Senior Notes by Orion on July 17, 1995, offset
in part by the repayment of Orion's bank debt at that time.
42
<PAGE>
Other Expenses
Other expenses are $45,002,000, $42,932,000 and $24,740,000 in 1997, 1996
and 1995, respectively. The increases in both other income and other expenses
for 1996 are primarily attributable to the inclusion of McGee's pool
management revenue and expenses after it was acquired by the Company on June
30, 1995.
Equity in Earnings of Affiliates
Equity in earnings of affiliates consists of earnings of $8,619,000 for
1997, a loss of $389,000 for 1996, and includes earnings of $1,038,000 for
1995 from the Company's investment in Intercargo. The Company records its
share of Intercargo's results in the subsequent quarter. The 1997 earnings
reflect a pre-tax gain of $6,988,000 from Intercargo's sale of Kingsway
Financial Services. In 1995, Guaranty National was a non-majority owned
affiliate of the Company and was therefore accounted for using the equity
method. Included in equity in net earnings of affiliates from Guaranty
National was $4,466,000 in 1995.
Earnings Before Federal Income Taxes and Minority Interest Expense
Earnings before federal income taxes and minority interest expense are
$176,180,000, $127,356,000 and $88,035,000 for 1997, 1996 and 1995,
respectively. The increases in pre-tax earnings of 38.3% and 44.7% for 1997
and 1996 reflect the increase in ownership of Guaranty National and
improvement in insurance operations profitability of $25,229,000 and
$27,026,000 and increases in realized investment gains of $23,595,000 and
$12,295,000, respectively.
Minority Interest Expense
Guaranty National became a majority-owned subsidiary in July 1996, and
its results have been consolidated in the Company's financial statements since
the beginning of 1996. In December 1997, Guaranty National became a wholly-
owned subsidiary of the Company. Minority interest expense of $7,036,000 and
$8,692,000 is recorded for the after-tax portion of Guaranty National's 1997
and 1996, respectively, earnings attributable to stockholders of Guaranty
National other than the Company.
Minority interest expense in subsidiary trust preferred securities of
$6,857,000 for 1997 represents the financing cost, after the federal income
tax deduction, on Orion's $125,000,000 of 8.73% trust preferred securities
issued in January 1997.
Federal Income Taxes
Federal income taxes on pre-tax operating results and the related
effective tax rates are 25.8% for 1997, 25.2% for 1996 and 23.2% for 1995.
The Company's effective tax rates for 1997, 1996 and 1995 are less than the
statutory tax rate of 35% primarily because of income derived from tax-
advantaged securities.
In October 1996 the Internal Revenue Service ("IRS") completed an
examination of the Company's federal income tax returns through 1992. As
described in previously issued financial statements of the Company, certain
tax benefits from tax attributes existing at the date of the Company's
reorganization in 1976 were not recognized pending completion of the IRS
examination. Accordingly, the Company recorded a credit to capital surplus in
1996 for tax benefits of $11,900,000 with respect to the 1976 reorganization.
The recording of this credit had no impact on the Company's earnings.
The Company has included Guaranty National in its consolidated tax return
since 1996, as a result of acquiring over 80% ownership. The liability for
deferred taxes established by the Company through June 30, 1996 for its share
of Guaranty National's undistributed earnings has been reversed, resulting in
a reduction of $21,547,000 in the amount of goodwill recorded from the
purchase of Guaranty National shares, with no effect on net income.
43
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities decreased by $67,781,000 to
$99,960,000 in 1997 from $167,741,000 in 1996 and increased $19,724,000 in
1996 from $148,017,000 in 1995. The decrease in operating cash flow for 1997
is the result of higher payments for losses, policy acquisition costs,
policyholders' dividends and minority interest from subsidiary trust preferred
capital securities, consistent with the Company's growth in recent years and
including the payment of losses for the assumed reinsurance business the
Company exited in November 1996 and certain cancelled program business.
Partially offsetting these increased cash outflows are higher premiums
collected, reflective of the Company's current rate of growth, as well as
higher investment income collected. The increase for 1996 is attributable to
including Guaranty National's cash flow in the Company's consolidated
financial statements.
Cash used in investment activities increased by $75,001,000 to
$207,370,000 in 1997 from $132,369,000 in 1996 and decreased $56,079,000 in
1996 from $188,448,000 in 1995. Cash is used in investment activities
primarily for purchases of investments and acquisition activities. Investment
purchases are funded by maturities and sales of investments, as well as by the
net cash from positive operating cash flows after cash provided by or used in
financing activities. Cash used in acquisition activities in 1997 includes
$104,429,000 for the purchase of Guaranty National common stock, $24,464,000
for the purchase of Unisun (net of cash acquired), and a $2,000,000 purchase
price deposit for the 1998 planned acquisition of Strickland. The total
purchase price for Strickland is $42,600,000. In July 1996 the Company
purchased Guaranty National common stock for cash of $88,206,000. In June
1995 Orion paid $22,000,000 in cash plus acquisition costs to acquire McGee.
Cash provided by financing activities is $105,078,000 for 1997 and
$37,814,000 for 1995. Cash used in financing activities is $27,349,000 for
1996. The net proceeds from the issuance of trust preferred securities by the
Company in January 1997 provided $123,026,000 of cash in 1997. Orion borrowed
$12,000,000 under its bank line of credit in June 1995 to finance part of the
McGee acquisition. In July 1995 Orion issued $100,000,000 of senior debt and
repaid all of its outstanding bank debt. Cash used in financing activities
includes dividend payments, debt repayments and payments related to the
Company's common stock repurchase program. Orion has increased the quarterly
dividend rate on its common stock by 15.0% in the third quarter of 1995, by an
additional 8.7% and 12.0% in the first and fourth quarters of 1996,
respectively, and by 14.3% in the second quarter of 1997.
Orion's uses of cash consist of debt service, dividends to stockholders
and overhead expenses. These cash uses are funded from existing available
cash, financing transactions and receipt of dividends, reimbursement of
overhead expenses and amounts in lieu of federal income taxes from Orion's
insurance subsidiaries. Orion has received $42,822,000, $35,286,000 and
$30,546,000 in dividends, $8,114,000, $7,410,000 and $6,232,000 for overhead
expenses and federal tax payments of $9,525,000, $7,455,000 and $4,500,000
from its insurance subsidiaries in 1997, 1996 and 1995, respectively.
Payments of dividends by Orion's insurance subsidiaries must comply with
insurance regulatory limitations concerning stockholder dividends and capital
adequacy. State insurance regulators have broad discretionary authority with
respect to limitations on the payment of dividends by insurance companies.
Limitations under current regulations are well in excess of Orion's cash
requirements.
Orion's insurance subsidiaries maintain liquidity in their investment
portfolios substantially in excess of that required to pay claims and
expenses. The insurance subsidiaries held cash and short-term investments of
$160,444,000 and $293,477,000 at December 31, 1997 and 1996, respectively.
These balances consider consolidated cash and short-term investment balances,
which includes balances held by Orion. The consolidated policyholders'
surplus of Orion's insurance subsidiaries is $789,036,000 and $670,572,000 at
44
<PAGE>
December 31, 1997 and 1996, respectively. The Company's statutory operating
leverage ratios of net premiums written to policyholders' surplus is 1.8:1 and
2.0:1 at December 31, 1997 and 1996, respectively.
On July 17, 1995, Orion issued 7 1/4% Senior Notes due 2005 with a face
value of $100,000,000 in a public offering pursuant to a shelf registration
filed with the Securities and Exchange Commission in 1994. The senior notes
issued are non-callable to maturity, and were sold at 99.23% of par to yield
7.36% per annum. The net proceeds from the offering were $98,113,000, of
which $46,500,000 was used to repay all of Orion's debt under its bank loan
agreement.
The terms of Orion's indentures for its $100,000,000 of 7 1/4% Senior
Notes due 2005 and its $110,000,000 of 9 1/8% Senior Notes due 2002 limit the
amount of liens and guarantees by the Company, and the Company's ability to
incur secured indebtedness without equally and ratably securing the senior
notes. Management does not believe that these limitations unduly restrict the
Company's operations or limit Orion's ability to pay dividends on its stock.
At December 31, 1997 the Company is in compliance with the terms of its senior
note indentures. Management believes that the Company continues to have
substantial sources of capital and liquidity from the capital markets and bank
borrowings.
On June 2, 1995 Guaranty National entered into a $110,000,000 credit
agreement (the "Credit Agreement") with several participating banks. The
Credit Agreement provides for an unsecured reducing revolving credit facility,
which was used to fund the Viking acquisition, to retire the outstanding
balance of $29,000,000 under Guaranty National's previous revolving line of
credit, and for working capital and general corporate purposes. As of
December 31, 1997, the outstanding loan balance under the Credit Agreement was
$100,000,000. Guaranty National had two interest rate swap agreements with
banks which effectively change the interest rate exposure on $80,000,000 of
this loan to a fixed rate of 6.3%. As discussed below, this loan was fully
repaid with part of the net proceeds from the 7.701% Trust Preferred
Securities issued in February 1998. The interest rate swap agreements
were also settled at a modest gain upon the repayment of the Guaranty National
loan.
On January 13, 1997 Orion issued $125,000,000 of 8.73% Junior
Subordinated Deferrable Interest Debentures due January 1, 2037 (the
"Debentures") to Orion Capital Trust I (the "Trust"), a Delaware statutory
business trust sponsored by Orion. The Trust simultaneously sold $125,000,000
of 8.73% Capital Securities (the "Trust Preferred Securities") which have
substantially the same terms as the Debentures. The net proceeds from the
sale of the Trust Preferred Securities were used in part for the acquisition
of Guaranty National common stock in December 1997. The Trust Preferred
Securities may be redeemed without premium on or after January 1, 2007.
On February 2, 1998 Orion issued $125,000,000 of 7.701% Junior
Subordinated Debentures due April 15, 2028 to Orion Capital Trust II, a
Delaware statutory business trust sponsored by the Company. Orion Capital
Trust II then sold $125,000,000 of 7.701% Capital Securities, which mature on
April 15, 2028, in a private placement. Approximately $100,000,000 of the net
proceeds from the sale of the junior subordinated debentures were used
to retire bank indebtedness of Guaranty National. The remaining net proceeds
will be used for general corporate purposes. Orion agreed to register the
capital securities under the Securities Act of 1933, and will file a
registration statement with the Securities and Exchange Commission.
The 8.73% and 7.701% Capital Securities are subordinated to all
liabilities of the Company. The Company may defer interest distributions on
these Capital Securities; however, during any period when such cumulative
distributions have been deferred, Orion may not declare or pay any dividends
or distributions on its common stock.
45
<PAGE>
The Company issued a 2-for-1 split of its common stock on July 7, 1997
to shareholders of record on June 23, 1997. The Company has repurchased 42,916
shares, 482,228 shares and 346,362 shares of its common stock at an aggregate
cost of $1,533,000, $11,148,000 and $7,183,000 in 1997, 1996 and 1995,
respectively. At December 31, 1997 the Company's remaining stock purchase
authorization from its Board of Directors amounted to $3,169,000. In February
1998, the Board of Directors increased the authorization for purchases of the
Company's common stock by an additional $25,000,000.
LEGAL PROCEEDINGS
In August 1997, several of the Company's subsidiaries were named as
defendants in a class action lawsuit titled Bristol Hotel Management
Corporation, et al., vs. Aetna Casualty & Surety Company, which was filed in
the U.S. District Court for the Southern District of Florida. The lawsuit,
brought on behalf of an alleged class of retrospectively rated workers
compensation purchasers, claims, among other allegations, a conspiracy among
insurers to charge illegally high prices for workers compensation insurance,
breach of contract and fraud. Since that time, additional class action
lawsuits with similar allegations have been brought against various
subsidiaries of the Company in Georgia, Illinois, New Jersey, Pennsylvania and
Tennessee as well as other insurers who did business in those states. The
Company intends to vigorously defend these lawsuits.
The Company settled a previously disclosed complaint naming the Company,
as defendant, in connection with the tender offer of Guaranty National. The
settlement amount was not material to the financial condition or results of
operations of the Company.
Orion and its subsidiaries are routinely engaged in litigation
incidental to their businesses. Management believes that there are no
significant legal proceedings pending against the Company which, net of
reserves established therefor, are likely to result in judgments for amounts
that are material to the financial condition, liquidity or results of
operations of Orion and its consolidated subsidiaries, taken as a whole.
READINESS FOR YEAR 2000
The Company has taken actions to understand the nature and extent of the
work required to make its systems, products and infrastructure Year 2000
compliant including assessments of the readiness of external entities which it
interfaces with such as vendors, customers and others. The Company began work
several years ago to prepare its products and its financial, information and
other computer-based systems for the Year 2000, including replacing and/or
updating systems and is utilizing both internal and external resources. The
Company continues to evaluate the estimated costs associated with these
efforts based on actual experience. While final cost estimates are not
complete, the Company believes, based on available information, that it will
be able to manage its total Year 2000 transition without any material adverse
effect on its business operations, products or financial prospects. The
Company has expensed $2,382,000 of Year 2000 costs through 1997 and expects to
incur between $9,500,000 and $12,500,000 of additional expenses in 1998 and
1999.
ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED
In June 1997 the Financial Accounting Standards Board ("FASB")issued
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information", which changes the way public companies report information about
segments. This statement is effective for financial statements for periods
beginning after December 15, 1997. Financial statement disclosures for prior
periods are required to be restated. The Company is in the process of
evaluating the disclosure requirements. The adoption of this standard will
have no impact on the Company's consolidated results of operation, financial
position or cash flows.
46
<PAGE>
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components in the financial statements. The
Company will adopt this statement in first quarter of 1998. The Company is in
the process of determining its preferred format. The adoption of this
statement will have no impact on the Company's results of operations,
financial position or cash flows.
FORWARD-LOOKING STATEMENTS
All statements made in this Annual Report that do not reflect historical
information are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. Such factors include,
among other things, (i) general economic and business conditions; (ii)
interest rate changes; (iii) competition and regulatory environment in which
the Company operates; (iv) claims frequency; (v) claims severity; (vi) medical
cost inflation; (vii) increases in the cost of property repair; (viii) the
number of new and renewal policy applications submitted to the Company; and
(ix) other factors over which the Company has little or no control. The
Company disclaims any obligation to update or to publicly announce the impact
of any such factors or any revisions to any forward-looking statements to
reflect future events or developments.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
47
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF MANAGEMENT
The management of Orion Capital Corporation is responsible for the
consolidated financial statements and the information included therein. The
consolidated financial statements are fairly presented and have been prepared
in accordance with generally accepted accounting principles appropriate in the
circumstances, and, where necessary, include amounts based on management's
informed estimates and judgments.
The Company has a system of internal controls which it believes provides
reasonable assurance that assets are safeguarded from loss or unauthorized
use, that transactions are recorded in accordance with management's policies
and that the financial records are reliable for preparing financial
statements. The system of internal controls includes written policies and
procedures which are communicated to all appropriate personnel and updated as
necessary.
Compliance with the system of internal controls is continuously
maintained and monitored by management. The internal audit staff of the
Company evaluates and reports on the adequacy of and adherence to these
controls, policies and procedures. In addition, as part of its audit of the
consolidated financial statements, Deloitte & Touche LLP, the independent
auditors for the Company, perform an evaluation of the system of internal
controls to the extent they consider necessary to express an opinion on the
consolidated financial statements. Recommendations concerning the system of
internal controls are provided by both the internal auditors and Deloitte &
Touche LLP, and management takes actions which are believed to be appropriate
responses to these recommendations.
The Audit and Information Services Committee of the Board of Directors is
comprised of independent directors, and has general responsibility for
oversight of financial controls and audit activities of the Company and its
subsidiaries. The Audit and Information Services Committee, which reports to
the Board, annually reviews the qualifications of the independent auditors and
meets periodically with them, the internal auditors and management to review
the plans and results of the audits. Both internal and independent auditors
have free access to the Audit and Information Services Committee, without
members of management present, to discuss the adequacy of the system of
internal controls and any other matters which they believe should be brought
to the attention of the Committee.
W. Marston Becker Peter M. Vinci
Chairman & Chief Executive Officer Chief Accounting Officer
48
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Orion Capital Corporation
Farmington, Connecticut
We have audited the accompanying consolidated balance sheets of Orion
Capital Corporation and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. Our
audits also included the financial statement schedules listed in the Index at
Item 14(a)2. These financial statements and financial statement schedules are
the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Orion Capital Corporation and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
February 11, 1998
49
<PAGE>
<TABLE>
<CAPTION> ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(000s omitted)
ASSETS
December 31,
------------------------
1997 1996
---- ----
<S> <C> <C>
Investments:
Fixed maturities at amortized cost (market
$322,395 - 1997 and $334,755 - 1996).......... $ 312,770 $ 326,841
Fixed maturities at market (amortized cost
$1,395,421 - 1997 and $1,169,812 - 1996) ..... 1,469,846 1,205,308
Common stocks at market (cost $163,020 - 1997
and $136,631 - 1996) ......................... 245,399 209,281
Non-redeemable preferred stocks at market (cost
$183,577 - 1997 and $151,439 - 1996) ......... 193,102 152,312
Other long-term investments .................... 94,339 90,129
Short-term investments ......................... 228,277 325,896
---------- ----------
Total investments ........................... 2,543,733 2,309,767
Cash ............................................. 9,275 11,607
Accrued investment income ........................ 29,650 25,724
Investment in affiliate .......................... 31,267 22,170
Accounts and notes receivable (less allowance
for doubtful accounts $3,526 - 1997 and
$3,696 - 1996) ................................. 189,321 181,495
Reinsurance recoverables and prepaid reinsurance.. 622,214 517,209
Deferred policy acquisition costs ................ 147,124 136,168
Property and equipment (less accumulated
depreciation $35,923 - 1997 and $33,953 - 1996). 70,773 68,763
Excess of cost over fair value of net assets
acquired (less accumulated amortization
$27,383 - 1997 and $25,633 - 1996) ............. 140,026 81,198
Deferred federal income taxes .................... 907 23,554
Other assets ..................................... 99,768 86,702
---------- ----------
Total assets................................. $3,884,058 $3,464,357
========== ==========
<FN>
See Notes to Consolidated Financial Statements
50
<PAGE> ORION CAPITAL CORPORATION AND SUBSIDIARIES
<CAPTION> CONSOLIDATED BALANCE SHEET
(000s omitted - except for share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
-------------------------
1997 1996
---- ----
<S> <C> <C>
Liabilities:
Policy liabilities -
Losses ........................................ $1,476,366 $1,421,920
Loss adjustment expenses ...................... 395,345 363,744
Unearned premiums ............................. 551,590 496,249
Policyholders' dividends ...................... 20,495 22,489
---------- ----------
Total policy liabilities .................... 2,443,796 2,304,402
Notes payable ................................... 310,228 310,904
Other liabilities ............................... 281,924 227,087
---------- ----------
Total liabilities ........................... 3,035,948 2,842,393
---------- ----------
Commitments and Contingencies (Notes J and K)
Minority interest in subsidiary.................... - 45,231
---------- ----------
Company-obligated mandatorily redeemable
preferred capital securities of subsidiary
trust holding solely the junior subordinated
debentures of the Company ...................... 125,000 -
---------- ----------
Stockholders' equity:
Preferred stock, authorized 5,000,000 shares;
issued and outstanding - none
Common stock, $1 par value; authorized
50,000,000 shares; issued 30,675,300 shares ... 30,675 15,338
Capital surplus ................................. 152,114 158,587
Net unrealized investment gains, net of federal
income taxes of $53,201 - 1997 and $31,674 -
1996 .......................................... 113,592 72,260
Net unrealized foreign exchange translation
losses, net of federal income taxes (benefit)
of ($786) - 1997 and $414 - 1996............... (4,398) (2,164)
Retained earnings ............................... 469,512 370,793
Treasury stock, at cost(3,069,756 shares - 1997
and 3,138,230 shares - 1996) .................. (34,332) (34,980)
Deferred compensation on restricted stock ....... (4,053) (3,101)
---------- ----------
Total stockholders' equity .................. 723,110 576,733
---------- ----------
Total liabilities and stockholders' equity... $3,884,058 $3,464,357
========== ==========
<FN>
See Notes to Consolidated Financial Statements
51
<PAGE> <CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(000s omitted - except for per share data)
Year Ended December 31,
-------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Premiums earned ................................... $1,357,680 $1,300,752 $749,003
Net investment income ............................. 164,908 145,391 99,040
Realized investment gains ......................... 47,775 24,180 11,885
Other income ...................................... 20,172 23,126 14,352
---------- ---------- --------
Total revenues .................................. 1,590,535 1,493,449 874,280
---------- ---------- --------
Expenses:
Losses incurred ................................... 701,313 694,534 388,409
Loss adjustment expenses .......................... 204,145 188,458 123,824
Amortization of deferred policy acquisition costs . 387,165 363,547 195,481
Other insurance expenses .......................... 36,645 27,912 21,562
Dividends to policyholders ........................ 24,000 23,634 21,790
Interest expense .................................. 24,704 24,687 15,943
Other expenses .................................... 45,002 42,932 24,740
---------- ---------- --------
Total expenses .................................. 1,422,974 1,365,704 791,749
---------- ---------- --------
Earnings before equity in earnings of affiliates,
federal income taxes and minority interest expense. 167,561 127,745 82,531
Equity in earnings (loss) of affiliates ............. 8,619 (389) 5,504
---------- ---------- --------
Earnings before federal income taxes and minority
interest expense .................................. 176,180 127,356 88,035
Federal income taxes ................................ 46,481 32,033 20,413
Minority interest expense:
Subsidiary net earnings............................ 7,036 8,692 -
Subsidiary trust preferred securities,
net of federal income taxes...................... 6,857 - -
---------- ---------- --------
Net earnings ...................................... $ 115,806 $ 86,631 $ 67,622
========== ========== ========
Net earnings per basic common share................ $ 4.24 $ 3.16 $ 2.41
========== ========== ========
Net earnings per diluted common share.............. $ 4.15 $ 3.12 $ 2.38
========== ========== ========
<FN>
See Notes to Consolidated Financial Statements
52
<PAGE> <CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(000s omitted)
Year Ended December 31,
---------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Common Stock:
Balance, beginning of year................. $ 15,338 $ 15,338 $ 15,338
Stock issued in 2-for-1 common stock split. 15,337 - -
--------- --------- --------
Balance, end of year....................... $ 30,675 $ 15,338 $ 15,338
========= ========= ========
Capital surplus:
Balance, beginning of year ................ $ 158,587 $ 146,658 $147,598
Issuance of common stock .................. - - 152
Exercise of stock options and issuance/
(cancellation) of restricted stock....... 508 29 (1,092)
Acquisition of Guaranty National (Note B).. 8,356 - -
Recognition of pre-reorganization federal
income tax benefits...................... - 11,900 -
Stock issued in 2-for-1 common stock split. (15,337) - -
--------- --------- --------
Balance, end of year ...................... $ 152,114 $ 158,587 $146,658
========= ========= ========
Net unrealized investment gains (losses):
Balance, beginning of year ................ $ 72,260 $ 63,255 $(11,498)
Change in unrealized investment gains
(losses), net of taxes .................. 41,332 9,005 74,753
--------- --------- --------
Balance, end of year ...................... $ 113,592 $ 72,260 $ 63,255
========= ========= ========
Net unrealized foreign exchange translation
losses:
Balance, beginning of year ................ $ (2,164) $ (3,935) $ (3,959)
Change in unrealized foreign exchange
translation (losses) gains, net of taxes. (2,234) 1,771 24
--------- --------- --------
Balance, end of year ...................... $ (4,398) $ (2,164) $ (3,935)
========= ========= ========
Retained earnings:
Balance, beginning of year................. $ 370,793 $ 298,452 $242,908
Net earnings............................... 115,806 86,631 67,622
Dividends declared......................... (17,087) (14,290) (12,078)
--------- --------- --------
Balance, end of year....................... $ 469,512 $ 370,793 $298,452
========= ========= ========
Treasury Stock:
Balance, beginning of year................. $ (34,980) $ (26,534) $(22,451)
Issuance of common stock................... - - 770
Exercise of stock options and net issuance
of restricted stock...................... 3,174 2,702 2,330
Acquisition of treasury stock.............. (2,526) (11,148) (7,183)
--------- --------- --------
Balance, end of year....................... $ (34,332) $ (34,980) $(26,534)
========= ========= ========
Deferred compensation on restricted stock:
Balance, beginning of year................. $ (3,101) $ (2,331) $ (2,848)
Net issuance of restricted stock........... (1,860) (1,827) (517)
Amortization of deferred compensation on
restricted stock......................... 908 1,057 1,034
--------- --------- --------
Balance, end of year....................... $ (4,053) $ (3,101) $ (2,331)
========= ========= ========
<FN> See Notes to Consolidated Financial Statements
53
<PAGE> <CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(000s omitted)
Year Ended December 31,
----------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Premiums collected ........................ $1,364,525 $1,330,319 $ 738,083
Net investment income collected ........... 140,049 127,036 91,964
Losses and loss adjustment expenses paid .. (892,147) (794,889) (409,797)
Policy acquisition costs paid ............. (401,087) (387,685) (204,319)
Dividends paid to policyholders ........... (25,995) (20,091) (15,495)
Interest paid ............................. (23,821) (24,071) (12,530)
Federal income tax payments ............... (28,380) (30,274) (18,756)
Payments on subsidiary trust preferred
capital securities....................... (5,092) - -
Other payments ............................ (28,092) (32,604) (21,133)
---------- ---------- ---------
Net cash provided by operating
activities ............................ 99,960 167,741 148,017
---------- ---------- ---------
Cash flows from investing activities:
Maturities of fixed maturity investments
held-to-maturity ........................ 20,143 34,648 36,804
Maturities of fixed maturity investments
available-for-sale ...................... 100,376 144,231 12,640
Sales of fixed maturities
available-for-sale ...................... 308,339 250,858 184,501
Sales of equity securities................. 199,697 153,233 78,351
Investments in fixed maturities
held-to-maturity ........................ (14,312) (8,609) (41,709)
Investments in fixed maturities
available-for-sale ...................... (595,946) (449,516) (278,173)
Investments in equity securities .......... (204,109) (83,427) (64,450)
Net sales (purchases) of short-term
investments.............................. 108,507 (78,096) (83,617)
Purchases of Guaranty National common stock (104,429) (88,628) -
Acquisitions of Unisun in 1997 and
McGee in 1995............................ (26,170) - (22,355)
Effect on cash of acquisitions............. 1,706 6,794 349
Deposit for acquisition of Strickland...... (2,000) - -
Other receipts (payments).................. 828 (13,857) (10,789)
---------- ---------- ---------
Net cash used in investing activities ... (207,370) (132,369) (188,448)
---------- ---------- ---------
Cash flows from financing activities:
Net proceeds from issuance of trust
preferred capital securities............. 123,026 - -
Proceeds from issuance of notes payable ... - - 110,413
Proceeds from exercise of stock options ... 594 42 246
Repayment of notes payable ................ (750) (1,313) (54,500)
Dividends paid to stockholders ............ (16,477) (13,648) (11,674)
Dividends paid to minority stockholders.... (1,496) (1,721) -
Purchases of common stock ................. (1,533) (10,743) (6,689)
Other receipts............................. 1,714 34 18
---------- ---------- ---------
Net cash provided by (used in) financing
activities ............................ 105,078 (27,349) 37,814
---------- ---------- ---------
Net increase (decrease) in cash ......... (2,332) 8,023 (2,617)
Cash balance, beginning of year ............. 11,607 3,584 6,201
---------- ---------- ---------
Cash balance, end of year ................... $ 9,275 $ 11,607 $ 3,584
========== ========== =========
<FN> See Notes to Consolidated Financial Statements
54
<PAGE>
<CAPTION> ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - (Continued)
(000s omitted)
Year Ended December 31,
-------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings ................................. $115,806 $ 86,631 $ 67,622
-------- -------- --------
Adjustments:
Depreciation and amortization .............. 13,380 12,063 5,900
Amortization of excess of cost over fair
value of net assets acquired ............. 3,159 3,096 1,533
Deferred federal income taxes .............. 4,541 9,999 (5,165)
Amortization (accretion)
of fixed maturity investments............. (2,562) 1,432 815
Non-cash investment income ................. (18,962) (17,778) (11,272)
Equity in (earnings) loss of affiliates .... (8,619) 389 (5,504)
Dividends received from affiliates ......... 342 302 2,597
Realized investment gains .................. (47,775) (24,180) (11,885)
Minority interest expense
in subsidiary net earnings................ 7,036 8,692 -
Foreign exchange transaction adjustment .... 695 1,083 163
Other....................................... 747 952 (43)
Changes in assets and liabilities (net of
effects of acquiring Unisun - 1997,
Guaranty National - 1996, and McGee - 1995):
Decrease (increase) in accrued investment
income ................................... (2,266) 1,179 (952)
Decrease (increase) in accounts and notes
receivable ............................... 1,423 7,497 (11,488)
Increase in reinsurance recoverables
and prepaid reinsurance................... (91,038) (77,999) (24,020)
Increase in deferred policy acquisition
costs .................................... (8,104) (20,858) (7,536)
Increase in other assets ................... (10,759) (34,302) (18,405)
Increase in losses ......................... 47,424 115,202 54,485
Increase in loss adjustment expenses ....... 29,629 32,363 39,168
Increase in unearned premiums............... 45,567 58,906 45,250
Increase (decrease) in policyholders'
dividends................................. (1,994) 3,543 6,295
Increase (decrease) in other liabilities ... 22,290 (471) 20,459
-------- -------- --------
Total adjustments and changes ............ (15,846) 81,110 80,395
-------- -------- --------
Net cash provided by operating activities .. $ 99,960 $167,741 $148,017
======== ======== ========
<FN> See Notes to Consolidated Financial Statements
</TABLE>
55
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1997, 1996 and 1995
Note A - Significant Accounting Policies
Basis of Financial Statement Presentation - Orion Capital Corporation
("Orion") and its majority-owned subsidiaries (collectively the "Company")
operate principally in the property and casualty insurance business. The
Company reports its insurance operations in three segments - Regional
Operations, Special Programs and Guaranty National Corporation. Regional
Operations provides workers compensation insurance products through EBI
Companies. Special Programs includes: (i) DPIC Companies ("DPIC"), which
markets professional liability insurance, (ii) Connecticut Specialty, which
writes specialty insurance programs, (iii) Wm. H. McGee & Co., Inc. ("McGee"),
an underwriting management company that specializes in ocean marine, inland
marine and commercial property insurance and (iv) a 24.7% interest in
Intercargo Corporation ("Intercargo") which underwrites insurance coverages
for international trade. The third segment, Guaranty National Corporation
("Guaranty National"), specializes in nonstandard commercial and personal
automobile insurance. The miscellaneous income and expenses (primarily
interest, general and administrative expenses and other consolidating
elimination entries) of the parent company are reported as a fourth segment.
The consolidated financial statements and notes thereto are presented in
accordance with generally accepted accounting principles ("GAAP") for property
and casualty insurance companies and include the accounts of Orion and its
majority-owned subsidiaries. The Company's investments in unconsolidated
affiliates are accounted for using the equity method (See Note C). All
material intercompany balances and transactions have been eliminated. The
preparation of the Company's consolidated financial statements in conformity
with GAAP requires Company management to make estimates and assumptions that
affect the amounts reported in these consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
Regulation - The Company's insurance subsidiaries are subject to
comprehensive regulation by various state insurance departments including
regulations limiting dividend payments to Orion and intercompany transactions.
Under these regulations, the maximum dividends permitted at December 31, 1997
for the ensuing twelve months, without prior approval, aggregated
$129,342,000. However, state insurance regulators have broad discretionary
authority with respect to approving the payment of dividends by insurance
companies. Policyholders' surplus of Orion's insurance subsidiaries
determined in accordance with prescribed statutory accounting practices
amounted to $789,036,000 and $670,572,000 at December 31, 1997 and 1996,
respectively. Statutory net income amounted to $146,093,000, $107,866,000 and
$83,842,000 for 1997, 1996 and 1995, respectively.
Cash - For purposes of the consolidated statement of cash flows, the
Company considers only demand deposit accounts to be cash.
Investments - Fixed maturity investments include bonds, preferred stocks
with mandatory redemption features, and certificates of deposit that mature
more than one year after the balance sheet date. Fixed maturity investments
that the Company has both the positive intent and the ability to hold to
maturity are recorded at amortized cost. Fixed maturity investments which may
be sold in response to, among other things, changes in interest rates,
prepayment risk, income tax strategies or liquidity needs, are classified as
available-for-sale and are carried at market value. Common stocks and non-
redeemable preferred stocks are also carried at market value. Fluctuations in
56
<PAGE> ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the market value of these available-for-sale securities are recorded as
unrealized investment gains or losses and credited or charged to stockholders'
equity. Other long-term investments principally include equity ownership
interests in limited partnerships, which are recorded using the equity method
of accounting. Short-term investments include certificates of deposit and
commercial paper which mature within one year of the balance sheet date, money
market accounts and United States Treasury Bills. Short-term investments are
recorded at market value which approximates cost. Market values are generally
based on quoted market prices or dealer quotes. Realized investment gains and
losses, including provision for other than temporary impairment of investment
securities, are recognized on the specific identification method.
Deferred Policy Acquisition Costs - Costs that vary with, and are
directly related to, the production of new and renewal business are deferred
and amortized as the related premiums are earned. These costs primarily
comprise commissions, premium taxes and salaries. The test for recoverability
of such deferred costs includes the consideration of net investment income.
Excess of Cost Over Fair Value of Net Assets Acquired - The excess of the
cost of acquiring subsidiaries over the fair value of their net assets
("goodwill") is amortized on a straight-line basis over periods of 25 to 40
years. The Company evaluates the recoverability of goodwill from expected
future cash flows, and impairments would be recognized in operating results if
a permanent diminution in value were to occur.
Revenue Recognition - Premiums are earned on a daily pro rata basis over
the policy period. A provision is made for anticipated retrospective premium
adjustments and audit premiums. Direct and assumed premiums are reduced for
reinsurance ceded to other insurers.
Policy Liabilities and Reinsurance - Loss and loss adjustment expense
liabilities are established in consideration of individual cases for reported
losses and past experience for incurred but not yet reported losses ("IBNR").
Estimated reinsurance receivables are recognized in a manner consistent with
the liabilities relating to the underlying reinsured contracts. At December
31, 1997 and 1996, long-term disability workers compensation loss reserves are
carried at $52,907,000 and $54,832,000, respectively, in the consolidated
financial statements at net present value using a statutory interest rate of
3.5%. Policyholders' dividends on participating policies are accrued at
estimated payment rates as the related premiums are earned. Participating
business represented 18% and 17% of premiums in-force at December 31, 1997 and
1996, respectively. As a percent of premiums earned, participating business
amounted to 18% in 1997, 16% in 1996 and 24% in 1995.
Federal Income Taxes - The Company recognizes taxes payable or refundable
for the current year, and deferred taxes for the future tax consequences of
differences between the financial reporting and tax basis of assets and
liabilities. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years the temporary
differences are expected to reverse.
Earnings Per Common Share - In the fourth quarter of 1997, the Company
adopted Statement of Financial Accounting Standards No. 128, "Earnings per
Share," for all periods presented. Basic earnings per share computations are
based on the average number of shares of common stock outstanding during the
year. Diluted earnings per share reflects the assumed exercise and conversion
of all securities, including stock options. All common stock and per common
57
<PAGE> ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
stock data presented has been restated to give effect to the 2-for-1 stock
split of the Company's common stock issued on July 7, 1997.
Reclassifications - The 1996 and 1995 consolidated financial statements
have been reclassified to conform to the classifications used in 1997.
Note B - Acquisitions
On July 2, 1996, the Company completed a tender offer for 4,600,000
shares of Guaranty National common stock ("1996 GNC Purchase"). Together with
the open-market purchase of 120,000 additional shares on July 17, 1996, the
Company increased its ownership of Guaranty National by 31.5% from 49.5% to
approximately 81%. The aggregate purchase price of approximately $88,206,000,
including expenses, was paid in cash.
The 1996 GNC Purchase was recorded as a step acquisition using the
purchase method of accounting as of June 30, 1996. The assets and liabilities
of Guaranty National were consolidated in the Company's financial statements
and minority interest for approximately 19% of Guaranty's shareholders
equity was recorded. Beginning in 1996, all revenues and expenses of
Guaranty National have been consolidated with those of the Company, and
minority interest expense has been recorded for the portion of Guaranty
National's earnings that was attributable to the shares not owned by the
Company.
The increase in the Company's ownership in 1996 to over 80% of
Guaranty National allows the inclusion of Guaranty National in Orion's
consolidated federal income tax return, as well as the reversal of a
deferred tax liability previously established by the Company for its share
of the undistributed earnings of Guaranty National. The excess of cost
over the estimated fair value of the 31.5% interest in Guaranty National's
net assets acquired during 1996 was $9,080,000, after the reversal of
$21,547,000 of deferred taxes, and will be amortized over 28 years, which
was the remaining amortization period for goodwill recorded upon Orion's
initial investment in Guaranty National.
On December 10, 1997, the Company purchased the remaining 19.7% or
2,970,000 shares of Guaranty National common stock that were held by
minority interest shareholders for $36 per share in cash ("1997 GNC
Purchase"). Immediately following the 1997 GNC Purchase, Guaranty National
was merged into a wholly-owned subsidiary of the Company and delisted as a
publicly traded company on the New York Stock Exchange. As part of the
merger, 450,238 outstanding stock options granted by Guaranty National were
converted into 358,090 stock options of the Company, with equivalent terms
as the Guaranty National options except for the exercise price, which was
adjusted to reflect the difference between the then current stock prices.
The 1997 GNC Purchase was recorded as a step acquisition using the
purchase method of accounting. The aggregate purchase price was
$116,082,000, including stock options converted of $8,356,000 and
acquisition expenses of $800,000. The Company recorded the excess of the
cost over the estimated fair value of the 19.7% interest in Guaranty
National's net assets acquired during 1997 of $59,470,000 and eliminated
the related minority interest. The excess of the cost over fair value will
be amortized over 27 years, which is the remaining amortization period for
goodwill recorded upon the Company's initial investment in Guaranty
National.
58
<PAGE> ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Pro forma information, as if Guaranty National was 100% owned as of
the beginning of 1996, is as follows for the year ended December, 31:
1997 1996
---- ----
Total revenues ...................... $1,590,535 $1,491,212
========== ==========
Net earnings ........................ $ 116,930 $ 93,815
========== ==========
Net earnings per diluted share....... $ 4.16 $ 3.35
========== ==========
On December 16, 1997, Guaranty National purchased Unisun Insurance
Company ("Unisun") from Michigan Mutual Insurance Company for $26,000,000
in cash and incurred acquisition expenses of $170,000. Unisun is the
largest automobile insurance facility carrier in South Carolina and also
writes personal automobile insurance in the states of Alabama, Georgia and
North Carolina. Total net premiums written by Unisun for 1997 were
approximately $20,000,000. The acquisition of Unisun was accounted for as
a purchase. The financial results of Unisun have been included in the
Company's financial statements since the date of acquisition. The total
consideration exceeded the estimated fair value of net assets of Unisun by
$2,182,000, which is being amortized over 40 years. The pro forma
consolidated results of the Company's operations, as if the Unisun purchase
had been made as of the beginning of the year, would not be materially
different than reported herein.
In November 1997, Guaranty National entered into an agreement to
acquire the nonstandard private passenger automobile insurance business of
North Carolina-based Strickland Insurance Group ("Strickland") for
$42,600,000 in cash. Pursuant to the agreement, Guaranty National made a
nonrefundable purchase price deposit of $2,000,000 to Strickland and
incurred acquisition costs of $94,000 as of December 31, 1997. In 1997,
Strickland had total private passenger automobile net premiums written of
approximately $46,000,000. The acquisition is expected to be completed in
the second quarter of 1998, subject to regulatory approval.
On July 18, 1995 Guaranty National acquired Viking Insurance Holdings,
Inc., and its subsidiaries ("Viking"), in a business combination accounted
for as a purchase. Viking is a property and casualty insurance company
writing nonstandard personal automobile insurance, primarily in the state
of California. The results of operations of Viking are included in
Guaranty National's financial statements since the date of acquisition.
The total cost of the acquisition was $97,225,000, with total cash paid of
approximately $95,559,000, including acquisition expenses. The total
consideration exceeded the fair value of the net assets of Viking by
approximately $10,612,000, which is being amortized over 40 years.
On June 30, 1995, Orion purchased all of the capital stock of McGee
for $22,000,000 in cash, and incurred acquisition expenses of $355,000.
McGee specializes in underwriting ocean marine, inland marine and
commercial property insurance through an underwriting pool in the United
States and one in Canada. The business is written by McGee on behalf of
the insurance companies that comprise the pools. The Company's
participation in the United States pool was approximately 15% and 37% in
1995 and 1996, respectively. Participation in the Canadian pool was 15% in
1995 and approximately 49% in 1996. The Company's rate of participation
for 1997 is 52% in the United States and 61% in Canada. The acquisition
was accounted as a purchase, and McGee's operations have been included in
the Company's results of operations since July 1, 1995. The Company
recorded $22,317,000 for the excess of cost over the estimated fair value
of the net assets acquired, which is being amortized over a 30 year period.
59
<PAGE> ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note C - Investments in Affiliates
Investments in affiliates include the Company's interest in Guaranty
National through December 31, 1995, and the Company's 24.7% interest in
Intercargo, a publicly-held company. The Company's financial statements
include the portion of Guaranty National's 1995 earnings and Intercargo's
results attributable to the Company's ownership on an equity accounting
basis for applicable periods. The Company records its share of Intercargo's
operating results in the subsequent quarter, after Intercargo has reported
its financial results. The carrying values of the Company's investment in
affiliates was $31,267,000 at December 31, 1997 and $22,170,000 at December
31, 1996, with market values of $25,165,000 and $16,262,000, respectively.
The carrying value included $10,530,000 and $11,022,000 of goodwill at
December 31, 1997 and 1996, respectively. In August, 1997, Intercargo
recognized a gain before taxes of $49,443,000 from the sale of
substantially all of its interest in Kingsway Financial Services. The
Company reflected its portion of the Kingsway sale by recording a gain
before taxes of $6,988,000 in the fourth quarter of 1997.
60
<PAGE> [CAPTION] ORION CAPITAL CORPORATION AND SUBSIDIARIES
<TABLE> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Summarized financial information for the Company's affiliates is set
forth below:
Year Ended December 31,
-------------------------------------
1997 1996 1995
---- ---- ----
(000s omitted)
<S> <C> <C> <C>
Revenues:
Premiums earned ................ $ 56,894 $ 66,324 $ 474,534
Realized investment gains ...... - - 3,291
Investment and other income .... 56,555 5,688 38,422
---------- ---------- ----------
113,449 72,012 516,247
---------- ---------- ----------
Expenses:
Insurance expenses ............. 64,426 74,019 490,952
Interest and other ............. 753 785 7,452
---------- ---------- ----------
65,179 74,804 498,404
---------- ---------- ----------
Earnings (loss) before equity in
earnings of affiliate and
federal income taxes ........... 48,270 (2,792) 17,843
Equity in earnings of affiliate .. 4,320 2,469 -
Federal income (taxes) benefit ... (15,878) 225 (1,482)
---------- ---------- ----------
Net earnings (loss) ............ $ 36,712 $ (98) $ 16,361
========== ========== ==========
The Company's proportionate share,
including amortization of
goodwill ....................... $ 8,619 $ (389) $ 5,504
========== ========== ==========
<CAPTION>
December 31,
-----------------------
1997 1996
---- ----
(000s omitted)
<S> <C> <C>
Cash and investments ............................ $ 131,791 $ 75,269
Other assets .................................... 54,000 49,560
---------- ----------
185,791 124,829
Policy liabilities .............................. (72,683) (57,608)
Notes payable ................................... - (9,735)
Other liabilities ............................... (29,185) (12,541)
---------- ----------
Stockholders' equity ............................ $ 83,923 $ 44,945
========== ==========
61
<PAGE>
<CAPTION> ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note D - Investments
The amortized cost and estimated market values of investments in fixed
maturities, equity securities and short-term investments are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1997 Cost Gains Losses Value
- ----------------- ---------- ---------- ---------- ----------
(000s omitted)
<S> <C> <C> <C> <C>
Held-to-maturity securities:
United States Government
and government agencies
and authorities ........... $ 122,616 $ 1,795 $ (403) $ 124,008
States, municipalities and
political subdivisions .... 166,895 7,598 (35) 174,458
Foreign governments ......... 50 - - 50
Corporate securities ........ 23,209 670 - 23,879
---------- -------- -------- ----------
$ 312,770 $ 10,063 $ (438) $ 322,395
========== ======== ======== ==========
Available-for-sale securities:
United States Government
and government agencies
and authorities ........... $ 381,747 $ 22,433 $ (2,868) $ 401,312
States, municipalities and
political subdivisions .... 439,480 30,540 (151) 469,869
Foreign governments ......... 4,590 530 - 5,120
Corporate securities ........ 526,495 27,444 (4,525) 549,414
Mortgage-backed securities
(exclusive of government
agencies) ................ 43,109 1,032 (10) 44,131
Equity securities ........... 346,597 101,419 (9,515) 438,501
Short-term investments....... 228,277 - - 228,277
---------- -------- -------- ----------
$1,970,295 $183,398 $(17,069) $2,136,624
========== ======== ======== ==========
December 31, 1996
- -----------------
Held-to-maturity securities:
United States Government
and government agencies
and authorities ........... $ 119,058 $ 1,917 $ (1,131) $ 119,844
States, municipalities and
political subdivisions .... 179,465 6,273 (172) 185,566
Foreign governments ......... 50 - - 50
Corporate securities ........ 28,268 1,030 (3) 29,295
---------- -------- -------- ----------
$ 326,841 $ 9,220 $ (1,306) $ 334,755
========== ======== ======== ==========
Available-for-sale securities:
United States Government
and government agencies
and authorities ........... $ 321,087 $ 9,553 $ (3,970) $ 326,670
States, municipalities and
political subdivisions .... 395,732 19,646 (524) 414,854
Foreign governments ......... 5,855 678 - 6,533
Corporate securities ........ 407,541 14,712 (5,240) 417,013
Mortgage-backed securities
(exclusive of government
agencies) ................ 39,597 747 (106) 40,238
Equity securities ........... 288,070 86,171 (12,648) 361,593
Short-term investments....... 325,896 - - 325,896
---------- -------- -------- ----------
$1,783,778 $131,507 $(22,488) $1,892,797
========== ======== ======== ==========
62
<PAGE>
<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net investment income for the three years ended December 31, 1997 was as
follows:
Year Ended December 31,
---------------------------------
1997 1996 1995
---- ---- ----
(000s omitted)
<S> <C> <C> <C>
Net investment income:
Fixed maturities ...................... $115,823 $ 98,213 $ 69,453
Equity securities ..................... 18,389 19,901 15,410
Other long-term investments ........... 17,348 16,084 9,125
Short-term investments ................ 16,308 13,224 6,311
Accounts and notes receivable ......... 491 309 113
Other ................................. 121 310 353
-------- -------- --------
Total investment income ............. 168,480 148,041 100,765
Less investment expenses .............. 3,572 2,650 1,725
-------- -------- --------
Net investment income ............... $164,908 $145,391 $ 99,040
======== ======== ========
<CAPTION>
Certain information concerning realized and unrealized gains (losses) for
fixed maturities and equity securities is set forth below:
Year Ended December 31,
---------------------------------
1997 1996 1995
---- ---- ----
(000s omitted)
<S> <C> <C> <C>
Fixed maturities available-for-sale:
Gross realized gains .................. $ 12,028 $ 10,257 $ 7,891
Gross realized losses ................. (7,372) (7,045) (8,372)
Provision for other than temporary
impairment .......................... (2,018) (1,119) (4,050)
-------- -------- --------
$ 2,638 $ 2,093 $ (4,531)
======== ======== ========
Change in unrealized gains (losses)
recorded in stockholders' equity .... $ 38,929 $(11,089) $ 70,317
======== ======== ========
Equity securities:
Gross realized gains .................. $ 51,492 $ 29,007 $ 17,879
Gross realized losses ................. (7,303) (6,579) (1,348)
Provision for other than temporary
impairment .......................... (400) (315) (285)
-------- -------- --------
$ 43,789 $ 22,113 $ 16,246
======== ======== ========
Change in unrealized gains (losses)
recorded in stockholders' equity .... $ 18,381 $ 18,461 $ 34,002
======== ======== ========
63
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The amortized cost and estimated market values of fixed maturity and short-
term investments at December 31, 1997, by contractual fiscal maturity, are shown
below. Expected maturities will differ from contractual maturities because
issuers of securities may have the right to call or prepay obligations with or
without call or prepayment penalties.
<CAPTION> Fixed Maturities Fixed Maturities
Held-to-Maturity Available-for-Sale
------------------ -----------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
--------- --------- ---------- ----------
(000s omitted)
<S> <C> <C> <C> <C>
Due in one year or less .......... $ 67,760 $ 68,483 $ 265,333 $ 264,640
Due after one year through five
years .......................... 145,228 148,456 198,210 201,574
Due after five years through ten
years .......................... 46,905 49,117 247,237 260,823
Due after ten years .............. 52,877 56,339 676,552 728,391
-------- -------- ---------- ----------
312,770 322,395 1,387,332 1,455,428
Mortgage-backed securities ....... - - 236,366 242,695
-------- -------- ---------- ----------
$312,770 $322,395 $1,623,698 $1,698,123
======== ======== ========== ==========
</TABLE>
Other long-term investments had aggregate carrying values of $94,339,000 at
December 31, 1997 and $90,129,000 at December 31, 1996 including mortgage loans
on real estate of $2,249,000 and $1,187,000, respectively. Estimated market
values of mortgage loans and other long-term investments approximate their
carrying values. The carrying value of the Company's investments in principal-
only securities and interest-only securities totalled approximately $12,400,000,
or 0.5% of total invested assets at December 31, 1997.
The carrying value of securities on deposit with state regulatory
authorities in accordance with statutory requirements totalled $223,423,000 and
$236,328,000 at December 31, 1997 and 1996, respectively. Excluding investments
in securities of the United States Government and its agencies, the Company did
not have any investments in securities of any one issuer that exceeded
$25,000,000. The Company had $214,000 and $2,227,000 of fixed maturity
investments for which it was not accruing income for the years ended December
31, 1997 and 1996, respectively.
64<PAGE>
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note E - Reinsurance
In the normal course of business, the Company's insurance subsidiaries
reinsure certain risks, generally on an excess-of-loss or pro rata basis, with
other companies to limit losses. Reinsurance does not discharge the primary
liability of the original insurer. As of December 31, 1997 and 1996,
recoverables for reinsurance ceded to the Company's two largest reinsurers
were an aggregate of $132,797,000 and $106,168,000, respectively. As of
December 31, recoverables for reinsurance ceded to the two largest McGee pool
members other than the Company aggregated $54,720,000 for 1997, and
$104,857,000 for 1996, and the Company had ceded balances payable to these
pool members of $21,010,000 and $31,007,000, respectively. The table below
illustrates the effect of reinsurance on premiums written and premiums earned:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1997 1996 1995
---- ---- ----
(000s omitted-except for percentages)
<S> <C> <C> <C>
Direct premiums written ................ $1,521,315 $1,431,450 $ 799,284
Reinsurance assumed .................... 71,989 174,681 127,445
---------- ---------- ---------
Gross premiums written ................. 1,593,304 1,606,131 926,729
Reinsurance ceded ...................... (226,236) (272,010) (169,293)
---------- ---------- ---------
Net premiums written ................... $1,367,068 $1,334,121 $ 757,436
========== ========== =========
Percentage of amount assumed to net .... 5.3% 13.1% 16.8%
========== ========== =========
Direct premiums earned ................. $1,500,830 $1,388,893 $ 754,927
Reinsurance assumed .................... 106,072 182,482 126,552
---------- ---------- ---------
Gross premiums earned .................. 1,606,902 1,571,375 881,479
Reinsurance ceded ...................... (249,222) (270,623) (132,476)
---------- ---------- ---------
Net premiums earned .................... $1,357,680 $1,300,752 $ 749,003
========== ========== =========
Loss and loss adjustment expenses
incurred recoverable from reinsurers.. $ 165,369 $ 174,344 $ 70,872
========== ========== =========
</TABLE>
Reinsurance recoverables and prepaid reinsurance includes prepaid
reinsurance of $125,462,000 at December 31, 1997 and $86,916,000 at December
31, 1996.
65
<PAGE> ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note F - Loss and Loss Adjustment Expense Reserves
An analysis of the Company's calendar year net loss and loss adjustment
expense reserves is summarized in the following table. The 1996 current year
provision and payments include favorable loss development for Guaranty
National of $995,000 and payments of $144,775,000 attributable to periods
prior to the consolidation of Guaranty National's results in the Company's
financial statements.
<TABLE>
<CAPTION> Year Ended December 31,
------------------------------------
1997 1996 1995
---- ---- ----
(000s omitted)
<S> <C> <C> <C>
Net balance, beginning of year ....... $1,368,420 $ 993,978 $ 891,542
Effect of acquisitions................ 8,996 286,339 -
---------- ---------- ----------
1,377,416 1,280,317 891,542
---------- ---------- ----------
Provision:
Current year ....................... 896,226 874,123 500,514
Prior years ........................ 9,232 8,869 11,719
---------- ---------- ----------
905,458 882,992 512,233
---------- ---------- ----------
Payments:
Current year ....................... 370,907 499,176 146,540
Prior years ........................ 521,240 295,713 263,257
---------- ---------- ----------
892,147 794,889 409,797
---------- ---------- ----------
Net balance, end of year ............. 1,390,727 1,368,420 993,978
Add reinsurance recoverables ....... 480,984 417,244 281,004
---------- ---------- ----------
Balance, end of year ................. $1,871,711 $1,785,664 $1,274,982
========== ========== ==========
</TABLE>
Loss reserve estimates are based on forecasts of the ultimate settlement
of claims and are subject to uncertainty with respect to future events. Loss
reserve amounts are based on management's informed estimates and judgments,
using data currently available. Reserve amounts and the underlying actuarial
factors and assumptions are regularly analyzed and adjusted to reflect new
information. Such reevaluation is a normal, recurring activity that is
inherent in the process of loss reserve estimation and therefore, no
assurances can be given that reserve development will not occur in the future.
A substantial portion of the loss development experienced by the Company
during the three years ended December 31, 1997 resulted from pools and
associations, reinsurance, certain discontinued lines and program business,
reduced by favorable development in workers compensation and other lines of
insurance.
66
<PAGE> ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
An analysis of the Company's loss and loss adjustment expense
environmental reserves and claim counts is presented below. Claim counts
(excluding reinsurance pools and associations) have been aggregated by year of
coverage for each occurrence for which policyholders are being defended, and
often include numerous claimants.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
Claim Claim Claim
Amount Counts Amount Counts Amount Counts
------ ------ ------ ------ ------ ------
(000s omitted for dollar amounts)
<S> <C> <C> <C> <C> <C> <C>
Net balance, beginning
of year ............. $57,028 632 $34,559 474 $20,601 467
Consolidation of
Guaranty National.... - 2,817 70 -
Provision ........... 17,684 24,423 19,633
Payments ............ (6,833) (4,771) (5,675)
------- ------- -------
Net balance, end of
year ................ 67,879 551 57,028 632 34,559 474
Add reinsurance
recoverables ...... 12,271 12,457 10,509
------- ------- -------
Balance, end of year .. $80,150 $69,485 $45,068
======= ======= =======
</TABLE>
The Company's environmental claims principally relate to asbestos and
hazardous waste, arising from certain liability business written prior to the
mid 1980's, which business was never a major element of the Company's
operations. Environmental claims are also received from certain reinsurance
pools and associations where reserves are established based on information
reported to the Company by the managers of those pools and associations. In
view of the lines of insurance that the Company has traditionally written,
environmental claims have not represented, and are not expected to represent
in the future, a material portion of the Company's total claims.
Establishing reserve liabilities for environmental claims is subject to
significant uncertainties that make reserve estimation difficult. Legal
decisions have tended to expand insurance coverage beyond the intent of the
policies. The Company does not use discounting in determining its reserves for
environmental claims. IBNR of $50,977,000 and $38,699,000 is included in net
reserves for environmental claims at December 31, 1997 and 1996, respectively.
The net reserve for environmental claims and IBNR increased $10,851,000 in
1997 and $22,469,000 in 1996 primarily due to higher claims reported to the
Company by certain reinsurance pools and associations, which is the basis of
establishing such reserve, and higher loss reserve estimates. The 1996
reserve increase also reflects the inclusion of Guaranty National.
67
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note G - Notes Payable
On July 17, 1995, Orion issued 7 1/4% Senior Notes due 2005 with a face
value of $100,000,000 ("7 1/4% Senior Notes") in a public offering. The net
proceeds from the offering were approximately $98,113,000, of which
$46,500,000 was used to repay Orion's debt under a bank loan agreement and the
balance was used for general corporate purposes. The indentures for
the 7 1/4% Senior Notes and for Orion's 9 1/8% Senior Notes due 2002 limit the
amount of liens and guarantees by the Company, and the Company's ability to
incur secured indebtedness without equally and ratably securing the senior
notes.
On June 2, 1995, Guaranty National entered into a $110,000,000 credit
agreement ("Credit Agreement") with several participating banks. The Credit
Agreement provided for an unsecured reducing revolving credit facility, which
was used to fund the Viking acquisition, to retire the outstanding balance of
$29,000,000 under Guaranty National's previous revolving line of credit, and
for working capital and general corporate purposes. At both December 31, 1997
and 1996, the outstanding loan balance under the Credit Agreement was
$100,000,000, with an effective interest rate of 6.27%. As discussed in Note
R, this loan was fully repaid in February, 1998.
As of December 31, 1997, maturities of the Company's notes payable are as
follows: 1998 - $563,000; 1999 - $22,375,000; 2000 - $24,000,000; 2001 -
$26,000,000; 2002 - $138,000,000; and 2005 - $100,000,000. After giving
effect for the bank loan repayment, as discussed above and in Note R, the
maturities of the Company's notes payable will be as follows: 1998 -
$563,000; 1999 - $375,000; 2002 - $110,000,000; and 2005 - $100,000,000.
Notes payable are recorded at face value less unamortized discount. The
carrying value and estimated market value of notes payable consist of the
following:
<TABLE>
<CAPTION>
Estimated
Carrying Value Market Value
------------------ ------------------
December 31, 1997 1996 1997 1996
------------ ---- ---- ---- ----
(000s omitted)
<S> <C> <C> <C> <C>
$110,000,000 face amount, 9 1/8% Senior
Notes, due September 1, 2002 ........ $109,919 $109,906 $121,231 $120,703
$100,000,000 face amount, 7 1/4% Senior
Notes, due July 15, 2005 ............ 99,371 99,310 103,160 97,660
Borrowings under loan agreement with
banks (variable interest rate) ...... 100,000 100,000 100,000 100,000
Collateralized term loan - 6.5% ....... 938 1,688 938 1,696
-------- -------- -------- --------
$310,228 $310,904 $325,329 $320,059
======== ======== ======== ========
</TABLE>
68
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note H - Company-Obligated Mandatorily Redeemable Preferred Capital Securities
of Subsidiary Trust Holding Solely the Junior Subordinated Debentures of the
Company.
On January 13, 1997, the Company issued $125,000,000 of 8.73% Junior
Subordinated Deferrable Interest Debentures due January 1, 2037 (the
"Debentures") to Orion Capital Trust I (the "Trust"), a Delaware statutory
business trust sponsored by Orion. The Trust simultaneously sold $125,000,000
of 8.73% Capital Securities (the "Trust Preferred Securities") which have
substantially the same terms as the Debentures. The Trust Preferred Securities
are subordinate to all liabilities of the Company, and may be redeemed without
premium on or after January 1, 2007. The Company may defer interest distri-
butions on the Trust Preferred Securities; however, during any period when such
cumulative distributions have been deferred, Orion may not declare or pay any
dividends or distributions on its common stock. The Company registered the
Trust Preferred Securities under the Securities Act of 1933 in April 1997.
The Trust is consolidated in the Company's financial statements because it is
wholly-owned by the Company. The sole assets of the Trust are the Debentures
issued by Orion. Orion has given its partial guarantee, which when taken to-
gether with the Company's obligations under the declaration of the Trust,
the Debentures, and the indenture pursuant to which the Trust Preferred
Securities are issued including its obligations to pay costs, expenses,
debts and liabilities of the Trust (other than with respect to the Trust
Preferred Securities), provides a full and unconditional guarantee of amounts
due on the Trust Preferred Securities. The carrying value and estimated
market value of the Trust Preferred Securities are $125,000,000 and
$137,525,000, respectively, at December 31, 1997.
69
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note I - Federal Income Taxes
Orion and its wholly-owned subsidiaries file a consolidated federal
income tax return, including Guaranty National from July 2, 1996. The
consolidated federal income tax current provisions for 1997, 1996 and 1995
were based on the regular tax method. Substantially all federal income
taxes incurred by Orion and its subsidiaries relate to domestic operations.
In October 1996 the Internal Revenue Service ("IRS") completed an
examination of the Company's federal income tax returns through 1992. As
described in previously issued financial statements of the Company, certain
tax benefits from tax attributes existing at the date of the Company's
reorganization in 1976 were not recognized pending completion of the IRS
examination. Accordingly, the Company recorded a credit to capital surplus
in 1996 for tax benefits of $11,900,000 with respect to the 1976 quasi
reorganization. The recording of this credit had no impact on the
Company's earnings.
The components of the provision (benefit) for federal income taxes on
income from operations, and allocations of taxes (benefits) to other items
for the three years ended December 31, 1997 are as follows:
<TABLE>
<CAPTION> Year Ended December 31,
--------------------------------
1997 1996 1995
---- ---- ----
(000s omitted)
<S> <C> <C> <C>
Taxes on income from continuing
operations:
Current ............................... $38,248 $22,034 $25,578
Deferred .............................. 4,541 9,999 (5,165)
------- ------- -------
42,789 32,033 20,413
Taxes allocated to stockholders'equity
for:
Unrealized appreciation of securities.. 22,835 1,971 40,837
Foreign exchange translation gains
(losses)............................. (1,200) 954 13
Pre-reorganization income tax benefits. - (11,900) -
Other.................................. (826) (386) -
------- ------- -------
$63,598 $22,672 $61,263
======= ======= =======
Taxes on income from continuing operations in 1997 includes a tax benefit of
$3,692,000 from minority interest on subsidiary trust preferred securities.
70
<PAGE>
<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The tax effects of the temporary differences comprising the Company's net
deferred tax asset as of December 31, 1997 and 1996 are as follows:
December 31,
---------------------
1997 1996
---- ----
(000s omitted)
<S> <C> <C>
Deferred tax assets:
Loss reserve discounting ...................... $ 72,209 $ 69,306
Unearned premium reserves ..................... 30,065 28,183
Policyholders' dividends ...................... 7,132 7,830
Realized investment losses .................... - 2,435
Deferred income ............................... 2,055 2,226
Retiree medical benefits ...................... 4,644 5,240
Deferred compensation ......................... 7,812 4,484
Other ......................................... 17,651 11,640
-------- --------
141,568 131,344
-------- --------
Deferred tax liabilities:
Deferred policy acquisition costs ............. 51,493 47,659
Realized investment gains...................... 1,038 -
Investment income ............................. 16,466 12,798
Unrealized investment gains ................... 58,378 38,131
Other ......................................... 13,286 9,202
-------- --------
140,661 107,790
-------- --------
$ 907 $ 23,554
======== ========
<CAPTION>
A reconciliation of expected federal income tax expense on pre-tax
earnings at regular corporate rates to actual tax expense is as follows:
Year Ended December 31,
------------------------------------------------
1997 1996 1995
---- ---- ----
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
(000s omitted-except for percentages)
<S> <C> <C> <C> <C> <C> <C>
Expected income tax expense.. $57,971 35.0% $44,575 35.0% $30,812 35.0%
Dividends-received deduction. (5,565) (3.3) (6,509) (5.1) (5,601) (6.4)
Tax-exempt interest ......... (11,503) (6.9) (10,203) (8.0) (6,470) (7.3)
Amortization of goodwill .... 1,058 0.6 1,042 .8 536 .6
Other ....................... 828 0.4 3,128 2.5 1,136 1.3
------- ---- ------- ---- ------- ----
Actual income tax expense ... $42,789 25.8% $32,033 25.2% $20,413 23.2%
======= ==== ======= ==== ======= ====
</TABLE>
71
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note J - Commitments
Minimum lease commitments at December 31, 1997, with the majority having
initial lease periods from one to twenty-five years, are as follows:
(000s omitted)
1998 ....................................... $ 19,927
1999 ....................................... 16,802
2000 ....................................... 13,501
2001 ....................................... 9,288
2002 ....................................... 8,948
2003 and thereafter ........................ 53,121
--------
Minimum lease commitments ................ $121,587
========
Rent expense amounted to $23,134,000, $19,824,000 and $14,112,000 for
1997, 1996 and 1995, respectively. Substantially all leases are for office
space and equipment. A number of lease commitments contain renewal options
ranging from one to thirty years.
Note K - Contingencies
In August 1997, several of the Company's subsidiaries were named as
defendants in a class action lawsuit titled Bristol Hotel Management
Corporation, et al., vs. Aetna Casualty & Surety Company, which was filed in
the U.S. District Court for the Southern District of Florida. The lawsuit,
brought on behalf of an alleged class of retrospectively rated workers
compensation purchasers, claims, among other allegations, a conspiracy among
insurers to charge illegally high prices for workers compensation insurance,
breach of contract and fraud, Since that time, additional class action
lawsuits with similar allegations have been brought against various
subsidiaries of the Company in Georgia, Illinois, New Jersey, Pennsylvania and
Tennessee as well as other insurers who did business in those states. The
Company intends to vigorously defend these lawsuits.
Orion and its subsidiaries are routinely engaged in litigation incidental
to their businesses. Management believes that there are no significant legal
proceedings pending against the Company which, net of reserves established
therefore, are likely to result in judgments for amounts that are material to
the financial condition, liquidity or results of operations of Orion and its
consolidated subsidiaries, taken as a whole.
72
<PAGE> ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note L - Stockholders' Equity and Earnings Per Common Share
During 1997, the Company repurchased 42,916 shares of its common stock at
an aggregate cost of $1,533,000 under the stock repurchase program authorized
by the Board of Directors. The Company repurchased 482,228 shares for
$11,148,000 in 1996 and 346,362 shares for $7,183,000 in 1995.
Orion declared dividends on its common stock of $17,087,000, $14,290,000
and $12,078,000, or $.62, $.51 and $.43 per share in 1997, 1996 and 1995,
respectively.
A reconciliation of basic and diluted earnings per share ("EPS")
for the three years ended December 31, 1997, is as follows:
Net Average Per Share
Earnings Shares Amount
-------- ------- ---------
(000s omitted except per shares amounts)
1997 -
Basic EPS:
Net earnings available to
common stockholders........ $115,806 27,333 $ 4.24
========
Stock options and awards.... - 567
-------- ------
Diluted EPS:
Net earnings available to
common stockholders with
assumed exercises.......... $115,806 27,900 $ 4.15
======== ====== ========
1996 -
Basic EPS:
Net earnings available to
common stockholders......... $ 86,631 27,400 $ 3.16
========
Stock options and awards..... - 388
-------- ------
Diluted EPS:
Net earnings available to
common stockholders with
assumed exercises........... $ 86,631 27,788 $ 3.12
======== ====== ========
1995 -
Basic EPS:
Net earnings available to
common stockholders......... $ 67,622 28,110 $ 2.41
========
Stock options and awards..... - 264
-------- ------
Diluted EPS:
Net earnings available to
common stockholders with
assumed exercises........... $ 67,622 28,374 $ 2.38
======== ====== ========
Options to purchase 2,000 shares of common stock at $47.56 per share were
outstanding during 1997 but were not included in the computation of diluted
earnings per share because the options' excercise price was greater than the
average market price of the common shares.
73
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Effective as of September 11, 1996, Orion redeemed its old stockholder
rights plan and adopted a new Stockholder Rights Plan ("Rights Plan"). Under
the Rights Plan each outstanding share of common stock includes one preferred
stock purchase right ("Rights"). The Rights Plan is designed to assure
stockholders that they will receive equitable treatment in the event of a
proposed takeover. Under the Rights Plan, each holder of a Right is entitled
to buy two-hundredth of a share of Series B Junior Participating Preferred
Stock. The Rights become exercisable (i) if an acquiror gains a 15% or
greater beneficial ownership interest in Orion's outstanding common stock, on
other than fair and favorable terms to all stockholders or (ii) following the
commencement of a tender offer or exchange offer that would result in an
acquiror owning 15% or more of Orion's outstanding common stock. Each Right
not owned by such acquiror will enable the holder to purchase, at an initial
purchase price of $100, common stock having a value of twice the Right's
purchase price. In addition, under certain circumstances if Orion is involved
in a merger each Right will entitle its holder to purchase, at the Right's
then current purchase price, common shares of such other company having a
value of twice the Right's purchase price.
Note M - Employee Benefit Plans
The Company maintains a Stock Savings and Profit Sharing Plan ("Plan"),
qualified under Internal Revenue Code Section 401(k), for eligible employees
of the Company (except for employees of Guaranty National and McGee).
Employee and employer matched contributions to the savings funds are limited
to the extent allowable under the Plan and federal income tax law. The Plan
also provides for defined contribution savings and retirement benefits that
allow the Company to make annual contributions to the Plan based on a
percentage of employees' compensation and the Company's operating earnings.
Employees vest in the Company's contributions over a six-year period. The
Company has adopted a Surplus Benefit Plan which provides deferred benefits
for those employees who received less than the full employer contribution to
the Company's 401(k) plan as a result of federal tax limitations on
participation in the Plan.
Guaranty National has a defined contribution profit sharing plan
("Guaranty Plan"), which also qualifies under Section 401(k), for which
substantially all of its employees are eligible. Guaranty National makes
matching contributions to the Guaranty Plan in accordance with the limits of
the Guaranty Plan and federal income tax law. Guaranty National has a non-
qualified Supplemental Executive Retirement Plan ("SERP") for employees whose
compensation meets a minimum requirement. The SERP provides deferred benefits
for those employees who received less than the full employer contribution of
the Guaranty Plan as a result of federal tax limitations on participation in
the plan.
74
<PAGE> ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
McGee maintains a Profit Sharing Plan ("McGee Plan") which is also a
401(k) plan for eligible employees of McGee. Employee and employer
contributions are limited by the McGee Plan and federal income tax law.
Employer contributions vest over a seven-year period. McGee has
noncontributory defined benefit retirement plans covering all eligible
employees, and a nonqualified supplemental retirement plan for certain key
employees. At December 31, 1997 and 1996 the accumulated benefit obligation
of McGee's defined benefit plan was approximately $20,252,000 and $20,620,000,
and plan assets were approximately $20,845,000 and $20,695,000, respectively.
As of December 31, 1997, Unisun froze its defined benefit pension plan
that covered substantially all of its employees. Benefits were based on years
of service and the employee's highest consecutive five years' (out of the last
ten calendar years) average annual compensation. At December 31, 1997 the
plan assets of $7,055,000 exceed the projected benefit obligation of
$5,829,000 by $1,226,000.
The Company maintains incentive plans for key employees, including the
1982 Long-Term Performance Incentive Plan ("1982 Plan"), and the Equity
Incentive Plan (together the "Incentive Plans"). Orion has awarded both stock
options and restricted stock to members of the Company's management under the
Incentive Plans. All stock options are granted by Orion with exercise prices
at fair market value at date of grant, and are intended to qualify to the
maximum extent possible as incentive stock options. Stock options become
exercisable from the first through fourth anniversaries of the date of grant,
and expire ten years after the date of grant. Restricted stock is considered
issued and outstanding when awarded. There are restrictions as to its
transferability, which restrictions lapse in 25% increments over four or five
year periods from the date of grant. As of December 31, 1997, the number of
shares of stock reserved under the Incentive Plans is 2,094,481, of which
1,452,355 are for outstanding stock options and 215,567 and 426,559 are
available for future awards under the 1982 Plan and the Equity Incentive Plan,
respectively. Included in 1997 granted options were 358,090 of stock options
relating to the 1997 GNC Acquisition of Guaranty National.
75
<PAGE> ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of the status of Orion's stock option plans as of December 31,
1997, 1996 and 1995 and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1997 1996 1995
-------------------- ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year.. 893,718 $ 18.07 588,342 $ 12.40 697,604 $ 11.67
Granted ........... 696,550 32.39 374,042 25.68 - -
Cancelled.......... (33,145) 29.42 (13,856) 17.14 (10,546) 11.96
Exercised ......... (104,768) 11.41 (54,810) 9.47 (98,716) 7.28
--------- ------- -------
End of year 1,452,355 25.16 893,718 18.07 588,342 12.40
========= ======= ======= ======= ======= =======
Exercisable at end
of year ......... 646,120 $ 16.95 402,014 $ 11.48 350,360 $ 10.17
========= ======= ======= ======= ======= =======
<CAPTION>
December 31, 1997
- ----------------------------------------------------------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Options Exercise Remaining Options Exercise
Prices Outstanding Price Years Exercisable Price
- ------------- ----------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 5.08 - $10.00 78,272 $ 5.46 1.9 78,272 $ 5.46
10.01 - 17.50 346,713 14.80 6.0 288,313 14.47
17.51 - 25.00 363,092 21.48 8.4 197,875 21.44
25.01 - 45.03 664,278 34.89 9.3 81,660 25.83
--------- ---------
5.08 - 45.03 1,452,355 25.16 7.9 646,120 16.95
========= ====== ==== ========= =======
</TABLE>
76
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The weighted average fair value of options granted was $14.08 per
share for 1997 and $14.58 per share for 1996. The fair value of options
granted was estimated on the date of grant using the binomial option-
pricing model with the following weighted-average assumptions: dividend
yield of 1.5% - 1997 and 1.9% - 1996, expected volatility of 23% - 1997 and
19% - 1996, risk free interest rate of 5.5% - 1997 and 6.0% - 1996 and
expected life of 7.0 years - 1997 and 7.1 years - 1996.
The Company applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for stock options granted under the
Incentive Plans. Accordingly, no compensation cost has been recognized for
stock options awarded to employees. Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of FASB
Statement No. 123, the Company's net earnings and earnings per share for
the year ended December 31, 1997 and 1996 would have been $114,934,000 or
$4.12 per diluted and $86,477,000 or $3.11 per diluted share, respectively.
Orion granted 57,202 shares of restricted stock at a weighted average
fair value of $43.95 per share during 1997, 92,636 shares at $25.61 during
1996 and 55,030 shares at $14.03 for 1995. As of December 31, 1997, the
restrictions have not lapsed on 186,294 shares of restricted stock. The
fair market value of restricted stock on the date of issuance is amortized
over the vesting period during which the restrictions lapse.
Orion maintains a non-qualified defined benefit retirement plan for
members of the Board of Directors who are not employees. On December 31,
1997, the Company terminated this plan resulting in $294,000 of benefits
payments in January 1998 with the remaining accrued benefits of $438,000 to
be paid with interest in future periods. Benefits are based on years of
service and director fee levels at retirement. In 1995, Orion's
stockholders authorized 200,000 shares for a stock option plan for non-
employee directors. During 1997 and 1996 Orion granted 69,000 and 18,000
stock options, respectively, to directors at fair market value, which
become exercisable one year from the date of grant and expire in ten years.
The total expense for 1997, 1996 and 1995 for the above savings,
retirement and pension benefit plans for employees and directors amounted
to $10,882,000, $9,473,000 and $6,588,000, respectively.
77
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note N - Postretirement Medical Benefits
The Company provides postretirement medical benefits to full-time
employees (except for employees of Guaranty National), who have attained
age 55 and have 10 years of consecutive service immediately prior to
retirement with an increasing level of benefits for additional years of
service up to 25. The postretirement health care plans are not funded.
Recent changes to the plans for dependent coverage, coordination with other
coverages and cost sharing arrangements have been reflected in the
accumulated post retirement benefit obligation as of December 31, 1997.
The accumulated postretirement benefit obligation of these plans included
in other liabilities in the consolidated balance sheet is as follows:
December 31,
----------------
1997 1996
---- ----
(000s omitted)
Retirees ................................. $ 3,840 $ 3,864
Fully eligible active plan participants .. 524 1,352
Other active plan participants ........... 846 3,510
Unrecognized net gains ................... 8,488 4,275
------- -------
$13,698 $13,001
======= =======
Net postretirement benefit cost for the years ended December 31, 1997,
1996 and 1995 was $1,070,000, $1,072,000 and $1,203,000 consisting of
service cost benefits earned of $936,000, $953,000 and $695,000 and
interest on the accumulated postretirement benefit obligation of $640,000,
$596,000 and $612,000, respectively, and amortization of unrecognized net
gains of $506,000 in 1997, $477,000 in 1996 and $104,000 in 1995.
The expected health care cost trend rate used as of December 31, 1997
was 15.0% for 1998 and 8.5% for 1999, decreasing linearly each year until
it reaches 5% for 2006 and future years. At December 31, 1996 the expected
health care cost trend rates used were 15.0% for 1997 and 8.5% for 1998,
ratably reduced to 5% for 2005 and later years. A one-percentage-point
increase in the assumed health care cost trend rate for each year would
increase the aggregate service cost and interest cost for 1997, 1996 and
1995 by $260,000, $265,000 and $245,000, respectively, and increase the
accumulated postretirement benefit obligation as of December 31, 1997 and
1996 by $477,000 and $1,075,000, respectively. A one-percentage-point
decrease in the health care cost rate would decrease service and interest
costs and the accumulated post retirement benefit obligation by similar
amounts. The assumed discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% at December 31, 1997 and 7.5% at
December 31, 1996.
78
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note O - Industry Segment Information
The Company's industry segments are described above in Note A.
Guaranty National's results of operations are included on a consolidated
basis for 1997 and 1996 and accounted for using the equity method for 1995.
Identifiable assets of the Regional Operations and Special Programs
segments are primarily allocated based on the cash flows of these segments.
Financial information for the Company's segments for 1997, 1996 and 1995 is
shown below:
<TABLE>
<CAPTION>
Earnings (Loss)
Before Federal
Income Taxes
and Minority
Premiums Total Interest Identifiable
Earned Revenues Expense Assets
---------- ---------- --------------- ------------
(000s omitted)
<S> <C> <C> <C> <C>
1997:
Regional Operations ... $ 362,127 $ 418,028 $ 86,807 $ 972,834
Special Programs ...... 448,923 559,571 49,700 1,605,476
Guaranty National
Corporation ......... 546,630 602,227 56,249 1,216,573
Other ................. - 10,709 (16,576) 89,175
---------- ---------- --------- ----------
Total ............... $1,357,680 $1,590,535 $ 176,180 $3,884,058
========== ========== ========= ==========
1996:
Regional Operations ... $ 356,809 $ 402,015 $ 68,371 $ 910,579
Special Programs ...... 462,295 558,665 44,052 1,565,454
Guaranty National
Corporation ......... 481,648 529,542 35,727 921,852
Other ................. - 3,227 (20,794) 66,472
---------- ---------- --------- ----------
Total ............... $1,300,752 $1,493,449 $ 127,356 $3,464,357
========== ========== ========= ==========
1995:
Regional Operations.... $ 322,098 $ 362,672 $ 57,830 $ 836,089
Special Programs ...... 426,905 507,834 43,241 1,460,435
Guaranty National
Corporation ......... - - 4,466 106,059
Other ................. - 3,774 (17,502) 71,005
---------- ---------- --------- ----------
Total ............... $ 749,003 $ 874,280 $ 88,035 $2,473,588
========== ========== ========= ==========
</TABLE>
79
<PAGE>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note P - Selected Quarterly Financial Data (Unaudited)
<TABLE>
Quarterly results of operations and earnings per common share for 1997 and 1996
are summarized as follows:
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(000s omitted-except for per share data)
<S> <C> <C> <C> <C>
1997:
Premiums earned ......................... $323,963 $335,226 $347,450 $351,041
Net investment income ................... 40,221 41,316 40,754 42,617
Realized investment gains ............... 15,789 8,358 5,152 18,476
Other income ............................ 4,939 5,180 5,014 5,039
-------- -------- -------- --------
Total revenues ...................... $384,912 $390,080 $398,370 $417,173
======== ======== ======== ========
Net earnings ........................ $ 29,478 $ 25,381 $ 24,526 $ 36,421
======== ======== ======== ========
Net earnings per basic common share ..... $ 1.08 $ 0.93 $ 0.90 $ 1.33
======== ======== ======== ========
Net earnings per diluted common share.... $ 1.06 $ 0.91 $ 0.88 $ 1.30
======== ======== ======== ========
1996:
Premiums earned ......................... $302,402 $319,109 $332,936 $346,305
Net investment income ................... 34,502 36,291 36,028 38,570
Realized investment gains ............... 5,365 5,761 5,480 7,574
Other income ............................ 5,522 6,011 5,940 5,653
-------- -------- -------- --------
Total revenues ...................... $347,791 $367,172 $380,384 $398,102
======== ======== ======== ========
Net earnings ........................ $ 17,887 $ 20,573 $ 24,361 $ 23,810
======== ======== ======== ========
Net earnings per basic common share ..... $ 0.65 $ 0.75 $ 0.89 $ 0.87
======== ======== ======== ========
Net earnings per diluted common share ....$ 0.64 $ 0.74 $ 0.88 $ 0.86
======== ======== ======== ========
<FN>
</TABLE>
80
<PAGE> ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note Q - Accounting Standards Not Yet Adopted
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 131,"Disclosures About Segments of an Enterprise and Related
Information", which changes the way public companies report information about
segments. This statement is effective for financial statements for periods
beginning after December 15, 1997. Financial statement disclosures for prior
periods are required to be restated. The Company is in the process of
evaluating the disclosure requirements. The adoption of this standard will
have no impact on the Company's consolidated results of operations, financial
position or cash flows.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components in the financial statements. The
Company will adopt this statement in the first quarter of 1998. The Company
is in the process of determining its preferred format. The adoption of this
statement will have no impact on the Company's results of operations,
financial position or cash flows.
Note R - Subsequent Events
On February 2, 1998 Orion issued $125,000,000 of 7.701% Junior
Subordinated Deferrable Interest Debentures due April 15, 2028 to Orion
Capital Trust II, a Delaware statutory business trust sponsored by the
Company. Orion Capital Trust II then sold $125,000,000 of 7.701% capital
securities, which mature on April 15, 2028 ("Capital Securities") in a private
placement. The Capital Securities are subordinate to all liabilities of the
Company. Approximately $100,000,000 of the net proceeds from the sale of the
junior subordinated debentures were used to retire bank indebtedness of
Guaranty National. Orion agreed to register the Capital Securities under the
Securities Act of 1933, and will file a registration statement with the
Securities and Exchange Commission.
81
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Pursuant to General Instruction G(3) to this form, the information
required by Part III (Items 10, 11, 12 and 13) hereof is incorporated by
reference from the Company's definitive proxy statement for its Annual Meeting
to be held on May 28, 1998. The Company intends to file the proxy material,
which involves the election of directors, not later than 120 days after the
close of the Company's fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) 1 Financial Statements:
The following financial statements are included in
Part II, Item 8.
Page
----
Report of Management................................. 48
Independent Auditors' Report......................... 49
Orion Capital Corporation and Subsidiaries:
December 31, 1997 and 1996
Consolidated Balance Sheet...................... 50-51
For the years ended December 31, 1997, 1996 and
1995
Consolidated Statement of Earnings......... 52
Consolidated Statement of Stockholders'
Equity................................... 53
Consolidated Statement of Cash Flows....... 54-55
Notes to the Consolidated Financial Statements.. 56-81
(a) 2. Financial Statement Schedules:
Selected Quarterly Financial Data - for the years ended
December 31, 1997, and 1996 - Included in Part II, Item 8.
Page
----
Schedule I Consolidated Summary of
Investments - Other than
Investments in Related
Parties - December 31,
1997........................ S-1
II Condensed Financial
Information of Registrant - S-2, S-3,
December 31, 1997, 1996 S-4, S-5,
and 1995.................... S-6, S-7,
82
<PAGE>
Schedule III Supplementary Insurance
Information - December 31,
1997, 1996 and 1995.......... S-8
V Valuation and Qualifying
Accounts - December 31, 1997,
1996 and 1995................... S-9
VI Supplemental Information
For Property - Casualty
Insurance Underwriters -
December 31, 1997, 1996 and
1995............................ S-10
Schedules other than those listed above are omitted for the
reason that they are not required or are not applicable, or the
required information is shown in the Financial Statements or notes
thereto.
(a) 3. Exhibits:
Exhibit 2(i) Agreement and Plan of Merger dated as of
October 31, 1997 between Guaranty National
Corporation and Orion; filed as Exhibit (c)(1)
to the Company's Tender Offer Statement on
Schedule 14D-1; filed on November 5, 1997.
Exhibit 3(i) Restated Certificate of Incorporation of Orion,
as amended on June 5, 1997; and as restated for
filing purposes.
Exhibit 3(ii) By-Laws of Orion, as amended on September 11, 1996;
filed as Exhibit 3(ii) to the Company's Annual
Report on Form 10-K for 1996.
Exhibit 4(i) Certificate of Designation, Preferences and
Rights of Series B Junior Participating
Preferred Stock of Orion, dated September 17,
1996; filed as Exhibit 4(i) to the Company's
Annual Report on Form 10-K for 1996.
Exhibit 4(ii) Specimen certificate representing shares of
Orion's Common Stock (proof of March 27,
1989); filed as Exhibit 4(xii) to the
Company's Annual Report on Form 10-K for 1988.
Exhibit 4(iii) Indenture, dated as of September 8, 1992,
between Orion and the Connecticut National
Bank (now known as Fleet Bank Connecticut,
National Association), as Trustee of Orion's
9 1/8% Senior Notes due September 1, 2002;
filed as Exhibit 4(v) to the Company's Annual
Report on Form 10-K for 1992.
Exhibit 4(iv) Specimen certificate representing Orion's
9 1/8% Senior Notes; filed as Exhibit 4(vi)
to the Company's Annual Report on Form 10-K
for 1992.
83
<PAGE>
Exhibit 4(v) Senior Debt Indenture, dated as of July 17, 1995,
between Orion and the State Street Bank and Trust
Company of Connecticut, National Association, as
Trustee of Orion's 7 1/4% Senior Notes due July 15,
2005; filed as Exhibit 4.9 to the Company's Current
Report on Form 8-K, filed on 7/14/95.
Exhibit 4(vi) First Supplemental Indenture to the Senior Debt
Indenture; filed as Exhibit 4.9(a) to the Company's
Current Report on Form 8-K, filed on 7/14/95.
Exhibit 4(vii) Specimen Certificate representing Orion's 7 1/4%
Senior Notes; filed as Exhibit 4.9(b) to the
Company's Current Report on Form 8-K, filed on
7/14/95.
Exhibit 4(viii) Indenture, dated as of February 5, 1998, between
Orion and the Bank of New York, as Trustee of Orion's
7.701% Junior Subordinated Deferrable Interest
Debentures.
Exhibit 4(ix) Indenture, dated as of January 13, 1997, between
Orion and the Bank of New York, as Trustee of
Orion's 8.73% Junior Subordinated Deferrable
Interest Debentures; filed as Exhibit 4.1 to the
Company's Registration Statement on Form 4 (No. 333-
21205.
Exhibit 4(x) Form of Exchange Debenture Certificate representing
Orion's 8.73% Junior Subordinated Deferrable
Interest Debentures; filed as Exhibit 4.2 to the
Company's Registration Statement on Form S-4 (No.
333-21205), filed on February 5, 1997.
Exhibit 4(xi) Certifificate of Trust of Orion Capital Trust II,
dated as of February 2, 1998.
Exhibit 4(xii) Certificate of Trust of Orion Capital Trust I, dated
as of January 3, 1997; filed as Exhibit 4.3 to the
Company's Registration Statement on Form S-4 (No. 333-
21205), filed on February 5, 1997.
Exhibit 4(xiii) Declaration of Trust of Orion Capital Trust II, dated
as of February 2, 1998.
Exhibit 4(xiv) Declaration of Trust of Orion Capital Trust I, dated
as of January 3, 1997; filed as Exhibit 4.4 to the
Company's Registration Statement on Form S-4 (No.
333-21205), filed on February 5, 1997.
Exhibit 4(xv) Amended and Restated Declaration of Trust of Orion
Capital Trust II, dated as of February 5, 1998.
Exhibit 4(xvi) Amended and Restated Declaration of Trust of Orion
Capital Trust I, dated as of January 13, 1997; filed
as Exhibit 4.5 to the Company's Registration
Statement on Form S-4 (No. 333-21205), filed on
February 5, 1997.
Exhibit 4(xvii) Form of Certificate evidencing 8.73% Exchange
Capital Securities of Orion Capital Trust I; filed
84
<PAGE> as Exhibit 4.6 to the Company's Registration
Statement on Form S-4 (No. 333-21205).
Exhibit 4(xviii) Capital Securities Guarantee Agreement, dated as of
January 13, 1997, delivered by Orion as Guarantor
and relating to the 8.73% Exchange Capital
Securities; filed as Exhibit 4.7 to the Company's
Registration Statement on Form S-4 (No. 333-21205).
Exhibit 4(xix) Capital Securities Guarantee Agreement, dated as of
February 5, 1998, delivered by Orion as Guarantor,
and relating to the 7.701% Capital Securities of
Orion Capital Trust II.
Exhibit 4(xx) Form of Certificate evidencing 7.701% Capital
Securities of Orion Capital Trust II included as part
of Exhibit 4(xv).
Exhibit 4(xxi) Form of Certificate representing Orion's 7.701% Junior
Subordinated Deferrable Interest Debentures (filed
as Exhibit A to Exhibit 4(viii)).
Exhibit 10(xx) Amendment, dated February 14, 1995, to the Letter
Agreement by and between Orion Capital Corporation
and Intercargo Corporation; filed as Exhibit
10(xxiii) to the Company's Annual Report on Form
10-K for 1994.
Exhibit 10(xxi) Second Amendment, dated August 12, 1997, to the Letter
Agreement by and between Orion Capital Corporation
and Intercargo Corporation.
Exhibit 10(i)* Orion's Deferred Compensation Plan, as
amended; filed as Exhibit 10(i) to the
Company's Annual Report on Form 10-K for
1991.
Exhibit 10(ii)* Orion's 1982 Long-Term Performance Incentive
Plan, as amended; filed as Exhibit 10(ii) to
the Company's Annual Report on Form 10-K for
1996.
Exhibit 10(iii)* Orion's 1994 Stock Option Plan for Non-
Employee Directors; filed as Exhibit 10(iii)
to the Company's Annual Report on Form 10-K
for 1994.
Exhibit 10(iv)* Employment Agreement between Robert B. Sanborn
and Orion, dated as of March 19, 1993; filed
as Exhibit 10(vi) to the Company's Annual Report
on Form 10-K for 1992.
Exhibit 10(v)* Amendment to Employment Agreement between Robert B.
Sanborn and Orion, dated as of January 1, 1997;
filed as Exhibit 10(vii) to the Company's Annual
Report on Form 10-K for 1996.
Exhibit 10(vii)* Employment Agreement between Raymond W. Jacobsen
and Orion, as amended and restated as of December 6
1995; filed as Exhibit 10(vii) to the Company's
Annual Report on Form 10-K for 1995.
*Management contract or compensatory plan or arrangement.
85
<PAGE>
Exhibit 10(viii)* Employment Agreement between W. Marston Becker and
Orion, dated as of October 31, 1995; filed as
Exhibit 10(viii) to the Company's Annual Report on
Form 10-K for 1995.
Exhibit 10(ix)* Amendment to Employment Agreement between W. Marston
Becker and Orion, dated as of January 1, 1997; filed
as Exhibit 10(x) to the Company's Annual Report on
Form 10-K for 1996.
Exhibit 10(x) Lease Agreement between Connecticut UTF, Inc.,
as lessor, and Security Insurance Company of
Hartford ("Security"), as lessee, dated as of
December 19, 1984; filed as Exhibit 10(xxxiii)
to the Company's Annual Report on Form 10-K for
l984.
Exhibit 10(xi) Second Assignment of Lease and Agreement from
Connecticut UTF, Inc. to Security, dated as of
December 19, 1984; filed as Exhibit 10(xxxiv)
to the Company's Annual Report on Form 10-K
for 1984.
Exhibit 10(xii) Purchase Money Second Mortgage from Connecticut
UTF, Inc., as mortgagor, to Security, as mortgagee,
dated as of December 19, 1984; filed as Exhibit
10(xxxvi) to the Company's Annual Report on Form 10-K
for 1984.
Exhibit 10(xiii) Purchase Money Note, in the face amount of
$2,800,000, from Connecticut UTF, Inc. to
Security, dated December 19, 1984; filed as
Exhibit 10(xxxvi) to the Company's Annual
Report on Form 10-K for l984.
Exhibit 10(xiv) Guarantee from Orion to Connecticut UTF, Inc.,
dated as of December 19, 1984, guaranteeing
the performance of Security under its lease
with Connecticut UTF, Inc.; filed as Exhibit
10(xxxvii) to the Company's Annual Report on
Form 10-K for 1984.
Exhibit 10(xv) Form of Indemnification Agreement, dated as of
June 3, 1987, between Orion and each of its
Directors and Executive Officers; filed as
Exhibit 10(xl) to the Company's Annual Report
on Form 10-K for 1987.
Exhibit 10(xvi) Rights Agreement, dated as of September 11, 1996
between Orion and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent; filed as Exhibit 1
to the Company's Form 8-A filed on September 20,
1996.
Exhibit 10(xvii)* Orion Supplemental Benefits Plan, filed as
Exhibit 10(xxv) to the Company's Annual Report
on Form 10-K for 1991.
*Management contract or compensatory plan or arrangement.
86
<PAGE>
Exhibit 10(xviii) Orion's Equity Incentive Plan, dated September 11,
1996; filed as Exhibit 10(xx) to the Company's
Annual Report on Form 10-K for 1996.
Exhibit 10(xix) Letter Agreement, dated September 13, 1993, by
and between Orion and Intercargo Corporation;
filed as Exhibit 10(xxii) to the Company's
Annual Report on Form 10-K for 1993.
Exhibit 10(xx) Amendment, dated February 14, 1995, to the Letter
Agreement by and between Orion Capital Corporation
and Intercargo Corporation; filed as Exhibit
10(xxiii) to the Company's Annual Report on Form
10-K for 1994.
Exhibit 10(xxi) Second Amendment, dated August 12, 1997, to the Letter
Agreement by and between Orion Capital Corporation
and Intercargo Corporation.
Exhibit 10(xxii) Purchase Agreement by and between Sun Alliance USA
Inc. and Orion, dated as of June 30, 1995; filed as
Exhibit 10(xxv) to the Company's Annual Report on
Form 10-K for 1995.
Exhibit 11 Statement re: computation of earnings
per common share.
Exhibit 21 Subsidiaries of Orion.
Exhibit 23 Consent of Deloitte & Touche LLP
Exhibit 27 Financial Data Schedules (including restatement of
prior periods for FAS No. 128 and 1997 stock split).
Copies of exhibits may be obtained upon payment of a $.50 per page fee.
Such requests should be made in writing to: Corporate Secretary, Orion Capital
Corporation, 9 Farm Springs Road, Farmington, CT 06032.
(b) Reports on Form 8-K:
None.
(c) Filed exhibits:
See Exhibit Index
87
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ORION CAPITAL CORPORATION
By: /s/ W. Marston Becker March 25, 1998
----------------------
W. Marston Becker
Chairman of the Board
and Chief Executive Officer
(Principal Executive
Officer)
By: /s/ Peter M. Vinci March 25, 1998
-------------------
Peter M. Vinci
Vice President, Chief
Accounting Officer
and Controller
88
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons (including a majority of
the members of the Board of Directors of the Registrant) in the capacities and
on the dates indicated:
Signature and Title Date
- ------------------------- --------------
/s/ W. Marston Becker March 25, 1998
- --------------------------
W. Marston Becker
Chairman of the Board
/s/ Gordon F. Cheesbrough March 25, 1998
- -------------------------
Gordon F. Cheesbrough
Director
/s/ Bertram J. Cohn
- ------------------------- March 25, 1998
Bertram J. Cohn
Director
/s/ John C. Colman March 25, 1998
- -------------------------
John C. Colman
Director
/s/David H. Elliott March 25, 1998
- -------------------------
David H. Elliott
Director
/s/ Victoria R. Fash March 25, 1998
- -------------------------
Victoria R. Fash
Director
/s/ Robert H. Jeffrey March 25, 1998
- ----------------------
Robert H. Jeffrey
Director
/s/ Warren R. Lyons March 25, 1998
- -------------------------
Warren R. Lyons
Director
/s/ James K. McWilliams March 25, 1998
- -------------------------
James K. McWilliams
Director
89
<PAGE>
Signature and Title Date
- ------------------- ------
/s/ Ronald W. Moore March 25, 1998
- -----------------------
Ronald W. Moore
Director
/s/ Robert B. Sanborn March 25, 1998
- ----------------------
Robert B. Sanborn
Director
/s/ William J. Shepherd March 25, 1998
- -----------------------
William J. Shepherd
Director
/s/ John R. Thorne March 25, 1998
- -----------------------
John R. Thorne
Director
/s/ William B. Weaver March 25, 1998
- ---------------------
William B. Weaver
Director
90
<PAGE>
EXHIBIT INDEX
Exhibit 3(i) Restated Certificate of Incorporation of Orion,
as amended on June 5, 1997; and as restated for
filing purposes.
Exhibit 4(viii) Indenture, dated as of February 5, 1998, between
Orion and the Bank of New York, as Trustee of Orion's
7.701% Junior Subordinated Deferrable Interest
Debentures.
Exhibit 4(xi) Certifificate of Trust of Orion Capital Trust II,
dated as of February 2, 1998.
Exhibit 4(xiii) Declaration of Trust of Orion Capital Trust II, dated
as of February 2, 1998.
Exhibit 4(xv) Amended and Restated Declaration of Trust of Orion
Capital Trust II, dated as of February 5, 1998.
Exhibit 4(xix) Capital Securities Guarantee Agreement, dated as of
February 5, 1998, delivered by Orion as Guarantor,
and relating to the 7.701% Capital Securities of Orion
Capital Trust II.
Exhibit 4(xx) Form of Certificate evidencing 7.701% Capital
Securities of Orion Capital Trust II included as part
of Exhibit 4(xv).
Exhibit 4(xxi) Form of Certificate representing Orion's 7.701% Junior
Subordinated Deferrable Interest Debentures (filed as
Exhibit A to Exhibit 4(viii)).
Exhibit 10(xxi) Second Amendment, dated August 12, 1997, to the Letter
Agreement by and between Orion Capital Corporation
and Intercargo Corporation.
Exhibit 11 Statement re: computation of earnings
per common share.
Exhibit 21 Subsidiaries of Orion.
Exhibit 23 Consent of Deloitte & Touche.
Exhibit 27 Financial Data Schedules (including restatement of
prior periods for FAS No. 128 and 1997 stock split).
91
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF INVESTMENTS-OTHER THAN
INVESTMENTS IN RELATED PARTIES
December 31, 1997
(000s omitted)
========================================================================
Column A Column B Column C Column D
-------- -------- -------- --------
Amount Shown
on Balance
Type of Investment Cost Value Sheet
______________________________________________________________________________
<S> <C> <C> <C>
Fixed maturities held-to-maturity:
Bonds -
United States Government and
government agencies and
authorities ............... $ 122,616 $ 124,008 $ 122,616
States, municipalities and
political subdivisions .... 166,895 174,458 166,895
Foreign governments ......... 50 50 50
All other corporate bonds ... 23,209 23,879 23,209
---------- ---------- ----------
312,770 $ 322,395 312,770
---------- ========== ----------
Fixed maturities available-for-sale:
Bonds -
United States Government and
government agencies and
authorities ............... 381,747 $ 401,312 401,312
States, municipalities and
political subdivisions .... 439,480 469,869 469,869
Foreign governments ......... 4,590 5,120 5,120
Public utilities ............ 11,097 11,777 11,777
All other corporate bonds ... 458,828 477,930 477,930
Redeemable preferred stocks ... 99,679 103,838 103,838
---------- ---------- ----------
1,395,421 $1,469,846 1,469,846
---------- ========== ----------
Equity securities:
Common stocks -
Public utilities ............ 3,771 $ 6,414 6,414
Banks, trusts and insurance
companies ................. 23,993 63,170 63,170
Industrial, miscellaneous and
all other ................. 135,256 175,815 175,815
Non-redeemable preferred stocks 183,577 193,102 193,102
---------- ---------- ----------
346,597 $ 438,501 438,501
---------- ========== ----------
Mortgage loans on real estate ... 2,249 2,249
Other long-term investments ..... 92,090 92,090
Short-term investments .......... 228,277 228,277
---------- ----------
Total investments ......... $2,377,404 $2,543,733
========== ==========
S-1
<PAGE> <CAPTION> SCHEDULE II
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ORION CAPITAL CORPORATION
BALANCE SHEET
(000s omitted)
ASSETS December 31,
--------------------
1997 1996
---- ----
<S> <C> <C>
Fixed maturities held at market (cost $214 - 1997 and
$347 - 1996) ........................................ $ 214 $ 347
Short-term investments ................................ 68,725 32,653
Cash .................................................. 379 320
Notes receivable and other assets ..................... 5,259 7,232
Deferred federal income taxes ......................... 9,416 23,544
Investment in subsidiaries ............................ 947,085 729,476
Excess of cost over fair value of net assets acquired.. 98,899 47,120
---------- --------
Total assets ........................................ $1,129,977 $840,692
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities ..................................... $ 55,787 $ 35,902
Due to affiliates ..................................... 16,790 18,841
Notes payable ......................................... 209,290 209,216
---------- --------
Total liabilities ................................... 281,867 263,959
Company-obligated mandatorily redeemable preferred
capital securities of subsidiary trust holding
solely the Junior Subordinated Debentures of
the Company.......................................... 125,000 -
Stockholders' equity .................................. 723,110 576,733
---------- --------
Total liabilities and stockholders' equity .......... $1,129,977 $840,692
========== ========
<FN> See Notes to Condensed Financial Information of Registrant
S-2
<PAGE>
<PAGE>
<CAPTION>
SCHEDULE II
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ORION CAPITAL CORPORATION
STATEMENT OF EARNINGS
(000s omitted)
Year Ended December 31,
----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Net investment income ....................... $ 8,414 $ 1,898 $ 1,770
Realized investment losses .................. (34) (319) (800)
Other income ................................ 650 650 595
-------- -------- --------
9,030 2,229 1,565
-------- -------- --------
Expenses:
Interest .................................... 18,428 17,835 15,537
General and administrative .................. 6,130 3,671 3,106
Amortization of excess of cost over fair
value of net assets acquired .............. 2,022 1,867 1,470
-------- -------- --------
26,580 23,373 20,113
-------- -------- --------
Loss before federal income taxes, equity in
net earnings of subsidiaries and minority
interest expense............................. (17,550) (21,144) (18,548)
Federal income taxes .......................... 45,045 30,059 20,284
-------- -------- --------
Loss before equity in net earnings of
subsidiaries and minority interest expense... (62,595) (51,203) (38,832)
Equity in net earnings of subsidiaries ........ 185,258 137,834 106,454
Minority interest expense in subsidiary trust
preferred securities, net of federal
income taxes................................. 6,857 - -
-------- -------- --------
Net earnings .................................. $115,806 $ 86,631 $ 67,622
======== ======== ========
<FN>
See Notes to Condensed Financial Information of Registrant
S-3
<PAGE>
<CAPTION>
SCHEDULE II
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ORION CAPITAL CORPORATION
STATEMENT OF CASH FLOWS
(000s omitted)
Year Ended December 31,
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Dividends received from subsidiaries ...... $ 42,822 $ 35,286 $ 30,546
Net investment income collected ........... 7,967 1,919 1,737
Federal income taxes received from
subsidiaries ............................ 9,525 7,455 4,500
Interest paid ............................. (17,288) (17,254) (12,123)
Payments on subsidiary trust preferred
capital securities....................... (5,092) - -
Other expenses paid ....................... (2,262) (2,046) (2,276)
Other receipts ............................ 604 903 1,268
-------- -------- --------
Net cash provided by operating activities. 36,276 26,263 23,652
-------- -------- --------
Cash flows from investing activities:
Investment in fixed maturity available -
for-sale................................. (250) - -
Sale of fixed maturity available -
for-sale................................. 133 - -
Sales of equity securities................. 216 - -
Net sales (purchases) of short-term
investments ............................. (36,052) 22,770 (42,587)
Investments in subsidiaries ............... - - 4,476
Purchase of Guaranty National common stock. (104,429) (20,709) -
Acquisition of McGee ...................... - - (22,355)
Other payments ............................ (13) (2,588) (99)
-------- -------- --------
Net cash used in investing activities ... (140,395) (527) (60,565)
-------- -------- --------
Cash flows from financing activities:
Net proceeds from issuance of trust
preferred capital securities............. 123,026 - -
Proceeds from issuance of notes payable ... - - 110,413
Proceeds from exercise of stock options.... 594 42 246
Repayment of notes payable ................ - - (54,500)
Dividends paid to stockholders ............ (18,037) (14,886) (12,717)
Purchases of common stock ................. (1,533) (10,558) (6,689)
Other receipts (payments).................. 128 (17) (17)
-------- -------- --------
Net cash provided by (used in) financing
activities ............................ 104,178 (25,419) 36,736
-------- -------- --------
Net increase in cash..................... 59 317 (177)
Cash balance, beginning of year ........... 320 3 180
-------- -------- --------
Cash balance, end of year ................. $ 379 $ 320 $ 3
======== ======== ========
<FN>
See Notes to Condensed Financial Statements of Registrant
S-4
<PAGE>
<PAGE>
<CAPTION>
SCHEDULE II
ORION CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ORION CAPITAL CORPORATION
STATEMENT OF CASH FLOWS - (Continued)
(000s omitted)
Year Ended December 31,
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings ................................ $115,806 $ 86,631 $ 67,622
-------- -------- --------
Adjustments:
Equity in net earnings of subsidiaries .... (185,258) (137,834) (106,454)
Consolidating elimination of subsidiaries
income taxes ............................ 40,057 35,530 30,941
Dividends received from subsidiaries ...... 42,822 35,286 30,546
Depreciation and amortization ............. 3,027 3,016 2,594
Deferred federal income taxes (benefit) ... 3,097 10,022 (3,881)
Realized investment losses ................ 34 319 800
Amortization of discount on debt .......... 74 68 36
Change in assets and liabilities:
Decrease (increase) in notes receivable and
other assets ............................ 1,048 (2,235) 90
Increase (decrease) in taxes payable and
other liabilities ....................... 11,618 (3,746) 7,799
Increase (decrease) in due to affiliates .. 3,951 (794) (6,441)
-------- -------- --------
Total adjustments and changes ........... (79,530) (60,368) (43,970)
-------- -------- --------
Net cash provided by operating activities.. $ 36,276 $ 26,263 $ 23,652
======== ======== ========
<FN>
See Notes to Condensed Financial Information of Registrant
S-5
</TABLE>
<PAGE>
SCHEDULE II
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Years Ended December 31, 1997, 1996 and 1995
Note A - Notes Payable
Notes payable consist of the following:
<TABLE>
<CAPTION>
Estimated
Carrying Value Market Value
----------------- -----------------
December 31, 1997 1996 1997 1996
------------ ---- ---- ---- ----
(000s omitted)
<S> <C> <C> <C> <C>
$110,000,000 face amount, 9 1/8% Senior
Notes, due September 1, 2002 .......... $109,919 $109,906 $121,231 $120,703
$100,000,000 face amount, 7 1/4% Senior
Notes, due July 15, 2005 .............. 99,371 99,310 103,160 97,660
-------- -------- -------- --------
$209,290 $209,216 $224,391 $218,363
======== ======== ======== ========
</TABLE>
As of December 31, 1997, $110,000,000 of the Registrant's debt is
scheduled to be repaid on September 1, 2002 and the remaining $100,000,000 is
due on July 15, 2005.
Note B - Expense Reimbursement and Management Fees
During 1995 through 1997, the Registrant was reimbursed for payroll,
office rental and other expenses incurred by it to support the operations of
its insurance subsidiaries. This reimbursement of $8,114,000, $7,410,000 and
$6,232,000 in 1997, 1996 and 1995, respectively, is accounted for as a
reduction of general and administrative expenses. The Registrant received an
investment management fee from Guaranty National of $650,000 in 1997, $650,000
in 1996 and $595,000 in 1995.
S-6
<PAGE>
SCHEDULE II
ORION CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Years Ended December 31, 1997, 1996, and 1995
Note C - Company-Obligated Mandatorily Redeemable Capital Securities of
Subsidiary Trust Holding Solely the Junior Subordinated Debentures of the
Registrant.
On January 13, 1997 the Registrant issued $125,000,000 of 8.73% Junior
Subordinated Deferrable Interest Debentures due January 1, 2037 (the
"Debentures") to Orion Capital Trust I (the "Trust"), a Delaware statutory
business trust sponsored by the Registrant. The Trust simultaneously sold
$125,000,000 of 8.73% Capital Securities (the "Trust Preferred Securities")
which have substantially the same terms as the Debentures. The Trust
Preferred Securities are subordinate to all liabilities of the Registrant,
and may be redeemed without premium on or after January 1, 2007. The
Registrant may defer interest distributions on the Trust Preferred Securities;
however, during any period when such cumulative distributions have been
deferred, the Registrant may not declare or pay any dividends or distributions
on its common stock. The Trust Preferred Securities were registered under the
Securities Act of 1933 in April 1997. The trust is consolidated in the
Registrant financial statements because it is wholly-owned by the Registrant.
The sole assets of the Trust are the Debentures issued by the Registrant.
The Registrant has provided a full and unconditional guaranty of the Trust's
obligations under the Trust Preferred Securities, including all costs,
expenses, debts and liabilities of the Trust. The carrying value and
estimated market value of the Trust Preferred Securities is $125,000,000
and $137,525,000 at December 31, 1997.
On February 2, 1998 the Registrant issued $125,000,000 of 7.701% Junior
Subordinated Debentures due April 15, 2028 to Orion Capital Trust II, a
Delaware statutory business trust sponsored by the Registrant. Orion Capital
Trust II then sold $125,000,000 of 7.701% Capital Securities, which mature on
April 15, 2028 (the "Capital Securities") in a private placement. The Capital
Securities are subordinate to all liabilities of the Registrant.
Approximately $100,000,000 of the net proceeds from the sale of the junior
subordinated debentures were used to retire bank indebtedness of Guaranty
National. The Registrant agreed to register the Capital Securities under the
Securities Act of 1933, and will file a registration statement with the
Securities and Exchange Commission.
S-7
<PAGE>
<TABLE> SCHEDULE III
<CAPTION> ORION CAPITAL CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(000s omitted)
- ----------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column J Column K
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Reserve
For Unpaid Dividends Amortization
Deferred Losses Payable Losses of Deferred Policy-
Policy and Loss to Net and Loss Policy Other holders'
Acquisition Adjustment Unearned Policy- Premiums Investment Adjustment Acquisition Insurance Dividend Premiums
Segment Costs Expenses Premiums holders Earned Income Expenses Costs Expenses Expenses Written
(a)
__________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997:
Regional
Operations $ 41,379 $ 417,868 $ 85,953 $ 19,947 $ 362,127 $ 41,787 $194,444 $101,802 $13,176 $20,599 $ 365,050
Special
Programs .. 54,923 1,011,339 245,492 548 448,923 68,700 331,010 141,405 10,628 3,401 436,898
Guaranty
National... 50,822 442,504 220,145 - 546,630 43,613 380,004 143,958 12,841 - 565,120
Other ....... - - - - - 10,808 - - - - -
-------- ---------- -------- ------- ---------- -------- -------- -------- ------- ------- ----------
$147,124 $1,871,711 $551,590 $20,495 $1,357,680 $164,908 $905,458 $387,165 $36,645 $24,000 $1,367,068
======== ========== ======== ======= ========== ======== ======== ======== ======= ======= ==========
1996:
Regional
Operations $ 33,160 $ 466,022 $ 83,920 $20,489 $ 356,809 $ 38,226 $209,705 $ 91,991 $11,244 $18,523 $ 353,041
Special
Programs .. 58,552 955,706 258,103 2,000 462,295 62,646 335,503 137,625 6,246 5,111 489,848
Guaranty
National .. 44,456 363,936 154,226 - 481,648 39,439 337,784 133,931 10,422 - 491,232
Other ....... - - - - - 5,080 - - - - -
-------- ---------- -------- ------- ---------- -------- -------- -------- ------- ------- ----------
$136,168 $1,785,664 $496,249 $22,489 $1,300,752 $145,391 $882,992 $363,547 $27,912 $23,634 $1,334,121
======== ========== ======== ======= ========== ======== ======== ======== ======= ======= ==========
1995:
Regional
Operations $ 29,516 $ 460,597 $ 84,360 $16,799 $ 322,098 $ 35,750 $201,054 $ 73,544 $11,302 $17,231 $ 332,598
Spec.Programs 48,157 814,385 217,745 2,147 426,905 59,584 311,179 121,937 10,260 4,559 424,838
Other ....... - - - - - 3,706 - - - - -
-------- ---------- -------- ------- ---------- -------- -------- -------- ------- ------- ----------
$ 77,673 $1,274,982 $302,105 $18,946 $ 749,003 $ 99,040 $512,233 $195,481 $21,562 $21,790 $ 757,436
======== ========== ======== ======= ========== ======== ======== ======== ======= ======= ==========
<FN>
(a) Net investment income for Regional Operations and Special Programs is allocated on the basis of cash flow.
S-8
<PAGE>
<CAPTION>
SCHEDULE V
ORION CAPITAL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(000s omitted)
===============================================================================
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
----------------------
(1) (2)
Balance at Charged to Charged to Balance at
Beginning of Costs and Other Deductions End of
Description Period Expenses Accounts (a) Period
_______________________________________________________________________________
<S> <C> <C> <C> <C> <C>
1997:
Allowance for
doubtful accounts-
Accounts and notes
receivable $3,696
Effects of
acquisition 322
------
$4,018 $1,309 $ - $1,233 $4,094
====== ====== ====== ====== ======
1996:
Allowance for
doubtful accounts-
Accounts and notes
receivable $3,212
Effect of
acquisition 374
------
$3,586 $1,517 $ - $1,407 $3,696
====== ====== ====== ====== ======
1995:
Allowance for
doubtful accounts-
Accounts and notes
receivable $1,954 $1,689 $ - $ 431 $3,212
====== ====== ====== ====== ======
<FN>
(a) Accounts written off
S-9
<PAGE> SCHEDULE VI
<CAPTION> ORION CAPITAL CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION FOR PROPERTY-CASUALTY INSURANCE UNDERWRITERS
(000s omitted)
=================================================================================================================================
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column K
- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Reserve Losses and
for Loss Adjustment
Unpaid Expenses Incurred Amortization Paid
Deferred Losses Discount Related to of Deferred Losses
Affiliation Policy and Loss Deducted Net (1) (2) Policy and Loss
with Acquisition Adjustment in Column Unearned Premiums Investment Current Prior Acquisition Adjustment Premiums
Registrant Costs Expenses (C) Premiums Earned Income Year Year Costs Expenses Written
(a)
___________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997:
Consolidated
property and
casualty
entities $147,124 $1,871,711 $4,100 $551,590 $1,357,680 $154,100 $896,226 $9,232 $387,165 $892,147 $1,367,068
======== ========== ====== ======== ========== ======== ======== ======= ======== ======== ==========
1996 (b):
Consolidated
property and
casualty
entities $136,168 $1,785,664 $4,100 $496,249 $1,300,752 $140,311 $874,123 $ 8,869 $363,547 $794,889 $1,334,121
======== ========== ====== ======== ========== ======== ======== ======= ======== ======== ==========
1995:
Consolidated
property and
casualty
entities $ 77,673 $1,274,982 $4,100 $302,105 $ 749,003 $ 95,334 $500,514 $11,719 $195,481 $409,797 $ 757,436
======== ========== ====== ======== ========== ======== ======== ======= ======== ======== ==========
<FN>
(a) Discount deducted in Column C is computed using a statutory interest rate of 3.5% for certain workers compensation losses.
(b) 1997 and 1996 amounts include Guaranty National Corporation on a consolidated basis.
S-10
</TABLE>
EXHIBIT 3(i)
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
ORION CAPITAL CORPORATION
Orion Capital Corporation, a corporation organized and
existing under and by virtue of the General Corporation Law of the
State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the
Corporation, resolutions were duly adopted setting forth a proposed
amendment to the Restated Certificate of Incorporation of the
Corporation, declaring said amendment to be advisable and directing
that said amendment be considered at the Annual Meeting of
Stockholders scheduled for May 29, 1997. The resolution setting
forth the proposed amendment is as follows:
RESOLVED, that the total number of shares of stock of all
classes of stock that the Corporation has authority to issue be
increased from thirty-five million to fifty-five million shares;
and further
RESOLVED, that the total number of shares of Common Stock,
$1.00 par value per share, that the Corporation has authority to
issue be increased from thirty million shares to fifty million
shares; and further
RESOLVED, that the first paragraph of Article IV of the
Corporation's Restated Certificate of Incorporation ("Certificate")
be amended to read in its entirety as follows:
IV.
STOCK
The total number of shares of stock of all classes which the
corporation has authority to issue is Fifty-Five Million
(55,000,000) shares, of which Fifty Million (50,000,000) shares
<PAGE>
shall be Common Stock, with a par value of One Dollar ($1.00) per
share, and Five Million (5,000,000) shares shall be Preferred
Stock, with a par value of One Dollar ($1.00) per share; and
further
RESOLVED, that the proposed amendment to the Certificate be
submitted, with any changes of from, which counsel may deem to be
necessary, to a vote of the stockholders of the Corporation at the
Annual meeting of Stockholders to be held on May 29, 1997 for the
purpose of considering and voting upon the adoption of the proposed
amendment; and further
RESOLVED, that, if the proposed amendment shall be adopted by
the stockholders, the proper officers of the Corporation be, and
they hereby are, authorized and directed, in the name and on behalf
of the corporation, to execute, deliver and file for record such
articles of amendment, and such other documents and instruments,
and to do and perform such other acts and things as shall be
necessary, convenient or proper to effect the amendment of the
Certificate so proposed and accepted.
SECOND: That, pursuant to resolutions of the Board of
Directors, the Annual Meeting of Stockholders of the Corporation
was duly called and held, upon notice in accordance with the
provisions of Section 222 of the General Corporation law of the
State of Delaware, at which meting the necessary number of shares
as required by statute and by the Corporation's Restated
Certificate of Incorporation were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, said Corporation has caused this
Certificate to be signed by W. Marston Becker, its Chairman and
Chief Executive Officer, this 4th day of June, 1997.
By: /s/ W. Marston Becker
----------------------
Chairman and Chief
Executive Officer
/s/ Judy S. Spitzer
- --------------------
Assistant Secretary
- 2 -
------------------------------------------------------------------------------
------------------------------------------------------------------------------
ORION CAPITAL CORPORATION
------------------------------------------------------
INDENTURE
Dated as of February 5, 1998
------------------------------------------------------
THE BANK OF NEW YORK
as Trustee
------------------------------------------------------
$129,000,000
7.701% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
------------------------------------------------------------------------------
------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS....................................................1
SECTION 1.01. DEFINITIONS.................................................1
ARTICLE II SECURITIES....................................................11
SECTION 2.01. FORMS GENERALLY............................................11
SECTION 2.02. EXECUTION AND AUTHENTICATION...............................11
SECTION 2.03. FORM AND PAYMENT...........................................12
SECTION 2.04. LEGENDS....................................................12
SECTION 2.05. GLOBAL SECURITY............................................12
SECTION 2.06. INTEREST...................................................14
SECTION 2.07. TRANSFER AND EXCHANGE......................................14
SECTION 2.08. REPLACEMENT SECURITIES.....................................16
SECTION 2.09. TREASURY SECURITIES........................................16
SECTION 2.10. TEMPORARY SECURITIES.......................................16
SECTION 2.11. CANCELLATION...............................................17
SECTION 2.12. DEFAULTED INTEREST.........................................17
SECTION 2.13. CUSIP NUMBERS..............................................18
ARTICLE III PARTICULAR COVENANTS OF THE COMPANY...........................18
SECTION 3.01. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.................18
SECTION 3.02. OFFICES FOR NOTICES AND PAYMENTS, ETC......................19
SECTION 3.03. APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S
OFFICE....................................................19
SECTION 3.04. PROVISION AS TO PAYING AGENT...............................19
SECTION 3.05. CERTIFICATE TO TRUSTEE.....................................20
SECTION 3.06. COMPLIANCE WITH CONSOLIDATION PROVISIONS...................20
SECTION 3.07. LIMITATION ON DIVIDENDS....................................21
SECTION 3.08. COVENANTS AS TO ORION CAPITAL TRUST II.....................21
SECTION 3.09. PAYMENT OF EXPENSES........................................22
SECTION 3.10. PAYMENT UPON RESIGNATION OR REMOVAL........................22
ARTICLE IV SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY
AND THE TRUSTEE...............................................23
SECTION 4.01. SECURITYHOLDERS' LISTS.....................................23
SECTION 4.02. PRESERVATION AND DISCLOSURE OF LISTS.......................23
SECTION 4.03. REPORTS OF THE COMPANY.....................................24
SECTION 4.04. REPORTS BY THE TRUSTEE.....................................25
ARTICLE V REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON
EVENT OF DEFAULT..............................................26
SECTION 5.01. EVENTS OF DEFAULT..........................................26
SECTION 5.02. PAYMENT OF SECURITIES ON DEFAULT; SUIT THEREFOR............27
SECTION 5.03. APPLICATION OF MONEYS COLLECTED BY TRUSTEE.................29
SECTION 5.04. PROCEEDINGS BY SECURITYHOLDERS.............................30
SECTION 5.05. PROCEEDINGS BY TRUSTEE.....................................31
SECTION 5.06. REMEDIES CUMULATIVE AND CONTINUING.........................31
SECTION 5.07. DIRECTION OF PROCEEDINGS AND WAIVER OF DEFAULTS
BY MAJORITY OF SECURITYHOLDERS............................31
SECTION 5.08. NOTICE OF DEFAULTS.........................................32
SECTION 5.09. UNDERTAKING TO PAY COSTS...................................32
ARTICLE VI CONCERNING THE TRUSTEE........................................33
SECTION 6.01. DUTIES AND RESPONSIBILITIES OF TRUSTEE.....................33
SECTION 6.02. RELIANCE ON DOCUMENTS, OPINIONS, ETC.......................34
SECTION 6.03. NO RESPONSIBILITY FOR RECITALS, ETC........................35
SECTION 6.04. TRUSTEE, AUTHENTICATING AGENT, PAYING AGENTS,
TRANSFER AGENTS OR REGISTRAR MAY OWN SECURITIES...........35
SECTION 6.05. MONEYS TO BE HELD IN TRUST.................................35
SECTION 6.06. COMPENSATION AND EXPENSES OF TRUSTEE.......................35
SECTION 6.07. OFFICERS' CERTIFICATE AS EVIDENCE..........................36
SECTION 6.08. CONFLICTING INTEREST OF TRUSTEE............................36
SECTION 6.09. ELIGIBILITY OF TRUSTEE.....................................37
SECTION 6.10. RESIGNATION OR REMOVAL OF TRUSTEE..........................37
SECTION 6.11. ACCEPTANCE BY SUCCESSOR TRUSTEE............................38
SECTION 6.12. SUCCESSION BY MERGER, ETC..................................39
SECTION 6.13. LIMITATION ON RIGHTS OF TRUSTEE AS A CREDITOR..............39
SECTION 6.14. AUTHENTICATING AGENTS......................................39
ARTICLE VII CONCERNING THE SECURITYHOLDERS................................40
SECTION 7.01. ACTION BY SECURITYHOLDERS..................................40
SECTION 7.02. PROOF OF EXECUTION BY SECURITYHOLDERS......................41
SECTION 7.03. WHO ARE DEEMED ABSOLUTE OWNERS.............................41
SECTION 7.04. SECURITIES OWNED BY COMPANY DEEMED NOT
OUTSTANDING...............................................42
SECTION 7.05. REVOCATION OF CONSENTS; FUTURE HOLDERS BOUND...............42
ARTICLE VIII SECURITYHOLDERS' MEETINGS.....................................42
SECTION 8.01. PURPOSE OF MEETINGS........................................42
SECTION 8.02. CALL OF MEETINGS BY TRUSTEE................................43
SECTION 8.03. CALL OF MEETINGS BY COMPANY OR SECURITYHOLDERS.............43
SECTION 8.04. QUALIFICATIONS FOR VOTING..................................43
SECTION 8.05. REGULATIONS................................................44
SECTION 8.06. VOTING.....................................................45
ARTICLE IX AMENDMENTS....................................................46
SECTION 9.01. WITHOUT CONSENT OF SECURITYHOLDERS.........................46
SECTION 9.02. WITH CONSENT OF SECURITYHOLDERS............................47
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT; EFFECT OF
SUPPLEMENTAL INDENTURES...................................48
SECTION 9.04. NOTATION ON SECURITIES.....................................48
SECTION 9.05. EVIDENCE OF COMPLIANCE OF SUPPLEMENTAL INDENTURE
TO BE FURNISHED TRUSTEE...................................48
ARTICLE X CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE.............49
SECTION 10.01. COMPANY MAY CONSOLIDATE, ETC., ON CERTAIN TERMS...........49
SECTION 10.02. SUCCESSOR CORPORATION TO BE SUBSTITUTED FOR
COMPANY...................................................49
SECTION 10.03. OPINION OF COUNSEL TO BE GIVEN TRUSTEE....................50
ARTICLE XI SATISFACTION AND DISCHARGE OF INDENTURE.......................50
SECTION 11.01. DISCHARGE OF INDENTURE....................................50
SECTION 11.02. DEPOSITED MONEYS AND U.S. GOVERNMENT
OBLIGATIONS TO BE HELD IN TRUST BY TRUSTEE................51
SECTION 11.03. PAYING AGENT TO REPAY MONEYS HELD.........................51
SECTION 11.04. RETURN OF UNCLAIMED MONEYS................................51
SECTION 11.05. DEFEASANCE UPON DEPOSIT OF MONEYS OR U.S.
GOVERNMENT OBLIGATIONS....................................51
SECTION 11.06. REINSTATEMENT.............................................53
ARTICLE XII IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS
AND DIRECTORS.................................................53
SECTION 12.01. INDENTURE AND SECURITIES SOLELY CORPORATE
OBLIGATIONS...............................................53
ARTICLE XIII MISCELLANEOUS PROVISIONS......................................53
SECTION 13.01. SUCCESSORS................................................53
SECTION 13.02. OFFICIAL ACTS BY SUCCESSOR CORPORATION....................53
SECTION 13.03. SURRENDER OF COMPANY POWERS...............................54
SECTION 13.04. ADDRESS FOR NOTICES, ETC..................................54
SECTION 13.05. GOVERNING LAW.............................................54
SECTION 13.06. EVIDENCE OF COMPLIANCE WITH CONDITIONS
Precedent.................................................54
SECTION 13.07. BUSINESS DAYS.............................................55
SECTION 13.08. TRUST INDENTURE ACT TO CONTROL............................55
SECTION 13.09. TABLE OF CONTENTS, HEADINGS, ETC..........................55
SECTION 13.10. EXECUTION IN COUNTERPARTS.................................55
SECTION 13.11. SEPARABILITY..............................................55
SECTION 13.12. ASSIGNMENT................................................55
SECTION 13.13. ACKNOWLEDGMENT OF RIGHTS..................................56
ARTICLE XIV CONDITIONAL RIGHT TO SHORTEN MATURITY; PREPAYMENT
OF SECURITIES -- NO SINKING FUND..............................56
SECTION 14.01. SPECIAL EVENT PREPAYMENT..................................56
SECTION 14.02. OPTIONAL PREPAYMENT BY COMPANY............................56
SECTION 14.03. NO SINKING FUND...........................................57
SECTION 14.04. NOTICE OF PREPAYMENT; SELECTION OF SECURITIES.............57
SECTION 14.05. PAYMENT OF SECURITIES CALLED FOR PREPAYMENT...............58
SECTION 14.06. CONDITIONAL RIGHT TO SHORTEN MATURITY.....................58
ARTICLE XV SUBORDINATION OF SECURITIES...................................59
SECTION 15.01. AGREEMENT TO SUBORDINATE..................................59
SECTION 15.02. DEFAULT ON SENIOR INDEBTEDNESS............................59
SECTION 15.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY......................60
SECTION 15.04. SUBROGATION...............................................61
SECTION 15.05. TRUSTEE TO EFFECTUATE SUBORDINATION.......................62
SECTION 15.06. NOTICE BY THE COMPANY.....................................62
SECTION 15.07. RIGHTS OF THE TRUSTEE; HOLDERS OF SENIOR
INDEBTEDNESS..............................................63
SECTION 15.08. SUBORDINATION MAY NOT BE IMPAIRED.........................63
ARTICLE XVI EXTENSION OF INTEREST PAYMENT PERIOD..........................64
SECTION 16.01. EXTENSION OF INTEREST PAYMENT PERIOD......................64
SECTION 16.02. NOTICE OF EXTENSION.......................................65
EXHIBIT A Form of Security; Trustee's Certificate of
Authentication...........................................A-1
<PAGE>
CROSS-REFERENCE TABLE*
of provisions of Trust Indenture Act of 1939 with Indenture dated as
of February 5, 1998 between Orion Capital Corporation and The Bank of New York,
as Trustee:
ACT SECTION INDENTURE SECTION
310(a)(1) ........................................... 6.09
(a)(2) ........................................... 6.09
310(a)(3) ........................................... N/A
(a)(4) ........................................... N/A
310(a)(5) ........................................... N/A
310(b) ........................................... 6.10, 6.11
310(c) ........................................... N/A
311(a) and (b) ........................................... 6.13
311(c) ........................................... N/A
312(a) ........................................... 4.01,
4.02(a)
312(b) and (c) ........................................... 4.02
313(a) ........................................... 4.04
313(b)(1) ........................................... 4.04
313(b)(2) ........................................... 4.04
313(c) ........................................... 4.04
313(d) ........................................... 4.04
314(a) ........................................... 4.03
314(b) ........................................... N/A
314(c)(1) and (2)........................................... 6.07
314(c)(3) ........................................... N/A
314(d) ........................................... N/A
314(e) ........................................... 6.07
314(f) ........................................... N/A
315(a)(c) and (d)........................................... 6.01
315(b) ........................................... 5.08
315(e) ........................................... 5.09
316(a)(1) ........................................... 5.07
316(a)(2) ........................................... N/A
316(a) last sentence........................................ 2.09
316(b) ........................................... 9.02
317(a) ........................................... 5.05
317(b) ........................................... 6.05
318(a) ........................................... 13.08
- ------------------
* This Cross-Reference Table does not constitute part of the Indenture as
executed and shall not affect the interpretation of any of its terms or
provisions.
<PAGE>
THIS INDENTURE, dated as of February 5, 1998, between Orion Capital
Corporation, a Delaware corporation (hereinafter sometimes called the
"Company"), and The Bank of New York, a New York banking corporation, as trustee
(hereinafter sometimes called the "Trustee").
W I T N E S S E T H :
In consideration of the premises, and the purchase of the Securities
by the holders thereof, the Company covenants and agrees with the Trustee for
the equal and proportionate benefit of the respective holders from time to time
of the Securities, as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS.
The terms defined in this Section 1.01 (except as herein otherwise
expressly provided or unless the context otherwise requires) for all purposes of
this Indenture shall have the respective meanings specified in this Section
1.01. All other terms used in this Indenture which are defined in the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), or which are by
reference therein defined in the Securities Act, shall (except as herein
otherwise expressly provided or unless the context otherwise requires) have the
meanings assigned to such terms in said Trust Indenture Act and in said
Securities Act as in force at the date of this Indenture as originally executed.
The following terms have the meanings given to them in the Declaration: (i)
Clearing Agency; (ii) Delaware Trustee; (iii) Depository; (iv) Capital Security
Certificate; (v) Property Trustee; (vi) Administrative Trustees; (vii) Direct
Action; and (viii) Purchase Agreement. All accounting terms used herein and not
expressly defined shall have the meanings assigned to such terms in accordance
with generally accepted accounting principles and the term "generally accepted
accounting principles" means such accounting principles as are generally
accepted at the time of any computation. The words "herein", "hereof" and
"hereunder" and other words of similar import refer to this Indenture as a whole
and not to any particular Article, Section or other subdivision. Headings are
used for convenience of reference only and do not affect interpretation. The
singular includes the plural and vice versa.
"Additional Interest" shall have the meaning set forth in the
Registration Rights Agreement.
"Additional Sums" shall have the meaning set forth in Section
2.06(c).
"Adjusted Treasury Rate" shall mean, with respect to any prepayment
date pursuant to Section 14.02, the rate per annum equal to the semi-annual
equivalent yield to maturity of the Comparable Treasury Issue, assuming a price
for the Comparable Treasury Issue (expressed as a percentage of its principal
amount) equal to the Comparable Treasury Price for such prepayment date plus
0.30%.
"Adverse Tax Consequence" shall have the meaning set forth in the
definition of Tax Event.
"Affiliate" shall mean, with respect to a specified Person, (a) any
Person directly or indirectly owning, controlling or holding the power to vote
20% or more of the outstanding voting securities or other ownership interests of
the specified Person, (b) any Person 20% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person, (c) any Person
directly or indirectly controlling, controlled by, or under common control with
the specified Person, and (d) a partnership in which the specified Person is a
general partner; provided, however, that Intercargo Corporation shall not be
deemed to be an Affiliate of the Company or Orion Capital Trust II.
"Authenticating Agent" shall mean any agent or agents of the Trustee
which at the time shall be appointed and acting pursuant to Section 6.14.
"Bankruptcy Law" shall mean Title 11, U.S. Code, or any similar
federal or state law for the relief of debtors.
"Board of Directors" shall mean either the Board of Directors of the
Company or any duly authorized committee of the Board of Directors.
"Board Resolution" shall mean a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" shall mean, with respect to any series of Securities,
any day other than a Saturday or a Sunday or a day on which banking institutions
in The City of New York, New York are authorized or required by law or executive
order to close.
"Capital Securities" shall mean undivided beneficial interests in
the assets of Orion Capital Trust II which rank pari passu with the Common
Securities issued by Orion Capital Trust II; provided, however, that if an Event
of Default has occurred and is continuing, no payments in respect of
distributions on, or payments upon liquidation, prepayment or otherwise with
respect to, the Common Securities shall be made until the holders of the Capital
Securities shall be paid in full the distributions and the liquidation,
prepayment and other payments to which they are entitled. References to "Capital
Securities" shall include collectively any Initial Capital Securities and
Exchange Capital Securities.
"Capital Securities Guarantee" shall mean any guarantee that the
Company may enter into with Orion Capital Trust II or other Persons that
operates directly or indirectly for the benefit of holders of Capital Securities
of Orion Capital Trust II and shall include an Initial Capital Securities
Guarantee and an Exchange Capital Securities Guarantee with respect to the
Initial Capital Securities and the Exchange Capital Securities, respectively.
"Commission" shall mean 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 Indenture 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" shall mean undivided beneficial interests in the
assets of Orion Capital Trust II which rank pari passu with Capital Securities
issued by Orion Capital Trust II; provided, however, that if an Event of Default
has occurred and is continuing, no payments in respect of Distributions on, or
payments upon liquidation, prepayment or otherwise with respect to, the Common
Securities shall be made until the holders of the Capital Securities shall be
paid in full the Distributions and the liquidation, prepayment and other
payments to which they are entitled.
"Common Securities Guarantee" shall mean any guarantee that the
Company may enter into with any Person or Persons that operates directly or
indirectly for the benefit of holders of Common Securities.
"Common Stock" shall mean the Common Stock, par value $1.00 per
share, of the Company or any other class of stock resulting from changes or
reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value.
"Company" shall mean Orion Capital Corporation, a Delaware
corporation, and, subject to the provisions of Article X, shall include its
successors and assigns.
"Company Request" or "Company Order" shall mean a written request or
order signed in the name of the Company by the Chairman, a Vice Chairman, the
Chief Executive Officer, the President, a Vice President (however designated),
the Secretary or an Assistant Secretary of the Company, and delivered to the
Trustee.
"Comparable Treasury Issue" shall mean the United States Treasury
security selected by the Quotation Agent as having a maturity comparable to the
Remaining Life that would be utilized, at the time of selection and in
accordance with customary financial practice, in pricing new issues of corporate
debt securities of comparable maturity to the Remaining Life.
"Comparable Treasury Price" shall mean, with respect to any
prepayment date pursuant to Section 14.01, (i) the average of the bid and asked
prices for the Comparable Treasury Issue (expressed in each case as a percentage
of its principal amount) on the third Business Day preceding such prepayment
date, as set forth in the daily statistical release (or any successor release)
published by the Federal Reserve Bank of New York and designated "Composite 3:30
p.m. Quotations for U.S. Government Securities" or (ii) if such release (or any
successor release) is not published or does not contain such prices on such
Business Day, (A) the average of the Reference Treasury Dealer Quotations for
such prepayment date, after excluding the highest and lowest such Reference
Treasury Dealer Quotations, or (B) if the Trustee obtains fewer than three such
Reference Treasury Dealer Quotations, the average of all such Quotations.
"Compounded Interest" shall have the meaning set forth in Section
16.01.
"Conditional Tax Redemption Event" shall have the meaning set forth
in Section 14.06.
"Custodian" shall mean any receiver, trustee, assignee, liquidator,
or similar official under any Bankruptcy Law.
"Declaration" shall mean the Amended and Restated Declaration of
Trust of Orion Capital Trust II, dated as of February 5, 1998.
"Default" shall mean any event, act or condition that with notice or
lapse of time, or both, would constitute an Event of Default.
"Deferred Interest" shall have the meaning set forth in Section
16.01.
"Definitive Securities" shall mean those Securities issued in fully
registered certificated form but not Securities issued in global form.
"Depositary" shall mean, with respect to Securities of any series,
for which the Company shall determine that such Securities will be issued as a
Global Security, The Depository Trust Company, New York, New York, another
clearing agency, or any successor registered as a clearing agency under the
Exchange Act or other applicable statute or regulation, which, in each case,
shall be designated by the Company pursuant to Section 2.05(d).
"Dissolution Event" shall mean the liquidation of the Trust pursuant
to the Declaration, and the distribution of the Securities held by the Property
Trustee to the holders of the Trust Securities issued by the Trust pro rata in
accordance with the Declaration.
"Event of Default" shall mean any event specified in Section 5.01,
continued for the period of time, if any, and after the giving of the notice, if
any, therein designated.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Capital Securities" shall mean 7.701% Capital Securities
(liquidation amount $1,000 per security) of Orion Capital Trust II, issued
pursuant to an Exchange Offer.
"Exchange Capital Securities Guarantee" shall mean the Capital
Securities Guarantee Agreement, issued pursuant to an Exchange Offer.
"Exchange Offer" shall mean the offer that may be made pursuant to
the Registration Rights Agreement (i) by the Company to exchange Exchange
Securities for Initial Securities and to exchange an Exchange Capital Securities
Guarantee for an Initial Capital Securities Guarantee and (ii) by Orion Capital
Trust II to exchange Exchange Capital Securities for Initial Capital Securities.
"Exchange Securities" shall mean the Company's 7.701% Junior
Subordinated Deferrable Interest Debentures due April 15, 2028, issued pursuant
to an Exchange Offer, as authenticated and issued under this Indenture.
"Extension Period" shall have the meaning set forth in Section
16.01.
"Global Securities" shall mean those Securities issued in global
form, and "Global Security" shall mean the Security executed by the Company and
delivered by the Trustee to the Depositary or pursuant to the Depositary's
instruction, all in accordance with the Indenture, which shall be registered in
the name of the Depositary or its nominee.
"Indebtedness for Money Borrowed" shall mean any obligation of, or
any obligation guaranteed by, the Company for the repayment of borrowed money,
whether or not evidenced by bonds, debentures, notes or other written
instruments.
"Indenture" shall mean this instrument as originally executed or, if
amended as herein provided, as so amended.
"Initial Capital Securities" shall mean 7.701% Capital Securities
(liquidation amount $1,000 per security) of Orion Capital Trust II.
"Initial Capital Securities Guarantee" shall mean the Capital
Securities Guarantee Agreement, dated February 5, 1998, between the Company and
The Bank of New York, as guarantee trustee.
"Initial Securities" shall mean the Company's 7.701% Junior
Subordinated Deferrable Interest Debentures due April 15, 2028, as authenticated
and issued under this Indenture.
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended.
"Investment Company Event" shall mean that the Company shall have
received an opinion of an independent counsel experienced in practice under the
Investment Company Act, to the effect that, as a result of the occurrence of a
change in law or regulation or a change in interpretation or application of law
or regulation by any legislative body, court, governmental agency or regulatory
authority (a "Change in Investment Company Act Law"), there is more than an
insubstantial risk that Orion Capital Trust II is or will be considered an
"investment company" which is required to be registered under the Investment
Company Act, which Change in Investment Company Act Law becomes effective on or
after February 5, 1998.
"Interest Payment Date" shall have the meaning set forth in Section
2.06.
"Non Book-Entry Capital Securities" shall have the meaning set
forth in Section 2.05.
"Officers" shall mean any of the Chairman, a Vice Chairman, the
Chief Executive Officer, the President, a Vice President (however designated),
the Secretary or an Assistant Secretary of the Company.
"Officers' Certificate" shall mean a certificate signed by two
Officers and delivered to the Trustee.
"Opinion of Counsel" shall mean a written opinion of counsel, who
may be an employee of the Company, and who shall be acceptable to the Trustee.
"Optional Prepayment Price" shall mean the greater of (i) 100% of
the principal amount to be prepaid or (ii) the sum, as determined by a Quotation
Agent, of the present values of the remaining scheduled payments of principal to
be prepaid and interest thereon discounted to the prepayment date on a
semi-annual basis (assuming a 360-day year consisting of twelve 30-day months)
at the Adjusted Treasury Rate, plus, in either case, accrued and unpaid interest
thereon to the date of prepayment and any Additional Sums.
"Orion Capital Trust II" or "Trust" shall mean Orion Capital Trust
II, a Delaware business trust created for the purpose of issuing its undivided
beneficial interests in connection with the issuance of Securities under this
Indenture.
"Other Debentures" shall mean only those junior subordinated
debentures issued by the Company from time to time and sold to trusts to be
established by the Company (if any), which are in each case similar to Orion
Capital Trust II.
"Other Guarantees" shall mean all guarantees to be issued by the
Company with respect to capital securities (if any) and issued to other trusts,
or to any trustee of such trusts or other entities affiliated with the Company
that are financing vehicles of the Company.
The term "outstanding" when used with reference to Securities,
shall, subject to the provisions of Section 7.04, mean, as of any particular
time, all Securities authenticated and delivered by the Trustee or the
Authenticating Agent under this Indenture, except
(a)...Securities theretofore cancelled by the Trustee or the
Authenticating Agent or delivered to the Trustee for cancellation;
(b)...Securities, or portions thereof, for the payment or prepayment
of which moneys in the necessary amount shall have been deposited in trust with
the Trustee or with any paying agent (other than the Company) or shall have been
set aside and segregated in trust by the Company (if the Company shall act as
its own paying agent); provided that, if such Securities, or portions thereof,
are to be prepaid prior to maturity thereof, notice of such prepayment shall
have been given as in Article XIV provided or provision satisfactory to the
Trustee shall have been made for giving such notice; and
(c)...Securities in lieu of or in substitution for which other
Securities shall have been authenticated and delivered pursuant to the terms of
Section 2.08 unless proof satisfactory to the Company and the Trustee is
presented that any such Securities are held by bona fide holders in due course.
"Person" shall mean any individual, corporation, estate,
partnership, joint venture, association, joint-stock company, limited liability
company, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Predecessor Security" of any particular Security shall mean every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 2.08 in lieu of a lost,
destroyed or stolen Security shall be deemed to evidence the same debt as the
lost, destroyed or stolen Security.
"Prepayment Price" shall mean the Optional Prepayment Price or the
Special Event Prepayment Price, as the context requires.
The term "principal office of the Trustee", or other similar term,
shall mean the principal office of the Trustee, at which at any particular time
its corporate trust business shall be administered.
"Property Trustee" shall have the same meaning as set forth in the
Declaration.
"Purchase Agreement" shall mean the Purchase Agreement dated
February 2, 1998 among the Company, Orion Capital Trust II and the Initial
Purchasers as defined therein.
"Quotation Agent" shall mean the Reference Treasury Dealer.
"Reference Treasury Dealer" shall mean (i) Donaldson, Lufkin &
Jenrette Securities Corporation and its successors; provided, however, that if
the foregoing shall cease to be a primary U.S. Government securities dealer in
New York City (a "Primary Treasury Dealer"), the Company shall substitute
therefor another Primary Treasury Dealer, and (ii) any other Primary Treasury
Dealer selected by the Trustee after consultation with the Company.
"Reference Treasury Dealer Quotations" shall mean, with respect to
each Reference Treasury Dealer and any prepayment date pursuant to Section
14.01, the average, as determined by the Trustee, of the bid and asked prices
for the Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted to the Trustee by such Reference Treasury Dealer at
5:00 p.m. New York City time, on the third Business Day preceding such
prepayment date.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement, dated as of February 5, 1998, by and among the Company, Orion Capital
Trust II and the Initial Purchasers, as such agreement may be amended, modified
or supplemented from time to time.
"Regular Record Date" with respect to the payment of interest
installments on the Securities, shall mean the fifteenth day preceding the
relevant Interest Payment Date. If a Regular Record Date is not a Business Day,
such Regular Record Date shall be deemed to be the next preceding Business Day.
"Remaining Life" shall mean the period from the prepayment date
pursuant to Section 14.01 to the Stated Maturity.
"Responsible Officer," when used with respect to the Trustee, shall
mean the chairman or any vice chairman of the board of directors, the chairman
or any vice chairman of the executive committee of the board of directors, the
chairman of the trust committee, the president, any vice president, any
assistant vice president, the cashier, any assistant cashier, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, any trust officer
or assistant trust officer, the controller or any assistant controller or any
other officer or assistant officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Restricted Security" shall mean Securities that bear or are
required to bear the legends set forth in Exhibit A hereto.
"Rule 144A" shall mean Rule 144A under the Securities Act, as such
Rule may be amended from time to time, or under any similar rule or regulation
hereafter adopted by the Commission.
"Securities" shall mean, collectively, the Initial Securities and
the Exchange Securities.
"Securities Act" shall mean the Securities Act of 1933 as amended.
"Securityholder", "holder of Securities", or other similar terms,
shall mean any person in whose name at the time a particular Security is
registered on the register kept by the Company or the Trustee for that purpose
in accordance with the terms hereof.
"Security Register" shall mean (i) prior to a Dissolution Event, the
list of holders kept by a Securities registrar or provided to the Trustee
pursuant to Section 4.01, as the case may be and (ii) following a Dissolution
Event, any security register maintained by a security registrar for the
securities appointed by the Company following the execution of a supplemental
indenture providing for transfer procedures as provided for in Section 2.07(a).
"Senior Indebtedness" shall mean with respect to the Company, (i)
the principal, premium, if any, and interest in respect of (A) Indebtedness for
Money Borrowed and (B) indebtedness evidenced by securities, notes, debentures,
bonds or other similar instruments issued by the Company, (ii) all capital lease
obligations of the Company, (iii) all obligations of the Company issued or
assumed as the deferred purchase price of property, all conditional sale
obligations of the Company and all obligations of the Company under any
conditional sale or title retention agreement (but excluding trade accounts
payable arising in the ordinary course of business), (iv) all obligations,
contingent or otherwise of the Company in respect of any letter of credit,
banker's acceptance, security purchase facilities or similar credit transaction,
(v) all obligations in respect of interest rate swap, cap or other agreements,
interest rate future or option contracts, currency swap agreements, currency
future or option contracts and other similar agreements, (vi) all obligations of
the type referred to in clauses (i) through (v) above of other persons for the
payment of which the Company is responsible or liable as obligor, guarantor or
otherwise and (vii) all obligations of the type referred to in clauses (i)
through (vi) above of other persons secured by any lien on any property or asset
of the Company (whether or not such obligation is assumed by the Company),
except for (1) any such indebtedness that is by its terms subordinated to or
pari passu with the Junior Subordinated Debentures and (2) any indebtedness
between or among the Company or its affiliates, including all other debt
securities and guarantees in respect of those debt securities issued to (a) any
other Orion Capital Trust or a trustee of such trust and (b) any other trust, or
of a trustee of such trust, or of a partnership or other entity affiliated with
the Company that is a financing vehicle of the Company (a "financing entity") in
connection with the issuance by such a financing entity of preferred securities
or other securities that rank pari passu with, or junior to, the Capital
Securities. Such Senior Indebtedness shall continue to be Senior Indebtedness
and be entitled to the benefits of the subordination provisions irrespective of
any amendment, modification or waiver of any term of such Senior Indebtedness.
"Special Event" shall mean either an Investment Company Event or a
Conditional Tax Redemption Event, as the case may be.
"Special Event Adjusted Treasury Rate" means, with respect to any
prepayment date, the rate per annum equal to the semi-annual equivalent yield to
maturity of the Comparable Treasury Issue, assuming a price for the Comparable
Treasury Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such prepayment date plus (i) 1.55% if such
prepayment date occurs on or prior to February 1, 1999 and (ii) 0.50% in all
other cases.
"Special Event Prepayment Price" shall mean, with respect to any
prepayment of the Securities pursuant to Section 14.01 hereof, an amount in cash
equal to the greater of (i) 100% of the principal amount thereof or (ii) the
sum, as determined by a Quotation Agent, of the present values of the remaining
scheduled payments of principal and interest thereon discounted to the
prepayment date on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months and, for any period less than 6 months, the actual months
elapsed and the actual days elapsed in a partial month in such period) at the
Special Event Adjusted Treasury Rate plus, in each case, accrued and unpaid
interest thereon, including Compounded Interest, Additional Interest and
Additional Sums, if any, to the date of such prepayment.
"Stated Maturity" shall mean April 15, 2028, or such other date to
which the maturity of the Securities is changed pursuant to the right of the
Company to shorten the stated maturity pursuant to the provisions of Section
14.06.
"Subsidiary" shall mean with respect to any Person, (i) any
corporation at least a majority of the outstanding voting stock of which is
owned, directly or indirectly, by such Person or by one or more of its
Subsidiaries, or by such Person and one or more of its Subsidiaries, (ii) any
general partnership, joint venture or similar entity, at least a majority of
whose outstanding partnership or similar interests shall at the time be owned by
such Person, or by one or more of its Subsidiaries, or by such Person and one or
more of its Subsidiaries and (iii) any limited partnership of which such Person
or any of its Subsidiaries is a general partner. For the purposes of this
definition, "voting stock" means shares, interests, participations or other
equivalents in the equity interest (however designated) in such Person having
ordinary voting power for the election of a majority of the directors (or the
equivalent) of such Person, other than shares, interests, participations or
other equivalents having such power only by reason of the occurrence of a
contingency.
"Tax Event" shall mean the receipt by Orion Capital Trust II and the
Company of an opinion of counsel experienced in such matters to the effect that,
as a result of any amendment to, or change (including any announced prospective
change) in, the laws or any regulations thereunder of the United States or any
political subdivision or taxing authority thereof or therein or as a result of
any official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after February 5, 1998, or,
as a result of a final determination, as evidenced by the execution of a Form
870 AD, arising from an audit or examination by the Internal Revenue Service,
there is more than an insubstantial risk that (i) Orion Capital Trust II is, or
will be within 90 days of the date of such opinion, subject to United States
Federal income tax with respect to income received or accrued on the Securities,
(ii) interest payable by the Company on the Securities is not, or within 90 days
of the date of such opinion, will not be, deductible by the Company, in whole or
in part, for United States Federal income tax purposes, or (iii) Orion Capital
Trust II is, or will be within 90 days of the date of such opinion, subject to
more than a de minimis amount of other taxes, duties or other governmental
charges (each of the circumstances referred to in clauses (i), (ii) and (iii)
being referred to herein as an "Adverse Tax Consequence").
"Tax Event Maturity Shortening" shall have the meaning specified in
Section 14.06.
"Trustee" shall mean the Person identified as "Trustee" in the first
paragraph hereof, and, subject to the provisions of Article VI hereof, shall
also include its successors and assigns as Trustee hereunder. The term "Trustee"
as used with respect to a particular series of the Securities shall mean the
trustee with respect to that series.
"Trust Indenture Act of 1939" shall mean the Trust Indenture Act of
1939 as in force at the date of execution of this Indenture, except as provided
in Section 9.03.
"Trust Securities" shall mean the Capital Securities and the Common
Securities, collectively.
"U.S. Government Obligations" shall mean securities that are (i)
direct obligations of the United States of America for the payment of which its
full faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case under
clauses (i) or (ii) are not callable or prepayable at the option of the issuer
thereof, and shall also include a depository receipt issued by a bank or trust
company as custodian with respect to any such U.S. Government Obligation or a
specific payment of interest on or principal of any such U.S. Government
Obligation held by such custodian for the account of the holder of a depository
receipt, provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
U.S. Government Obligation or the specific payment of interest on or principal
of the U.S. Government Obligation evidenced by such depository receipt.
ARTICLE II
SECURITIES
SECTION 2.01. FORMS GENERALLY.
The Securities and the Trustee's certificate of authentication shall
be substantially in the form set forth in Exhibit A, the terms of which are
incorporated in and made a part of this Indenture. The Securities may have
notations, legends or endorsements required by law, stock exchange rule,
agreements to which the Company is subject or usage. Each Security shall be
dated the date of its authentication. The Securities shall be issued in
denominations of $1,000 and integral multiples thereof.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Securities for the Company by manual or
facsimile signature. If an Officer whose signature is on a Security no longer
holds that office at the time the Security is authenticated, the Security shall
nevertheless be valid.
A Security shall not be valid until authenticated by the manual
signature of the Trustee. The signature of the Trustee shall be conclusive
evidence that the Security has been authenticated under this Indenture. The form
of Trustee's certificate of authentication to be borne by the Securities shall
be substantially as set forth in Exhibit A hereto.
The Trustee shall, upon a Company Order, authenticate for original
issue up to, and the aggregate principal amount of Securities outstanding at any
time may not exceed $129,000,000 aggregate principal amount of the Securities;
except as provided in Sections 2.07, 2.08, 2.10 and 14.05. The series of
Securities to be initially issued hereunder shall be the Initial Securities.
SECTION 2.03. FORM AND PAYMENT.
Except as provided in Section 2.05, the Securities shall be issued
in fully registered certificated form without interest coupons. Principal of and
premium, if any, and interest on the Securities issued in certificated form will
be payable, the transfer of such Securities will be registrable and such
Securities will be exchangeable for Securities bearing identical terms and
provisions at the office or agency of the Company maintained for such purpose
under Section 3.02; provided, however, that payment of interest with respect to
Securities may be made at the option of the Company (i) by check mailed to the
holder at such address as shall appear in the Security Register or (ii) by
transfer to an account maintained by the Person entitled thereto, provided that
proper transfer instructions have been received in writing by the relevant
record date. Notwithstanding the foregoing, so long as the holder of any
Securities is the Property Trustee, the payment of the principal of and premium,
if any, and interest (including Compounded Interest and Additional Sums, if any)
on such Securities held by the Property Trustee will be made at such place and
to such account as may be designated by the Property Trustee.
SECTION 2.04. LEGENDS.
(a)...Except as permitted by subsection (b) of this Section 2.04 or
as otherwise determined by the Company in accordance with applicable law, each
Security shall bear the applicable legends relating to restrictions on transfer
pursuant to the securities laws in substantially the form set forth on Exhibit A
hereto.
(b)...The Company shall issue and the Trustee shall authenticate
Exchange Securities in exchange for Initial Securities accepted for exchange in
the Exchange Offer, which Exchange Securities shall not bear the legends
required by subsection (a) above, in each case unless the holder of such Initial
Securities is either (A) a broker-dealer who purchased such Initial Securities
directly from the Company for resale pursuant to Rule 144A or any other
available exemption under the Securities Act, (B) a Person participating in the
distribution of the Initial Securities or (C) a Person who is an affiliate (as
defined in Rule 144 under the Securities Act) of the Company.
SECTION 2.05. GLOBAL SECURITY.
(a)...In connection with a Dissolution Event,
..................(i) if any Capital Securities are held in book-entry form, the
related Definitive Securities shall be presented to the Trustee (if an
arrangement with the Depositary has been maintained) by the Property Trustee in
exchange for one or more Global Securities (as may be required pursuant to
Section 2.07) in an aggregate principal amount equal to the aggregate principal
amount of all such outstanding Securities, to be registered in the name of the
Depositary, or its nominee, and delivered by the Trustee to the Depositary for
crediting to the accounts of its participants pursuant to the instructions of
the Administrative Trustees; the Company upon any such presentation shall
execute one or more Global Securities in such aggregate principal amount and
deliver the same to the Trustee for authentication and delivery in accordance
with this Indenture; and payments on the Securities issued as a Global Security
will be made to the Depositary; and
..................(ii) if any Capital Securities are held in certificated form,
the related Definitive Securities may be presented to the Trustee by the
Property Trustee and any Capital Security certificate which represents Capital
Securities other than Capital Securities in book-entry form ("Non Book-Entry
Capital Securities") will be deemed to represent beneficial interests in
Securities presented to the Trustee by the Property Trustee having an aggregate
principal amount equal to the aggregate liquidation amount of the Non Book-Entry
Capital Securities until such Capital Security certificates are presented to the
Security registrar for transfer or reissuance, at which time such Capital
Security certificates will be cancelled and a Security, registered in the name
of the holder of the Capital Security certificate, with an aggregate principal
amount equal to the aggregate liquidation amount of the Capital Security
certificate cancelled, will be executed by the Company and delivered to the
Trustee for authentication and delivery in accordance with this Indenture. Upon
the issuance of such Securities, Securities with an equivalent aggregate
principal amount that were presented by the Property Trustee to the Trustee will
be deemed to have been cancelled.
(b)...The Global Securities shall represent the aggregate amount of
outstanding Securities from time to time endorsed thereon; provided, that the
aggregate amount of outstanding Securities represented thereby may from time to
time be reduced or increased, as appropriate, to reflect exchanges and
prepayments. Any endorsement of a Global Security to reflect the amount of any
increase or decrease in the amount of outstanding Securities represented thereby
shall be made by the Trustee, in accordance with applicable procedures
established by the Depositary.
(c)...The Global Securities may be transferred, in whole but not in
part, only to another nominee of the Depositary, or to a successor Depositary
selected or approved by the Company or to a nominee of such successor
Depositary.
(d)...If at any time the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary or the Depositary has ceased to be
a clearing agency registered under the Exchange Act, and a successor Depositary
is not appointed by the Company within 90 days after the Company receives such
notice or becomes aware of such condition, as the case may be, the Company will
execute, and the Trustee, upon written notice from the Company, will
authenticate and make available for delivery Definitive Securities, in
authorized denominations and in an aggregate principal amount equal to the
principal amount of the Global Security in exchange for such Global Security. If
there is an Event of Default, the Depositary shall have the right to exchange
the Global Securities for Definitive Securities. In addition, the Company may at
any time determine that the Securities shall no longer be represented by a
Global Security. In the event of such an Event of Default or such a
determination, the Company shall execute, and subject to Section 2.07, the
Trustee, upon receipt of an Officers' Certificate evidencing such determination
by the Company, will authenticate and make available for delivery Definitive
Securities, in authorized denominations and in an aggregate principal amount
equal to the principal amount of the Global Security in exchange for such Global
Security. Upon the exchange of the Global Security for such Definitive
Securities, in authorized denominations, the Global Security shall be cancelled
by the Trustee. Such Definitive Securities issued in exchange for the Global
Security shall be registered in such names and in such authorized denominations
as the Depositary, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee shall deliver
such Definitive Securities to the Depositary for delivery to the Persons in
whose names such Definitive Securities are so registered.
SECTION 2.06. INTEREST.
(a)...Each Security will bear interest at the rate of 7.701% per
annum (the "Coupon Rate") from the most recent date to which interest has been
paid or, if no interest has been paid, from February 5, 1998, until the
principal thereof becomes due and payable, and on any overdue principal and
premium, if any, and (to the extent that payment of such interest is enforceable
under applicable law) on any overdue installment of interest at the Coupon Rate,
compounded semi-annually, payable (subject to the provisions of Article XVI)
semi-annually in arrears on April 15 and October 15 of each year (each, an
"Interest Payment Date") commencing on April 15, 1998, to the Person in whose
name such Security or any predecessor Security is registered on the books of the
Company, at the close of business on the Regular Record Date for such interest
installment.
(b)...Interest will be computed on the basis of a 360-day year
consisting of twelve 30-day months and, for any period less than six months, the
actual months elapsed and the actual days elapsed in a partial month in such
period. In the event that any Interest Payment Date falls on a day that is not a
Business Day, then payment of interest payable on such date will be made on the
next succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), with the same force and effect as if made
on such date.
(c)...During such time as the Property Trustee is the holder of any
Securities, the Company shall pay any additional amounts on the Securities as
may be necessary in order that the amount of Distributions then due and payable
by Orion Capital Trust II on the outstanding Trust Securities shall not be
reduced as a result of any additional taxes, duties and other governmental
charges to which the Trust has become subject as a result of a Tax Event
("Additional Sums").
SECTION 2.07. TRANSFER AND EXCHANGE.
(a)...TRANSFER RESTRICTIONS. The Initial Securities, and those
Exchange Securities with respect to which any Person described in Section
2.04(b)(A), (B) or (C) is the beneficial owner, may not be transferred except in
compliance with any legend contained in Exhibit A unless otherwise determined by
the Company in accordance with applicable law. Upon any distribution of the
Securities following a Dissolution Event, the Company and the Trustee shall
enter into a supplemental indenture pursuant to Section 9.01 to provide for the
transfer restrictions and procedures with respect to the Securities
substantially similar to those contained in the Declaration to the extent
applicable in the circumstances existing at such time.
(b)...GENERAL PROVISIONS RELATING TO TRANSFERS AND EXCHANGES. To
permit registrations of transfers and exchanges, the Company shall execute and
the Trustee shall authenticate Definitive Securities and Global Securities at
the Trustee's request. All Definitive Securities and Global Securities issued
upon any registration of transfer or exchange of Definitive Securities or Global
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Definitive
Securities or Global Securities surrendered upon such registration of transfer
or exchange.
No service charge shall be made to a holder for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
therewith.
The Company shall not be required to (i) issue, register the
transfer of or exchange Securities during a period beginning at the opening of
business 30 days before the day of mailing of a notice of prepayment or any
notice of selection of Securities for prepayment under Article XIV hereof and
ending at the close of business on the day of such mailing; or (ii) register the
transfer of or exchange any Security so selected for prepayment in whole or in
part, except the unprepaid portion of any Security being prepaid in part.
Prior to due presentment for the registration of a transfer of any
Security, the Trustee, any agent and the Company may deem and treat the Person
in whose name any Security is registered as the absolute owner of such Security
for the purpose of receiving payment of principal of and premium, if any, and
interest on such Securities, and neither the Trustee, any agent nor the Company
shall be affected by notice to the contrary.
(c)...EXCHANGE OF INITIAL SECURITIES FOR EXCHANGE SECURITIES.
The Initial Securities may be exchanged for Exchange Securities pursuant to
the terms of the Exchange Offer. The Trustee shall make the exchange as
follows:
The Company shall present the Trustee with an Officers' Certificate
certifying the following:
..................(i) upon issuance of the Exchange Securities, the
transactions contemplated by the Exchange Offer have been consummated; and
..................(ii) the principal amount of Initial Securities properly
tendered in the Exchange Offer that are represented by a Global Security and the
principal amount of Initial Securities properly tendered in the Exchange Offer
that are represented by Definitive Securities, the name of each holder of such
Definitive Securities, the principal amount at maturity properly tendered in the
Exchange Offer by each such holder and the name and address to which Definitive
Securities for Exchange Securities shall be registered and sent for each such
holder.
The Trustee, upon receipt of (i) such Officers' Certificate, (ii) an
Opinion of Counsel (x) to the effect that the Exchange Securities have been
registered under Section 5 of the Securities Act and the Indenture has been
qualified under the Trust Indenture Act and (y) with respect to the matters set
forth in Section 3(p) of the Registration Rights Agreement and (iii) a Company
Order, shall authenticate (A) a Global Security for Exchange Securities in
aggregate principal amount equal to the aggregate principal amount of Initial
Securities represented by a Global Security indicated in such Officers'
Certificate as having been properly tendered and (B) Definitive Securities
representing Exchange Securities registered in the names of, and in the
principal amounts indicated in, such Officers' Certificate.
If the principal amount at Stated Maturity of the Global Security
for the Exchange Securities is less than the principal amount at Stated Maturity
of the Global Security for the Initial Securities, the Trustee shall make an
endorsement on such Global Security for the Initial Securities indicating a
reduction in the principal amount at maturity represented thereby.
The Trustee shall deliver such Definitive Securities for Exchange
Securities to the holders thereof as indicated in such Officers' Certificate.
SECTION 2.08. REPLACEMENT SECURITIES.
(a)...If any mutilated Security is surrendered to the Trustee or the
Company, or the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Security, the Company shall issue and the
Trustee shall authenticate a replacement Security if the Trustee's requirements
for replacements of Securities are met. An indemnity bond must be supplied by
the Securityholder that is sufficient in the judgment of the Trustee and the
Company to protect the Company, the Trustee, any Agent or any authenticating
agent from any loss that any of them may suffer if a Security is replaced. The
Company or the Trustee may charge for its expenses in replacing a Security.
(b)...Every replacement Security is an obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Securities duly issued hereunder.
(c)...The provisions of this Section 2.08 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement of mutilated, destroyed, lost or stolen Securities.
SECTION 2.09. TREASURY SECURITIES.
In determining whether the holders of the required principal amount
of Securities have concurred in any direction, waiver or consent, Securities
owned by the Company or any Affiliate of the Company shall be considered as
though not outstanding, except that for purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Securities that the Trustee actually knows to be so owned shall be so
considered.
SECTION 2.10. TEMPORARY SECURITIES.
Pending the preparation of Definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and make
available for delivery, temporary Securities that are printed, lithographed,
typewritten, mimeographed or otherwise reproduced, in any authorized
denomination, substantially of the tenor of the Definitive Securities in lieu of
which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Securities may
determine, as conclusively evidenced by their execution of such Securities.
If temporary Securities are issued, the Company shall cause
Definitive Securities to be prepared without unreasonable delay. The Definitive
Securities shall be printed, lithographed or engraved, or provided by any
combination thereof, or in any other manner permitted by the rules and
regulations of any applicable securities exchange, all as determined by the
Officers executing such Definitive Securities. 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 maintained by the Company for such purpose pursuant to Section 3.02
hereof, without charge to the Holder. Upon surrender for cancellation of any one
or more temporary Securities, the Company shall execute, and the Trustee shall
authenticate and make available for delivery, in exchange therefor the same
aggregate principal amount of Definitive Securities of authorized denominations.
Until so exchanged, the temporary Securities shall in all respects be entitled
to the same benefits under this Indenture as Definitive Securities.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Trustee and no one else shall cancel all Securities
surrendered for registration of transfer, exchange, payment, replacement or
cancellation and shall return the cancelled Securities to the Company in
accordance with its normal practices (subject to the record retention
requirement of the Exchange Act) unless the Company directs them to be returned
to it. The Company may not issue new Securities to replace Securities that have
been prepaid or paid or that have been delivered to the Trustee for
cancellation.
SECTION 2.12. DEFAULTED INTEREST.
Any interest on any Security that is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the holder on the
relevant Regular Record Date by virtue of having been such holder; and such
Defaulted Interest shall be paid by the Company, at its election, as provided in
clause (a) or clause (b) below:
(a)...The Company may make payment of any Defaulted Interest on
Securities to the Persons in whose names such Securities (or their respective
Predecessor Securities) are registered at the close of business on a special
record date for the payment of such Defaulted Interest, which shall be fixed in
the following manner: the Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each such Security and the
date of the proposed payment, and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the proposed
payment, such money when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as in this clause provided.
Thereupon the Trustee shall fix a special record date for the payment of such
Defaulted Interest which shall not be more than 30 nor 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 Securityholder at his or her address as it
appears in the Security Register, not less than 10 days prior to 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 such Securities (or their
respective Predecessor Securities) are registered on such special record date
and shall be no longer payable pursuant to the following clause (b).
(b)...The Company may make payment of any Defaulted Interest on any
Securities in any other lawful manner not inconsistent with the requirements of
any securities exchange on which such Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause, such
manner of payment shall be deemed practicable by the Trustee.
SECTION 2.13. CUSIP NUMBERS.
The Company in issuing the Securities may use "CUSIP" numbers (if
then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in
notices of prepayment as a convenience to Securityholders; provided that any
such notice may state that no representation is made as to the correctness of
such numbers either as printed on the Securities or as contained in any notice
of a prepayment and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such prepayment shall not be affected
by any defect in or omission of such numbers. The Company will promptly notify
the Trustee of any change in the CUSIP numbers.
ARTICLE III
PARTICULAR COVENANTS OF THE COMPANY
SECTION 3.01. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company covenants and agrees for the benefit of the
Securityholders that it will duly and punctually pay or cause to be paid the
principal of and premium, if any, and interest on the Securities at the place,
at the respective times and in the manner provided herein. Except as provided in
Section 2.03, each installment of interest on the Securities may be paid by
mailing checks for such interest payable to the order of the Securityholder
entitled thereto, as it may appear in the Securities register. The Company
further covenants to pay any and all amounts including, without limitation,
Additional Interest, if any, on the dates and in the manner required under the
Registration Rights Agreement.
SECTION 3.02. OFFICES FOR NOTICES AND PAYMENTS, ETC.
So long as any of the Securities remains outstanding, the Company
will maintain in The City of New York, New York, an office or agency where the
Securities may be presented for payment, an office or agency where the
Securities may be presented for registration of transfer and for exchange as in
this Indenture provided and an office or agency where notices and demands to or
upon the Company in respect of the Securities or of this Indenture may be
served. The Company will give to the Trustee written notice of the location of
any such office or agency and of any change of location thereof. Until otherwise
designated from time to time by the Company in a notice to the Trustee, any such
office or agency for all of the above purposes shall be the office or agency of
The Bank of New York, 101 Barclay Street, Floor 21W, New York, New York 10286,
Attention: Corporate Trust Administration. In case the Company shall fail to
maintain any such office or agency in The City of New York, New York, or shall
fail to give such notice of the location or of any change in the location
thereof, presentations and demands may be made and notices may be served at the
principal corporate trust office of the Trustee.
In addition to any such office or agency, the Company may from time
to time designate one or more offices or agencies outside The City of New York,
New York where the Securities may be presented for registration of transfer and
for exchange in the manner provided in this Indenture, and the Company may from
time to time rescind such designation, as the Company may deem desirable or
expedient; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain any such office or
agency in the City of New York, New York, for the purposes above mentioned. The
Company will give to the Trustee prompt written notice of any such designation
or rescission thereof.
SECTION 3.03. APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S OFFICE.
The Company, whenever necessary to avoid or fill a vacancy in the
office of Trustee, will appoint, in the manner provided in Section 6.10, a
Trustee, so that there shall at all times be a Trustee hereunder.
SECTION 3.04. PROVISION AS TO PAYING AGENT.
(a)...If the Company shall appoint a paying agent other than the
Trustee with respect to the Securities, it will cause such paying agent to
execute and deliver to the Trustee an instrument in which such agent shall agree
with the Trustee, subject to the provision of this Section 3.04,
..................(i) that it will hold all sums held by it as such agent for
the payment of the principal of and premium, if any, or interest on the
Securities (whether such sums have been paid to it by the Company or by any
other obligor on the Securities) in trust for the benefit of the holders of the
Securities;
..................(ii) that it will give the Trustee notice of any failure by
the Company (or by any other obligor on the Securities) to make any payment of
the principal of and premium or interest on the Securities when the same shall
be due and payable; and
..................(iii) that it will at any time during the continuance of any
such failure, upon the written request of the Trustee, forthwith pay to the
Trustee all sums so held in trust by it as such paying agent.
(b)...If the Company shall act as its own paying agent, it will, on
or before each due date of the principal of and premium, if any, or interest on
the Securities, set aside, segregate and hold in trust for the benefit of the
holders of the Securities a sum sufficient to pay such principal, premium or
interest so becoming due and will notify the Trustee of any failure to take such
action and of any failure by the Company (or by any other obligor under the
Securities) to make any payment of the principal of and premium, if any, or
interest on the Securities when the same shall become due and payable.
(c)...Anything in this Section 3.04 to the contrary notwithstanding,
the Company may, at any time, for the purpose of obtaining a satisfaction and
discharge with respect to the Securities hereunder, or for any other reason, pay
or cause to be paid to the Trustee all sums held in trust for any such
Securities by the Trustee or any paying agent hereunder, as required by this
Section 3.04, such sums to be held by the Trustee upon the trusts herein
contained.
(d)...Anything in this Section 3.04 to the contrary notwithstanding,
the agreement to hold sums in trust as provided in this Section 3.04 is subject
to Sections 11.03 and 11.04.
SECTION 3.05. CERTIFICATE TO TRUSTEE.
The Company will deliver to the Trustee on or before 120 days after
the end of each fiscal year in each year, commencing with the first fiscal year
ending after the date hereof, so long as Securities are outstanding hereunder,
an Officers' Certificate, one of the signers of which shall be the principal
executive, principal financial or principal accounting officer of the Company,
stating that in the course of the performance by the signers of their duties as
officers of the Company they would normally have knowledge of any Default by the
Company in the performance of any covenants contained herein, stating whether or
not they have knowledge of any such Default and, if so, specifying each such
Default of which the signers have knowledge and the nature thereof.
SECTION 3.06. COMPLIANCE WITH CONSOLIDATION PROVISIONS.
The Company will not, while any of the Securities remains
outstanding, consolidate with, or merge into, or merge into itself, or sell or
convey all or substantially all of its property to any other Person unless the
provisions of Article X hereof are complied with.
SECTION 3.07. LIMITATION ON DIVIDENDS.
If at any time (i) there shall have occurred any event of which the
Company has actual knowledge that (a) is or with the giving of notice or the
lapse of time, or both, would constitute an Event of Default and (b) which the
Company shall not have taken reasonable steps to cure, (ii) Securities are held
by the Property Trustee and the Company shall be in default with respect to its
payment of any obligations under the Capital Securities Guarantee, or (iii) the
Company shall have given notice of its election of the exercise of its right to
extend the interest payment period pursuant to Section 16.01 and any such
extension shall be continuing, then the Company will not, and will not permit
any Subsidiary to,
..................(i) declare or pay any dividends or distributions on, or
prepay, purchase, acquire, or make a liquidation payment with respect to, any of
the Company's capital stock (which includes common and preferred stock);
..................(ii) make any payment of principal, interest or premium, if
any, on or repay or repurchase or prepay any debt securities of the Company
(including any Other Debentures) that rank pari passu with or junior in right of
payment to the Securities; or
..................(iii) make any guarantee payments with respect to any
guarantee by the Company of the debt securities of any Subsidiary of the Company
(including Other Guarantees) if such guarantee ranks pari passu with or junior
in right of payment to the Securities other than (a) dividends or distributions
in shares of, or options, warrants or rights to subscribe for or purchase shares
of, Common Stock of the Company, (b) any declaration of a dividend in connection
with the implementation of a stockholders' rights plan, or the issuance of stock
under any such plan in the future, or the prepayment or repurchase of any such
rights pursuant thereto, (c) payments under the Capital Securities Guarantee,
(d) as a direct result of, and only to the extent necessary to avoid the
issuance of fractional shares of the Company's capital stock following, a
reclassification of the Company's capital stock or the exchange or the
conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock, (e) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being converted or
exchanged, and (f) purchases of Common Stock related to the issuance of Common
Stock or rights under any of the Company's benefit plans for its directors,
officers or employees or any of the Company's dividend reinvestment plans.
SECTION 3.08. COVENANTS AS TO ORION CAPITAL TRUST II.
In the event Securities are issued to Orion Capital Trust II or a
trustee of such trust in connection with the issuance of Trust Securities by
Orion Capital Trust II, for so long as any of such Trust Securities remains
outstanding, the Company will (i) directly or indirectly maintain 100% ownership
of the Common Securities of Orion Capital Trust II; provided, however, that any
successor of the Company, permitted pursuant to Article X, may succeed to the
Company's ownership of such Common Securities, (ii) use its reasonable efforts
to cause Orion Capital Trust II (a) to remain a business trust, except in
connection with a distribution of Securities, the redemption of all of the Trust
Securities of Orion Capital Trust II or certain mergers, consolidations or
amalgamations, each as permitted by the Declaration, and (b) to continue to be
treated as a grantor trust and not as an association taxable as a corporation
for United States federal income tax purposes, and (iii) use its reasonable
efforts to cause each holder of Trust Securities to be treated as owning an
individual beneficial interest in the Securities.
SECTION 3.09. PAYMENT OF EXPENSES.
In connection with the offering, sale and issuance of the Securities
to Orion Capital Trust II and in connection with the sale of the Trust
Securities by Orion Capital Trust II, the Company, in its capacity as borrower
with respect to the Securities, shall:
(a)...pay all costs and expenses relating to the offering, sale and
issuance of the Securities, including commissions to the Initial Purchasers
payable pursuant to the Purchase Agreement, fees and expenses in connection with
the Exchange Offer or other action to be taken pursuant to the Registration
Rights Agreement and compensation of the Trustee in accordance with the
provisions of Section 6.06;
(b)...pay all costs and expenses of the Trust (including, but not
limited to, costs and expenses relating to the organization of Orion Capital
Trust II, the offering, sale and issuance of the Trust Securities (including
commissions to the initial purchasers in connection therewith), the fees and
expenses of the Property Trustee and the Delaware Trustee, the costs and
expenses relating to the operation of the Trust;
(c)...be primarily and fully liable for any indemnification
obligations arising with respect to the Declaration;
(d)...pay any and all taxes (other than United States withholding
taxes attributable to the Trust or its assets) and all liabilities, costs and
expenses with respect to such taxes of the Trust; and
(e)...pay all other fees, expenses, debts and obligations (other
than payments of principal of, and premium, if any, or interest on the Trust
Securities) related to Orion Capital Trust II.
SECTION 3.10. PAYMENT UPON RESIGNATION OR REMOVAL.
Upon termination of this Indenture or the removal or resignation of
the Trustee, unless otherwise stated, the Company shall pay to the Trustee all
amounts accrued and owing to the date of such termination, removal or
resignation. Upon termination of the Declaration or the removal or resignation
of the Delaware Trustee or the Property Trustee, as the case may be, pursuant to
Section 5.7 of the Declaration, the Company shall pay to the Delaware Trustee or
the Property Trustee, as the case may be, all amounts accrued and owing to the
date of such termination, removal or resignation.
ARTICLE IV
SECURITYHOLDERS' LISTS AND REPORTS BY THE
COMPANY AND THE TRUSTEE
SECTION 4.01. SECURITYHOLDERS' LISTS.
The Company covenants and agrees that it will furnish or cause to be
furnished to the Trustee:
(a)...on a semi-annual basis on each Regular Record Date for the
Securities, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Securityholders as of such record date;
(b)...at such other times as the Trustee may request in writing,
within 30 Business 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 Business Days
prior to the time such list is furnished, except that, no such lists need be
furnished so long as the Trustee is in possession thereof by reason of its
acting as Security registrar; and
(c)...the Company hereby appoints the Trustee as Securities
registrar.
SECTION 4.02. PRESERVATION AND DISCLOSURE OF LISTS.
(a)...The Trustee shall preserve, in as current a form as is
reasonably practicable, all information as to the names and addresses of the
holders of the Securities (1) contained in the most recent list furnished to it
as provided in Section 4.01 or (2) received by it in the capacity of Securities
registrar (if so acting) hereunder. The Trustee may destroy any list furnished
to it as provided in Section 4.01 upon receipt of a new list so furnished.
(b)...In case three or more holders of Securities (hereinafter
referred to as "applicants") apply in writing to the Trustee and furnish to the
Trustee reasonable proof that each such applicant has owned a Security for a
period of at least six months preceding the date of such application, and such
application states that the applicants desire to communicate with other holders
of Securities or with holders of all Securities with respect to their rights
under this Indenture and is accompanied by a copy of the form of proxy or other
communication which such applicants propose to transmit, then the Trustee shall
within 5 Business Days after the receipt of such application, at its election,
either:
..................(i) afford such applicants access to the information preserved
at the time by the Trustee in accordance with the provisions of subsection (a)
of this Section 4.02; or
..................(ii) inform such applicants as to the approximate number of
holders of all Securities whose names and addresses appear in the information
preserved at the time by the Trustee in accordance with the provisions of
subsection (a) of this Section 4.02, and as to the approximate cost of mailing
to such Securityholders the form of proxy or other communication, if any,
specified in such application.
If the Trustee shall elect not to afford such applicants access to
such information, the Trustee shall, upon the written request of such
applicants, mail to each Securityholder whose name and address appear in the
information preserved at the time by the Trustee in accordance with the
provisions of subsection (a) of this Section 4.02 a copy of the form of proxy or
other communication which is specified in such request with reasonable
promptness after a tender to the Trustee of the material to be mailed and of
payment, or provision for the payment, of the reasonable expenses of mailing,
unless within 5 Business Days after such tender, the Trustee shall mail to such
applicants and file with the Commission, together with a copy of the material to
be mailed, a written statement to the effect that, in the opinion of the
Trustee, such mailing would be contrary to the best interests of the holders of
all Securities or would be in violation of applicable law. Such written
statement shall specify the basis of such opinion. If the Commission, after
opportunity for a hearing upon the objections specified in the written statement
so filed, shall enter an order refusing to sustain any of such objections or if,
after the entry of an order sustaining one or more of such objections, the
Commission shall find, after notice and opportunity for hearing, that all the
objections so sustained have been met and shall enter an order so declaring, the
Trustee shall mail copies of such material to all such Securityholders with
reasonable promptness after the entry of such order and the renewal of such
tender; otherwise the Trustee shall be relieved of any obligation or duty to
such applicants respecting their application.
(c)...Each and 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 paying agent shall be held accountable by reason of the
disclosure of any such information as to the names and addresses of the holders
of Securities in accordance with the provisions of subsection (b) of this
Section 4.02, regardless of the source from which such information was derived,
and that the Trustee shall not be held accountable by reason of mailing any
material pursuant to a request made under said subsection (b).
SECTION 4.03. REPORTS OF THE COMPANY.
(a)...The Company covenants and agrees to file with the Trustee,
within 15 Business Days after the date on which the Company files the same with
the Commission, copies of the annual reports and of the information, documents
and other reports (or copies of such portions of any of the foregoing as the
Commission may from time to time by rules and regulations prescribe) which the
Company may be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Exchange Act; or, if the Company is not required to file
information, documents or reports pursuant to either of such sections, then to
file with the Trustee and the Commission, in accordance with rules and
regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which may be
required pursuant to Section 13 of the Exchange Act in respect of a security
listed and registered on a national securities exchange as may be prescribed
from time to time in such rules and regulations.
(b)...The Company covenants and agrees to file with the Trustee and
the Commission, in accordance with the rules and regulations prescribed from
time to time by the Commission, such additional information, documents and
reports with respect to compliance by the Company with the conditions and
covenants provided for in this Indenture as may be required from time to time by
such rules and regulations.
(c)...The Company covenants and agrees to transmit by mail to all
holders of Securities, as the names and addresses of such holders appear upon
the Security Register, within 30 days after the filing thereof with the Trustee,
such summaries of any information, documents and reports required to be filed by
the Company pursuant to subsections (a) and (b) of this Section 4.03 as may be
required by rules and regulations prescribed from time to time by the
Commission.
(d)...Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
(e)...So long as is required for an offer or sale of the Securities
to qualify for an exemption under Rule 144A under the Securities Act, the
Company shall, upon request, provide the information required by clause (d)(4)
thereunder to each Holder and to each beneficial owner and prospective purchaser
of Securities identified by any holder of Restricted Securities, unless such
information is furnished to the Commission pursuant to Section 13 or 15(d) of
the Exchange Act.
SECTION 4.04. REPORTS BY THE TRUSTEE.
(a)...The Trustee shall transmit to Securityholders 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. If required by Section 313(a) of the Trust Indenture Act, the
Trustee shall on or before each February 4 following the date of this Indenture,
commencing February 4, 1999, deliver to Securityholders a brief report which
complies with the provisions of such Section 313(a).
(b)...A copy of each such report shall, at the time of such
transmission to Securityholders, be filed by the Trustee with each stock
exchange, if any, upon which the Securities are listed, with the Commission and
with the Company. The Company will promptly notify the Trustee when the
Securities are listed on any stock exchange.
ARTICLE V
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT
SECTION 5.01. EVENTS OF DEFAULT.
One or more of the following events of default shall constitute an
Event of Default hereunder (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)...default in the payment of any interest upon any Security or
any Other Debentures when it becomes due and payable, and continuance of such
default for a period of 30 days; provided, however, that a valid extension of an
interest payment period by the Company in accordance with the terms hereof or,
in the case of any Other Debenture, the indenture related thereto, shall not
constitute a default in the payment of interest for this purpose; or
(b)...default in the payment of all or any part of the principal of
(or premium, if any, on) any Security or any Other Debentures as and when the
same shall become due and payable either at maturity, upon prepayment, by
declaration of acceleration of maturity or otherwise; or
(c)...default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or warranty a
default in whose performance or whose breach is elsewhere in this Section
specifically dealt with), and continuance of such default or breach for a period
of 90 days after there has been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the holders of at
least 25% in principal amount of the outstanding Securities a written notice
specifying such default or breach and requiring it to be remedied and stating
that such notice is a "Notice of Default" hereunder; or
(d)...a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Company in an involuntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of the Company or all or
substantially all of its property, or ordering the winding-up or liquidation of
its affairs and such decree or order shall remain unstayed and in effect for a
period of 90 consecutive days; or
(e)...the Company shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, shall consent to the entry of an order for relief in an involuntary case
under any such law, or shall consent to the appointment of or taking possession
by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other
similar official) of the Company or all or substantially all of its property, or
shall make any general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due.
If an Event of Default with respect to Securities at the time
outstanding occurs and is continuing, then in every such case the Trustee or the
holders of not less than 25% in principal amount of the Securities at the time
outstanding may declare the principal amount of all Securities to be due and
payable immediately, by a notice in writing to the Company (and to the Trustee
if given by the holders of the outstanding Securities), and upon any such
declaration the same shall become immediately due and payable.
The foregoing provisions, however, are subject to the condition that
if, at any time after the principal of the Securities shall have been so
declared due and payable, and before any judgment or decree for the payment of
the moneys due shall have been obtained or entered as hereinafter provided, (i)
the Company shall pay or shall deposit with the Trustee a sum sufficient to pay
(A) all matured installments of interest upon all the Securities and the
principal of and premium, if any, on any and all Securities which shall have
become due otherwise than by acceleration (with interest upon such principal and
premium, if any, and, to the extent that payment of such interest is enforceable
under applicable law, on overdue installments of interest, at the same rate as
the rate of interest specified in the Securities to the date of such payment or
deposit) and (B) such amount as shall be sufficient to cover reasonable
compensation to the Trustee and each predecessor Trustee, their respective
agents, attorneys and counsel, and all other expenses and liabilities incurred,
and all advances made, by the Trustee and each predecessor Trustee except as a
result of negligence or bad faith, and (ii) any and all Events of Default under
the Indenture shall have been cured, waived or otherwise remedied as provided
herein, then, in every such case, the holders of a majority in principal amount
of the Securities at the time outstanding, by written notice to the Company and
to the Trustee, may rescind and annul such declaration and its consequences, but
no such waiver or rescission and annulment shall extend to or shall affect any
subsequent default or shall impair any right consequent thereon.
In case the Trustee shall have proceeded to enforce any right under
this Indenture and such proceedings shall have been discontinued or abandoned
because of such rescission or annulment or for any other reason or shall have
been determined adversely to the Trustee, then and in every such case the
Company, the Trustee and the holders of the Securities shall be restored
respectively to their several positions and rights hereunder, and all rights,
remedies and powers of the Company, the Trustee and the holders of the
Securities shall continue as though no such proceeding had been taken.
SECTION 5.02. PAYMENT OF SECURITIES ON DEFAULT; SUIT THEREFOR.
The Company covenants that (a) in case default shall be made in the
payment of any installment of interest upon any of the Securities as and when
the same shall become due and payable, and such default shall have continued for
a period of 30 days, or (b) in case default shall be made in the payment of the
principal of or premium, if any, on any of the Securities as and when the same
shall have become due and payable, whether at maturity of the Securities or upon
prepayment or by declaration of acceleration of maturity or otherwise, then,
upon demand of the Trustee, the Company will pay to the Trustee, for the benefit
of the holders of the Securities, the whole amount that then shall have become
due and payable on all such Securities for principal and premium, if any, or
interest, or both, as the case may be, with interest upon the overdue principal
and premium, if any, and (to the extent that payment of such interest is
enforceable under applicable law and, if the Securities are held by Orion
Capital Trust II or a trustee of such trust, without duplication of any other
amounts paid by Orion Capital Trust II or a trustee in respect thereof) upon the
overdue installments of interest at the rate borne by the Securities; and, in
addition thereto, such further amount as shall be sufficient to cover the costs
and expenses of collection, including a reasonable compensation to the Trustee,
its agents, attorneys and counsel, and any expenses or liabilities incurred by
the Trustee hereunder other than through its negligence or bad faith.
In case the Company shall fail forthwith to pay such amounts upon
such demand, the Trustee, in its own name and as trustee of an express trust,
shall be entitled and empowered to institute any actions or proceedings at law
or in equity for the collection of the sums so due and unpaid, and may prosecute
any such action or proceeding to judgment or final decree, and may enforce any
such judgment or final decree against the Company or any other obligor on the
Securities and collect in the manner provided by law out of the property of the
Company or any other obligor on the Securities wherever situated the moneys
adjudged or decreed to be payable.
In case there shall be pending proceedings for the bankruptcy or for
the reorganization of the Company or any other obligor on the Securities under
Title 11, United States Code, or any other applicable law, or in case a receiver
or trustee shall have been appointed for the property of the Company or such
other obligor, or in the case of any other similar judicial proceedings relative
to the Company or other obligor upon the Securities, or to the creditors or
property of the Company or such other obligor, the Trustee, irrespective of
whether the principal of the Securities 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 pursuant to the provisions of this Section 5.02,
shall be entitled and empowered, by intervention in such proceedings or
otherwise, to file and prove a claim or claims for the whole amount of principal
and interest owing and unpaid in respect of the Securities and, in case of any
judicial proceedings, to file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee
(including any claim for reasonable compensation to the Trustee and each
predecessor Trustee, and their respective agents, attorneys and counsel, and for
reimbursement of all expenses and liabilities incurred, and all advances made,
by the Trustee and each predecessor Trustee, except as a result of negligence or
bad faith) and of the Securityholders allowed in such judicial proceedings
relative to the Company or any other obligor on the Securities, or to the
creditors or property of the Company or such other obligor, unless prohibited by
applicable law and regulations, to vote on behalf of the holders of the
Securities in any election of a trustee or a standby trustee in arrangement,
reorganization, liquidation or other bankruptcy or insolvency proceedings or
person performing similar functions in comparable proceedings, and to collect
and receive any moneys or other property payable or deliverable on any such
claims, and to distribute the same after the deduction of its charges and
expenses; and any receiver, assignee or trustee in bankruptcy or reorganization
is hereby authorized by each of the Securityholders to make such payments to the
Trustee, and, in the event that the Trustee shall consent to the making of such
payments directly to the Securityholders, to pay to the Trustee such amounts as
shall be sufficient to cover reasonable compensation to the Trustee, each
predecessor Trustee and their respective agents, attorneys and counsel, and all
other expenses and liabilities incurred, and all advances made, by the Trustee
and each predecessor Trustee except as a result of negligence or bad faith.
Nothing herein contained shall be construed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Securityholder
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 Securityholder in any such proceeding.
All rights of action and of asserting claims under this Indenture,
or under any of the Securities, may be enforced by the Trustee without the
possession of any of the Securities, or the production thereof in any trial or
other proceeding relative thereto, and any such suit or proceeding instituted by
the Trustee shall be brought in its own name as trustee of an express trust, and
any recovery of judgment shall be for the ratable benefit of the holders of the
Securities.
In any proceedings brought by the Trustee (and also any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the holders
of the Securities, and it shall not be necessary to make any holders of the
Securities parties to any such proceedings.
SECTION 5.03. APPLICATION OF MONEYS COLLECTED BY TRUSTEE.
Any moneys collected by the Trustee shall be applied in the order
following, at the date or dates fixed by the Trustee for the distribution of
such moneys, upon presentation of the Securities in respect of which moneys have
been collected, and stamping thereon the payment, if only partially paid, and
upon surrender thereof if fully paid:
First: To the payment of all amounts due to the Trustee under
Section 6.06, including the costs and expenses of collection applicable to the
Securities and reasonable compensation to the Trustee, its agents, attorneys and
counsel, and of all other expenses and liabilities incurred, and all advances
made, by the Trustee except as a result of its negligence or bad faith;
Second: To the payment of all Senior Indebtedness of the Company if
and to the extent required by Article XV;
Third: In case the principal of the outstanding Securities in
respect of which moneys have been collected shall not have become due and be
unpaid, to the payment of the amounts then due and unpaid upon Securities for
principal of (and premium, if any) and interest on the Securities, in respect of
which or for the benefit of which money has been collected, ratably, without
preference of priority of any kind, according to the amounts due on such
Securities for principal (and premium, if any) and interest, respectively; and
Fourth: To the Company.
SECTION 5.04. PROCEEDINGS BY SECURITYHOLDERS.
No holder of any Security shall have any right by virtue of or by
availing of any provision of this Indenture to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this Indenture
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless such holder previously shall have given to the Trustee written
notice of an Event of Default and of the continuance thereof with respect to the
Securities specifying such Event of Default, as hereinbefore provided, and
unless also the holders of not less than 25% in principal amount of the
Securities at the time outstanding shall have made written request upon the
Trustee to institute such action, suit or proceeding in its own name as Trustee
hereunder and shall have offered to the Trustee such reasonable indemnity as it
may require against the costs, expenses and liabilities to be incurred therein
or thereby, and the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity shall have failed to institute any such action,
suit or proceeding, and during such 60 days the holders of a majority in
principal amount of the Securities at the time outstanding do not give a
direction to the Trustee inconsistent with the request, it being understood and
intended, and being expressly covenanted by the taker and holder of every
Security with every other taker and holder and the Trustee, that no one or more
holders of Securities shall have any right in any manner whatever by virtue of
or by availing of any provision of this Indenture to affect, disturb or
prejudice the rights of any other holder of Securities, or to obtain or seek to
obtain priority over or preference to any other such holder, or to enforce any
right under this Indenture, except in the manner herein provided and for the
equal, ratable and common benefit of all holders of Securities.
Notwithstanding any other provisions in this Indenture, however, the
right of any holder of any Security to receive payment of the principal of
(premium, if any) and interest on such Security, on or after the same shall have
become due and payable, or to institute suit for the enforcement of any such
payment, shall not be impaired or affected without the consent of such holder
and by accepting a Security hereunder it is expressly understood, intended and
covenanted by the taker and holder of every Security with every other such taker
and holder and the Trustee, that no one or more holders of Securities shall have
any right in any manner whatsoever by virtue or by availing of any provision of
this Indenture to affect, disturb or prejudice the rights of the holders of any
other Securities, or to obtain or seek to obtain priority over or preference to
any other such holder, or to enforce any right under this Indenture, except in
the manner herein provided and for the equal, ratable and common benefit of all
holders of Securities. For the protection and enforcement of the provisions of
this Section, each and every Securityholder and the Trustee shall be entitled to
such relief as can be given either at law or in equity.
The Company and the Trustee acknowledge that pursuant to the
Declaration, the holders of Capital Securities are entitled, in the
circumstances and subject to the limitations set forth therein, to commence a
Direct Action with respect to any Event of Default under this Indenture and the
Securities.
SECTION 5.05. PROCEEDINGS BY TRUSTEE.
In case an Event of Default occurs with respect to Securities and is
continuing, the Trustee may in its discretion proceed to protect and enforce the
rights vested in it by this Indenture by such appropriate judicial proceedings
as the Trustee shall deem most effectual to protect and enforce any of such
rights, either by suit in equity or by action at law or by proceeding in
bankruptcy or otherwise, whether for the specific enforcement of any covenant or
agreement contained in this Indenture or in aid of the exercise of any power
granted in this Indenture, or to enforce any other legal or equitable right
vested in the Trustee by this Indenture or by law.
SECTION 5.06. REMEDIES CUMULATIVE AND CONTINUING.
Except as provided in the last paragraph of Section 2.08, all powers
and remedies given by this Article V to the Trustee or to the Securityholders
shall, to the extent permitted by law, be deemed cumulative and not exclusive of
any other powers and remedies available to the Trustee or the holders of the
Securities, by judicial proceedings or otherwise, to enforce the performance or
observance of the covenants and agreements contained in this Indenture or
otherwise established with respect to the Securities, and no delay or omission
of the Trustee or of any holder of any of the Securities to exercise any right
or power accruing upon any Event of Default occurring and continuing as
aforesaid shall impair any such right or power, or shall be construed to be a
waiver of any such default or an acquiescence therein; and, subject to the
provisions of Section 5.04, every power and remedy given by this Article V or by
law to the Trustee or to the Securityholders may be exercised from time to time,
and as often as shall be deemed expedient, by the Trustee or by the
Securityholders.
SECTION 5.07. Direction of Proceedings and Waiver of Defaults by
MAJORITY OF SECURITYHOLDERS.
The holders of a majority in principal amount of the Securities at
the time outstanding shall have the right to direct the time, method, and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee; provided, however, that
(subject to the provisions of Section 6.01) the Trustee shall have the right to
decline to follow any such direction if the Trustee shall determine that the
action so directed would be unjustly prejudicial to the holders not taking part
in such direction or if the Trustee being advised by counsel determines that the
action or proceeding so directed may not lawfully be taken or if the Trustee in
good faith by its board of directors or trustees, executive committee, or a
trust committee of directors or trustees and/or Responsible Officers, shall
determine that the action or proceedings so directed would involve the Trustee
in personal liability. Prior to any declaration accelerating the Stated Maturity
of the Securities, the holders of a majority in principal amount of the
Securities at the time outstanding may on behalf of the holders of all of the
Securities waive any past Default or Event of Default and its consequences
except a Default (a) in the payment of principal of or premium, if any, or
interest on any of the Securities or (b) in respect of covenants or provisions
hereof which cannot be modified or amended without the consent of the holder of
each Security affected; provided, however, that if the Securities are held by
the Property Trustee, such waiver or modification to such waiver shall not be
effective until the holders of a majority in aggregate liquidation amount of
Trust Securities shall have consented to such waiver or modification to such
waiver; provided, further, that if the consent of the holder of each outstanding
Security is required, such waiver shall not be effective until each holder of
the Trust Securities shall have consented to such waiver. Upon any such waiver,
the Default covered thereby shall be deemed to be cured for all purposes of this
Indenture and the Company, the Trustee and the holders of the Securities shall
be restored to their former positions and rights hereunder, respectively; but no
such waiver shall extend to any subsequent or other Default or impair any right
consequent thereon. Whenever any Default or Event of Default hereunder shall
have been waived as permitted by this Section 5.07, said Default or Event of
Default shall for all purposes of the Securities and this Indenture be deemed to
have been cured and to be not continuing.
SECTION 5.08. NOTICE OF DEFAULTS.
The Trustee shall, within 90 days after the occurrence of a Default
with respect to the Securities mail to all Securityholders, as the names and
addresses of such holders appear upon the Security register, notice of all
Defaults known to the Trustee, unless such Defaults shall have been cured before
the giving of such notice (the term "Defaults" for the purpose of this Section
5.08 being hereby defined to be the events specified in clauses (a), (b), (c),
(d) and (e) of Section 5.01, not including periods of grace, if any, provided
for therein, and irrespective of the giving of written notice specified in
clause (c) of Section 5.01); and provided that, except in the case of Default in
the payment of the principal of or premium, if any, or interest on any of the
Securities, the Trustee shall be protected in withholding such notice if and so
long as the board of directors of the Trustee, the executive committee thereof,
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 Securityholders; and provided further, that in the case of any Default of
the character specified in Section 5.01(c), no such notice to Securityholders
shall be given until at least 60 days after the occurrence thereof but shall be
given within 90 days after such occurrence.
SECTION 5.09. UNDERTAKING TO PAY COSTS.
All parties to this Indenture agree, and each holder of any Security
by his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in such suit, having due regard to the
merits and good faith of the claims or defenses made by such party litigant; but
the provisions of this Section 5.09 shall not apply to any suit instituted by
the Trustee, to any suit instituted by any Securityholder or group of
Securityholders holding in the aggregate more than 10% in principal amount of
the Securities outstanding at the time outstanding, or to any suit instituted by
any Securityholder for the enforcement of the payment of the principal of (or
premium, if any) or interest on any Security against the Company on or after the
same shall have become due and payable.
ARTICLE VI
CONCERNING THE TRUSTEE
SECTION 6.01. DUTIES AND RESPONSIBILITIES OF TRUSTEE.
With respect to the holders of the Securities issued hereunder, the
Trustee, prior to the occurrence of an Event of Default and after the curing or
waiving of all Events of Default which may have occurred, undertakes to perform
such duties and only such duties as are specifically set forth in this
Indenture. In case an Event of Default has occurred (which has not been cured or
waived) 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 man would exercise or use under the circumstances in the conduct of
his own affairs.
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
(a)...prior to the occurrence of an Event of Default and after the
curing or waiving of all Events of Default which may have occurred:
..................(i) the duties and obligations of the Trustee shall be
determined solely by the express provisions of this Indenture, and the Trustee
shall not be liable except for the performance of such duties and obligations as
are specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
..................(ii) in the absence of bad faith on the part of the Trustee,
the 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 Trustee and conforming to the requirements of this Indenture;
but, in the case of any such certificates or opinions which by any provision
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)...the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer or Officers of the Trustee, unless it
shall be proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(c)...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 the Securityholders pursuant to Section 5.07, 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.
None of the provisions contained in this Indenture shall require the
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 there is reasonable ground for believing that the
repayment of such funds or liability is not reasonably assured to it under the
terms of this Indenture or adequate indemnity against such risk is not
reasonably assured to it.
SECTION 6.02. RELIANCE ON DOCUMENTS, OPINIONS, ETC.
Except as otherwise provided in Section 6.01:
(a)...the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, note, debenture 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, direction, order or demand of the Company
mentioned herein may be sufficiently evidenced by an Officers' Certificate
(unless other evidence in respect thereof be herein specifically prescribed);
and any Board Resolution may be evidenced to the Trustee by a copy thereof
certified by the Secretary or an Assistant Secretary of the Company;
(c)...the Trustee may consult with counsel of its selection and any
advice or Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or suffered or omitted by it hereunder
in good faith and in accordance with such advice or Opinion of Counsel;
(d)...the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request, order or
direction of any of the Securityholders, pursuant to the provisions of this
Indenture, unless such Securityholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby;
(e)...the Trustee shall not be liable for any action taken or
omitted by it in good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture; nothing
contained herein shall, however, relieve the Trustee of the obligation, upon the
occurrence of an Event of Default (that has not been cured or waived), to
exercise such of the rights and powers vested in it by this Indenture, and to
use the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs;
(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, consent, order, approval, bond,
debenture, coupon or other paper or document, unless requested in writing to do
so by the holders of a majority in principal amount of the Securities at the
time outstanding; provided, however, that if the payment within a reasonable
time to the Trustee of the costs, expenses or liabilities likely to be incurred
by it in the making of such investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security afforded to it by the terms of
this Indenture, the Trustee may require reasonable indemnity against such
expense or liability as a condition to so proceeding; 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
(including any Authenticating Agent) or attorneys, and the Trustee shall not be
responsible for any misconduct or negligence on the part of any such agent or
attorney appointed by it with due care.
SECTION 6.03. NO RESPONSIBILITY FOR RECITALS, ETC.
The recitals contained herein and in the Securities (except in the
certificate of authentication of the Trustee or the Authenticating Agent) shall
be taken as the statements of the Company, and the Trustee and the
Authenticating Agent assume no responsibility for the correctness of the same.
The Trustee and the Authenticating Agent make no representations as to the
validity or sufficiency of this Indenture or of the Securities. The Trustee and
the Authenticating Agent shall not be accountable for the use or application by
the Company of any Securities or the proceeds of any Securities authenticated
and delivered by the Trustee or the Authenticating Agent in conformity with the
provisions of this Indenture.
SECTION 6.04. Trustee, Authenticating Agent, Paying Agents, Transfer Agents or
REGISTRAR MAY OWN SECURITIES.
The Trustee or any Authenticating Agent or any paying agent or any
transfer agent or any Security registrar, in its individual or any other
capacity, may become the owner or pledgee of Securities with the same rights it
would have if it were not Trustee, Authenticating Agent, paying agent, transfer
agent or Security registrar.
SECTION 6.05. MONEYS TO BE HELD IN TRUST.
Subject to the provisions of Section 11.04, all moneys received by
the Trustee or any paying agent shall, until used or applied as herein provided,
be held in trust for the purpose for which they were received, but need not be
segregated from other funds except to the extent required by law. The Trustee
and any paying agent shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed in writing with the Company.
So long as no Event of Default shall have occurred and be continuing, all
interest allowed on any such moneys shall be paid from time to time upon the
written order of the Company, signed by the Chairman of the Board of Directors,
the President or a Vice President or the Treasurer or an Assistant Treasurer of
the Company.
SECTION 6.06. COMPENSATION AND EXPENSES OF TRUSTEE.
The Company, as borrower, covenants and agrees to pay to the Trustee
from time to time, and the Trustee shall be entitled to, such compensation as
shall be agreed to in writing between the Company and the Trustee (which shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust), and the Company will pay or reimburse the Trustee
upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any of the provisions of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its counsel and of all persons not regularly in its employ)
except any such expense, disbursement or advance as may arise from its
negligence or bad faith. The Company also covenants to indemnify each of the
Trustee or any predecessor Trustee (and its officers, agents, directors and
employees) for, and to hold it harmless against, any and all loss, damage,
claim, liability or expense including taxes (other than taxes based on the
income of the Trustee) incurred without negligence or bad faith on the part of
the Trustee and arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of defending
itself against any claim of liability in the premises. The obligations of the
Company under this Section 6.06 to compensate and indemnify the Trustee and to
pay or reimburse the Trustee for expenses, disbursements and advances shall
constitute additional indebtedness hereunder. Such additional indebtedness shall
be secured by a lien prior to that of the Securities upon all property and funds
held or collected by the Trustee in its capacity as such, except funds held in
trust for the benefit of the holders of particular Securities.
Without prejudice to any other rights available to the Trustee under
applicable law, when the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 5.01(d) or Section
5.01(e), the expenses (including the reasonable charges and expenses of its
counsel) and the compensation for the services of the Trustee as provided for
herein are intended to constitute expenses of administration under any
applicable federal or state bankruptcy, insolvency or other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 6.07. OFFICERS' CERTIFICATE AS EVIDENCE.
Except as otherwise provided in Sections 6.01 and 6.02, whenever in
the administration of the provisions of this Indenture the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to taking or
omitting any action hereunder, such matter (unless other evidence in respect
thereof is herein specifically prescribed) may, in the absence of negligence or
bad faith on the part of the Trustee, be deemed to be conclusively proved and
established by an Officers' Certificate delivered to the Trustee, and such
certificate, in the absence of negligence or bad faith on the part of the
Trustee, shall be full warrant to the Trustee for any action taken or omitted by
it under the provisions of this Indenture upon the faith thereof.
SECTION 6.08. CONFLICTING INTEREST OF TRUSTEE.
If the Trustee has or shall acquire any "conflicting interest"
within the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and
the Company shall in all respects comply with the provisions of Section 310(b)
of the Trust Indenture Act.
SECTION 6.09. ELIGIBILITY OF TRUSTEE.
The Trustee hereunder shall at all times be a corporation organized
and doing business under the laws of the United States of America or any state
or territory thereof or of the District of Columbia or a corporation or other
Person permitted to act as trustee by the Commission authorized under such laws
to exercise corporate trust powers, having a combined capital and surplus of at
least 50 million U.S. dollars ($50,000,000) and subject to supervision or
examination by federal, state, territorial, or District of Columbia authority.
If such corporation publishes reports of 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 6.09 the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published.
The Company may not, nor may any Person directly or indirectly
controlling, controlled by, or under common control with the Company, serve as
Trustee.
In case at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 6.09, the Trustee shall resign
immediately in the manner and with the effect specified in Section 6.10.
SECTION 6.10. RESIGNATION OR REMOVAL OF TRUSTEE.
(a)...The Trustee, or any trustee or trustees hereafter appointed,
may at any time resign by giving written notice of such resignation to the
Company and by mailing notice thereof to the holders of the Securities at their
addresses as they shall appear on the Security register. Upon receiving such
notice of resignation, the Company shall promptly appoint a successor trustee or
trustees by written instrument, in duplicate, one copy of which instrument shall
be delivered to the resigning Trustee and one copy to the successor trustee. If
no successor trustee shall have been so appointed and have accepted appointment
within 60 days after the mailing of such notice of resignation to the affected
Securityholders, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee, or any Securityholder
who has been a bona fide holder of a Security for at least six months may,
subject to the provisions of Section 5.09, on behalf of himself and all others
similarly situated, petition any such court for the appointment of a successor
trustee. Such court may thereupon, after such notice, if any, as it may deem
proper and prescribe, appoint a successor trustee.
(b)...In case at any time any of the following shall occur:
..................(i) the Trustee shall fail to comply with the provisions of
Section 6.08 after written request therefor by the Company or by any
Securityholder who has been a bona fide holder of a Security or Securities for
at least six months, or
..................(ii) the Trustee shall cease to be eligible in accordance with
the provisions of Section 6.09 and shall fail to resign after written request
therefor by the Company or by any such Securityholder, or
..................(iii) 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, the Company may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the Trustee so removed and one copy to the
successor trustee, or, subject to the provisions of Section 5.09, any
Securityholder who has been a bona fide holder of a Security for at least six
months may, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor trustee. Such court may thereupon, after such notice,
if any, as it may deem proper and prescribe, remove the Trustee and appoint a
successor trustee.
(c)...The holders of a majority in principal amount of the
Securities at the time outstanding may at any time remove the Trustee and
nominate a successor trustee, which shall be deemed appointed as successor
trustee unless within 10 days after such nomination the Company objects thereto
or if no successor trustee shall have been so appointed and shall have accepted
appointment within 30 days after such removal, in which case the Trustee so
removed or any Securityholder, upon the terms and conditions and otherwise as in
subsection (a) of this Section 6.10 provided, may petition any court of
competent jurisdiction for an appointment of a successor trustee.
(d)...Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section 6.10 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 6.11.
SECTION 6.11. ACCEPTANCE BY SUCCESSOR TRUSTEE.
Any successor trustee appointed as provided in Section 6.10 shall
execute, acknowledge and deliver to the Company and to its predecessor trustee
an instrument accepting such appointment hereunder, 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, duties and obligations of its predecessor
hereunder, with like effect as if originally named as trustee herein; but,
nevertheless, on the written request of the Company or of the successor trustee,
the trustee ceasing to act shall, upon payment of any amounts then due it
pursuant to the provisions of Section 6.06, execute and deliver an instrument
transferring to such successor trustee all the rights and powers of the trustee
so ceasing to act and shall duly assign, transfer and deliver to such successor
trustee all property and money held by such retiring trustee thereunder. Upon
request of any such successor trustee, the Company shall execute any and all
instruments in writing for more fully and certainly vesting in and confirming to
such successor trustee all such rights and powers. Any trustee ceasing to act
shall, nevertheless, retain a lien upon all property or funds held or collected
by such trustee to secure any amounts then due it pursuant to the provisions of
Section 6.06.
No successor trustee shall accept appointment as provided in this
Section 6.11 unless at the time of such acceptance such successor trustee shall
be qualified under the provisions of Section 6.08 and eligible under the
provisions of Section 6.09.
Upon acceptance of appointment by a successor trustee as provided in
this Section 6.11, the Company shall mail notice of the succession of such
trustee hereunder to the holders of Securities at their addresses as they shall
appear on the Security register. If the Company fails to mail such notice within
10 Business Days after the acceptance of appointment by the successor trustee,
the successor trustee shall cause such notice to be mailed at the expense of the
Company.
SECTION 6.12. SUCCESSION BY MERGER, ETC.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder without
the execution or filing of any paper or any further act on the part of any of
the parties hereto.
In case at the time such successor to the Trustee shall succeed to
the trusts created by this Indenture any Securities shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor trustee, and deliver such
Securities so authenticated; and in case at that time any of the Securities
shall not have been authenticated, any successor to the Trustee may authenticate
such Securities either in the name of any predecessor hereunder or in the name
of the successor trustee; and in all such cases such certificates shall have the
full force which the Securities or this Indenture elsewhere provides that the
certificate of the Trustee shall have; provided, however, that the right to
adopt the certificate of authentication of any predecessor Trustee or
authenticate Securities in the name of any predecessor Trustee shall apply only
to its successor or successors by merger, conversion or consolidation.
SECTION 6.13. LIMITATION ON RIGHTS OF TRUSTEE AS A CREDITOR.
The Trustee shall comply with Section 311(a) of the Trust Indenture
Act, excluding any creditor relationship described in Section 311(b) of the
Trust Indenture Act. A Trustee who has resigned or been removed shall be subject
to Section 311(a) of the Trust Indenture Act to the extent included therein.
SECTION 6.14. AUTHENTICATING AGENTS.
There may be one or more Authenticating Agents appointed by the
Trustee upon the request of the Company with power to act on its behalf and
subject to its direction in the authentication and delivery of Securities issued
upon exchange or registration of transfer thereof as fully to all intents and
purposes as though any such Authenticating Agent had been expressly authorized
to authenticate and deliver Securities; provided, that the Trustee shall have no
liability to the Company for any acts or omissions of the Authenticating Agent
with respect to the authentication and delivery of Securities. Any such
Authenticating Agent shall at all times be a corporation organized and doing
business under the laws of the United States 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 at least
$50,000,000 and being subject to supervision or examination by federal, state,
territorial or District of Columbia authority. If such corporation publishes
reports of condition at least annually pursuant to law or the requirements of
such authority, then for the purposes of this Section 6.14 the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time an Authenticating Agent shall cease to be eligible in accordance with
the provisions of this Section, it shall resign immediately in the manner and
with the effect herein specified in this Section.
Any corporation into which any Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any Authenticating Agent
shall be a party, or any corporation succeeding to the corporate trust business
of any Authenticating Agent, shall be the successor of such Authenticating Agent
hereunder, if such successor corporation is otherwise eligible under this
Section 6.14 without the execution or filing of any paper or any further act on
the part of the parties hereto or such Authenticating Agent.
Any Authenticating Agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at any
time terminate the agency of any Authenticating Agent by giving written notice
of termination 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
any Authenticating Agent shall cease to be eligible under this Section 6.14, the
Trustee may, and upon the request of the Company shall, promptly appoint a
successor Authenticating Agent eligible under this Section 6.14, shall give
written notice of such appointment to the Company and shall mail notice of such
appointment to all Securityholders as the names and addresses of such holders
appear on the Security Register. Any successor Authenticating Agent upon
acceptance of its appointment hereunder shall become vested with all rights,
powers, duties and responsibilities of its predecessor hereunder, with like
effect as if originally named as Authenticating Agent herein.
The Company, as borrower, agrees to pay to any Authenticating Agent
from time to time reasonable compensation for its services. Any Authenticating
Agent shall have no responsibility or liability for any action taken by it as
such in accordance with the directions of the Trustee.
ARTICLE VII
CONCERNING THE SECURITYHOLDERS
SECTION 7.01. ACTION BY SECURITYHOLDERS.
Whenever in this Indenture it is provided that the holders of a
specified percentage in principal amount of the Securities at the time
outstanding may take any action (including the making of any demand or request,
the giving of any notice, consent or waiver or the taking of any other action)
the fact that at the time of taking any such action the holders of such
specified percentage have joined therein may be evidenced (a) by any instrument
or any number of instruments of similar tenor executed by such Securityholders
in person or by agent or proxy appointed in writing, or (b) by the record of
such holders of Securities voting in favor thereof at any meeting of such
Securityholders duly called and held in accordance with the provisions of
Article VIII, or (c) by a combination of such instrument or instruments and any
such record of such a meeting of such Securityholders.
If the Company shall solicit from the Securityholders any request,
demand, authorization, direction, notice, consent, waiver or other action, the
Company may, at its option, as evidenced by an Officers' Certificate, fix in
advance a record date for the determination of Securityholders entitled to give
such request, demand, authorization, direction, notice, consent, waiver or other
action, but the Company shall have no obligation to do so. If such a record date
is fixed, such request, demand, authorization, direction, notice, consent,
waiver or other action may be given before or after the record date, but only
the Securityholders of record at the close of business on the record date shall
be deemed to be Securityholders for the purposes of determining whether
Securityholders of the requisite proportion of outstanding Securities have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other action, and for that purpose the
outstanding Securities shall be computed as of the record date; provided,
however, that no such authorization, agreement or consent by such
Securityholders on the record date shall be deemed effective unless it shall
become effective pursuant to the provisions of this Indenture not later than six
months after the record date.
SECTION 7.02. PROOF OF EXECUTION BY SECURITYHOLDERS.
Subject to the provisions of Section 6.01, 6.02 and 8.05, proof of
the execution of any instrument by a Securityholder or his agent or proxy shall
be sufficient if made in accordance with such reasonable rules and regulations
as may be prescribed by the Trustee or in such manner as shall be satisfactory
to the Trustee. The ownership of Securities shall be proved by the Security
Register or by a certificate of the Security registrar. The Trustee may require
such additional proof of any matter referred to in this Section as it shall deem
necessary.
The record of any Securityholders' meeting shall be proved in the
manner provided in Section 8.06.
SECTION 7.03. WHO ARE DEEMED ABSOLUTE OWNERS.
Prior to due presentment for registration of transfer of any
Security, the Company, the Trustee, any Authenticating Agent, any paying agent,
any transfer agent and any Security registrar may deem the person in whose name
such Security shall be registered upon the Security Register to be, and may
treat him as, the absolute owner of such Security (whether or not such Security
shall be overdue) for the purpose of receiving payment of or on account of the
principal of and premium, if any, and, subject to Section 2.06, interest on such
Security and for all other purposes; and neither the Company nor the Trustee nor
any Authenticating Agent nor any paying agent nor any transfer agent nor any
Security registrar shall be affected by any notice to the contrary. All such
payments so made to any holder for the time being or upon his order shall be
valid, and, to the extent of the sum or sums so paid, effectual to satisfy and
discharge the liability for moneys payable upon any such Security.
SECTION 7.04. SECURITIES OWNED BY COMPANY DEEMED NOT OUTSTANDING.
In determining whether the holders of the requisite principal amount
of Securities at the time outstanding have concurred in any direction, consent
or waiver under this Indenture, Securities which are owned by the Company or any
other obligor on the Securities or by any person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company or any other obligor on the Securities shall be disregarded and deemed
not to be outstanding for the purpose of any such determination; provided that
for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, consent or waiver, only Securities which the
Trustee actually knows are so owned shall be so disregarded. Securities so owned
which have been pledged in good faith may be regarded as outstanding for the
purposes of this Section 7.04 if the pledgee shall establish to the satisfaction
of the Trustee the pledgee's right to vote such Securities and that the pledgee
is not the Company or any such other obligor or person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company or any such other obligor. In the case of a dispute as to such right,
any decision by the Trustee taken upon the advice of counsel shall be full
protection to the Trustee.
SECTION 7.05. REVOCATION OF CONSENTS; FUTURE HOLDERS BOUND.
At any time prior to (but not after) the evidencing to the Trustee,
as provided in Section 7.01, of the taking of any action by the holders of the
percentage in principal amount of the Securities at the time outstanding
specified in this Indenture in connection with such action, any holder of a
Security (or any Security issued in whole or in part in exchange or substitution
therefor) the serial number of which is shown by the evidence to be included in
the Securities the holders of which have consented to such action may, by filing
written notice with the Trustee at the principal office of the Trustee and upon
proof of holding as provided in Section 7.02, revoke such action so far as
concerns such Security (or so far as concerns the principal amount represented
by any exchanged or substituted Security). Except as aforesaid any such action
taken by the holder of any Security shall be conclusive and binding upon such
holder and upon all future holders and owners of such Security, and of any
Security issued in exchange or substitution therefor, irrespective of whether or
not any notation in regard thereto is made upon such Security or any Security
issued in exchange or substitution therefor.
ARTICLE VIII
SECURITYHOLDERS' MEETINGS
SECTION 8.01. PURPOSE OF MEETINGS.
A meeting of Securityholders may be called at any time and from time
to time pursuant to the provisions of this Article VIII for any of the following
purposes:
(a)...to give any notice to the Company or to the Trustee, or to
give any directions to the Trustee, or to consent to the waiving of any Default
hereunder and its consequences, or to take any other action authorized to be
taken by Securityholders pursuant to any of the provisions of Article V;
(b)...to remove the Trustee and nominate a successor trustee
pursuant to the provisions of Article VI;
(c)...to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 9.02; or
(d)...to take any other action authorized to be taken by or on
behalf of the holders of any specified principal amount of such Securities at
the time outstanding under any other provision of this Indenture or under
applicable law.
SECTION 8.02. CALL OF MEETINGS BY TRUSTEE.
The Trustee may at any time call a meeting of Securityholders to
take any action specified in Section 8.01, to be held at such time and at such
place in the Borough of Manhattan, The City of New York, as the Trustee shall
determine. Notice of every meeting of the Securityholders, setting forth the
time and the place of such meeting and in general terms the action proposed to
be taken at such meeting, shall be mailed to holders of Securities at their
addresses as they shall appear on the Securities Register. Such notice shall be
mailed not less than 20 nor more than 180 days prior to the date fixed for the
meeting.
SECTION 8.03. CALL OF MEETINGS BY COMPANY OR SECURITYHOLDERS.
In case at any time the Company pursuant to a resolution of the
Board of Directors, or the holders of at least 10% in principal amount of the
Securities at the time outstanding, shall have requested the Trustee to call a
meeting of Securityholders, by written request setting forth in reasonable
detail the action proposed to be taken at the meeting, and the Trustee shall not
have mailed the notice of such meeting within 20 days after receipt of such
request, then the Company or such Securityholders may determine the time and the
place in the Borough of Manhattan, The City of New York for such meeting and may
call such meeting to take any action authorized in Section 8.01, by mailing
notice thereof as provided in Section 8.02.
SECTION 8.04. QUALIFICATIONS FOR VOTING.
To be entitled to vote at any meeting of Securityholders a Person
shall (a) be a holder of one or more Securities or (b) a Person appointed by an
instrument in writing as proxy by a holder of one or more Securities. The only
Persons who shall be entitled to be present or to speak at any meeting of
Securityholders shall be the Persons entitled to vote at such meeting and their
counsel and any representatives of the Trustee and its counsel and any
representatives of the Company and its counsel.
SECTION 8.05. REGULATIONS.
(a)...Notwithstanding any other provisions of this Indenture, the
Trustee may make such reasonable regulations as it may deem advisable for any
meeting of Securityholders, in regard to proof of the holding of Securities and
of the appointment of proxies, and in regard to the appointment and duties of
inspectors of votes, the submission and examination of proxies, certificates and
other evidence of the right to vote, and such other matters concerning the
conduct of the meeting as it shall think fit.
(b)...The Trustee shall, by an instrument in writing, appoint a
temporary chairman of the meeting, unless the meeting shall have been called by
the Company or by Securityholders as provided in Section 8.03, in which case the
Company or the Securityholders calling the meeting, as the case may be, shall in
like manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by majority vote of the meeting.
(c)...Subject to the provisions of Section 8.04, at any meeting each
holder of Securities or proxy therefor shall be entitled to one vote for each
$1,000 principal amount of Securities held or represented by him; provided,
however, that no vote shall be cast or counted at any meeting in respect of any
Security challenged as not outstanding and ruled by the chairman of the meeting
to be not outstanding. The chairman of the meeting shall have no right to vote
other than by virtue of Securities held by him or instruments in writing as
aforesaid duly designating him as the Person to vote on behalf of other
Securityholders. Any meeting of Securityholders duly called pursuant to the
provisions of Section 8.02 or 8.03 may be adjourned from time to time by a
majority of those present, whether or not constituting a quorum, and the meeting
may be held as so adjourned without further notice.
(d)...The Persons entitled to vote a majority in principal amount of
the outstanding Securities shall constitute a quorum for a meeting of holders of
Securities; provided, however, that if any action is to be taken at such meeting
with respect to a consent, waiver, request, demand, notice, authorization,
direction or other action which may be given by the holders of not less than a
specified percentage in principal amount of the outstanding Securities, the
Persons holding or representing such specified percentage in principal amount of
the outstanding Securities will constitute a quorum. In the absence of a quorum
within 30 minutes of the time appointed for any such meeting, the meeting shall,
if convened at the request of holders of Securities, be dissolved. In any other
case the meeting may be adjourned for a period of not less than 10 days as
determined by the chairman of the meeting prior to the adjournment of such
meeting. In the absence of a quorum at any such adjourned meeting, such
adjourned meeting may be further adjourned for a period of not less than 10 days
as determined by the chairman of the meeting prior the adjournment of such
adjourned meeting. Notice of the reconvening of any adjourned meeting shall be
given as provided in Section 8.02, except that such notice need be given only
once not less than five days prior the date on which the meeting is scheduled to
be reconvened. Notice of the reconvening of an adjourned meeting shall state
expressly the percentage, as provided above, of the principal amount of the
outstanding Securities which shall constitute a quorum.
(e)...Except as limited by the first proviso to the first paragraph
of Section 9.02, any resolution presented to a meeting or adjourned meeting duly
reconvened at which a quorum is present as aforesaid may be adopted by the
affirmative vote of the holders of a majority in principal amount of the
outstanding Securities; provided, however, that, except as limited by the first
proviso to the first paragraph of Section 9.02, any resolution with respect to
any consent, waiver, request, demand, notice, authorization, direction or other
action which this Indenture expressly provides may be given by the holders of
not less than a specified percentage in principal amount of the outstanding
Securities may be adopted at a meeting or an adjourned meeting duly reconvened
and at which a quorum is present as aforesaid only by the affirmative vote of
the holders of not less than such specified percentage in principal amount of
the outstanding Securities.
(f)...Any resolution passed or decision taken at any meeting of
holders of Securities duly held in accordance with this Section shall be binding
on all the holders of Securities whether or not present or represented at the
meeting.
SECTION 8.06. VOTING.
The vote upon any resolution submitted to any meeting of holders of
Securities shall be by written ballots on which shall be subscribed the
signatures of such holders or of their representatives by proxy and the serial
number or numbers of the Securities held or represented by them. The permanent
chairman of the meeting shall appoint two inspectors of votes who shall count
all votes cast at the meeting for or against any resolution and who shall make
and file with the secretary of the meeting their verified written reports in
triplicate of all votes cast at the meeting. A record in duplicate of the
proceedings of each meeting of Securityholders shall be prepared by the
secretary of the meeting and there shall be attached to said record the original
reports of the inspectors of votes on any vote by ballot taken thereat and
affidavits by one or more persons having knowledge of the facts setting forth a
copy of the notice of the meeting and showing that said notice was mailed as
provided in Section 8.02. The record shall show the serial numbers of the
Securities voting in favor of or against any resolution. The record shall be
signed and verified by the affidavits of the permanent chairman and secretary of
the meeting and one of the duplicates shall be delivered to the Company and the
other to the Trustee to be preserved by the Trustee, the latter to have attached
thereto the ballots voted at the meeting. The holders of the Initial Securities
and the Exchange Securities shall vote for all purposes as a single class.
Any record so signed and verified shall be conclusive evidence of
the matters therein stated.
ARTICLE IX
AMENDMENTS
SECTION 9.01. WITHOUT CONSENT OF SECURITYHOLDERS.
The Company and the Trustee may from time to time and at any time
amend this Indenture, without the consent of the Securityholders, for one or
more of the following purposes:
(a)...to evidence the succession of another corporation to the
Company, or successive successions, and the assumption by the successor
corporation of the covenants, agreements and obligations of the Company pursuant
to Article X hereof;
(b)...to add to the covenants of the Company such further covenants,
restrictions or conditions for the protection of the Securityholders as the
Board of Directors and the Trustee shall consider to be for the protection of
the Securityholders, and to make the occurrence, or the occurrence and
continuance, of a Default in any of such additional covenants, restrictions or
conditions a Default or an Event of Default permitting the enforcement of all or
any of the remedies provided in this Indenture as herein set forth; provided,
however, that in respect of any such additional covenant, restriction or
condition, such amendment may provide for a particular period of grace after
Default (which period may be shorter or longer than that allowed in the case of
other Defaults) or may provide for an immediate enforcement upon such Default or
may limit the remedies available to the Trustee upon such Default;
(c)...to provide for the issuance under this Indenture of Securities
in coupon form if allowed by law (including Securities registrable as to
principal only) and to provide for exchangeability of such Securities with the
Securities issued hereunder in fully registered form and to make all appropriate
changes for such purpose;
(d)...to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture which may be
defective or inconsistent with any other provision contained herein or in any
supplemental indenture, or to make such other provisions in regard to matters or
questions arising under this Indenture; provided that any such action shall not
materially adversely affect the interests of the holders of the Securities;
(e)...to evidence and provide for the acceptance of appointment
hereunder by a successor trustee with respect to the Securities;
(f)...to make provision for transfer procedures, certification,
book-entry provisions, the form of restricted securities legends, if any, to be
placed on Securities, and all other matters required pursuant to Section 2.07 or
otherwise necessary, desirable or appropriate in connection with the issuance of
Securities to holders of Capital Securities in the event of a distribution of
Securities by Orion Capital Trust II following a Dissolution Event;
(g)...to qualify or maintain qualification of this Indenture
under the Trust Indenture Act; or
(h)...to make any change that does not adversely affect the rights
of any Securityholder in any material respect.
The Trustee is hereby authorized to join with the Company in the
execution of any supplemental indenture to effect such amendment, to make any
further appropriate agreements and stipulations which may be therein contained
and to accept the conveyance, transfer and assignment of any property
thereunder, but the Trustee shall not be obligated to, but may in its
discretion, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
Any amendment to this Indenture authorized by the provisions of this
Section 9.01 may be executed by the Company and the Trustee without the consent
of the holders of any of the Securities at the time outstanding, notwithstanding
any of the provisions of Section 9.02.
SECTION 9.02. WITH CONSENT OF SECURITYHOLDERS.
(a)...With the consent (evidenced as provided in Section 7.01) of
the holders of a majority in principal amount of the Securities at the time
outstanding, the Company, when authorized by a Board Resolution, and the Trustee
may from time to time and at any time amend this Indenture 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 the Securities; provided, however, that no such amendment shall
without the consent of the holders of each Security then outstanding and
affected hereby (i) extend the Stated Maturity of any Security, or reduce the
rate or extend the time of payment of interest thereon (except as contemplated
by Article XVI), or reduce the principal amount thereof, or reduce any amount
payable on prepayment thereof, or make the principal thereof or any interest or
premium thereon payable in any coin or currency other than that provided in the
Securities, or impair or affect the right of any Securityholder to institute
suit for payment thereof, or (ii) reduce the aforesaid percentage of Securities
the holders of which are required to consent to any such amendment to this
Indenture; provided, however, that if the Securities are held by Orion Capital
Trust II, such amendment shall not be effective until the holders of a majority
in liquidation amount of Trust Securities shall have consented to such
amendment; provided, further, that if the consent of the holder of each
outstanding Security is required, such amendment shall not be effective until
each holder of the Trust Securities shall have consented to such amendment.
(b)...Upon the request of the Company accompanied by a copy of a
resolution of the Board of Directors certified by its Secretary or Assistant
Secretary authorizing the execution of any supplemental indenture affecting such
amendment, and upon the filing with the Trustee of evidence of the consent of
Securityholders as aforesaid, the Trustee shall join with the Company in the
execution of such supplemental indenture unless such supplemental indenture
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such supplemental indenture.
(c)...Promptly after the execution by the Company and the Trustee of
any supplemental indenture pursuant to the provisions of this Section, the
Trustee shall transmit by mail, first class postage prepaid, a notice, prepared
by the Company, setting forth in general terms the substance of such
supplemental indenture, to the Securityholders as their names and addresses
appear upon the Security Register. Any failure of the Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
(d)...It shall not be necessary for the consent of the
Securityholders under this Section 9.02 to approve the particular form of any
proposed supplemental indenture, but it shall be sufficient if such consent
shall approve the substance thereof.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT; EFFECT OF SUPPLEMENTAL
INDENTURES.
Any supplemental indenture executed pursuant to the provisions of
this Article IX shall comply with the Trust Indenture Act. Upon the execution of
any supplemental indenture pursuant to the provisions of this Article IX, this
Indenture shall be and be deemed to be modified and amended in accordance
therewith and the respective rights, limitations of rights, obligations, duties
and immunities under this Indenture of the Trustee, the Company and the holders
of Securities shall thereafter be determined, exercised and enforced hereunder,
subject in all respects to such modifications and amendments, and all the terms
and conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.
SECTION 9.04. NOTATION ON SECURITIES.
Securities authenticated and delivered after the execution of any
supplemental indenture affecting such series pursuant to the provisions of this
Article IX may bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company or the Trustee shall
so determine, new Securities so modified as to conform, in the opinion of the
Trustee and the Board of Directors, to any modification of this Indenture
contained in any such supplemental indenture may be prepared and executed by the
Company, authenticated by the Trustee or the Authenticating Agent and delivered
in exchange for the Securities then outstanding.
SECTION 9.05. EVIDENCE OF COMPLIANCE OF SUPPLEMENTAL INDENTURE TO BE
FURNISHED TRUSTEE.
(a)...The Trustee, subject to the provisions of Sections 6.01 and
6.02, may receive an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed pursuant hereto
complies with the requirements of this Article IX.
(b)...The Trustee may receive an Opinion of Counsel as conclusive
evidence that any supplemental indenture executed pursuant to this Article is
authorized or permitted by, and conforms to, the terms of this Article and that
it is proper for the Trustee under the provisions of this Article to join in the
execution thereof.
ARTICLE X
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
SECTION 10.01. COMPANY MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
Nothing contained in this Indenture or in any of the Securities
shall prevent any consolidation or merger of the Company with or into any other
Person (whether or not affiliated with the Company, as the case may be), or
successive consolidations or mergers in which the Company or its successor or
successors shall be a party or parties, or shall prevent any sale, conveyance,
transfer or lease of the property of the Company or its successor or successors
as an entirety, or substantially as an entirety, to any other Person (whether or
not affiliated with the Company or its successor or successors) authorized to
acquire and operate the same; provided, that (a) the Company is the surviving
Person or the Person formed by or surviving any such consolidation or merger (if
other than the Company) or the Person to which such sale, conveyance, transfer
or lease of property is made is a Person organized and existing under the laws
of the United States or any State thereof or the District of Columbia, and (b)
upon any such consolidation, merger, sale, conveyance, transfer or lease, the
due and punctual payment of the principal of (and premium, if any) and interest
on the Securities according to their tenor and the due and punctual performance
and observance of all the covenants and conditions of this Indenture to be kept
or performed by the Company shall be expressly assumed, by supplemental
indenture (which shall conform to the provisions of the Trust Indenture Act, as
then in effect) satisfactory in form to the Trustee executed and delivered to
the Trustee by the Person formed by such consolidation, or into which the
Company shall have been merged, or by the Person which shall have acquired such
property, and (c) after giving effect to such consolidation, merger, sale,
conveyance, transfer or lease, no Default or Event of Default shall have
occurred and be continuing.
SECTION 10.02. SUCCESSOR CORPORATION TO BE SUBSTITUTED FOR COMPANY.
In case of any such consolidation, merger, conveyance or transfer
and upon the assumption by the successor corporation, by supplemental indenture,
executed and delivered to the Trustee and satisfactory in form to the Trustee,
of the due and punctual payment of the principal of (and premium, if any) and
interest on all of the Securities and the due and punctual performance and
observance of all of the covenants and conditions of this Indenture to be
performed or observed by the Company, such successor Person shall succeed to and
be substituted for the Company, with the same effect as if it had been named
herein as the party of the first part, and the Company thereupon shall be
relieved of any further liability or obligation hereunder or upon the
Securities. Such successor Person thereupon may cause to be signed, and may
issue either in its own name or in the name of Orion Capital Corporation, any or
all of the Securities issuable hereunder which theretofore shall not have been
signed by the Company and delivered to the Trustee or the Authenticating Agent;
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 or the Authenticating Agent shall authenticate and deliver any
Securities which previously shall have been signed and delivered by the officers
of the Company to the Trustee or the Authenticating Agent for authentication,
and any Securities which such successor Person thereafter shall cause to be
signed and delivered to the Trustee or the Authenticating Agent for that
purpose. All the Securities so issued shall in all respects have the same legal
rank and benefit under this Indenture as the Securities theretofore or
thereafter issued in accordance with the terms of this Indenture as though all
of such Securities had been issued at the date of the execution hereof.
SECTION 10.03. OPINION OF COUNSEL TO BE GIVEN TRUSTEE.
The Trustee, subject to the provisions of Sections 6.01 and 6.02,
may receive an Opinion of Counsel as conclusive evidence that any consolidation,
merger, sale, conveyance, transfer or lease, and any assumption, permitted or
required by the terms of this Article X, complies with the provisions of this
Article X.
ARTICLE XI
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 11.01. DISCHARGE OF INDENTURE.
When (a) the Company shall deliver to the Trustee for cancellation
all Securities theretofore authenticated (other than any Securities which shall
have been destroyed, lost or stolen and which shall have been replaced or paid
as provided in Section 2.08) and not theretofore cancelled, or (b) all the
Securities not theretofore cancelled or delivered to the Trustee for
cancellation shall have become due and payable, or are by their terms to become
due and payable within one year or are to be called for prepayment within one
year under arrangements satisfactory to the Trustee for the giving of notice of
prepayment, and the Company shall deposit with the Trustee, in trust, funds
sufficient to pay on the Stated Maturity or upon prepayment all of the
Securities (other than any Securities which shall have been destroyed, lost or
stolen and which shall have been replaced or paid as provided in Section 2.08)
not theretofore cancelled or delivered to the Trustee for cancellation,
including principal (and premium, if any) and interest due or to become due to
the Stated Maturity or prepayment date, as the case may be, but excluding,
however, the amount of any moneys for the payment of principal (or premium, if
any) or interest on the Securities (1) theretofore repaid to the Company in
accordance with the provisions of Section 11.04, or (2) paid to any State or to
the District of Columbia pursuant to its unclaimed property or similar laws, and
if in either case the Company shall also pay or cause to be paid all other sums
payable hereunder by the Company, then this Indenture shall cease to be of
further effect except for the provisions of Sections 2.02, 2.07, 2.08, 3.01,
3.02, 3.04, 6.06, 6.10 and 11.04 hereof, which shall survive until such
Securities shall mature and be paid. Thereafter, Sections 6.06, 6.10 and 11.04
shall survive, and the Trustee, on demand of the Company accompanied by any
Officers' Certificate and an Opinion of Counsel, to the effect that all
conditions to the satisfaction and discharge of this Indenture have been
satisfied, and at the cost and expense of the Company, shall execute proper
instruments acknowledging satisfaction of and discharging this Indenture, the
Company, however, hereby agreeing to reimburse the Trustee for any costs or
expenses thereafter reasonably and properly incurred by the Trustee in
connection with this Indenture or the Securities.
SECTION 11.02. DEPOSITED MONEYS AND U.S. GOVERNMENT OBLIGATIONS TO BE
HELD IN TRUST BY TRUSTEE. _
Subject to the provisions of Section 11.04, all moneys and U.S.
Government Obligations deposited with the Trustee pursuant to Sections 11.01 or
11.05 shall be held in trust and applied by it to the payment, either directly
or through any paying agent (including the Company if acting as its own paying
agent), to the holders of the particular Securities for the payment of which
such moneys or U.S. Government Obligations have been deposited with the Trustee,
of all sums due and to become due thereon for principal (premium, if any) and
interest.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 11.05 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the holders of outstanding Securities.
SECTION 11.03. PAYING AGENT TO REPAY MONEYS HELD.
Upon the satisfaction and discharge of this Indenture all moneys
then held by any paying agent of the Securities (other than the Trustee) shall,
upon written demand of the Company, be repaid to it or paid to the Trustee, and
thereupon such paying agent shall be released from all further liability with
respect to such moneys.
SECTION 11.04. RETURN OF UNCLAIMED MONEYS.
Any moneys deposited with or paid to the Trustee or any paying agent
for payment of the principal of (or premium, if any, on) or interest on
Securities and not applied but remaining unclaimed by the holders of Securities
for two years after the date upon which the principal of (or premium, if any,
on) or interest on such Securities, as the case may be, shall have become due
and payable, shall be repaid to the Company by the Trustee or such paying agent
on written demand; and the holder of any of the Securities shall thereafter look
only to the Company for any payment which such holder may be entitled to collect
and all liability of the Trustee or such paying agent with respect to such
moneys shall thereupon cease.
SECTION 11.05. DEFEASANCE UPON DEPOSIT OF MONEYS OR U.S. GOVERNMENT
OBLIGATIONS.
The Company shall be deemed to have been Discharged (as defined
below) from its obligations with respect to the Securities on the 123rd day
after the applicable conditions set forth below have been satisfied with respect
to the Securities:
(a) The Company shall have deposited or caused to be deposited
irrevocably with the Trustee or the Defeasance Agent (as defined below) as trust
funds in trust, specifically pledged as security for, and dedicated solely to,
the benefit of the holders of the Securities (i) money in an amount, or (ii)
U.S. Government Obligations which through the payment of interest and principal
in respect thereof in accordance with their terms will provide, not later than
one Business Day before the due date of any payment, money in an amount, or
(iii) a combination of (i) and (ii), sufficient, in the opinion (with respect to
(ii) and (iii)) of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee and the Defeasance Agent, if any, to pay and discharge each installment
of principal of (and premium, if any) and interest on the outstanding Securities
on the dates such installments of principal, premium or interest are due;
(b) if the Securities are then listed on any national securities
exchange, the Company shall have delivered to the Trustee and the Defeasance
Agent, if any, an Opinion of Counsel to the effect that the exercise of the
option under this Section 11.05 would not cause such Securities to be delisted
from such exchange;
(c) no Default or Event of Default with respect to the Securities
shall have occurred and be continuing on the date of such deposit; and
(d) the Company shall have delivered to the Trustee and the
Defeasance Agent, if any, an Opinion of Counsel to the effect that holders of
the Securities will not recognize income, gain or loss for United States federal
income tax purposes as a result of the exercise of the option under this Section
11.05 and will be subject to United States federal income tax in the same amount
and in the same manner and at the same times as would have been the case if such
option had not been exercised, and such opinion shall be accompanied by a
private letter ruling to that effect received from the United States Internal
Revenue Service or a revenue ruling pertaining to a comparable form of
transaction to that effect published by the United States Internal Revenue
Service.
"Discharged" means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by the Securities and to have
satisfied all the obligations under this Indenture relating to the Securities
(and the Trustee, at the expense of the Company, shall execute proper
instruments acknowledging the same), except (A) the rights of holders of
Securities to receive, from the trust fund described in clause (1) above,
payment of the principal of (and premium, if any) and the interest on the
Securities when such payments are due; (B) the Company's obligations with
respect to the Securities under Sections 2.07, 2.08, 5.02 and 11.04; and (C) the
rights, powers, trusts, duties and immunities of the Trustee hereunder.
"Defeasance Agent" means another financial institution which is
eligible to act as Trustee hereunder and which assumes all of the obligations of
the Trustee necessary to enable the Trustee to act hereunder. In the event such
a Defeasance Agent is appointed pursuant to this Section, the following
conditions shall apply:
(a) The Trustee shall have approval rights over the document
appointing such Defeasance Agent and the document setting forth such Defeasance
Agent's rights and responsibilities; and
(b) The Defeasance Agent shall provide verification to the Trustee
acknowledging receipt of sufficient money and/or U.S. Government Obligations to
meet the applicable conditions set forth in this Section 11.05.
SECTION 11.06. REINSTATEMENT.
If the Trustee or any Defeasance Agent is unable to apply any money
in accordance with Section 11.05 by reason of any legal proceeding or by reason
of any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, the Company's obligations
under this Indenture and the Securities shall be revived and reinstated as
though no deposit had occurred pursuant to Section ll.05 until such time as the
Trustee or any Defeasance Agent is permitted to apply all such money in
accordance with Section 11.05.
ARTICLE XII
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
SECTION 12.01. INDENTURE AND SECURITIES SOLELY CORPORATE OBLIGATIONS.
No recourse for the payment of the principal of (or premium, if any)
or interest on any Security, or for any claim based thereon or otherwise in
respect thereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in this Indenture, or in any Security, or because of
the creation of any indebtedness represented thereby, shall be had against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Company or of any successor Person to the Company, either
directly or through the Company, any constitution, statute or rule of law, or by
the enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Indenture and
the issue of the Securities.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.01. SUCCESSORS.
All the covenants, stipulations, promises and agreements in this
Indenture contained by the Company shall bind its successors and assigns whether
so expressed or not.
SECTION 13.02. OFFICIAL ACTS BY SUCCESSOR CORPORATION.
Any act or proceeding by any provision of this Indenture authorized
or required to be done or performed by any board, committee or officer of the
Company shall and may be done and performed with like force and effect by the
like board, committee or officer of any corporation that shall at the time be
the lawful sole successor of the Company.
SECTION 13.03. SURRENDER OF COMPANY POWERS.
The Company by instrument in writing executed by authority of 2/3
(two-thirds) of its Board of Directors and delivered to the Trustee may
surrender any of the powers reserved to the Company, and thereupon such power so
surrendered shall terminate both as to the Company and as to any successor
Person.
SECTION 13.04. ADDRESS FOR NOTICES, ETC.
Any notice or demand which by any provision of this Indenture is
required or permitted to be given or served by the Trustee or by the holders of
Securities on the Company may be given or served by being deposited postage
prepaid by registered or certified mail in a post office letter box addressed
(until another address is filed by the Company with the Trustee for the purpose)
to the Company, 9 Farm Springs Road, Farmington, CT 06032, Attention: Michael P.
Maloney, Esq., Senior Vice President, General Counsel and Secretary. Any notice,
direction, request or demand by any Securityholder to or upon the Trustee shall
be deemed to have been sufficiently given or made, for all purposes, if given or
made in writing at the office of the Trustee, The Bank of New York, 101 Barclay
Street, Floor 21W, New York, New York, 10286, Attention: Corporate Trust
Administration.
SECTION 13.05. GOVERNING LAW.
This Indenture and each Security shall be deemed to be a contract
made under the laws of the State of New York, and for all purposes shall be
governed by and construed in accordance with the laws of said State, without
regard to conflicts of laws principles thereof.
SECTION 13.06. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
Upon any application or demand by the Company to the Trustee to take
any action under any of the provisions of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that in the opinion of
the signers all conditions 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 have been complied with.
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture shall include (1) a statement that the Person
making such certificate or opinion has read such covenant or condition; (2) a
brief statement as to the nature and scope of the examination or investigation
upon which the statements or opinions contained in such certificate or opinion
are based; (3) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and (4) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been complied with.
SECTION 13.07. BUSINESS DAYS.
In any case where the date of payment of principal of (or premium,
if any) or interest on the Securities will not be a Business Day, the payment of
such principal of (or premium, if any) or interest on the Securities need not be
made on such date but may be made on the next succeeding Business Day, with the
same force and effect as if made on the date of payment and no interest shall
accrue for the period from and after such date.
SECTION 13.08. TRUST INDENTURE ACT TO CONTROL.
If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with another provision included in this Indenture which
is required to be included in this Indenture by any of Sections 310 to 317,
inclusive, of the Trust Indenture Act of 1939, such required provision shall
control.
SECTION 13.09. TABLE OF CONTENTS, HEADINGS, ETC.
The table of contents and the titles and headings of the articles
and sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part hereof, and shall in no way modify or
restrict any of the terms or provisions hereof.
SECTION 13.10. EXECUTION IN COUNTERPARTS.
This Indenture may be executed in any number of counterparts, each
of which shall be an original, but such counterparts shall together constitute
but one and the same instrument.
SECTION 13.11. SEPARABILITY.
In case any one or more of the provisions contained in this
Indenture or in the Securities shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Indenture or of
the Securities, but this Indenture and the Securities shall be construed as if
such invalid or illegal or unenforceable provision had never been contained
herein or therein.
SECTION 13.12. ASSIGNMENT.
The Company will have the right at all times to assign any of its
rights or obligations under this Indenture to a direct or indirect wholly owned
Subsidiary of the Company, provided that, in the event of any such assignment,
the Company will remain liable for all such obligations. Subject to the
foregoing, the Indenture is binding upon and inures to the benefit of the
parties thereto and their respective successors and assigns. This Indenture may
not otherwise be assigned by the parties hereto.
SECTION 13.13. ACKNOWLEDGMENT OF RIGHTS.
The Company acknowledges that, with respect to any Securities held
by Orion Capital Trust II or a trustee of such Trust, if the Property Trustee of
such Trust fails to enforce its rights under this Indenture as the holder of the
Securities held as the assets of Orion Capital Trust II, any holder of Capital
Securities may institute legal proceedings directly against the Company to
enforce such Property Trustee's rights under this Indenture without first
instituting any legal proceedings against such Property Trustee or any other
person or entity. Notwithstanding the foregoing, if an Event of Default has
occurred and is continuing and such event is attributable to the failure of the
Company to pay principal of (or premium, if any) or interest on the Securities
when due, the Company acknowledges that a holder of Capital Securities may
directly institute a proceeding for enforcement of payment to such holder of the
principal of (or premium, if any) or interest on the Securities having a
principal amount equal to the aggregate liquidation amount of the Capital
Securities of such holder on or after the respective due date specified in the
Securities.
ARTICLE XIV
CONDITIONAL RIGHT TO SHORTEN MATURITY;
PREPAYMENT OF SECURITIES -- NO SINKING FUND
SECTION 14.01. SPECIAL EVENT PREPAYMENT.
If a Special Event has occurred and is continuing, then the Company
shall have the right, upon (i) not less than 45 days written notice to the
Trustee and (ii) not less than 30 days nor more than 60 days written notice to
the Securityholders, to prepay the Securities, in whole (but not in part), at
any time within 90 days following the occurrence of such Special Event, at the
Special Event Prepayment Price. Following a Special Event, the Company shall
take such action as is necessary promptly to determine the Special Event
Prepayment Price, including without limitation the appointment by the Company of
a Quotation Agent. The Special Event Prepayment Price shall be paid prior to
12:00 noon, New York City time, on the date of such prepayment or such earlier
time as the Company determines, provided that the Company shall deposit with the
Trustee an amount sufficient to pay the Special Event Prepayment Price by 10:00
a.m., New York City time, on the date such Special Event Prepayment Price is to
be paid.
SECTION 14.02. OPTIONAL PREPAYMENT BY COMPANY.
Subject to the provisions of this Article XIV, the Company shall have the
right to prepay the Securities, in whole or in part, at any time and from time
to time, at the optional prepayment price equal to the Optional Prepayment
Price.
If the Securities are only partially prepaid pursuant to this
Section 14.02, the Securities to be prepaid will be chosen PRO RATA or by lot or
by any other method utilized by the Trustee; provided that, as to Securities
registered as a Global Security at the time of prepayment, the Depositary shall
determine, in accordance with its procedures, the principal amount of such
Securities held by each holder of a Security to be prepaid. The Optional
Prepayment Price shall be paid prior to 12:00 noon, New York City time, on the
date of such prepayment or at such earlier time as the Company determines,
provided that the Company shall deposit with the Trustee an amount sufficient to
pay the Optional Prepayment Price by 10:00 a.m., New York time, on the date such
Optional Prepayment Price is to be paid.
SECTION 14.03. NO SINKING FUND.
The Securities are not entitled to the benefit of any sinking fund.
SECTION 14.04. NOTICE OF PREPAYMENT; SELECTION OF SECURITIES.
In case the Company shall desire to exercise the right to prepay
all, or, as the case may be, any part of the Securities in accordance with their
terms, it shall fix a date for prepayment and shall mail a notice of such
prepayment at least 30 and not more than 60 days prior to the date fixed for
prepayment to the holders of Securities so to be prepaid as a whole or in part
at their last addresses as the same appear on the Security Register. Such
mailing shall be by first class mail. The notice if mailed in the manner herein
provided shall be conclusively presumed to have been duly given, whether or not
the holder receives such notice. In any case, failure to give such notice by
mail or any defect in the notice to the holder of any Security designated for
prepayment as a whole or in part shall not affect the validity of the
proceedings for the prepayment of any other Security.
Each such notice of prepayment shall specify the CUSIP number of the
Securities to be prepaid, the date fixed for prepayment, the prepayment price at
which the Securities are to be prepaid (or the method by which such prepayment
price is to be calculated), the place or places of payment that payment will be
made upon presentation and surrender of the Securities, that interest accrued to
the date fixed for prepayment will be paid as specified in said notice, and that
on and after said date interest thereon or on the portions thereof to be prepaid
will cease to accrue. If less than all the Securities are to be prepaid the
notice of prepayment shall specify the numbers of the Securities to be prepaid.
In case any Security is to be prepaid in part only, the notice of prepayment
shall state the portion of the principal amount thereof to be prepaid and shall
state that on and after the date fixed for prepayment, upon surrender of such
Security, a new Security or Securities in principal amount equal to the
unprepaid portion thereof will be issued.
Prior to 10:00 a.m., New York City time, on the prepayment date
specified in the notice of prepayment given as provided in this Section, the
Company will deposit with the Trustee or with one or more paying agents an
amount of money sufficient to prepay on the prepayment date all the Securities
so called for prepayment at the appropriate Prepayment Price, together with
accrued interest to the date fixed for prepayment.
The Company will give the Trustee notice not less than 45 days prior
to the prepayment date as to the aggregate principal amount of Securities to be
prepaid and the Trustee shall select, in such manner as in its sole discretion
it shall deem appropriate and fair, the Securities or portions thereof (in
integral multiples of $1,000, except as otherwise set forth in the applicable
form of Security) to be prepaid.
SECTION 14.05. PAYMENT OF SECURITIES CALLED FOR PREPAYMENT.
If notice of prepayment has been given as provided in Section 14.04,
the Securities or portions 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 Prepayment Price, together with interest
accrued to the date fixed for prepayment (subject to the rights of holders of
Securities on the close of business on a Regular Record Date in respect of an
Interest Payment Date occurring on or prior to the prepayment date), and on and
after said date (unless the Company shall default in the payment of such
Securities at the Prepayment Price, together with interest accrued to said date)
interest on the Securities or portions of Securities so called for prepayment
shall cease to accrue. On presentation and surrender of such Securities at a
place of payment specified in said notice, the said Securities or the specified
portions thereof shall be paid and prepaid by the Company at the applicable
Prepayment Price, together with interest accrued thereon to the date fixed for
prepayment (subject to the rights of holders of Securities on the close of
business on a Regular Record Date in respect of an Interest Payment Date
occurring on or prior to the prepayment date).
Upon presentation of any Security prepaid in part only, the Company
shall execute and the Trustee shall authenticate and make available for delivery
to the holder thereof, at the expense of the Company, a new Security or
Securities of authorized denominations, in principal amount equal to the
unprepaid portion of the Security so presented.
SECTION 14.06. CONDITIONAL RIGHT TO SHORTEN MATURITY.
If a Tax Event occurs, then the Company will have the right, prior
to the termination of the Trust, either (i) to shorten the Stated Maturity of
the Securities to the minimum extent required, but not to a date earlier than
April 15, 2018 such that, in the written opinion of counsel experienced in such
matters delivered to the Company, after shortening the Stated Maturity, interest
paid on the Securities shall be deductible for federal income tax purposes (the
action referred to above being referred to herein as a "Tax Event Maturity
Shortening") or (ii) to prepay the Securities. The circumstances under which the
Company has the right to prepay the Securities in connection with a Tax Event is
referred to herein as a "Conditional Tax Redemption Event" and, since a
Conditional Tax Redemption Event is deemed to be a Special Event, the Securities
shall then be subject to prepayment in accordance with the provisions of Section
14.01.
ARTICLE XV
SUBORDINATION OF SECURITIES
SECTION 15.01. AGREEMENT TO SUBORDINATE.
The Company covenants and agrees, and each holder of Securities
issued hereunder likewise covenants and agrees, that the Securities shall be
issued subject to the provisions of this Article XV; and each holder of a
Security, whether upon original issue or upon transfer or assignment thereof,
accepts and agrees to be bound by such provisions.
The payment by the Company of the principal of (and premium, if any)
and interest on all Securities issued hereunder shall, to the extent and in the
manner hereinafter set forth, be subordinated and junior in right of payment to
the prior payment in full of the Senior Indebtedness, whether outstanding at the
date of this Indenture or thereafter incurred.
No provision of this Article XV shall prevent the occurrence of any
Default or Event of Default hereunder.
SECTION 15.02. DEFAULT ON SENIOR INDEBTEDNESS.
In the event and during the continuation of any default by the
Company in the payment of principal, premium, interest or any other payment due
on any Senior Indebtedness, or in the event that the maturity of any Senior
Indebtedness has been accelerated because of a default, then, in either case, no
payment shall be made by the Company with respect to the principal (including
prepayment) of or premium, if any, or interest on the Securities.
In the event of the acceleration of the maturity of the Securities,
then no payment shall be made by the Company with respect to the principal
(including prepayments) of or premium, if any, or interest on the Securities
until the holders of all Senior Indebtedness outstanding at the time of such
acceleration shall receive payment in full of all amounts due in respect of such
Senior Indebtedness (including any amounts due upon acceleration).
In the event that, notwithstanding the foregoing, any payment shall
be received by the Trustee when such payment is prohibited by the preceding
paragraph of this Section 15.02, such payment shall be held in trust for the
benefit of, and shall be paid over or delivered to, the holders of Senior
Indebtedness or their respective representatives, or to the trustee or trustees
under any indenture pursuant to which any of such Senior Indebtedness may have
been issued, as their respective interests may appear, but only to the extent of
the amounts due in respect of such Senior Indebtedness and only to the extent
that the holders of the Senior Indebtedness (or their representative or
representatives or a trustee) notify the Trustee in writing, within 90 days of
such payment, of the amounts then due and owing on such Senior Indebtedness and
only the amounts specified in such notice to the Trustee shall be paid to the
holders of such Senior Indebtedness.
SECTION 15.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any payment by the Company or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution or winding-up or liquidation or reorganization of
the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due upon all Senior Indebtedness
of the Company shall first be paid in full, or payment thereof provided for in
money in accordance with its terms, before any payment is made by the Company on
account of the principal (and premium, if any) or interest on the Securities;
and upon any such dissolution or winding-up or liquidation or reorganization,
any payment by the Company, or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, to which the
Securityholders or the Trustee would be entitled to receive from the Company,
except for the provisions of this Article XV, shall be paid by the Company or by
any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person
making such payment or distribution, or by the Securityholders or by the Trustee
under this Indenture if received by them or it, directly to the holders of
Senior Indebtedness of the Company (pro rata to such holders on the basis of the
respective amounts of Senior Indebtedness held by such holders, as calculated by
the Company) or their representative or representatives, or to the trustee or
trustees under any indenture pursuant to which any instruments evidencing such
Senior Indebtedness may have been issued, as their respective interests may
appear, to the extent necessary to pay such Senior Indebtedness in full, in
money or money's worth, after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness, before any
payment or distribution is made to the Securityholders or to the Trustee.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, prohibited by the foregoing, shall be received by the
Trustee before all amounts in respect of Senior Indebtedness is paid in full, or
provision is made for such payment in money in accordance with its terms, such
payment or distribution shall be held in trust for the benefit of and shall be
paid over or delivered to the holders of such Senior Indebtedness or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing such Senior Indebtedness
may have been issued, and their respective interests may appear, as calculated
by the Company, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all amounts due in respect of
such Senior Indebtedness in full in money in accordance with its terms, after
giving effect to any concurrent payment or distribution to or for the benefit of
the holders of such Senior Indebtedness.
For purposes of this Article XV, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the extent provided in this Article XV with respect
to the Securities to the payment of Senior Indebtedness that may at the time be
outstanding, provided that (i) such Senior Indebtedness is assumed by the new
corporation, if any, resulting from any such reorganization or readjustment, and
(ii) the rights of the holders of such Senior Indebtedness are not, without the
consent of such holders, altered by such reorganization or readjustment. The
consolidation of the Company with, or the merger of the Company into, another
Person or the liquidation or dissolution of the Company following the sale,
conveyance, transfer or lease of its property as an entirety, or substantially
as an entirety, to another Person upon the terms and conditions provided for in
Article X of this Indenture shall not be deemed a dissolution, winding-up,
liquidation or reorganization for the purposes of this Section 15.03 if such
other Person shall, as a part of such consolidation, merger, sale, conveyance,
transfer or lease, comply with the conditions stated in Article X of this
Indenture. Nothing in Section 15.02 or in this Section 15.03 shall apply to
claims of, or payments to, the Trustee under or pursuant to Section 6.05 of this
Indenture.
SECTION 15.04. SUBROGATION.
Subject to the payment in full of all amounts due in respect of
Senior Indebtedness, the rights of the Securityholders shall be subrogated to
the rights of the holders of such Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company, as the case may
be, applicable to such Senior Indebtedness until the principal of (and premium,
if any) and interest on the Securities shall be paid in full; and, for the
purposes of such subrogation, no payments or distributions to the holders of
such Senior Indebtedness of any cash, property or securities to which the
Securityholders or the Trustee would be entitled except for the provisions of
this Article XV, and no payment over pursuant to the provisions of this Article
XV to or for the benefit of the holders of such Senior Indebtedness by
Securityholders or the Trustee, shall, as between the Company, its creditors
other than holders of Senior Indebtedness of the Company, and the holders of the
Securities, be deemed to be a payment by the Company to or on account of such
Senior Indebtedness. It is understood that the provisions of this Article XV are
and are intended solely for the purposes of defining the relative rights of the
holders of the Securities, on the one hand, and the holders of such Senior
Indebtedness, on the other hand.
Nothing contained in this Article XV or elsewhere in this Indenture
or in the Securities is intended to or shall impair, as between the Company, its
creditors other than the holders of Senior Indebtedness of the Company, and the
holders of the Securities, the obligation of the Company, which is absolute and
unconditional, to pay to the holders of the Securities the principal of (and
premium, if any) and interest on the Securities as and when the same shall
become due and payable in accordance with their terms, or is intended to or
shall affect the relative rights of the holders of the Securities and creditors
of the Company, as the case may be, other than the holders of Senior
Indebtedness of the Company, as the case may be, nor shall anything herein or
therein prevent the Trustee or the holder of any Security from exercising all
remedies otherwise permitted by applicable law upon a Default under this
Indenture, subject to the rights, if any, under this Article XV of the holders
of such Senior Indebtedness in respect of cash, property or securities of the
Company, as the case may be, received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred
to in this Article XV, the Trustee, subject to the provisions of Article VI of
this Indenture, and the Securityholders shall be entitled conclusively to rely
upon any order or decree made by any court of competent jurisdiction in which
such dissolution, winding-up, liquidation or reorganization proceedings are
pending, or a certificate of the receiver, trustee in bankruptcy, liquidation
trustee, agent or other Person making such payment or distribution, delivered to
the Trustee or to the Securityholders, for the purposes of ascertaining the
Persons entitled to participate in such distribution, the holders of Senior
Indebtedness and other indebtedness of the Company, as the case may be, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article XV.
SECTION 15.05. TRUSTEE TO EFFECTUATE SUBORDINATION.
Each Securityholder by such Securityholder's acceptance thereof
authorizes and directs the Trustee on such Securityholder's behalf to take such
action as may be necessary or appropriate to effectuate the subordination
provided in this Article XV and appoints the Trustee such Securityholder's
attorney-in-fact for any and all such purposes.
SECTION 15.06. NOTICE BY THE COMPANY.
The Company shall give prompt written notice to a Responsible
Officer of the Trustee of any fact known to the Company that would prohibit the
making of any payment of monies to or by the Trustee in respect of the
Securities pursuant to the provisions of this Article XV. Notwithstanding the
provisions of this Article XV 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 of monies to or by the Trustee in
respect of the Securities pursuant to the provisions of this Article XV, unless
and until a Responsible Officer of the Trustee shall have received written
notice thereof from the Company or a holder or holders of Senior Indebtedness or
from any trustee therefor; and before the receipt of any such written notice,
the Trustee, subject to the provisions of Article VI of this Indenture, shall be
entitled in all respects to assume that no such facts exist; provided, however,
that if the Trustee shall not have received the notice provided for in this
Section 15.06 at least three Business Days prior to the date upon which by the
terms hereof any money may become payable for any purpose (including, without
limitation, the payment of the principal of (or premium, if any) or interest on
any Security), then, anything herein contained to the contrary notwithstanding,
the Trustee shall have full power and authority to receive such money and to
apply the same to the purposes for which they were received, and shall not be
affected by any notice to the contrary that may be received by it within three
Business Days prior to such date.
The Trustee, subject to the provisions of Article VI of this
Indenture, shall be entitled conclusively to rely on the delivery to it of a
written notice by a Person representing himself to be a holder of Senior
Indebtedness of the Company (or a trustee on behalf of such holder), to
establish that such notice has been given by a holder of such Senior
Indebtedness or a trustee on behalf of any such holder or holders. In the event
that the Trustee determines in good faith that further evidence is required with
respect to the right of any Person as a holder of such Senior Indebtedness to
participate in any payment or distribution pursuant to this Article XV, the
Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of such 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 XV, 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.
Upon any payment or distribution of assets of the Company referred
to in this Article XV, the Trustee and the Securityholders shall be entitled to
rely upon any order or decree entered by any court of competent jurisdiction in
which such insolvency, bankruptcy, receivership, liquidation, reorganization,
dissolution, winding up or similar case or proceeding is pending, or a
certificate of the trustee in bankruptcy, liquidating trustee, custodian,
receiver, assignee for the benefit of creditors, agent or other person making
such payment or distribution, delivered to the Trustee or to the
Securityholders, for the purpose of ascertaining the persons entitled to
participate in such payment or distribution, the holders of 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 XV.
SECTION 15.07. RIGHTS OF THE TRUSTEE; HOLDERS OF SENIOR INDEBTEDNESS.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article XV in respect of any Senior Indebtedness at any
time held by it, to the same extent as any other holder of Senior Indebtedness,
and nothing in this Indenture shall deprive the Trustee of any of its rights as
such holder.
With respect to the holders of Senior Indebtedness of the Company,
the Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article XV, and no implied
covenants or obligations with respect to the holders of such Senior Indebtedness
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of such Senior Indebtedness and,
subject to the provisions of Article VI of this Indenture, the Trustee shall not
be liable to any holder of such Senior Indebtedness if it shall pay over or
deliver to Securityholders, the Company or any other Person money or assets to
which any holder of such Senior Indebtedness shall be entitled by virtue of this
Article XV or otherwise.
Nothing in this Article XV shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 6.06.
SECTION 15.08. SUBORDINATION MAY NOT BE IMPAIRED.
No right of any present or future holder of any Senior Indebtedness
of the Company to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such 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 otherwise be charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness of the Company may, at any time
and from time to time, without the consent of or notice to the Trustee or the
Securityholders, without incurring responsibility to the Securityholders and
without impairing or releasing the subordination provided in this Article XV or
the obligations hereunder of the holders of the Securities to the holders of
such Senior Indebtedness, do any one or more of the following: (i) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, such Senior Indebtedness, or otherwise amend or supplement in any manner
such Senior Indebtedness or any instrument evidencing the same or any agreement
under which such Senior Indebtedness is outstanding; (ii) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing such Senior Indebtedness; (iii) release any Person liable in any manner
for the collection of such Senior Indebtedness; and (iv) exercise or refrain
from exercising any rights against the Company and any other Person.
ARTICLE XVI
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 16.01. EXTENSION OF INTEREST PAYMENT PERIOD.
(a) So long as no Event of Default has occurred and is continuing,
the Company shall have the right, at any time and from time to time during the
term of the Securities, to defer payments of interest by extending the interest
payment period of such Securities for a period not exceeding 10 consecutive
semi-annual periods, including the first such semi-annual period during such
extension period (as set forth in Section 16.02(c)) (the "Extension Period"),
during which Extension Period no interest shall be due and payable, provided
that no Extension Period may extend beyond the Stated Maturity. To the extent
permitted by applicable law, interest, the payment of which has been deferred
because of the extension of the interest payment period pursuant to this Section
16.01, will bear interest thereon at the Coupon Rate compounded semi-annually
for each semi-annual period of the Extension Period ("Compounded Interest"). At
the end of the Extension Period, the Company shall pay all interest accrued and
unpaid on the Securities, including any Additional Sums and Compounded Interest
(together, "Deferred Interest") that shall be payable to the holders of the
Securities in whose names the Securities are registered in the Security Register
on the first record date immediately preceding the end of the Extension Period.
(b) During any such Extension Period, the Company may not, and may
not permit any Subsidiary to, (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire, or make a liquidation payment with respect to,
any of the Company's capital stock (which includes common and preferred stock),
(ii) make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company (including Other
Debentures) that rank pari passu with or junior in right of payment to the
Securities or (iii) make any guarantee payments with respect to any guarantee by
the Company of the debt securities of any Subsidiary of the Company if such
guarantee ranks pari passu with or junior in right of payment to the Securities
(other than (a) dividends or distributions in shares of or options, warrants or
rights to subscribe for or purchase shares of, common stock of the Company, (b)
any declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the prepayment or repurchase of any such rights pursuant thereto, (c)
payments under the Capital Securities Guarantee, (d) as a direct result of, and
only to the extent necessary to avoid the issuance of fractional shares of the
Company's capital stock following, a reclassification of the Company's capital
stock or the exchange or conversion of one class or series of the Company's
capital stock for another class or series of the Company's capital stock, (e)
the purchase of fractional interests in shares of the Company's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged, and (f) purchases of common stock related
to the issuance of common stock or rights under any of the Company's benefit
plans for its directors, officers or employees or any of the Company's dividend
reinvestment plans). None of the Company's Subsidiaries will be prohibited from
declaring and paying cash distributions with respect to its capital stock or
from making payments with respect to its debt securities.
(c) Before the termination of any such Extension Period, the Company
may further defer payments of interest by further extending such period,
provided that such period, together with all such previous and further
extensions within such Extension Period, shall not exceed 10 consecutive
semi-annual periods, including the first such semi-annual period during such
Extension Period, or extend beyond the Stated Maturity. Upon the termination of
any Extension Period and the payment of all Deferred Interest then due, the
Company may elect to commence a new Extension Period, subject to the foregoing
requirements. No interest shall be due and payable during an Extension Period,
except at the end thereof, but the Company may prepay at any time all or any
portion of the interest accrued during an Extension Period.
SECTION 16.02. NOTICE OF EXTENSION.
(a) If the Property Trustee is the only registered holder of the
Securities at the time the Company selects an Extension Period, the Company
shall give written notice to the Administrative Trustees, the Property Trustee
and the Trustee of its selection of such Extension Period at least 5 Business
Days before the earlier of (i) the next succeeding date on which distributions
on the Trust Securities issued by Orion Capital Trust II are payable, or (ii)
the date the Trust is required to give notice of the record date, or the date
such Distributions are payable, to any national securities exchange or to
holders of the Capital Securities issued by the Trust, but in any event at least
5 Business Days before such record date.
(b) If the Property Trustee is not the only holder of the Securities
at the time the Company selects an Extension Period, the Company shall give the
holders of the Securities and the Trustee written notice of its selection of
such Extension Period at least 10 Business Days before the earlier of (i) the
next succeeding Interest Payment Date, or (ii) the date the Company is required
to give notice of the record or payment date of such interest payment to any
national securities exchange.
(c) The semi-annual period in which any notice is given pursuant to
paragraphs (a) or (b) of this Section 16.02 shall be counted as one of the 10
semi-annual periods permitted in the maximum Extension Period permitted under
Section 16.01. There is no limitation on the number of times that the Company
may elect to begin an Extension Period.
The Bank of New York hereby accepts the trusts in this Indenture
declared and provided, upon the terms and conditions hereinabove set forth.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed by their respective officers thereunto duly authorized, as of
the day and year first above written.
ORION CAPITAL CORPORATION
By: /s/ Michael P. Maloney
Name: Michael P. Maloney, Esq.
Title:__Senior Vice President,
General Counsel and Secretary
THE BANK OF NEW YORK, as Trustee
By:
Name:Walter N. Gitlin
Title:Vice President
<PAGE>
EXHIBIT A
[IF THE SECURITY IS A GLOBAL SECURITY, INSERT: THIS SECURITY IS A
GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND
IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A NOMINEE OF THE 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 NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF
THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY
A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.
UNLESS (A) THIS SECURITY IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND (B) ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DTC (AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS OR ANY
OTHER APPLICABLE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO
OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
"AFFILIATE" OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
THIS SECURITY) EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO
LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO
OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN
THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3) OR (7)
OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS SECURITY FOR ITS OWN
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION
WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO
ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE
SECURITIES ACT, SUBJECT TO THE RIGHT OF THE COMPANY PRIOR TO ANY SUCH OFFER,
SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY
OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY
TO THE COMPANY, AND (ii) PURSUANT TO CLAUSE (E), TO REQUIRE THAT A CERTIFICATE
OF TRANSFER IN THE FORM APPEARING ON THE REVERSE OF THIS SECURITY IS COMPLETED
AND DELIVERED BY THE TRANSFEREE TO THE COMPANY. SUCH HOLDER FURTHER AGREES THAT
IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT AND
MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS UNLESS REGISTERED UNDER THE SECURITIES ACT OR AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS AVAILABLE.
<PAGE>
No. CUSIP No.
ORION CAPITAL CORPORATION
7.701% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE
DUE APRIL 15, 2028
Orion Capital Corporation, a Delaware corporation (the "Company",
which term includes any successor Person under the Indenture hereinafter
referred to), for value received, hereby promises to pay to The Bank of New
York, as Property Trustee, or registered assigns, the principal sum of
$129,000,000 on April 15, 2028 (the "Stated Maturity"), unless the Stated
Maturity is shortened under certain circumstances described herein or this
Debenture is previously prepaid, and to pay interest on the outstanding
principal amount hereof from February 5, 1998, or from the most recent interest
payment date (each such date, an "Interest Payment Date") to which interest has
been paid or duly provided for, semi-annually (subject to deferral as set forth
herein) in arrears on April 15 and October 15 of each year, commencing April 15,
1998, at the rate of 7.701% per annum until the principal hereof shall have
become due and payable, and on any overdue principal and premium, if any, and
(without duplication and to the extent that payment of such interest is
enforceable under applicable law) on any overdue installment of interest at the
same rate per annum compounded semi-annually. The amount of interest payable on
any Interest Payment Date shall be computed on the basis of a 360-day year of
twelve 30-day months and, for any period less than 6 months, the actual months
elapsed and the actual days elapsed in a partial month in such period. In the
event that any date on which the principal of (or premium, if any) or interest
on this Security is payable is not a Business Day, then payment 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), with the same force
and effect as if made on such date.
The interest installment so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities, as defined in said Indenture) is registered at the close of business
on the Regular Record Date for such interest installment, which shall be the
15th day preceding the relevant interest payment date. Any such interest
installment not punctually paid or duly provided for shall forthwith cease to be
payable to the holders on such Regular Record Date and may 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 to be fixed by the
Trustee for the payment of such defaulted interest, notice whereof shall be
given to the holders of Securities not less than 10 days prior to such special
record date, or may be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities may be listed, and upon such notice as maybe required by such
exchange, all as more fully provided in the Indenture.
The principal of (and premium, if any) and interest on this Security
shall be payable at the office or agency of the Trustee maintained for that
purpose in any coin or currency of the United States of America that at the time
of payment is legal tender for payment of public and private debts; provided,
however, that payment of interest may be made at the option of the Company by
(i) check mailed to the holder at such address as shall appear in the Security
Register or (ii) by transfer to an account maintained by the Person entitled
thereto, provided that proper written transfer instructions have been received
by the relevant record date. Notwithstanding the foregoing, so long as the
Holder of this Security is the Property Trustee, the payment of the principal of
(and premium, if any) and interest on this Security will be made at such place
and to such account as may be designated by the Property Trustee.
The indebtedness evidenced by this Security is unsecured and, to the
extent provided in the Indenture, subordinate and junior in right of payment to
the prior payment in full of 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 action as may be necessary or appropriate to acknowledge or 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, hereby 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.
This Security shall not be entitled to any benefit under the
Indenture hereinafter referred to, be valid or become obligatory for any purpose
until the Certificate of Authentication hereon shall have been signed by or on
behalf of the Trustee.
The provisions of this Security are continued on the reverse side
hereof and such provisions shall for all purposes have the same effect as though
fully set forth at this place.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed.
ORION CAPITAL CORPORATION
By:___________________________
Name:
Title:
(FORM OF CERTIFICATE OF AUTHENTICATION)
CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned
Indenture.
Dated:___________________________
THE BANK OF NEW YORK, as Trustee
By:/s/ Walter N. Gitlin
Authorized Signatory
<PAGE>
(FORM OF REVERSE OF SECURITY)
This Security is one of the Securities of the Company (herein
sometimes referred to as the "Securities"), specified in the Indenture, all
issued or to be issued under and pursuant to an Indenture, dated as of February
5, 1998 (the "Indenture"), duly executed and delivered between the Company and
The Bank of New York, as Trustee (the "Trustee"), to which Indenture reference
is hereby made for a description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Trustee, the Company and
the holders of the Securities.
Upon the occurrence and continuation of a Special Event, the Company
shall have the right to prepay this Security in whole (but not in part) at the
Special Event Prepayment Price. "Special Event Prepayment Price" shall mean,
with respect to any prepayment of the Securities following a Special Event, an
amount in cash equal to the greater of (i) 100% of the principal amount thereof
or (ii) the sum, as determined by a Quotation Agent, of the present values of
the remaining scheduled payments of principal and interest thereon discounted to
the prepayment date on a semi-annual basis (assuming a 360-day year consisting
of twelve 30-day months and, for any period less than 6 months, the actual
months elapsed and the actual days elapsed in a partial month in such period) at
the Special Event Adjusted Treasury Rate, plus, in each case, any accrued and
unpaid interest thereon, including Compounded Interest, Additional Interest and
Additional Sums, if any, to the date of such prepayment.
In addition, the Company shall have the right to prepay this
Security, in whole or in part, at any time (an "Optional Prepayment"), at the
Optional Prepayment Price equal to the greater of (i) 100% of the principal
amount to be prepaid or (ii) the sum, as determined by a Quotation Agent, of the
present values of the remaining scheduled payments of principal to be prepaid
and interest thereon discounted to the prepayment date on a semi-annual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Adjusted
Treasury Rate, plus, in either case, accrued and unpaid interest thereon to the
date of prepayment and any Additional Sums.
The Special Event Prepayment Price and the Optional Prepayment
Price, as the case requires, shall be paid prior to 12:00 noon, New York time,
on the date of such prepayment or at such earlier time as the Company
determines, provided, that the Company shall deposit with the Trustee an amount
sufficient to pay the applicable Prepayment Price by 10:00 a.m., New York City
time, on the date such Prepayment Price is to be paid. Any prepayment pursuant
to this paragraph will be made upon not less than 30 days nor more than 60 days
notice. If the Securities are only partially prepaid by the Company pursuant to
an Optional Prepayment, the Securities to be prepaid will be chosen by lot or by
any other method utilized by the Trustee; provided that, as to Securities
registered as a Global Security at the time of prepayment, the Depositary shall
determine the particular Securities to be prepaid in accordance with its
procedures.
In the event of prepayment of this Security in part only, a new
Security or Securities for the unprepaid portion hereof will be issued in the
name of the holder hereof upon the cancellation hereof.
If a Tax Event occurs, then the Company will have the right, prior
to the termination of the Trust, either (i) to shorten the Stated Maturity of
this Security to the minimum extent, but not earlier than April 15, 2018, such
that, in the written opinion of counsel experienced in such matters delivered to
the Company, after shortening the Stated Maturity, interest paid on the
Securities shall be deductible for federal income tax purposes or (ii) to prepay
the Securities.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Securities may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of a majority in principal amount of
the Securities at the time outstanding, as defined in the Indenture, to execute
supplemental indentures for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of the Indenture or of
modifying in any manner the rights of the holders of the Securities; provided,
however, that no such supplemental indenture shall, without the consent of each
holder of Securities then outstanding and affected thereby, (i) extend the
Stated Maturity of any Securities, or reduce the principal amount thereof, or
reduce any amount payable on prepayment thereof, or reduce the rate or extend
the time of payment of interest thereon (subject to Article XVI of the
Indenture), or make the principal of, or interest or premium on, the Securities
payable in any coin or currency other than U.S. dollars, or impair or affect the
right of any holder of Securities to institute suit for the payment thereof, or
(ii) reduce the aforesaid percentage of Securities, the holders of which are
required to consent to any such supplemental indenture. The Indenture also
contains provisions permitting the holders of a majority in principal amount of
the Securities at the time outstanding affected thereby, on behalf of all of the
holders of the Securities, to waive any past default in the performance of any
of the covenants contained in the Indenture, or established pursuant to the
Indenture, and its consequences, except a Default in the payment of the
principal of or premium, if any, or interest on any of the Securities or a
Default in respect of any covenant or provision under which the Indenture cannot
be modified or amended without the consent of each holder of Securities then
outstanding. Any such consent or waiver by the holder of this Security (unless
revoked as provided in the Indenture) shall be conclusive and binding upon such
Holder and upon all future holders and owners of this Security and of any
Security issued in exchange heretofore or in place hereof (whether by
registration of transfer or otherwise), irrespective of whether or not any
notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
premium, if any, and interest on this Security at the time and place and at the
rate and in the money herein prescribed.
As long as no Event of Default has occurred and is continuing, the
Company shall have the right, at any time and from time to time during the term
of the Securities, to defer payments of interest by extending the interest
payment period of such Securities for a period not exceeding 10 consecutive
semi-annual periods, including the first such semi-annual period during such
extension period (an "Extension Period"), during which Extension Period no
interest shall be due and payable, provided that no Extension Period may extend
beyond the Stated Maturity of the Securities. At the end of the Extension
Period, the Company shall pay all interest then accrued and unpaid, together
with deferred interest thereon at the rate specified for the Securities (to the
extent that payment of such interest is enforceable under applicable law).
Before the termination of any such Extension Period, the Company may further
defer payments of interest by further extending such Extension Period, provided
that such Extension Period, together with all such previous and further
extensions within such Extension Period, shall not exceed 10 consecutive
semi-annual periods, including the first semi-annual period during such
Extension Period, or extend beyond the Stated Maturity of the Securities. Upon
the termination of any such Extension Period and the payment of all accrued and
unpaid interest and any additional amounts then due, the Company may commence a
new Extension Period, subject to the foregoing requirements.
The Company has agreed that, if at any time (i) there shall have
occurred any event of which the Company has actual knowledge that (a) is, or
with the giving of notice or the lapse of time, or both, would be, an Event of
Default and (b) in respect of which the Company shall not have taken reasonable
steps to cure, (ii) if such Securities are held by Orion Capital Trust I, the
Company shall be in default with respect to its payment of any obligations under
the Capital Securities Guarantee, or (iii) the Company shall have given notice
of its election of the exercise of its right to extend the interest payment
period and any such extension shall be continuing, then the Company will not,
and will not permit any Subsidiary to,
(i) declare or pay any dividends or distributions on, or prepay,
purchase, acquire, or make a liquidation payment with respect to, any of the
Company's capital stock) (which includes common and preferred stock);
(ii) make any payment of principal, interest or premium, if any, on
or repay or repurchase or prepay any debt securities of the Company that rank
pari passu with or junior in right of payment to the Securities; or
(iii) make any guarantee payments with respect to any guarantee by
the Company of the debt securities or any Subsidiary of the Company if such
guarantee ranks pari passu or junior in right of payment to the Securities ther
than (a) dividends or distributions in shares of, or options, warrants or rights
to subscribe for or purchase shares of, Common Stock of the Company, (b) any
declaration of a dividend in connection with the implementation of a stockholder
rights plan, or the issuance of stock under any such plan in the future, or the
prepayment or repurchase of any such rights pursuant thereto, (c) payments under
the Capital Securities Guarantee, (d) as a direct result of, and only to the
extent necessary to avoid the issuance of fractional shares of the Company's
capital stock following, a reclassification of the Company's capital stock or
the exchange or the conversion of one class or series of the Company's capital
stock for another class or series of the Company's capital stock, (e) the
purchase of fractional interests in shares of the Company's capital stock
pursuant to the exchange or conversion of such capital stock or the security
being exchanged or converted, and (f) purchases of Common Stock related to the
issuance of Common Stock or rights under any of the Company's benefit plans for
its directors, officers or employees or any of the Company's dividend
reinvestment plans. None of the Company's Subsidiaries will be prohibited from
declaring and paying cash distributions with respect to its capital stock or
from making payments with respect to its debt securities.
The Company will have the right at any time to dissolve Orion
Capital Trust II and cause the Securities to be distributed to the holders of
the Trust Securities in liquidation of the Trust.
The Securities are issuable only in registered form without coupons
in denominations of $1,000.00 and any integral multiple thereof. As provided in
the Indenture and subject to the transfer restrictions limitations as may be
contained herein and therein from time to time, this Security is transferable by
the holder hereof on the Security Register of the Company, upon surrender of
this Security for registration of transfer at the office or agency of the
Trustee in the City and State of New York accompanied by a written instrument or
instruments of transfer in form satisfactory to the Company or the Trustee duly
executed by the holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities of authorized denominations and for the
same aggregate principal amount and series will be issued to the designated
transferee or transferees. No service charge will be made for any such transfer,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in relation thereto.
Prior to due presentment for registration of transfer of this
Security, the Company, the Trustee, any paying agent and the registrar may deem
and treat the holder hereof as the absolute owner hereof (whether or not this
Security shall be overdue and notwithstanding any notice of ownership or writing
hereon made by anyone other than the Security registrar) for the purpose of
receiving payment of or on account of the principal hereof and premium, if any,
and interest due hereon and for all other purposes, and neither the Company nor
the Trustee nor any paying agent nor any registrar shall be affected by any
notice to the contrary.
No recourse shall be had for the payment of the principal of or
premium, if any, or interest on this Security, or for any claim based hereon, or
otherwise in respect hereof, or based on or in respect of the Indenture, against
any incorporator, stockholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor Person, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issuance hereof, expressly
waived and released.
All terms used in this Security that are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT
OF LAW PROVISIONS THEREOF.
CERTIFICATE OF TRUST
OF
ORION CAPITAL TRUST II
The undersigned, being all the Administrative Trustees, the
sole Delaware Trustee and the sole Property Trustee of Orion Capital Trust II,
desiring to form a business trust pursuant to the Delaware Business Trust Act,
12 Del. Ch. ss.ss. 3801 et seq., hereby certify as follows:
1. Name: The name of the business trust being created hereby
is Orion Capital Trust II (the "Trust").
2. Delaware Trustee. The name and business address of the
trustee of the Trust with a principal place of business in the State of Delaware
are as follows:
The Bank of New York (Delaware)
White Clay Center Route 273
Newark, Delaware 19711
3. Property Trustee. The name and business address of the
Property Trustee of the Trust are as follows:
The Bank of New York
101 Barclay Street, Floor 21W
New York, New York 10286
4. Effective Date. This Certificate of Trust shall be
effective as of its filing.
IN WITNESS WHEREOF, the undersigned, being all the
Administrative Trustees, the sole Delaware Trustee and the sole Property Trustee
of the Trust, have executed this Certificate of Trust.
DATED: February 2, 1998
THE BANK OF NEW YORK
(DELAWARE) Not in its
individual capacity but solely
as Delaware Trustee
By:/s/Walter N. Gitlin
Name:Walter N. Gitlin
Title:Authorized Signatory
THE BANK OF NEW YORK
Not in its individual capacity
but solely as Property Trustee
By:/s/ Walter N. Gitlin
Name:Walter N. Gitlin
Title:Vice President
/s/ Marston Becker
W. Marston Becker, not in his
individual capacity but solely in
his capacity as Administrative
Trustee
/s/ Craig A. Nyman
Craig A. Nyman, not in his
individual capacity but solely in
his capacity as Administrative
Trustee
/s/ Michael P. Maloney
Michael P. Maloney, Esq., not in
his individual capacity but solely
in his capacity as Administrative
Trustee
-----------------------------------------
AMENDED AND RESTATED DECLARATION OF TRUST
ORION CAPITAL TRUST II
DATED AS OF FEBRUARY 5, 1998
-----------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I INTERPRETATION AND DEFINITIONS....................................1
SECTION 1.1 Definitions...................................................1
ARTICLE II TRUST INDENTURE ACT..............................................9
SECTION 2.1 Trust Indenture Act; Application..............................9
SECTION 2.2 Lists of Holders of Securities................................9
SECTION 2.3 Reports by the Property Trustee..............................10
SECTION 2.4 Periodic Reports to Property Trustee.........................10
SECTION 2.5 Evidence of Compliance with Conditions Precedent.............10
SECTION 2.6 Events of Default; Waiver....................................10
SECTION 2.7 Event of Default; Notice.....................................12
ARTICLE III ORGANIZATION...................................................12
SECTION 3.1 Name.........................................................12
SECTION 3.2 Office.......................................................13
SECTION 3.3 Purpose......................................................13
SECTION 3.4 Authority....................................................13
SECTION 3.5 Title to Property of the Trust...............................13
SECTION 3.6 Powers and Duties of the Administrative Trustees.............13
SECTION 3.7 Prohibition of Actions by the Trust and the
Trustees...................................................16
SECTION 3.8 Powers and Duties of the Property Trustee....................17
SECTION 3.9 Certain Duties and Responsibilities of the
Property Trustee...........................................19
SECTION 3.10 Certain Rights of Property Trustee..........................21
SECTION 3.11 Delaware Trustee............................................23
SECTION 3.12 Not Responsible for Recitals or Issuance of
Securities................................................23
SECTION 3.13 Duration of Trust...........................................24
SECTION 3.14 Mergers.....................................................24
ARTICLE IV SPONSOR.........................................................25
SECTION 4.1 Sponsor's Purchase of Common Securities......................25
SECTION 4.2 Responsibilities of the Sponsor..............................25
SECTION 5.1 Right to Proceed.............................................26
ARTICLE V TRUSTEES.........................................................26
SECTION 5.1 Number of Trustees; Appointment of Co-Trustee................26
SECTION 5.2 Delaware Trustee.............................................27
SECTION 5.3 Property Trustee; Eligibility................................27
SECTION 5.4 Certain Qualifications of Administrative Trustees
and Delaware Trustee Generally.............................28
SECTION 5.5 Administrative Trustees......................................28
SECTION 5.6 Delaware Trustee.............................................29
SECTION 5.7 Appointment, Removal and Resignation of Trustees.............29
SECTION 5.8 Vacancies among Trustees.....................................31
SECTION 5.9 Effect of Vacancies..........................................31
SECTION 5.10 Meetings....................................................31
SECTION 5.11 Delegation of Power.........................................31
SECTION 5.12 Merger, Conversion, Consolidation or Succession
to Business...............................................32
SECTION 5.13 Undertaking for Costs.......................................32
ARTICLE VI DISTRIBUTIONS...................................................32
SECTION 6.1 Distributions................................................32
ARTICLE VII ISSUANCE OF SECURITIES.........................................33
SECTION 7.1 General Provisions Regarding Securities......................33
SECTION 7.2 Execution and Authentication.................................33
SECTION 7.3 Form and Dating..............................................34
SECTION 7.4 Registrar and Paying Agent...................................36
SECTION 7.5 Paying Agent to Hold Money in Trust..........................36
SECTION 7.6 Replacement Securities.......................................37
SECTION 7.7 Outstanding Capital Securities...............................37
SECTION 7.8 Capital Securities in Treasury...............................37
SECTION 7.9 Temporary Securities.........................................38
SECTION 7.10 Cancellation................................................39
SECTION 7.11 CUSIP Numbers...............................................39
ARTICLE VIII DISSOLUTION OF TRUST..........................................39
SECTION 8.1 Dissolution of Trust.........................................39
ARTICLE IX TRANSFER OF INTERESTS...........................................40
SECTION 9.1 Transfer of Securities.......................................40
SECTION 9.2 Transfer Procedures and Restrictions.........................41
SECTION 9.3 Deemed Security Holders......................................50
SECTION 9.4 Book Entry Interests.........................................50
SECTION 9.5 Notices to Clearing Agency...................................50
SECTION 9.6 Appointment of Successor Clearing Agency.....................51
ARTICLE X LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES,
TRUSTEES OR OTHERS............................................51
SECTION 10.1 Liability...................................................51
SECTION 10.2 Exculpation.................................................51
SECTION 10.3 Fiduciary Duty..............................................52
SECTION 10.4 Indemnification.............................................53
SECTION 10.5 Outside Businesses..........................................56
ARTICLE XI ACCOUNTING......................................................57
SECTION 11.1 Fiscal Year.................................................57
SECTION 11.2 Certain Accounting Matters..................................57
SECTION 11.3 Banking.....................................................57
SECTION 11.4 Withholding.................................................58
ARTICLE XII AMENDMENTS AND MEETINGS........................................58
SECTION 12.1 Amendments..................................................58
SECTION 12.2 Meetings of the Holders of Securities; Action by
Written Consent............................................60
ARTICLE XIII REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE
TRUSTEE.......................................................61
SECTION 13.1 Representations and Warranties of Property
Trustee....................................................61
SECTION 13.2 Representations and Warranties of Delaware
Trustee....................................................62
ARTICLE XIV REGISTRATION RIGHTS............................................63
SECTION 14.1 Registration Rights Agreement; Additional
Interest...................................................63
ARTICLE XV MISCELLANEOUS...................................................65
SECTION 15.1 Notices.....................................................65
SECTION 15.2 Governing Law...............................................66
SECTION 15.3 Intention of the Parties....................................66
SECTION 15.4 Headings....................................................66
SECTION 15.5 Successors and Assigns......................................66
SECTION 15.6 Partial Enforceability......................................67
SECTION 15.7 Counterparts................................................67
<PAGE>
CROSS-REFERENCE TABLE*
SECTION OF
TRUST INDENTURE ACT SECTION OF
OF 1939, AS AMENDED DECLARATION
310(a) 5.3(a)
310(c) Inapplicable
311(c) Inapplicable
312(a) 2.2(a)
312(b) 2.2(b)
313 2.3
314(a) 2.4
314(b) Inapplicable
314(c) 2.5
314(d) Inapplicable
314(f) Inapplicable
315(a) 3.9(b)
315(c) 3.9(a)
315(d) 3.9(a)
316(a) Annex I
316(c) 3.6(a)
- -------------------
* This Cross-Reference Table does not constitute part of the Declaration and
shall not affect the interpretation of any of its terms or provisions.
<PAGE>
AMENDED AND RESTATED DECLARATION OF TRUST
OF
ORION CAPITAL TRUST II
February 5, 1998
AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") dated and
effective as of February 5, 1998, by the Trustees (as defined herein), the
Sponsor (as defined herein) and by the Holders (as defined herein), from time to
time, of undivided beneficial interests in the Trust to be issued pursuant to
this Declaration.
WHEREAS, the Delaware Trustee and the Sponsor established Orion
Capital Trust II (the "Trust"), a statutory business trust formed under the
Business Trust Act (as defined herein) pursuant to a Declaration of Trust dated
as of February 2, 1998 (the "Original Declaration"), and a Certificate of Trust
filed with the Secretary of State of the State of Delaware on February 2, 1998
for the sole purpose of issuing and selling certain securities representing
undivided beneficial interests in the assets of the Trust and investing the
proceeds thereof in certain Debentures of the Debenture Issuer (each as
hereinafter defined);
WHEREAS, as of the date hereof, no interests in the Trust have been
issued; and
WHEREAS, all of the Trustees and the Sponsor, by this Declaration,
amend and restate each and every term and provision of the Original Declaration.
NOW, THEREFORE, it being the intention of the parties hereto to
continue the Trust as a business trust under the Business Trust Act and that
this Declaration fully amend and restate the Original Trust Agreement so as to
constitute the governing instrument of such business trust, the Trustees declare
that all assets contributed to the Trust will be held in trust for the benefit
of the holders, from time to time, of the securities representing undivided
beneficial interests in the assets of the Trust issued hereunder, subject to the
provisions of this Declaration.
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 DEFINITIONS.
Unless the context otherwise requires:
(a) Capitalized terms used in this Declaration but not defined in
the preamble above or elsewhere herein have the respective meanings assigned to
them in this Section 1.1;
(b) a term defined anywhere in this Declaration has the same meaning
throughout;
(c) all references to "the Declaration" or "this Declaration" are to
this Declaration (including Annex I hereto and Exhibit A hereto) as modified,
supplemented or amended from time to time;
(d) all references in this Declaration to Articles and Sections and
Annexes and Exhibits are to Articles and Sections of and Annexes and Exhibits to
this Declaration unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning
when used in this Declaration unless otherwise defined in this Declaration or
the context otherwise requires;
(f) a term defined in the Indenture (as defined below) has the same
meaning when used in this Declaration unless otherwise defined in this
Declaration or the context otherwise requires; and
(g) a reference to the singular includes the plural and vice versa.
"ADDITIONAL INTEREST" means the additional interest referred to
in Article XIV.
"ADMINISTRATIVE TRUSTEE" has the meaning set forth in Section 5.1.
"AFFILIATE" shall mean, with respect to a specified Person, (a) any
Person directly or indirectly owning, controlling or holding the power to vote
20% or more of the outstanding voting securities or other ownership interests of
the specified Person, (b) any Person 20% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person, (c) any Person
directly or indirectly controlling, controlled by, or under common control with
the specified Person, and (d) a partnership in which the specified Person is a
general partner; provided, however, that Intercargo Corporation shall not be
deemed to be an Affiliate of the Company or Orion Capital Trust II.
"AGENT" means any Paying Agent or Registrar.
"AUTHORIZED OFFICER" of a Person means any other Person that is
authorized to legally bind such former Person.
"BOOK ENTRY INTEREST" means a beneficial interest in a Global
Certificate registered in the name of a Clearing Agency or its nominee,
ownership and transfers of which shall be maintained and made through book
entries by a Clearing Agency as described in Section 9.4.
"BUSINESS DAY" means any day other than a Saturday or a Sunday or a
day on which banking institutions in The City of New York, New York are
authorized or required by law or executive order to close.
"BUSINESS TRUST ACT" means Chapter 38 of Title 12 of the Delaware
Code, 12 Del. Code ss. 3801 et seq., as it may be amended from time to time or
any successor legislation.
"CAPITAL SECURITY BENEFICIAL OWNER" means, with respect to a Book
Entry Interest, a Person who is the beneficial owner of such Book Entry
Interest, as reflected on the books of the Clearing Agency, or on the books of a
Person maintaining an account with such Clearing Agency (directly as a Clearing
Agency Participant or as an indirect participant, in each case in accordance
with the rules of such Clearing Agency).
"CAPITAL SECURITIES" has the meaning specified in Section 7.1(a).
"CAPITAL SECURITIES GUARANTEE" means the guarantee agreement dated
as of February 5, 1998 of the Sponsor in respect of the Capital Securities.
"CLEARING AGENCY" means an organization registered as a "Clearing
Agency" pursuant to Section 17A of the Exchange Act that is acting as depositary
for the Capital Securities and in whose name or in the name of a nominee of that
organization shall be registered a Global Certificate and which shall undertake
to effect book entry transfers and pledges of the Capital Securities.
"CLEARING AGENCY PARTICIPANT" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time the Clearing
Agency effects book entry transfers and pledges of securities deposited with the
Clearing Agency.
"CLOSING TIME" means the "Closing Time" under the Purchase
Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor legislation.
"COMMISSION" means the United States Securities and Exchange
Commission as from time to time constituted, or if any time after the execution
of this Declaration such Commission is not existing and performing the duties
now assigned to it under applicable Federal securities laws, then the body
performing such duties at such time.
"COMMON SECURITIES" has the meaning specified in Section 7.1(a).
"COMMON SECURITIES GUARANTEE" means the guarantee agreement dated as
of February 5, 1998 of the Sponsor in respect of the Common Securities.
"COMPANY INDEMNIFIED PERSON" means (a) any Administrative Trustee;
(b) any Affiliate of any Administrative Trustee; (c) any officers, directors,
shareholders, members, partners, employees, representatives or agents of any
Administrative Trustee; or (d) any officer, employee or agent of the Trust or
its Affiliates.
"CORPORATE TRUST OFFICE" means the office of the Property Trustee at
which the corporate trust business of the Property Trustee shall, at any
particular time, be principally administered, which office at the date of
execution of this Agreement is located at The Bank of New York, 101 Barclay
Street, Floor 21W, New York, New York 10286.
"COVERED PERSON" means: (a) any officer, director, shareholder,
partner, member, representative, employee or agent of (i) the Trust or (ii)
the Trust's Affiliates; and (b) any Holders of Securities.
"DEBENTURE ISSUER" means Orion Capital Corporation, a Delaware
corporation, or any successor entity resulting from any consolidation,
amalgamation, merger or other business combination, in its capacity as issuer of
the Debentures under the Indenture.
"DEBENTURE TRUSTEE" means The Bank of New York, a New York banking
corporation, as trustee under the Indenture until a successor is appointed
thereunder, and thereafter means such successor trustee.
"DEBENTURES" means the 7.701% Junior Subordinated Deferrable
Interest Debentures due April 15, 2028 of the Debenture Issuer issued pursuant
to the Indenture (including, as applicable, those Debentures issued upon
consummation of the Exchange Offer).
"DEFAULT" means an event, act or condition that with notice or lapse
of time, or both, would constitute an Event of Default.
"DEFINITIVE CAPITAL SECURITIES" has the meaning set forth in
Section 7.3(c).
"DELAWARE TRUSTEE" has the meaning set forth in Section 5.2.
"DIRECT ACTION" has the meaning set forth in Section 3.8(e).
"DISTRIBUTION" means a distribution payable to Holders of Securities
in accordance with Section 6.1.
"DTC" means The Depository Trust Company, the initial Clearing
Agency.
"EVENT OF DEFAULT" in respect of the Securities means an Event of
Default (as defined in the Indenture) that has occurred and is continuing in
respect of the Debentures.
"EXCHANGE OFFER" means the exchange offer (including any private
exchange offer) contemplated in Section 2(a) of the Registration Rights
Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor legislation.
"EXCHANGE AGENT" has the meaning set forth in Section 7.4(a).
"EXCHANGE CAPITAL SECURITIES" has the meaning set forth in Section
7.1(a).
"EXCHANGE DEBENTURES" means the Debentures issued upon consummation
of the Exchange Offer.
"FIDUCIARY INDEMNIFIED PERSON" has the meaning set forth in Section
10.4(b).
"GLOBAL CAPITAL SECURITIES" means the Regulation S Global Capital
Securities, the Rule 144A Global Capital Securities and the Unrestricted Global
Capital Securities.
"GLOBAL CERTIFICATES" means certificates for Capital Securities
registered in the name of a Clearing Agency or its nominee.
"HOLDER" means a Person in whose name a Security is registered, such
Person being a beneficial owner within the meaning of the Business Trust Act.
"INDEMNIFIED PERSON" means a Company Indemnified Person or a
Fiduciary Indemnified Person.
"INDENTURE" means the Indenture, dated as of February 5, 1998, among
the Debenture Issuer and the Debenture Trustee, as amended from time to time.
"INITIAL CAPITAL SECURITIES" means 7.701% Capital Securities
(liquidation amount $1,000 per Security) of the Trust issued at the Closing
Time.
"INITIAL DEBENTURES" means the Debentures as authenticated and
issued under the Indenture at the Closing Time.
"INVESTMENT COMPANY" means an investment company as defined in the
Investment Company Act.
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940,
as amended from time to time, or any successor legislation.
"ISSUE DATE" shall have the meaning set forth in Section 14.1.
"LEGAL ACTION" has the meaning set forth in Section 3.6(a)(vii).
"LIKE AMOUNT" has the meaning set forth in Annex I.
"LIQUIDATION AMOUNT" with respect to any Security means the amount
designated as such with respect thereto in Annex I hereto.
"MAJORITY IN LIQUIDATION AMOUNT" means, with respect to the Trust
Securities, except as provided in the terms of the Capital Securities or by the
Trust Indenture Act, Holder(s) of outstanding Trust Securities voting together
as a single class or, as the context may require, Holders of outstanding Capital
Securities or Holders of outstanding Common Securities voting separately as a
class, who are the record owners of more than 50% of the aggregate Liquidation
Amount (including the stated amount that would be paid on redemption,
liquidation or otherwise, plus accrued and unpaid Distributions to the date upon
which the voting percentages are determined) of all outstanding Securities of
the relevant class.
"OFFERING MEMORANDUM" has the meaning set forth in Section
3.6(a)(ii)(A).
"OFFICERS' CERTIFICATE" means, with respect to any Person, a
certificate signed by the Chairman, a Vice Chairman, the Chief Executive
Officer, the President, a Vice President (however designated), or the Secretary
or an Assistant Secretary of such Person. Any Officers' Certificate delivered
with respect to compliance with a condition or covenant provided for in this
Declaration shall include:
(a) a statement that each officer signing the Certificate has read
the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"OPINION OF COUNSEL" means a written opinion of counsel, who may be
an employee of the Sponsor, and who shall be acceptable to the Property Trustee.
"PARTICIPANTS" has the meaning set forth in Section 7.3(b).
"PAYING AGENT" has the meaning specified in Section 7.4.
"PERSON" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"PROPERTY TRUSTEE" has the meaning set forth in Section 5.3(a).
"PROPERTY TRUSTEE ACCOUNT" has the meaning set forth in Section
3.8(c).
"PURCHASE AGREEMENT" means the Purchase Agreement for the initial
offering and sale of Capital Securities.
"QIBS" means qualified institutional buyers as defined in Rule 144A.
"QUORUM" means a majority of the Administrative Trustees or, if
there are only two Administrative Trustees, both of them.
"REGISTRAR" has the meaning set forth in Section 7.4.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of February 5, 1998, by and among Orion Capital Corporation,
the Trust and the Initial Purchasers, as such agreement may be amended, modified
or supplemented from time to time.
"REGISTRATION STATEMENT" has the meaning given to such term in the
Securities Act, and the regulations promulgated thereunder.
"REGULATION S" means Regulation S under the Securities Act, as such
regulation may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission.
"REGULATION S GLOBAL CAPITAL SECURITY" has the meaning set forth in
Section 7.3(a).
"RELATED PARTY" means, with respect to the Sponsor, any direct or
indirect wholly owned subsidiary of the Sponsor or any other Person that owns,
directly or indirectly, 100% of the outstanding voting securities of the
Sponsor.
"RESPONSIBLE OFFICER," when used with respect to the Property
Trustee, means the chairman or any vice chairman of the board of directors, the
chairman or any vice chairman of the executive committee of the board of
directors, the chairman of the trust committee, the president, any vice
president, any assistant vice president, the cashier, any assistant cashier, the
secretary, any assistant secretary, the treasurer, any assistant treasurer, any
trust officer or assistant trust officer, the controller or any assistant
controller or any other officer or assistant officer of the Property Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"RESTRICTED DEFINITIVE CAPITAL SECURITIES" has the meaning set forth
in Section 7.3(c).
"RESTRICTED CAPITAL SECURITY" means a Capital Security required by
Section 9.2 to contain a Restricted Securities Legend.
"RESTRICTED SECURITIES LEGEND" has the meaning set forth in Section
9.2.
"RULE 3A-5" means Rule 3a-5 under the Investment Company Act, or any
successor rule or regulation.
"RULE 144" means Rule 144 under the Securities Act, as such rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission.
"RULE 144A" means Rule 144A under the Securities Act, as such rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission.
"RULE 144A GLOBAL CAPITAL SECURITY" has the meaning set forth in
Section 7.3(a).
"SECURITIES" or "TRUST SECURITIES" means the Common Securities and
the Capital Securities (including, as applicable, those Capital Securities
issued upon consummation of the Exchange Offer).
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time, or any successor legislation.
"SECURITIES GUARANTEES" means the Common Securities Guarantee and
the Capital Securities Guarantee.
"SPECIAL EVENT" has the meaning set forth in the Indenture.
"SPONSOR" means Orion Capital Corporation, a Delaware corporation,
or any successor entity resulting from any merger, consolidation, amalgamation
or other business combination, in its capacity as sponsor of the Trust.
"SUCCESSOR DELAWARE TRUSTEE" has the meaning set forth in Section
5.7(a).
"SUCCESSOR ENTITY" has the meaning set forth in Section 3.14(b).
"SUCCESSOR PROPERTY TRUSTEE" has the meaning set forth in Section
5.7(a).
"SUCCESSOR SECURITIES" has the meaning set forth in Section 3.14(b).
"SUPER MAJORITY" has the meaning set forth in Section 2.6(a)(ii).
"TAX EVENT MATURITY SHORTENING" has the meaning set forth in the
Indenture.
"10% IN LIQUIDATION AMOUNT" means, with respect to the Trust
Securities, except as provided in the terms of the Capital Securities or by the
Trust Indenture Act, Holder(s) of outstanding Trust Securities voting together
as a single class or, as the context may require, Holders of outstanding Capital
Securities or Holders of outstanding Common Securities voting separately as a
class, who are the record owners of 10% of the aggregate Liquidation Amount
(including the stated amount that would be paid on redemption, liquidation or
otherwise, plus accrued and unpaid Distributions to the date upon which the
voting percentages are determined) of all outstanding Securities of the relevant
class.
"TREASURY REGULATIONS" means the income tax regulations, including
temporary regulations, promulgated under the Code by the United States Treasury,
as such regulations may be amended from time to time (including corresponding
provisions of succeeding regulations).
"TRUSTEE" or "TRUSTEES" means each Person who has signed this
Declaration as a trustee (including the Property Trustee, the Delaware Trustee
and each Administrative Trustee), so long as such Person shall continue in
office in accordance with the terms hereof, and all other Persons who may from
time to time be duly appointed, qualified and serving as Trustees in accordance
with the provisions hereof, and references herein to a Trustee or the Trustees
shall refer to such Person or Persons solely in their capacity as trustees
hereunder.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as
amended from time to time, or any successor legislation.
"UNRESTRICTED GLOBAL CAPITAL SECURITY" has the meaning set forth
in Section 9.2(b).
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 TRUST INDENTURE ACT; APPLICATION.
(a) This Declaration is subject to the provisions of the Trust
Indenture Act that are required to be part of this Declaration and shall, to the
extent applicable, be governed by such provisions.
(b) The Property Trustee shall be the only Trustee which is a
Trustee for the purposes of the Trust Indenture Act.
(c) If and to the extent that any provision of this Declaration
limits, qualifies or conflicts with the duties imposed by ss.ss. 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
(d) The application of the Trust Indenture Act to this Declaration
shall not affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
SECTION 2.2 LISTS OF HOLDERS OF SECURITIES.
(a) Each of the Sponsor and the Administrative Trustees on behalf of
the Trust shall provide the Property Trustee, unless the Property Trustee is
Registrar for the Securities, with a list (i) within 14 days after each record
date for payment of Distributions, in such form as the Property Trustee may
reasonably require, of the names and addresses of the Holders of the Securities
("List of Holders") as of such record date, provided that neither the Sponsor
nor the Administrative Trustees on behalf of the Trust shall be obligated to
provide such List of Holders at any time the List of Holders does not differ
from the most recent List of Holders given to the Property Trustee by the
Sponsor and the Administrative Trustees on behalf of the Trust, and (ii) at any
other time, within 30 days of receipt by the Trust of a written request for a
List of Holders as of a date no more than 14 days before such List of Holders is
given to the Property Trustee. The Property Trustee shall preserve, in as
current a form as is reasonably practicable, all information contained in a List
of Holders given to it or which it receives in its capacity as Paying Agent (if
acting in such capacity), provided that the Property Trustee may destroy any
List of Holders previously given to it on receipt of a new List of Holders.
(b) The Property Trustee shall comply with its obligations under
ss.ss. 311(a), 311(b) and 312(b) of the Trust Indenture Act
SECTION 2.3 REPORTS BY THE PROPERTY TRUSTEE.
On or before February 5 of each year, commencing February 5, 1999,
the Property Trustee shall provide to the Holders of the Capital Securities such
reports as are required by ss. 313 of the Trust Indenture Act, if any, in the
form and in the manner provided by ss. 313 of the Trust Indenture Act. The
Property Trustee shall also comply with the requirements of ss. 313(d) of the
Trust Indenture Act.
SECTION 2.4 PERIODIC REPORTS TO PROPERTY TRUSTEE.
Each of the Sponsor and the Administrative Trustees on behalf of the
Trust shall provide to the Property Trustee such documents, reports and
information as are required by ss. 314 (if any) and the compliance certificate
required by ss. 314 of the Trust Indenture Act in the form, in the manner and at
the times required by ss. 314 of the Trust Indenture Act.
SECTION 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
Each of the Sponsor and the Administrative Trustees on behalf of the
Trust shall provide to the Property Trustee such evidence of compliance with any
conditions precedent provided for in this Declaration that relate to any of the
matters set forth in ss. 314(c) of the Trust Indenture Act. Any certificate or
opinion required to be given by an officer pursuant to ss. 314(c)(1) of the
Trust Indenture Act may be given in the form of an Officers' Certificate.
SECTION 2.6 EVENTS OF DEFAULT; WAIVER.
(a) The Holders of a Majority in Liquidation Amount of Capital
Securities may, by vote, on behalf of the Holders of all of the Capital
Securities, waive any past Event of Default in respect of the Capital Securities
and its consequences, provided that, if the underlying Event of Default under
the Indenture:
(i) is not waivable under the Indenture, the Event of Default
under the Declaration shall also not be waivable; or
(ii) requires the consent or vote of greater than a majority
in aggregate principal amount of the holders of the Debentures (a "Super
Majority") to be waived under the Indenture, the Event of Default under the
Declaration may only be waived by the vote of the Holders of at least the
proportion in aggregate Liquidation Amount of the Capital Securities that the
relevant Super Majority represents of the aggregate principal amount of the
Debentures outstanding.
The foregoing provisions of this Section 2.6(a) shall be in lieu of
ss. 316(a)(1)(B) of the Trust Indenture Act and such ss. 316(a)(1)(B) of the
Trust Indenture Act is hereby expressly excluded from this Declaration and the
Securities, as permitted by the Trust Indenture Act. Upon such waiver, any such
default shall cease to exist, and any Event of Default with respect to the
Capital Securities arising therefrom shall be deemed to have been cured, for
every purpose of this Declaration, but no such waiver shall extend to any
subsequent or other default or an Event of Default with respect to the Capital
Securities or impair any right consequent thereon. Any waiver by the Holders of
the Capital Securities of an Event of Default with respect to the Capital
Securities shall also be deemed to constitute a waiver by the Holders of the
Common Securities of any such Event of Default with respect to the Common
Securities for all purposes of this Declaration without any further act, vote,
or consent of the Holders of the Common Securities.
(b) The Holders of a Majority in Liquidation Amount of the Common
Securities may, by vote, on behalf of the Holders of all of the Common
Securities, waive any past Event of Default with respect to the Common
Securities and its consequences, provided that, if the underlying Event of
Default under the Indenture:
(i) is not waivable under the Indenture, except where the
Holders of the Common Securities are deemed to have waived such Event of Default
under the Declaration as provided below in this Section 2.6(b), the Event of
Default under the Declaration shall also not be waivable; or
(ii) requires the consent or vote of a Super Majority to be
waived, except where the Holders of the Common Securities are deemed to have
waived such Event of Default under the Declaration as provided below in this
Section 2.6(b), the Event of Default under the Declaration may only be waived by
the vote of the Holders of at least the proportion in aggregate Liquidation
Amount of the Common Securities that the relevant Super Majority represents of
the aggregate principal amount of the Debentures outstanding;
provided further, each Holder of Common Securities will be deemed to have waived
any such Event of Default and all Events of Default with respect to the Common
Securities and its consequences if all Events of Default with respect to the
Capital Securities have been cured, waived or otherwise eliminated, and until
such Events of Default have been so cured, waived or otherwise eliminated, the
Property Trustee will be deemed to be acting solely on behalf of the Holders of
the Capital Securities and only the Holders of the Capital Securities will have
the right to direct the Property Trustee in accordance with the terms of the
Securities. The foregoing provisions of this Section 2.6(b) shall be in lieu of
ss.ss. 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act and such ss.ss.
316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act are hereby expressly
excluded from this Declaration and the Securities, as permitted by the Trust
Indenture Act. Subject to the foregoing provisions of this Section 2.6(b), upon
such waiver, any such default shall cease to exist and any Event of Default with
respect to the Common Securities arising therefrom shall be deemed to have been
cured for every purpose of this Declaration, but no such waiver shall extend to
any subsequent or other default or Event of Default with respect to the Common
Securities or impair any right consequent thereon.
(c) A waiver of an Event of Default under the Indenture by the
Property Trustee, at the direction of the Holders of the Capital Securities,
constitutes a waiver of the corresponding Event of Default under this
Declaration. The foregoing provisions of this Section 2.6(c) shall be in lieu of
ss. 316(a)(1)(B) of the Trust Indenture Act and such ss. 316(a)(1)(B) of the
Trust Indenture Act is hereby expressly excluded from this Declaration and the
Securities, as permitted by the Trust Indenture Act.
SECTION 2.7 EVENT OF DEFAULT; NOTICE.
(a) The Property Trustee shall, within 90 days after the occurrence
of an Event of Default, transmit by mail, first class postage prepaid, to the
Holders, the Administrative Trustees and the Sponsor, notices of all defaults
with respect to the Securities actually known to a Responsible Officer of the
Property Trustee, unless such defaults have been cured before the giving of such
notice (the term "defaults" for the purposes of this Section 2.7(a) being hereby
defined to be an Event of Default as defined in the Indenture, not including any
periods of grace provided for therein and irrespective of the giving of any
notice provided therein).
(b) The Sponsor and the Administrative Trustees shall file annually
with the Property Trustee a certification as to whether or not they are in
compliance with all the conditions and covenants applicable to them under this
Declaration.
(c) For purposes of this Section 2.7, the Property Trustee shall not
be deemed to have knowledge of any default or Event of Default except:
(i) a default under Sections 5.01(a) and 5.01(b) of the
Indenture; or
(ii) any default as to which the Property Trustee shall have
received written notice or of which a Responsible Officer of the Property
Trustee charged with the administration of the Declaration shall have actual
knowledge.
ARTICLE III
ORGANIZATION
SECTION 3.1 NAME.
The Trust shall continue to be named "Orion Capital Trust II" as
such name may be modified from time to time by the Administrative Trustees
following written notice to the Holders. The Trust's activities may be conducted
under the name of the Trust or any other name deemed advisable by the
Administrative Trustees.
SECTION 3.2 OFFICE.
The address of the principal office of the Trust is 101 Barclay
Street, Floor 21W, New York, New York, 10286, Attention: Corporate Trust
Administration. On ten Business Days' prior written notice to the Holders, the
Administrative Trustees may designate another principal office.
SECTION 3.3 PURPOSE.
The exclusive purposes and functions of the Trust are (a) to issue
and sell Securities including effecting the Exchange Offer, (b) use the proceeds
from the sale of the Securities to acquire the Debentures, (c) to make
Distributions to Holders of the Securities as herein provided, and (d) except as
otherwise limited herein, to engage in only those other activities necessary,
advisable or incidental thereto. The Trust shall not borrow money, issue debt or
reinvest proceeds derived from investments, mortgage or pledge any of its
assets, or otherwise undertake (or permit to be undertaken) any activity that
would cause the Trust not to be classified for United States federal income tax
purposes as a grantor trust.
SECTION 3.4 AUTHORITY.
Subject to the limitations provided in this Declaration and to the
specific duties of the Property Trustee, the Administrative Trustees shall have
exclusive and complete authority to carry out the purposes of the Trust. An
action taken by the Administrative Trustees in accordance with their powers, as
set forth in Sections 3.6 and 5.5, shall constitute the act of and serve to bind
the Trust and an action taken by the Property Trustee on behalf of the Trust in
accordance with its powers shall constitute the act of and serve to bind the
Trust. In dealing with the Trustees acting on behalf of the Trust, no Person
shall be required to inquire into the authority of the Trustees to bind the
Trust. Persons dealing with the Trust are entitled to rely conclusively on the
power and authority of the Trustees as set forth in this Declaration. The
authority of the Delaware Trustee is set forth in Section 3.11 hereof.
SECTION 3.5 TITLE TO PROPERTY OF THE TRUST.
Except as provided in Section 3.8 with respect to the Debentures and
the Property Trustee Account or as otherwise provided in this Declaration, legal
title to all assets of the Trust shall be vested in the Trust. The Holders shall
not have legal title to any part of the assets of the Trust, but shall have an
undivided beneficial interest in the assets of the Trust.
SECTION 3.6 POWERS AND DUTIES OF THE ADMINISTRATIVE TRUSTEES.
(a) The Administrative Trustees shall have the exclusive power, duty
and authority to cause the Trust to engage in the following activities:
(i) to issue and sell the Capital Securities and the Common
Securities in accordance with this Declaration; provided, however, that (A) the
Trust may issue no more than two series of Capital Securities and no more than
one series of Common Securities, (B) there shall be no interests in the Trust
other than the Securities, and (C) the issuance of Securities shall be limited
to: (x) a simultaneous issuance of both Capital Securities and Common Securities
at the Closing Time and (y) the issuance of a second series of Capital
Securities upon the consummation of the Exchange Offer.
(ii) in connection with the issue and sale of the Capital
Securities and the Common Securities, and in connection with the Exchange Offer,
at the direction of the Sponsor, to:
(A) prepare and execute, if necessary, an offering
memorandum (the "Offering Memorandum") in preliminary and final form prepared by
the Sponsor, in relation to the offering and sale of Initial Capital Securities
to QIBs in reliance on Rule 144A under the Securities Act, to institutional
"accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) and outside the United States to non-U.S. Persons in offshore
transactions in reliance on Regulation S under the Securities Act, and to
execute and file with the Commission, at such time as is determined by the
Sponsor, any Registration Statement, including any amendment thereto, as
contemplated by the Registration Rights Agreement;
(B) execute and file any documents prepared by the
Sponsor, or take any acts as determined by the Sponsor to be necessary, in order
to qualify or register all or part of the Capital Securities in any State in
which the Sponsor has determined to qualify or register such Capital Securities
for sale;
(C) if deemed necessary or advisable by the Sponsor,
execute and file an application, prepared by the Sponsor, to the New York Stock
Exchange or any other national stock exchange or the Nasdaq Stock Market's
National Market for listing or quotation of the Capital Securities;
(D) execute and deliver letters, documents, or
instruments with DTC and other Clearing Agencies relating to the Capital
Securities;
(E) if required, execute and file with the Commission a
registration statement on Form 8-A, including any amendments thereto, prepared
by the Sponsor, relating to the registration of the Capital Securities under
Section 12(b) of the Exchange Act; and
(F) execute and enter into the Purchase Agreement
providing for the sale of the Capital Securities, the Registration Rights
Agreement, a subscription agreement providing for the sale of the Common
Securities, a subscription agreement providing for the sale of the Debentures
and any other agreements regarding the issuance and sale of Securities;
(iii) to acquire the Initial Debentures with the proceeds of
the sale of the Initial Capital Securities and the Common Securities and to
exchange the Initial Debentures for a like principal amount of Exchange
Debentures pursuant to the Exchange Offer; provided, however, that the
Administrative Trustees shall cause legal title to the Debentures to be held of
record in the name of the Property Trustee for the benefit of the Holders of the
Capital Securities and the Holders of the Common Securities;
(iv) to give the Sponsor and the Property Trustee prompt
written notice of the occurrence of a Special Event;
(v) to establish a record date with respect to all actions to
be taken hereunder that require a record date be established, including and with
respect to, for the purposes of ss. 316(c) of the Trust Indenture Act,
Distributions, voting rights, redemptions and exchanges, and to issue relevant
notices to the Holders of Capital Securities and Holders of Common Securities as
to such actions and applicable record dates;
(vi) to take all actions and perform such duties as may be
required of the Administrative Trustees pursuant to the terms of the Securities;
(vii) to bring or defend, pay, collect, compromise, arbitrate,
resort to legal action, or otherwise adjust claims or demands of or against the
Trust ("Legal Action"), unless pursuant to Section 3.8(e), the Property Trustee
has the exclusive power to bring such Legal Action;
(viii) to employ or otherwise engage employees and agents (who
may be designated as officers with titles) and managers, contractors, advisors
and consultants, and pay reasonable compensation for such services;
(ix) to cause the Trust to comply with the Trust's obligations
under the Trust Indenture Act;
(x) to give the certificate required by ss. 314(a)(4) of the
Trust Indenture Act to the Property Trustee, which certificate may be executed
by any Administrative Trustee;
(xi) to incur expenses that are necessary or incidental to
carry out any of the purposes of the Trust;
(xii) to act as, or appoint another Person to act as,
Registrar and Exchange Agent for the Securities or to appoint a Paying Agent for
the Securities as provided in Section 7.4, except for such time as such power to
appoint a Paying Agent is vested in the Property Trustee;
(xiii) to give prompt written notice to the Property Trustee
and to Holders of any notice received from the Debenture Issuer of its election
to defer payments of interest on the Debentures by extending the interest
payment period under the Indenture;
(xiv) to execute all documents or instruments, perform all
duties and powers, and do all things for and on behalf of the Trust in all
matters necessary or incidental to the foregoing;
(xv) to take all action that may be necessary or appropriate
for the preservation and the continuation of the Trust's valid existence,
rights, franchises and privileges as a statutory business trust under the laws
of the State of Delaware and of each other jurisdiction in which such existence
is necessary to protect the limited liability of the Holders of the Capital
Securities or to enable the Trust to effect the purposes for which the Trust was
created;
(xvi) to take any action, not inconsistent with this
Declaration or with applicable law, that the Administrative Trustees determine
in their discretion to be necessary or desirable in carrying out the activities
of the Trust as set out in this Section 3.6, including, but not limited to:
(A) causing the Trust not to be deemed to be an
Investment Company required to be registered under the Investment Company Act;
(B) causing the Trust to be classified for United
States federal income tax purposes as a grantor trust;
(C) cooperating with the Debenture Issuer to ensure
that the Debentures will be treated as indebtedness of the Debenture Issuer for
United States federal income tax purposes; and
(D) to take all action necessary to cause all
applicable tax returns and tax information reports that are required to be filed
with respect to the Trust to be duly prepared and filed by the Administrative
Trustees, on behalf of the Trust; and
(xvii) to take all action necessary to consummate the Exchange
Offer or otherwise cause the Capital Securities to be registered pursuant to an
effective Registration Statement in accordance with the provisions of the
Registration Rights Agreement.
(b) The Administrative Trustees must exercise the powers set forth
in this Section 3.6 in a manner that is consistent with the purposes and
functions of the Trust set out in Section 3.3, and the Administrative Trustees
shall not take any action that is inconsistent with the purposes and functions
of the Trust set forth in Section 3.3.
(c) Subject to this Section 3.6, the Administrative Trustees shall
have none of the powers or the authority of the Property Trustee set forth in
Section 3.8.
(d) Any expenses incurred by the Administrative Trustees pursuant to
this Section 3.6 shall be reimbursed by the Debenture Issuer.
SECTION 3.7 PROHIBITION OF ACTIONS BY THE TRUST AND THE TRUSTEES.
(a) The Trust shall not, and the Trustees (including the Property
Trustee) all in their capacities as such and not in their individual capacities
shall not, engage in any activity other than as required or authorized by this
Declaration. The Trust shall not:
(i) invest any proceeds received by the Property Trustee on
behalf of the Trust from holding the Debentures, but shall distribute all such
proceeds, excluding "Additional Sums" (as defined in the Indenture), to Holders
of Securities pursuant to the terms of this Declaration and of the Securities;
(ii) acquire any assets other than as expressly provided
herein;
(iii) possess Trust property for other than a Trust purpose;
(iv) make any loans or incur any indebtedness other than loans
represented by the Debentures;
(v) possess any power or otherwise act in such a way as to
vary the Trust assets or the terms of the Securities in any way whatsoever;
(vi) issue any securities or other evidences of beneficial
ownership of, or beneficial interest in, the Trust other than the Securities; or
(vii) other than as provided in this Declaration or Annex I,
(A) direct the time, method and place of conducting any proceeding with respect
to any remedy available to the Debenture Trustee, or exercising any right or
power conferred upon the Debenture Trustee with respect to the Debentures, (B)
waive any past default that is waivable under the Indenture, (C) exercise any
right to rescind or annul any declaration that the principal of all the
Debentures shall be due and payable, or (D) consent to any amendment,
modification or termination of the Indenture or the Debentures, where such
consent shall be required, unless the Trust shall have received an Opinion of
Counsel experienced in such matters to the effect there is no more than an
insubstantial risk that the Trust would not be classified for United States
federal income tax purposes as a trust subject to the provisions of Section 671
through 679 of the Code (a "grantor trust") on account of such amendment,
modification or termination.
SECTION 3.8 POWERS AND DUTIES OF THE PROPERTY TRUSTEE.
(a) The legal title to the Debentures shall be owned by and held of
record in the name of the Property Trustee in trust for the benefit of the
Holders. The right, title and interest of the Property Trustee to the Debentures
shall vest automatically in each Person who may hereafter be appointed as
Property Trustee in accordance with Section 5.7. Such vesting and cessation of
title shall be effective whether or not conveyancing documents with regard to
the Debentures have been executed and delivered.
(b) The Property Trustee shall not transfer its right, title and
interest in the Debentures to the Administrative Trustees or to the Delaware
Trustee (if the Property Trustee does not also act as Delaware Trustee).
(c) The Property Trustee shall:
(i) establish and maintain a segregated non-interest bearing
trust account (the "Property Trustee Account") in the name of and under the
exclusive control of the Property Trustee on behalf of the Holders and, upon the
receipt of payments of funds made in respect of the Debentures held by the
Property Trustee, deposit such funds into the Property Trustee Account and make
payments to the Holders of the Securities from the Property Trustee Account in
accordance with Section 6.1. Funds in the Property Trustee Account shall be held
uninvested until disbursed in accordance with this Declaration. The Property
Trustee Account shall be an account that is maintained with a banking
institution the rating on whose long-term unsecured indebtedness is at least
equal to the rating assigned to the Capital Securities by a "nationally
recognized statistical rating organization", as that term is defined for
purposes of Rule 436(g)(2) under the Securities Act;
(ii) engage in such ministerial activities as shall be
necessary or appropriate to effect the redemption of the Capital Securities and
the Common Securities to the extent the Debentures are redeemed or mature; and
(iii) upon written notice issued by the Administrative
Trustees in accordance with the terms of the Securities, engage in such
ministerial activities as shall be necessary or appropriate to effect the
distribution of the Debentures to Holders of Securities upon the occurrence of
certain events.
(d) The Property Trustee shall take all actions and perform such
duties as may be specifically required of the Property Trustee pursuant to the
terms of the Securities.
(e) Subject to Section 3.9(a) and this Section 3.8(e), the Property
Trustee shall have the exclusive right to take any Legal Action which arises out
of or in connection with an Event of Default of which a Responsible Officer of
the Property Trustee has actual knowledge or the Property Trustee's duties and
obligations under this Declaration or the Trust Indenture Act so require, and if
such Property Trustee shall have failed to take such Legal Action, the foregoing
to the contrary notwithstanding, the Holders of the Capital Securities may take
such Legal Action, to the same extent as if such Holders of Capital Securities
held an aggregate principal amount of Debentures equal to the aggregate
Liquidation Amount of such Capital Securities, without first proceeding against
the Property Trustee or the Trust; provided however, that if an Event of Default
has occurred and is continuing and such event is attributable to the failure of
the Debenture Issuer to pay the principal of or premium, if any, or interest on
the Debentures on the date such principal, premium, if any, or interest is
otherwise payable (or in the case of redemption, on the redemption date), then,
the foregoing to the contrary notwithstanding, a Holder of Capital Securities
may directly institute a proceeding for enforcement of payment to such Holder of
the principal of or premium, if any, or interest on the Debentures having a
principal amount equal to the aggregate Liquidation Amount of the Capital
Securities of such Holder (a "Direct Action") on or after the respective due
date specified in the Debentures. In connection with such Direct Action, the
rights of the Holders of Common Securities will be subrogated to the rights of
Holders of Capital Securities to the extent of any payment made by the Debenture
Issuer to Holders of Capital Securities in such Direct Action. Except as
provided in the preceding sentences, the Holders of Capital Securities will not
be able to exercise directly any other remedy available to the holders of the
Debentures.
(f) The Property Trustee shall not resign as a Trustee unless
either:
(i) the Trust has been completely liquidated and the proceeds
of the liquidation distributed to the Holders of Securities pursuant to the
terms of the Securities; or
(ii) a Successor Property Trustee has been appointed and has
accepted that appointment in accordance with Section 5.7(a).
(g) The Property Trustee shall have the legal power to exercise all
of the rights, powers and privileges of a holder of Debentures under the
Indenture and, if an Event of Default actually known to a Responsible Officer of
the Property Trustee occurs and is continuing, the Property Trustee shall, for
the benefit of Holders, enforce its rights as holder of the Debentures subject
to the rights of the Holders pursuant to the terms of such Securities.
(h) The Property Trustee shall be authorized to undertake any
actions set forth in ss. 317(a) of the Trust Indenture Act.
(i) Subject to Section 7.4 hereof, for such time as the Property
Trustee is the Paying Agent, the Property Trustee may authorize one or more
Persons to act as additional Paying Agents and to pay Distributions, redemption
payments or liquidation payments on behalf of the Trust with respect to all
Securities and any such Paying Agent shall comply with ss. 317(b) of the Trust
Indenture Act. Any such additional Paying Agent may be removed by the Property
Trustee at any time the Property Trustee remains as Paying Agent and a successor
Paying Agent or additional Paying Agents may be (but is not required to be)
appointed at any time by the Property Trustee.
(j) Subject to this Section 3.8, the Property Trustee shall have
none of the duties, liabilities, powers or the authority of the Administrative
Trustees set forth in Section 3.6.; provided, however, that if the
Administrative Trustees appoint the Property Trustee as Registrar, Exchange
Agent or Paying Agent pursuant to Section 3.6(a)(xii), the Property Trustee
shall have the power hereunder to serve in any such capacity and perform the
duties and obligations related thereto.
(k) The Property Trustee must exercise the powers set forth in this
Section 3.8 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and the Property Trustee shall not take any
action that is inconsistent with the purposes and functions of the Trust set out
in Section 3.3.
SECTION 3.9 CERTAIN DUTIES AND RESPONSIBILITIES OF THE PROPERTY TRUSTEE.
(a) The Property Trustee, before the occurrence of any Event of
Default and after the curing of all Events of Default that may have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Declaration and in the Securities and no implied covenants shall be read
into this Declaration against the Property Trustee. In case an Event of Default
has occurred (that has not been cured or waived pursuant to Section 2.6) of
which a Responsible Officer of the Property Trustee has actual knowledge, the
Property Trustee shall exercise such of the rights and powers vested in it by
this Declaration, and use the same degree of care and skill in their exercise,
as a prudent Person would exercise or use under the circumstances in the conduct
of his or her own affairs.
(b) No provision of this Declaration shall be construed to relieve
the Property Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after
the curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Property Trustee
shall be determined solely by the express provisions of this Declaration and of
the Securities, and the Property Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set forth in this
Declaration and in the Securities, and no implied covenants or obligations shall
be read into this Declaration against the Property Trustee; and
(B) in the absence of bad faith on the part of the
Property Trustee, the Property Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Property Trustee and conforming to the
requirements of this Declaration; provided, however, that in the case of any
such certificates or opinions that by any provision hereof are specifically
required to be furnished to the Property Trustee, the Property Trustee shall be
under a duty to examine the same to determine whether or not they conform to the
requirements of this Declaration;
(ii) the Property Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Property Trustee,
unless it shall be proved that the Property Trustee was negligent in
ascertaining the pertinent facts;
(iii) the Property Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of not less than a Majority in Liquidation Amount
of the Securities relating to the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee under the Indenture
with respect to the Debentures, or exercising any right or power conferred upon
the Property Trustee under this Declaration;
(iv) no provision of this Declaration shall require the
Property Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the exercise
of any of its rights or powers, if it shall have reasonable grounds for
believing that the repayment of such funds or liability is not reasonably
assured to it under the terms of this Declaration or indemnity reasonably
satisfactory to the Property Trustee against such risk or liability is not
reasonably assured to it;
(v) the Property Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the Debentures and the
Property Trustee Account shall be to deal with such property in a similar manner
as the Property Trustee deals with similar property for its own account, subject
to the protections and limitations on liability afforded to the Property Trustee
under this Declaration, the Business Trust Act and the Trust Indenture Act;
(vi) the Property Trustee shall have no duty or liability for
or with respect to the value, genuineness, existence or sufficiency of the
Debentures or the payment of any taxes or assessments levied thereon or in
connection therewith;
(vii) the Property Trustee shall not be liable for any
interest on any money received by it except as it may otherwise agree in writing
with the Sponsor. Money held by the Property Trustee need not be segregated from
other funds held by it except in relation to the Property Trustee Account
maintained by the Property Trustee pursuant to Section 3.8(c)(i) and except to
the extent otherwise required by law; and
(viii) the Property Trustee shall not be responsible for
monitoring the compliance by the Administrative Trustees or the Sponsor with
their respective duties under this Declaration, nor shall the Property Trustee
be liable for any default or misconduct of the Administrative Trustees or the
Sponsor.
SECTION 3.10 CERTAIN RIGHTS OF PROPERTY TRUSTEE.
(a) Subject to the provisions of Section 3.9:
(i) the Property 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 Sponsor or the Administrative
Trustees contemplated by this Declaration may be sufficiently evidenced by an
Officers' Certificate;
(iii) whenever in the administration of this Declaration, the
Property Trustee shall deem it desirable that a matter be proved or established
before taking, suffering or omitting any action hereunder, the Property Trustee
(unless other evidence is herein specifically prescribed) may, in the absence of
bad faith on its part, request and conclusively rely upon an Officers'
Certificate which, upon receipt of such request, shall be promptly delivered by
the Sponsor or the Administrative Trustees;
(iv) the Property Trustee shall have no duty to see to any
recording, filing or registration of any instrument (including any financing or
continuation statement or any filing under tax or securities laws) or any
rerecording, refiling or registration thereof;
(v) the Property Trustee may consult with counsel or other
experts of its selection and the advice or opinion of such counsel and experts
with respect to legal matters or advice within the scope of such experts' area
of expertise shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted by it hereunder in good faith and in
accordance with such advice or opinion. Such counsel may be counsel to the
Sponsor or any of its Affiliates, and may include any of its employees. The
Property Trustee shall have the right at any time to seek instructions
concerning the administration of this Declaration from any court of competent
jurisdiction;
(vi) the Property Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Declaration at the
request or direction of any Holder, unless such Holder shall have provided to
the Property Trustee security and indemnity, reasonably satisfactory to the
Property Trustee, against the costs, expenses (including reasonable attorneys'
fees and expenses and the expenses of the Property Trustee's agents, nominees or
custodians) 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 Property Trustee; PROVIDED, HOWEVER, that nothing contained in this Section
3.10(a)(vi) shall be taken to relieve the Property Trustee, upon the occurrence
of an Event of Default, of its obligation to exercise the rights and powers
vested in it by this Declaration;
(vii) the Property Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Property Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit;
(viii) the Property Trustee may execute any of the rights or
powers hereunder or perform any duties hereunder either directly or by or
through agents, custodians, nominees or attorneys and the Property Trustee shall
not be required to supervise, nor shall it be responsible for any misconduct or
negligence on the part of, any agent or attorney appointed with due care by it
hereunder;
(ix) any action taken by the Property Trustee or its agents
hereunder shall bind the Trust and the Holders of the Securities, and the
signature of the Property Trustee or its agents alone shall be sufficient and
effective to perform any such action and no third party shall be required to
inquire as to the authority of the Property Trustee so to act or as to its
compliance with any of the terms and provisions of this Declaration, both of
which shall be conclusively evidenced by the Property Trustee's or its agent's
taking such action;
(x) whenever in the administration of this Declaration the
Property Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder, the Property
Trustee (A) may request written instructions from the Holders of the Securities
which instructions may only be given by the Holders of the same proportion in
Liquidation Amount of the Securities as would be entitled to direct the Property
Trustee under the terms of the Securities in respect of such remedy, right or
action, (B) may refrain from enforcing such remedy or right or taking such other
action until such instructions are received, and (C) shall be protected in
conclusively relying on or acting in accordance with such instructions;
(xi) the Property Trustee shall not be under any obligation to
take any action that is discretionary under the provisions of this Declaration;
and
(xii) the Property Trustee shall not be liable for any action
taken, suffered, or omitted to be taken by it in good faith, without negligence,
and reasonably believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Declaration.
(b) No provision of this Declaration shall be deemed to impose any
duty or obligation on the Property Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Property Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Property Trustee
shall be construed to be a duty.
(c) Whether or not therein expressly so provided, every provision of
this Declaration relating to the conduct or affecting the liability of or
affording protection to the Property Trustee shall be subject to the provisions
of this Section.
SECTION 3.11 DELAWARE TRUSTEE.
Notwithstanding any other provision of this Declaration other than
Section 5.2, 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 Administrative Trustees or the Property Trustee described in this
Declaration. Except as set forth in Section 5.2, the Delaware Trustee shall be a
Trustee for the sole and limited purpose of fulfilling the requirements of ss.
3807 of the Business Trust Act. Without limiting the generality of the
foregoing, the Delaware Trustee shall not be responsible for monitoring the
compliance by the Administrative Trustees, the Property Trustee or the Sponsor
with their respective duties under this Declaration, nor shall the Delaware
Trustee be liable for any default or misconduct of any of the Administrative
Trustees, the Property Trustee or the Sponsor.
SECTION 3.12 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained in this Declaration and the Securities shall
be taken as the statements of the Sponsor, and the Trustees do not assume any
responsibility for their correctness. The Trustees make no representations as to
the value or condition of the property of the Trust or any part thereof. The
Trustees make no representations as to the validity or sufficiency of this
Declaration or the Securities.
SECTION 3.13 DURATION OF TRUST.
The Trust, unless dissolved pursuant to the provisions of Article
VIII hereof, shall have existence up to April 15, 2033.
SECTION 3.14 MERGERS.
(a) The Trust may not merge or convert with or into, consolidate,
amalgamate, or be replaced by, or convey, transfer or lease its properties and
assets substantially as an entirety to any Person, except as described in
Section 3.14(b) and (c).
(b) The Trust may, at the request of the Sponsor as the holder of
all the outstanding Common Securities, with the consent of the Administrative
Trustees or, if there are more than two, a majority of the Administrative
Trustees and without the consent of the Holders, the Delaware Trustee or the
Property Trustee, merge or convert with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to, a trust organized as such under the
laws of any State; provided that:
(i) such successor entity (the "Successor Entity") either:
(A) expressly assumes all of the obligations of the
Trust under the Securities: or
(B) substitutes for the Securities other securities
having substantially the same terms as the Securities (the "Successor
Securities") so long as the Successor Securities rank the same as the Securities
rank with respect to Distributions and payments upon liquidation, redemption and
otherwise;
(ii) the Sponsor expressly appoints a trustee of the Successor
Entity that possesses the same powers and duties as the Property Trustee as the
holder of the Debentures;
(iii) the Successor Securities are listed, or any Successor
Securities will be listed upon notification of issuance, on any national
securities exchange or with another organization on which the Capital Securities
are then listed or quoted, if any;
(iv) such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not cause the Capital Securities
(including any Successor Securities) to be downgraded by any two nationally
recognized statistical rating organizations;
(v) such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the Holders of the Securities (including any
Successor Securities) in any material respect (other than any dilution of such
Holders' interests in the new entity);
(vi) such Successor Entity has a purpose identical to that of
the Trust;
(vii) prior to such merger, conversion, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Sponsor has
received an opinion of an independent counsel to the Trust experienced in such
matters to the effect that:
(A) such merger, conversion, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the Holders (including any
Successor Securities) in any material respect (other than with respect to any
dilution of the Holders' interest in the new entity); and
(B) following such merger, conversion, consolidation,
amalgamation, replacement, conveyance, transfer or lease, neither the Trust nor
the Successor Entity will be required to register as an Investment Company; and
(viii) the Sponsor or any permitted successor or assignee owns
all of the common securities of such Successor Entity and guarantees the
obligations of such Successor Entity under the Successor Securities at least to
the extent provided by the Capital Securities Guarantee and the Common
Securities Guarantee.
(c) Notwithstanding Section 3.14(b), the Trust shall not, except
with the consent of the Holders of 100% in Liquidation Amount of the Securities,
consolidate, amalgamate, merge or convert with or into, or be replaced by, or
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to, any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger, conversion, replacement, conveyance,
transfer or lease would cause the Trust or the Successor Entity not to be
classified as a grantor trust for United States federal income tax purposes.
ARTICLE IV
SPONSOR
SECTION 4.1 SPONSOR'S PURCHASE OF COMMON SECURITIES.
At the Closing Time, the Sponsor will purchase all of the Common
Securities then issued by the Trust, in a Liquidation Amount equal to at least
3% of the total capital of the Trust, at the same time as the Initial Capital
Securities are issued and sold.
SECTION 4.2 RESPONSIBILITIES OF THE SPONSOR.
(a) In connection with the issue and sale of the Capital Securities
and the Common Securities, the Sponsor shall have the exclusive right and
responsibility to engage in the following activities:
(i) to prepare the Offering Memorandum and to prepare for
filing by the Trust with the Commission any Registration Statement, including
any amendments thereto, as contemplated by the Registration Rights Agreement (or
to delegate such preparation to the Administrative Trustees pursuant to Section
3.6(a)(ii)(A) hereof);
(ii) to determine the States in which to take appropriate
action to qualify or register for sale all or part of the Capital Securities and
to do any and all such acts, other than actions which must be taken by the
Trust, and advise the Trust of actions it must take, and prepare for execution
and filing any documents to be executed and filed by the Administrative Trustees
pursuant to Section 3.6(a)(ii)(B) hereof, as the Sponsor deems necessary or
advisable in order to comply with the applicable laws of any such States;
(iii) if deemed necessary or advisable by the Sponsor, to
prepare for execution and filing by the Administrative Trustees pursuant to
Section 3.6(a)(ii)(C) hereof, an application to the New York Stock Exchange or
any other national stock exchange or the Nasdaq National Market for listing or
quotation of the Capital Securities;
(iv) if required, to prepare for filing by the Administrative
Trustees pursuant to Section 3.6(a)(ii)(E) hereof with the Commission a
registration statement on Form 8-A relating to the registration of the Capital
Securities under Section 12(b) of the Exchange Act, including any amendments
thereto; and
(v) to negotiate the terms and cause the preparation of the
Purchase Agreement and the Registration Rights Agreement providing for the sale
and registration, respectively, of the Capital Securities for execution by the
Administrative Trustees pursuant to Section 3.6(a)(ii)(F) hereof .
SECTION 4.3 RIGHT TO PROCEED.
The Sponsor acknowledges the rights of the Holders of Capital
Securities, in the event that a failure of the Trust to pay Distributions on the
Capital Securities is attributable to the failure of the Debenture Issuer to pay
interest or principal on the Debentures, to institute a proceeding directly
against the Debenture Issuer for enforcement of its payment obligations on the
Debentures.
ARTICLE V
TRUSTEES
SECTION 5.1 NUMBER OF TRUSTEES; APPOINTMENT OF CO-TRUSTEE.
The number of Trustees initially shall be five (5), and:
(a) at any time before the issuance of any Securities, the Sponsor
may, by written instrument, increase or decrease the number of Trustees; and
(b) after the issuance of any Securities, the number of Trustees may
be increased or decreased by vote of the Holders of a Majority in Liquidation
Amount of the Common Securities voting as a class at a meeting of the Holders of
the Common Securities; provided, however, that, the number of Trustees shall in
no event be less than two (2); provided further that (1) one Trustee, in the
case of a natural Person, shall be a Person who is a resident of the State of
Delaware or that, if not a natural Person, is an entity which has its principal
place of business in the State of Delaware (the "Delaware Trustee"); (2) there
shall be at least one Trustee who is an employee or officer of, or is affiliated
with the Sponsor (an "Administrative Trustee"); and (3) one Trustee shall be the
Property Trustee for so long as this Declaration is required to qualify as an
indenture under the Trust Indenture Act, and such Trustee may also serve as
Delaware Trustee if it meets the applicable requirements. Notwithstanding the
above, unless an Event of Default shall have occurred and be continuing, for the
purpose of meeting the legal requirements of the Trust Indenture Act or of any
jurisdiction in which any part of the Trust's property may at the time be
located, the Holders of a Majority in Liquidation Amount of the Common
Securities acting as a class at a meeting of the Holders of the Common
Securities, and the Administrative Trustees, shall have power at any time or
times, to appoint one or more Persons either to act as a co-trustee, jointly
with the Property Trustee, of all or any part of the Trust's property, or 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 such capacity any property, title, right or power deemed necessary or
desirable, subject to the provisions of this Declaration. In case an Event of
Default has occurred and is continuing, the Property Trustee alone shall have
power to make any such appointment of a co-trustee.
SECTION 5.2 DELAWARE TRUSTEE.
As required by the Business Trust Act, one Trustee (the "Delaware
Trustee") shall be:
(a) a natural Person who is a resident of the State of Delaware; or
(b) 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 law; provided that, if the Property Trustee has its principal place
of business in the State of Delaware and otherwise meets the requirements of
applicable law, then the Property Trustee may also be the Delaware Trustee in
which case Section 3.11 shall have no application.
SECTION 5.3 PROPERTY TRUSTEE; ELIGIBILITY.
(a) There shall at all times be one Trustee (the "Property Trustee")
which shall act as Property Trustee which shall:
(i) not be an Affiliate of the Sponsor; and
(ii) be a corporation organized and doing business under the
laws of the United States of America or any State or Territory thereof or of the
District of Columbia, or a corporation or Person permitted by the Commission to
act as an institutional trustee under the Trust Indenture Act, authorized under
such laws to exercise corporate trust powers, having a combined capital and
surplus of at least 50 million U.S. dollars ($50,000,000), and subject to
supervision or examination by Federal, State, Territorial or District of
Columbia authority. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the supervising or examining
authority referred to above, then for the purposes of this Section 5.3(a)(ii),
the combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published.
(b) If at any time the Property Trustee shall cease to be eligible
to so act under Section 5.3(a), the Property Trustee shall immediately resign in
the manner and with the effect set forth in Section 5.3(c).
(c) If the Property Trustee has or shall acquire any "conflicting
interest" within the meaning of ss. 310(b) of the Trust Indenture Act, the
Property Trustee and the Holder of the Common Securities (as if it were the
obligor referred to in ss. 310(b) of the Trust Indenture Act) shall in all
respects comply with the provisions of ss. 310(b) of the Trust Indenture Act.
(d) The Capital Securities Guarantee shall be deemed to be
specifically described in this Declaration for purposes of clause (i) of the
first provision contained in Section 310(b) of the Trust Indenture Act.
(e) The initial Property Trustee shall be:
The Bank of New York
101 Barclay Street, Floor 21W
New York, New York 10286
Attention: Corporate Trust Administration
SECTION 5.4 Certain Qualifications of Administrative Trustees and
DELAWARE TRUSTEE GENERALLY.
Each Administrative Trustee and the Delaware Trustee (unless the
Property Trustee also acts as Delaware Trustee) shall be either a natural Person
who is at least 21 years of age or a legal entity otherwise satisfying the
provisions of this Declaration that shall act through one or more Authorized
Officers.
SECTION 5.5 ADMINISTRATIVE TRUSTEES.
(a) The initial Administrative Trustees shall be:
W. Marston Becker
Craig A. Nyman
Michael P. Maloney, Esq.
(b) Except as expressly set forth in this Declaration and except if
a meeting of the Administrative Trustees is called with respect to any matter
over which the Administrative Trustees have power to act, any power of the
Administrative Trustees may be exercised by, or with the consent of, any one
such Administrative Trustee.
(c) Unless otherwise determined by the Administrative Trustees, and
except as otherwise required by the Business Trust Act or applicable law, any
Administrative Trustee is authorized to execute on behalf of the Trust any
documents which the Administrative Trustees have the power and authority to
cause the Trust to execute pursuant to Section 3.6.
SECTION 5.6 DELAWARE TRUSTEE.
The initial Delaware Trustee shall be:
The Bank of New York (Delaware)
101 Barclay Street, Floor 21W
New York, New York 10286
Attention: Corporate Trust Administration
SECTION 5.7 APPOINTMENT, REMOVAL AND RESIGNATION OF TRUSTEES.
(a) Subject to Section 5.7(b), any Trustee may be appointed or
removed without cause at any time:
(i) until the issuance of any Securities, by written
instrument executed by the Sponsor;
(ii) in the case of Administrative Trustees, after the
issuance of any Securities, by vote of the Holders of a Majority in Liquidation
Amount of the Common Securities voting as a class at a meeting of the Holders of
the Common Securities;
(iii) in the case of the Property Trustee and the Delaware
Trustee, unless an Event of Default shall have occurred and be continuing after
the issuance of any Securities, by vote of the Holders of a Majority in
Liquidation Amount of the Common Securities voting as a class at a meeting of
the Holders of the Common Securities; and
(iv) in the case of the Property Trustee and the Delaware
Trustee, if an Event of Default shall have occurred and be continuing after the
issuance of the Securities, by vote of Holders of a Majority in Liquidation
Amount of the Capital Securities voting as a class at a meeting of the Holders
of the Capital Securities.
The Trustee that acts as Property Trustee shall not be removed in
accordance with Section 5.7(a) until a successor Trustee possessing the
qualifications to act as Property Trustee under Section 5.3 (a "Successor
Property Trustee") has been appointed and has accepted such appointment by
written instrument executed by such Successor Property Trustee and delivered to
the Administrative Trustees and the Sponsor.
The Trustee that acts as Delaware Trustee shall not be removed in
accordance with this Section 5.7(a) until a successor Trustee possessing the
qualifications to act as Delaware Trustee under Sections 5.2 and 5.4 (a
"Successor Delaware Trustee") has been appointed and has accepted such
appointment by written instrument executed by such Successor Delaware Trustee
and delivered to the Administrative Trustees and the Sponsor.
(b) A Trustee appointed to office shall hold office until his
successor shall have been appointed or until his death, removal or resignation.
Any Trustee may resign from office (without need for prior or subsequent
accounting) by an instrument in writing signed by the Trustee and delivered to
the Sponsor and the Trust, which resignation shall take effect upon such
delivery or upon such later date as is specified therein; provided, however,
that:
(i) No such resignation or removal of the Trustee that acts as
the Property Trustee shall be effective:
(A) until a Successor Property Trustee has been
appointed and has accepted such appointment by instrument executed by such
Successor Property Trustee and delivered to the Trust, the Sponsor and the
resigning Property Trustee; or
(B) until the assets of the Trust have been
completely liquidated and, after complying with the provisions of Section
3808(e) of the Business Trust Act, the proceeds thereof distributed to the
holders of the Securities; and
(ii) no such resignation or removal of the Trustee that acts
as the Delaware Trustee shall be effective until a Successor Delaware Trustee
has been appointed and has accepted such appointment by instrument executed by
such Successor Delaware Trustee and delivered to the Trust, the Sponsor and the
resigning Delaware Trustee.
(c) The Holders of the Common Securities shall use their best
efforts promptly to appoint a Successor Delaware Trustee or Successor Property
Trustee, as the case may be, if the Property Trustee or the Delaware Trustee
delivers an instrument of resignation in accordance with this Section 5.7.
(d) If no Successor Property Trustee or Successor Delaware Trustee
shall have been appointed and accepted appointment as provided in this Section
5.7 within 30 days after delivery of an instrument of resignation or removal,
the Property Trustee or Delaware Trustee resigning or being removed, as
applicable, may petition any court of competent jurisdiction for appointment of
a Successor Property Trustee or Successor Delaware Trustee. Such court may
thereupon, after prescribing such notice, if any, as it may deem proper and
appropriate, appoint a Successor Property Trustee or Successor Delaware Trustee,
as the case may be.
(e) No Property Trustee or Delaware Trustee shall be liable for the
acts or omissions to act of any Successor Property Trustee or Successor Delaware
Trustee, as the case may be.
SECTION 5.8 VACANCIES AMONG TRUSTEES.
If a Trustee ceases to hold office for any reason and the number of
Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees is
increased pursuant to Section 5.1, a vacancy shall occur. A resolution
certifying the existence of such vacancy by the Administrative Trustees or, if
there are more than two, a majority of the Administrative Trustees, shall be
conclusive evidence of the existence of such vacancy. The vacancy shall be
filled with a Trustee appointed in accordance with Section 5.7.
SECTION 5.9 EFFECT OF VACANCIES.
The death, resignation, retirement, removal, bankruptcy,
dissolution, liquidation, incompetence or incapacity to perform the duties of a
Trustee shall not operate to annul the Trust. Whenever a vacancy in the number
of Administrative Trustees shall occur, until such vacancy is filled by the
appointment of an Administrative Trustee in accordance with Section 5.8, the
Administrative Trustees in office, regardless of their number, shall have all
the powers granted to the Administrative Trustees and shall discharge all the
duties imposed upon the Administrative Trustees by this Declaration.
SECTION 5.10 MEETINGS.
If there is more than one Administrative Trustee, meetings of the
Administrative Trustees shall be held from time to time as needed upon the call
of any Administrative Trustee. Regular meetings of the Administrative Trustees
may be held at a time and place fixed by resolution of the Administrative
Trustees. Notice of any in-person meeting of the Administrative Trustees shall
be hand delivered or otherwise delivered in writing (including by facsimile) not
less than 24 hours before such meeting. Notice of any telephonic meeting of the
Administrative Trustees or any committee thereof shall be hand delivered or
otherwise delivered in writing (including by facsimile) not less than 24 hours
before such meeting. Notices shall contain a brief statement of the time, place
and anticipated purposes of the meeting. The presence (whether in person or by
telephone) of an Administrative Trustee at a meeting shall constitute a waiver
of notice of such meeting except where an Administrative Trustee attends a
meeting for the express purpose of objecting to the transaction of any activity
on the ground that the meeting has not been lawfully called or convened. Unless
provided otherwise in this Declaration, any action of the Administrative
Trustees may be taken at a meeting by vote of a majority of the Administrative
Trustees present (whether in person or by telephone) and eligible to vote with
respect to such matter, provided that a Quorum is present, or without a meeting
by the unanimous written consent of the Administrative Trustees. In the event
there is only one Administrative Trustee, any and all action of such
Administrative Trustee shall be evidenced by a written consent of such
Administrative Trustee.
SECTION 5.11 DELEGATION OF POWER.
(a) Any Administrative Trustee may, by power of attorney consistent
with applicable law, delegate to any other natural Person over the age of 21 his
or her power for the purpose of executing any documents contemplated in Section
3.6, including any registration statement or amendment thereto filed with the
Commission, or making any other governmental filing; and
(b) The Administrative Trustees shall have power to delegate from
time to time to such of their number or to officers of the Trust the doing of
such things and the execution of such instruments either in the name of the
Trust or the names of the Administrative Trustees or otherwise as the
Administrative Trustees may deem expedient, to the extent such delegation is not
prohibited by applicable law or contrary to the provisions of this Declaration
or the Securities.
SECTION 5.12 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which any Trustee (excluding any Administrative
Trustee that is a natural Person) may be merged or converted or with which it
may be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which such Trustee shall be a party, or any corporation
succeeding to all or substantially all the corporate trust business of such
Trustee, shall be the successor of such Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto.
SECTION 5.13 UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Declaration or in any suit against the Property Trustee for any action taken or
omitted by it as a Property Trustee, a court in its discretion may require the
filing by any party litigant in the suit of an undertaking to pay the costs of
the suit, and the court in its discretion may assess reasonable costs, including
reasonable attorney's fees and expenses, against any party litigant in the suit,
having due regard to the merits and good faith of the claims or defenses made by
the party litigant.
ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 DISTRIBUTIONS.
Each Holder shall receive Distributions in accordance with the terms
of such Holder's Securities. If and to the extent that the Debenture Issuer
makes a payment of interest (including Compounded Interest (as defined in the
Indenture), Additional Interest, additional Distributions, premium and/or
principal on the Debentures held by the Property Trustee or any other payments
pursuant to the Registration Rights Agreement with respect to the Debentures
held by the Property Trustee (but excluding Additional Sums (as defined in the
Indenture) (the amount of any such payment being a "Payment Amount"), the
Property Trustee shall and is directed, to the extent funds are available for
that purpose, to make a Distribution of the Payment Amount to Holders in
accordance with the respective terms of the Securities held by them.
ARTICLE VII
ISSUANCE OF SECURITIES
SECTION 7.1 GENERAL PROVISIONS REGARDING SECURITIES.
(a) The Administrative Trustees shall on behalf of the Trust issue
one class of capital securities representing undivided beneficial interests in
the assets of the Trust, which class may be divided into no more than two series
each having such terms as are set forth in Annex I (the "Capital Securities"),
and one class of common securities representing undivided beneficial interests
in the assets of the Trust having such terms as are set forth in Annex I (the
"Common Securities"). At such time, if ever, as the Exchange Debentures are
issued, the Administrative Trustees shall on behalf of the Trust issue one
series of capital securities representing undivided beneficial interests in the
Trust having such terms as are set forth in Annex I (the "Exchange Capital
Securities") in exchange for the Initial Capital Securities accepted for
exchange in the Exchange Offer, which Exchange Capital Securities shall not bear
the legends set forth in Section 9.2 unless the holder of the Initial Capital
Securities is either (i) a broker-dealer who purchased such Initial Capital
Securities directly from the Trust for resale pursuant to Rule 144A, or any
other available exemption, under the Securities Act, (ii) a person participating
in the distribution of the Initial Capital Securities or (iii) a Person who is
an affiliate (as defined in Rule 144A) of the Trust. The Trust shall issue no
securities or other interests in the assets of the Trust other than the Capital
Securities, the Exchange Capital Securities and the Common Securities.
(b) The consideration received by the Trust for the issuance of the
Securities shall constitute a contribution to the capital of the Trust and shall
not constitute a loan to the Trust.
(c) Upon receipt of the stated consideration in full, and the
subsequent issuance of the Securities as provided in this Declaration, the
Securities so issued shall be deemed to be validly issued, fully paid and
non-assessable.
(d) Every Person, by virtue of having become a Holder or a Capital
Security Beneficial Owner in accordance with the terms of this Declaration,
shall be deemed to have expressly assented and agreed to the terms of, and shall
be bound by, this Declaration.
SECTION 7.2 EXECUTION AND AUTHENTICATION.
(a) The Securities shall be signed on behalf of the Trust by an
Administrative Trustee. In case any Administrative Trustee of the Trust who
shall have signed any of the Securities shall cease to be such Administrative
Trustee before the Securities so signed shall be delivered by the Trust, such
Securities nevertheless may be delivered as though the Person who signed such
Securities had not ceased to be such Administrative Trustee; and any Securities
may be signed on behalf of the Trust by such Persons who, at the actual date of
execution of such Security, shall be the Administrative Trustees of the Trust,
although at the date of the execution and delivery of the Declaration any such
Person was not such an Administrative Trustee.
(b) One Administrative Trustee shall sign the Capital Securities for
the Trust by manual or facsimile signature. Unless otherwise determined by the
Trust, such signature shall, in the case of Common Securities, be a manual
signature.
(c) A Capital Security shall not be valid until authenticated by the
manual signature of an authorized signatory of the Property Trustee. The
signature shall be conclusive evidence that the Capital Security has been
authenticated under this Declaration.
(d) Upon a written order of the Trust signed by one Administrative
Trustee, the Property Trustee shall authenticate the Capital Securities for
original issue. The aggregate number of Capital Securities outstanding at any
time shall not exceed the number set forth in Annex I hereto except as provided
in Section 7.6.
(e) The Property Trustee may appoint an authenticating agent
acceptable to the Administrative Trustees to authenticate Capital Securities. An
authenticating agent may authenticate Capital Securities whenever the Property
Trustee may do so. Each reference in this Declaration to authentication by the
Property Trustee includes authentication by such agent. An authenticating agent
has the same rights as the Property Trustee to deal with the Sponsor or an
Affiliate.
SECTION 7.3 FORM AND DATING.
The Capital Securities and the Property Trustee's certificate of
authentication shall be substantially in the form of Exhibit A-1 and the Common
Securities shall be substantially in the form of Exhibit A-2, each of which is
hereby incorporated in and expressly made a part of this Declaration.
Certificates representing the Securities may be printed, lithographed or
engraved or may be produced in any other manner as is reasonably acceptable to
the Administrative Trustees, as evidenced by their execution thereof. The
Securities may have letters, CUSIP or other numbers, notations or other marks of
identification or designation and such legends or endorsements required by law,
stock exchange rule, agreements to which the Trust is subject, if any, or usage
(provided that any such notation, legend or endorsement is in a form acceptable
to the Trust). The Trust at the direction of the Sponsor shall furnish any such
legend not contained in Exhibit A-1 to the Property Trustee in writing. Each
Capital Security shall be dated the date of its authentication. The terms and
provisions of the Securities set forth in Annex I and the forms of Securities
set forth in Exhibits A-1 and A-2 are part of the terms of this Declaration and
to the extent applicable, the Property Trustee, Administrative Trustees and the
Sponsor, by their execution and delivery of this Declaration, expressly agree to
be bound thereby.
(a) GLOBAL SECURITIES. Securities offered and sold to QIBs in
reliance on Rule 144A or offered and sold outside the United States to non-U.S.
Persons in offshore transactions in reliance on Regulation S, as provided in the
Purchase Agreement, shall be issued in the form of one or more permanent Global
Securities in definitive, fully registered form without Distribution coupons
with the appropriate global legends and Restricted Securities Legend set forth
in Exhibit A-1 hereto (respectively, a "Rule 144A Global Capital Security" or
"Regulation S Global Capital Security"), which shall be deposited on behalf of
the purchasers of the Capital Securities represented thereby with the Property
Trustee, at its New York office, as custodian for the Clearing Agency, and
registered in the name of the Clearing Agency or a nominee of the Clearing
Agency, duly executed by an Administrative Trustee and authenticated by the
Property Trustee as hereinafter provided. The number of Capital Securities
represented by the Rule 144A Global Capital Security and the Regulation S Global
Capital Security may from time to time be increased or decreased by adjustments
made on the records of the Property Trustee and the Clearing Agency or its
nominee as hereinafter provided.
(b) BOOK-ENTRY PROVISIONS. This Section 7.3(b) shall apply only to
the Rule 144A Global Capital Securities, the Regulation S Global Capital
Securities and such other Capital Securities in global form as may be authorized
by the Trust to be deposited with or on behalf of the Clearing Agency.
(i) An Administrative Trustee shall execute and the Property
Trustee shall authenticate and, in accordance with this Section 7.3, make
available for delivery initially one or more Rule 144A Global Capital Securities
and one or more Regulation S Global Capital Securities that (A) shall be
registered in the name of Cede & Co. or other nominee of such Clearing Agency
and (B) shall be delivered by the Property Trustee to such Clearing Agency or
pursuant to such Clearing Agency's written instructions or held by the Property
Trustee as custodian for the Clearing Agency.
(ii) Members of, or participants in, the Clearing Agency
("Participants") shall have no rights under this Declaration with respect to any
Rule 144A Global Capital Security or any Regulation S Global Capital Security
held on their behalf by the Clearing Agency or by the Property Trustee as the
custodian of the Clearing Agency or under such Rule 144A Global Capital Security
or such Regulation S Global Capital Security, and the Clearing Agency may be
treated by the Trust, the Property Trustee and any agent of the Trust or the
Property Trustee as the absolute owner of such Rule 144A Global Capital Security
or such Regulation S Global Capital Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Trust, the
Property Trustee or any agent of the Trust or the Property Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Clearing Agency or impair, as between the Clearing Agency and its
Participants, the operation of customary practices of such Clearing Agency
governing the exercise of the rights of a holder of a beneficial interest in any
Rule 144A Global Capital Security or any Regulation S Global Capital Security.
(c) DEFINITIVE CAPITAL SECURITIES. Except as provided in Section
7.9, owners of beneficial interests in a Rule 144A Global Capital Security or a
Regulation S Global Capital Security will not be entitled to receive physical
delivery of certificated Capital Securities ("Definitive Capital Securities").
Purchasers of Securities who are "accredited investors" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) and did not purchase
Capital Securities in reliance on Regulation S will receive Capital Securities
in the form of individual certificates in definitive, fully registered form
without Distribution coupons and with the Restricted Securities Legend set forth
in Exhibit A-1 hereto ("Restricted Definitive Capital Securities"); provided,
however, that upon transfer of such Restricted Definitive Capital Securities to
a QIB, such Restricted Definitive Capital Securities will, unless the Rule 144A
Global Capital Security has previously been exchanged, be exchanged for an
interest in a Rule 144A Global Capital Security pursuant to the provisions of
Section 9.2. Restricted Definitive Capital Securities will bear the Restricted
Securities Legend set forth on Exhibit A-1 unless removed in accordance with
this Section 7.3 or Section 9.2.
SECTION 7.4 REGISTRAR AND PAYING AGENT.
(a) The Trust shall maintain in The City of New York, (i) an office
or agency where Capital Securities may be presented for registration of transfer
("Registrar"), (ii) an office or agency where Capital Securities may be
presented for payment ("Paying Agent") and (iii) an office or agency where
Securities may be presented for exchange in connection with the Exchange Offer
(the "Exchange Agent"). The Registrar shall keep a register of the Capital
Securities and of their transfer. The Administrative Trustees shall appoint the
Registrar, the Paying Agent and the Exchange Agent and may appoint one or more
co-Registrars, one or more additional Paying Agents and one or more additional
Exchange Agents in such other locations as they shall determine. The term
"Registrar" includes any additional registrar, the term "Paying Agent" includes
any additional paying agent and the term "Exchange Agent" includes any
additional Exchange Agent." The Administrative Trustees may change any Registrar
or co-Registrar, Paying Agent or Exchange Agent without prior notice to any
Holder. The Paying Agent shall be permitted to resign as Paying Agent upon 30
days' written notice to the Administrative Trustees. The Administrative Trustees
shall notify the Property Trustee of the name and address of any Agent not a
party to this Declaration. If the Administrative Trustees fail to appoint or
maintain another entity as Registrar, Paying Agent or Exchange Agent, the
Property Trustee shall act as such. The Trust or any of its Affiliates may act
as Paying Agent, Registrar or Exchange Agent. The Trust shall act as Paying
Agent, Registrar and co-registrar and the Exchange Agent for the Common
Securities.
(b) The Administrative Trustees initially appoint the Property
Trustee as Registrar, Paying Agent and Exchange Agent for the Capital
Securities.
SECTION 7.5 PAYING AGENT TO HOLD MONEY IN TRUST.
The Trust shall require each Paying Agent other than the Property
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Property Trustee all money held by the Paying Agent
for the payment of Liquidation Amounts or Distributions on the Securities, and
will notify the Property Trustee if there are insufficient funds for such
purpose. While any such insufficiency continues, the Property Trustee may
require a Paying Agent to pay all money held by it to the Property Trustee. The
Trust at any time may require a Paying Agent to pay all money held by it to the
Property Trustee and to account for any money disbursed by it. Upon payment over
to the Property Trustee, the Paying Agent (if other than the Trust or an
Affiliate of the Trust) shall have no further liability for the money. If the
Trust or the Sponsor or an Affiliate of the Trust or the Sponsor acts as Paying
Agent, it shall segregate and hold in a separate trust fund or account for the
benefit of the Holders all money held by it as Paying Agent.
SECTION 7.6 REPLACEMENT SECURITIES.
If the Holder claims that a Security owned by it has been lost,
destroyed or wrongfully taken or if such Security is mutilated and is
surrendered to the Trust or in the case of the Capital Securities to the
Property Trustee, the Trust shall issue, an Administrative Trustee shall execute
and the Property Trustee shall authenticate a replacement Security if the
requirements of this Section 7.6 are satisfied. An indemnity bond must be
provided by the Holder which, in the judgment of the Property Trustee, is
sufficient to protect the Trustees, the Sponsor or any authenticating agent from
any loss which any of them may suffer if a Security is replaced. The Trust may
charge such Holder for its expenses in replacing a Security.
Every replacement Security is a substitute beneficial interest in
the Trust to the same extent as the original it replaces.
SECTION 7.7 OUTSTANDING CAPITAL SECURITIES.
(a) The Capital Securities outstanding at any time are all the
Capital Securities authenticated by the Property Trustee except for those
cancelled by it, those delivered to it for cancellation, and those described in
this Section as not outstanding.
(b) If a Capital Security is replaced (pursuant to Section 7.6
hereof), or purchased, it ceases to be outstanding unless the Property Trustee
receives proof satisfactory to it that the replaced or purchased Capital
Security is held by a bona fide purchaser satisfying the conditions of this
Declaration, including without limitation the provisions of Article IX hereof.
(c) If Capital Securities are considered redeemed, including any and
all distributions and liquidation preferences, in accordance with the terms of
this Declaration, they cease to be outstanding and Distributions on them shall
cease to accumulate.
(d) A Capital Security does not cease to be outstanding because one
of the Administrative Trustees, the Sponsor or an Affiliate of the Sponsor holds
the Security.
SECTION 7.8 CAPITAL SECURITIES IN TREASURY.
In determining whether the Holders of the required amount of
Securities have concurred in any direction, waiver or consent, Capital
Securities owned by the Administrative Trustees, the Sponsor or an Affiliate of
the Sponsor, as the case may be, shall be disregarded and deemed not to be
outstanding, except that for the purposes of determining whether the Property
Trustee shall be fully protected in relying on any such direction, waiver or
consent, only Securities which the Property Trustee actually knows are so owned
shall be so disregarded.
SECTION 7.9 TEMPORARY SECURITIES.
(a) Until definitive Securities are ready for delivery, the
Administrative Trustees may cause to be prepared and execute, and, in the case
of the Capital Securities, the Property Trustee shall authenticate temporary
Securities. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Administrative Trustees
consider appropriate for temporary Securities. Without unreasonable delay, the
Administrative Trustees shall prepare and, in the case of the Capital
Securities, the Property Trustee shall authenticate definitive Securities in
exchange for temporary Securities.
(b) A Global Capital Security deposited with the Clearing Agency or
with the Property Trustee as custodian for the Clearing Agency pursuant to
Section 7.3 shall be transferred to the beneficial owners thereof in the form of
certificated Capital Securities only if such transfer complies with Section 9.2
and (i) the Clearing Agency notifies the Company that it is unwilling or unable
to continue as Clearing Agency for such Global Capital Security or if at any
time such Clearing Agency ceases to be a "clearing agency" registered under the
Exchange Act and a clearing agency is not appointed by the Sponsor within 90
days of such notice, (ii) a Default or an Event of Default has occurred and is
continuing or (iii) the Administrative Trustees in their sole discretion elect
to cause the issuance of certificated Capital Securities.
(c) Any Global Capital Security that is transferable to the
beneficial owners thereof in the form of certificated Capital Securities
pursuant to this Section 7.9 shall be surrendered by the Clearing Agency to the
Property Trustee located in the City of New York, New York, to be so
transferred, in whole or from time to time in part, without charge, and the
Property Trustee shall authenticate and make available for delivery, upon such
transfer of each portion of such Global Capital Security, an equal aggregate
Liquidation Amount of Securities of authorized denominations in the form of
certificated Capital Securities. Any portion of a Global Capital Security
transferred pursuant to this Section shall be registered in such names as the
Clearing Agency shall direct. Any Capital Security in the form of certificated
Capital Securities delivered in exchange for an interest in the Restricted
Global Capital Security shall, except as otherwise provided by Sections 7.3 and
9.1, bear the Restricted Securities Legend set forth in Exhibit A-1 hereto.
(d) Subject to the provisions of Section 7.9(c), the Holder of a
Global Capital Security may grant proxies and otherwise authorize any Person,
including Participants and Persons that may hold interests through Participants,
to take any action which such Holder is entitled to take under this Declaration
or the Securities.
(e) In the event of the occurrence of any of the events specified in
Section 7.9(b), the Administrative Trustees will promptly make available to the
Property Trustee a reasonable supply of certificated Capital Securities in fully
registered form without distribution coupons.
SECTION 7.10 CANCELLATION.
The Administrative Trustees at any time may deliver Capital
Securities to the Property Trustee for cancellation. The Registrar, Paying Agent
and Exchange Agent shall forward to the Property Trustee any Capital Securities
surrendered to them for registration of transfer, redemption, exchange or
payment. The Property Trustee shall promptly cancel all Capital Securities
surrendered for registration of transfer, redemption, exchange, payment,
replacement or cancellation and shall dispose of canceled Capital Securities as
the Administrative Trustees direct, provided that the Property Trustee shall not
be obligated to destroy Capital Securities. The Trust may not issue new Capital
Securities to replace Capital Securities that it has redeemed or that have been
delivered to the Property Trustee for cancellation or that any Holder has
exchanged.
SECTION 7.11 CUSIP NUMBERS.
The Trust in issuing the Capital Securities may use "CUSIP" numbers
(if then generally in use), and, if so, the Property Trustee shall use "CUSIP"
numbers in notices of redemption as a convenience to Holders of Capital
Securities; provided that any such notice may state that no representation is
made as to the correctness of such numbers either as printed on the Capital
Securities or as contained in any notice of a redemption and that reliance may
be placed only on the other identification numbers printed on the Capital
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers. The Sponsor will promptly notify the Property Trustee
of any change in the CUSIP numbers.
ARTICLE VIII
DISSOLUTION OF TRUST
SECTION 8.1 DISSOLUTION OF TRUST.
(a) The Trust shall automatically dissolve:
(i) upon the bankruptcy of the Sponsor;
(ii) upon the filing of a certificate of dissolution or
liquidation or its equivalent with respect to the Sponsor;
(iii) following the distribution of a Like Amount of the
Debentures to the Holders; provided that the Property Trustee has received a
written notice from the Sponsor as the holder of all the outstanding Common
Securities directing it to terminate the Trust (which direction is at the
discretion of the Sponsor, except as provided below); provided, further, that
such distribution is conditioned on the Administrative Trustees' receipt of an
opinion by independent tax counsel experienced in such matters, which opinion
may rely on published rulings of the Internal Revenue Service, to the effect
that the Holders will not recognize any gain or loss for United States federal
income tax purposes as a result of the dissolution of the Trust and such
distribution of a Like Amount of the Debentures;
(iv) upon the entry of a decree of judicial dissolution of the
Trust by a court of competent jurisdiction;
(v) when all of the Securities shall have been called for
redemption and the amounts necessary for redemption thereof shall have been paid
to the Holders in accordance with the terms of the Securities;
(vi) upon the repayment of the Debentures or at such time as
no Debentures are outstanding;
(vii) the expiration of the term of the Trust provided in
Section 3.13; or
(viii) following the distribution of a Like Amount of the
Debentures to the Holders of the Securities pursuant to the terms thereof upon
receipt of a written notice from the Sponsor that it intends to effect a Tax
Event Maturity Shortening and directing the Administrative Trustees to dissolve
the Trust and distribute a Like Amount of the Debentures to the Holders of the
Securities.
(b) As soon as is practicable after the occurrence of an event
referred to in Section 8.1(a), the Trust shall be wound up pursuant to Section
3808 of the Business Trust Act and the Administrative Trustees shall file a
certificate of cancellation with the Secretary of State of the State of
Delaware; provided, however, that in the event of any of the events of
dissolution set forth in Sections 8.1(a)(iii), (v) or (viii), the provisions of
Section 3808(e) of the Business Trust Act shall be satisfied in advance of the
making of any payments or distributions to Holders of Securities pursuant to
this Declaration.
(c) The provisions of Section 3.9 and Article X shall survive the
dissolution of the Trust.
ARTICLE IX
TRANSFER OF INTERESTS
SECTION 9.1 TRANSFER OF SECURITIES.
(a) Securities may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this Declaration and in
the terms of the Securities. Any transfer or purported transfer of any Security
not made in accordance with this Declaration shall be null and void.
(b) Subject to this Article IX, Capital Securities may only be
transferred, in whole or in part, in accordance with the terms and conditions
set forth in this Declaration. Any transfer or purported transfer of any
security not made in accordance with this Declaration shall be null and void.
(c) Subject to Section 3.14, the Sponsor may not transfer the Common
Securities.
(d) The Registrar shall provide for the registration of Securities
and of the transfer of Securities, which will be effected without charge except
as provided in Section 7.6 hereof, but only upon payment (with such indemnity as
the Registrar may require) in respect of any tax or other governmental charges
that may be imposed in relation to it. Upon surrender for registration of
transfer of any Securities, the Registrar shall cause one or more new Securities
to be issued in the name of the designated transferee or transferees. Every
Security surrendered for registration of transfer shall be accompanied by a
written instrument of transfer in form satisfactory to the Registrar duly
executed by the Holder or such Holder's attorney duly authorized in writing.
Each Security surrendered for registration of transfer shall be canceled by the
Registrar. A transferee of a Security shall be entitled to the rights and
subject to the obligations of a Holder hereunder upon the receipt by such
transferee of a Security. By acceptance of a Security, each transferee shall be
deemed to have agreed to be bound by this Declaration.
SECTION 9.2 TRANSFER PROCEDURES AND RESTRICTIONS.
(a) GENERAL. Except as otherwise provided in Section 9.2(c), if
Capital Securities are issued upon the transfer, exchange or replacement of
Capital Securities bearing the Restricted Securities Legend set forth in Exhibit
A-1 hereto, or if a request is made to remove such Restricted Securities Legend
on Capital Securities, the Capital Securities so issued shall bear the
Restricted Securities Legend, or the Restricted Securities Legend shall not be
removed, as the case may be, unless there is delivered to the Trust and the
Property Trustee such satisfactory evidence, which shall include an Opinion of
Counsel licensed to practice law in the State of New York, as may be reasonably
required by the Sponsor and the Property Trustee, that neither the legend nor
the restrictions on transfer set forth therein are required to ensure that
transfers thereof are made pursuant to an exception from the registration
requirements of the Securities Act or, with respect to Restricted Securities,
that such Securities are not "restricted" within the meaning of Rule 144. Upon
provision of such satisfactory evidence, the Property Trustee, at the written
direction of the Administrative Trustees, shall authenticate and deliver Capital
Securities that do not bear the legend.
(b) TRANSFERS AFTER EFFECTIVENESS OF A REGISTRATION STATEMENT. After
the effectiveness of a Registration Statement with respect to any Capital
Securities, all requirements pertaining to legends on such Capital Securities
will cease to apply, and beneficial interests in a Capital Security in global
form without legends will be available to transferees of such Capital
Securities, upon exchange of the transferring holder's Restricted Definitive
Capital Security or directions to transfer such Holder's beneficial interest in
the Global Capital Security. No such transfer or exchange of a Restricted
Definitive Capital Security or of an interest in the Global Capital Security
shall be effective unless the transferor delivers to the Trust a certificate in
a form substantially similar to that attached hereto as the "Form of Assignment"
in Exhibit A-1. Except as otherwise provided in Section 9.2(m), after the
effectiveness of a Registration Statement, the Trust shall issue and the
Property Trustee, upon a written order of the Trust signed by one Administrative
Trustee, shall authenticate a Capital Security in global form without the
Restricted Securities Legend (the "Unrestricted Global Capital Security") to
deposit with the Clearing Agent to evidence transfers of beneficial interests
from the (i) Global Capital Security and (ii) Restricted Definitive Capital
Securities.
(c) TRANSFER AND EXCHANGE OF DEFINITIVE CAPITAL SECURITIES. When
Definitive Capital Securities are presented to the Registrar or co-Registrar:
(x) to register the transfer of such Definitive Capital
Securities or
(y) to exchange such Definitive Capital Securities which
became mutilated, destroyed, defaced, stolen or lost, for an equal number of
Definitive Capital Securities,
the Registrar or co-Registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided, however, that the Definitive Capital Securities surrendered for
transfer or exchange:
(i) shall be duly endorsed or accompanied by a written
instrument of transfer in form reasonably satisfactory to the Trust and the
Registrar or co-Registrar, duly executed by the Holder thereof or his attorney
duly authorized in writing; and
(ii) in the case of Definitive Capital Securities that are
Restricted Definitive Capital Securities:
(A) if such Restricted Capital Securities are being
delivered to the Registrar by a Holder for registration in the name of such
Holder, without transfer, a certification from such Holder to that effect; or
(B) if such Restricted Capital Securities are being
transferred: (x) a certification from the transferor in a form substantially
similar to that attached hereto as the "Form of Assignment" in Exhibit A-1, and
(y) if the Trust or Registrar so requests, evidence reasonably satisfactory to
them as to the compliance with the restrictions set forth in the Restricted
Securities Legend.
(d) RESTRICTIONS ON TRANSFER OF A DEFINITIVE CAPITAL SECURITY FOR A
BENEFICIAL INTEREST IN A GLOBAL CAPITAL SECURITY. A Definitive Capital Security
may not be exchanged for a beneficial interest in a Global Capital Security
except upon satisfaction of the requirements set forth below. Upon receipt by
the Property Trustee of a Definitive Capital Security, duly endorsed or
accompanied by appropriate instruments of transfer, in form satisfactory to the
Property Trustee, together with:
(i) if such Definitive Capital Security is a Restricted
Capital Security, a written certificate (in a form substantially similar to that
attached hereto as the "Form of Assignment" in Exhibit A-1); provided, however,
that such Definitive Capital Security may only be exchanged for an interest in a
Regulation S Global Security where such Definitive Capital Security is being
transferred pursuant to Regulation S or Rule 144 (if available); and
(ii) whether or not such Definitive Capital Security is a
Restricted Capital Security, written instructions directing the Property Trustee
to make, or to direct the Clearing Agency to make, an adjustment on its books
and records with respect to the appropriate Global Capital Security to reflect
an increase in the number of the Capital Securities represented by such Global
Capital Security, then the Property Trustee shall cancel such Definitive Capital
Security and cause, or direct the Clearing Agency to cause, the aggregate number
of Capital Securities represented by the appropriate Global Capital Security to
be increased accordingly. If no Global Capital Securities are then outstanding,
the Trust shall issue and the Property Trustee shall authenticate, upon written
order of any Administrative Trustee, an appropriate number of Capital Securities
in global form.
(e) TRANSFER AND EXCHANGE OF GLOBAL CAPITAL SECURITIES. Subject to
Section 9.2(f), the transfer and exchange of Global Capital Securities or
beneficial interests therein shall be effected through the Clearing Agency, in
accordance with this Declaration (including applicable restrictions on transfer
set forth herein, if any) and the procedures of the Clearing Agency therefor.
(f) TRANSFER OF A BENEFICIAL INTEREST IN A GLOBAL CAPITAL SECURITY
FOR A DEFINITIVE CAPITAL SECURITY.
(i) Any Person having a beneficial interest in a Global
Capital Security may upon request, but only upon 20 days prior notice to
the Property Trustee, and if accompanied by the information specified
below, exchange such beneficial interest for a Definitive Capital Security
representing the same number of Capital Securities. Upon receipt by the
Property Trustee from the Clearing Agency or its nominee on behalf of any
Person having a beneficial interest in a Global Capital Security of
written instructions or such other form of instructions as is customary
for the Clearing Agency or the Person designated by the Clearing Agency as
having such a beneficial interest in a Restricted Capital Security and a
certification from the transferor (in a form substantially similar to that
attached hereto as the "Form of Assignment" in Exhibit A-1), which may be
submitted by facsimile, then the Property Trustee will cause the aggregate
number of Capital Securities represented by Global Capital Securities to
be reduced on its books and records and, following such reduction, the
Administrative Trustees will execute and the Property Trustee will
authenticate and make available for delivery to the transferee a
Definitive Capital Security.
(ii) Definitive Capital Securities issued in exchange for a
beneficial interest in a Global Capital Security pursuant to this Section
9.2(f) shall be registered in such names and in such authorized
denominations as the Clearing Agency, pursuant to instructions from its
Participants or indirect participants or otherwise, shall instruct the
Property Trustee in writing. The Property Trustee shall deliver such
Capital Securities to the Persons in whose names such Capital Securities
are so registered in accordance with such instructions of the Clearing
Agency.
(g) RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL CAPITAL
SECURITIES. Notwithstanding any other provisions of this Declaration (other than
the provisions set forth in subsection (h) of this Section 9.2), a Global
Capital Security may not be transferred as a whole except by the Clearing Agency
to a nominee of the Clearing Agency or another nominee of the Clearing Agency or
by the Clearing Agency or any such nominee to a successor Clearing Agency or a
nominee of such successor Clearing Agency.
(i) Prior to the expiration of the restricted period, as
contemplated by Regulation S, beneficial interests in the Regulation S
Global Capital Security may be exchanged for beneficial interests in the
Rule 144A Global Capital Security only if such exchange occurs in
connection with a transfer of the Capital Securities pursuant to Rule 144A
and the transferor first delivers to the Property Trustee a written
certificate (in a form substantially similar to that attached hereto as
the "Form of Assignment" in Exhibit A-1) to the effect that the Capital
Securities are being transferred to a Person whom the transferor
reasonably believes to be a QIB, purchasing for its own account or the
account of a QIB in a transaction meeting the requirements of Rule 144A
and in accordance with all applicable securities laws of the states of the
United States and other jurisdictions
(ii) Beneficial interests in the Rule 144A Global Capital
Security may be transferred to a Person who takes delivery in the form of
an interest in the Regulation S Global Capital Security, whether before or
after the expiration of such restricted period, as contemplated by
Regulation S, only if the transferor first delivers to the Property
Trustee a written certificate (in a form substantially similar to that
attached hereto as the "Form of Assignment" in Exhibit A-1) to the effect
that such transfer is being made in accordance with Rule 903 or 904 of
Regulation S or Rule 144 (if available) and that, if such transfer occurs
prior to the expiration of such restricted period, the interest
transferred will be held immediately thereafter through Euroclear or
CEDEL.
(h) AUTHENTICATION OF DEFINITIVE CAPITAL SECURITIES. If at any time:
(i) there occurs a Default or an Event of Default which is
continuing, or
(ii) the Administrative Trustees, in their sole discretion, notify
the Property Trustee in writing that they elect to cause the issuance of
Definitive Capital Securities under this Declaration,
then the Administrative Trustees will execute, and the Property Trustee, upon
receipt of a written order of the Trust signed by one Administrative Trustee
requesting the authentication and delivery of Definitive Capital Securities to
the Persons designated by the Trust, will authenticate and make available for
delivery Definitive Capital Securities, equal in number to the number of Capital
Securities represented by the Global Capital Securities, in exchange for such
Global Capital Securities.
(i) LEGEND.
(i) Except as permitted by the following paragraph (ii), each
Capital Security certificate evidencing the Global Capital Securities and
the Definitive Capital Securities (and all Capital Securities issued in
exchange therefor or substitution thereof, except in the Exchange Offer)
shall bear a legend (the "Restricted Securities
Legend") in substantially the following form:
THIS CAPITAL SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY
STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW.
NEITHER THIS CAPITAL SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF
AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER THIS CAPITAL
SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION
DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE
DATE HEREOF AND THE LAST DATE ON WHICH THE CORPORATION OR ANY
"AFFILIATE" OF THE CORPORATION WAS THE OWNER OF THIS CAPITAL
SECURITY (OR ANY PREDECESSOR OF THIS CAPITAL SECURITY) EXCEPT (A) TO
THE CORPORATION, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS
BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS
THIS CAPITAL SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A
UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO
OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED
STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT,
(E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF
SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE
SECURITIES ACT THAT IS ACQUIRING THIS CAPITAL SECURITY FOR ITS OWN
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED
INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR
OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF
THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT
TO THE RIGHT OF THE TRUST AND THE CORPORATION PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D), (E) OR (F) TO
REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR
OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) PURSUANT TO
CLAUSE (E), TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THE REVERSE OF THIS CAPITAL SECURITY IS COMPLETED AND
DELIVERED BY THE TRANSFEREE TO THE TRUST. SUCH HOLDER FURTHER AGREES
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS CAPITAL SECURITY IS
TRANSFERRED A NOTICE
and in the case of the Regulation S Global Capital Security
THIS CAPITAL SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS UNLESS
REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS AVAILABLE.
(ii) Upon any sale or transfer of a Restricted Capital Security
(including any Restricted Capital Security represented by a Global Capital
Security) pursuant to an effective registration statement under the
Securities Act or pursuant to Rule 144 under the Securities Act after such
registration statement ceases to be effective:
(A) in the case of any Restricted Capital Security that is a
Definitive Capital Security, the Registrar shall permit the Holder
thereof to exchange such Restricted Capital Security for a
Definitive Capital Security that does not bear the Restricted
Securities Legend and rescind any restriction on the transfer of
such Restricted Capital Security; and
(B) in the case of any Restricted Capital Security that is
represented by a Global Capital Security, the Registrar shall permit
the Holder of such Global Capital Security to exchange such Global
Capital Security for another Global Capital Security that does not
bear the Restricted Securities Legend.
(j) CANCELLATION OR ADJUSTMENT OF GLOBAL CAPITAL SECURITY. At such
time as all beneficial interests in a Global Capital Security have either been
exchanged for Definitive Capital Securities to the extent permitted by this
Declaration or redeemed, repurchased or canceled in accordance with the terms of
this Declaration, such Global Capital Security shall be returned to the Clearing
Agency for cancellation or retained and canceled by the Property Trustee. At any
time prior to such cancellation, if any beneficial interest in a Global Capital
Security is exchanged for Definitive Capital Securities, Capital Securities
represented by such Global Capital Security shall be reduced and an adjustment
shall be made on the books and records of the Property Trustee (if it is then
the custodian for such Global Capital Security) with respect to such Global
Capital Security, by the Property Trustee or the Securities custodian, to
reflect such reduction.
(k) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF CAPITAL
SECURITIES.
(i) To permit registrations of transfers and exchanges, the
Administrative Trustees shall execute and the Property Trustee shall
authenticate Definitive Capital Securities and Global Capital Securities
at the Registrar's or co-Registrar's request in accordance with the terms
of this Declaration.
(ii) Subject to Section 7.6 hereof, registrations of transfers or
exchanges will be effected without charge, but only upon payment (with
such indemnity as the Trust or the Sponsor may require) in respect of any
tax or other governmental charge that may be imposed in relation to it.
(iii) The Registrar or co-Registrar shall not be required to
register the transfer of or exchange of (a) Capital Securities during a
period beginning at the opening of business 15 days before the day of
mailing of a notice of redemption or any notice of selection of Capital
Securities for redemption and ending at the close of business on the day
of such mailing; or (b) any Capital Security so selected for redemption in
whole or in part, except the unredeemed portion of any Capital Security
being redeemed in part.
(iv) Prior to the due presentation for registration of transfer of
any Capital Security, the Trust, the Property Trustee, the Paying Agent,
the Registrar or any co-Registrar may deem and treat the Person in whose
name a Capital Security is registered as the absolute Holder of such
Capital Security for the purpose of receiving Distributions on such
Capital Security and for all other purposes whatsoever, and none of the
Trust, the Property Trustee, the Paying Agent, the Registrar or any
co-Registrar shall be affected by notice to the contrary.
(v) All Capital Securities issued upon any transfer pursuant to the
terms of this Declaration shall evidence the same security and shall be
entitled to the same benefits under this Declaration as the Capital
Securities surrendered upon such transfer or exchange.
(l) NO OBLIGATION OF THE PROPERTY TRUSTEE.
(i) The Property Trustee shall have no responsibility or obligation
to any beneficial owner of a Global Capital Security, a Participant in the
Clearing Agency or other Person with respect to the accuracy of the
records of the Clearing Agency or its nominee or of any Participant
thereof, with respect to any ownership interest in the Capital Securities
or with respect to the delivery to any Participant, beneficial owner or
other Person (other than the Clearing Agency) of any notice (including any
notice of redemption) or the payment of any amount, under or with respect
to such Capital Securities. All notices and communications to be given to
the Holders and all payments to be made to Holders under the Capital
Securities shall be given or made only to or upon the order of the
registered Holders (which shall be the Clearing Agency or its nominee in
the case of a Global Capital Security). The rights of beneficial owners in
any Global Capital Security shall be exercised only through the Clearing
Agency subject to the applicable rules and procedures of the Clearing
Agency. The Property Trustee may conclusively rely and shall be fully
protected in relying upon information furnished by the Clearing Agency or
any agent thereof with respect to its Participants and any beneficial
owners.
(ii) The Property Trustee and Registrar shall have no obligation or
duty to monitor, determine or inquire as to compliance with any
restrictions on transfer imposed under this Declaration or under
applicable law with respect to any transfer of any interest in any Capital
Security (including any transfers between or among Clearing Agency
Participants or beneficial owners in any Global Capital Security) other
than to require delivery of such certificates and other documentation or
evidence as are expressly required by, and to do so if and when expressly
required by, the terms of this Declaration, and to examine the same to
determine substantial compliance as to form with the express requirements
hereof.
(m) EXCHANGE OF INITIAL CAPITAL SECURITIES FOR EXCHANGE CAPITAL
SECURITIES. The Initial Capital Securities may be exchanged for Exchange
Securities pursuant to the terms of the Exchange Offer. The Property Trustee
shall make the exchange as follows:
(i) The Sponsor shall present the Property Trustee with an Officers'
Certificate certifying the following:
(A) the Registration Statement has become effective; and
(B) the number of Initial Capital Securities properly tendered
in the Exchange Offer that are represented by a Global Capital
Security and the number of Initial Capital Securities properly
tendered in the Exchange Offer that are represented by Definitive
Capital Securities, the name of each Holder of such Definitive
Capital Securities, the liquidation amount of Capital Securities
properly tendered in the Exchange Offer by each such Holder and the
name and address to which Definitive Capital Securities for Exchange
Capital Securities shall be registered and sent for each such
Holder.
(ii) The Property Trustee upon receipt of (A) such Officers'
Certificate, (B) an Opinion of Counsel (x) to the effect that the Exchange
Capital Securities have been registered under Section 5 of the Securities
Act and the Indenture), has been qualified under the Trust Indenture Act
and (y) with respect to the matters set forth in Section 3(p) of the
Registration Rights Agreement and (C) a Company Order (as defined in the
Indenture), shall authenticate (I) a Global Capital Security for Exchange
Capital Securities in aggregate liquidation amount equal to the aggregate
liquidation amount of Initial Capital Securities represented by a Global
Capital Security indicated in such Officers' Certificate as having been
properly tendered and (II) Definitive Capital Securities representing
Exchange Capital Securities registered in the names of, and in the
liquidation amounts indicated in such Officers' Certificate.
(iii) If, upon consummation of the Exchange Offer, less than all the
outstanding Initial Capital Securities shall have been properly tendered
and not withdrawn, the Property Trustee shall make an endorsement on the
Global Capital Security for Initial Capital Securities indicating the
reduction in the number and aggregate liquidation amount represented
thereby as a result of the Exchange Offer.
(iv) The Trust shall deliver such Definitive Capital Securities for
Exchange Capital Securities to the Holders thereof as indicated in such
Officers' Certificate.
(n) MINIMUM TRANSFERS. Initial Capital Securities may only be
transferred in minimum blocks of $100,000 aggregate Liquidation Amount until
such Initial Capital Securities are registered pursuant to an effective
registration statement filed under the Securities Act or become "unrestricted"
pursuant to Rule 144 under the Securities Act.
(o) INDEMNITY; ERISA. Each Holder of the Securities agrees to
indemnify the Sponsor and the Property Trustee against any liability that may
result from the transfer, exchange or assignment of such Holder's Securities in
violation of any provision of this Declaration and/or applicable United States
federal or state securities law.
Subject to this Article, Securities shall be freely transferable.
Notwithstanding the foregoing, Securities may not be acquired by any Person who
is, or who, in acquiring such Securities is using the assets of, an employee
benefit plan subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA Plan"), unless the acquisition of such Securities is not a
"Prohibited Transaction" (within the meaning of Section 406 of ERISA or Section
4975 of the Code) or one of the following class exemptions (or another
applicable exemption) is available to the ERISA Plan: (i) Prohibited Transaction
Class Exemption 90-1 ("PTE 90-1"), regarding investments by insurance company
pooled separate accounts, (ii) Prohibited Transaction Class Exemption 91-38
("PTE 91-38"), regarding investments by bank collective investment funds, (iii)
Prohibited Transaction Class Exemption 84-14 ("PTE 84-14"), regarding
transactions effected by qualified professional asset managers, (iv) Prohibited
Transaction Class Exemption 96-23 ("PTE 96-23"), regarding transactions effected
by in-house asset managers, or (v) Prohibited Transaction Class Exemption 95-60
("PTE 95-60"), regarding investments by insurance company general accounts. The
acquisition of Capital Securities by any Person who is, or who in acquiring such
Capital Securities is using the assets of, an ERISA Plan shall be deemed to
constitute a representation by such Person to the Trust that, if such
acquisition or the holding of Capital Securities by such Person would constitute
a Prohibited Transaction, such Person is eligible for exemptive relief available
pursuant to either one of PTE 90-1, PTE 91-38, PTE 84-14, PTE 96-23, PTE 95-60
or another applicable exemption with respect to the acquisition and holding of
such Securities. To avoid Prohibited Transactions, any ERISA Plan purchasing
Capital Securities will be deemed to have directed the Trust to invest in the
Debentures and to have appointed the Trustees.
SECTION 9.3 DEEMED SECURITY HOLDERS.
The Trustees may treat the Person in whose name any Security shall
be registered on the books and records of the Trust as the sole Holder of such
Security for purposes of receiving Distributions and for all other purposes
whatsoever and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such Security on the part of any Person, whether
or not the Trust shall have actual or other notice thereof.
SECTION 9.4 BOOK ENTRY INTERESTS.
(a) Global Capital Securities shall initially be registered on the
books and records of the Trust in the name of Cede & Co., the nominee of the
Clearing Agency, and no Capital Security Beneficial Owner will receive a
definitive Capital Security Certificate representing such Capital Security
Beneficial Owner's interests in such Global Capital Securities, except as
provided in Section 9.2. Unless and until definitive, fully registered Capital
Securities certificates have been issued to the Capital Security Beneficial
Owners pursuant to Section 9.2:
(i) the provisions of this Section 9.4 shall be in full force and
effect;
(ii) the Trust and the Trustees shall be entitled to deal with the
Clearing Agency for all purposes of this Declaration (including the
payment of Distributions on the Global Capital Securities and receiving
approvals, votes or consents hereunder) as the Holder of the Capital
Securities and the sole holder of the Global Certificates and shall have
no obligation to the Capital Security Beneficial Owners;
(iii) to the extent that the provisions of this Section 9.4 conflict
with any other provisions of this Declaration, the provisions of this
Section 9.4 shall control; and
(iv) the rights of the Capital Security Beneficial Owners shall be
exercised only through the Clearing Agency and shall be limited to those
established by law and agreements between such Capital Security Beneficial
Owners and the Clearing Agency and/or the Clearing Agency Participants and
receive and transmit payments of Distributions on the Global Certificates
to such Clearing Agency Participants. DTC will make book entry transfers
among the Clearing Agency Participants.
SECTION 9.5 NOTICES TO CLEARING AGENCY.
Whenever a notice or other communication to the Capital Security
Holders is required under this Declaration, the Trustees shall give all such
notices and communications specified herein to be given to the Holders of Global
Capital Security to the Clearing Agency, and shall have no notice obligations to
the Capital Security Beneficial Owners.
SECTION 9.6 APPOINTMENT OF SUCCESSOR CLEARING AGENCY.
If any Clearing Agency elects to discontinue its services as
securities depositary with respect to the Capital Securities the Administrative
Trustees may, in their sole discretion, appoint a successor Clearing Agency with
respect to such Capital Securities.
ARTICLE X
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 10.1 LIABILITY.
(a) Except as expressly set forth in this Declaration, the
Securities Guarantees and the terms of the Securities, the Sponsor shall not be:
(i) personally liable for the return of any portion of the capital
contributions (or any return thereon) of the Holders, which shall be made
solely from assets of the Trust; or
(ii) required to pay to any Holder any deficit upon dissolution of
the Trust or otherwise.
(b) The Sponsor shall be liable for all of the debts and obligations
of the Trust (other than with respect to the Securities) to the extent not
satisfied out of the Trust's assets.
(c) Pursuant to ss. 3803(a) of the Business Trust Act, the Holders
of the Capital Securities shall be entitled to the same limitation of personal
liability extended to stockholders of private corporations for profit organized
under the General Corporation Law of the State of Delaware.
SECTION 10.2 EXCULPATION.
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Trust or any Covered Person for any
loss, damage or claim incurred by reason of any act or omission performed or
omitted by such Indemnified Person in good faith on behalf of the Trust and in a
manner such Indemnified Person reasonably believed to be within the scope of the
authority conferred on such Indemnified Person by this Declaration or by law,
except that an Indemnified Person shall be liable for any such loss, damage or
claim incurred by reason of such Indemnified Person's gross negligence or
willful misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in
good faith upon the records of the Trust and upon such information, opinions,
reports or statements presented to the Trust by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Trust, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Securities might properly be paid.
SECTION 10.3 FIDUCIARY DUTY.
(a) To the extent that, at law or in equity, an Indemnified Person
has duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to any other Covered Person, an Indemnified Person acting under this
Declaration shall not be liable to the Trust or to any other Covered Person for
its good faith reliance on the provisions of this Declaration. The provisions of
this Declaration, to the extent that they restrict the duties and liabilities of
an Indemnified Person otherwise existing at law or in equity (other than the
duties imposed on the Property Trustee under the Trust Indenture Act), are
agreed by the parties hereto to replace such other duties and liabilities of
such Indemnified Person.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises between
any Covered Persons; or
(ii) whenever this Declaration or any other agreement contemplated
herein or therein provides that an Indemnified Person shall act in a
manner that is, or provides terms that are, fair and reasonable to the
Trust or any Holder of Securities,
the Indemnified Person shall resolve such conflict of interest, take such action
or provide such terms, considering in each case the relative interest of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices, and any applicable generally accepted accounting
practices or principles. In the absence of bad faith by the Indemnified Person,
the resolution, action or term so made, taken or provided by the Indemnified
Person shall not constitute a breach of this Declaration or any other agreement
contemplated herein or of any duty or obligation of the Indemnified Person at
law or in equity or otherwise.
(c) Whenever in this Declaration an Indemnified Person is permitted
or required to make a decision:
(i) in its "discretion" or under a grant of similar authority, the
Indemnified Person shall be entitled to consider such interests and
factors as it desires, including its own interests, and shall have no duty
or obligation to give any consideration to any interest of or factors
affecting the Trust or any other Person; or
(ii) in its "good faith" or under another express standard, the
Indemnified Person shall act under such express standard and shall not be
subject to any other or different standard imposed by this Declaration or
by applicable law.
SECTION 10.4 INDEMNIFICATION.
(a) (i) The Debenture Issuer shall indemnify, to the full extent
permitted by law, any Company Indemnified Person who was or is a party or
is threatened to be made a party to or otherwise becomes involved in any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by
or in the right of the Trust) by reason of the fact that he is or was a
Company Indemnified Person against expenses (including attorneys' fees and
expenses), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Trust, and,
with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. The termination of any action, suit
or proceeding by judgment, order, settlement, conviction, or upon a plea
of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the Company Indemnified Person did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Trust, and with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was
unlawful.
(ii) The Debenture Issuer shall indemnify, to the full extent
permitted by law, any Company Indemnified Person who was or is a party or
is threatened to be made a party to or otherwise becomes involved in any
threatened, pending or completed action or suit by or in the right of the
Trust to procure a judgment in its favor by reason of the fact that he is
or was a Company Indemnified Person, against expenses (including
attorneys' fees and expenses) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Trust and except that no such
indemnification shall be made in respect of any claim, issue or matter as
to which such Company Indemnified Person shall have been adjudged to be
liable to the Trust unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such Person is
fairly and reasonably entitled to indemnity for such expenses which such
Court of Chancery or such other court shall deem proper.
(iii) To the extent that a Company Indemnified Person shall be
successful on the merits or otherwise (including dismissal of an action
without prejudice or the settlement of an action without admission of
liability) in defense of any action, suit or proceeding referred to in
paragraphs (i) and (ii) of this Section 10.4(a), or in defense of any
claim, issue or matter therein, he shall be indemnified, to the full
extent permitted by law, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
(iv) Any indemnification under paragraphs (i) and (ii) of this
Section 10.4(a) (unless ordered by a court) shall be made by the Debenture
Issuer only as authorized in the specific case upon a determination that
indemnification of the Company Indemnified Person is proper in the
circumstances because he has met the applicable standard of conduct set
forth in paragraphs (i) and (ii). Such determination shall be made (1) by
the Administrative Trustees by a majority vote of a quorum consisting of
such Administrative Trustees who were not parties to such action, suit or
proceeding, (2) if such a quorum is not obtainable, or, even if
obtainable, if a quorum of disinterested Administrative Trustees so
directs, by independent legal counsel in a written opinion, or (3) by the
Common Security Holder of the Trust.
(v) Expenses (including attorneys' fees and expenses) incurred by a
Company Indemnified Person in defending or participating in a civil,
criminal, administrative or investigative action, suit or proceeding
referred to in paragraphs (i) and (ii) of this Section 10.4(a) shall be
paid by the Debenture Issuer in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf
of such Company Indemnified Person to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Debenture Issuer as authorized in this Section 10.4(a). Notwithstanding
the foregoing, no advance shall be made by the Debenture Issuer if a
determination is reasonably and promptly made (1) by the Administrative
Trustees by a majority vote of a quorum of disinterested Administrative
Trustees, (2) if such a quorum is not obtainable, or, even if obtainable,
if a quorum of disinterested Administrative Trustees so directs, by
independent legal counsel in a written opinion or (3) the Common Security
Holder of the Trust, that, based upon the facts known to the
Administrative Trustees, counsel or the Common Security Holder at the time
such determination is made, such Company Indemnified Person acted in bad
faith or in a manner that such Person did not reasonably believe to be in
or not opposed to the best interests of the Trust, or, with respect to any
criminal proceeding, that such Company Indemnified Person believed or had
reasonable cause to believe his conduct was unlawful. In no event shall
any advance be made in instances where the Administrative Trustees,
independent legal counsel or Common Security Holder reasonably determine
that such Person deliberately breached his duty to the Trust or its Common
Security Holders or Capital Security Holders.
(vi) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other paragraphs of this Section 10.4(a) shall
not be deemed exclusive of any other rights to which those seeking
indemnification and advancement of expenses may be entitled under any
agreement, vote of stockholders or disinterested directors of the
Debenture Issuer or Common Security Holders or Capital Security Holders of
the Trust or otherwise, both as to action in their official capacity and
as to action in another capacity while holding such office. All rights to
indemnification under this Section 10.4(a) shall be deemed to be provided
by a contract between the Debenture Issuer and each Company Indemnified
Person who serves in such capacity at any time while this Section 10.4(a)
is in effect. Any repeal or modification of this Section 10.4(a) shall not
affect any rights or obligations then existing.
(vii) The Debenture Issuer or the Trust may purchase and maintain
insurance on behalf of any Person who is or was a Company Indemnified
Person against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not
the Debenture Issuer would have the power to indemnify him against such
liability under the provisions of this Section 10.4(a).
(viii) For purposes of this Section 10.4(a), references to "the
Trust" shall include, in addition to the resulting or surviving entity,
any constituent entity (including any constituent of a constituent)
absorbed in a consolidation or merger, so that any Person who is or was a
director, trustee, officer or employee of such constituent entity, or is
or was serving at the request of such constituent entity as a director,
trustee, officer, employee or agent of another entity, shall stand in the
same position under the provisions of this Section 10.4(a) with respect to
the resulting or surviving entity as he would have with respect to such
constituent entity if its separate existence had continued.
(ix) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section 10.4(a) shall, unless otherwise provided
when authorized or ratified, continue as to a Person who has ceased to be
a Company Indemnified Person and shall inure to the benefit of the heirs,
executors and administrators of such a Person.
(b) The Debenture Issuer agrees to indemnify the (i) Property
Trustee, (ii) the Delaware Trustee, (iii) any Affiliate of the Property Trustee
and the Delaware Trustee, and (iv) any officers, directors, shareholders,
members, partners, employees' representatives, custodians, nominees or agents of
the Property Trustee and the Delaware Trustee (each of the Persons in (i)
through (iv) being referred to as a "Fiduciary Indemnified Person") for, and to
hold each Fiduciary Indemnified Person harmless against, any and all loss,
liability, damage, claim or expense including taxes (other than taxes based on
the income of such Fiduciary Indemnified Person) incurred without gross
negligence or bad faith on its part, arising out of or in connection with the
acceptance or administration of the trust or trusts hereunder, including the
costs and expenses (including reasonable legal fees and expenses) of defending
itself against or investigating any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder. The obligation
to indemnify as set forth in this Section 10.4(b) shall survive the satisfaction
and discharge of this Declaration.
(c) Each Indemnified Person shall give prompt notice to each
indemnifying party from whom indemnification is to be sought hereunder by such
Indemnified Person of any action threatened or commenced against it in respect
of which any indemnity is sought hereunder, enclosing a copy of all papers
served on, and notices and demands delivered to, such Indemnified Person, if
any, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability which it may have under this Section 10.4,
except to the extent that it is materially prejudiced by such failure. The
indemnifying party shall be entitled to assume the defense of any such action or
proceeding with counsel reasonably satisfactory to the Indemnified Person who
shall not, except with the consent of such Indemnified Person be counsel to the
indemnifying party. Upon assumption by the indemnifying party of the defense of
any such action or proceeding, the Indemnified Person shall have the right to
participate in such action or proceeding and to retain its own counsel, but the
indemnifying party shall not be liable for any legal fees or expenses
subsequently incurred by such Indemnified Person in connection with the defense
thereof unless (i) the indemnifying party has agreed to pay such fees and
expenses, (ii) the indemnifying party shall have failed to employ counsel
reasonably satisfactory to the Indemnified Person in a timely manner, or (iii)
the Indemnified Person shall have been advised by counsel (who shall not be
employed by such Indemnified Person and who shall be reasonably satisfactory to
the indemnifying party) that such representation would constitute an actual or
potential conflict of interests for counsel selected by the indemnifying party.
The indemnifying party shall not consent to the terms of any compromise or
settlement of any action defended by the indemnifying party in accordance with
the foregoing without the prior consent of the Indemnified Person, and the
Indemnified Person shall not consent to the terms of any compromise or
settlement of any action being defended by the indemnifying party in accordance
with the foregoing without the prior consent of the indemnifying party.
Notwithstanding the immediately preceding sentence, if at any time an
Indemnified Person shall have requested an indemnifying party to reimburse the
Indemnified Person for fees and expenses of counsel as contemplated above, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than thirty business days after receipt by such indemnifying
party of the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the Indemnified Person in accordance with such request prior to the
date of such settlement.
SECTION 10.5 OUTSIDE BUSINESSES.
Any Covered Person, the Sponsor, the Delaware Trustee and the
Property Trustee may engage in or possess an interest in other business ventures
of any nature or description, independently or with others, similar or
dissimilar to the business of the Trust, and the Trust and the Holders of
Securities shall have no rights by virtue of this Declaration in and to such
independent ventures or the income or profits derived therefrom, and the pursuit
of any such venture, even if competitive with the business of the Trust, shall
not be deemed wrongful or improper. No Covered Person, the Sponsor, the Delaware
Trustee, or the Property Trustee shall be obligated to present any particular
investment or other opportunity to the Trust even if such opportunity is of a
character that, if presented to the Trust, could be taken by the Trust, and any
Covered Person, the Sponsor, the Delaware Trustee and the Property Trustee shall
have the right to take for its own account (individually or as a partner or
fiduciary) or to recommend to others any such particular investment or other
opportunity. Any Covered Person, the Delaware Trustee and the Property Trustee
may engage or be interested in any financial or other transaction with the
Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee
or agent for, or act on any committee or body of holders of, securities or other
obligations of the Sponsor or its Affiliates.
ARTICLE XI
ACCOUNTING
SECTION 11.1 FISCAL YEAR.
The fiscal year ("Fiscal Year") of the Trust shall be the calendar
year, or such other year as is required by the Code.
SECTION 11.2 CERTAIN ACCOUNTING MATTERS.
(a) At all times during the existence of the Trust, the
Administrative Trustees shall keep, or cause to be kept, full books of account,
records and supporting documents, which shall reflect in reasonable detail, each
transaction of the Trust. The books of account shall be maintained on the
accrual method of accounting, in accordance with generally accepted accounting
principles, consistently applied. The Trust shall use the accrual method of
accounting for United States federal income tax purposes.
(b) The Administrative Trustees shall cause to be prepared and
delivered to each of the Holders of Securities, within 90 days after the end of
each Fiscal Year of the Trust, unaudited annual financial statements of the
Trust, including a balance sheet of the Trust as of the end of such Fiscal Year,
and the related statements of income or loss for such Fiscal Year prepared in
accordance with generally accepted accounting principles; provided that if the
Trust is required to comply with the periodic reporting requirements of Sections
13(a) or 15(d) of the Exchange Act, such financial statements for such Fiscal
Year shall be examined and reported on by a firm of independent certified public
accountings selected by the Administrative Trustees (which firm may be the firm
used by the Sponsor).
(c) The Administrative Trustees shall cause to be duly prepared and
delivered to each of the Holders of Securities, any annual United States federal
income tax information statement, required by the Code, containing such
information with regard to the Securities held by each Holder as is required and
at such time as is required by the Code and the Treasury Regulations.
(d) The Administrative Trustees shall cause to be duly prepared and
filed with the appropriate taxing authority, an annual United States federal
income tax return, on a Form 1041 or such other form required by United States
federal income tax law, and any other annual income tax returns required to be
filed by the Administrative Trustees on behalf of the Trust with any state or
local taxing authority.
SECTION 11.3 BANKING.
The Trust shall maintain one or more bank accounts in the name and
for the sole benefit of the Trust; provided, however, that all payments of funds
in respect of the Debentures held by the Property Trustee shall be made directly
to the Property Trustee Account and no other funds of the Trust shall be
deposited in the Property Trustee Account. The sole signatories for such
accounts shall be designated by the Administrative Trustees; provided, however,
that the Property Trustee shall designate the signatories for the Property
Trustee Account.
SECTION 11.4 WITHHOLDING.
The Trust and the Administrative Trustees shall comply with all
withholding requirements under United States federal, state and local law. The
Trust shall request, and the Holders shall provide to the Trust, such forms or
certificates as are necessary to establish an exemption from withholding with
respect to each Holder, and any representations and forms as shall reasonably be
requested by the Trust to assist it in determining the extent of, and in
fulfilling, its withholding obligations. The Administrative Trustees shall file
required forms with applicable jurisdictions and, unless an exemption from
withholding is properly established by a Holder, shall remit amounts withheld
with respect to the Holder to applicable jurisdictions. To the extent that the
Trust is required to withhold and pay over any amounts to any authority with
respect to Distributions or allocations to any Holder, the amount withheld shall
be deemed to be a Distribution in the amount of the withholding to the Holder.
In the event of any claimed over-withholding, Holders shall be limited to an
action against the applicable jurisdiction. If the amount required to be
withheld was not withheld from actual Distributions made, the Trust may reduce
subsequent Distributions by the amount of such withholding.
ARTICLE XII
AMENDMENTS AND MEETINGS
SECTION 12.1 AMENDMENTS.
(a) Except as otherwise provided in this Declaration or by any
applicable terms of the Securities, this Declaration may only be amended by a
written instrument approved and executed by:
(i) the Administrative Trustees (or if there are more than two
Administrative Trustees a majority of the Administrative Trustees);
(ii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Property Trustee, the Property Trustee;
and
(iii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Delaware Trustee, the Delaware Trustee.
(b) No amendment shall be made, and any such purported amendment
shall be void and ineffective:
(i) unless, in the case of any proposed amendment, the Property
Trustee shall have first received an Officers' Certificate from each of
the Trust and the Sponsor that such amendment is permitted by, and
conforms to, the terms of this Declaration (including the terms of the
Securities);
(ii) unless, in the case of any proposed amendment which affects the
rights, powers, duties, obligations or immunities of the Property Trustee,
the Property Trustee shall have first received:
(A) an Officers' Certificate from each of the Trust and the
Sponsor that such amendment is permitted by, and conforms to, the
terms of this Declaration (including the terms of the Securities);
and
(B) an Opinion of Counsel (who may be counsel to the Sponsor
or the Trust) that such amendment is permitted by, and conforms to,
the terms of this Declaration (including the terms of the
Securities),
provided, however, that the Property Trustee shall not be required to sign
any such amendment, to the extent the result of such amendment would be
to:
(1) cause the Trust to fail to continue to be classified for
purposes of United States federal income taxation as a grantor
trust;
(2) reduce or otherwise adversely affect the powers of the
Property Trustee in contravention of the Trust Indenture Act; or
(3) cause the Trust to be deemed to be an Investment Company
required to be registered under the Investment Company Act;
(c) At such time after the Trust has issued any Securities that
remain outstanding, any amendment that would adversely affect the rights,
privileges or preferences of any Holder of Securities may be effected only with
such additional requirements as may be set forth in the terms of such
Securities;
(d) Sections 3.14(c) and 9.1(c) and this Section 12.1 shall not be
amended without the consent of all of the Holders of the Securities;
(e) Article IV shall not be amended without the consent of the
Holders of a Majority in Liquidation Amount of the Common Securities, and;
(f) The rights of the Holders of the Common Securities under Article
V to increase or decrease the number of, and appoint and remove Trustees, shall
not be amended without the consent of the Holders of a Majority in Liquidation
Amount of the Common Securities; and
(g) Notwithstanding Section 12.1(c), this Declaration may be amended
by the Property Trustee, the Administrative Trustees and the Sponsor without the
consent of the Holders of the Securities to:
(i) cure any ambiguity, correct or supplement any provision in this
Declaration that may be inconsistent with any other provision of this
Declaration or to make any other provisions with respect to matters or
questions arising under this Declaration which shall not be inconsistent
with the other provisions of the Declaration;
(ii) to modify, eliminate or add to any provisions of this
Declaration to such extent as shall be necessary to ensure that the Trust
will be classified for United States federal income tax purposes as a
grantor trust at all times that any Securities are outstanding or to
ensure that the Trust will not be required to register as an Investment
Company under the Investment Company Act; or
(iii) to qualify or maintain qualification of this Declaration of
Trust under the Trust Indenture Act;
provided, however, that in each case, such action shall not adversely affect in
any material respect the interests of the Holders of the Securities. Any
amendments of this Declaration shall become effective when notice thereof is
sent to the Holders of the Securities.
SECTION 12.2 MEETINGS OF THE HOLDERS OF SECURITIES; ACTION BY WRITTEN
CONSENT.
(a) Meetings of the Holders of any class of Securities may be called
at any time by the Administrative Trustees (or as provided in the terms of the
Securities) to consider and act on any matter on which Holders of such class of
Securities are entitled to act under the terms of this Declaration, the terms of
the Securities or the rules of any stock exchange on which the Capital
Securities are listed or admitted for trading. The Administrative Trustees shall
call a meeting of the Holders of such class if directed to do so by the Holders
of at least 10% in Liquidation Amount of such class of Securities. Such
direction shall be given by delivering to the Administrative Trustees one or
more notices in a writing stating that the signing Holders wish to call a
meeting and indicating the general or specific purpose for which the meeting is
to be called. Any Holders calling a meeting shall specify in writing the
Security Certificates held by the Holders exercising the right to call a meeting
and only those Securities specified shall be counted for purposes of determining
whether the required percentage set forth in the second sentence of this
paragraph has been met.
(b) Except to the extent otherwise provided in the terms of the
Securities, the following provisions shall apply to meetings of Holders:
(i) notice of any such meeting shall be given to all the Holders
having a right to vote thereat at least seven days and not more than 60
days before the date of such meeting. Whenever a vote, consent or approval
of the Holders is permitted or required under this Declaration or the
rules of any stock exchange on which the Capital Securities are listed or
admitted for trading, such vote, consent or approval may be given at a
meeting of the Holders. Any action that may be taken at a meeting of the
Holders may be taken without a meeting if a consent or consents in writing
setting forth the action so taken is signed by the Holders owning not less
than the minimum amount of Securities in Liquidation Amount that would be
necessary to authorize or take such action at a meeting at which all
Holders having a right to vote thereon were present and voting. Prompt
notice of the taking of action without a meeting shall be given to the
Holders entitled to vote who have not consented in writing. The
Administrative Trustees may specify that any written ballot submitted to
the Holder for the purpose of taking any action without a meeting shall be
returned to the Trust within the time specified by the Administrative
Trustees;
(ii) each Holder may authorize any Person to act for it by proxy on
all matters in which a Holder is entitled to participate, including
waiving notice of any meeting, or voting or participating at a meeting. No
proxy shall be valid after the expiration of 11 months from the date
thereof unless otherwise provided in the proxy. Every proxy shall be
revocable at the pleasure of the Holder executing it. Except as otherwise
provided herein, all matters relating to the giving, voting or validity of
proxies shall be governed by the General Corporation Law of the State of
Delaware relating to proxies, and judicial interpretations thereunder, as
if the Trust were a Delaware corporation and the Holders were stockholders
of a Delaware corporation;
(iii) each meeting of the Holders shall be conducted by the
Administrative Trustees or by such other Person that the Administrative
Trustees may designate; and
(iv) unless the Business Trust Act, this Declaration, the terms of
the Securities, the Trust Indenture Act or the listing rules of any stock
exchange on which the Capital Securities are then listed or trading,
otherwise provides, the Administrative Trustees, in their sole discretion,
shall establish all other provisions relating to meetings of Holders,
including notice of the time, place or purpose of any meeting at which any
matter is to be voted on by any Holders, waiver of any such notice, action
by consent without a meeting, the establishment of a record date, quorum
requirements, voting in person or by proxy or any other matter with
respect to the exercise of any such right to vote.
ARTICLE XIII
REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTEE
SECTION 13.1 REPRESENTATIONS AND WARRANTIES OF PROPERTY TRUSTEE.
The Trustee that acts as initial Property Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration, and
each Successor Property Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Property Trustee's acceptance of its
appointment as Property Trustee that:
(a) The Property Trustee is a New York banking corporation with
trust powers and authority to execute and deliver, and to carry out and perform
its obligations under the terms of, this Declaration;
(b) The execution, delivery and performance by the Property Trustee
of the Declaration has been duly authorized by all necessary corporate action on
the part of the Property Trustee. The Declaration 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 Declaration by
the Property Trustee does not conflict with or constitute a breach of the
charter or by-laws of the Property Trustee; and
(d) No consent, approval or authorization of, or registration with
or notice to, any New York or federal banking authority is required for the
execution, delivery and performance by the Property Trustee of this Declaration.
SECTION 13.2 REPRESENTATIONS AND WARRANTIES OF DELAWARE TRUSTEE.
The Trustee that acts as initial Delaware Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration, and
each Successor Delaware Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Delaware Trustee's acceptance of its
appointment as Delaware Trustee that:
(a) The Delaware Trustee is 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, this Declaration;
(b) The execution, delivery and performance by the Delaware Trustee
of this Declaration has been duly authorized by all necessary corporate action
on the part of the Delaware Trustee. This Declaration has been duly executed and
delivered by the Delaware Trustee and 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' rights generally and to
general principles of equity and the discretion of the court (regardless of
whether the enforcement of such remedies is considered in a proceeding in equity
or at law);
(c) The execution, delivery and performance of this Declaration by
the Delaware Trustee does not conflict with or constitute a breach of the
charter or by-laws of the Delaware Trustee;
(d) The Delaware Trustee is 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
(e) No consent, approval or authorization of, or registration with
or notice to, any federal banking authority is required for the execution,
delivery or performance by the Delaware Trustee of this Declaration.
ARTICLE XIV
REGISTRATION RIGHTS
SECTION 14.1 REGISTRATION RIGHTS AGREEMENT; ADDITIONAL INTEREST.
(a) The Holders of the Capital Securities, the Debentures and the
Capital Securities Guarantee (collectively, the "Registrable Securities") are
entitled to the benefits of a Registration Rights Agreement. Pursuant to the
Registration Rights Agreement, the Sponsor and the Trust have agreed for the
benefit of the Holders of Registrable Securities that: (i) they will, at the
Sponsor's cost, within 150 days after February 5, 1998 (the "Issue Date"), file
a registration statement (the "Exchange Registration Statement") relating to an
Exchange Offer pursuant to which each issuer of such respective Registrable
Securities would issue amounts of such Registrable Securities as are accepted in
the Exchange Offer which shall be identical in all respects to those exchanged,
except they will have been registered under the Securities Act and will no
longer be subject to transfer restrictions under the Securities Act or the
$100,000 minimum aggregate principal or liquidation amount transfer restriction
and, if required pursuant to the terms of the Registration Rights Agreement,
file a shelf registration statement (the "Shelf Registration Statement") with
the Commission with respect to resales of the Registrable Securities, (ii) they
will use their best efforts to cause such Exchange Registration Statement and/or
Shelf Registration Statement, as the case requires, to be declared effective by
the Commission within 180 days after the Issue Date and (iii) they will use
their best efforts to maintain the Shelf Registration Statement, if any,
continuously effective under the Securities Act until the second anniversary of
the effectiveness of the Shelf Registration Statement or such earlier date as is
provided in the Registration Rights Agreement (the "Effectiveness Period"). All
references herein to such Registrable Securities shall be deemed to include, as
the context may require, the Registrable Securities into which such Securities
have been exchanged pursuant to the Exchange Registration ("Exchange
Securities") and all reference to numbers or amounts of such Securities shall be
deemed to include, as the context may require, such Exchange Securities.
(b) If (i) (A) neither the Exchange Offer Registration Statement nor
a Shelf Registration Statement is filed with the Commission on or prior to
the 150th day after the Issue Date, or (B) notwithstanding that the
Debenture Issuer and the Trust have consummated or will consummate an
Exchange Offer, the Debenture Issuer and the Trust are required to file a
Shelf Registration Statement and such Shelf Registration Statement is not
filed on or prior to the date required by the Registration Rights
Agreement, then commencing on the day after either such required filing
date, Additional Interest shall accrue on the principal amount of the
Debentures, and additional Distributions shall accumulate on the
Liquidation Amount of the Capital Securities at a rate of 0.25% per annum;
or
(ii) (A) neither the Exchange Offer Registration Statement nor a
Shelf Registration Statement is declared effective by the Commission on or
prior to the 180th day after the Issue Date or (B) notwithstanding that
the Debenture Issuer and the Trust have consummated or will consummate an
Exchange Offer, the Debenture Issuer and the Trust are required to file a
Shelf Registration Statement and such Shelf Registration Statement is not
declared effective by the Commission on or prior to the 180th day after
the Issue Date, then, commencing on the 181st day after the Issue Date,
Additional Interest shall accrue on the principal amount of the
Debentures, and additional Distributions shall accumulate on the
Liquidation Amount of the Capital Securities at a rate of 0.25% per annum;
or
(iii) (A) the Trust has not exchanged Exchange Capital Securities
for all Capital Securities or the Debenture Issuer has not exchanged
Exchange Guarantees or Exchange Subordinated Debentures for all Guarantees
or Subordinated Debentures validly tendered, in accordance with the terms
of the Exchange Offer on or prior to the 30th day after the date on which
the Exchange Offer Registration Statement was declared effective or (B) if
applicable, the Shelf Registration Statement has been declared effective
and such Shelf Registration Statement ceases to be effective at any time
prior to the third anniversary of the Issue Date or such shorter period as
may be referred to in Rule 144(k) under the Securities Act (other than
after such time as all Capital Securities have been disposed of thereunder
or otherwise cease to be Registrable Securities), then Additional Interest
shall accrue on the principal amount of the Debentures, and additional
Distributions shall accumulate on the Liquidation Amount of the Capital
Securities, at a rate of 0.25% per annum commencing on (x) the 31st day
after such effective date, in the case of (A) above, or (y) the day such
Shelf Registration Statement ceases to be effective in the case of (B)
above;
provided, however, that neither the Additional Interest rate on the Debentures,
nor the additional Distributions rate on the Liquidation Amount of the Capital
Securities, may exceed in the aggregate 0.25% per annum; provided, further,
however, that (1) upon the filing of the Exchange Offer Registration Statement
or a Shelf Registration Statement (in the case of Section 14.1(b)(i)), (2) upon
the effectiveness of the Exchange Offer Registration Statement or a Shelf
Registration Statement (in the case of Section 14.1(b)(ii), or (3) upon the
exchange of Exchange Capital Securities, Exchange Guarantees and Exchange
Subordinated Debentures for all Capital Securities, Guarantees and Subordinated
Debentures tendered (in the case of Section 14.1(b)(iii)(A)), or upon the
effectiveness of the Shelf Registration Statement which had ceased to remain
effective (in the case of Section 14.1(b)(iii)(B)), Additional Interest on the
Debentures, and additional Distributions on the Liquidation Amount of the
Capital Securities as a result of this Section 14.1(b) (or the relevant
subclause thereof), as the case may be, shall cease to accumulate.
(g) Any amounts of Additional Interest and additional Distributions
due pursuant to Sections 14.1(b)(i), (ii) or (iii) above will be payable in cash
on April 15 and October 15 of each year to the Holders on the fifteenth day
preceding the relevant Distribution date; provided, however, that the payment of
such amounts may be deferred during any Extension Period.
ARTICLE XV
MISCELLANEOUS
SECTION 15.1 NOTICES.
(a) All notices provided for in this Declaration shall be in
writing, duly signed by the party giving such notice, and shall be delivered,
telecopied or mailed by first class mail, as follows:
(i) if given to the Trust, in care of the Administrative Trustees at
the Trust's mailing address set forth below (or such other address as the
Trust may give notice of to the Holders):
Orion Capital Trust II
9 Farm Springs Road
Farmington, CT 06032
Facsimile No. (860) 674-6890
Attention: Michael P. Maloney, Esq.
Administrative Trustee
(ii) if given to the Delaware Trustee, at the mailing address set
forth below (or such other address as Delaware Trustee may give notice of
to the Holders):
The Bank of New York (Delaware)
101 Barclay Street, Floor 21W
New York, NY 10286
Facsimile No. (212) 815-5915
Attention: Corporate Trust Administration
(iii) if given to the Property Trustee, at the Property Trustee's
mailing address set forth below (or such other address as the Property
Trustee may give notice of to the Holders):
The Bank of New York
101 Barclay Street, Floor 21W
New York, NY 10286
Facsimile No. (212) 815-5915
Attention: Corporate Trust Administration
(iv) if given to the Holder of the Common Securities, at the mailing
address of the Sponsor set forth below (or such other address as the
Holder of the Common Securities may give notice to the Trust):
Orion Capital Corporation
9 Farm Springs Road
Farmington, CT 06032
Facsimile No. (860) 674-6890
Attention: Michael P. Maloney, Esq.
Senior Vice President, General
Counsel and Secretary
(v) if given to any other Holder, at the address set forth on the
books and records of the Trust.
(b) All such notices shall be deemed to have been given when
received in person, telecopied with receipt confirmed, or mailed by first class
mail, postage prepaid except that if a notice or other document is refused
delivery or cannot be delivered because of a changed address of which no notice
was given, such notice or other document shall be deemed to have been delivered
on the date of such refusal or inability to deliver.
SECTION 15.2 GOVERNING LAW.
This Declaration and the rights of the parties hereunder shall be
governed by and interpreted in accordance with the laws of the State of Delaware
and all rights and remedies shall be governed by such laws without regard to
principles of conflict of laws; provided, however, that the provisions of 12
Del. C. ss.ss. 3540 and 3561 shall not apply, and, to the fullest extent
possible, it is the intent of the parties hereto the compensation payable to any
Trustee not be subject to review by any Court whether pursuant to 12 Del. C. ss.
3560 or otherwise.
SECTION 15.3 INTENTION OF THE PARTIES.
It is the intention of the parties hereto that the Trust be
classified for United States federal income tax purposes as a grantor trust. The
provisions of this Declaration shall be interpreted to further this intention of
the parties.
SECTION 15.4 HEADINGS.
Headings contained in this Declaration are inserted for convenience
of reference only and do not affect the interpretation of this Declaration or
any provision hereof.
SECTION 15.5 SUCCESSORS AND ASSIGNS.
Whenever in this Declaration any of the parties hereto is named or
referred to, the successors and assigns of such party shall be deemed to be
included, and all covenants and agreements in this Declaration by the Sponsor
and the Trustees shall bind and inure to the benefit of their respective
successors and assigns, whether so expressed.
SECTION 15.6 PARTIAL ENFORCEABILITY.
If any provision of this Declaration, or the application of such
provision to any Person or circumstance, shall be held invalid, the remainder of
this Declaration, or the application of such provision to Persons or
circumstances other than those to which it is held invalid, shall not be
affected thereby.
SECTION 15.7 COUNTERPARTS.
This Declaration may contain more than one counterpart of the
signature page and this Declaration may be executed by the affixing of the
signature of each of the Trustees to one of such counterpart signature pages.
All of such counterpart signature pages shall be read as though one, and they
shall have the same force and effect as though all of the signers had signed a
single signature page.
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Amended and
Restated Declaration of Trust to be duly executed as of the day and year first
above written.
/s/ Marston Becker
W. Marston Becker, not in his
individual capacity but solely in
his capacity as Administrative
Trustee
/s/ Craig A. Nyman
Craig A. Nyman, not in his
individual capacity but solely in
his capacity as Administrative
Trustee
/s/ Michael P. Maloney
Michael P. Maloney, Esq., not in his
individual capacity but solely in
his capacity as Administrative
Trustee
THE BANK OF NEW YORK (DELAWARE), not in its
individual capacity but solely in its
capacity as Delaware Trustee
By:/s/ Walter N. Gitlin
Name:Walter N. Gitlin
THE BANK OF NEW YORK,
not in its individual capacity but
solely in its capacity as
Property Trustee
By:/s/ Walter N. Gitlin
Name:Walter N. Gitlin
Title:Vice President
ORION CAPITAL CORPORATION,
as Sponsor
By:/s/ Michael P. Maloney
Michael P. Maloney, Esq.
Senior Vice President, General
Counsel and Secretary
<PAGE>
ANNEX I
TERMS OF
7.701% CAPITAL SECURITIES
7.701% COMMON SECURITIES
Pursuant to Section 7.1 of the Amended and Restated Declaration of
Trust, dated as of February 5, 1998 (as amended from time to time, the
"Declaration"), the designation, rights, privileges, restrictions, preferences
and other terms and provisions of the Capital Securities and the Common
Securities (collectively, the "Securities") are set out below and supplement the
other rights and obligations of Holders of Securities contained in the
Declaration (each capitalized term used but not defined herein has the meaning
set forth in the Declaration or, if not defined in such Declaration, as defined
in the Indenture).
1. DESIGNATION AND NUMBER.
(a) CAPITAL SECURITIES. 125,000 Capital Securities of the Trust,
with an aggregate Liquidation Amount (as defined in Section 2 hereof) of one
hundred twenty-five million dollars ($125,000,000), and with a Liquidation
Amount of $1,000 per security, are hereby designated for the purposes of
identification only as "7.701% Capital Securities" (the "Capital Securities").
Upon consummation of the Exchange Offer a second series of the Capital
Securities may be issued which shall be identical in all respects to the series
of Capital Securities issued at the Closing Time except that such Capital
Securities will not be subject to (i) the transfer restrictions under the
Securities Act contained in the series of Capital Securities issued at the
Closing Time (except Private Exchange Securities (as defined in the Registration
Rights Agreement), which may be subject to such restrictions), (ii) the $100,000
minimum Liquidation Amount transfer restriction set forth in Section 9.2(n) of
the Declaration or (iii) any increase in the Distribution rate thereon under the
Registration Rights Agreement. The certificates evidencing the Capital
Securities to be issued at Closing Time shall be substantially in the form of
Exhibit A-1 to the Declaration, with such changes and additions thereto or
deletions therefrom as may be required by ordinary usage, custom or practice or
to conform to the rules of any stock exchange or quotation system on which the
Capital Securities are listed or quoted.
(b) COMMON SECURITIES. 4,000 Common Securities of the Trust with an
aggregate Liquidation Amount with respect to the assets of the Trust of four
million dollars ($4,000,000) and a Liquidation Amount with respect to the assets
of the Trust of $1,000 per security, are hereby designated for the purposes of
identification only as "7.701% Common Securities" (the "Common Securities"). The
certificates evidencing the Common Securities shall be substantially in the form
of Exhibit A-2 to the Declaration, with such changes and additions thereto or
deletions therefrom as may be required by ordinary usage, custom or practice.
2. DISTRIBUTIONS.
(a) Subject to Section 9 hereof, Distributions payable on each
Security will be fixed at a rate per annum of 7.701% (the "Coupon Rate") of the
Liquidation Amount of $1,000 per Security (the "Liquidation Amount"), such rate
being the rate of interest payable on the Debentures to be held by the Property
Trustee. Distributions not due during an Extension Period (including the first
semi-annual period during such period) in arrears for more than one semi-annual
period will bear interest thereon compounded semi-annually at the Coupon Rate
(to the extent permitted by applicable law). The term "Distributions", as used
herein, includes distributions of any such interest unless otherwise stated. A
Distribution is payable only to the extent that payments are made in respect of
the Debentures held by the Property Trustee and to the extent the Property
Trustee has funds on hand legally available therefor.
(b) Subject to Section 9 hereof, Distributions on the Securities
will be cumulative, will accumulate from the most recent date to which
Distributions have been paid or, if no Distributions have been paid, from
February 5, 1998, and will be payable semi-annually in arrears on April 15 and
October 15 of each year, commencing on April 15, 1998, except as otherwise
described below. The amount of Distributions payable for any period will be
computed on the basis of a 360-day year consisting of twelve 30-day months and,
for any period less than 6 months, the actual months elapsed and the actual days
elapsed in a partial month in such period. If any date on which Distributions
are payable on the Securities is not a Business Day, then payment of the
Distribution payable on such date shall be made on the next succeeding day that
is a Business Day (and without any interest or other payment in respect of any
such delay), with the same force and effect as if made on such date (each date
on which Distributions are payable in accordance with the foregoing, a
"Distribution Date"). So long as no Event of Default has occurred and is
continuing under the Indenture, the Debenture Issuer has the right under the
Indenture to defer payments of interest by extending the interest payment period
at any time and from time to time on the Debentures for a period not exceeding
10 consecutive semi-annual periods, including the first semi-annual period
during such period (each an "Extension Period"), provided that no Extension
Period shall extend beyond the Stated Maturity of the Debentures. Upon any such
election, Distributions will be deferred during such Extension Period.
Notwithstanding such deferral, Distributions to which Holders of Securities are
entitled shall continue to accumulate additional Distributions thereon (to the
extent permitted by applicable law but not at a rate greater than the rate at
which interest is then accruing on the Debentures) at the Coupon Rate compounded
semi-annually from the relevant Distribution Dates during any such Extension
Period. Prior to the expiration of any Extension Period, the Debenture Issuer
may further defer payments of interest by further extending such Extension
Period; provided that such Extension Period, together with all such previous and
further extensions within such Extension Period, may not exceed 10 consecutive
semi-annual periods, including the first semi-annual period during such
Extension Period, or extend beyond the Stated Maturity of the Debentures. Upon
the expiration of any Extension Period and the payment of all amounts then due,
the Debenture Issuer may commence a new Extension Period, subject to the above
requirements.
(c) Subject to Section 9 hereof, Distributions on the Securities
will be payable to the Holders thereof as they appear on the books and records
of the Trust on the fifteenth day preceding the relevant Distribution Date.
Subject to any applicable laws and regulations and the provisions of the
Declaration, each such payment in respect of the Capital Securities will be made
as follows: (i) if the Capital Securities are held in global form by a Clearing
Agency (or its nominee), in accordance with the procedures of the Clearing
Agency; and (ii) if the Capital Securities are held in definitive form, by check
mailed to the address of the Holder thereof as reflected in the records of the
Registrar unless otherwise agreed by the Trust. The relevant record dates for
the Common Securities shall be the same as the record dates for the Capital
Securities. Distributions payable on any Securities that are not punctually paid
on any Distribution Date will cease to be payable to the Holder on the relevant
record date, and such defaulted Distribution will instead be payable to the
Person in whose name such Securities are registered on the special record date
or other specified date applicable to the Debentures determined in accordance
with the Indenture, MUTATIS MUTANDIS.
(d) In the event that there is any money or other property held by
or for the Trust that is not accounted for hereunder, such property shall be
distributed on a PRO RATA basis as set forth Section 8 hereof among the Holders
of the Securities, except as otherwise required by Section 9 hereof.
3. LIQUIDATION DISTRIBUTION UPON DISSOLUTION.
In the event of any dissolution or termination of the Trust, or the
Sponsor otherwise gives notice of its election to liquidate the Trust pursuant
to Section 8.1(a)(iii) of the Declaration, the Trust shall be liquidated by the
Administrative Trustees as expeditiously as the Administrative Trustees
determine to be possible by distributing, after satisfaction of liabilities to
creditors of the Trust as provided by applicable law, and subject to Section 9
hereof, to the Holders of the Securities a Like Amount (as defined below) of the
Debentures, unless such distribution is determined by the Property Trustee not
to be practicable, in which event such Holders will be entitled to receive out
of the assets of the Trust legally available for distribution to Holders, after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law, an amount equal to the aggregate of the Liquidation Amount of $1,000 per
Security plus accumulated and unpaid Distributions thereon to the date of
payment (such amount being the "Liquidation Distribution").
"Like Amount" means (i) with respect to a redemption of the
Securities, Securities having a Liquidation Amount equal to the principal amount
of Debentures to be paid in accordance with their terms and (ii) with respect to
a distribution of Debentures upon the liquidation of the Trust, Debentures
having a principal amount equal to the Liquidation Amount of the Securities of
the Holder to whom such Debentures are distributed.
If, upon any such liquidation, the Liquidation Distribution can be
paid only in part because the Trust has insufficient assets on hand legally
available to pay in full the aggregate Liquidation Distribution, then the
amounts payable directly by the Trust on the Securities shall be paid on a PRO
RATA basis as set forth in Section 8 hereof among the Holders of the Securities,
except as otherwise required by Section 9 hereof.
4. REDEMPTION AND DISTRIBUTION.
(a) Upon the repayment of the Debentures on the Stated Maturity
thereof or prepayment thereof (in whole or in part) prior thereto in accordance
with the terms thereof, the proceeds from such repayment or prepayment shall be
simultaneously applied by the Property Trustee (subject to the Property Trustee
having received not less than 45 days written notice to the repayment date or
prepayment date) to redeem a Like Amount of the Securities at a redemption price
equal to (i) in the case of the repayment of the Debentures on the Stated
Maturity, the Maturity Redemption Price (as defined below), (ii) in the case of
the optional prepayment of the Debentures upon the occurrence and continuation
of a Special Event, the Special Event Redemption Price (as defined below) and
(iii) in the case of the optional prepayment of the Debentures other than as a
result of the occurrence and continuance of a Special Event, the Optional
Redemption Price (as defined below). The Maturity Redemption Price, the Special
Event Redemption Price and the Optional Redemption Price are referred to
collectively as the "Redemption Price".
(b) (i) The "Maturity Redemption Price", with respect to a
redemption of Securities, shall mean an amount equal to the principal of and
accrued interest on the Debentures as of the Stated Maturity thereof.
(ii) "Optional Redemption Price" shall mean the greater of (i) 100%
of the Liquidation Amount of Securities to be redeemed or (ii) the sum, as
determined by a Quotation Agent, of the present values of the remaining
scheduled payments of principal and interest on the Debentures to be prepaid
discounted to the redemption date on a semi-annual basis (assuming a 360-day
year consisting of twelve 30-day months) at the Adjusted Treasury Rate, plus, in
either case, accrued and unpaid distributions thereon to the date of redemption.
(iii) "Special Event Redemption Price" shall mean a price equal to
the greater of (i) 100% of the Liquidation Amount of Securities to be redeemed
or (ii) the sum, as determined by a Quotation Agent, of the present values of
the remaining scheduled payments of principal and interest on the Debentures,
discounted to the prepayment date on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months and, for any period less than 6 months, the
actual months elapsed and the actual days elapsed in a partial month in such
period) at the Special Event Adjusted Treasury Rate, plus, in each case,
accumulated and unpaid Distributions thereon, if any, to the date of such
prepayment.
(c) On and from the date fixed by the Administrative Trustees for
any distribution of Debentures and liquidation of the Trust and subject to
Section 9 hereof: (i) the Securities will no longer be deemed to be outstanding,
(ii) each Holder of Securities will receive a registered certificate or
certificates representing the Debentures to be delivered upon such distribution
and (iii) Securities will be deemed to represent beneficial interests in a Like
Amount of Debentures, and bearing accrued and unpaid interest in an amount equal
to the accumulated and unpaid Distributions on such Securities, until such
Securities are presented to the Administrative Trustee or their agent for
cancellation and such Debentures are transferred to the Holders of such
Securities.
(d) The Trust may not redeem fewer than all the outstanding
Securities unless all accumulated and unpaid Distributions have been paid on all
Securities for all semi-annual Distribution periods that expire on or before the
date of redemption.
(e) The procedure with respect to redemptions or distributions of
Debentures shall be as follows:
(i) Notice of any redemption of, or notice of distribution of
Debentures in exchange for, the Securities (a "Redemption/Distribution Notice")
will be given by the Trust by mail to each Holder of Securities to be redeemed
or exchanged not fewer than 30 nor more than 60 days before the date fixed for
redemption or exchange thereof which, in the case of a redemption, will be the
date fixed for repayment or prepayment of the Debentures. For purposes of the
calculation of the date of redemption or exchange and the dates on which notices
are given pursuant to this Section 4(e)(i), a Redemption/Distribution Notice
shall be deemed to be given on the day such notice is first mailed by
first-class mail, postage prepaid, to Holders of Securities. Each
Redemption/Distribution Notice shall be addressed to the Holders of Securities
at the address of each such Holder appearing in the books and records of the
Trust. No defect in the Redemption/Distribution Notice or in the mailing of
either thereof with respect to any Holder shall affect the validity of the
redemption or exchange proceedings with respect to any other Holder.
(ii) In the event that fewer than all the outstanding Securities are
to be redeemed, the Securities to be redeemed shall be allocated on a PRO RATA
basis as set forth in Section 8 hereof among the Holders of Securities, except
as otherwise required by Section 9 hereof, it being understood that, in respect
of Capital Securities registered in the name of and held of record by a Clearing
Agency or its nominee, the distribution of the proceeds of such redemption will
be made to the Clearing Agency and disbursed by such Clearing Agency in
accordance with the procedures applied by such agency or nominee.
(iii) If Securities are to be redeemed and the Trust gives a
Redemption/ Distribution Notice, such notice shall be irrevocable and (A) with
respect to Capital Securities registered in the name of or held of record by a
Clearing Agency or its nominee, by 12:00 noon, New York City time, on the
redemption date, provided that the Debenture Issuer has paid the Property
Trustee a sufficient amount of cash in connection with the related maturity or
prepayment of the Debentures by 10:00 a.m., New York City time, on the Stated
Maturity of the Debentures or the date of prepayment, as the case may be, the
Property Trustee or the Paying Agent will pay to the Clearing Agency or its
nominee funds sufficient to pay the applicable Redemption Price with respect to
such Capital Securities, and (B) with respect to Capital Securities issued in
certificated form and Common Securities, provided that the Debenture Issuer has
paid the Property Trustee a sufficient amount of cash in connection with the
related maturity or prepayment of the Debentures, the Property Trustee or the
Paying Agent will pay the relevant Redemption Price to the Holders of such
Securities against presentation to the Registrar of the certificates therefor.
If a Redemption/Distribution Notice shall have been given and funds deposited
with the Property Trustee to pay the Redemption Price (including all unpaid
Distributions) with respect to the Securities called for redemption, then
immediately prior to the close of business on the redemption date, Distributions
will cease to accumulate on the Securities so called for redemption and all
rights of Holders of such Securities so called for redemption will cease, except
the right of the Holders of such Securities to receive the Redemption Price, but
without interest on such Redemption Price, and such Securities shall cease to be
outstanding.
(iv) Payment of accumulated and unpaid Distributions on the
redemption date of any Securities will be subject to the rights of Holders of
such Securities on the close of business on a regular record date in respect of
a Distribution Date occurring on or prior to such Redemption Date.
(v) Neither the Administrative Trustees nor the Trust shall be
required to register or cause to be registered the transfer of (A) any
Securities beginning on the opening of business 15 days before the day of
mailing of a Redemption/Distribution Notice or (B) any Securities selected for
redemption (except the unredeemed portion of any Security being redeemed). If
any date fixed for redemption of Securities is not a Business Day, then payment
of the Redemption Price payable on such date will be made on the next succeeding
day that is a Business Day (and without any interest or other payment in respect
of any such delay), with the same force and effect as if made on such date fixed
for redemption. If payment of the Redemption Price in respect of any Securities
is improperly withheld or refused and not paid either by the Property Trustee or
the Paying Agent or by the Sponsor as guarantor pursuant to the relevant
Securities Guarantee, or the date fixed for redemption, Distributions on such
Securities will continue to accumulate from such redemption date to the actual
date of payment, in which case the actual payment date will be considered the
date fixed for redemption for purposes of calculating the Redemption Price.
(vi) Subject to the foregoing and applicable law (including, without
limitation, United States federal securities laws), the Sponsor or any of its
Affiliates may at any time and from time to time purchase outstanding Capital
Securities by tender, in the open market or by private agreement.
5. VOTING RIGHTS - CAPITAL SECURITIES.
(a) Except as provided under Sections 5(b) and 7 hereof and as
otherwise required by law and the Declaration, the Holders of the Capital
Securities will have no voting rights.
(b) So long as any Debentures are held by the Property Trustee for
the benefit of the Holders of the Trust Securities, the Trustees shall not (i)
direct the time, method and place of conducting any proceeding for any remedy
available to the Debenture Trustee, or executing any trust or power conferred on
such Debenture Trustee with respect to the Debentures, (ii) waive any past
default that is waivable under Section 5.07 of the Indenture, (iii) exercise any
right to rescind or annul a declaration of acceleration of the maturity of the
principal of the Debentures or (iv) consent to any amendment, modification or
termination of the Indenture or the Debentures, where such consent shall be
required, without, in each case, obtaining the prior approval of the Holders of
a majority in Liquidation Amount of all outstanding Capital Securities;
provided, however, that where a consent under the Indenture would require the
consent of each holder of Debentures affected thereby, no such consent shall be
given by the Property Trustee without the prior approval of each Holder of the
Capital Securities. The Trustees shall not revoke any action previously
authorized or approved by a vote of the Holders of the Capital Securities except
by subsequent vote of such Holders. The Property Trustee shall notify each
Holder of Capital Securities of any notice of default with respect to the
Debentures. In addition to obtaining the foregoing approvals of such Holders of
the Capital Securities, prior to taking any of the foregoing actions, the
Trustees shall obtain an Opinion of Counsel experienced in such matters to the
effect there is no more than an insubstantial risk that the Trust would not be
classified for United States federal income tax purposes as a trust subject to
the provisions of Sections 671 through 679 of the Code (a "grantor trust") on
account of such action. The foregoing provisions of this Section 5(b) shall be
in lieu of ss.ss. 316(a)(1)(A) and (B) of the Trust Indenture Act, and such
ss.ss. 316(a)(1)(A) and (B) are hereby expressly excluded from this Trust
Agreement.
(c) If an Event of Default under the Declaration has occurred and is
continuing and such event is attributable to the failure of the Debenture Issuer
to pay principal of or premium, if any, or interest on the Debentures on any due
date (including any Interest Payment Date or prepayment date or Stated Maturity
of the Debenture), then a Holder of Capital Securities may directly institute a
proceeding for enforcement of payment to such Holder of the principal of or
premium, if any, or interest on a Like Amount of Debentures (a "Direct Action")
on or after the respective due date specified in the Debentures. In connection
with such Direct Action, the rights of the Common Securities Holders will be
subrogated to the rights of the Holder of Capital Securities to the extent of
any payment made by the Debenture Issuer to the Holders of Capital Securities in
such Direct Action. Except as provided in the second preceding sentence, the
Holders of Capital Securities will not be able to exercise directly any other
remedy available to the holders of the Debentures.
(d) Any required approval of Holders of Capital Securities may be
given at a separate meeting of Holders of Capital Securities convened for such
purpose, at a meeting of all of the Holders of Securities in the Trust or
pursuant to written consent. The Administrative Trustees will cause a notice of
any meeting at which Holders of Capital Securities are entitled to vote, or of
any matter upon which action by written consent of such Holders is to be taken,
to be mailed to each Holder of record of Capital Securities. Each such notice
will include a statement setting forth (i) the date of such meeting or the date
by which such action is to be taken, (ii) a description of any resolution
proposed for adoption at such meeting on which such Holders are entitled to vote
or of such matter upon which written consent is sought and (iii) instructions
for the delivery of proxies or consent.
(e) No vote or consent of the Holders of the Capital Securities will
be required for the Trust to redeem and cancel Capital Securities or to
distribute the Debentures in accordance with the Declaration and the terms of
the Securities.
(f) Notwithstanding that Holders of Capital Securities are entitled
to vote or consent under any of the circumstances described above, any of the
Capital Securities that are owned by the Sponsor or any Affiliate of the Sponsor
shall not be entitled to vote or consent and shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
(g) If a Debenture Event of Default has occurred and is continuing,
the Property Trustee and the Delaware Trustee may be removed at such time by the
holders of a Majority in Liquidation Amount of the outstanding Capital
Securities. In no event will the holders of the Capital Securities have the
right to vote to appoint, remove or replace the Administrative Trustees, which
voting rights are vested exclusively in the Sponsor as the holder of all the
Common Securities. No resignation or removal of a 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 Declaration.
6. VOTING RIGHTS - COMMON SECURITIES.
(a) Except as provided under Sections 6(b), 6(c), and 7 and as
otherwise required by law and the Declaration, the Holders of the Common
Securities will have no voting rights.
(b) Unless a Debenture Event of Default shall have occurred and be
continuing, any Trustee may be removed at any time by the Holder of the Common
Securities. No resignation or removal of a 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 Declaration.
(c) So long as any Debentures are held by the Property Trustee for
the benefit of the Holders of the Trust Securities, the Trustees shall not (i)
direct the time, method and place of conducting any proceeding for any remedy
available to the Debenture Trustee, or execute any trust or power conferred on
such Debenture Trustee with respect to the Debentures, (ii) waive any past
default that is waivable under Section 5.07 of the Indenture, (iii) exercise any
right to rescind or annul a declaration of acceleration of the maturity of the
principal of the Debentures or (iv) consent to any amendment, modification or
termination of the Indenture or the Debentures, where such consent shall be
required, without, in each case, obtaining the prior approval of the Holders of
a majority in Liquidation Amount of all outstanding Common Securities; provided,
however, that where a consent under the Indenture would require the consent of
each holder of Debentures affected thereby, no such consent shall be given by
the Property Trustee without the prior approval of each Holder of the Common
Securities. The Trustees shall not revoke any action previously authorized or
approved by a vote of the Holders of the Common Securities except by subsequent
vote of such Holders. The Property Trustee shall notify each Holder of Common
Securities of any notice of default with respect to the Debentures. In addition
to obtaining the foregoing approvals of such Holders of the Common Securities,
prior to taking any of the foregoing actions, the Trustees shall obtain an
Opinion of Counsel experienced in such matters to the effect there is no more
than an insubstantial risk that the Trust would not be classified for United
States federal income tax purposes as a trust subject to the provisions of
Sections 671 through 679 of the Code (a "grantor trust") on account of such
action. The foregoing provisions of this Section 6(c) shall be in lieu of ss.ss.
316(a)(1)(A) and (B) of the Trust Indenture Act, and such ss.ss. 316(a)(1)(A)
and (B) are hereby expressly excluded from this Trust Agreement.
(d) If an Event of Default under the Declaration has occurred and is
continuing and such event is attributable to the failure of the Debenture Issuer
to pay principal of or premium, if any, or interest on the Debentures on the due
date (including any Interest Payment Date or prepayment date or Stated Maturity
of the Debenture), then a Holder of Common Securities may institute a Direct
Action for enforcement of payment to such Holder of the principal of or premium,
if any, or interest on a Like Amount of Debentures on or after the respective
due date specified in the Debentures. In connection with such Direct Action, the
rights of the Common Securities Holders will be subrogated to the rights of the
Holders of Capital Securities to the extent of any payment made by the Debenture
Issuer to Holders of Common Securities in such Direct Action. Except as provided
in the second preceding sentence, the Holders of Common Securities will not be
able to exercise directly any other remedy available to the holders of the
Debentures.
(e) Any required approval of Holders of Common Securities may be
given at a separate meeting of Holders of Common Securities convened for such
purpose, at a meeting of all of the Holders of Securities in the Trust or
pursuant to written consent. The Administrative Trustees will cause a notice of
any meeting at which Holders of Common Securities are entitled to vote, or of
any matter upon which action by written consent of such Holders is to be taken,
to be mailed to each Holder of record of Common Securities. Each such notice
will include a statement setting forth (i) the date of such meeting or the date
by which such action is to be taken, (ii) a description of any resolution
proposed for adoption at such meeting on which such Holders are entitled to vote
or of such matter upon which written consent is sought and (iii) instructions
for the delivery of proxies or consents.
(f) No vote or consent of the Holders of the Common Securities will
be required for the Trust to redeem and cancel Common Securities or to
distribute the Debentures in accordance with the Declaration and the terms of
the Securities.
7. AMENDMENTS TO DECLARATION AND INDENTURE.
In addition to the requirements set out in Section 12.1 of the
Declaration, the Declaration may be amended from time to time by the Sponsor as
the holder of all of the outstanding Common Securities, the Property Trustee and
the Administrative Trustees, without the consent of the Holders of the
Securities (i) to cure any ambiguity, correct or supplement any provisions in
the Declaration that may be inconsistent with any other provisions, or to make
any other provisions with respect to matters or questions arising under the
Declaration which shall not be inconsistent with the other provisions of the
Declaration, (ii) to modify, eliminate or add to any provisions of the
Declaration to such extent as shall be necessary to ensure that the Trust will
be classified for United States federal income tax purposes as a grantor trust
at all times that any Securities are outstanding or to ensure that the Trust
will not be required to register as an Investment Company under the Investment
Company Act, or (iii) to qualify or maintain qualification of the Declaration
under the Trust Indenture Act; provided, however, that in each case, such action
shall not adversely affect in any material respect the interests of any Holder
of Securities. Any amendments of the Declaration pursuant to the foregoing shall
become effective when notice thereof is sent to the Holders of the Securities.
The Declaration also may be amended by the Trustees and the Sponsor as the
holder of all the outstanding Common Securities (i) with the consent of Holders
representing a majority in Liquidation Amount of all outstanding Securities and
(ii) upon receipt by the Trustees of an Opinion of Counsel to the effect that
such amendment or the exercise of any power granted to the Trustees in
accordance with such amendment will not affect the Trust's status as a grantor
trust for United States federal income tax purposes or the Trust's exemption
from status as an Investment Company under the Investment Company Act; provided
that, without the consent of each Holder of Securities, the Declaration may not
be amended to (i) change the amount or timing of any Distribution on the
Securities or otherwise adversely affect the amount of any Distribution required
to be made in respect of the Securities as of a specified date or (ii) restrict
the right of a Holder of Securities to institute suit for the enforcement of any
such payment on or after such date.
8. PRO RATA.
A reference in these terms of the Securities to any payment,
distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder
of Securities according to the aggregate Liquidation Amount of the Securities
held by the relevant Holder in relation to the aggregate Liquidation Amount of
all Securities outstanding unless, in relation to a payment, an Event of Default
under the Declaration has occurred and is continuing, in which case any funds
available to make such payment shall be paid first to each Holder of the Capital
Securities pro rata according to the aggregate Liquidation Amount of Capital
Securities held by the relevant Holder relative to the aggregate Liquidation
Amount of all Capital Securities outstanding, and only after satisfaction of all
amounts owed to the Holders of the Capital Securities, to each Holder of Common
Securities pro rata according to the aggregate Liquidation Amount of Common
Securities held by the relevant Holder relative to the aggregate Liquidation
Amount of all Common Securities outstanding.
9. RANKING.
The Capital Securities rank pari passu with the Common Securities
and payment thereon shall be made Pro Rata with the Common Securities, except
that, if an Event of Default under the Declaration occurs and is continuing, no
payments in respect of Distributions on, or payments upon liquidation,
redemption or otherwise with respect to, the Common Securities shall be made
until the Holders of the Capital Securities shall be paid in full the
Distributions, Redemption Price, Liquidation Distribution and other payments to
which they are entitled at such time.
10. ACCEPTANCE OF SECURITIES GUARANTEE AND INDENTURE.
Each Holder of Capital Securities and Common Securities, by the
acceptance thereof, agrees to the provisions of the Capital Securities Guarantee
and the Common Securities Guarantee, respectively, including the subordination
provisions therein and to the provisions of the Indenture.
11. NO PREEMPTIVE RIGHTS.
The Holders of the Securities shall have no preemptive rights to
subscribe for any additional securities.
12. ADDITIONAL INTEREST.
If the Debenture Issuer fails to comply with its obligations under
the Registration Rights Agreement or if the Exchange Offer Registration
Statement (as defined in the Registration Rights Agreement) or the Shelf
Registration Statement (as defined in the Registration Rights Agreement) fails
to become effective, then Additional Interest shall accrue on the principal
amount of the Debentures, and additional Distributions shall accumulate on the
Liquidation Amount of the Trust Securities, each at a rate of 0.25% per annum as
more fully set forth in Article XIV of the Declaration.
13. MISCELLANEOUS.
These terms constitute a part of the Declaration.
The Sponsor will provide a copy of the Declaration, the Capital
Securities Guarantee or the Common Securities Guarantee (as may be appropriate),
and the Indenture (including any supplemental indenture) to a Holder without
charge on written request to the Sponsor at its principal place of business.
<PAGE>
EXHIBIT A-1
FORM OF CAPITAL SECURITY CERTIFICATE
[FORM OF FACE OF SECURITY]
[IF THIS GLOBAL SECURITY IS A GLOBAL CAPITAL SECURITY, INSERT: THIS
CAPITAL SECURITY IS A GLOBAL CAPITAL SECURITY WITHIN THE MEANING OF THE
DECLARATION HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE
DEPOSITORY TRUST COMPANY (THE "CLEARING AGENCY") OR A NOMINEE OF THE CLEARING
AGENCY. THIS CAPITAL SECURITY IS EXCHANGEABLE FOR CAPITAL SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE CLEARING AGENCY OR ITS NOMINEE ONLY IN
THE LIMITED CIRCUMSTANCES DESCRIBED IN THE DECLARATION AND NO TRANSFER OF THIS
CAPITAL SECURITY (OTHER THAN A TRANSFER OF THIS CAPITAL SECURITY AS A WHOLE BY
THE CLEARING AGENCY TO A NOMINEE OF THE CLEARING AGENCY OR BY A NOMINEE OF THE
CLEARING AGENCY TO THE CLEARING AGENCY OR ANOTHER NOMINEE OF THE CLEARING
AGENCY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.]
[IF THIS GLOBAL SECURITY IS A RULE 144A GLOBAL SECURITY, INSERT:
UNLESS THIS CAPITAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE TRUST OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CAPITAL
SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND
ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
THIS CAPITAL SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS OR
ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS CAPITAL SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF AGREES
NOT TO OFFER, SELL OR OTHERWISE TRANSFER THIS CAPITAL SECURITY, PRIOR TO THE
DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE
LATER OF THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE
COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS CAPITAL SECURITY
(OR ANY PREDECESSOR OF THIS CAPITAL SECURITY) EXCEPT (A) TO THE COMPANY, (B)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) SO LONG AS THIS CAPITAL SECURITY IS ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING
OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT
THAT IS ACQUIRING THIS CAPITAL SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT
OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN
VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT
TO THE RIGHT OF THE TRUST AND THE COMPANY PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER (i) PURSUANT TO CLAUSE (D), (E) OR (F), TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM, AND (ii) PURSUANT TO CLAUSE (E), TO REQUIRE THAT THE TRANSFEROR DELIVER
TO THE TRUST A LETTER FROM THE TRANSFEREE SUBSTANTIALLY IN THE FORM OF ANNEX A
TO THE OFFERING MEMORANDUM OF THE TRUST DATED FEBRUARY 2, 1998. SUCH HOLDER
FURTHER AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS CAPITAL SECURITY
IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF ALSO
AGREES, REPRESENTS AND WARRANTS THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT
PLAN SUBJECT TO THE EMPLOYMENT RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED ("ERISA"), OR (ii) THE ACQUISITION AND HOLDINGS OF THIS CAPITAL SECURITY
BY IT IS NOT PROHIBITED BY EITHER SECTION 406 OF ERISA OR SECTION 4975 OF THE
U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR EXEMPT FROM ANY SUCH
PROHIBITION.
[IF THIS GLOBAL SECURITY IS A REGULATION S GLOBAL SECURITY,
INSERT: THIS CAPITAL SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS UNLESS REGISTERED UNDER THE SECURITIES
ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
IS AVAILABLE.]
<PAGE>
Certificate No. _______ CUSIP NO.
Certificate Evidencing Capital Securities
of
ORION CAPITAL TRUST II
7.701% Capital Securities
(Liquidation Amount $1,000 per Capital Security)
ORION CAPITAL TRUST II, a statutory business trust formed under the
laws of the State of Delaware (the "Trust"), hereby certifies that ___________
(the "Holder") is the registered owner of __________________ capital securities
of the Trust representing undivided beneficial interests in the assets of the
Trust designated the 7.701% Capital Securities (Liquidation Amount $1,000 per
Capital Security) (the "Capital Securities"). The Capital Securities are
transferable on the books and records of the Trust, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed, in proper
form for transfer and otherwise complying with the terms and conditions of the
Declaration (as hereinafter defined). The designation, rights, privileges,
restrictions, preferences and other terms and provisions of the Capital
Securities represented hereby are set forth herein, on the reverse hereof and in
the provisions of the Amended and Restated Declaration of Trust of the Trust
dated as of February 5, 1998, as the same may be amended from time to time (the
"Declaration"), and shall in all respects be subject to the provisions thereof,
including the designation of the terms of the Capital Securities as set forth in
Annex I to the Declaration. Each capitalized term used but not defined herein or
in any legend form or certificate hereon shall have the meaning given it in the
Declaration. The Sponsor will provide a copy of the Declaration, without charge
upon written request to the Trust at its principal place of business.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder and to the benefits of
the Capital Securities Guarantee to the extent provided therein.
By its acceptance hereof, the Holder agrees to treat, for United
States federal income tax purposes, the Debentures as indebtedness and the
Capital Securities as evidence of indirect beneficial ownership in the
Debentures.
IN WITNESS WHEREOF, the Trust has executed this certificate this 5th
day of February, 1998.
ORION CAPITAL TRUST II
By: _________________________
Michael P. Maloney, Esq.
Administrative Trustee
<PAGE>
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Capital Securities referred to in the
within-mentioned Declaration.
Dated: February 5, 1998.
THE BANK OF NEW YORK
as Property Trustee
By: _________________________________
Name:
Title:
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Capital Security will be fixed at a
rate per annum of 7.701% (the "Coupon Rate") of the Liquidation Amount of $1,000
per Capital Security, such rate being the rate of interest payable on the
Debentures to be held by the Property Trustee. Distributions not due during an
Extension Period (including the first semi-annual period during such period) in
arrears for more than one semi-annual period will bear interest thereon
compounded semi-annually at the Coupon Rate (to the extent permitted by
applicable law). The term "Distributions", as used herein, includes such cash
distributions and any such interest payable unless otherwise stated. A
Distribution is payable only to the extent that payments are made in respect of
the Debentures held by the Property Trustee and to the extent the Property
Trustee has funds on hand legally available therefor.
Distributions on the Capital Securities will be cumulative, will
accumulate from the most recent date to which Distributions have been paid or,
if no Distributions have been paid, from February 5, 1998 and will be payable
semi-annually in arrears on April 15 and October 15, of each year, commencing on
April 15, 1998, except as otherwise described below and in the Declaration.
Distributions will be computed on the basis of a 360-day year consisting of
twelve 30-day months and, for any period less than 6 months, the actual months
elapsed and the actual days elapsed in a partial month in such period.
As long as no Event of Default has occurred and is continuing, the
Debenture Issuer has the right under the Indenture, at any time and from time to
time during the term of the Debentures, to defer payments of interest by
extending the interest payment period on the Debentures for a period not
exceeding 10 consecutive semi-annual periods, including the first such
semi-annual period during such extension period (an "Extension Period"), during
which Extension Period no interest shall be due and payable, provided that no
Extension Period shall extend beyond the Stated Maturity of the Debentures. Upon
any such election, semi-annual Distributions on the Capital Securities will be
deferred by the Trust during the term of the Extension Period. Distributions
will continue to accumulate interest thereon (to the extent permitted by
applicable law, but not exceeding the rate of interest then accruing on the
Debentures) at the Coupon Rate compounded semi-annually during any such
Extension Period. Before the termination of any such Extension Period, the
Debenture Issuer may further extend such Extension Period, provided that such
Extension Period, together with all such previous and further extensions within
such Extension Period, may not exceed 10 consecutive semi-annual periods or
extend beyond the Stated Maturity of the Debentures. Payments of Distributions
that have accumulated during any Extension Period will be payable to Holders as
they appear on the books and records of the Trust on the record date for the
first scheduled Distribution payment date following the expiration of such
Extension Period. Upon the expiration of any Extension Period and the payment of
all accrued and unpaid interest and any additional amounts then due, the
Debenture Issuer may commence a new Extension Period, subject to the above
requirements.
The Administrative Trustees shall, at the direction of the Sponsor,
at any time dissolve the Trust and cause the Debentures to be distributed to the
holders of the Securities in liquidation of the Trust or, simultaneously with
any redemption of the Debentures, cause a Like Amount of the Securities to be
redeemed by the Trust.
The Capital Securities shall be redeemable as provided in the
Declaration.
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this
Capital Security Certificate to:
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
agent to transfer this Capital Security Certificate on the books of the
Trust. The agent may substitute another to act for him or her.
Date:___________________
Signature:__________________________________ (Sign exactly as your name appears
on the other side of this Capital Security Certificate)
Signature Guarantee:------------------------
- ------------------------
* Signature must be guaranteed by an "eligible guarantor institution" that is a
bank, stockbroker, savings and loan association or credit union meeting the
requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities and Exchange Act of 1934, as amended.
[Include the following if the Capital Security bears a Restricted Capital
Securities Legend]
In connection with any transfer of any of the Capital Securities evidenced by
this certificate, the undersigned confirms that such Capital Securities are
being:
CHECK ONE BOX BELOW
(1) __ exchanged for the undersigned's own account without
transfer; or
(2) __ transferred pursuant to and in compliance with Rule
144A under the Securities Act of 1933; or
(3) __ transferred pursuant to and in compliance with
Regulation S under the Securities Act of 1933; or
(4) __ transferred to an institutional "accredited investor"
within the meaning of subparagraph (a)(1), (2), (3) or
(7) of Rule 501 under the Securities Act of 1933 that is
acquiring the Capital Securities for its own account, or
for the account of such an institutional "accredited
investor," for investment purposes and not with a view
to, or for offer or sale in connection with, any
distribution in violation of the Securities Act of 1933;
or
(5) __ transferred pursuant to another available exemption
from the registration requirements of the Securities
Act of 1933; or
(6) __ transferred pursuant to an effective registration
statement.
Unless one of the boxes is checked, the Registrar will refuse to register any of
the Capital Securities evidenced by this certificate in the name of any person
other than the registered Holder thereof; provided, however, that if box (3),
(4) or (5) is checked, the Registrar may require, prior to registering any such
transfer of the Capital Securities such legal opinions, certifications and other
information as the Trust has reasonably requested to confirm that such transfer
is being made pursuant to an exemption from, or in a transaction not subject to,
the registration requirements of the Securities Act of 1933, such as the
exemption provided by Rule 144 under such Act; provided, further, that (i) if
box 2 is checked, the transferee must also certify that it is a qualified
institutional buyer as defined in Rule 144A or (ii) if box (4) is checked, the
transferee must also provide to the Registrar a Transferee Letter of
Representation in the form attached as Annex A to the Offering Memorandum of the
Trust dated February 2, 1998.
Date:_____________________
Signature:__________________________
(Sign exactly as your name appears on the other side of this Capital Security
Certificate)
<PAGE>
EXHIBIT A-2
FORM OF COMMON SECURITY CERTIFICATE
THIS COMMON SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS OR
ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS COMMON SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
THE HOLDER OF THIS COMMON SECURITY BY ITS ACCEPTANCE HEREOF AGREES
NOT TO OFFER, SELL OR OTHERWISE TRANSFER THIS COMMON SECURITY, PRIOR TO THE DATE
(THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER
OF THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR
ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS COMMON SECURITY (OR ANY
PREDECESSOR OF THIS COMMON SECURITY) EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO
A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) SO LONG AS THIS COMMON SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE
144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO
WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A,
(D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE
UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E)
TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH
(A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING
THIS COMMON SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF
THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE RIGHT OF THE
TRUST AND THE COMPANY PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO
CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii)
PURSUANT TO CLAUSE (E), TO REQUIRE THAT THE TRANSFEROR DELIVER TO THE TRUST A
LETTER FROM THE TRANSFEREE SUBSTANTIALLY IN THE FORM OF ANNEX A TO THE OFFERING
MEMORANDUM OF THE TRUST DATED FEBRUARY 2, 1998. SUCH HOLDER FURTHER AGREES THAT
IT WILL DELIVER TO EACH PERSON TO WHOM THIS COMMON SECURITY IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
<PAGE>
Certificate No. __________
Certificate Evidencing Common Securities
of
ORION CAPITAL TRUST II
7.701% Common Securities
(Liquidation Amount $1,000 per Common Security)
ORION CAPITAL TRUST II, a statutory business trust formed under the
laws of the State of Delaware (the "Trust"), hereby certifies that Orion Capital
Corporation (the "Holder") is the registered owner of
common securities of the Trust representing undivided
beneficial interests in the assets of the Trust designated the 7.701% Common
Securities (Liquidation Amount $1,000 per Common Security) (the "Common
Securities"). The Common Securities are transferable on the books and records of
the Trust, in person or by a duly authorized attorney, upon surrender of this
certificate duly endorsed, in proper form for transfer and otherwise complying
with the terms and conditions of the Declaration (as hereinafter defined). The
designation, rights, privileges, restrictions, preferences and other terms and
provisions of the Common Securities represented hereby are set forth herein, on
the reverse hereof and in the Amended and Restated Declaration of Trust of the
Trust dated as of February 5, 1998, as the same may be amended from time to time
(the "Declaration"), and shall in all respects be subject to the provisions
thereof, including the designation of the terms of the Common Securities as set
forth in Annex I to the Declaration. Each capitalized term used but not defined
herein or in any legend, form or certificate hereon shall have the meaning given
it in the Declaration. The Sponsor will provide a copy of the Declaration, the
Common Securities Guarantee and the Indenture (including any supplemental
indenture) to any Holder without charge upon written request to the Sponsor at
its principal place of business.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder and to the benefits of
the Common Securities Guarantee to the extent provided therein.
By its acceptance hereof, the Holder agrees to treat, for United
States federal income tax purposes, the Debentures as indebtedness and the
Common Securities as evidence of indirect beneficial ownership in the
Debentures.
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this certificate this 5th
day of February, 1998.
ORION CAPITAL TRUST II
By:_____________________________
Michael P. Maloney, Esq.
Administrative Trustee
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Common Security will be fixed at a
rate per annum of 7.701% (the "Coupon Rate") of the Liquidation Amount of $1,000
per Common Security, such rate being the rate of interest payable on the
Debentures to be held by the Property Trustee. Distributions not due during an
Extension Period (including the first semi-annual period during such period) in
arrears for more than one semi-annual period will bear interest thereon
compounded semiannually at the Coupon Rate (to the extent permitted by
applicable law). The term "Distributions", as used herein, includes such cash
distributions and any such interest payable unless otherwise stated. A
Distribution is payable only to the extent that payments are made in respect of
the Debentures held by the Property Trustee and to the extent the Property
Trustee has funds available therefor.
Distributions on the Common Securities will be cumulative, will
accrue from the most recent date to which Distributions have been paid or, if no
Distributions have been paid, from February 5, 1998 and will be payable
semi-annually in arrears on April 15 and October 15, of each year, commencing on
April 15, 1998, except as otherwise described below and in the Declaration.
Distributions will be computed on the basis of a 360-day year consisting of
twelve 30 day months and, for any period less than 6 months, the actual months
elapsed and the actual days elapsed in a partial month in such period.
As long as no Event of Default has occurred and is continuing, the
Debenture Issuer has the right under the Indenture, at any time and from time to
time during the term of the Debentures, to defer payments of interest by
extending the interest payment period on the Debentures for a period not
exceeding 10 consecutive semi-annual periods, including the first such
semi-annual period during such extension period (an "Extension Period"), during
which Extension Period no interest shall be due and payable, provided that no
Extension Period shall extend beyond the Stated Maturity of the Debentures. Upon
any such election, semi-annual Distributions on the Common Securities will be
deferred by the Trust during the term of the Extension Period. Distributions
will continue to accumulate interest thereon (to the extent permitted by
applicable law, but not exceeding the rate of interest then accruing on the
Debentures) at the Coupon Rate compounded semi-annually during any such
Extension Period. Before the termination of any such Extension Period, the
Debenture Issuer may further extend such Extension Period, provided that such
Extension Period, together with all such previous and further extensions within
such Extension Period, may not exceed 10 consecutive semi-annual periods or
extend beyond the Stated Maturity of the Debentures. Payments of Distributions
that have accumulated during any Extension Period will be payable to Holders as
they appear on the books and records of the Trust on the record date for the
first scheduled Distribution payment date following the expiration of such
Extension Period. Upon the expiration of any Extension Period and the payment of
all accrued and unpaid interest and any additional amounts then due, the
Debenture Issuer may commence a new Extension Period, subject to the above
requirements.
The Administrative Trustees shall, at the direction of the Sponsor,
at any time dissolve the Trust and cause the Debentures to be distributed to the
holders of the Securities in liquidation of the Trust or, simultaneously with
any redemption of the Debentures, cause a Like Amount of the Securities to be
redeemed by the Trust.
The Common Securities shall be redeemable as provided in the
Declaration.
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this
Common Security Certificate to:
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
agent to transfer this Common Security Certificate on the books of the
Trust. The agent may substitute another to act for him or her.
Date:------------------------
Signature:------------------------
(Sign exactly as your name appears on the other side of this Common Security
Certificate)
Signature Guarantee:------------------------
- ------------------------
* Signature must be guaranteed by an "eligible guarantor institution" that is a
bank, stockbroker, savings and loan association or credit union meeting the
requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities and Exchange Act of 1934, as amended.
[Include the following if the Common Security bears a Restricted Common
Securities Legend]
In connection with any transfer of any of the Common Securities evidenced by
this certificate, the undersigned confirms that such Common Securities are
being:
CHECK ONE BOX BELOW
(1) __ exchanged for the undersigned's own account without
transfer; or
(2) __ transferred pursuant to and in compliance with Rule
144A under the Securities Act of 1933; or
(3) __ transferred pursuant to and in compliance with
Regulation S under the Securities Act of 1933; or
(4) __ transferred to an institutional "accredited investor"
within the meaning of subparagraph (a)(1), (2), (3) or
(7) of Rule 501 under the Securities Act that is
acquiring the Preferred Security for its own account, or
for the account of such an institutional "accredited
investor," for investment purposes and not with a view
to, or for offer or sale in connection with, any
distribution in violation of the Securities Act; or
(5) __ transferred pursuant to another available exemption
from the registration requirements of the Securities
Act of 1933; or
(6) __ transferred pursuant to an effective registration
statement
Unless one of the boxes is checked, the Registrar will refuse to register any of
the Common Securities evidenced by this certificate in the name of any person
other than the registered Holder thereof; provided, however, that if box (3),
(4) or (5) is checked, the Registrar may require, prior to registering any such
transfer of the Common Securities such legal opinions, certifications and other
information as the Trust has reasonably requested to confirm that such transfer
is being made pursuant to an exemption from, or in a transaction not subject to,
the registration requirements of the Securities Act of 1933, such as the
exemption provided by Rule 144 under such Act; provided, further, that (i) if
box 2 is checked, the transferee must also certify that it is a qualified
institutional buyer as defined in Rule 144A or (ii) if box 4 is checked, the
transferee must also provide a Transferee Representation Letter in the form
attached as Annex A to the Offering Memorandum of the Trust, dated February 5,
1998.
Date:_______________________
Signature:______________________________
(Sign exactly as your name appears on the other side of this Common Security
Certificate)
-----------------------------------------
AMENDED AND RESTATED DECLARATION OF TRUST
ORION CAPITAL TRUST II
DATED AS OF FEBRUARY 5, 1998
-----------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I INTERPRETATION AND DEFINITIONS....................................1
SECTION 1.1 Definitions...................................................1
ARTICLE II TRUST INDENTURE ACT..............................................9
SECTION 2.1 Trust Indenture Act; Application..............................9
SECTION 2.2 Lists of Holders of Securities................................9
SECTION 2.3 Reports by the Property Trustee..............................10
SECTION 2.4 Periodic Reports to Property Trustee.........................10
SECTION 2.5 Evidence of Compliance with Conditions Precedent.............10
SECTION 2.6 Events of Default; Waiver....................................10
SECTION 2.7 Event of Default; Notice.....................................12
ARTICLE III ORGANIZATION...................................................12
SECTION 3.1 Name.........................................................12
SECTION 3.2 Office.......................................................13
SECTION 3.3 Purpose......................................................13
SECTION 3.4 Authority....................................................13
SECTION 3.5 Title to Property of the Trust...............................13
SECTION 3.6 Powers and Duties of the Administrative Trustees.............13
SECTION 3.7 Prohibition of Actions by the Trust and the
Trustees...................................................16
SECTION 3.8 Powers and Duties of the Property Trustee....................17
SECTION 3.9 Certain Duties and Responsibilities of the
Property Trustee...........................................19
SECTION 3.10 Certain Rights of Property Trustee..........................21
SECTION 3.11 Delaware Trustee............................................23
SECTION 3.12 Not Responsible for Recitals or Issuance of
Securities................................................23
SECTION 3.13 Duration of Trust...........................................24
SECTION 3.14 Mergers.....................................................24
ARTICLE IV SPONSOR.........................................................25
SECTION 4.1 Sponsor's Purchase of Common Securities......................25
SECTION 4.2 Responsibilities of the Sponsor..............................25
SECTION 5.1 Right to Proceed.............................................26
ARTICLE V TRUSTEES.........................................................26
SECTION 5.1 Number of Trustees; Appointment of Co-Trustee................26
SECTION 5.2 Delaware Trustee.............................................27
SECTION 5.3 Property Trustee; Eligibility................................27
SECTION 5.4 Certain Qualifications of Administrative Trustees
and Delaware Trustee Generally.............................28
SECTION 5.5 Administrative Trustees......................................28
SECTION 5.6 Delaware Trustee.............................................29
SECTION 5.7 Appointment, Removal and Resignation of Trustees.............29
SECTION 5.8 Vacancies among Trustees.....................................31
SECTION 5.9 Effect of Vacancies..........................................31
SECTION 5.10 Meetings....................................................31
SECTION 5.11 Delegation of Power.........................................31
SECTION 5.12 Merger, Conversion, Consolidation or Succession
to Business...............................................32
SECTION 5.13 Undertaking for Costs.......................................32
ARTICLE VI DISTRIBUTIONS...................................................32
SECTION 6.1 Distributions................................................32
ARTICLE VII ISSUANCE OF SECURITIES.........................................33
SECTION 7.1 General Provisions Regarding Securities......................33
SECTION 7.2 Execution and Authentication.................................33
SECTION 7.3 Form and Dating..............................................34
SECTION 7.4 Registrar and Paying Agent...................................36
SECTION 7.5 Paying Agent to Hold Money in Trust..........................36
SECTION 7.6 Replacement Securities.......................................37
SECTION 7.7 Outstanding Capital Securities...............................37
SECTION 7.8 Capital Securities in Treasury...............................37
SECTION 7.9 Temporary Securities.........................................38
SECTION 7.10 Cancellation................................................39
SECTION 7.11 CUSIP Numbers...............................................39
ARTICLE VIII DISSOLUTION OF TRUST..........................................39
SECTION 8.1 Dissolution of Trust.........................................39
ARTICLE IX TRANSFER OF INTERESTS...........................................40
SECTION 9.1 Transfer of Securities.......................................40
SECTION 9.2 Transfer Procedures and Restrictions.........................41
SECTION 9.3 Deemed Security Holders......................................50
SECTION 9.4 Book Entry Interests.........................................50
SECTION 9.5 Notices to Clearing Agency...................................50
SECTION 9.6 Appointment of Successor Clearing Agency.....................51
ARTICLE X LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES,
TRUSTEES OR OTHERS............................................51
SECTION 10.1 Liability...................................................51
SECTION 10.2 Exculpation.................................................51
SECTION 10.3 Fiduciary Duty..............................................52
SECTION 10.4 Indemnification.............................................53
SECTION 10.5 Outside Businesses..........................................56
ARTICLE XI ACCOUNTING......................................................57
SECTION 11.1 Fiscal Year.................................................57
SECTION 11.2 Certain Accounting Matters..................................57
SECTION 11.3 Banking.....................................................57
SECTION 11.4 Withholding.................................................58
ARTICLE XII AMENDMENTS AND MEETINGS........................................58
SECTION 12.1 Amendments..................................................58
SECTION 12.2 Meetings of the Holders of Securities; Action by
Written Consent............................................60
ARTICLE XIII REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE
TRUSTEE.......................................................61
SECTION 13.1 Representations and Warranties of Property
Trustee....................................................61
SECTION 13.2 Representations and Warranties of Delaware
Trustee....................................................62
ARTICLE XIV REGISTRATION RIGHTS............................................63
SECTION 14.1 Registration Rights Agreement; Additional
Interest...................................................63
ARTICLE XV MISCELLANEOUS...................................................65
SECTION 15.1 Notices.....................................................65
SECTION 15.2 Governing Law...............................................66
SECTION 15.3 Intention of the Parties....................................66
SECTION 15.4 Headings....................................................66
SECTION 15.5 Successors and Assigns......................................66
SECTION 15.6 Partial Enforceability......................................67
SECTION 15.7 Counterparts................................................67
<PAGE>
CROSS-REFERENCE TABLE*
SECTION OF
TRUST INDENTURE ACT SECTION OF
OF 1939, AS AMENDED DECLARATION
310(a) 5.3(a)
310(c) Inapplicable
311(c) Inapplicable
312(a) 2.2(a)
312(b) 2.2(b)
313 2.3
314(a) 2.4
314(b) Inapplicable
314(c) 2.5
314(d) Inapplicable
314(f) Inapplicable
315(a) 3.9(b)
315(c) 3.9(a)
315(d) 3.9(a)
316(a) Annex I
316(c) 3.6(a)
- -------------------
* This Cross-Reference Table does not constitute part of the Declaration and
shall not affect the interpretation of any of its terms or provisions.
<PAGE>
AMENDED AND RESTATED DECLARATION OF TRUST
OF
ORION CAPITAL TRUST II
February 5, 1998
AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") dated and
effective as of February 5, 1998, by the Trustees (as defined herein), the
Sponsor (as defined herein) and by the Holders (as defined herein), from time to
time, of undivided beneficial interests in the Trust to be issued pursuant to
this Declaration.
WHEREAS, the Delaware Trustee and the Sponsor established Orion
Capital Trust II (the "Trust"), a statutory business trust formed under the
Business Trust Act (as defined herein) pursuant to a Declaration of Trust dated
as of February 2, 1998 (the "Original Declaration"), and a Certificate of Trust
filed with the Secretary of State of the State of Delaware on February 2, 1998
for the sole purpose of issuing and selling certain securities representing
undivided beneficial interests in the assets of the Trust and investing the
proceeds thereof in certain Debentures of the Debenture Issuer (each as
hereinafter defined);
WHEREAS, as of the date hereof, no interests in the Trust have been
issued; and
WHEREAS, all of the Trustees and the Sponsor, by this Declaration,
amend and restate each and every term and provision of the Original Declaration.
NOW, THEREFORE, it being the intention of the parties hereto to
continue the Trust as a business trust under the Business Trust Act and that
this Declaration fully amend and restate the Original Trust Agreement so as to
constitute the governing instrument of such business trust, the Trustees declare
that all assets contributed to the Trust will be held in trust for the benefit
of the holders, from time to time, of the securities representing undivided
beneficial interests in the assets of the Trust issued hereunder, subject to the
provisions of this Declaration.
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 DEFINITIONS.
Unless the context otherwise requires:
(a) Capitalized terms used in this Declaration but not defined in
the preamble above or elsewhere herein have the respective meanings assigned to
them in this Section 1.1;
(b) a term defined anywhere in this Declaration has the same meaning
throughout;
(c) all references to "the Declaration" or "this Declaration" are to
this Declaration (including Annex I hereto and Exhibit A hereto) as modified,
supplemented or amended from time to time;
(d) all references in this Declaration to Articles and Sections and
Annexes and Exhibits are to Articles and Sections of and Annexes and Exhibits to
this Declaration unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning
when used in this Declaration unless otherwise defined in this Declaration or
the context otherwise requires;
(f) a term defined in the Indenture (as defined below) has the same
meaning when used in this Declaration unless otherwise defined in this
Declaration or the context otherwise requires; and
(g) a reference to the singular includes the plural and vice versa.
"ADDITIONAL INTEREST" means the additional interest referred to
in Article XIV.
"ADMINISTRATIVE TRUSTEE" has the meaning set forth in Section 5.1.
"AFFILIATE" shall mean, with respect to a specified Person, (a) any
Person directly or indirectly owning, controlling or holding the power to vote
20% or more of the outstanding voting securities or other ownership interests of
the specified Person, (b) any Person 20% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person, (c) any Person
directly or indirectly controlling, controlled by, or under common control with
the specified Person, and (d) a partnership in which the specified Person is a
general partner; provided, however, that Intercargo Corporation shall not be
deemed to be an Affiliate of the Company or Orion Capital Trust II.
"AGENT" means any Paying Agent or Registrar.
"AUTHORIZED OFFICER" of a Person means any other Person that is
authorized to legally bind such former Person.
"BOOK ENTRY INTEREST" means a beneficial interest in a Global
Certificate registered in the name of a Clearing Agency or its nominee,
ownership and transfers of which shall be maintained and made through book
entries by a Clearing Agency as described in Section 9.4.
"BUSINESS DAY" means any day other than a Saturday or a Sunday or a
day on which banking institutions in The City of New York, New York are
authorized or required by law or executive order to close.
"BUSINESS TRUST ACT" means Chapter 38 of Title 12 of the Delaware
Code, 12 Del. Code ss. 3801 et seq., as it may be amended from time to time or
any successor legislation.
"CAPITAL SECURITY BENEFICIAL OWNER" means, with respect to a Book
Entry Interest, a Person who is the beneficial owner of such Book Entry
Interest, as reflected on the books of the Clearing Agency, or on the books of a
Person maintaining an account with such Clearing Agency (directly as a Clearing
Agency Participant or as an indirect participant, in each case in accordance
with the rules of such Clearing Agency).
"CAPITAL SECURITIES" has the meaning specified in Section 7.1(a).
"CAPITAL SECURITIES GUARANTEE" means the guarantee agreement dated
as of February 5, 1998 of the Sponsor in respect of the Capital Securities.
"CLEARING AGENCY" means an organization registered as a "Clearing
Agency" pursuant to Section 17A of the Exchange Act that is acting as depositary
for the Capital Securities and in whose name or in the name of a nominee of that
organization shall be registered a Global Certificate and which shall undertake
to effect book entry transfers and pledges of the Capital Securities.
"CLEARING AGENCY PARTICIPANT" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time the Clearing
Agency effects book entry transfers and pledges of securities deposited with the
Clearing Agency.
"CLOSING TIME" means the "Closing Time" under the Purchase
Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor legislation.
"COMMISSION" means the United States Securities and Exchange
Commission as from time to time constituted, or if any time after the execution
of this Declaration such Commission is not existing and performing the duties
now assigned to it under applicable Federal securities laws, then the body
performing such duties at such time.
"COMMON SECURITIES" has the meaning specified in Section 7.1(a).
"COMMON SECURITIES GUARANTEE" means the guarantee agreement dated as
of February 5, 1998 of the Sponsor in respect of the Common Securities.
"COMPANY INDEMNIFIED PERSON" means (a) any Administrative Trustee;
(b) any Affiliate of any Administrative Trustee; (c) any officers, directors,
shareholders, members, partners, employees, representatives or agents of any
Administrative Trustee; or (d) any officer, employee or agent of the Trust or
its Affiliates.
"CORPORATE TRUST OFFICE" means the office of the Property Trustee at
which the corporate trust business of the Property Trustee shall, at any
particular time, be principally administered, which office at the date of
execution of this Agreement is located at The Bank of New York, 101 Barclay
Street, Floor 21W, New York, New York 10286.
"COVERED PERSON" means: (a) any officer, director, shareholder,
partner, member, representative, employee or agent of (i) the Trust or (ii)
the Trust's Affiliates; and (b) any Holders of Securities.
"DEBENTURE ISSUER" means Orion Capital Corporation, a Delaware
corporation, or any successor entity resulting from any consolidation,
amalgamation, merger or other business combination, in its capacity as issuer of
the Debentures under the Indenture.
"DEBENTURE TRUSTEE" means The Bank of New York, a New York banking
corporation, as trustee under the Indenture until a successor is appointed
thereunder, and thereafter means such successor trustee.
"DEBENTURES" means the 7.701% Junior Subordinated Deferrable
Interest Debentures due April 15, 2028 of the Debenture Issuer issued pursuant
to the Indenture (including, as applicable, those Debentures issued upon
consummation of the Exchange Offer).
"DEFAULT" means an event, act or condition that with notice or lapse
of time, or both, would constitute an Event of Default.
"DEFINITIVE CAPITAL SECURITIES" has the meaning set forth in
Section 7.3(c).
"DELAWARE TRUSTEE" has the meaning set forth in Section 5.2.
"DIRECT ACTION" has the meaning set forth in Section 3.8(e).
"DISTRIBUTION" means a distribution payable to Holders of Securities
in accordance with Section 6.1.
"DTC" means The Depository Trust Company, the initial Clearing
Agency.
"EVENT OF DEFAULT" in respect of the Securities means an Event of
Default (as defined in the Indenture) that has occurred and is continuing in
respect of the Debentures.
"EXCHANGE OFFER" means the exchange offer (including any private
exchange offer) contemplated in Section 2(a) of the Registration Rights
Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor legislation.
"EXCHANGE AGENT" has the meaning set forth in Section 7.4(a).
"EXCHANGE CAPITAL SECURITIES" has the meaning set forth in Section
7.1(a).
"EXCHANGE DEBENTURES" means the Debentures issued upon consummation
of the Exchange Offer.
"FIDUCIARY INDEMNIFIED PERSON" has the meaning set forth in Section
10.4(b).
"GLOBAL CAPITAL SECURITIES" means the Regulation S Global Capital
Securities, the Rule 144A Global Capital Securities and the Unrestricted Global
Capital Securities.
"GLOBAL CERTIFICATES" means certificates for Capital Securities
registered in the name of a Clearing Agency or its nominee.
"HOLDER" means a Person in whose name a Security is registered, such
Person being a beneficial owner within the meaning of the Business Trust Act.
"INDEMNIFIED PERSON" means a Company Indemnified Person or a
Fiduciary Indemnified Person.
"INDENTURE" means the Indenture, dated as of February 5, 1998, among
the Debenture Issuer and the Debenture Trustee, as amended from time to time.
"INITIAL CAPITAL SECURITIES" means 7.701% Capital Securities
(liquidation amount $1,000 per Security) of the Trust issued at the Closing
Time.
"INITIAL DEBENTURES" means the Debentures as authenticated and
issued under the Indenture at the Closing Time.
"INVESTMENT COMPANY" means an investment company as defined in the
Investment Company Act.
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940,
as amended from time to time, or any successor legislation.
"ISSUE DATE" shall have the meaning set forth in Section 14.1.
"LEGAL ACTION" has the meaning set forth in Section 3.6(a)(vii).
"LIKE AMOUNT" has the meaning set forth in Annex I.
"LIQUIDATION AMOUNT" with respect to any Security means the amount
designated as such with respect thereto in Annex I hereto.
"MAJORITY IN LIQUIDATION AMOUNT" means, with respect to the Trust
Securities, except as provided in the terms of the Capital Securities or by the
Trust Indenture Act, Holder(s) of outstanding Trust Securities voting together
as a single class or, as the context may require, Holders of outstanding Capital
Securities or Holders of outstanding Common Securities voting separately as a
class, who are the record owners of more than 50% of the aggregate Liquidation
Amount (including the stated amount that would be paid on redemption,
liquidation or otherwise, plus accrued and unpaid Distributions to the date upon
which the voting percentages are determined) of all outstanding Securities of
the relevant class.
"OFFERING MEMORANDUM" has the meaning set forth in Section
3.6(a)(ii)(A).
"OFFICERS' CERTIFICATE" means, with respect to any Person, a
certificate signed by the Chairman, a Vice Chairman, the Chief Executive
Officer, the President, a Vice President (however designated), or the Secretary
or an Assistant Secretary of such Person. Any Officers' Certificate delivered
with respect to compliance with a condition or covenant provided for in this
Declaration shall include:
(a) a statement that each officer signing the Certificate has read
the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"OPINION OF COUNSEL" means a written opinion of counsel, who may be
an employee of the Sponsor, and who shall be acceptable to the Property Trustee.
"PARTICIPANTS" has the meaning set forth in Section 7.3(b).
"PAYING AGENT" has the meaning specified in Section 7.4.
"PERSON" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"PROPERTY TRUSTEE" has the meaning set forth in Section 5.3(a).
"PROPERTY TRUSTEE ACCOUNT" has the meaning set forth in Section
3.8(c).
"PURCHASE AGREEMENT" means the Purchase Agreement for the initial
offering and sale of Capital Securities.
"QIBS" means qualified institutional buyers as defined in Rule 144A.
"QUORUM" means a majority of the Administrative Trustees or, if
there are only two Administrative Trustees, both of them.
"REGISTRAR" has the meaning set forth in Section 7.4.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of February 5, 1998, by and among Orion Capital Corporation,
the Trust and the Initial Purchasers, as such agreement may be amended, modified
or supplemented from time to time.
"REGISTRATION STATEMENT" has the meaning given to such term in the
Securities Act, and the regulations promulgated thereunder.
"REGULATION S" means Regulation S under the Securities Act, as such
regulation may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission.
"REGULATION S GLOBAL CAPITAL SECURITY" has the meaning set forth in
Section 7.3(a).
"RELATED PARTY" means, with respect to the Sponsor, any direct or
indirect wholly owned subsidiary of the Sponsor or any other Person that owns,
directly or indirectly, 100% of the outstanding voting securities of the
Sponsor.
"RESPONSIBLE OFFICER," when used with respect to the Property
Trustee, means the chairman or any vice chairman of the board of directors, the
chairman or any vice chairman of the executive committee of the board of
directors, the chairman of the trust committee, the president, any vice
president, any assistant vice president, the cashier, any assistant cashier, the
secretary, any assistant secretary, the treasurer, any assistant treasurer, any
trust officer or assistant trust officer, the controller or any assistant
controller or any other officer or assistant officer of the Property Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"RESTRICTED DEFINITIVE CAPITAL SECURITIES" has the meaning set forth
in Section 7.3(c).
"RESTRICTED CAPITAL SECURITY" means a Capital Security required by
Section 9.2 to contain a Restricted Securities Legend.
"RESTRICTED SECURITIES LEGEND" has the meaning set forth in Section
9.2.
"RULE 3A-5" means Rule 3a-5 under the Investment Company Act, or any
successor rule or regulation.
"RULE 144" means Rule 144 under the Securities Act, as such rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission.
"RULE 144A" means Rule 144A under the Securities Act, as such rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission.
"RULE 144A GLOBAL CAPITAL SECURITY" has the meaning set forth in
Section 7.3(a).
"SECURITIES" or "TRUST SECURITIES" means the Common Securities and
the Capital Securities (including, as applicable, those Capital Securities
issued upon consummation of the Exchange Offer).
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time, or any successor legislation.
"SECURITIES GUARANTEES" means the Common Securities Guarantee and
the Capital Securities Guarantee.
"SPECIAL EVENT" has the meaning set forth in the Indenture.
"SPONSOR" means Orion Capital Corporation, a Delaware corporation,
or any successor entity resulting from any merger, consolidation, amalgamation
or other business combination, in its capacity as sponsor of the Trust.
"SUCCESSOR DELAWARE TRUSTEE" has the meaning set forth in Section
5.7(a).
"SUCCESSOR ENTITY" has the meaning set forth in Section 3.14(b).
"SUCCESSOR PROPERTY TRUSTEE" has the meaning set forth in Section
5.7(a).
"SUCCESSOR SECURITIES" has the meaning set forth in Section 3.14(b).
"SUPER MAJORITY" has the meaning set forth in Section 2.6(a)(ii).
"TAX EVENT MATURITY SHORTENING" has the meaning set forth in the
Indenture.
"10% IN LIQUIDATION AMOUNT" means, with respect to the Trust
Securities, except as provided in the terms of the Capital Securities or by the
Trust Indenture Act, Holder(s) of outstanding Trust Securities voting together
as a single class or, as the context may require, Holders of outstanding Capital
Securities or Holders of outstanding Common Securities voting separately as a
class, who are the record owners of 10% of the aggregate Liquidation Amount
(including the stated amount that would be paid on redemption, liquidation or
otherwise, plus accrued and unpaid Distributions to the date upon which the
voting percentages are determined) of all outstanding Securities of the relevant
class.
"TREASURY REGULATIONS" means the income tax regulations, including
temporary regulations, promulgated under the Code by the United States Treasury,
as such regulations may be amended from time to time (including corresponding
provisions of succeeding regulations).
"TRUSTEE" or "TRUSTEES" means each Person who has signed this
Declaration as a trustee (including the Property Trustee, the Delaware Trustee
and each Administrative Trustee), so long as such Person shall continue in
office in accordance with the terms hereof, and all other Persons who may from
time to time be duly appointed, qualified and serving as Trustees in accordance
with the provisions hereof, and references herein to a Trustee or the Trustees
shall refer to such Person or Persons solely in their capacity as trustees
hereunder.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as
amended from time to time, or any successor legislation.
"UNRESTRICTED GLOBAL CAPITAL SECURITY" has the meaning set forth
in Section 9.2(b).
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 TRUST INDENTURE ACT; APPLICATION.
(a) This Declaration is subject to the provisions of the Trust
Indenture Act that are required to be part of this Declaration and shall, to the
extent applicable, be governed by such provisions.
(b) The Property Trustee shall be the only Trustee which is a
Trustee for the purposes of the Trust Indenture Act.
(c) If and to the extent that any provision of this Declaration
limits, qualifies or conflicts with the duties imposed by ss.ss. 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
(d) The application of the Trust Indenture Act to this Declaration
shall not affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
SECTION 2.2 LISTS OF HOLDERS OF SECURITIES.
(a) Each of the Sponsor and the Administrative Trustees on behalf of
the Trust shall provide the Property Trustee, unless the Property Trustee is
Registrar for the Securities, with a list (i) within 14 days after each record
date for payment of Distributions, in such form as the Property Trustee may
reasonably require, of the names and addresses of the Holders of the Securities
("List of Holders") as of such record date, provided that neither the Sponsor
nor the Administrative Trustees on behalf of the Trust shall be obligated to
provide such List of Holders at any time the List of Holders does not differ
from the most recent List of Holders given to the Property Trustee by the
Sponsor and the Administrative Trustees on behalf of the Trust, and (ii) at any
other time, within 30 days of receipt by the Trust of a written request for a
List of Holders as of a date no more than 14 days before such List of Holders is
given to the Property Trustee. The Property Trustee shall preserve, in as
current a form as is reasonably practicable, all information contained in a List
of Holders given to it or which it receives in its capacity as Paying Agent (if
acting in such capacity), provided that the Property Trustee may destroy any
List of Holders previously given to it on receipt of a new List of Holders.
(b) The Property Trustee shall comply with its obligations under
ss.ss. 311(a), 311(b) and 312(b) of the Trust Indenture Act
SECTION 2.3 REPORTS BY THE PROPERTY TRUSTEE.
On or before February 5 of each year, commencing February 5, 1999,
the Property Trustee shall provide to the Holders of the Capital Securities such
reports as are required by ss. 313 of the Trust Indenture Act, if any, in the
form and in the manner provided by ss. 313 of the Trust Indenture Act. The
Property Trustee shall also comply with the requirements of ss. 313(d) of the
Trust Indenture Act.
SECTION 2.4 PERIODIC REPORTS TO PROPERTY TRUSTEE.
Each of the Sponsor and the Administrative Trustees on behalf of the
Trust shall provide to the Property Trustee such documents, reports and
information as are required by ss. 314 (if any) and the compliance certificate
required by ss. 314 of the Trust Indenture Act in the form, in the manner and at
the times required by ss. 314 of the Trust Indenture Act.
SECTION 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
Each of the Sponsor and the Administrative Trustees on behalf of the
Trust shall provide to the Property Trustee such evidence of compliance with any
conditions precedent provided for in this Declaration that relate to any of the
matters set forth in ss. 314(c) of the Trust Indenture Act. Any certificate or
opinion required to be given by an officer pursuant to ss. 314(c)(1) of the
Trust Indenture Act may be given in the form of an Officers' Certificate.
SECTION 2.6 EVENTS OF DEFAULT; WAIVER.
(a) The Holders of a Majority in Liquidation Amount of Capital
Securities may, by vote, on behalf of the Holders of all of the Capital
Securities, waive any past Event of Default in respect of the Capital Securities
and its consequences, provided that, if the underlying Event of Default under
the Indenture:
(i) is not waivable under the Indenture, the Event of Default
under the Declaration shall also not be waivable; or
(ii) requires the consent or vote of greater than a majority
in aggregate principal amount of the holders of the Debentures (a "Super
Majority") to be waived under the Indenture, the Event of Default under the
Declaration may only be waived by the vote of the Holders of at least the
proportion in aggregate Liquidation Amount of the Capital Securities that the
relevant Super Majority represents of the aggregate principal amount of the
Debentures outstanding.
The foregoing provisions of this Section 2.6(a) shall be in lieu of
ss. 316(a)(1)(B) of the Trust Indenture Act and such ss. 316(a)(1)(B) of the
Trust Indenture Act is hereby expressly excluded from this Declaration and the
Securities, as permitted by the Trust Indenture Act. Upon such waiver, any such
default shall cease to exist, and any Event of Default with respect to the
Capital Securities arising therefrom shall be deemed to have been cured, for
every purpose of this Declaration, but no such waiver shall extend to any
subsequent or other default or an Event of Default with respect to the Capital
Securities or impair any right consequent thereon. Any waiver by the Holders of
the Capital Securities of an Event of Default with respect to the Capital
Securities shall also be deemed to constitute a waiver by the Holders of the
Common Securities of any such Event of Default with respect to the Common
Securities for all purposes of this Declaration without any further act, vote,
or consent of the Holders of the Common Securities.
(b) The Holders of a Majority in Liquidation Amount of the Common
Securities may, by vote, on behalf of the Holders of all of the Common
Securities, waive any past Event of Default with respect to the Common
Securities and its consequences, provided that, if the underlying Event of
Default under the Indenture:
(i) is not waivable under the Indenture, except where the
Holders of the Common Securities are deemed to have waived such Event of Default
under the Declaration as provided below in this Section 2.6(b), the Event of
Default under the Declaration shall also not be waivable; or
(ii) requires the consent or vote of a Super Majority to be
waived, except where the Holders of the Common Securities are deemed to have
waived such Event of Default under the Declaration as provided below in this
Section 2.6(b), the Event of Default under the Declaration may only be waived by
the vote of the Holders of at least the proportion in aggregate Liquidation
Amount of the Common Securities that the relevant Super Majority represents of
the aggregate principal amount of the Debentures outstanding;
provided further, each Holder of Common Securities will be deemed to have waived
any such Event of Default and all Events of Default with respect to the Common
Securities and its consequences if all Events of Default with respect to the
Capital Securities have been cured, waived or otherwise eliminated, and until
such Events of Default have been so cured, waived or otherwise eliminated, the
Property Trustee will be deemed to be acting solely on behalf of the Holders of
the Capital Securities and only the Holders of the Capital Securities will have
the right to direct the Property Trustee in accordance with the terms of the
Securities. The foregoing provisions of this Section 2.6(b) shall be in lieu of
ss.ss. 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act and such ss.ss.
316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act are hereby expressly
excluded from this Declaration and the Securities, as permitted by the Trust
Indenture Act. Subject to the foregoing provisions of this Section 2.6(b), upon
such waiver, any such default shall cease to exist and any Event of Default with
respect to the Common Securities arising therefrom shall be deemed to have been
cured for every purpose of this Declaration, but no such waiver shall extend to
any subsequent or other default or Event of Default with respect to the Common
Securities or impair any right consequent thereon.
(c) A waiver of an Event of Default under the Indenture by the
Property Trustee, at the direction of the Holders of the Capital Securities,
constitutes a waiver of the corresponding Event of Default under this
Declaration. The foregoing provisions of this Section 2.6(c) shall be in lieu of
ss. 316(a)(1)(B) of the Trust Indenture Act and such ss. 316(a)(1)(B) of the
Trust Indenture Act is hereby expressly excluded from this Declaration and the
Securities, as permitted by the Trust Indenture Act.
SECTION 2.7 EVENT OF DEFAULT; NOTICE.
(a) The Property Trustee shall, within 90 days after the occurrence
of an Event of Default, transmit by mail, first class postage prepaid, to the
Holders, the Administrative Trustees and the Sponsor, notices of all defaults
with respect to the Securities actually known to a Responsible Officer of the
Property Trustee, unless such defaults have been cured before the giving of such
notice (the term "defaults" for the purposes of this Section 2.7(a) being hereby
defined to be an Event of Default as defined in the Indenture, not including any
periods of grace provided for therein and irrespective of the giving of any
notice provided therein).
(b) The Sponsor and the Administrative Trustees shall file annually
with the Property Trustee a certification as to whether or not they are in
compliance with all the conditions and covenants applicable to them under this
Declaration.
(c) For purposes of this Section 2.7, the Property Trustee shall not
be deemed to have knowledge of any default or Event of Default except:
(i) a default under Sections 5.01(a) and 5.01(b) of the
Indenture; or
(ii) any default as to which the Property Trustee shall have
received written notice or of which a Responsible Officer of the Property
Trustee charged with the administration of the Declaration shall have actual
knowledge.
ARTICLE III
ORGANIZATION
SECTION 3.1 NAME.
The Trust shall continue to be named "Orion Capital Trust II" as
such name may be modified from time to time by the Administrative Trustees
following written notice to the Holders. The Trust's activities may be conducted
under the name of the Trust or any other name deemed advisable by the
Administrative Trustees.
SECTION 3.2 OFFICE.
The address of the principal office of the Trust is 101 Barclay
Street, Floor 21W, New York, New York, 10286, Attention: Corporate Trust
Administration. On ten Business Days' prior written notice to the Holders, the
Administrative Trustees may designate another principal office.
SECTION 3.3 PURPOSE.
The exclusive purposes and functions of the Trust are (a) to issue
and sell Securities including effecting the Exchange Offer, (b) use the proceeds
from the sale of the Securities to acquire the Debentures, (c) to make
Distributions to Holders of the Securities as herein provided, and (d) except as
otherwise limited herein, to engage in only those other activities necessary,
advisable or incidental thereto. The Trust shall not borrow money, issue debt or
reinvest proceeds derived from investments, mortgage or pledge any of its
assets, or otherwise undertake (or permit to be undertaken) any activity that
would cause the Trust not to be classified for United States federal income tax
purposes as a grantor trust.
SECTION 3.4 AUTHORITY.
Subject to the limitations provided in this Declaration and to the
specific duties of the Property Trustee, the Administrative Trustees shall have
exclusive and complete authority to carry out the purposes of the Trust. An
action taken by the Administrative Trustees in accordance with their powers, as
set forth in Sections 3.6 and 5.5, shall constitute the act of and serve to bind
the Trust and an action taken by the Property Trustee on behalf of the Trust in
accordance with its powers shall constitute the act of and serve to bind the
Trust. In dealing with the Trustees acting on behalf of the Trust, no Person
shall be required to inquire into the authority of the Trustees to bind the
Trust. Persons dealing with the Trust are entitled to rely conclusively on the
power and authority of the Trustees as set forth in this Declaration. The
authority of the Delaware Trustee is set forth in Section 3.11 hereof.
SECTION 3.5 TITLE TO PROPERTY OF THE TRUST.
Except as provided in Section 3.8 with respect to the Debentures and
the Property Trustee Account or as otherwise provided in this Declaration, legal
title to all assets of the Trust shall be vested in the Trust. The Holders shall
not have legal title to any part of the assets of the Trust, but shall have an
undivided beneficial interest in the assets of the Trust.
SECTION 3.6 POWERS AND DUTIES OF THE ADMINISTRATIVE TRUSTEES.
(a) The Administrative Trustees shall have the exclusive power, duty
and authority to cause the Trust to engage in the following activities:
(i) to issue and sell the Capital Securities and the Common
Securities in accordance with this Declaration; provided, however, that (A) the
Trust may issue no more than two series of Capital Securities and no more than
one series of Common Securities, (B) there shall be no interests in the Trust
other than the Securities, and (C) the issuance of Securities shall be limited
to: (x) a simultaneous issuance of both Capital Securities and Common Securities
at the Closing Time and (y) the issuance of a second series of Capital
Securities upon the consummation of the Exchange Offer.
(ii) in connection with the issue and sale of the Capital
Securities and the Common Securities, and in connection with the Exchange Offer,
at the direction of the Sponsor, to:
(A) prepare and execute, if necessary, an offering
memorandum (the "Offering Memorandum") in preliminary and final form prepared by
the Sponsor, in relation to the offering and sale of Initial Capital Securities
to QIBs in reliance on Rule 144A under the Securities Act, to institutional
"accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) and outside the United States to non-U.S. Persons in offshore
transactions in reliance on Regulation S under the Securities Act, and to
execute and file with the Commission, at such time as is determined by the
Sponsor, any Registration Statement, including any amendment thereto, as
contemplated by the Registration Rights Agreement;
(B) execute and file any documents prepared by the
Sponsor, or take any acts as determined by the Sponsor to be necessary, in order
to qualify or register all or part of the Capital Securities in any State in
which the Sponsor has determined to qualify or register such Capital Securities
for sale;
(C) if deemed necessary or advisable by the Sponsor,
execute and file an application, prepared by the Sponsor, to the New York Stock
Exchange or any other national stock exchange or the Nasdaq Stock Market's
National Market for listing or quotation of the Capital Securities;
(D) execute and deliver letters, documents, or
instruments with DTC and other Clearing Agencies relating to the Capital
Securities;
(E) if required, execute and file with the Commission a
registration statement on Form 8-A, including any amendments thereto, prepared
by the Sponsor, relating to the registration of the Capital Securities under
Section 12(b) of the Exchange Act; and
(F) execute and enter into the Purchase Agreement
providing for the sale of the Capital Securities, the Registration Rights
Agreement, a subscription agreement providing for the sale of the Common
Securities, a subscription agreement providing for the sale of the Debentures
and any other agreements regarding the issuance and sale of Securities;
(iii) to acquire the Initial Debentures with the proceeds of
the sale of the Initial Capital Securities and the Common Securities and to
exchange the Initial Debentures for a like principal amount of Exchange
Debentures pursuant to the Exchange Offer; provided, however, that the
Administrative Trustees shall cause legal title to the Debentures to be held of
record in the name of the Property Trustee for the benefit of the Holders of the
Capital Securities and the Holders of the Common Securities;
(iv) to give the Sponsor and the Property Trustee prompt
written notice of the occurrence of a Special Event;
(v) to establish a record date with respect to all actions to
be taken hereunder that require a record date be established, including and with
respect to, for the purposes of ss. 316(c) of the Trust Indenture Act,
Distributions, voting rights, redemptions and exchanges, and to issue relevant
notices to the Holders of Capital Securities and Holders of Common Securities as
to such actions and applicable record dates;
(vi) to take all actions and perform such duties as may be
required of the Administrative Trustees pursuant to the terms of the Securities;
(vii) to bring or defend, pay, collect, compromise, arbitrate,
resort to legal action, or otherwise adjust claims or demands of or against the
Trust ("Legal Action"), unless pursuant to Section 3.8(e), the Property Trustee
has the exclusive power to bring such Legal Action;
(viii) to employ or otherwise engage employees and agents (who
may be designated as officers with titles) and managers, contractors, advisors
and consultants, and pay reasonable compensation for such services;
(ix) to cause the Trust to comply with the Trust's obligations
under the Trust Indenture Act;
(x) to give the certificate required by ss. 314(a)(4) of the
Trust Indenture Act to the Property Trustee, which certificate may be executed
by any Administrative Trustee;
(xi) to incur expenses that are necessary or incidental to
carry out any of the purposes of the Trust;
(xii) to act as, or appoint another Person to act as,
Registrar and Exchange Agent for the Securities or to appoint a Paying Agent for
the Securities as provided in Section 7.4, except for such time as such power to
appoint a Paying Agent is vested in the Property Trustee;
(xiii) to give prompt written notice to the Property Trustee
and to Holders of any notice received from the Debenture Issuer of its election
to defer payments of interest on the Debentures by extending the interest
payment period under the Indenture;
(xiv) to execute all documents or instruments, perform all
duties and powers, and do all things for and on behalf of the Trust in all
matters necessary or incidental to the foregoing;
(xv) to take all action that may be necessary or appropriate
for the preservation and the continuation of the Trust's valid existence,
rights, franchises and privileges as a statutory business trust under the laws
of the State of Delaware and of each other jurisdiction in which such existence
is necessary to protect the limited liability of the Holders of the Capital
Securities or to enable the Trust to effect the purposes for which the Trust was
created;
(xvi) to take any action, not inconsistent with this
Declaration or with applicable law, that the Administrative Trustees determine
in their discretion to be necessary or desirable in carrying out the activities
of the Trust as set out in this Section 3.6, including, but not limited to:
(A) causing the Trust not to be deemed to be an
Investment Company required to be registered under the Investment Company Act;
(B) causing the Trust to be classified for United
States federal income tax purposes as a grantor trust;
(C) cooperating with the Debenture Issuer to ensure
that the Debentures will be treated as indebtedness of the Debenture Issuer for
United States federal income tax purposes; and
(D) to take all action necessary to cause all
applicable tax returns and tax information reports that are required to be filed
with respect to the Trust to be duly prepared and filed by the Administrative
Trustees, on behalf of the Trust; and
(xvii) to take all action necessary to consummate the Exchange
Offer or otherwise cause the Capital Securities to be registered pursuant to an
effective Registration Statement in accordance with the provisions of the
Registration Rights Agreement.
(b) The Administrative Trustees must exercise the powers set forth
in this Section 3.6 in a manner that is consistent with the purposes and
functions of the Trust set out in Section 3.3, and the Administrative Trustees
shall not take any action that is inconsistent with the purposes and functions
of the Trust set forth in Section 3.3.
(c) Subject to this Section 3.6, the Administrative Trustees shall
have none of the powers or the authority of the Property Trustee set forth in
Section 3.8.
(d) Any expenses incurred by the Administrative Trustees pursuant to
this Section 3.6 shall be reimbursed by the Debenture Issuer.
SECTION 3.7 PROHIBITION OF ACTIONS BY THE TRUST AND THE TRUSTEES.
(a) The Trust shall not, and the Trustees (including the Property
Trustee) all in their capacities as such and not in their individual capacities
shall not, engage in any activity other than as required or authorized by this
Declaration. The Trust shall not:
(i) invest any proceeds received by the Property Trustee on
behalf of the Trust from holding the Debentures, but shall distribute all such
proceeds, excluding "Additional Sums" (as defined in the Indenture), to Holders
of Securities pursuant to the terms of this Declaration and of the Securities;
(ii) acquire any assets other than as expressly provided
herein;
(iii) possess Trust property for other than a Trust purpose;
(iv) make any loans or incur any indebtedness other than loans
represented by the Debentures;
(v) possess any power or otherwise act in such a way as to
vary the Trust assets or the terms of the Securities in any way whatsoever;
(vi) issue any securities or other evidences of beneficial
ownership of, or beneficial interest in, the Trust other than the Securities; or
(vii) other than as provided in this Declaration or Annex I,
(A) direct the time, method and place of conducting any proceeding with respect
to any remedy available to the Debenture Trustee, or exercising any right or
power conferred upon the Debenture Trustee with respect to the Debentures, (B)
waive any past default that is waivable under the Indenture, (C) exercise any
right to rescind or annul any declaration that the principal of all the
Debentures shall be due and payable, or (D) consent to any amendment,
modification or termination of the Indenture or the Debentures, where such
consent shall be required, unless the Trust shall have received an Opinion of
Counsel experienced in such matters to the effect there is no more than an
insubstantial risk that the Trust would not be classified for United States
federal income tax purposes as a trust subject to the provisions of Section 671
through 679 of the Code (a "grantor trust") on account of such amendment,
modification or termination.
SECTION 3.8 POWERS AND DUTIES OF THE PROPERTY TRUSTEE.
(a) The legal title to the Debentures shall be owned by and held of
record in the name of the Property Trustee in trust for the benefit of the
Holders. The right, title and interest of the Property Trustee to the Debentures
shall vest automatically in each Person who may hereafter be appointed as
Property Trustee in accordance with Section 5.7. Such vesting and cessation of
title shall be effective whether or not conveyancing documents with regard to
the Debentures have been executed and delivered.
(b) The Property Trustee shall not transfer its right, title and
interest in the Debentures to the Administrative Trustees or to the Delaware
Trustee (if the Property Trustee does not also act as Delaware Trustee).
(c) The Property Trustee shall:
(i) establish and maintain a segregated non-interest bearing
trust account (the "Property Trustee Account") in the name of and under the
exclusive control of the Property Trustee on behalf of the Holders and, upon the
receipt of payments of funds made in respect of the Debentures held by the
Property Trustee, deposit such funds into the Property Trustee Account and make
payments to the Holders of the Securities from the Property Trustee Account in
accordance with Section 6.1. Funds in the Property Trustee Account shall be held
uninvested until disbursed in accordance with this Declaration. The Property
Trustee Account shall be an account that is maintained with a banking
institution the rating on whose long-term unsecured indebtedness is at least
equal to the rating assigned to the Capital Securities by a "nationally
recognized statistical rating organization", as that term is defined for
purposes of Rule 436(g)(2) under the Securities Act;
(ii) engage in such ministerial activities as shall be
necessary or appropriate to effect the redemption of the Capital Securities and
the Common Securities to the extent the Debentures are redeemed or mature; and
(iii) upon written notice issued by the Administrative
Trustees in accordance with the terms of the Securities, engage in such
ministerial activities as shall be necessary or appropriate to effect the
distribution of the Debentures to Holders of Securities upon the occurrence of
certain events.
(d) The Property Trustee shall take all actions and perform such
duties as may be specifically required of the Property Trustee pursuant to the
terms of the Securities.
(e) Subject to Section 3.9(a) and this Section 3.8(e), the Property
Trustee shall have the exclusive right to take any Legal Action which arises out
of or in connection with an Event of Default of which a Responsible Officer of
the Property Trustee has actual knowledge or the Property Trustee's duties and
obligations under this Declaration or the Trust Indenture Act so require, and if
such Property Trustee shall have failed to take such Legal Action, the foregoing
to the contrary notwithstanding, the Holders of the Capital Securities may take
such Legal Action, to the same extent as if such Holders of Capital Securities
held an aggregate principal amount of Debentures equal to the aggregate
Liquidation Amount of such Capital Securities, without first proceeding against
the Property Trustee or the Trust; provided however, that if an Event of Default
has occurred and is continuing and such event is attributable to the failure of
the Debenture Issuer to pay the principal of or premium, if any, or interest on
the Debentures on the date such principal, premium, if any, or interest is
otherwise payable (or in the case of redemption, on the redemption date), then,
the foregoing to the contrary notwithstanding, a Holder of Capital Securities
may directly institute a proceeding for enforcement of payment to such Holder of
the principal of or premium, if any, or interest on the Debentures having a
principal amount equal to the aggregate Liquidation Amount of the Capital
Securities of such Holder (a "Direct Action") on or after the respective due
date specified in the Debentures. In connection with such Direct Action, the
rights of the Holders of Common Securities will be subrogated to the rights of
Holders of Capital Securities to the extent of any payment made by the Debenture
Issuer to Holders of Capital Securities in such Direct Action. Except as
provided in the preceding sentences, the Holders of Capital Securities will not
be able to exercise directly any other remedy available to the holders of the
Debentures.
(f) The Property Trustee shall not resign as a Trustee unless
either:
(i) the Trust has been completely liquidated and the proceeds
of the liquidation distributed to the Holders of Securities pursuant to the
terms of the Securities; or
(ii) a Successor Property Trustee has been appointed and has
accepted that appointment in accordance with Section 5.7(a).
(g) The Property Trustee shall have the legal power to exercise all
of the rights, powers and privileges of a holder of Debentures under the
Indenture and, if an Event of Default actually known to a Responsible Officer of
the Property Trustee occurs and is continuing, the Property Trustee shall, for
the benefit of Holders, enforce its rights as holder of the Debentures subject
to the rights of the Holders pursuant to the terms of such Securities.
(h) The Property Trustee shall be authorized to undertake any
actions set forth in ss. 317(a) of the Trust Indenture Act.
(i) Subject to Section 7.4 hereof, for such time as the Property
Trustee is the Paying Agent, the Property Trustee may authorize one or more
Persons to act as additional Paying Agents and to pay Distributions, redemption
payments or liquidation payments on behalf of the Trust with respect to all
Securities and any such Paying Agent shall comply with ss. 317(b) of the Trust
Indenture Act. Any such additional Paying Agent may be removed by the Property
Trustee at any time the Property Trustee remains as Paying Agent and a successor
Paying Agent or additional Paying Agents may be (but is not required to be)
appointed at any time by the Property Trustee.
(j) Subject to this Section 3.8, the Property Trustee shall have
none of the duties, liabilities, powers or the authority of the Administrative
Trustees set forth in Section 3.6.; provided, however, that if the
Administrative Trustees appoint the Property Trustee as Registrar, Exchange
Agent or Paying Agent pursuant to Section 3.6(a)(xii), the Property Trustee
shall have the power hereunder to serve in any such capacity and perform the
duties and obligations related thereto.
(k) The Property Trustee must exercise the powers set forth in this
Section 3.8 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and the Property Trustee shall not take any
action that is inconsistent with the purposes and functions of the Trust set out
in Section 3.3.
SECTION 3.9 CERTAIN DUTIES AND RESPONSIBILITIES OF THE PROPERTY TRUSTEE.
(a) The Property Trustee, before the occurrence of any Event of
Default and after the curing of all Events of Default that may have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Declaration and in the Securities and no implied covenants shall be read
into this Declaration against the Property Trustee. In case an Event of Default
has occurred (that has not been cured or waived pursuant to Section 2.6) of
which a Responsible Officer of the Property Trustee has actual knowledge, the
Property Trustee shall exercise such of the rights and powers vested in it by
this Declaration, and use the same degree of care and skill in their exercise,
as a prudent Person would exercise or use under the circumstances in the conduct
of his or her own affairs.
(b) No provision of this Declaration shall be construed to relieve
the Property Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after
the curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Property Trustee
shall be determined solely by the express provisions of this Declaration and of
the Securities, and the Property Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set forth in this
Declaration and in the Securities, and no implied covenants or obligations shall
be read into this Declaration against the Property Trustee; and
(B) in the absence of bad faith on the part of the
Property Trustee, the Property Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Property Trustee and conforming to the
requirements of this Declaration; provided, however, that in the case of any
such certificates or opinions that by any provision hereof are specifically
required to be furnished to the Property Trustee, the Property Trustee shall be
under a duty to examine the same to determine whether or not they conform to the
requirements of this Declaration;
(ii) the Property Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Property Trustee,
unless it shall be proved that the Property Trustee was negligent in
ascertaining the pertinent facts;
(iii) the Property Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of not less than a Majority in Liquidation Amount
of the Securities relating to the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee under the Indenture
with respect to the Debentures, or exercising any right or power conferred upon
the Property Trustee under this Declaration;
(iv) no provision of this Declaration shall require the
Property Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the exercise
of any of its rights or powers, if it shall have reasonable grounds for
believing that the repayment of such funds or liability is not reasonably
assured to it under the terms of this Declaration or indemnity reasonably
satisfactory to the Property Trustee against such risk or liability is not
reasonably assured to it;
(v) the Property Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the Debentures and the
Property Trustee Account shall be to deal with such property in a similar manner
as the Property Trustee deals with similar property for its own account, subject
to the protections and limitations on liability afforded to the Property Trustee
under this Declaration, the Business Trust Act and the Trust Indenture Act;
(vi) the Property Trustee shall have no duty or liability for
or with respect to the value, genuineness, existence or sufficiency of the
Debentures or the payment of any taxes or assessments levied thereon or in
connection therewith;
(vii) the Property Trustee shall not be liable for any
interest on any money received by it except as it may otherwise agree in writing
with the Sponsor. Money held by the Property Trustee need not be segregated from
other funds held by it except in relation to the Property Trustee Account
maintained by the Property Trustee pursuant to Section 3.8(c)(i) and except to
the extent otherwise required by law; and
(viii) the Property Trustee shall not be responsible for
monitoring the compliance by the Administrative Trustees or the Sponsor with
their respective duties under this Declaration, nor shall the Property Trustee
be liable for any default or misconduct of the Administrative Trustees or the
Sponsor.
SECTION 3.10 CERTAIN RIGHTS OF PROPERTY TRUSTEE.
(a) Subject to the provisions of Section 3.9:
(i) the Property 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 Sponsor or the Administrative
Trustees contemplated by this Declaration may be sufficiently evidenced by an
Officers' Certificate;
(iii) whenever in the administration of this Declaration, the
Property Trustee shall deem it desirable that a matter be proved or established
before taking, suffering or omitting any action hereunder, the Property Trustee
(unless other evidence is herein specifically prescribed) may, in the absence of
bad faith on its part, request and conclusively rely upon an Officers'
Certificate which, upon receipt of such request, shall be promptly delivered by
the Sponsor or the Administrative Trustees;
(iv) the Property Trustee shall have no duty to see to any
recording, filing or registration of any instrument (including any financing or
continuation statement or any filing under tax or securities laws) or any
rerecording, refiling or registration thereof;
(v) the Property Trustee may consult with counsel or other
experts of its selection and the advice or opinion of such counsel and experts
with respect to legal matters or advice within the scope of such experts' area
of expertise shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted by it hereunder in good faith and in
accordance with such advice or opinion. Such counsel may be counsel to the
Sponsor or any of its Affiliates, and may include any of its employees. The
Property Trustee shall have the right at any time to seek instructions
concerning the administration of this Declaration from any court of competent
jurisdiction;
(vi) the Property Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Declaration at the
request or direction of any Holder, unless such Holder shall have provided to
the Property Trustee security and indemnity, reasonably satisfactory to the
Property Trustee, against the costs, expenses (including reasonable attorneys'
fees and expenses and the expenses of the Property Trustee's agents, nominees or
custodians) 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 Property Trustee; PROVIDED, HOWEVER, that nothing contained in this Section
3.10(a)(vi) shall be taken to relieve the Property Trustee, upon the occurrence
of an Event of Default, of its obligation to exercise the rights and powers
vested in it by this Declaration;
(vii) the Property Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Property Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit;
(viii) the Property Trustee may execute any of the rights or
powers hereunder or perform any duties hereunder either directly or by or
through agents, custodians, nominees or attorneys and the Property Trustee shall
not be required to supervise, nor shall it be responsible for any misconduct or
negligence on the part of, any agent or attorney appointed with due care by it
hereunder;
(ix) any action taken by the Property Trustee or its agents
hereunder shall bind the Trust and the Holders of the Securities, and the
signature of the Property Trustee or its agents alone shall be sufficient and
effective to perform any such action and no third party shall be required to
inquire as to the authority of the Property Trustee so to act or as to its
compliance with any of the terms and provisions of this Declaration, both of
which shall be conclusively evidenced by the Property Trustee's or its agent's
taking such action;
(x) whenever in the administration of this Declaration the
Property Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder, the Property
Trustee (A) may request written instructions from the Holders of the Securities
which instructions may only be given by the Holders of the same proportion in
Liquidation Amount of the Securities as would be entitled to direct the Property
Trustee under the terms of the Securities in respect of such remedy, right or
action, (B) may refrain from enforcing such remedy or right or taking such other
action until such instructions are received, and (C) shall be protected in
conclusively relying on or acting in accordance with such instructions;
(xi) the Property Trustee shall not be under any obligation to
take any action that is discretionary under the provisions of this Declaration;
and
(xii) the Property Trustee shall not be liable for any action
taken, suffered, or omitted to be taken by it in good faith, without negligence,
and reasonably believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Declaration.
(b) No provision of this Declaration shall be deemed to impose any
duty or obligation on the Property Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Property Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Property Trustee
shall be construed to be a duty.
(c) Whether or not therein expressly so provided, every provision of
this Declaration relating to the conduct or affecting the liability of or
affording protection to the Property Trustee shall be subject to the provisions
of this Section.
SECTION 3.11 DELAWARE TRUSTEE.
Notwithstanding any other provision of this Declaration other than
Section 5.2, 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 Administrative Trustees or the Property Trustee described in this
Declaration. Except as set forth in Section 5.2, the Delaware Trustee shall be a
Trustee for the sole and limited purpose of fulfilling the requirements of ss.
3807 of the Business Trust Act. Without limiting the generality of the
foregoing, the Delaware Trustee shall not be responsible for monitoring the
compliance by the Administrative Trustees, the Property Trustee or the Sponsor
with their respective duties under this Declaration, nor shall the Delaware
Trustee be liable for any default or misconduct of any of the Administrative
Trustees, the Property Trustee or the Sponsor.
SECTION 3.12 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained in this Declaration and the Securities shall
be taken as the statements of the Sponsor, and the Trustees do not assume any
responsibility for their correctness. The Trustees make no representations as to
the value or condition of the property of the Trust or any part thereof. The
Trustees make no representations as to the validity or sufficiency of this
Declaration or the Securities.
SECTION 3.13 DURATION OF TRUST.
The Trust, unless dissolved pursuant to the provisions of Article
VIII hereof, shall have existence up to April 15, 2033.
SECTION 3.14 MERGERS.
(a) The Trust may not merge or convert with or into, consolidate,
amalgamate, or be replaced by, or convey, transfer or lease its properties and
assets substantially as an entirety to any Person, except as described in
Section 3.14(b) and (c).
(b) The Trust may, at the request of the Sponsor as the holder of
all the outstanding Common Securities, with the consent of the Administrative
Trustees or, if there are more than two, a majority of the Administrative
Trustees and without the consent of the Holders, the Delaware Trustee or the
Property Trustee, merge or convert with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to, a trust organized as such under the
laws of any State; provided that:
(i) such successor entity (the "Successor Entity") either:
(A) expressly assumes all of the obligations of the
Trust under the Securities: or
(B) substitutes for the Securities other securities
having substantially the same terms as the Securities (the "Successor
Securities") so long as the Successor Securities rank the same as the Securities
rank with respect to Distributions and payments upon liquidation, redemption and
otherwise;
(ii) the Sponsor expressly appoints a trustee of the Successor
Entity that possesses the same powers and duties as the Property Trustee as the
holder of the Debentures;
(iii) the Successor Securities are listed, or any Successor
Securities will be listed upon notification of issuance, on any national
securities exchange or with another organization on which the Capital Securities
are then listed or quoted, if any;
(iv) such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not cause the Capital Securities
(including any Successor Securities) to be downgraded by any two nationally
recognized statistical rating organizations;
(v) such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the Holders of the Securities (including any
Successor Securities) in any material respect (other than any dilution of such
Holders' interests in the new entity);
(vi) such Successor Entity has a purpose identical to that of
the Trust;
(vii) prior to such merger, conversion, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Sponsor has
received an opinion of an independent counsel to the Trust experienced in such
matters to the effect that:
(A) such merger, conversion, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the Holders (including any
Successor Securities) in any material respect (other than with respect to any
dilution of the Holders' interest in the new entity); and
(B) following such merger, conversion, consolidation,
amalgamation, replacement, conveyance, transfer or lease, neither the Trust nor
the Successor Entity will be required to register as an Investment Company; and
(viii) the Sponsor or any permitted successor or assignee owns
all of the common securities of such Successor Entity and guarantees the
obligations of such Successor Entity under the Successor Securities at least to
the extent provided by the Capital Securities Guarantee and the Common
Securities Guarantee.
(c) Notwithstanding Section 3.14(b), the Trust shall not, except
with the consent of the Holders of 100% in Liquidation Amount of the Securities,
consolidate, amalgamate, merge or convert with or into, or be replaced by, or
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to, any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger, conversion, replacement, conveyance,
transfer or lease would cause the Trust or the Successor Entity not to be
classified as a grantor trust for United States federal income tax purposes.
ARTICLE IV
SPONSOR
SECTION 4.1 SPONSOR'S PURCHASE OF COMMON SECURITIES.
At the Closing Time, the Sponsor will purchase all of the Common
Securities then issued by the Trust, in a Liquidation Amount equal to at least
3% of the total capital of the Trust, at the same time as the Initial Capital
Securities are issued and sold.
SECTION 4.2 RESPONSIBILITIES OF THE SPONSOR.
(a) In connection with the issue and sale of the Capital Securities
and the Common Securities, the Sponsor shall have the exclusive right and
responsibility to engage in the following activities:
(i) to prepare the Offering Memorandum and to prepare for
filing by the Trust with the Commission any Registration Statement, including
any amendments thereto, as contemplated by the Registration Rights Agreement (or
to delegate such preparation to the Administrative Trustees pursuant to Section
3.6(a)(ii)(A) hereof);
(ii) to determine the States in which to take appropriate
action to qualify or register for sale all or part of the Capital Securities and
to do any and all such acts, other than actions which must be taken by the
Trust, and advise the Trust of actions it must take, and prepare for execution
and filing any documents to be executed and filed by the Administrative Trustees
pursuant to Section 3.6(a)(ii)(B) hereof, as the Sponsor deems necessary or
advisable in order to comply with the applicable laws of any such States;
(iii) if deemed necessary or advisable by the Sponsor, to
prepare for execution and filing by the Administrative Trustees pursuant to
Section 3.6(a)(ii)(C) hereof, an application to the New York Stock Exchange or
any other national stock exchange or the Nasdaq National Market for listing or
quotation of the Capital Securities;
(iv) if required, to prepare for filing by the Administrative
Trustees pursuant to Section 3.6(a)(ii)(E) hereof with the Commission a
registration statement on Form 8-A relating to the registration of the Capital
Securities under Section 12(b) of the Exchange Act, including any amendments
thereto; and
(v) to negotiate the terms and cause the preparation of the
Purchase Agreement and the Registration Rights Agreement providing for the sale
and registration, respectively, of the Capital Securities for execution by the
Administrative Trustees pursuant to Section 3.6(a)(ii)(F) hereof .
SECTION 4.3 RIGHT TO PROCEED.
The Sponsor acknowledges the rights of the Holders of Capital
Securities, in the event that a failure of the Trust to pay Distributions on the
Capital Securities is attributable to the failure of the Debenture Issuer to pay
interest or principal on the Debentures, to institute a proceeding directly
against the Debenture Issuer for enforcement of its payment obligations on the
Debentures.
ARTICLE V
TRUSTEES
SECTION 5.1 NUMBER OF TRUSTEES; APPOINTMENT OF CO-TRUSTEE.
The number of Trustees initially shall be five (5), and:
(a) at any time before the issuance of any Securities, the Sponsor
may, by written instrument, increase or decrease the number of Trustees; and
(b) after the issuance of any Securities, the number of Trustees may
be increased or decreased by vote of the Holders of a Majority in Liquidation
Amount of the Common Securities voting as a class at a meeting of the Holders of
the Common Securities; provided, however, that, the number of Trustees shall in
no event be less than two (2); provided further that (1) one Trustee, in the
case of a natural Person, shall be a Person who is a resident of the State of
Delaware or that, if not a natural Person, is an entity which has its principal
place of business in the State of Delaware (the "Delaware Trustee"); (2) there
shall be at least one Trustee who is an employee or officer of, or is affiliated
with the Sponsor (an "Administrative Trustee"); and (3) one Trustee shall be the
Property Trustee for so long as this Declaration is required to qualify as an
indenture under the Trust Indenture Act, and such Trustee may also serve as
Delaware Trustee if it meets the applicable requirements. Notwithstanding the
above, unless an Event of Default shall have occurred and be continuing, for the
purpose of meeting the legal requirements of the Trust Indenture Act or of any
jurisdiction in which any part of the Trust's property may at the time be
located, the Holders of a Majority in Liquidation Amount of the Common
Securities acting as a class at a meeting of the Holders of the Common
Securities, and the Administrative Trustees, shall have power at any time or
times, to appoint one or more Persons either to act as a co-trustee, jointly
with the Property Trustee, of all or any part of the Trust's property, or 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 such capacity any property, title, right or power deemed necessary or
desirable, subject to the provisions of this Declaration. In case an Event of
Default has occurred and is continuing, the Property Trustee alone shall have
power to make any such appointment of a co-trustee.
SECTION 5.2 DELAWARE TRUSTEE.
As required by the Business Trust Act, one Trustee (the "Delaware
Trustee") shall be:
(a) a natural Person who is a resident of the State of Delaware; or
(b) 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 law; provided that, if the Property Trustee has its principal place
of business in the State of Delaware and otherwise meets the requirements of
applicable law, then the Property Trustee may also be the Delaware Trustee in
which case Section 3.11 shall have no application.
SECTION 5.3 PROPERTY TRUSTEE; ELIGIBILITY.
(a) There shall at all times be one Trustee (the "Property Trustee")
which shall act as Property Trustee which shall:
(i) not be an Affiliate of the Sponsor; and
(ii) be a corporation organized and doing business under the
laws of the United States of America or any State or Territory thereof or of the
District of Columbia, or a corporation or Person permitted by the Commission to
act as an institutional trustee under the Trust Indenture Act, authorized under
such laws to exercise corporate trust powers, having a combined capital and
surplus of at least 50 million U.S. dollars ($50,000,000), and subject to
supervision or examination by Federal, State, Territorial or District of
Columbia authority. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the supervising or examining
authority referred to above, then for the purposes of this Section 5.3(a)(ii),
the combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published.
(b) If at any time the Property Trustee shall cease to be eligible
to so act under Section 5.3(a), the Property Trustee shall immediately resign in
the manner and with the effect set forth in Section 5.3(c).
(c) If the Property Trustee has or shall acquire any "conflicting
interest" within the meaning of ss. 310(b) of the Trust Indenture Act, the
Property Trustee and the Holder of the Common Securities (as if it were the
obligor referred to in ss. 310(b) of the Trust Indenture Act) shall in all
respects comply with the provisions of ss. 310(b) of the Trust Indenture Act.
(d) The Capital Securities Guarantee shall be deemed to be
specifically described in this Declaration for purposes of clause (i) of the
first provision contained in Section 310(b) of the Trust Indenture Act.
(e) The initial Property Trustee shall be:
The Bank of New York
101 Barclay Street, Floor 21W
New York, New York 10286
Attention: Corporate Trust Administration
SECTION 5.4 Certain Qualifications of Administrative Trustees and
DELAWARE TRUSTEE GENERALLY.
Each Administrative Trustee and the Delaware Trustee (unless the
Property Trustee also acts as Delaware Trustee) shall be either a natural Person
who is at least 21 years of age or a legal entity otherwise satisfying the
provisions of this Declaration that shall act through one or more Authorized
Officers.
SECTION 5.5 ADMINISTRATIVE TRUSTEES.
(a) The initial Administrative Trustees shall be:
W. Marston Becker
Craig A. Nyman
Michael P. Maloney, Esq.
(b) Except as expressly set forth in this Declaration and except if
a meeting of the Administrative Trustees is called with respect to any matter
over which the Administrative Trustees have power to act, any power of the
Administrative Trustees may be exercised by, or with the consent of, any one
such Administrative Trustee.
(c) Unless otherwise determined by the Administrative Trustees, and
except as otherwise required by the Business Trust Act or applicable law, any
Administrative Trustee is authorized to execute on behalf of the Trust any
documents which the Administrative Trustees have the power and authority to
cause the Trust to execute pursuant to Section 3.6.
SECTION 5.6 DELAWARE TRUSTEE.
The initial Delaware Trustee shall be:
The Bank of New York (Delaware)
101 Barclay Street, Floor 21W
New York, New York 10286
Attention: Corporate Trust Administration
SECTION 5.7 APPOINTMENT, REMOVAL AND RESIGNATION OF TRUSTEES.
(a) Subject to Section 5.7(b), any Trustee may be appointed or
removed without cause at any time:
(i) until the issuance of any Securities, by written
instrument executed by the Sponsor;
(ii) in the case of Administrative Trustees, after the
issuance of any Securities, by vote of the Holders of a Majority in Liquidation
Amount of the Common Securities voting as a class at a meeting of the Holders of
the Common Securities;
(iii) in the case of the Property Trustee and the Delaware
Trustee, unless an Event of Default shall have occurred and be continuing after
the issuance of any Securities, by vote of the Holders of a Majority in
Liquidation Amount of the Common Securities voting as a class at a meeting of
the Holders of the Common Securities; and
(iv) in the case of the Property Trustee and the Delaware
Trustee, if an Event of Default shall have occurred and be continuing after the
issuance of the Securities, by vote of Holders of a Majority in Liquidation
Amount of the Capital Securities voting as a class at a meeting of the Holders
of the Capital Securities.
The Trustee that acts as Property Trustee shall not be removed in
accordance with Section 5.7(a) until a successor Trustee possessing the
qualifications to act as Property Trustee under Section 5.3 (a "Successor
Property Trustee") has been appointed and has accepted such appointment by
written instrument executed by such Successor Property Trustee and delivered to
the Administrative Trustees and the Sponsor.
The Trustee that acts as Delaware Trustee shall not be removed in
accordance with this Section 5.7(a) until a successor Trustee possessing the
qualifications to act as Delaware Trustee under Sections 5.2 and 5.4 (a
"Successor Delaware Trustee") has been appointed and has accepted such
appointment by written instrument executed by such Successor Delaware Trustee
and delivered to the Administrative Trustees and the Sponsor.
(b) A Trustee appointed to office shall hold office until his
successor shall have been appointed or until his death, removal or resignation.
Any Trustee may resign from office (without need for prior or subsequent
accounting) by an instrument in writing signed by the Trustee and delivered to
the Sponsor and the Trust, which resignation shall take effect upon such
delivery or upon such later date as is specified therein; provided, however,
that:
(i) No such resignation or removal of the Trustee that acts as
the Property Trustee shall be effective:
(A) until a Successor Property Trustee has been
appointed and has accepted such appointment by instrument executed by such
Successor Property Trustee and delivered to the Trust, the Sponsor and the
resigning Property Trustee; or
(B) until the assets of the Trust have been
completely liquidated and, after complying with the provisions of Section
3808(e) of the Business Trust Act, the proceeds thereof distributed to the
holders of the Securities; and
(ii) no such resignation or removal of the Trustee that acts
as the Delaware Trustee shall be effective until a Successor Delaware Trustee
has been appointed and has accepted such appointment by instrument executed by
such Successor Delaware Trustee and delivered to the Trust, the Sponsor and the
resigning Delaware Trustee.
(c) The Holders of the Common Securities shall use their best
efforts promptly to appoint a Successor Delaware Trustee or Successor Property
Trustee, as the case may be, if the Property Trustee or the Delaware Trustee
delivers an instrument of resignation in accordance with this Section 5.7.
(d) If no Successor Property Trustee or Successor Delaware Trustee
shall have been appointed and accepted appointment as provided in this Section
5.7 within 30 days after delivery of an instrument of resignation or removal,
the Property Trustee or Delaware Trustee resigning or being removed, as
applicable, may petition any court of competent jurisdiction for appointment of
a Successor Property Trustee or Successor Delaware Trustee. Such court may
thereupon, after prescribing such notice, if any, as it may deem proper and
appropriate, appoint a Successor Property Trustee or Successor Delaware Trustee,
as the case may be.
(e) No Property Trustee or Delaware Trustee shall be liable for the
acts or omissions to act of any Successor Property Trustee or Successor Delaware
Trustee, as the case may be.
SECTION 5.8 VACANCIES AMONG TRUSTEES.
If a Trustee ceases to hold office for any reason and the number of
Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees is
increased pursuant to Section 5.1, a vacancy shall occur. A resolution
certifying the existence of such vacancy by the Administrative Trustees or, if
there are more than two, a majority of the Administrative Trustees, shall be
conclusive evidence of the existence of such vacancy. The vacancy shall be
filled with a Trustee appointed in accordance with Section 5.7.
SECTION 5.9 EFFECT OF VACANCIES.
The death, resignation, retirement, removal, bankruptcy,
dissolution, liquidation, incompetence or incapacity to perform the duties of a
Trustee shall not operate to annul the Trust. Whenever a vacancy in the number
of Administrative Trustees shall occur, until such vacancy is filled by the
appointment of an Administrative Trustee in accordance with Section 5.8, the
Administrative Trustees in office, regardless of their number, shall have all
the powers granted to the Administrative Trustees and shall discharge all the
duties imposed upon the Administrative Trustees by this Declaration.
SECTION 5.10 MEETINGS.
If there is more than one Administrative Trustee, meetings of the
Administrative Trustees shall be held from time to time as needed upon the call
of any Administrative Trustee. Regular meetings of the Administrative Trustees
may be held at a time and place fixed by resolution of the Administrative
Trustees. Notice of any in-person meeting of the Administrative Trustees shall
be hand delivered or otherwise delivered in writing (including by facsimile) not
less than 24 hours before such meeting. Notice of any telephonic meeting of the
Administrative Trustees or any committee thereof shall be hand delivered or
otherwise delivered in writing (including by facsimile) not less than 24 hours
before such meeting. Notices shall contain a brief statement of the time, place
and anticipated purposes of the meeting. The presence (whether in person or by
telephone) of an Administrative Trustee at a meeting shall constitute a waiver
of notice of such meeting except where an Administrative Trustee attends a
meeting for the express purpose of objecting to the transaction of any activity
on the ground that the meeting has not been lawfully called or convened. Unless
provided otherwise in this Declaration, any action of the Administrative
Trustees may be taken at a meeting by vote of a majority of the Administrative
Trustees present (whether in person or by telephone) and eligible to vote with
respect to such matter, provided that a Quorum is present, or without a meeting
by the unanimous written consent of the Administrative Trustees. In the event
there is only one Administrative Trustee, any and all action of such
Administrative Trustee shall be evidenced by a written consent of such
Administrative Trustee.
SECTION 5.11 DELEGATION OF POWER.
(a) Any Administrative Trustee may, by power of attorney consistent
with applicable law, delegate to any other natural Person over the age of 21 his
or her power for the purpose of executing any documents contemplated in Section
3.6, including any registration statement or amendment thereto filed with the
Commission, or making any other governmental filing; and
(b) The Administrative Trustees shall have power to delegate from
time to time to such of their number or to officers of the Trust the doing of
such things and the execution of such instruments either in the name of the
Trust or the names of the Administrative Trustees or otherwise as the
Administrative Trustees may deem expedient, to the extent such delegation is not
prohibited by applicable law or contrary to the provisions of this Declaration
or the Securities.
SECTION 5.12 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which any Trustee (excluding any Administrative
Trustee that is a natural Person) may be merged or converted or with which it
may be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which such Trustee shall be a party, or any corporation
succeeding to all or substantially all the corporate trust business of such
Trustee, shall be the successor of such Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto.
SECTION 5.13 UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Declaration or in any suit against the Property Trustee for any action taken or
omitted by it as a Property Trustee, a court in its discretion may require the
filing by any party litigant in the suit of an undertaking to pay the costs of
the suit, and the court in its discretion may assess reasonable costs, including
reasonable attorney's fees and expenses, against any party litigant in the suit,
having due regard to the merits and good faith of the claims or defenses made by
the party litigant.
ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 DISTRIBUTIONS.
Each Holder shall receive Distributions in accordance with the terms
of such Holder's Securities. If and to the extent that the Debenture Issuer
makes a payment of interest (including Compounded Interest (as defined in the
Indenture), Additional Interest, additional Distributions, premium and/or
principal on the Debentures held by the Property Trustee or any other payments
pursuant to the Registration Rights Agreement with respect to the Debentures
held by the Property Trustee (but excluding Additional Sums (as defined in the
Indenture) (the amount of any such payment being a "Payment Amount"), the
Property Trustee shall and is directed, to the extent funds are available for
that purpose, to make a Distribution of the Payment Amount to Holders in
accordance with the respective terms of the Securities held by them.
ARTICLE VII
ISSUANCE OF SECURITIES
SECTION 7.1 GENERAL PROVISIONS REGARDING SECURITIES.
(a) The Administrative Trustees shall on behalf of the Trust issue
one class of capital securities representing undivided beneficial interests in
the assets of the Trust, which class may be divided into no more than two series
each having such terms as are set forth in Annex I (the "Capital Securities"),
and one class of common securities representing undivided beneficial interests
in the assets of the Trust having such terms as are set forth in Annex I (the
"Common Securities"). At such time, if ever, as the Exchange Debentures are
issued, the Administrative Trustees shall on behalf of the Trust issue one
series of capital securities representing undivided beneficial interests in the
Trust having such terms as are set forth in Annex I (the "Exchange Capital
Securities") in exchange for the Initial Capital Securities accepted for
exchange in the Exchange Offer, which Exchange Capital Securities shall not bear
the legends set forth in Section 9.2 unless the holder of the Initial Capital
Securities is either (i) a broker-dealer who purchased such Initial Capital
Securities directly from the Trust for resale pursuant to Rule 144A, or any
other available exemption, under the Securities Act, (ii) a person participating
in the distribution of the Initial Capital Securities or (iii) a Person who is
an affiliate (as defined in Rule 144A) of the Trust. The Trust shall issue no
securities or other interests in the assets of the Trust other than the Capital
Securities, the Exchange Capital Securities and the Common Securities.
(b) The consideration received by the Trust for the issuance of the
Securities shall constitute a contribution to the capital of the Trust and shall
not constitute a loan to the Trust.
(c) Upon receipt of the stated consideration in full, and the
subsequent issuance of the Securities as provided in this Declaration, the
Securities so issued shall be deemed to be validly issued, fully paid and
non-assessable.
(d) Every Person, by virtue of having become a Holder or a Capital
Security Beneficial Owner in accordance with the terms of this Declaration,
shall be deemed to have expressly assented and agreed to the terms of, and shall
be bound by, this Declaration.
SECTION 7.2 EXECUTION AND AUTHENTICATION.
(a) The Securities shall be signed on behalf of the Trust by an
Administrative Trustee. In case any Administrative Trustee of the Trust who
shall have signed any of the Securities shall cease to be such Administrative
Trustee before the Securities so signed shall be delivered by the Trust, such
Securities nevertheless may be delivered as though the Person who signed such
Securities had not ceased to be such Administrative Trustee; and any Securities
may be signed on behalf of the Trust by such Persons who, at the actual date of
execution of such Security, shall be the Administrative Trustees of the Trust,
although at the date of the execution and delivery of the Declaration any such
Person was not such an Administrative Trustee.
(b) One Administrative Trustee shall sign the Capital Securities for
the Trust by manual or facsimile signature. Unless otherwise determined by the
Trust, such signature shall, in the case of Common Securities, be a manual
signature.
(c) A Capital Security shall not be valid until authenticated by the
manual signature of an authorized signatory of the Property Trustee. The
signature shall be conclusive evidence that the Capital Security has been
authenticated under this Declaration.
(d) Upon a written order of the Trust signed by one Administrative
Trustee, the Property Trustee shall authenticate the Capital Securities for
original issue. The aggregate number of Capital Securities outstanding at any
time shall not exceed the number set forth in Annex I hereto except as provided
in Section 7.6.
(e) The Property Trustee may appoint an authenticating agent
acceptable to the Administrative Trustees to authenticate Capital Securities. An
authenticating agent may authenticate Capital Securities whenever the Property
Trustee may do so. Each reference in this Declaration to authentication by the
Property Trustee includes authentication by such agent. An authenticating agent
has the same rights as the Property Trustee to deal with the Sponsor or an
Affiliate.
SECTION 7.3 FORM AND DATING.
The Capital Securities and the Property Trustee's certificate of
authentication shall be substantially in the form of Exhibit A-1 and the Common
Securities shall be substantially in the form of Exhibit A-2, each of which is
hereby incorporated in and expressly made a part of this Declaration.
Certificates representing the Securities may be printed, lithographed or
engraved or may be produced in any other manner as is reasonably acceptable to
the Administrative Trustees, as evidenced by their execution thereof. The
Securities may have letters, CUSIP or other numbers, notations or other marks of
identification or designation and such legends or endorsements required by law,
stock exchange rule, agreements to which the Trust is subject, if any, or usage
(provided that any such notation, legend or endorsement is in a form acceptable
to the Trust). The Trust at the direction of the Sponsor shall furnish any such
legend not contained in Exhibit A-1 to the Property Trustee in writing. Each
Capital Security shall be dated the date of its authentication. The terms and
provisions of the Securities set forth in Annex I and the forms of Securities
set forth in Exhibits A-1 and A-2 are part of the terms of this Declaration and
to the extent applicable, the Property Trustee, Administrative Trustees and the
Sponsor, by their execution and delivery of this Declaration, expressly agree to
be bound thereby.
(a) GLOBAL SECURITIES. Securities offered and sold to QIBs in
reliance on Rule 144A or offered and sold outside the United States to non-U.S.
Persons in offshore transactions in reliance on Regulation S, as provided in the
Purchase Agreement, shall be issued in the form of one or more permanent Global
Securities in definitive, fully registered form without Distribution coupons
with the appropriate global legends and Restricted Securities Legend set forth
in Exhibit A-1 hereto (respectively, a "Rule 144A Global Capital Security" or
"Regulation S Global Capital Security"), which shall be deposited on behalf of
the purchasers of the Capital Securities represented thereby with the Property
Trustee, at its New York office, as custodian for the Clearing Agency, and
registered in the name of the Clearing Agency or a nominee of the Clearing
Agency, duly executed by an Administrative Trustee and authenticated by the
Property Trustee as hereinafter provided. The number of Capital Securities
represented by the Rule 144A Global Capital Security and the Regulation S Global
Capital Security may from time to time be increased or decreased by adjustments
made on the records of the Property Trustee and the Clearing Agency or its
nominee as hereinafter provided.
(b) BOOK-ENTRY PROVISIONS. This Section 7.3(b) shall apply only to
the Rule 144A Global Capital Securities, the Regulation S Global Capital
Securities and such other Capital Securities in global form as may be authorized
by the Trust to be deposited with or on behalf of the Clearing Agency.
(i) An Administrative Trustee shall execute and the Property
Trustee shall authenticate and, in accordance with this Section 7.3, make
available for delivery initially one or more Rule 144A Global Capital Securities
and one or more Regulation S Global Capital Securities that (A) shall be
registered in the name of Cede & Co. or other nominee of such Clearing Agency
and (B) shall be delivered by the Property Trustee to such Clearing Agency or
pursuant to such Clearing Agency's written instructions or held by the Property
Trustee as custodian for the Clearing Agency.
(ii) Members of, or participants in, the Clearing Agency
("Participants") shall have no rights under this Declaration with respect to any
Rule 144A Global Capital Security or any Regulation S Global Capital Security
held on their behalf by the Clearing Agency or by the Property Trustee as the
custodian of the Clearing Agency or under such Rule 144A Global Capital Security
or such Regulation S Global Capital Security, and the Clearing Agency may be
treated by the Trust, the Property Trustee and any agent of the Trust or the
Property Trustee as the absolute owner of such Rule 144A Global Capital Security
or such Regulation S Global Capital Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Trust, the
Property Trustee or any agent of the Trust or the Property Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Clearing Agency or impair, as between the Clearing Agency and its
Participants, the operation of customary practices of such Clearing Agency
governing the exercise of the rights of a holder of a beneficial interest in any
Rule 144A Global Capital Security or any Regulation S Global Capital Security.
(c) DEFINITIVE CAPITAL SECURITIES. Except as provided in Section
7.9, owners of beneficial interests in a Rule 144A Global Capital Security or a
Regulation S Global Capital Security will not be entitled to receive physical
delivery of certificated Capital Securities ("Definitive Capital Securities").
Purchasers of Securities who are "accredited investors" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) and did not purchase
Capital Securities in reliance on Regulation S will receive Capital Securities
in the form of individual certificates in definitive, fully registered form
without Distribution coupons and with the Restricted Securities Legend set forth
in Exhibit A-1 hereto ("Restricted Definitive Capital Securities"); provided,
however, that upon transfer of such Restricted Definitive Capital Securities to
a QIB, such Restricted Definitive Capital Securities will, unless the Rule 144A
Global Capital Security has previously been exchanged, be exchanged for an
interest in a Rule 144A Global Capital Security pursuant to the provisions of
Section 9.2. Restricted Definitive Capital Securities will bear the Restricted
Securities Legend set forth on Exhibit A-1 unless removed in accordance with
this Section 7.3 or Section 9.2.
SECTION 7.4 REGISTRAR AND PAYING AGENT.
(a) The Trust shall maintain in The City of New York, (i) an office
or agency where Capital Securities may be presented for registration of transfer
("Registrar"), (ii) an office or agency where Capital Securities may be
presented for payment ("Paying Agent") and (iii) an office or agency where
Securities may be presented for exchange in connection with the Exchange Offer
(the "Exchange Agent"). The Registrar shall keep a register of the Capital
Securities and of their transfer. The Administrative Trustees shall appoint the
Registrar, the Paying Agent and the Exchange Agent and may appoint one or more
co-Registrars, one or more additional Paying Agents and one or more additional
Exchange Agents in such other locations as they shall determine. The term
"Registrar" includes any additional registrar, the term "Paying Agent" includes
any additional paying agent and the term "Exchange Agent" includes any
additional Exchange Agent." The Administrative Trustees may change any Registrar
or co-Registrar, Paying Agent or Exchange Agent without prior notice to any
Holder. The Paying Agent shall be permitted to resign as Paying Agent upon 30
days' written notice to the Administrative Trustees. The Administrative Trustees
shall notify the Property Trustee of the name and address of any Agent not a
party to this Declaration. If the Administrative Trustees fail to appoint or
maintain another entity as Registrar, Paying Agent or Exchange Agent, the
Property Trustee shall act as such. The Trust or any of its Affiliates may act
as Paying Agent, Registrar or Exchange Agent. The Trust shall act as Paying
Agent, Registrar and co-registrar and the Exchange Agent for the Common
Securities.
(b) The Administrative Trustees initially appoint the Property
Trustee as Registrar, Paying Agent and Exchange Agent for the Capital
Securities.
SECTION 7.5 PAYING AGENT TO HOLD MONEY IN TRUST.
The Trust shall require each Paying Agent other than the Property
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Property Trustee all money held by the Paying Agent
for the payment of Liquidation Amounts or Distributions on the Securities, and
will notify the Property Trustee if there are insufficient funds for such
purpose. While any such insufficiency continues, the Property Trustee may
require a Paying Agent to pay all money held by it to the Property Trustee. The
Trust at any time may require a Paying Agent to pay all money held by it to the
Property Trustee and to account for any money disbursed by it. Upon payment over
to the Property Trustee, the Paying Agent (if other than the Trust or an
Affiliate of the Trust) shall have no further liability for the money. If the
Trust or the Sponsor or an Affiliate of the Trust or the Sponsor acts as Paying
Agent, it shall segregate and hold in a separate trust fund or account for the
benefit of the Holders all money held by it as Paying Agent.
SECTION 7.6 REPLACEMENT SECURITIES.
If the Holder claims that a Security owned by it has been lost,
destroyed or wrongfully taken or if such Security is mutilated and is
surrendered to the Trust or in the case of the Capital Securities to the
Property Trustee, the Trust shall issue, an Administrative Trustee shall execute
and the Property Trustee shall authenticate a replacement Security if the
requirements of this Section 7.6 are satisfied. An indemnity bond must be
provided by the Holder which, in the judgment of the Property Trustee, is
sufficient to protect the Trustees, the Sponsor or any authenticating agent from
any loss which any of them may suffer if a Security is replaced. The Trust may
charge such Holder for its expenses in replacing a Security.
Every replacement Security is a substitute beneficial interest in
the Trust to the same extent as the original it replaces.
SECTION 7.7 OUTSTANDING CAPITAL SECURITIES.
(a) The Capital Securities outstanding at any time are all the
Capital Securities authenticated by the Property Trustee except for those
cancelled by it, those delivered to it for cancellation, and those described in
this Section as not outstanding.
(b) If a Capital Security is replaced (pursuant to Section 7.6
hereof), or purchased, it ceases to be outstanding unless the Property Trustee
receives proof satisfactory to it that the replaced or purchased Capital
Security is held by a bona fide purchaser satisfying the conditions of this
Declaration, including without limitation the provisions of Article IX hereof.
(c) If Capital Securities are considered redeemed, including any and
all distributions and liquidation preferences, in accordance with the terms of
this Declaration, they cease to be outstanding and Distributions on them shall
cease to accumulate.
(d) A Capital Security does not cease to be outstanding because one
of the Administrative Trustees, the Sponsor or an Affiliate of the Sponsor holds
the Security.
SECTION 7.8 CAPITAL SECURITIES IN TREASURY.
In determining whether the Holders of the required amount of
Securities have concurred in any direction, waiver or consent, Capital
Securities owned by the Administrative Trustees, the Sponsor or an Affiliate of
the Sponsor, as the case may be, shall be disregarded and deemed not to be
outstanding, except that for the purposes of determining whether the Property
Trustee shall be fully protected in relying on any such direction, waiver or
consent, only Securities which the Property Trustee actually knows are so owned
shall be so disregarded.
SECTION 7.9 TEMPORARY SECURITIES.
(a) Until definitive Securities are ready for delivery, the
Administrative Trustees may cause to be prepared and execute, and, in the case
of the Capital Securities, the Property Trustee shall authenticate temporary
Securities. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Administrative Trustees
consider appropriate for temporary Securities. Without unreasonable delay, the
Administrative Trustees shall prepare and, in the case of the Capital
Securities, the Property Trustee shall authenticate definitive Securities in
exchange for temporary Securities.
(b) A Global Capital Security deposited with the Clearing Agency or
with the Property Trustee as custodian for the Clearing Agency pursuant to
Section 7.3 shall be transferred to the beneficial owners thereof in the form of
certificated Capital Securities only if such transfer complies with Section 9.2
and (i) the Clearing Agency notifies the Company that it is unwilling or unable
to continue as Clearing Agency for such Global Capital Security or if at any
time such Clearing Agency ceases to be a "clearing agency" registered under the
Exchange Act and a clearing agency is not appointed by the Sponsor within 90
days of such notice, (ii) a Default or an Event of Default has occurred and is
continuing or (iii) the Administrative Trustees in their sole discretion elect
to cause the issuance of certificated Capital Securities.
(c) Any Global Capital Security that is transferable to the
beneficial owners thereof in the form of certificated Capital Securities
pursuant to this Section 7.9 shall be surrendered by the Clearing Agency to the
Property Trustee located in the City of New York, New York, to be so
transferred, in whole or from time to time in part, without charge, and the
Property Trustee shall authenticate and make available for delivery, upon such
transfer of each portion of such Global Capital Security, an equal aggregate
Liquidation Amount of Securities of authorized denominations in the form of
certificated Capital Securities. Any portion of a Global Capital Security
transferred pursuant to this Section shall be registered in such names as the
Clearing Agency shall direct. Any Capital Security in the form of certificated
Capital Securities delivered in exchange for an interest in the Restricted
Global Capital Security shall, except as otherwise provided by Sections 7.3 and
9.1, bear the Restricted Securities Legend set forth in Exhibit A-1 hereto.
(d) Subject to the provisions of Section 7.9(c), the Holder of a
Global Capital Security may grant proxies and otherwise authorize any Person,
including Participants and Persons that may hold interests through Participants,
to take any action which such Holder is entitled to take under this Declaration
or the Securities.
(e) In the event of the occurrence of any of the events specified in
Section 7.9(b), the Administrative Trustees will promptly make available to the
Property Trustee a reasonable supply of certificated Capital Securities in fully
registered form without distribution coupons.
SECTION 7.10 CANCELLATION.
The Administrative Trustees at any time may deliver Capital
Securities to the Property Trustee for cancellation. The Registrar, Paying Agent
and Exchange Agent shall forward to the Property Trustee any Capital Securities
surrendered to them for registration of transfer, redemption, exchange or
payment. The Property Trustee shall promptly cancel all Capital Securities
surrendered for registration of transfer, redemption, exchange, payment,
replacement or cancellation and shall dispose of canceled Capital Securities as
the Administrative Trustees direct, provided that the Property Trustee shall not
be obligated to destroy Capital Securities. The Trust may not issue new Capital
Securities to replace Capital Securities that it has redeemed or that have been
delivered to the Property Trustee for cancellation or that any Holder has
exchanged.
SECTION 7.11 CUSIP NUMBERS.
The Trust in issuing the Capital Securities may use "CUSIP" numbers
(if then generally in use), and, if so, the Property Trustee shall use "CUSIP"
numbers in notices of redemption as a convenience to Holders of Capital
Securities; provided that any such notice may state that no representation is
made as to the correctness of such numbers either as printed on the Capital
Securities or as contained in any notice of a redemption and that reliance may
be placed only on the other identification numbers printed on the Capital
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers. The Sponsor will promptly notify the Property Trustee
of any change in the CUSIP numbers.
ARTICLE VIII
DISSOLUTION OF TRUST
SECTION 8.1 DISSOLUTION OF TRUST.
(a) The Trust shall automatically dissolve:
(i) upon the bankruptcy of the Sponsor;
(ii) upon the filing of a certificate of dissolution or
liquidation or its equivalent with respect to the Sponsor;
(iii) following the distribution of a Like Amount of the
Debentures to the Holders; provided that the Property Trustee has received a
written notice from the Sponsor as the holder of all the outstanding Common
Securities directing it to terminate the Trust (which direction is at the
discretion of the Sponsor, except as provided below); provided, further, that
such distribution is conditioned on the Administrative Trustees' receipt of an
opinion by independent tax counsel experienced in such matters, which opinion
may rely on published rulings of the Internal Revenue Service, to the effect
that the Holders will not recognize any gain or loss for United States federal
income tax purposes as a result of the dissolution of the Trust and such
distribution of a Like Amount of the Debentures;
(iv) upon the entry of a decree of judicial dissolution of the
Trust by a court of competent jurisdiction;
(v) when all of the Securities shall have been called for
redemption and the amounts necessary for redemption thereof shall have been paid
to the Holders in accordance with the terms of the Securities;
(vi) upon the repayment of the Debentures or at such time as
no Debentures are outstanding;
(vii) the expiration of the term of the Trust provided in
Section 3.13; or
(viii) following the distribution of a Like Amount of the
Debentures to the Holders of the Securities pursuant to the terms thereof upon
receipt of a written notice from the Sponsor that it intends to effect a Tax
Event Maturity Shortening and directing the Administrative Trustees to dissolve
the Trust and distribute a Like Amount of the Debentures to the Holders of the
Securities.
(b) As soon as is practicable after the occurrence of an event
referred to in Section 8.1(a), the Trust shall be wound up pursuant to Section
3808 of the Business Trust Act and the Administrative Trustees shall file a
certificate of cancellation with the Secretary of State of the State of
Delaware; provided, however, that in the event of any of the events of
dissolution set forth in Sections 8.1(a)(iii), (v) or (viii), the provisions of
Section 3808(e) of the Business Trust Act shall be satisfied in advance of the
making of any payments or distributions to Holders of Securities pursuant to
this Declaration.
(c) The provisions of Section 3.9 and Article X shall survive the
dissolution of the Trust.
ARTICLE IX
TRANSFER OF INTERESTS
SECTION 9.1 TRANSFER OF SECURITIES.
(a) Securities may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this Declaration and in
the terms of the Securities. Any transfer or purported transfer of any Security
not made in accordance with this Declaration shall be null and void.
(b) Subject to this Article IX, Capital Securities may only be
transferred, in whole or in part, in accordance with the terms and conditions
set forth in this Declaration. Any transfer or purported transfer of any
security not made in accordance with this Declaration shall be null and void.
(c) Subject to Section 3.14, the Sponsor may not transfer the Common
Securities.
(d) The Registrar shall provide for the registration of Securities
and of the transfer of Securities, which will be effected without charge except
as provided in Section 7.6 hereof, but only upon payment (with such indemnity as
the Registrar may require) in respect of any tax or other governmental charges
that may be imposed in relation to it. Upon surrender for registration of
transfer of any Securities, the Registrar shall cause one or more new Securities
to be issued in the name of the designated transferee or transferees. Every
Security surrendered for registration of transfer shall be accompanied by a
written instrument of transfer in form satisfactory to the Registrar duly
executed by the Holder or such Holder's attorney duly authorized in writing.
Each Security surrendered for registration of transfer shall be canceled by the
Registrar. A transferee of a Security shall be entitled to the rights and
subject to the obligations of a Holder hereunder upon the receipt by such
transferee of a Security. By acceptance of a Security, each transferee shall be
deemed to have agreed to be bound by this Declaration.
SECTION 9.2 TRANSFER PROCEDURES AND RESTRICTIONS.
(a) GENERAL. Except as otherwise provided in Section 9.2(c), if
Capital Securities are issued upon the transfer, exchange or replacement of
Capital Securities bearing the Restricted Securities Legend set forth in Exhibit
A-1 hereto, or if a request is made to remove such Restricted Securities Legend
on Capital Securities, the Capital Securities so issued shall bear the
Restricted Securities Legend, or the Restricted Securities Legend shall not be
removed, as the case may be, unless there is delivered to the Trust and the
Property Trustee such satisfactory evidence, which shall include an Opinion of
Counsel licensed to practice law in the State of New York, as may be reasonably
required by the Sponsor and the Property Trustee, that neither the legend nor
the restrictions on transfer set forth therein are required to ensure that
transfers thereof are made pursuant to an exception from the registration
requirements of the Securities Act or, with respect to Restricted Securities,
that such Securities are not "restricted" within the meaning of Rule 144. Upon
provision of such satisfactory evidence, the Property Trustee, at the written
direction of the Administrative Trustees, shall authenticate and deliver Capital
Securities that do not bear the legend.
(b) TRANSFERS AFTER EFFECTIVENESS OF A REGISTRATION STATEMENT. After
the effectiveness of a Registration Statement with respect to any Capital
Securities, all requirements pertaining to legends on such Capital Securities
will cease to apply, and beneficial interests in a Capital Security in global
form without legends will be available to transferees of such Capital
Securities, upon exchange of the transferring holder's Restricted Definitive
Capital Security or directions to transfer such Holder's beneficial interest in
the Global Capital Security. No such transfer or exchange of a Restricted
Definitive Capital Security or of an interest in the Global Capital Security
shall be effective unless the transferor delivers to the Trust a certificate in
a form substantially similar to that attached hereto as the "Form of Assignment"
in Exhibit A-1. Except as otherwise provided in Section 9.2(m), after the
effectiveness of a Registration Statement, the Trust shall issue and the
Property Trustee, upon a written order of the Trust signed by one Administrative
Trustee, shall authenticate a Capital Security in global form without the
Restricted Securities Legend (the "Unrestricted Global Capital Security") to
deposit with the Clearing Agent to evidence transfers of beneficial interests
from the (i) Global Capital Security and (ii) Restricted Definitive Capital
Securities.
(c) TRANSFER AND EXCHANGE OF DEFINITIVE CAPITAL SECURITIES. When
Definitive Capital Securities are presented to the Registrar or co-Registrar:
(x) to register the transfer of such Definitive Capital
Securities or
(y) to exchange such Definitive Capital Securities which
became mutilated, destroyed, defaced, stolen or lost, for an equal number of
Definitive Capital Securities,
the Registrar or co-Registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided, however, that the Definitive Capital Securities surrendered for
transfer or exchange:
(i) shall be duly endorsed or accompanied by a written
instrument of transfer in form reasonably satisfactory to the Trust and the
Registrar or co-Registrar, duly executed by the Holder thereof or his attorney
duly authorized in writing; and
(ii) in the case of Definitive Capital Securities that are
Restricted Definitive Capital Securities:
(A) if such Restricted Capital Securities are being
delivered to the Registrar by a Holder for registration in the name of such
Holder, without transfer, a certification from such Holder to that effect; or
(B) if such Restricted Capital Securities are being
transferred: (x) a certification from the transferor in a form substantially
similar to that attached hereto as the "Form of Assignment" in Exhibit A-1, and
(y) if the Trust or Registrar so requests, evidence reasonably satisfactory to
them as to the compliance with the restrictions set forth in the Restricted
Securities Legend.
(d) RESTRICTIONS ON TRANSFER OF A DEFINITIVE CAPITAL SECURITY FOR A
BENEFICIAL INTEREST IN A GLOBAL CAPITAL SECURITY. A Definitive Capital Security
may not be exchanged for a beneficial interest in a Global Capital Security
except upon satisfaction of the requirements set forth below. Upon receipt by
the Property Trustee of a Definitive Capital Security, duly endorsed or
accompanied by appropriate instruments of transfer, in form satisfactory to the
Property Trustee, together with:
(i) if such Definitive Capital Security is a Restricted
Capital Security, a written certificate (in a form substantially similar to that
attached hereto as the "Form of Assignment" in Exhibit A-1); provided, however,
that such Definitive Capital Security may only be exchanged for an interest in a
Regulation S Global Security where such Definitive Capital Security is being
transferred pursuant to Regulation S or Rule 144 (if available); and
(ii) whether or not such Definitive Capital Security is a
Restricted Capital Security, written instructions directing the Property Trustee
to make, or to direct the Clearing Agency to make, an adjustment on its books
and records with respect to the appropriate Global Capital Security to reflect
an increase in the number of the Capital Securities represented by such Global
Capital Security, then the Property Trustee shall cancel such Definitive Capital
Security and cause, or direct the Clearing Agency to cause, the aggregate number
of Capital Securities represented by the appropriate Global Capital Security to
be increased accordingly. If no Global Capital Securities are then outstanding,
the Trust shall issue and the Property Trustee shall authenticate, upon written
order of any Administrative Trustee, an appropriate number of Capital Securities
in global form.
(e) TRANSFER AND EXCHANGE OF GLOBAL CAPITAL SECURITIES. Subject to
Section 9.2(f), the transfer and exchange of Global Capital Securities or
beneficial interests therein shall be effected through the Clearing Agency, in
accordance with this Declaration (including applicable restrictions on transfer
set forth herein, if any) and the procedures of the Clearing Agency therefor.
(f) TRANSFER OF A BENEFICIAL INTEREST IN A GLOBAL CAPITAL SECURITY
FOR A DEFINITIVE CAPITAL SECURITY.
(i) Any Person having a beneficial interest in a Global
Capital Security may upon request, but only upon 20 days prior notice to
the Property Trustee, and if accompanied by the information specified
below, exchange such beneficial interest for a Definitive Capital Security
representing the same number of Capital Securities. Upon receipt by the
Property Trustee from the Clearing Agency or its nominee on behalf of any
Person having a beneficial interest in a Global Capital Security of
written instructions or such other form of instructions as is customary
for the Clearing Agency or the Person designated by the Clearing Agency as
having such a beneficial interest in a Restricted Capital Security and a
certification from the transferor (in a form substantially similar to that
attached hereto as the "Form of Assignment" in Exhibit A-1), which may be
submitted by facsimile, then the Property Trustee will cause the aggregate
number of Capital Securities represented by Global Capital Securities to
be reduced on its books and records and, following such reduction, the
Administrative Trustees will execute and the Property Trustee will
authenticate and make available for delivery to the transferee a
Definitive Capital Security.
(ii) Definitive Capital Securities issued in exchange for a
beneficial interest in a Global Capital Security pursuant to this Section
9.2(f) shall be registered in such names and in such authorized
denominations as the Clearing Agency, pursuant to instructions from its
Participants or indirect participants or otherwise, shall instruct the
Property Trustee in writing. The Property Trustee shall deliver such
Capital Securities to the Persons in whose names such Capital Securities
are so registered in accordance with such instructions of the Clearing
Agency.
(g) RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL CAPITAL
SECURITIES. Notwithstanding any other provisions of this Declaration (other than
the provisions set forth in subsection (h) of this Section 9.2), a Global
Capital Security may not be transferred as a whole except by the Clearing Agency
to a nominee of the Clearing Agency or another nominee of the Clearing Agency or
by the Clearing Agency or any such nominee to a successor Clearing Agency or a
nominee of such successor Clearing Agency.
(i) Prior to the expiration of the restricted period, as
contemplated by Regulation S, beneficial interests in the Regulation S
Global Capital Security may be exchanged for beneficial interests in the
Rule 144A Global Capital Security only if such exchange occurs in
connection with a transfer of the Capital Securities pursuant to Rule 144A
and the transferor first delivers to the Property Trustee a written
certificate (in a form substantially similar to that attached hereto as
the "Form of Assignment" in Exhibit A-1) to the effect that the Capital
Securities are being transferred to a Person whom the transferor
reasonably believes to be a QIB, purchasing for its own account or the
account of a QIB in a transaction meeting the requirements of Rule 144A
and in accordance with all applicable securities laws of the states of the
United States and other jurisdictions
(ii) Beneficial interests in the Rule 144A Global Capital
Security may be transferred to a Person who takes delivery in the form of
an interest in the Regulation S Global Capital Security, whether before or
after the expiration of such restricted period, as contemplated by
Regulation S, only if the transferor first delivers to the Property
Trustee a written certificate (in a form substantially similar to that
attached hereto as the "Form of Assignment" in Exhibit A-1) to the effect
that such transfer is being made in accordance with Rule 903 or 904 of
Regulation S or Rule 144 (if available) and that, if such transfer occurs
prior to the expiration of such restricted period, the interest
transferred will be held immediately thereafter through Euroclear or
CEDEL.
(h) AUTHENTICATION OF DEFINITIVE CAPITAL SECURITIES. If at any time:
(i) there occurs a Default or an Event of Default which is
continuing, or
(ii) the Administrative Trustees, in their sole discretion, notify
the Property Trustee in writing that they elect to cause the issuance of
Definitive Capital Securities under this Declaration,
then the Administrative Trustees will execute, and the Property Trustee, upon
receipt of a written order of the Trust signed by one Administrative Trustee
requesting the authentication and delivery of Definitive Capital Securities to
the Persons designated by the Trust, will authenticate and make available for
delivery Definitive Capital Securities, equal in number to the number of Capital
Securities represented by the Global Capital Securities, in exchange for such
Global Capital Securities.
(i) LEGEND.
(i) Except as permitted by the following paragraph (ii), each
Capital Security certificate evidencing the Global Capital Securities and
the Definitive Capital Securities (and all Capital Securities issued in
exchange therefor or substitution thereof, except in the Exchange Offer)
shall bear a legend (the "Restricted Securities
Legend") in substantially the following form:
THIS CAPITAL SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY
STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW.
NEITHER THIS CAPITAL SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF
AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER THIS CAPITAL
SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION
DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE
DATE HEREOF AND THE LAST DATE ON WHICH THE CORPORATION OR ANY
"AFFILIATE" OF THE CORPORATION WAS THE OWNER OF THIS CAPITAL
SECURITY (OR ANY PREDECESSOR OF THIS CAPITAL SECURITY) EXCEPT (A) TO
THE CORPORATION, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS
BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS
THIS CAPITAL SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A
UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO
OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED
STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT,
(E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF
SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE
SECURITIES ACT THAT IS ACQUIRING THIS CAPITAL SECURITY FOR ITS OWN
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED
INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR
OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF
THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT
TO THE RIGHT OF THE TRUST AND THE CORPORATION PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D), (E) OR (F) TO
REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR
OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) PURSUANT TO
CLAUSE (E), TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THE REVERSE OF THIS CAPITAL SECURITY IS COMPLETED AND
DELIVERED BY THE TRANSFEREE TO THE TRUST. SUCH HOLDER FURTHER AGREES
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS CAPITAL SECURITY IS
TRANSFERRED A NOTICE
and in the case of the Regulation S Global Capital Security
THIS CAPITAL SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS UNLESS
REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS AVAILABLE.
(ii) Upon any sale or transfer of a Restricted Capital Security
(including any Restricted Capital Security represented by a Global Capital
Security) pursuant to an effective registration statement under the
Securities Act or pursuant to Rule 144 under the Securities Act after such
registration statement ceases to be effective:
(A) in the case of any Restricted Capital Security that is a
Definitive Capital Security, the Registrar shall permit the Holder
thereof to exchange such Restricted Capital Security for a
Definitive Capital Security that does not bear the Restricted
Securities Legend and rescind any restriction on the transfer of
such Restricted Capital Security; and
(B) in the case of any Restricted Capital Security that is
represented by a Global Capital Security, the Registrar shall permit
the Holder of such Global Capital Security to exchange such Global
Capital Security for another Global Capital Security that does not
bear the Restricted Securities Legend.
(j) CANCELLATION OR ADJUSTMENT OF GLOBAL CAPITAL SECURITY. At such
time as all beneficial interests in a Global Capital Security have either been
exchanged for Definitive Capital Securities to the extent permitted by this
Declaration or redeemed, repurchased or canceled in accordance with the terms of
this Declaration, such Global Capital Security shall be returned to the Clearing
Agency for cancellation or retained and canceled by the Property Trustee. At any
time prior to such cancellation, if any beneficial interest in a Global Capital
Security is exchanged for Definitive Capital Securities, Capital Securities
represented by such Global Capital Security shall be reduced and an adjustment
shall be made on the books and records of the Property Trustee (if it is then
the custodian for such Global Capital Security) with respect to such Global
Capital Security, by the Property Trustee or the Securities custodian, to
reflect such reduction.
(k) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF CAPITAL
SECURITIES.
(i) To permit registrations of transfers and exchanges, the
Administrative Trustees shall execute and the Property Trustee shall
authenticate Definitive Capital Securities and Global Capital Securities
at the Registrar's or co-Registrar's request in accordance with the terms
of this Declaration.
(ii) Subject to Section 7.6 hereof, registrations of transfers or
exchanges will be effected without charge, but only upon payment (with
such indemnity as the Trust or the Sponsor may require) in respect of any
tax or other governmental charge that may be imposed in relation to it.
(iii) The Registrar or co-Registrar shall not be required to
register the transfer of or exchange of (a) Capital Securities during a
period beginning at the opening of business 15 days before the day of
mailing of a notice of redemption or any notice of selection of Capital
Securities for redemption and ending at the close of business on the day
of such mailing; or (b) any Capital Security so selected for redemption in
whole or in part, except the unredeemed portion of any Capital Security
being redeemed in part.
(iv) Prior to the due presentation for registration of transfer of
any Capital Security, the Trust, the Property Trustee, the Paying Agent,
the Registrar or any co-Registrar may deem and treat the Person in whose
name a Capital Security is registered as the absolute Holder of such
Capital Security for the purpose of receiving Distributions on such
Capital Security and for all other purposes whatsoever, and none of the
Trust, the Property Trustee, the Paying Agent, the Registrar or any
co-Registrar shall be affected by notice to the contrary.
(v) All Capital Securities issued upon any transfer pursuant to the
terms of this Declaration shall evidence the same security and shall be
entitled to the same benefits under this Declaration as the Capital
Securities surrendered upon such transfer or exchange.
(l) NO OBLIGATION OF THE PROPERTY TRUSTEE.
(i) The Property Trustee shall have no responsibility or obligation
to any beneficial owner of a Global Capital Security, a Participant in the
Clearing Agency or other Person with respect to the accuracy of the
records of the Clearing Agency or its nominee or of any Participant
thereof, with respect to any ownership interest in the Capital Securities
or with respect to the delivery to any Participant, beneficial owner or
other Person (other than the Clearing Agency) of any notice (including any
notice of redemption) or the payment of any amount, under or with respect
to such Capital Securities. All notices and communications to be given to
the Holders and all payments to be made to Holders under the Capital
Securities shall be given or made only to or upon the order of the
registered Holders (which shall be the Clearing Agency or its nominee in
the case of a Global Capital Security). The rights of beneficial owners in
any Global Capital Security shall be exercised only through the Clearing
Agency subject to the applicable rules and procedures of the Clearing
Agency. The Property Trustee may conclusively rely and shall be fully
protected in relying upon information furnished by the Clearing Agency or
any agent thereof with respect to its Participants and any beneficial
owners.
(ii) The Property Trustee and Registrar shall have no obligation or
duty to monitor, determine or inquire as to compliance with any
restrictions on transfer imposed under this Declaration or under
applicable law with respect to any transfer of any interest in any Capital
Security (including any transfers between or among Clearing Agency
Participants or beneficial owners in any Global Capital Security) other
than to require delivery of such certificates and other documentation or
evidence as are expressly required by, and to do so if and when expressly
required by, the terms of this Declaration, and to examine the same to
determine substantial compliance as to form with the express requirements
hereof.
(m) EXCHANGE OF INITIAL CAPITAL SECURITIES FOR EXCHANGE CAPITAL
SECURITIES. The Initial Capital Securities may be exchanged for Exchange
Securities pursuant to the terms of the Exchange Offer. The Property Trustee
shall make the exchange as follows:
(i) The Sponsor shall present the Property Trustee with an Officers'
Certificate certifying the following:
(A) the Registration Statement has become effective; and
(B) the number of Initial Capital Securities properly tendered
in the Exchange Offer that are represented by a Global Capital
Security and the number of Initial Capital Securities properly
tendered in the Exchange Offer that are represented by Definitive
Capital Securities, the name of each Holder of such Definitive
Capital Securities, the liquidation amount of Capital Securities
properly tendered in the Exchange Offer by each such Holder and the
name and address to which Definitive Capital Securities for Exchange
Capital Securities shall be registered and sent for each such
Holder.
(ii) The Property Trustee upon receipt of (A) such Officers'
Certificate, (B) an Opinion of Counsel (x) to the effect that the Exchange
Capital Securities have been registered under Section 5 of the Securities
Act and the Indenture), has been qualified under the Trust Indenture Act
and (y) with respect to the matters set forth in Section 3(p) of the
Registration Rights Agreement and (C) a Company Order (as defined in the
Indenture), shall authenticate (I) a Global Capital Security for Exchange
Capital Securities in aggregate liquidation amount equal to the aggregate
liquidation amount of Initial Capital Securities represented by a Global
Capital Security indicated in such Officers' Certificate as having been
properly tendered and (II) Definitive Capital Securities representing
Exchange Capital Securities registered in the names of, and in the
liquidation amounts indicated in such Officers' Certificate.
(iii) If, upon consummation of the Exchange Offer, less than all the
outstanding Initial Capital Securities shall have been properly tendered
and not withdrawn, the Property Trustee shall make an endorsement on the
Global Capital Security for Initial Capital Securities indicating the
reduction in the number and aggregate liquidation amount represented
thereby as a result of the Exchange Offer.
(iv) The Trust shall deliver such Definitive Capital Securities for
Exchange Capital Securities to the Holders thereof as indicated in such
Officers' Certificate.
(n) MINIMUM TRANSFERS. Initial Capital Securities may only be
transferred in minimum blocks of $100,000 aggregate Liquidation Amount until
such Initial Capital Securities are registered pursuant to an effective
registration statement filed under the Securities Act or become "unrestricted"
pursuant to Rule 144 under the Securities Act.
(o) INDEMNITY; ERISA. Each Holder of the Securities agrees to
indemnify the Sponsor and the Property Trustee against any liability that may
result from the transfer, exchange or assignment of such Holder's Securities in
violation of any provision of this Declaration and/or applicable United States
federal or state securities law.
Subject to this Article, Securities shall be freely transferable.
Notwithstanding the foregoing, Securities may not be acquired by any Person who
is, or who, in acquiring such Securities is using the assets of, an employee
benefit plan subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA Plan"), unless the acquisition of such Securities is not a
"Prohibited Transaction" (within the meaning of Section 406 of ERISA or Section
4975 of the Code) or one of the following class exemptions (or another
applicable exemption) is available to the ERISA Plan: (i) Prohibited Transaction
Class Exemption 90-1 ("PTE 90-1"), regarding investments by insurance company
pooled separate accounts, (ii) Prohibited Transaction Class Exemption 91-38
("PTE 91-38"), regarding investments by bank collective investment funds, (iii)
Prohibited Transaction Class Exemption 84-14 ("PTE 84-14"), regarding
transactions effected by qualified professional asset managers, (iv) Prohibited
Transaction Class Exemption 96-23 ("PTE 96-23"), regarding transactions effected
by in-house asset managers, or (v) Prohibited Transaction Class Exemption 95-60
("PTE 95-60"), regarding investments by insurance company general accounts. The
acquisition of Capital Securities by any Person who is, or who in acquiring such
Capital Securities is using the assets of, an ERISA Plan shall be deemed to
constitute a representation by such Person to the Trust that, if such
acquisition or the holding of Capital Securities by such Person would constitute
a Prohibited Transaction, such Person is eligible for exemptive relief available
pursuant to either one of PTE 90-1, PTE 91-38, PTE 84-14, PTE 96-23, PTE 95-60
or another applicable exemption with respect to the acquisition and holding of
such Securities. To avoid Prohibited Transactions, any ERISA Plan purchasing
Capital Securities will be deemed to have directed the Trust to invest in the
Debentures and to have appointed the Trustees.
SECTION 9.3 DEEMED SECURITY HOLDERS.
The Trustees may treat the Person in whose name any Security shall
be registered on the books and records of the Trust as the sole Holder of such
Security for purposes of receiving Distributions and for all other purposes
whatsoever and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such Security on the part of any Person, whether
or not the Trust shall have actual or other notice thereof.
SECTION 9.4 BOOK ENTRY INTERESTS.
(a) Global Capital Securities shall initially be registered on the
books and records of the Trust in the name of Cede & Co., the nominee of the
Clearing Agency, and no Capital Security Beneficial Owner will receive a
definitive Capital Security Certificate representing such Capital Security
Beneficial Owner's interests in such Global Capital Securities, except as
provided in Section 9.2. Unless and until definitive, fully registered Capital
Securities certificates have been issued to the Capital Security Beneficial
Owners pursuant to Section 9.2:
(i) the provisions of this Section 9.4 shall be in full force and
effect;
(ii) the Trust and the Trustees shall be entitled to deal with the
Clearing Agency for all purposes of this Declaration (including the
payment of Distributions on the Global Capital Securities and receiving
approvals, votes or consents hereunder) as the Holder of the Capital
Securities and the sole holder of the Global Certificates and shall have
no obligation to the Capital Security Beneficial Owners;
(iii) to the extent that the provisions of this Section 9.4 conflict
with any other provisions of this Declaration, the provisions of this
Section 9.4 shall control; and
(iv) the rights of the Capital Security Beneficial Owners shall be
exercised only through the Clearing Agency and shall be limited to those
established by law and agreements between such Capital Security Beneficial
Owners and the Clearing Agency and/or the Clearing Agency Participants and
receive and transmit payments of Distributions on the Global Certificates
to such Clearing Agency Participants. DTC will make book entry transfers
among the Clearing Agency Participants.
SECTION 9.5 NOTICES TO CLEARING AGENCY.
Whenever a notice or other communication to the Capital Security
Holders is required under this Declaration, the Trustees shall give all such
notices and communications specified herein to be given to the Holders of Global
Capital Security to the Clearing Agency, and shall have no notice obligations to
the Capital Security Beneficial Owners.
SECTION 9.6 APPOINTMENT OF SUCCESSOR CLEARING AGENCY.
If any Clearing Agency elects to discontinue its services as
securities depositary with respect to the Capital Securities the Administrative
Trustees may, in their sole discretion, appoint a successor Clearing Agency with
respect to such Capital Securities.
ARTICLE X
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 10.1 LIABILITY.
(a) Except as expressly set forth in this Declaration, the
Securities Guarantees and the terms of the Securities, the Sponsor shall not be:
(i) personally liable for the return of any portion of the capital
contributions (or any return thereon) of the Holders, which shall be made
solely from assets of the Trust; or
(ii) required to pay to any Holder any deficit upon dissolution of
the Trust or otherwise.
(b) The Sponsor shall be liable for all of the debts and obligations
of the Trust (other than with respect to the Securities) to the extent not
satisfied out of the Trust's assets.
(c) Pursuant to ss. 3803(a) of the Business Trust Act, the Holders
of the Capital Securities shall be entitled to the same limitation of personal
liability extended to stockholders of private corporations for profit organized
under the General Corporation Law of the State of Delaware.
SECTION 10.2 EXCULPATION.
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Trust or any Covered Person for any
loss, damage or claim incurred by reason of any act or omission performed or
omitted by such Indemnified Person in good faith on behalf of the Trust and in a
manner such Indemnified Person reasonably believed to be within the scope of the
authority conferred on such Indemnified Person by this Declaration or by law,
except that an Indemnified Person shall be liable for any such loss, damage or
claim incurred by reason of such Indemnified Person's gross negligence or
willful misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in
good faith upon the records of the Trust and upon such information, opinions,
reports or statements presented to the Trust by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Trust, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Securities might properly be paid.
SECTION 10.3 FIDUCIARY DUTY.
(a) To the extent that, at law or in equity, an Indemnified Person
has duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to any other Covered Person, an Indemnified Person acting under this
Declaration shall not be liable to the Trust or to any other Covered Person for
its good faith reliance on the provisions of this Declaration. The provisions of
this Declaration, to the extent that they restrict the duties and liabilities of
an Indemnified Person otherwise existing at law or in equity (other than the
duties imposed on the Property Trustee under the Trust Indenture Act), are
agreed by the parties hereto to replace such other duties and liabilities of
such Indemnified Person.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises between
any Covered Persons; or
(ii) whenever this Declaration or any other agreement contemplated
herein or therein provides that an Indemnified Person shall act in a
manner that is, or provides terms that are, fair and reasonable to the
Trust or any Holder of Securities,
the Indemnified Person shall resolve such conflict of interest, take such action
or provide such terms, considering in each case the relative interest of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices, and any applicable generally accepted accounting
practices or principles. In the absence of bad faith by the Indemnified Person,
the resolution, action or term so made, taken or provided by the Indemnified
Person shall not constitute a breach of this Declaration or any other agreement
contemplated herein or of any duty or obligation of the Indemnified Person at
law or in equity or otherwise.
(c) Whenever in this Declaration an Indemnified Person is permitted
or required to make a decision:
(i) in its "discretion" or under a grant of similar authority, the
Indemnified Person shall be entitled to consider such interests and
factors as it desires, including its own interests, and shall have no duty
or obligation to give any consideration to any interest of or factors
affecting the Trust or any other Person; or
(ii) in its "good faith" or under another express standard, the
Indemnified Person shall act under such express standard and shall not be
subject to any other or different standard imposed by this Declaration or
by applicable law.
SECTION 10.4 INDEMNIFICATION.
(a) (i) The Debenture Issuer shall indemnify, to the full extent
permitted by law, any Company Indemnified Person who was or is a party or
is threatened to be made a party to or otherwise becomes involved in any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by
or in the right of the Trust) by reason of the fact that he is or was a
Company Indemnified Person against expenses (including attorneys' fees and
expenses), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Trust, and,
with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. The termination of any action, suit
or proceeding by judgment, order, settlement, conviction, or upon a plea
of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the Company Indemnified Person did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Trust, and with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was
unlawful.
(ii) The Debenture Issuer shall indemnify, to the full extent
permitted by law, any Company Indemnified Person who was or is a party or
is threatened to be made a party to or otherwise becomes involved in any
threatened, pending or completed action or suit by or in the right of the
Trust to procure a judgment in its favor by reason of the fact that he is
or was a Company Indemnified Person, against expenses (including
attorneys' fees and expenses) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Trust and except that no such
indemnification shall be made in respect of any claim, issue or matter as
to which such Company Indemnified Person shall have been adjudged to be
liable to the Trust unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such Person is
fairly and reasonably entitled to indemnity for such expenses which such
Court of Chancery or such other court shall deem proper.
(iii) To the extent that a Company Indemnified Person shall be
successful on the merits or otherwise (including dismissal of an action
without prejudice or the settlement of an action without admission of
liability) in defense of any action, suit or proceeding referred to in
paragraphs (i) and (ii) of this Section 10.4(a), or in defense of any
claim, issue or matter therein, he shall be indemnified, to the full
extent permitted by law, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
(iv) Any indemnification under paragraphs (i) and (ii) of this
Section 10.4(a) (unless ordered by a court) shall be made by the Debenture
Issuer only as authorized in the specific case upon a determination that
indemnification of the Company Indemnified Person is proper in the
circumstances because he has met the applicable standard of conduct set
forth in paragraphs (i) and (ii). Such determination shall be made (1) by
the Administrative Trustees by a majority vote of a quorum consisting of
such Administrative Trustees who were not parties to such action, suit or
proceeding, (2) if such a quorum is not obtainable, or, even if
obtainable, if a quorum of disinterested Administrative Trustees so
directs, by independent legal counsel in a written opinion, or (3) by the
Common Security Holder of the Trust.
(v) Expenses (including attorneys' fees and expenses) incurred by a
Company Indemnified Person in defending or participating in a civil,
criminal, administrative or investigative action, suit or proceeding
referred to in paragraphs (i) and (ii) of this Section 10.4(a) shall be
paid by the Debenture Issuer in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf
of such Company Indemnified Person to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Debenture Issuer as authorized in this Section 10.4(a). Notwithstanding
the foregoing, no advance shall be made by the Debenture Issuer if a
determination is reasonably and promptly made (1) by the Administrative
Trustees by a majority vote of a quorum of disinterested Administrative
Trustees, (2) if such a quorum is not obtainable, or, even if obtainable,
if a quorum of disinterested Administrative Trustees so directs, by
independent legal counsel in a written opinion or (3) the Common Security
Holder of the Trust, that, based upon the facts known to the
Administrative Trustees, counsel or the Common Security Holder at the time
such determination is made, such Company Indemnified Person acted in bad
faith or in a manner that such Person did not reasonably believe to be in
or not opposed to the best interests of the Trust, or, with respect to any
criminal proceeding, that such Company Indemnified Person believed or had
reasonable cause to believe his conduct was unlawful. In no event shall
any advance be made in instances where the Administrative Trustees,
independent legal counsel or Common Security Holder reasonably determine
that such Person deliberately breached his duty to the Trust or its Common
Security Holders or Capital Security Holders.
(vi) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other paragraphs of this Section 10.4(a) shall
not be deemed exclusive of any other rights to which those seeking
indemnification and advancement of expenses may be entitled under any
agreement, vote of stockholders or disinterested directors of the
Debenture Issuer or Common Security Holders or Capital Security Holders of
the Trust or otherwise, both as to action in their official capacity and
as to action in another capacity while holding such office. All rights to
indemnification under this Section 10.4(a) shall be deemed to be provided
by a contract between the Debenture Issuer and each Company Indemnified
Person who serves in such capacity at any time while this Section 10.4(a)
is in effect. Any repeal or modification of this Section 10.4(a) shall not
affect any rights or obligations then existing.
(vii) The Debenture Issuer or the Trust may purchase and maintain
insurance on behalf of any Person who is or was a Company Indemnified
Person against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not
the Debenture Issuer would have the power to indemnify him against such
liability under the provisions of this Section 10.4(a).
(viii) For purposes of this Section 10.4(a), references to "the
Trust" shall include, in addition to the resulting or surviving entity,
any constituent entity (including any constituent of a constituent)
absorbed in a consolidation or merger, so that any Person who is or was a
director, trustee, officer or employee of such constituent entity, or is
or was serving at the request of such constituent entity as a director,
trustee, officer, employee or agent of another entity, shall stand in the
same position under the provisions of this Section 10.4(a) with respect to
the resulting or surviving entity as he would have with respect to such
constituent entity if its separate existence had continued.
(ix) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section 10.4(a) shall, unless otherwise provided
when authorized or ratified, continue as to a Person who has ceased to be
a Company Indemnified Person and shall inure to the benefit of the heirs,
executors and administrators of such a Person.
(b) The Debenture Issuer agrees to indemnify the (i) Property
Trustee, (ii) the Delaware Trustee, (iii) any Affiliate of the Property Trustee
and the Delaware Trustee, and (iv) any officers, directors, shareholders,
members, partners, employees' representatives, custodians, nominees or agents of
the Property Trustee and the Delaware Trustee (each of the Persons in (i)
through (iv) being referred to as a "Fiduciary Indemnified Person") for, and to
hold each Fiduciary Indemnified Person harmless against, any and all loss,
liability, damage, claim or expense including taxes (other than taxes based on
the income of such Fiduciary Indemnified Person) incurred without gross
negligence or bad faith on its part, arising out of or in connection with the
acceptance or administration of the trust or trusts hereunder, including the
costs and expenses (including reasonable legal fees and expenses) of defending
itself against or investigating any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder. The obligation
to indemnify as set forth in this Section 10.4(b) shall survive the satisfaction
and discharge of this Declaration.
(c) Each Indemnified Person shall give prompt notice to each
indemnifying party from whom indemnification is to be sought hereunder by such
Indemnified Person of any action threatened or commenced against it in respect
of which any indemnity is sought hereunder, enclosing a copy of all papers
served on, and notices and demands delivered to, such Indemnified Person, if
any, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability which it may have under this Section 10.4,
except to the extent that it is materially prejudiced by such failure. The
indemnifying party shall be entitled to assume the defense of any such action or
proceeding with counsel reasonably satisfactory to the Indemnified Person who
shall not, except with the consent of such Indemnified Person be counsel to the
indemnifying party. Upon assumption by the indemnifying party of the defense of
any such action or proceeding, the Indemnified Person shall have the right to
participate in such action or proceeding and to retain its own counsel, but the
indemnifying party shall not be liable for any legal fees or expenses
subsequently incurred by such Indemnified Person in connection with the defense
thereof unless (i) the indemnifying party has agreed to pay such fees and
expenses, (ii) the indemnifying party shall have failed to employ counsel
reasonably satisfactory to the Indemnified Person in a timely manner, or (iii)
the Indemnified Person shall have been advised by counsel (who shall not be
employed by such Indemnified Person and who shall be reasonably satisfactory to
the indemnifying party) that such representation would constitute an actual or
potential conflict of interests for counsel selected by the indemnifying party.
The indemnifying party shall not consent to the terms of any compromise or
settlement of any action defended by the indemnifying party in accordance with
the foregoing without the prior consent of the Indemnified Person, and the
Indemnified Person shall not consent to the terms of any compromise or
settlement of any action being defended by the indemnifying party in accordance
with the foregoing without the prior consent of the indemnifying party.
Notwithstanding the immediately preceding sentence, if at any time an
Indemnified Person shall have requested an indemnifying party to reimburse the
Indemnified Person for fees and expenses of counsel as contemplated above, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than thirty business days after receipt by such indemnifying
party of the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the Indemnified Person in accordance with such request prior to the
date of such settlement.
SECTION 10.5 OUTSIDE BUSINESSES.
Any Covered Person, the Sponsor, the Delaware Trustee and the
Property Trustee may engage in or possess an interest in other business ventures
of any nature or description, independently or with others, similar or
dissimilar to the business of the Trust, and the Trust and the Holders of
Securities shall have no rights by virtue of this Declaration in and to such
independent ventures or the income or profits derived therefrom, and the pursuit
of any such venture, even if competitive with the business of the Trust, shall
not be deemed wrongful or improper. No Covered Person, the Sponsor, the Delaware
Trustee, or the Property Trustee shall be obligated to present any particular
investment or other opportunity to the Trust even if such opportunity is of a
character that, if presented to the Trust, could be taken by the Trust, and any
Covered Person, the Sponsor, the Delaware Trustee and the Property Trustee shall
have the right to take for its own account (individually or as a partner or
fiduciary) or to recommend to others any such particular investment or other
opportunity. Any Covered Person, the Delaware Trustee and the Property Trustee
may engage or be interested in any financial or other transaction with the
Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee
or agent for, or act on any committee or body of holders of, securities or other
obligations of the Sponsor or its Affiliates.
ARTICLE XI
ACCOUNTING
SECTION 11.1 FISCAL YEAR.
The fiscal year ("Fiscal Year") of the Trust shall be the calendar
year, or such other year as is required by the Code.
SECTION 11.2 CERTAIN ACCOUNTING MATTERS.
(a) At all times during the existence of the Trust, the
Administrative Trustees shall keep, or cause to be kept, full books of account,
records and supporting documents, which shall reflect in reasonable detail, each
transaction of the Trust. The books of account shall be maintained on the
accrual method of accounting, in accordance with generally accepted accounting
principles, consistently applied. The Trust shall use the accrual method of
accounting for United States federal income tax purposes.
(b) The Administrative Trustees shall cause to be prepared and
delivered to each of the Holders of Securities, within 90 days after the end of
each Fiscal Year of the Trust, unaudited annual financial statements of the
Trust, including a balance sheet of the Trust as of the end of such Fiscal Year,
and the related statements of income or loss for such Fiscal Year prepared in
accordance with generally accepted accounting principles; provided that if the
Trust is required to comply with the periodic reporting requirements of Sections
13(a) or 15(d) of the Exchange Act, such financial statements for such Fiscal
Year shall be examined and reported on by a firm of independent certified public
accountings selected by the Administrative Trustees (which firm may be the firm
used by the Sponsor).
(c) The Administrative Trustees shall cause to be duly prepared and
delivered to each of the Holders of Securities, any annual United States federal
income tax information statement, required by the Code, containing such
information with regard to the Securities held by each Holder as is required and
at such time as is required by the Code and the Treasury Regulations.
(d) The Administrative Trustees shall cause to be duly prepared and
filed with the appropriate taxing authority, an annual United States federal
income tax return, on a Form 1041 or such other form required by United States
federal income tax law, and any other annual income tax returns required to be
filed by the Administrative Trustees on behalf of the Trust with any state or
local taxing authority.
SECTION 11.3 BANKING.
The Trust shall maintain one or more bank accounts in the name and
for the sole benefit of the Trust; provided, however, that all payments of funds
in respect of the Debentures held by the Property Trustee shall be made directly
to the Property Trustee Account and no other funds of the Trust shall be
deposited in the Property Trustee Account. The sole signatories for such
accounts shall be designated by the Administrative Trustees; provided, however,
that the Property Trustee shall designate the signatories for the Property
Trustee Account.
SECTION 11.4 WITHHOLDING.
The Trust and the Administrative Trustees shall comply with all
withholding requirements under United States federal, state and local law. The
Trust shall request, and the Holders shall provide to the Trust, such forms or
certificates as are necessary to establish an exemption from withholding with
respect to each Holder, and any representations and forms as shall reasonably be
requested by the Trust to assist it in determining the extent of, and in
fulfilling, its withholding obligations. The Administrative Trustees shall file
required forms with applicable jurisdictions and, unless an exemption from
withholding is properly established by a Holder, shall remit amounts withheld
with respect to the Holder to applicable jurisdictions. To the extent that the
Trust is required to withhold and pay over any amounts to any authority with
respect to Distributions or allocations to any Holder, the amount withheld shall
be deemed to be a Distribution in the amount of the withholding to the Holder.
In the event of any claimed over-withholding, Holders shall be limited to an
action against the applicable jurisdiction. If the amount required to be
withheld was not withheld from actual Distributions made, the Trust may reduce
subsequent Distributions by the amount of such withholding.
ARTICLE XII
AMENDMENTS AND MEETINGS
SECTION 12.1 AMENDMENTS.
(a) Except as otherwise provided in this Declaration or by any
applicable terms of the Securities, this Declaration may only be amended by a
written instrument approved and executed by:
(i) the Administrative Trustees (or if there are more than two
Administrative Trustees a majority of the Administrative Trustees);
(ii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Property Trustee, the Property Trustee;
and
(iii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Delaware Trustee, the Delaware Trustee.
(b) No amendment shall be made, and any such purported amendment
shall be void and ineffective:
(i) unless, in the case of any proposed amendment, the Property
Trustee shall have first received an Officers' Certificate from each of
the Trust and the Sponsor that such amendment is permitted by, and
conforms to, the terms of this Declaration (including the terms of the
Securities);
(ii) unless, in the case of any proposed amendment which affects the
rights, powers, duties, obligations or immunities of the Property Trustee,
the Property Trustee shall have first received:
(A) an Officers' Certificate from each of the Trust and the
Sponsor that such amendment is permitted by, and conforms to, the
terms of this Declaration (including the terms of the Securities);
and
(B) an Opinion of Counsel (who may be counsel to the Sponsor
or the Trust) that such amendment is permitted by, and conforms to,
the terms of this Declaration (including the terms of the
Securities),
provided, however, that the Property Trustee shall not be required to sign
any such amendment, to the extent the result of such amendment would be
to:
(1) cause the Trust to fail to continue to be classified for
purposes of United States federal income taxation as a grantor
trust;
(2) reduce or otherwise adversely affect the powers of the
Property Trustee in contravention of the Trust Indenture Act; or
(3) cause the Trust to be deemed to be an Investment Company
required to be registered under the Investment Company Act;
(c) At such time after the Trust has issued any Securities that
remain outstanding, any amendment that would adversely affect the rights,
privileges or preferences of any Holder of Securities may be effected only with
such additional requirements as may be set forth in the terms of such
Securities;
(d) Sections 3.14(c) and 9.1(c) and this Section 12.1 shall not be
amended without the consent of all of the Holders of the Securities;
(e) Article IV shall not be amended without the consent of the
Holders of a Majority in Liquidation Amount of the Common Securities, and;
(f) The rights of the Holders of the Common Securities under Article
V to increase or decrease the number of, and appoint and remove Trustees, shall
not be amended without the consent of the Holders of a Majority in Liquidation
Amount of the Common Securities; and
(g) Notwithstanding Section 12.1(c), this Declaration may be amended
by the Property Trustee, the Administrative Trustees and the Sponsor without the
consent of the Holders of the Securities to:
(i) cure any ambiguity, correct or supplement any provision in this
Declaration that may be inconsistent with any other provision of this
Declaration or to make any other provisions with respect to matters or
questions arising under this Declaration which shall not be inconsistent
with the other provisions of the Declaration;
(ii) to modify, eliminate or add to any provisions of this
Declaration to such extent as shall be necessary to ensure that the Trust
will be classified for United States federal income tax purposes as a
grantor trust at all times that any Securities are outstanding or to
ensure that the Trust will not be required to register as an Investment
Company under the Investment Company Act; or
(iii) to qualify or maintain qualification of this Declaration of
Trust under the Trust Indenture Act;
provided, however, that in each case, such action shall not adversely affect in
any material respect the interests of the Holders of the Securities. Any
amendments of this Declaration shall become effective when notice thereof is
sent to the Holders of the Securities.
SECTION 12.2 MEETINGS OF THE HOLDERS OF SECURITIES; ACTION BY WRITTEN
CONSENT.
(a) Meetings of the Holders of any class of Securities may be called
at any time by the Administrative Trustees (or as provided in the terms of the
Securities) to consider and act on any matter on which Holders of such class of
Securities are entitled to act under the terms of this Declaration, the terms of
the Securities or the rules of any stock exchange on which the Capital
Securities are listed or admitted for trading. The Administrative Trustees shall
call a meeting of the Holders of such class if directed to do so by the Holders
of at least 10% in Liquidation Amount of such class of Securities. Such
direction shall be given by delivering to the Administrative Trustees one or
more notices in a writing stating that the signing Holders wish to call a
meeting and indicating the general or specific purpose for which the meeting is
to be called. Any Holders calling a meeting shall specify in writing the
Security Certificates held by the Holders exercising the right to call a meeting
and only those Securities specified shall be counted for purposes of determining
whether the required percentage set forth in the second sentence of this
paragraph has been met.
(b) Except to the extent otherwise provided in the terms of the
Securities, the following provisions shall apply to meetings of Holders:
(i) notice of any such meeting shall be given to all the Holders
having a right to vote thereat at least seven days and not more than 60
days before the date of such meeting. Whenever a vote, consent or approval
of the Holders is permitted or required under this Declaration or the
rules of any stock exchange on which the Capital Securities are listed or
admitted for trading, such vote, consent or approval may be given at a
meeting of the Holders. Any action that may be taken at a meeting of the
Holders may be taken without a meeting if a consent or consents in writing
setting forth the action so taken is signed by the Holders owning not less
than the minimum amount of Securities in Liquidation Amount that would be
necessary to authorize or take such action at a meeting at which all
Holders having a right to vote thereon were present and voting. Prompt
notice of the taking of action without a meeting shall be given to the
Holders entitled to vote who have not consented in writing. The
Administrative Trustees may specify that any written ballot submitted to
the Holder for the purpose of taking any action without a meeting shall be
returned to the Trust within the time specified by the Administrative
Trustees;
(ii) each Holder may authorize any Person to act for it by proxy on
all matters in which a Holder is entitled to participate, including
waiving notice of any meeting, or voting or participating at a meeting. No
proxy shall be valid after the expiration of 11 months from the date
thereof unless otherwise provided in the proxy. Every proxy shall be
revocable at the pleasure of the Holder executing it. Except as otherwise
provided herein, all matters relating to the giving, voting or validity of
proxies shall be governed by the General Corporation Law of the State of
Delaware relating to proxies, and judicial interpretations thereunder, as
if the Trust were a Delaware corporation and the Holders were stockholders
of a Delaware corporation;
(iii) each meeting of the Holders shall be conducted by the
Administrative Trustees or by such other Person that the Administrative
Trustees may designate; and
(iv) unless the Business Trust Act, this Declaration, the terms of
the Securities, the Trust Indenture Act or the listing rules of any stock
exchange on which the Capital Securities are then listed or trading,
otherwise provides, the Administrative Trustees, in their sole discretion,
shall establish all other provisions relating to meetings of Holders,
including notice of the time, place or purpose of any meeting at which any
matter is to be voted on by any Holders, waiver of any such notice, action
by consent without a meeting, the establishment of a record date, quorum
requirements, voting in person or by proxy or any other matter with
respect to the exercise of any such right to vote.
ARTICLE XIII
REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTEE
SECTION 13.1 REPRESENTATIONS AND WARRANTIES OF PROPERTY TRUSTEE.
The Trustee that acts as initial Property Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration, and
each Successor Property Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Property Trustee's acceptance of its
appointment as Property Trustee that:
(a) The Property Trustee is a New York banking corporation with
trust powers and authority to execute and deliver, and to carry out and perform
its obligations under the terms of, this Declaration;
(b) The execution, delivery and performance by the Property Trustee
of the Declaration has been duly authorized by all necessary corporate action on
the part of the Property Trustee. The Declaration 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 Declaration by
the Property Trustee does not conflict with or constitute a breach of the
charter or by-laws of the Property Trustee; and
(d) No consent, approval or authorization of, or registration with
or notice to, any New York or federal banking authority is required for the
execution, delivery and performance by the Property Trustee of this Declaration.
SECTION 13.2 REPRESENTATIONS AND WARRANTIES OF DELAWARE TRUSTEE.
The Trustee that acts as initial Delaware Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration, and
each Successor Delaware Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Delaware Trustee's acceptance of its
appointment as Delaware Trustee that:
(a) The Delaware Trustee is 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, this Declaration;
(b) The execution, delivery and performance by the Delaware Trustee
of this Declaration has been duly authorized by all necessary corporate action
on the part of the Delaware Trustee. This Declaration has been duly executed and
delivered by the Delaware Trustee and 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' rights generally and to
general principles of equity and the discretion of the court (regardless of
whether the enforcement of such remedies is considered in a proceeding in equity
or at law);
(c) The execution, delivery and performance of this Declaration by
the Delaware Trustee does not conflict with or constitute a breach of the
charter or by-laws of the Delaware Trustee;
(d) The Delaware Trustee is 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
(e) No consent, approval or authorization of, or registration with
or notice to, any federal banking authority is required for the execution,
delivery or performance by the Delaware Trustee of this Declaration.
ARTICLE XIV
REGISTRATION RIGHTS
SECTION 14.1 REGISTRATION RIGHTS AGREEMENT; ADDITIONAL INTEREST.
(a) The Holders of the Capital Securities, the Debentures and the
Capital Securities Guarantee (collectively, the "Registrable Securities") are
entitled to the benefits of a Registration Rights Agreement. Pursuant to the
Registration Rights Agreement, the Sponsor and the Trust have agreed for the
benefit of the Holders of Registrable Securities that: (i) they will, at the
Sponsor's cost, within 150 days after February 5, 1998 (the "Issue Date"), file
a registration statement (the "Exchange Registration Statement") relating to an
Exchange Offer pursuant to which each issuer of such respective Registrable
Securities would issue amounts of such Registrable Securities as are accepted in
the Exchange Offer which shall be identical in all respects to those exchanged,
except they will have been registered under the Securities Act and will no
longer be subject to transfer restrictions under the Securities Act or the
$100,000 minimum aggregate principal or liquidation amount transfer restriction
and, if required pursuant to the terms of the Registration Rights Agreement,
file a shelf registration statement (the "Shelf Registration Statement") with
the Commission with respect to resales of the Registrable Securities, (ii) they
will use their best efforts to cause such Exchange Registration Statement and/or
Shelf Registration Statement, as the case requires, to be declared effective by
the Commission within 180 days after the Issue Date and (iii) they will use
their best efforts to maintain the Shelf Registration Statement, if any,
continuously effective under the Securities Act until the second anniversary of
the effectiveness of the Shelf Registration Statement or such earlier date as is
provided in the Registration Rights Agreement (the "Effectiveness Period"). All
references herein to such Registrable Securities shall be deemed to include, as
the context may require, the Registrable Securities into which such Securities
have been exchanged pursuant to the Exchange Registration ("Exchange
Securities") and all reference to numbers or amounts of such Securities shall be
deemed to include, as the context may require, such Exchange Securities.
(b) If (i) (A) neither the Exchange Offer Registration Statement nor
a Shelf Registration Statement is filed with the Commission on or prior to
the 150th day after the Issue Date, or (B) notwithstanding that the
Debenture Issuer and the Trust have consummated or will consummate an
Exchange Offer, the Debenture Issuer and the Trust are required to file a
Shelf Registration Statement and such Shelf Registration Statement is not
filed on or prior to the date required by the Registration Rights
Agreement, then commencing on the day after either such required filing
date, Additional Interest shall accrue on the principal amount of the
Debentures, and additional Distributions shall accumulate on the
Liquidation Amount of the Capital Securities at a rate of 0.25% per annum;
or
(ii) (A) neither the Exchange Offer Registration Statement nor a
Shelf Registration Statement is declared effective by the Commission on or
prior to the 180th day after the Issue Date or (B) notwithstanding that
the Debenture Issuer and the Trust have consummated or will consummate an
Exchange Offer, the Debenture Issuer and the Trust are required to file a
Shelf Registration Statement and such Shelf Registration Statement is not
declared effective by the Commission on or prior to the 180th day after
the Issue Date, then, commencing on the 181st day after the Issue Date,
Additional Interest shall accrue on the principal amount of the
Debentures, and additional Distributions shall accumulate on the
Liquidation Amount of the Capital Securities at a rate of 0.25% per annum;
or
(iii) (A) the Trust has not exchanged Exchange Capital Securities
for all Capital Securities or the Debenture Issuer has not exchanged
Exchange Guarantees or Exchange Subordinated Debentures for all Guarantees
or Subordinated Debentures validly tendered, in accordance with the terms
of the Exchange Offer on or prior to the 30th day after the date on which
the Exchange Offer Registration Statement was declared effective or (B) if
applicable, the Shelf Registration Statement has been declared effective
and such Shelf Registration Statement ceases to be effective at any time
prior to the third anniversary of the Issue Date or such shorter period as
may be referred to in Rule 144(k) under the Securities Act (other than
after such time as all Capital Securities have been disposed of thereunder
or otherwise cease to be Registrable Securities), then Additional Interest
shall accrue on the principal amount of the Debentures, and additional
Distributions shall accumulate on the Liquidation Amount of the Capital
Securities, at a rate of 0.25% per annum commencing on (x) the 31st day
after such effective date, in the case of (A) above, or (y) the day such
Shelf Registration Statement ceases to be effective in the case of (B)
above;
provided, however, that neither the Additional Interest rate on the Debentures,
nor the additional Distributions rate on the Liquidation Amount of the Capital
Securities, may exceed in the aggregate 0.25% per annum; provided, further,
however, that (1) upon the filing of the Exchange Offer Registration Statement
or a Shelf Registration Statement (in the case of Section 14.1(b)(i)), (2) upon
the effectiveness of the Exchange Offer Registration Statement or a Shelf
Registration Statement (in the case of Section 14.1(b)(ii), or (3) upon the
exchange of Exchange Capital Securities, Exchange Guarantees and Exchange
Subordinated Debentures for all Capital Securities, Guarantees and Subordinated
Debentures tendered (in the case of Section 14.1(b)(iii)(A)), or upon the
effectiveness of the Shelf Registration Statement which had ceased to remain
effective (in the case of Section 14.1(b)(iii)(B)), Additional Interest on the
Debentures, and additional Distributions on the Liquidation Amount of the
Capital Securities as a result of this Section 14.1(b) (or the relevant
subclause thereof), as the case may be, shall cease to accumulate.
(g) Any amounts of Additional Interest and additional Distributions
due pursuant to Sections 14.1(b)(i), (ii) or (iii) above will be payable in cash
on April 15 and October 15 of each year to the Holders on the fifteenth day
preceding the relevant Distribution date; provided, however, that the payment of
such amounts may be deferred during any Extension Period.
ARTICLE XV
MISCELLANEOUS
SECTION 15.1 NOTICES.
(a) All notices provided for in this Declaration shall be in
writing, duly signed by the party giving such notice, and shall be delivered,
telecopied or mailed by first class mail, as follows:
(i) if given to the Trust, in care of the Administrative Trustees at
the Trust's mailing address set forth below (or such other address as the
Trust may give notice of to the Holders):
Orion Capital Trust II
9 Farm Springs Road
Farmington, CT 06032
Facsimile No. (860) 674-6890
Attention: Michael P. Maloney, Esq.
Administrative Trustee
(ii) if given to the Delaware Trustee, at the mailing address set
forth below (or such other address as Delaware Trustee may give notice of
to the Holders):
The Bank of New York (Delaware)
101 Barclay Street, Floor 21W
New York, NY 10286
Facsimile No. (212) 815-5915
Attention: Corporate Trust Administration
(iii) if given to the Property Trustee, at the Property Trustee's
mailing address set forth below (or such other address as the Property
Trustee may give notice of to the Holders):
The Bank of New York
101 Barclay Street, Floor 21W
New York, NY 10286
Facsimile No. (212) 815-5915
Attention: Corporate Trust Administration
(iv) if given to the Holder of the Common Securities, at the mailing
address of the Sponsor set forth below (or such other address as the
Holder of the Common Securities may give notice to the Trust):
Orion Capital Corporation
9 Farm Springs Road
Farmington, CT 06032
Facsimile No. (860) 674-6890
Attention: Michael P. Maloney, Esq.
Senior Vice President, General
Counsel and Secretary
(v) if given to any other Holder, at the address set forth on the
books and records of the Trust.
(b) All such notices shall be deemed to have been given when
received in person, telecopied with receipt confirmed, or mailed by first class
mail, postage prepaid except that if a notice or other document is refused
delivery or cannot be delivered because of a changed address of which no notice
was given, such notice or other document shall be deemed to have been delivered
on the date of such refusal or inability to deliver.
SECTION 15.2 GOVERNING LAW.
This Declaration and the rights of the parties hereunder shall be
governed by and interpreted in accordance with the laws of the State of Delaware
and all rights and remedies shall be governed by such laws without regard to
principles of conflict of laws; provided, however, that the provisions of 12
Del. C. ss.ss. 3540 and 3561 shall not apply, and, to the fullest extent
possible, it is the intent of the parties hereto the compensation payable to any
Trustee not be subject to review by any Court whether pursuant to 12 Del. C. ss.
3560 or otherwise.
SECTION 15.3 INTENTION OF THE PARTIES.
It is the intention of the parties hereto that the Trust be
classified for United States federal income tax purposes as a grantor trust. The
provisions of this Declaration shall be interpreted to further this intention of
the parties.
SECTION 15.4 HEADINGS.
Headings contained in this Declaration are inserted for convenience
of reference only and do not affect the interpretation of this Declaration or
any provision hereof.
SECTION 15.5 SUCCESSORS AND ASSIGNS.
Whenever in this Declaration any of the parties hereto is named or
referred to, the successors and assigns of such party shall be deemed to be
included, and all covenants and agreements in this Declaration by the Sponsor
and the Trustees shall bind and inure to the benefit of their respective
successors and assigns, whether so expressed.
SECTION 15.6 PARTIAL ENFORCEABILITY.
If any provision of this Declaration, or the application of such
provision to any Person or circumstance, shall be held invalid, the remainder of
this Declaration, or the application of such provision to Persons or
circumstances other than those to which it is held invalid, shall not be
affected thereby.
SECTION 15.7 COUNTERPARTS.
This Declaration may contain more than one counterpart of the
signature page and this Declaration may be executed by the affixing of the
signature of each of the Trustees to one of such counterpart signature pages.
All of such counterpart signature pages shall be read as though one, and they
shall have the same force and effect as though all of the signers had signed a
single signature page.
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Amended and
Restated Declaration of Trust to be duly executed as of the day and year first
above written.
------------------------------------
W. Marston Becker, not in his
individual capacity but solely in
his capacity as Administrative
Trustee
------------------------------------
Craig A. Nyman, not in his
individual capacity but solely in
his capacity as Administrative
Trustee
------------------------------------
Michael P. Maloney, Esq., not in his
individual capacity but solely in
his capacity as Administrative
Trustee
THE BANK OF NEW YORK (DELAWARE), not in its
individual capacity but solely in its
capacity as Delaware Trustee
By:_________________________________
Name:
Title:
THE BANK OF NEW YORK,
not in its individual capacity but
solely in its capacity as
Property Trustee
By:__________________________________
Name:
Title:
ORION CAPITAL CORPORATION,
as Sponsor
By:__________________________________
Michael P. Maloney, Esq.
Senior Vice President, General
Counsel and Secretary
<PAGE>
ANNEX I
TERMS OF
7.701% CAPITAL SECURITIES
7.701% COMMON SECURITIES
Pursuant to Section 7.1 of the Amended and Restated Declaration of
Trust, dated as of February 5, 1998 (as amended from time to time, the
"Declaration"), the designation, rights, privileges, restrictions, preferences
and other terms and provisions of the Capital Securities and the Common
Securities (collectively, the "Securities") are set out below and supplement the
other rights and obligations of Holders of Securities contained in the
Declaration (each capitalized term used but not defined herein has the meaning
set forth in the Declaration or, if not defined in such Declaration, as defined
in the Indenture).
1. DESIGNATION AND NUMBER.
(a) CAPITAL SECURITIES. 125,000 Capital Securities of the Trust,
with an aggregate Liquidation Amount (as defined in Section 2 hereof) of one
hundred twenty-five million dollars ($125,000,000), and with a Liquidation
Amount of $1,000 per security, are hereby designated for the purposes of
identification only as "7.701% Capital Securities" (the "Capital Securities").
Upon consummation of the Exchange Offer a second series of the Capital
Securities may be issued which shall be identical in all respects to the series
of Capital Securities issued at the Closing Time except that such Capital
Securities will not be subject to (i) the transfer restrictions under the
Securities Act contained in the series of Capital Securities issued at the
Closing Time (except Private Exchange Securities (as defined in the Registration
Rights Agreement), which may be subject to such restrictions), (ii) the $100,000
minimum Liquidation Amount transfer restriction set forth in Section 9.2(n) of
the Declaration or (iii) any increase in the Distribution rate thereon under the
Registration Rights Agreement. The certificates evidencing the Capital
Securities to be issued at Closing Time shall be substantially in the form of
Exhibit A-1 to the Declaration, with such changes and additions thereto or
deletions therefrom as may be required by ordinary usage, custom or practice or
to conform to the rules of any stock exchange or quotation system on which the
Capital Securities are listed or quoted.
(b) COMMON SECURITIES. 4,000 Common Securities of the Trust with an
aggregate Liquidation Amount with respect to the assets of the Trust of four
million dollars ($4,000,000) and a Liquidation Amount with respect to the assets
of the Trust of $1,000 per security, are hereby designated for the purposes of
identification only as "7.701% Common Securities" (the "Common Securities"). The
certificates evidencing the Common Securities shall be substantially in the form
of Exhibit A-2 to the Declaration, with such changes and additions thereto or
deletions therefrom as may be required by ordinary usage, custom or practice.
2. DISTRIBUTIONS.
(a) Subject to Section 9 hereof, Distributions payable on each
Security will be fixed at a rate per annum of 7.701% (the "Coupon Rate") of the
Liquidation Amount of $1,000 per Security (the "Liquidation Amount"), such rate
being the rate of interest payable on the Debentures to be held by the Property
Trustee. Distributions not due during an Extension Period (including the first
semi-annual period during such period) in arrears for more than one semi-annual
period will bear interest thereon compounded semi-annually at the Coupon Rate
(to the extent permitted by applicable law). The term "Distributions", as used
herein, includes distributions of any such interest unless otherwise stated. A
Distribution is payable only to the extent that payments are made in respect of
the Debentures held by the Property Trustee and to the extent the Property
Trustee has funds on hand legally available therefor.
(b) Subject to Section 9 hereof, Distributions on the Securities
will be cumulative, will accumulate from the most recent date to which
Distributions have been paid or, if no Distributions have been paid, from
February 5, 1998, and will be payable semi-annually in arrears on April 15 and
October 15 of each year, commencing on April 15, 1998, except as otherwise
described below. The amount of Distributions payable for any period will be
computed on the basis of a 360-day year consisting of twelve 30-day months and,
for any period less than 6 months, the actual months elapsed and the actual days
elapsed in a partial month in such period. If any date on which Distributions
are payable on the Securities is not a Business Day, then payment of the
Distribution payable on such date shall be made on the next succeeding day that
is a Business Day (and without any interest or other payment in respect of any
such delay), with the same force and effect as if made on such date (each date
on which Distributions are payable in accordance with the foregoing, a
"Distribution Date"). So long as no Event of Default has occurred and is
continuing under the Indenture, the Debenture Issuer has the right under the
Indenture to defer payments of interest by extending the interest payment period
at any time and from time to time on the Debentures for a period not exceeding
10 consecutive semi-annual periods, including the first semi-annual period
during such period (each an "Extension Period"), provided that no Extension
Period shall extend beyond the Stated Maturity of the Debentures. Upon any such
election, Distributions will be deferred during such Extension Period.
Notwithstanding such deferral, Distributions to which Holders of Securities are
entitled shall continue to accumulate additional Distributions thereon (to the
extent permitted by applicable law but not at a rate greater than the rate at
which interest is then accruing on the Debentures) at the Coupon Rate compounded
semi-annually from the relevant Distribution Dates during any such Extension
Period. Prior to the expiration of any Extension Period, the Debenture Issuer
may further defer payments of interest by further extending such Extension
Period; provided that such Extension Period, together with all such previous and
further extensions within such Extension Period, may not exceed 10 consecutive
semi-annual periods, including the first semi-annual period during such
Extension Period, or extend beyond the Stated Maturity of the Debentures. Upon
the expiration of any Extension Period and the payment of all amounts then due,
the Debenture Issuer may commence a new Extension Period, subject to the above
requirements.
(c) Subject to Section 9 hereof, Distributions on the Securities
will be payable to the Holders thereof as they appear on the books and records
of the Trust on the fifteenth day preceding the relevant Distribution Date.
Subject to any applicable laws and regulations and the provisions of the
Declaration, each such payment in respect of the Capital Securities will be made
as follows: (i) if the Capital Securities are held in global form by a Clearing
Agency (or its nominee), in accordance with the procedures of the Clearing
Agency; and (ii) if the Capital Securities are held in definitive form, by check
mailed to the address of the Holder thereof as reflected in the records of the
Registrar unless otherwise agreed by the Trust. The relevant record dates for
the Common Securities shall be the same as the record dates for the Capital
Securities. Distributions payable on any Securities that are not punctually paid
on any Distribution Date will cease to be payable to the Holder on the relevant
record date, and such defaulted Distribution will instead be payable to the
Person in whose name such Securities are registered on the special record date
or other specified date applicable to the Debentures determined in accordance
with the Indenture, MUTATIS MUTANDIS.
(d) In the event that there is any money or other property held by
or for the Trust that is not accounted for hereunder, such property shall be
distributed on a PRO RATA basis as set forth Section 8 hereof among the Holders
of the Securities, except as otherwise required by Section 9 hereof.
3. LIQUIDATION DISTRIBUTION UPON DISSOLUTION.
In the event of any dissolution or termination of the Trust, or the
Sponsor otherwise gives notice of its election to liquidate the Trust pursuant
to Section 8.1(a)(iii) of the Declaration, the Trust shall be liquidated by the
Administrative Trustees as expeditiously as the Administrative Trustees
determine to be possible by distributing, after satisfaction of liabilities to
creditors of the Trust as provided by applicable law, and subject to Section 9
hereof, to the Holders of the Securities a Like Amount (as defined below) of the
Debentures, unless such distribution is determined by the Property Trustee not
to be practicable, in which event such Holders will be entitled to receive out
of the assets of the Trust legally available for distribution to Holders, after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law, an amount equal to the aggregate of the Liquidation Amount of $1,000 per
Security plus accumulated and unpaid Distributions thereon to the date of
payment (such amount being the "Liquidation Distribution").
"Like Amount" means (i) with respect to a redemption of the
Securities, Securities having a Liquidation Amount equal to the principal amount
of Debentures to be paid in accordance with their terms and (ii) with respect to
a distribution of Debentures upon the liquidation of the Trust, Debentures
having a principal amount equal to the Liquidation Amount of the Securities of
the Holder to whom such Debentures are distributed.
If, upon any such liquidation, the Liquidation Distribution can be
paid only in part because the Trust has insufficient assets on hand legally
available to pay in full the aggregate Liquidation Distribution, then the
amounts payable directly by the Trust on the Securities shall be paid on a PRO
RATA basis as set forth in Section 8 hereof among the Holders of the Securities,
except as otherwise required by Section 9 hereof.
4. REDEMPTION AND DISTRIBUTION.
(a) Upon the repayment of the Debentures on the Stated Maturity
thereof or prepayment thereof (in whole or in part) prior thereto in accordance
with the terms thereof, the proceeds from such repayment or prepayment shall be
simultaneously applied by the Property Trustee (subject to the Property Trustee
having received not less than 45 days written notice to the repayment date or
prepayment date) to redeem a Like Amount of the Securities at a redemption price
equal to (i) in the case of the repayment of the Debentures on the Stated
Maturity, the Maturity Redemption Price (as defined below), (ii) in the case of
the optional prepayment of the Debentures upon the occurrence and continuation
of a Special Event, the Special Event Redemption Price (as defined below) and
(iii) in the case of the optional prepayment of the Debentures other than as a
result of the occurrence and continuance of a Special Event, the Optional
Redemption Price (as defined below). The Maturity Redemption Price, the Special
Event Redemption Price and the Optional Redemption Price are referred to
collectively as the "Redemption Price".
(b) (i) The "Maturity Redemption Price", with respect to a
redemption of Securities, shall mean an amount equal to the principal of and
accrued interest on the Debentures as of the Stated Maturity thereof.
(ii) "Optional Redemption Price" shall mean the greater of (i) 100%
of the Liquidation Amount of Securities to be redeemed or (ii) the sum, as
determined by a Quotation Agent, of the present values of the remaining
scheduled payments of principal and interest on the Debentures to be prepaid
discounted to the redemption date on a semi-annual basis (assuming a 360-day
year consisting of twelve 30-day months) at the Adjusted Treasury Rate, plus, in
either case, accrued and unpaid distributions thereon to the date of redemption.
(iii) "Special Event Redemption Price" shall mean a price equal to
the greater of (i) 100% of the Liquidation Amount of Securities to be redeemed
or (ii) the sum, as determined by a Quotation Agent, of the present values of
the remaining scheduled payments of principal and interest on the Debentures,
discounted to the prepayment date on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months and, for any period less than 6 months, the
actual months elapsed and the actual days elapsed in a partial month in such
period) at the Special Event Adjusted Treasury Rate, plus, in each case,
accumulated and unpaid Distributions thereon, if any, to the date of such
prepayment.
(c) On and from the date fixed by the Administrative Trustees for
any distribution of Debentures and liquidation of the Trust and subject to
Section 9 hereof: (i) the Securities will no longer be deemed to be outstanding,
(ii) each Holder of Securities will receive a registered certificate or
certificates representing the Debentures to be delivered upon such distribution
and (iii) Securities will be deemed to represent beneficial interests in a Like
Amount of Debentures, and bearing accrued and unpaid interest in an amount equal
to the accumulated and unpaid Distributions on such Securities, until such
Securities are presented to the Administrative Trustee or their agent for
cancellation and such Debentures are transferred to the Holders of such
Securities.
(d) The Trust may not redeem fewer than all the outstanding
Securities unless all accumulated and unpaid Distributions have been paid on all
Securities for all semi-annual Distribution periods that expire on or before the
date of redemption.
(e) The procedure with respect to redemptions or distributions of
Debentures shall be as follows:
(i) Notice of any redemption of, or notice of distribution of
Debentures in exchange for, the Securities (a "Redemption/Distribution Notice")
will be given by the Trust by mail to each Holder of Securities to be redeemed
or exchanged not fewer than 30 nor more than 60 days before the date fixed for
redemption or exchange thereof which, in the case of a redemption, will be the
date fixed for repayment or prepayment of the Debentures. For purposes of the
calculation of the date of redemption or exchange and the dates on which notices
are given pursuant to this Section 4(e)(i), a Redemption/Distribution Notice
shall be deemed to be given on the day such notice is first mailed by
first-class mail, postage prepaid, to Holders of Securities. Each
Redemption/Distribution Notice shall be addressed to the Holders of Securities
at the address of each such Holder appearing in the books and records of the
Trust. No defect in the Redemption/Distribution Notice or in the mailing of
either thereof with respect to any Holder shall affect the validity of the
redemption or exchange proceedings with respect to any other Holder.
(ii) In the event that fewer than all the outstanding Securities are
to be redeemed, the Securities to be redeemed shall be allocated on a PRO RATA
basis as set forth in Section 8 hereof among the Holders of Securities, except
as otherwise required by Section 9 hereof, it being understood that, in respect
of Capital Securities registered in the name of and held of record by a Clearing
Agency or its nominee, the distribution of the proceeds of such redemption will
be made to the Clearing Agency and disbursed by such Clearing Agency in
accordance with the procedures applied by such agency or nominee.
(iii) If Securities are to be redeemed and the Trust gives a
Redemption/ Distribution Notice, such notice shall be irrevocable and (A) with
respect to Capital Securities registered in the name of or held of record by a
Clearing Agency or its nominee, by 12:00 noon, New York City time, on the
redemption date, provided that the Debenture Issuer has paid the Property
Trustee a sufficient amount of cash in connection with the related maturity or
prepayment of the Debentures by 10:00 a.m., New York City time, on the Stated
Maturity of the Debentures or the date of prepayment, as the case may be, the
Property Trustee or the Paying Agent will pay to the Clearing Agency or its
nominee funds sufficient to pay the applicable Redemption Price with respect to
such Capital Securities, and (B) with respect to Capital Securities issued in
certificated form and Common Securities, provided that the Debenture Issuer has
paid the Property Trustee a sufficient amount of cash in connection with the
related maturity or prepayment of the Debentures, the Property Trustee or the
Paying Agent will pay the relevant Redemption Price to the Holders of such
Securities against presentation to the Registrar of the certificates therefor.
If a Redemption/Distribution Notice shall have been given and funds deposited
with the Property Trustee to pay the Redemption Price (including all unpaid
Distributions) with respect to the Securities called for redemption, then
immediately prior to the close of business on the redemption date, Distributions
will cease to accumulate on the Securities so called for redemption and all
rights of Holders of such Securities so called for redemption will cease, except
the right of the Holders of such Securities to receive the Redemption Price, but
without interest on such Redemption Price, and such Securities shall cease to be
outstanding.
(iv) Payment of accumulated and unpaid Distributions on the
redemption date of any Securities will be subject to the rights of Holders of
such Securities on the close of business on a regular record date in respect of
a Distribution Date occurring on or prior to such Redemption Date.
(v) Neither the Administrative Trustees nor the Trust shall be
required to register or cause to be registered the transfer of (A) any
Securities beginning on the opening of business 15 days before the day of
mailing of a Redemption/Distribution Notice or (B) any Securities selected for
redemption (except the unredeemed portion of any Security being redeemed). If
any date fixed for redemption of Securities is not a Business Day, then payment
of the Redemption Price payable on such date will be made on the next succeeding
day that is a Business Day (and without any interest or other payment in respect
of any such delay), with the same force and effect as if made on such date fixed
for redemption. If payment of the Redemption Price in respect of any Securities
is improperly withheld or refused and not paid either by the Property Trustee or
the Paying Agent or by the Sponsor as guarantor pursuant to the relevant
Securities Guarantee, or the date fixed for redemption, Distributions on such
Securities will continue to accumulate from such redemption date to the actual
date of payment, in which case the actual payment date will be considered the
date fixed for redemption for purposes of calculating the Redemption Price.
(vi) Subject to the foregoing and applicable law (including, without
limitation, United States federal securities laws), the Sponsor or any of its
Affiliates may at any time and from time to time purchase outstanding Capital
Securities by tender, in the open market or by private agreement.
5. VOTING RIGHTS - CAPITAL SECURITIES.
(a) Except as provided under Sections 5(b) and 7 hereof and as
otherwise required by law and the Declaration, the Holders of the Capital
Securities will have no voting rights.
(b) So long as any Debentures are held by the Property Trustee for
the benefit of the Holders of the Trust Securities, the Trustees shall not (i)
direct the time, method and place of conducting any proceeding for any remedy
available to the Debenture Trustee, or executing any trust or power conferred on
such Debenture Trustee with respect to the Debentures, (ii) waive any past
default that is waivable under Section 5.07 of the Indenture, (iii) exercise any
right to rescind or annul a declaration of acceleration of the maturity of the
principal of the Debentures or (iv) consent to any amendment, modification or
termination of the Indenture or the Debentures, where such consent shall be
required, without, in each case, obtaining the prior approval of the Holders of
a majority in Liquidation Amount of all outstanding Capital Securities;
provided, however, that where a consent under the Indenture would require the
consent of each holder of Debentures affected thereby, no such consent shall be
given by the Property Trustee without the prior approval of each Holder of the
Capital Securities. The Trustees shall not revoke any action previously
authorized or approved by a vote of the Holders of the Capital Securities except
by subsequent vote of such Holders. The Property Trustee shall notify each
Holder of Capital Securities of any notice of default with respect to the
Debentures. In addition to obtaining the foregoing approvals of such Holders of
the Capital Securities, prior to taking any of the foregoing actions, the
Trustees shall obtain an Opinion of Counsel experienced in such matters to the
effect there is no more than an insubstantial risk that the Trust would not be
classified for United States federal income tax purposes as a trust subject to
the provisions of Sections 671 through 679 of the Code (a "grantor trust") on
account of such action. The foregoing provisions of this Section 5(b) shall be
in lieu of ss.ss. 316(a)(1)(A) and (B) of the Trust Indenture Act, and such
ss.ss. 316(a)(1)(A) and (B) are hereby expressly excluded from this Trust
Agreement.
(c) If an Event of Default under the Declaration has occurred and is
continuing and such event is attributable to the failure of the Debenture Issuer
to pay principal of or premium, if any, or interest on the Debentures on any due
date (including any Interest Payment Date or prepayment date or Stated Maturity
of the Debenture), then a Holder of Capital Securities may directly institute a
proceeding for enforcement of payment to such Holder of the principal of or
premium, if any, or interest on a Like Amount of Debentures (a "Direct Action")
on or after the respective due date specified in the Debentures. In connection
with such Direct Action, the rights of the Common Securities Holders will be
subrogated to the rights of the Holder of Capital Securities to the extent of
any payment made by the Debenture Issuer to the Holders of Capital Securities in
such Direct Action. Except as provided in the second preceding sentence, the
Holders of Capital Securities will not be able to exercise directly any other
remedy available to the holders of the Debentures.
(d) Any required approval of Holders of Capital Securities may be
given at a separate meeting of Holders of Capital Securities convened for such
purpose, at a meeting of all of the Holders of Securities in the Trust or
pursuant to written consent. The Administrative Trustees will cause a notice of
any meeting at which Holders of Capital Securities are entitled to vote, or of
any matter upon which action by written consent of such Holders is to be taken,
to be mailed to each Holder of record of Capital Securities. Each such notice
will include a statement setting forth (i) the date of such meeting or the date
by which such action is to be taken, (ii) a description of any resolution
proposed for adoption at such meeting on which such Holders are entitled to vote
or of such matter upon which written consent is sought and (iii) instructions
for the delivery of proxies or consent.
(e) No vote or consent of the Holders of the Capital Securities will
be required for the Trust to redeem and cancel Capital Securities or to
distribute the Debentures in accordance with the Declaration and the terms of
the Securities.
(f) Notwithstanding that Holders of Capital Securities are entitled
to vote or consent under any of the circumstances described above, any of the
Capital Securities that are owned by the Sponsor or any Affiliate of the Sponsor
shall not be entitled to vote or consent and shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
(g) If a Debenture Event of Default has occurred and is continuing,
the Property Trustee and the Delaware Trustee may be removed at such time by the
holders of a Majority in Liquidation Amount of the outstanding Capital
Securities. In no event will the holders of the Capital Securities have the
right to vote to appoint, remove or replace the Administrative Trustees, which
voting rights are vested exclusively in the Sponsor as the holder of all the
Common Securities. No resignation or removal of a 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 Declaration.
6. VOTING RIGHTS - COMMON SECURITIES.
(a) Except as provided under Sections 6(b), 6(c), and 7 and as
otherwise required by law and the Declaration, the Holders of the Common
Securities will have no voting rights.
(b) Unless a Debenture Event of Default shall have occurred and be
continuing, any Trustee may be removed at any time by the Holder of the Common
Securities. No resignation or removal of a 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 Declaration.
(c) So long as any Debentures are held by the Property Trustee for
the benefit of the Holders of the Trust Securities, the Trustees shall not (i)
direct the time, method and place of conducting any proceeding for any remedy
available to the Debenture Trustee, or execute any trust or power conferred on
such Debenture Trustee with respect to the Debentures, (ii) waive any past
default that is waivable under Section 5.07 of the Indenture, (iii) exercise any
right to rescind or annul a declaration of acceleration of the maturity of the
principal of the Debentures or (iv) consent to any amendment, modification or
termination of the Indenture or the Debentures, where such consent shall be
required, without, in each case, obtaining the prior approval of the Holders of
a majority in Liquidation Amount of all outstanding Common Securities; provided,
however, that where a consent under the Indenture would require the consent of
each holder of Debentures affected thereby, no such consent shall be given by
the Property Trustee without the prior approval of each Holder of the Common
Securities. The Trustees shall not revoke any action previously authorized or
approved by a vote of the Holders of the Common Securities except by subsequent
vote of such Holders. The Property Trustee shall notify each Holder of Common
Securities of any notice of default with respect to the Debentures. In addition
to obtaining the foregoing approvals of such Holders of the Common Securities,
prior to taking any of the foregoing actions, the Trustees shall obtain an
Opinion of Counsel experienced in such matters to the effect there is no more
than an insubstantial risk that the Trust would not be classified for United
States federal income tax purposes as a trust subject to the provisions of
Sections 671 through 679 of the Code (a "grantor trust") on account of such
action. The foregoing provisions of this Section 6(c) shall be in lieu of ss.ss.
316(a)(1)(A) and (B) of the Trust Indenture Act, and such ss.ss. 316(a)(1)(A)
and (B) are hereby expressly excluded from this Trust Agreement.
(d) If an Event of Default under the Declaration has occurred and is
continuing and such event is attributable to the failure of the Debenture Issuer
to pay principal of or premium, if any, or interest on the Debentures on the due
date (including any Interest Payment Date or prepayment date or Stated Maturity
of the Debenture), then a Holder of Common Securities may institute a Direct
Action for enforcement of payment to such Holder of the principal of or premium,
if any, or interest on a Like Amount of Debentures on or after the respective
due date specified in the Debentures. In connection with such Direct Action, the
rights of the Common Securities Holders will be subrogated to the rights of the
Holders of Capital Securities to the extent of any payment made by the Debenture
Issuer to Holders of Common Securities in such Direct Action. Except as provided
in the second preceding sentence, the Holders of Common Securities will not be
able to exercise directly any other remedy available to the holders of the
Debentures.
(e) Any required approval of Holders of Common Securities may be
given at a separate meeting of Holders of Common Securities convened for such
purpose, at a meeting of all of the Holders of Securities in the Trust or
pursuant to written consent. The Administrative Trustees will cause a notice of
any meeting at which Holders of Common Securities are entitled to vote, or of
any matter upon which action by written consent of such Holders is to be taken,
to be mailed to each Holder of record of Common Securities. Each such notice
will include a statement setting forth (i) the date of such meeting or the date
by which such action is to be taken, (ii) a description of any resolution
proposed for adoption at such meeting on which such Holders are entitled to vote
or of such matter upon which written consent is sought and (iii) instructions
for the delivery of proxies or consents.
(f) No vote or consent of the Holders of the Common Securities will
be required for the Trust to redeem and cancel Common Securities or to
distribute the Debentures in accordance with the Declaration and the terms of
the Securities.
7. AMENDMENTS TO DECLARATION AND INDENTURE.
In addition to the requirements set out in Section 12.1 of the
Declaration, the Declaration may be amended from time to time by the Sponsor as
the holder of all of the outstanding Common Securities, the Property Trustee and
the Administrative Trustees, without the consent of the Holders of the
Securities (i) to cure any ambiguity, correct or supplement any provisions in
the Declaration that may be inconsistent with any other provisions, or to make
any other provisions with respect to matters or questions arising under the
Declaration which shall not be inconsistent with the other provisions of the
Declaration, (ii) to modify, eliminate or add to any provisions of the
Declaration to such extent as shall be necessary to ensure that the Trust will
be classified for United States federal income tax purposes as a grantor trust
at all times that any Securities are outstanding or to ensure that the Trust
will not be required to register as an Investment Company under the Investment
Company Act, or (iii) to qualify or maintain qualification of the Declaration
under the Trust Indenture Act; provided, however, that in each case, such action
shall not adversely affect in any material respect the interests of any Holder
of Securities. Any amendments of the Declaration pursuant to the foregoing shall
become effective when notice thereof is sent to the Holders of the Securities.
The Declaration also may be amended by the Trustees and the Sponsor as the
holder of all the outstanding Common Securities (i) with the consent of Holders
representing a majority in Liquidation Amount of all outstanding Securities and
(ii) upon receipt by the Trustees of an Opinion of Counsel to the effect that
such amendment or the exercise of any power granted to the Trustees in
accordance with such amendment will not affect the Trust's status as a grantor
trust for United States federal income tax purposes or the Trust's exemption
from status as an Investment Company under the Investment Company Act; provided
that, without the consent of each Holder of Securities, the Declaration may not
be amended to (i) change the amount or timing of any Distribution on the
Securities or otherwise adversely affect the amount of any Distribution required
to be made in respect of the Securities as of a specified date or (ii) restrict
the right of a Holder of Securities to institute suit for the enforcement of any
such payment on or after such date.
8. PRO RATA.
A reference in these terms of the Securities to any payment,
distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder
of Securities according to the aggregate Liquidation Amount of the Securities
held by the relevant Holder in relation to the aggregate Liquidation Amount of
all Securities outstanding unless, in relation to a payment, an Event of Default
under the Declaration has occurred and is continuing, in which case any funds
available to make such payment shall be paid first to each Holder of the Capital
Securities pro rata according to the aggregate Liquidation Amount of Capital
Securities held by the relevant Holder relative to the aggregate Liquidation
Amount of all Capital Securities outstanding, and only after satisfaction of all
amounts owed to the Holders of the Capital Securities, to each Holder of Common
Securities pro rata according to the aggregate Liquidation Amount of Common
Securities held by the relevant Holder relative to the aggregate Liquidation
Amount of all Common Securities outstanding.
9. RANKING.
The Capital Securities rank pari passu with the Common Securities
and payment thereon shall be made Pro Rata with the Common Securities, except
that, if an Event of Default under the Declaration occurs and is continuing, no
payments in respect of Distributions on, or payments upon liquidation,
redemption or otherwise with respect to, the Common Securities shall be made
until the Holders of the Capital Securities shall be paid in full the
Distributions, Redemption Price, Liquidation Distribution and other payments to
which they are entitled at such time.
10. ACCEPTANCE OF SECURITIES GUARANTEE AND INDENTURE.
Each Holder of Capital Securities and Common Securities, by the
acceptance thereof, agrees to the provisions of the Capital Securities Guarantee
and the Common Securities Guarantee, respectively, including the subordination
provisions therein and to the provisions of the Indenture.
11. NO PREEMPTIVE RIGHTS.
The Holders of the Securities shall have no preemptive rights to
subscribe for any additional securities.
12. ADDITIONAL INTEREST.
If the Debenture Issuer fails to comply with its obligations under
the Registration Rights Agreement or if the Exchange Offer Registration
Statement (as defined in the Registration Rights Agreement) or the Shelf
Registration Statement (as defined in the Registration Rights Agreement) fails
to become effective, then Additional Interest shall accrue on the principal
amount of the Debentures, and additional Distributions shall accumulate on the
Liquidation Amount of the Trust Securities, each at a rate of 0.25% per annum as
more fully set forth in Article XIV of the Declaration.
13. MISCELLANEOUS.
These terms constitute a part of the Declaration.
The Sponsor will provide a copy of the Declaration, the Capital
Securities Guarantee or the Common Securities Guarantee (as may be appropriate),
and the Indenture (including any supplemental indenture) to a Holder without
charge on written request to the Sponsor at its principal place of business.
<PAGE>
EXHIBIT A-1
FORM OF CAPITAL SECURITY CERTIFICATE
[FORM OF FACE OF SECURITY]
[IF THIS GLOBAL SECURITY IS A GLOBAL CAPITAL SECURITY, INSERT: THIS
CAPITAL SECURITY IS A GLOBAL CAPITAL SECURITY WITHIN THE MEANING OF THE
DECLARATION HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE
DEPOSITORY TRUST COMPANY (THE "CLEARING AGENCY") OR A NOMINEE OF THE CLEARING
AGENCY. THIS CAPITAL SECURITY IS EXCHANGEABLE FOR CAPITAL SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE CLEARING AGENCY OR ITS NOMINEE ONLY IN
THE LIMITED CIRCUMSTANCES DESCRIBED IN THE DECLARATION AND NO TRANSFER OF THIS
CAPITAL SECURITY (OTHER THAN A TRANSFER OF THIS CAPITAL SECURITY AS A WHOLE BY
THE CLEARING AGENCY TO A NOMINEE OF THE CLEARING AGENCY OR BY A NOMINEE OF THE
CLEARING AGENCY TO THE CLEARING AGENCY OR ANOTHER NOMINEE OF THE CLEARING
AGENCY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.]
[IF THIS GLOBAL SECURITY IS A RULE 144A GLOBAL SECURITY, INSERT:
UNLESS THIS CAPITAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE TRUST OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CAPITAL
SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND
ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
THIS CAPITAL SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS OR
ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS CAPITAL SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF AGREES
NOT TO OFFER, SELL OR OTHERWISE TRANSFER THIS CAPITAL SECURITY, PRIOR TO THE
DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE
LATER OF THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE
COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS CAPITAL SECURITY
(OR ANY PREDECESSOR OF THIS CAPITAL SECURITY) EXCEPT (A) TO THE COMPANY, (B)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) SO LONG AS THIS CAPITAL SECURITY IS ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING
OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT
THAT IS ACQUIRING THIS CAPITAL SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT
OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN
VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT
TO THE RIGHT OF THE TRUST AND THE COMPANY PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER (i) PURSUANT TO CLAUSE (D), (E) OR (F), TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM, AND (ii) PURSUANT TO CLAUSE (E), TO REQUIRE THAT THE TRANSFEROR DELIVER
TO THE TRUST A LETTER FROM THE TRANSFEREE SUBSTANTIALLY IN THE FORM OF ANNEX A
TO THE OFFERING MEMORANDUM OF THE TRUST DATED FEBRUARY 2, 1998. SUCH HOLDER
FURTHER AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS CAPITAL SECURITY
IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF ALSO
AGREES, REPRESENTS AND WARRANTS THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT
PLAN SUBJECT TO THE EMPLOYMENT RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED ("ERISA"), OR (ii) THE ACQUISITION AND HOLDINGS OF THIS CAPITAL SECURITY
BY IT IS NOT PROHIBITED BY EITHER SECTION 406 OF ERISA OR SECTION 4975 OF THE
U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR EXEMPT FROM ANY SUCH
PROHIBITION.
[IF THIS GLOBAL SECURITY IS A REGULATION S GLOBAL SECURITY,
INSERT: THIS CAPITAL SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS UNLESS REGISTERED UNDER THE SECURITIES
ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
IS AVAILABLE.]
<PAGE>
Certificate No. _______ CUSIP NO.
Certificate Evidencing Capital Securities
of
ORION CAPITAL TRUST II
7.701% Capital Securities
(Liquidation Amount $1,000 per Capital Security)
ORION CAPITAL TRUST II, a statutory business trust formed under the
laws of the State of Delaware (the "Trust"), hereby certifies that ___________
(the "Holder") is the registered owner of __________________ capital securities
of the Trust representing undivided beneficial interests in the assets of the
Trust designated the 7.701% Capital Securities (Liquidation Amount $1,000 per
Capital Security) (the "Capital Securities"). The Capital Securities are
transferable on the books and records of the Trust, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed, in proper
form for transfer and otherwise complying with the terms and conditions of the
Declaration (as hereinafter defined). The designation, rights, privileges,
restrictions, preferences and other terms and provisions of the Capital
Securities represented hereby are set forth herein, on the reverse hereof and in
the provisions of the Amended and Restated Declaration of Trust of the Trust
dated as of February 5, 1998, as the same may be amended from time to time (the
"Declaration"), and shall in all respects be subject to the provisions thereof,
including the designation of the terms of the Capital Securities as set forth in
Annex I to the Declaration. Each capitalized term used but not defined herein or
in any legend form or certificate hereon shall have the meaning given it in the
Declaration. The Sponsor will provide a copy of the Declaration, without charge
upon written request to the Trust at its principal place of business.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder and to the benefits of
the Capital Securities Guarantee to the extent provided therein.
By its acceptance hereof, the Holder agrees to treat, for United
States federal income tax purposes, the Debentures as indebtedness and the
Capital Securities as evidence of indirect beneficial ownership in the
Debentures.
IN WITNESS WHEREOF, the Trust has executed this certificate this 5th
day of February, 1998.
ORION CAPITAL TRUST II
By: _________________________
Michael P. Maloney, Esq.
Administrative Trustee
<PAGE>
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Capital Securities referred to in the
within-mentioned Declaration.
Dated: February 5, 1998.
THE BANK OF NEW YORK
as Property Trustee
By: _________________________________
Name:
Title:
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Capital Security will be fixed at a
rate per annum of 7.701% (the "Coupon Rate") of the Liquidation Amount of $1,000
per Capital Security, such rate being the rate of interest payable on the
Debentures to be held by the Property Trustee. Distributions not due during an
Extension Period (including the first semi-annual period during such period) in
arrears for more than one semi-annual period will bear interest thereon
compounded semi-annually at the Coupon Rate (to the extent permitted by
applicable law). The term "Distributions", as used herein, includes such cash
distributions and any such interest payable unless otherwise stated. A
Distribution is payable only to the extent that payments are made in respect of
the Debentures held by the Property Trustee and to the extent the Property
Trustee has funds on hand legally available therefor.
Distributions on the Capital Securities will be cumulative, will
accumulate from the most recent date to which Distributions have been paid or,
if no Distributions have been paid, from February 5, 1998 and will be payable
semi-annually in arrears on April 15 and October 15, of each year, commencing on
April 15, 1998, except as otherwise described below and in the Declaration.
Distributions will be computed on the basis of a 360-day year consisting of
twelve 30-day months and, for any period less than 6 months, the actual months
elapsed and the actual days elapsed in a partial month in such period.
As long as no Event of Default has occurred and is continuing, the
Debenture Issuer has the right under the Indenture, at any time and from time to
time during the term of the Debentures, to defer payments of interest by
extending the interest payment period on the Debentures for a period not
exceeding 10 consecutive semi-annual periods, including the first such
semi-annual period during such extension period (an "Extension Period"), during
which Extension Period no interest shall be due and payable, provided that no
Extension Period shall extend beyond the Stated Maturity of the Debentures. Upon
any such election, semi-annual Distributions on the Capital Securities will be
deferred by the Trust during the term of the Extension Period. Distributions
will continue to accumulate interest thereon (to the extent permitted by
applicable law, but not exceeding the rate of interest then accruing on the
Debentures) at the Coupon Rate compounded semi-annually during any such
Extension Period. Before the termination of any such Extension Period, the
Debenture Issuer may further extend such Extension Period, provided that such
Extension Period, together with all such previous and further extensions within
such Extension Period, may not exceed 10 consecutive semi-annual periods or
extend beyond the Stated Maturity of the Debentures. Payments of Distributions
that have accumulated during any Extension Period will be payable to Holders as
they appear on the books and records of the Trust on the record date for the
first scheduled Distribution payment date following the expiration of such
Extension Period. Upon the expiration of any Extension Period and the payment of
all accrued and unpaid interest and any additional amounts then due, the
Debenture Issuer may commence a new Extension Period, subject to the above
requirements.
The Administrative Trustees shall, at the direction of the Sponsor,
at any time dissolve the Trust and cause the Debentures to be distributed to the
holders of the Securities in liquidation of the Trust or, simultaneously with
any redemption of the Debentures, cause a Like Amount of the Securities to be
redeemed by the Trust.
The Capital Securities shall be redeemable as provided in the
Declaration.
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this
Capital Security Certificate to:
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
agent to transfer this Capital Security Certificate on the books of the
Trust. The agent may substitute another to act for him or her.
Date:___________________
Signature:__________________________________ (Sign exactly as your name appears
on the other side of this Capital Security Certificate)
Signature Guarantee:------------------------
- ------------------------
* Signature must be guaranteed by an "eligible guarantor institution" that is a
bank, stockbroker, savings and loan association or credit union meeting the
requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities and Exchange Act of 1934, as amended.
[Include the following if the Capital Security bears a Restricted Capital
Securities Legend]
In connection with any transfer of any of the Capital Securities evidenced by
this certificate, the undersigned confirms that such Capital Securities are
being:
CHECK ONE BOX BELOW
(1) __ exchanged for the undersigned's own account without
transfer; or
(2) __ transferred pursuant to and in compliance with Rule
144A under the Securities Act of 1933; or
(3) __ transferred pursuant to and in compliance with
Regulation S under the Securities Act of 1933; or
(4) __ transferred to an institutional "accredited investor"
within the meaning of subparagraph (a)(1), (2), (3) or
(7) of Rule 501 under the Securities Act of 1933 that is
acquiring the Capital Securities for its own account, or
for the account of such an institutional "accredited
investor," for investment purposes and not with a view
to, or for offer or sale in connection with, any
distribution in violation of the Securities Act of 1933;
or
(5) __ transferred pursuant to another available exemption
from the registration requirements of the Securities
Act of 1933; or
(6) __ transferred pursuant to an effective registration
statement.
Unless one of the boxes is checked, the Registrar will refuse to register any of
the Capital Securities evidenced by this certificate in the name of any person
other than the registered Holder thereof; provided, however, that if box (3),
(4) or (5) is checked, the Registrar may require, prior to registering any such
transfer of the Capital Securities such legal opinions, certifications and other
information as the Trust has reasonably requested to confirm that such transfer
is being made pursuant to an exemption from, or in a transaction not subject to,
the registration requirements of the Securities Act of 1933, such as the
exemption provided by Rule 144 under such Act; provided, further, that (i) if
box 2 is checked, the transferee must also certify that it is a qualified
institutional buyer as defined in Rule 144A or (ii) if box (4) is checked, the
transferee must also provide to the Registrar a Transferee Letter of
Representation in the form attached as Annex A to the Offering Memorandum of the
Trust dated February 2, 1998.
Date:_____________________
Signature:__________________________
(Sign exactly as your name appears on the other side of this Capital Security
Certificate)
<PAGE>
EXHIBIT A-2
FORM OF COMMON SECURITY CERTIFICATE
THIS COMMON SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS OR
ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS COMMON SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
THE HOLDER OF THIS COMMON SECURITY BY ITS ACCEPTANCE HEREOF AGREES
NOT TO OFFER, SELL OR OTHERWISE TRANSFER THIS COMMON SECURITY, PRIOR TO THE DATE
(THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER
OF THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR
ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS COMMON SECURITY (OR ANY
PREDECESSOR OF THIS COMMON SECURITY) EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO
A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) SO LONG AS THIS COMMON SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE
144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO
WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A,
(D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE
UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E)
TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH
(A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING
THIS COMMON SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF
THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE RIGHT OF THE
TRUST AND THE COMPANY PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO
CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii)
PURSUANT TO CLAUSE (E), TO REQUIRE THAT THE TRANSFEROR DELIVER TO THE TRUST A
LETTER FROM THE TRANSFEREE SUBSTANTIALLY IN THE FORM OF ANNEX A TO THE OFFERING
MEMORANDUM OF THE TRUST DATED FEBRUARY 2, 1998. SUCH HOLDER FURTHER AGREES THAT
IT WILL DELIVER TO EACH PERSON TO WHOM THIS COMMON SECURITY IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
<PAGE>
Certificate No. __________
Certificate Evidencing Common Securities
of
ORION CAPITAL TRUST II
7.701% Common Securities
(Liquidation Amount $1,000 per Common Security)
ORION CAPITAL TRUST II, a statutory business trust formed under the
laws of the State of Delaware (the "Trust"), hereby certifies that Orion Capital
Corporation (the "Holder") is the registered owner of
common securities of the Trust representing undivided
beneficial interests in the assets of the Trust designated the 7.701% Common
Securities (Liquidation Amount $1,000 per Common Security) (the "Common
Securities"). The Common Securities are transferable on the books and records of
the Trust, in person or by a duly authorized attorney, upon surrender of this
certificate duly endorsed, in proper form for transfer and otherwise complying
with the terms and conditions of the Declaration (as hereinafter defined). The
designation, rights, privileges, restrictions, preferences and other terms and
provisions of the Common Securities represented hereby are set forth herein, on
the reverse hereof and in the Amended and Restated Declaration of Trust of the
Trust dated as of February 5, 1998, as the same may be amended from time to time
(the "Declaration"), and shall in all respects be subject to the provisions
thereof, including the designation of the terms of the Common Securities as set
forth in Annex I to the Declaration. Each capitalized term used but not defined
herein or in any legend, form or certificate hereon shall have the meaning given
it in the Declaration. The Sponsor will provide a copy of the Declaration, the
Common Securities Guarantee and the Indenture (including any supplemental
indenture) to any Holder without charge upon written request to the Sponsor at
its principal place of business.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder and to the benefits of
the Common Securities Guarantee to the extent provided therein.
By its acceptance hereof, the Holder agrees to treat, for United
States federal income tax purposes, the Debentures as indebtedness and the
Common Securities as evidence of indirect beneficial ownership in the
Debentures.
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this certificate this 5th
day of February, 1998.
ORION CAPITAL TRUST II
By:_____________________________
Michael P. Maloney, Esq.
Administrative Trustee
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Common Security will be fixed at a
rate per annum of 7.701% (the "Coupon Rate") of the Liquidation Amount of $1,000
per Common Security, such rate being the rate of interest payable on the
Debentures to be held by the Property Trustee. Distributions not due during an
Extension Period (including the first semi-annual period during such period) in
arrears for more than one semi-annual period will bear interest thereon
compounded semiannually at the Coupon Rate (to the extent permitted by
applicable law). The term "Distributions", as used herein, includes such cash
distributions and any such interest payable unless otherwise stated. A
Distribution is payable only to the extent that payments are made in respect of
the Debentures held by the Property Trustee and to the extent the Property
Trustee has funds available therefor.
Distributions on the Common Securities will be cumulative, will
accrue from the most recent date to which Distributions have been paid or, if no
Distributions have been paid, from February 5, 1998 and will be payable
semi-annually in arrears on April 15 and October 15, of each year, commencing on
April 15, 1998, except as otherwise described below and in the Declaration.
Distributions will be computed on the basis of a 360-day year consisting of
twelve 30 day months and, for any period less than 6 months, the actual months
elapsed and the actual days elapsed in a partial month in such period.
As long as no Event of Default has occurred and is continuing, the
Debenture Issuer has the right under the Indenture, at any time and from time to
time during the term of the Debentures, to defer payments of interest by
extending the interest payment period on the Debentures for a period not
exceeding 10 consecutive semi-annual periods, including the first such
semi-annual period during such extension period (an "Extension Period"), during
which Extension Period no interest shall be due and payable, provided that no
Extension Period shall extend beyond the Stated Maturity of the Debentures. Upon
any such election, semi-annual Distributions on the Common Securities will be
deferred by the Trust during the term of the Extension Period. Distributions
will continue to accumulate interest thereon (to the extent permitted by
applicable law, but not exceeding the rate of interest then accruing on the
Debentures) at the Coupon Rate compounded semi-annually during any such
Extension Period. Before the termination of any such Extension Period, the
Debenture Issuer may further extend such Extension Period, provided that such
Extension Period, together with all such previous and further extensions within
such Extension Period, may not exceed 10 consecutive semi-annual periods or
extend beyond the Stated Maturity of the Debentures. Payments of Distributions
that have accumulated during any Extension Period will be payable to Holders as
they appear on the books and records of the Trust on the record date for the
first scheduled Distribution payment date following the expiration of such
Extension Period. Upon the expiration of any Extension Period and the payment of
all accrued and unpaid interest and any additional amounts then due, the
Debenture Issuer may commence a new Extension Period, subject to the above
requirements.
The Administrative Trustees shall, at the direction of the Sponsor,
at any time dissolve the Trust and cause the Debentures to be distributed to the
holders of the Securities in liquidation of the Trust or, simultaneously with
any redemption of the Debentures, cause a Like Amount of the Securities to be
redeemed by the Trust.
The Common Securities shall be redeemable as provided in the
Declaration.
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this
Common Security Certificate to:
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
agent to transfer this Common Security Certificate on the books of the
Trust. The agent may substitute another to act for him or her.
Date:------------------------
Signature:------------------------
(Sign exactly as your name appears on the other side of this Common Security
Certificate)
Signature Guarantee:------------------------
- ------------------------
* Signature must be guaranteed by an "eligible guarantor institution" that is a
bank, stockbroker, savings and loan association or credit union meeting the
requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities and Exchange Act of 1934, as amended.
[Include the following if the Common Security bears a Restricted Common
Securities Legend]
In connection with any transfer of any of the Common Securities evidenced by
this certificate, the undersigned confirms that such Common Securities are
being:
CHECK ONE BOX BELOW
(1) __ exchanged for the undersigned's own account without
transfer; or
(2) __ transferred pursuant to and in compliance with Rule
144A under the Securities Act of 1933; or
(3) __ transferred pursuant to and in compliance with
Regulation S under the Securities Act of 1933; or
(4) __ transferred to an institutional "accredited investor"
within the meaning of subparagraph (a)(1), (2), (3) or
(7) of Rule 501 under the Securities Act that is
acquiring the Preferred Security for its own account, or
for the account of such an institutional "accredited
investor," for investment purposes and not with a view
to, or for offer or sale in connection with, any
distribution in violation of the Securities Act; or
(5) __ transferred pursuant to another available exemption
from the registration requirements of the Securities
Act of 1933; or
(6) __ transferred pursuant to an effective registration
statement
Unless one of the boxes is checked, the Registrar will refuse to register any of
the Common Securities evidenced by this certificate in the name of any person
other than the registered Holder thereof; provided, however, that if box (3),
(4) or (5) is checked, the Registrar may require, prior to registering any such
transfer of the Common Securities such legal opinions, certifications and other
information as the Trust has reasonably requested to confirm that such transfer
is being made pursuant to an exemption from, or in a transaction not subject to,
the registration requirements of the Securities Act of 1933, such as the
exemption provided by Rule 144 under such Act; provided, further, that (i) if
box 2 is checked, the transferee must also certify that it is a qualified
institutional buyer as defined in Rule 144A or (ii) if box 4 is checked, the
transferee must also provide a Transferee Representation Letter in the form
attached as Annex A to the Offering Memorandum of the Trust, dated February 5,
1998.
Date:_______________________
Signature:______________________________
(Sign exactly as your name appears on the other side of this Common Security
Certificate)
--------------------------------------
CAPITAL SECURITIES GUARANTEE AGREEMENT
ORION CAPITAL CORPORATION
DATED AS OF FEBRUARY 5, 1998
---------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS AND INTERPRETATION
SECTION 1.1. Definitions and Interpretation....................1
ARTICLE II. TRUST INDENTURE ACT
SECTION 2.1. Trust Indenture Act; Application................. 5
SECTION 2.2. List of Holders of Securities.................... 5
SECTION 2.3. Reports by the Capital Securities
Guarantee Trustee...............................6
SECTION 2.4. Periodic Reports to Capital
Securities Guarantee Trustee................... 6
SECTION 2.5. Evidence of Compliance with
Conditions Precedent............................6
SECTION 2.6. Events of Default; Waiver........................ 6
SECTION 2.7. Event of Default; Notice......................... 7
SECTION 2.8. Conflicting Interests............................ 8
ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE CAPITAL
SECURITIES GUARANTEE TRUSTEE
SECTION 3.1. Powers and Duties of the Capital
Securities Guarantee Trustee................... 7
SECTION 3.2. Certain Rights of Capital
Securities Guarantee Trustee....................9
SECTION 3.3. Not Responsible for Recitals or Issuance
of Capital Securities Guarantee................11
ARTICLE IV. CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 4.1. Capital Securities Guarantee Trustee;
Eligibility....................................11
SECTION 4.2. Appointment, Removal and Resignation
of Capital Securities 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.........................13
SECTION 5.4. Rights of Holders................................14
SECTION 5.5. Guarantee of Payment.............................15
SECTION 5.6. Subrogation......................................15
SECTION 5.7. Independent Obligations..........................15
ARTICLE VI. LIMITATION OF TRANSACTION; SUBORDINATION
SECTION 6.1. Limitation of Transactions.......................15
SECTION 6.2. Ranking..........................................16
ARTICLE VII. TERMINATION
SECTION 7.1. Termination......................................16
ARTICLE VIII. INDEMNIFICATION
SECTION 8.1. Exculpation......................................17
SECTION 8.2. Indemnification..................................17
ARTICLE IX. MISCELLANEOUS
SECTION 9.1. Successors and Assigns...........................18
SECTION 9.2. Amendments.......................................18
SECTION 9.3. Notices..........................................18
SECTION 9.4. Exchange Offer...................................20
SECTION 9.5. Benefit..........................................20
SECTION 9.6. Governing Law....................................20
<PAGE>
CAPITAL SECURITIES GUARANTEE AGREEMENT
This CAPITAL SECURITIES GUARANTEE AGREEMENT (the "Capital
Securities Guarantee"), dated as of February 5, 1998, delivered by Orion Capital
Corporation, a Delaware corporation (the "Guarantor"), and The Bank of New York,
a New York banking corporation, as trustee (the "Capital Securities Guarantee
Trustee"), for the benefit of the Holders (as defined herein) from time to time
of the Capital Securities (as defined herein) of Orion Capital Trust II, a
Delaware statutory business trust (the "Issuer").
WHEREAS, pursuant to an Amended and Restated Declaration of Trust
(the "Declaration"), dated as of February 5, 1998, the Guarantor as Sponsor, and
the holders from time to time of undivided beneficial interests in the assets of
the Issuer, the Issuer is issuing on the date hereof 125,000 capital securities,
having an aggregate liquidation amount of $125,000,000, such capital securities
being designated as the 7.701% Capital Securities (collectively the "Capital
Securities");
WHEREAS, as incentive for the Holders to purchase the Capital
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth in this Capital Securities Guarantee, to pay to the Holders
of the Capital Securities the Guarantee Payments (as defined below). The
Guarantor agrees to make certain other payments on the terms and conditions set
forth herein; and
WHEREAS, the Guarantor is executing and delivering a guarantee
agreement (the "Common Securities Guarantee"), with substantially identical
terms to this Capital Securities Guarantee, for the benefit of the holders of
the Common Securities (as defined herein), except that if an Event of Default
(as defined in the Declaration) has occurred and is continuing, the rights of
holders of the Common Securities to receive Guarantee Payments under the Common
Securities Guarantee are subordinate to the rights of holders of Capital
Securities to receive Guaranty Payments under this Capital Securities Guarantee.
NOW, THEREFORE, in consideration of the purchase by each Holder,
which purchase the Guarantor hereby acknowledges shall benefit the Guarantor,
the Guarantor executes and delivers this Capital Securities Guarantee for the
benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 DEFINITIONS AND INTERPRETATION
In this Capital Securities Guarantee, unless the context
otherwise requires:
(a) Capitalized terms used in this Capital Securities Guarantee
but not defined in the preamble above have the respective meanings
assigned to them in this Section 1.1;
(b) Terms defined in the Declaration as at the date of execution
of this Capital Securities Guarantee have the same meaning when used in
this Capital Securities Guarantee unless otherwise defined in this
Capital Securities Guarantee;
(c) a term defined anywhere in this Capital Securities Guarantee
has the same meaning throughout;
(d) all references to "the Capital Securities Guarantee" or "this
Capital Securities Guarantee" are to this Capital Securities Guarantee
as modified, supplemented or amended from time to time;
(e) all references in this Capital Securities Guarantee to
Articles and Sections are to Articles and Sections of this Capital
Securities Guarantee, unless otherwise specified;
(f) a term defined in the Trust Indenture Act has the same
meaning when used in this Capital Securities Guarantee, unless otherwise
defined in this Capital Securities Guarantee or unless the context
otherwise requires; and
(g) a reference to the singular includes the plural and vice
versa.
"AFFILIATE" shall mean, with respect to a specified Person, (a)
any Person directly or indirectly owning, controlling or holding the power to
vote 20% or more of the outstanding voting securities or other ownership
interests of the specified Person, (b) any Person 20% or more of whose
outstanding voting securities or other ownership interests are directly or
indirectly owned, controlled or held with power to vote by the specified Person,
(c) any Person directly or indirectly controlling, controlled by, or under
common control with the specified Person, and (d) a partnership in which the
specified Person is a general partner; provided, however, that Intercargo
Corporation shall not be deemed to be an Affiliate of the Company or Orion
Capital Trust II.
"BUSINESS DAY" means any day other than a Saturday or a Sunday,
or a day on which banking institutions in The City of New York are authorized or
required by law or executive order to close.
"CAPITAL SECURITIES GUARANTEE TRUSTEE" means The Bank of New
York, a New York banking corporation, until a Successor Capital Securities
Guarantee Trustee has been appointed and has accepted such appointment pursuant
to the terms of this Capital Securities Guarantee and thereafter means each such
Successor Capital Securities Guarantee Trustee.
"COMMON SECURITIES" means the securities representing common
undivided beneficial interests in the assets of the Issuer.
"CORPORATE TRUST OFFICE" means the office of the Capital
Securities Guarantee Trustee at which the corporate trust business of the
Capital Securities Guarantee Trustee shall, at any particular time, be
principally administered, which office at the date of execution of this
Agreement is located at The Bank of New York, 101 Barclay Street, Floor 21W, New
York, New York 10286.
"COVERED PERSON" means any Holder or beneficial owner of Capital
Securities.
"DEBENTURES" means the series of subordinated debt securities of
the Guarantor designated the 7.701% Junior Subordinated Deferrable Interest
Debentures due April 15, 2028 held by the Property Trustee (as defined in the
Declaration) of the Issuer.
"EVENT OF DEFAULT" means a default by the Guarantor on any of its
payments or other obligations under this Capital Securities Guarantee.
"GUARANTEE PAYMENTS" means the following payments or
distributions, without duplication, with respect to the Capital Securities, to
the extent not paid or made by the Issuer: (i) any accumulated and unpaid
Distributions (as defined in the Declaration) that are required to be paid on
such Capital Securities to the extent the Issuer has funds on hand legally
available therefor at such time, (ii) the redemption price, including all
accumulated and unpaid Distributions to the date of redemption (the "Redemption
Price") to the extent the Issuer has funds on hand legally available therefor at
such time, with respect to any Capital Securities called for redemption by the
Issuer, and (iii) upon a voluntary or involuntary dissolution or liquidation of
the Issuer (other than in connection with the distribution of Debentures to the
Holders in exchange for Capital Securities as provided in the Declaration), the
lesser of (a) the aggregate of the liquidation amount and all accumulated and
unpaid Distributions on the Capital Securities to the date of payment, to the
extent the Issuer has funds on hand legally available therefor, and (b) the
amount of assets of the Issuer remaining available for distribution to Holders
in liquidation of the Issuer. If an Event of Default (as defined in the
Indenture) has occurred and is continuing, no Guarantee Payments under the
Common Securities Guarantee with respect to the Common Securities shall be made
until the Holders of Capital Securities shall be paid in full the Guarantee
Payments to which they are entitled under this Capital Securities Guarantee.
"HOLDER" means any holder, as registered on the books and records
of the Issuer, of any Capital Securities; provided, however, that, in
determining whether the holders of the requisite percentage of Capital
Securities have given any request, notice, consent or waiver hereunder, "Holder"
shall not include the Guarantor or any Affiliate of the Guarantor.
"INDEMNIFIED PERSON" means the Capital Securities Guarantee
Trustee, any Affiliate of the Capital Securities Guarantee Trustee, or any
officers, directors, shareholders, members, partners, employees,
representatives, nominees, custodians or agents of the Capital Securities
Guarantee Trustee.
"INDENTURE" means the Indenture, dated as of February 5, 1998,
between the Guarantor (the "Debenture Issuer") and The Bank of New York, as
trustee, pursuant to which the Debentures are to be issued to the Property
Trustee.
"MAJORITY IN LIQUIDATION AMOUNT OF THE CAPITAL SECURITIES" means,
except as provided by the Trust Indenture Act, a vote by Holder(s) of Capital
Securities, voting separately as a class, of more than 50% of the aggregate
liquidation amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accumulated and unpaid Distributions
to the date upon which the voting percentages are determined) of all Capital
Securities.
"OFFICERS' CERTIFICATE" means, with respect to any person, a
certificate signed by the Chairman, a Vice Chairman, the Chief Executive
Officer, the President, a Vice President (however designated), the Secretary or
an Assistant Secretary of the Guarantor. Any Officers' Certificate delivered
with respect to compliance with a condition or covenant provided for in this
Capital Securities Guarantee shall include:
(a) a statement that each officer signing the Officers'
Certificate has read the covenant or condition and the definitions
relating thereto;
(b) a brief statement of the nature and scope of the examination
or investigation undertaken by each officer in rendering the
Certificate;
(c) a statement that each such officer has made such examination
or investigation as, in such officer's opinion, is necessary to enable
such officer to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
officer, such condition or covenant has been complied with.
"OTHER DEBENTURES" means only those junior subordinated
debentures issued by the Guarantor from time to time and sold to trusts to be
established by the Guarantor (if any), which are in each case similar to the
Issuer.
"OTHER GUARANTEES" means any guarantee now or hereafter to be
entered into by the Guarantor in respect to any capital securities or common
securities of any other trust similar to the Issuer, or of any trustee of such
trust, or of a partnership or other entity affiliated with the Guarantor that is
a financing vehicle of the Guarantor.
"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.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of February 5, 1998, by and among the Guarantor, the Issuer
and the Initial Purchasers named therein as such agreement may be amended,
modified or supplemented from time to time.
"RESPONSIBLE OFFICER" when used with respect to the Capital
Securities Guarantee Trustee, means the chairman or any vice chairman of the
board of directors, the chairman or any vice chairman of the executive committee
of the board of directors, the chairman of the trust committee, the president,
any vice president, any assistant vice president, the cashier, any assistant
cashier, the secretary, any assistant secretary, the treasurer, any assistant
treasurer, any trust officer or assistant trust officer, the controller or any
assistant controller or any other officer or assistant officer of the Capital
Securities Guarantee Trustee customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.
"SUCCESSOR CAPITAL SECURITIES GUARANTEE TRUSTEE" means a
successor Capital Securities Guarantee Trustee possessing the qualifications to
act as Capital Securities Guarantee Trustee under Section 4.1.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as
amended.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 TRUST INDENTURE ACT; APPLICATION
This Capital Securities Guarantee is subject to the provisions of
the Trust Indenture Act that are required to be part of this Capital Securities
Guarantee and shall, to the extent applicable, be governed by such provisions;
and if and to the extent that any provision of this Capital Securities Guarantee
limits, qualifies or conflicts with the duties imposed by Section 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
SECTION 2.2 LIST OF HOLDERS OF SECURITIES
(a) The Guarantor shall provide the Capital Securities Guarantee
Trustee (unless the Capital Securities Guarantee Trustee is otherwise the
registrar of the Capital Securities) with a list, in such form as the Capital
Securities Guarantee Trustee may reasonably require, of the names and addressees
of the Holders of the Capital Securities ("List of Holders") as of such date,
(i) within one Business Day after each record date, and (ii) at any other time
within 30 days of receipt by the Guarantor of a written request for a List of
Holders as of a date no more than 14 days before such List of Holders is given
to the Capital Securities Guarantee Trustee; provided, that the Guarantor shall
not be obligated to provide such List of Holders at any time the List of Holders
does not differ from the most recent List of Holders given to the Capital
Securities Guarantee Trustee by the Guarantor. The Capital Securities Guarantee
Trustee may destroy any List of Holders previously given to it on receipt of a
new List of Holders.
(b) The Capital Securities Guarantee Trustee shall comply with
its obligations under Sections 311(a), 311(b) and Section 312(b) of the Trust
Indenture Act.
SECTION 2.3 REPORTS BY THE CAPITAL SECURITIES GUARANTEE TRUSTEE
On or before February 4 of each year, commencing February 4,
1999, the Capital Securities Guarantee Trustee shall provide to the Holders of
the Capital Securities such reports as are required by Section 313 of the Trust
Indenture Act, if any, in the form and in the manner provided by Section 313 of
the Trust Indenture Act. The Capital Securities Guarantee Trustee shall also
comply with the requirements of Section 313(d) of the Trust Indenture Act.
SECTION 2.4 PERIODIC REPORTS TO CAPITAL SECURITIES GUARANTEE TRUSTEE
The Guarantor shall provide to the Capital Securities Guarantee
Trustee such documents, reports and information as required by Section 314 (if
any) and the compliance certificate required by Section 314 of the Trust
Indenture Act in the form, in the manner and at the times required by Section
314 of the Trust Indenture Act. Delivery of such reports, information and
documents to the Capital Securities Guarantee Trustee is for informational
purposes only and the Capital Securities Guarantee Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Guarantor's
compliance with any of its covenants hereunder (as to which the Capital
Securities Guarantee Trustee is entitled to rely exclusively on Officers'
Certificates).
SECTION 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT
The Guarantor shall provide to the Capital Securities Guarantee
Trustee such evidence of compliance with any conditions precedent, if any,
provided for in this Capital Securities Guarantee 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 Capital
Securities may, by vote, on behalf of the Holders of all of the Capital
Securities, waive any past Event of Default and its consequences. Upon such
waiver, any such Event of Default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been cured, for every purpose of this
Capital Securities Guarantee, but no such waiver shall extend to any subsequent
or other default or Event of Default or impair any right consequent thereon.
SECTION 2.7 EVENT OF DEFAULT; NOTICE
(a) The Capital Securities Guarantee Trustee shall, within 90
days after the occurrence of a default with respect to this Capital Securities
Guarantee, mail by first class postage prepaid, to all Holders of the Capital
Securities, notices of all defaults actually known to a Responsible Officer of
the Capital Securities Guarantee Trustee, unless such defaults have been cured
before the giving of such notice, provided, that, except in the case of default
in the payment of any Guarantee Payment, the Capital Securities Guarantee
Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee, or a trust committee of directors
and/or Responsible Officers of the Capital Securities Guarantee Trustee in good
faith determines that the withholding of such notice is in the interests of the
holders of the Capital Securities.
(b) The Capital Securities Guarantee Trustee shall not be deemed
to have knowledge of any Event of Default unless the Capital Securities
Guarantee Trustee shall have received written notice, or a Responsible Officer
of the Capital Securities Guarantee Trustee charged with the administration of
the Declaration shall have obtained actual knowledge, of such Event of Default.
SECTION 2.8 CONFLICTING INTERESTS
The Declaration shall be deemed to be specifically described in
this Capital Securities Guarantee for the purposes of clause (i) of the first
proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF THE
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 3.1 POWERS AND DUTIES OF THE CAPITAL SECURITIES GUARANTEE TRUSTEE
(a) This Capital Securities Guarantee shall be held by the
Capital Securities Guarantee Trustee for the benefit of the Holders, and the
Capital Securities Guarantee Trustee shall not transfer this Capital Securities
Guarantee to any Person except a Holder exercising his or her rights pursuant to
Section 5.4(b) or to a Successor Capital Securities Guarantee Trustee upon
acceptance by such Successor Capital Securities Guarantee Trustee of its
appointment to act as Successor Capital Securities Guarantee Trustee. The right,
title and interest of the Capital Securities Guarantee Trustee shall
automatically vest in any Successor Capital Securities Guarantee Trustee, and
such vesting and succession of title shall be effective whether or not documents
have been executed and delivered pursuant to the appointment of such Successor
Capital Securities Guarantee Trustee.
(b) If an Event of Default actually known to a Responsible
Officer of the Capital Securities Guarantee Trustee has occurred and is
continuing, the Capital Securities Guarantee Trustee shall enforce this Capital
Securities Guarantee for the benefit of the Holders.
(c) The Capital Securities Guarantee Trustee, before the
occurrence of any Event of Default and after the curing of all Events of Default
that may have occurred, shall undertake to perform only such duties as are
specifically set forth in this Capital Securities Guarantee, and no implied
covenants shall be read into this Capital Securities Guarantee against the
Capital Securities Guarantee Trustee. In case an Event of Default has occurred
(that has not been cured or waived pursuant to Section 2.6) and is actually
known to a Responsible Officer of the Capital Securities Guarantee Trustee, the
Capital Securities Guarantee Trustee shall exercise such of the rights and
powers vested in it by this Capital Securities Guarantee, and use the same
degree of care and skill in its exercise thereof, as a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs.
(d) No provision of this Capital Securities Guarantee shall be
construed to relieve the Capital Securities Guarantee Trustee from liability for
its own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) prior to the occurrence of any Event of Default and
after the curing or waiving of all such Events of Default that may
have occurred:
(A) the duties and obligations of the Capital
Securities Guarantee Trustee shall be determined solely by the
express provisions of this Capital Securities Guarantee, and the
Capital Securities Guarantee Trustee shall not be liable except
for the performance of such duties and obligations as are
specifically set forth in this Capital Securities Guarantee, and
no implied covenants or obligations shall be read into this
Capital Securities Guarantee against the Capital Securities
Guarantee Trustee; and
(B) in the absence of bad faith on the part of the
Capital Securities Guarantee Trustee, the Capital Securities
Guarantee Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein,
upon any certificates or opinions furnished to the Capital
Securities Guarantee Trustee and conforming to the requirements
of this Capital Securities Guarantee; but in the case of any such
certificates or opinions that by any provision hereof are
specifically required to be furnished to the Capital Securities
Guarantee Trustee, the Capital Securities Guarantee Trustee shall
be under a duty to examine the same to determine whether or not
they conform to the requirements of this Capital Securities
Guarantee;
(ii) the Capital Securities Guarantee Trustee shall not be
liable for any error of judgment made in good faith by a Responsible Officer of
the Capital Securities Guarantee Trustee, unless it shall be proved that the
Capital Securities Guarantee Trustee was negligent in ascertaining the pertinent
facts upon which such judgment was made;
(iii) the Capital Securities Guarantee Trustee shall not be
liable with respect to any action taken or omitted to be taken by it in good
faith in accordance with the direction of the Holders of not less than a
Majority in Liquidation Amount of the Capital Securities relating to the time,
method and place of conducting any proceeding for any remedy available to the
Capital Securities Guarantee Trustee, or exercising any trust or power conferred
upon the Capital Securities Guarantee Trustee under this Capital Securities
Guarantee; and
(iv) no provision of this Capital Securities Guarantee shall
require the Capital Securities Guarantee Trustee to expend or risk its own funds
or otherwise incur personal financial liability in the performance of any of its
duties or in the exercise of any of its rights or powers, if the Capital
Securities Guarantee Trustee shall have reasonable grounds for believing that
the repayment of such funds or liability is not reasonably assured to it under
the terms of this Capital Securities Guarantee or indemnity, reasonably
satisfactory to the Capital Securities Guarantee Trustee, against such risk or
liability is not reasonably assured to it.
SECTION 3.2 CERTAIN RIGHTS OF CAPITAL SECURITIES GUARANTEE TRUSTEE
(a) Subject to the provisions of Section 3.1:
(i) The Capital Securities 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 Capital Securities Guarantee may be sufficiently evidenced by an
Officers' Certificate.
(iii) Whenever, in the administration of this Capital
Securities Guarantee, the Capital Securities Guarantee Trustee shall
deem it desirable that a matter be proved or established before taking,
suffering or omitting any action hereunder, the Capital Securities
Guarantee Trustee (unless other evidence is herein specifically
prescribed) may, in the absence of bad faith on its part, request
evidence as to such matter from the Guarantor, which evidence shall be
promptly delivered by the Guarantor.
(iv) The Capital Securities Guarantee Trustee shall have
no duty to see to any recording, filing or registration of any
instrument (or any rerecording, refiling or registration thereof).
(v) The Capital Securities Guarantee Trustee may consult
with counsel of its selection, and the advice or opinion of such counsel
with respect to legal matters shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with such advice or opinion.
Such counsel may be counsel to the Guarantor or any of its Affiliates
and may include any of its employees. The Capital Securities Guarantee
Trustee shall have the right at any time to seek instructions concerning
the administration of this Capital Securities Guarantee from any court
of competent jurisdiction.
(vi) The Capital Securities Guarantee Trustee shall be
under no obligation to exercise any of the rights or powers vested in it
by this Capital Securities Guarantee at the request or direction of any
Holder, unless such Holder shall have provided to the Capital Securities
Guarantee Trustee such security and indemnity, reasonably satisfactory
to the Capital Securities Guarantee Trustee, against the costs, expenses
(including attorneys' fees and expenses and the expenses of the Capital
Securities Guarantee Trustee's agents, nominees or custodians) and
liabilities that might be incurred by it in complying with such request
or direction, including such reasonable advances as may be requested by
the Capital Securities Guarantee Trustee; provided that, nothing
contained in this Section 3.2(a)(vi) shall be taken to relieve the
Capital Securities Guarantee Trustee, upon the occurrence of an Event of
Default, of its obligation to exercise the rights and powers vested in
it by this Capital Securities Guarantee in the case of an Event of
Default.
(vii) The Capital Securities Guarantee Trustee shall not
be bound to make any investigation into the facts or matters stated in
any resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document, but the Capital
Securities Guarantee Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit.
(viii) The Capital Securities Guarantee Trustee may
execute any of the trusts or powers hereunder or perform any duties
hereunder either directly or by or through agents, nominees, custodians
or attorneys, and the Capital Securities Guarantee Trustee shall not be
responsible for any misconduct or negligence on the part of any agent or
attorney appointed with due care by it hereunder.
(ix) Any action taken by the Capital Securities Guarantee
Trustee or its agents hereunder shall bind the Holders, and the
signature of the Capital Securities Guarantee Trustee or its agents
alone shall be sufficient and effective to perform any such action. No
third party shall be required to inquire as to the authority of the
Capital Securities Guarantee Trustee to so act or as to its compliance
with any of the terms and provisions of this Capital Securities
Guarantee, both of which shall be conclusively evidenced by the Capital
Securities Guarantee Trustee's or its agent's taking such action.
(x) Whenever in the administration of this Capital
Securities Guarantee the Capital Securities Guarantee Trustee shall deem
it desirable to receive instructions with respect to enforcing any
remedy or right or taking any other action hereunder, the Capital
Securities Guarantee Trustee (i) may request instructions from the
Holders of a Majority in Liquidation Amount of the Capital Securities,
(ii) may refrain from enforcing such remedy or right or taking such
other action until such instructions are received, and (iii) shall be
protected in conclusively relying on or acting in accordance with such
instructions.
(xi) The Capital Securities Guarantee Trustee shall not be
liable for any action taken, suffered, or omitted to be taken by it in
good faith and reasonably believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Capital
Securities Guarantee.
(b) No provision of this Capital Securities Guarantee shall be
deemed to impose any duty or obligation on the Capital Securities Guarantee
Trustee to perform any act or acts or exercise any right, power, duty or
obligation conferred or imposed on it in any jurisdiction in which it shall be
illegal, or in which the Capital Securities Guarantee Trustee shall be
unqualified or incompetent in accordance with applicable law, to perform any
such act or acts or to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Capital Securities Guarantee
Trustee shall be construed to be a duty.
SECTION 3.3 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF CAPITAL SECURITIES
GUARANTEE
The recitals contained in this Capital Securities Guarantee shall
be taken as the statements of the Guarantor, and the Capital Securities
Guarantee Trustee does not assume any responsibility for their correctness. The
Capital Securities Guarantee Trustee makes no representation as to the validity
or sufficiency of this Capital Securities Guarantee.
ARTICLE IV
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 4.1 CAPITAL SECURITIES GUARANTEE TRUSTEE; ELIGIBILITY
(a) There shall at all times be a Capital Securities Guarantee
Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under
the laws of the United States of America or any State or Territory
thereof or of the District of Columbia, or a corporation or Person
permitted by the Securities and Exchange Commission to act as an
institutional trustee under the Trust Indenture Act, authorized under
such laws to exercise corporate trust powers, having a combined capital
and surplus of at least 50 million U.S. dollars ($50,000,000), and
subject to supervision or examination by Federal, State, Territorial or
District of Columbia authority. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of
the supervising or examining authority referred to above, then, for the
purposes of this Section 4.1(a)(ii), the combined capital and surplus of
such corporation shall be deemed to be its combined capital and surplus
as set forth in its most recent report of condition so published.
(b) If at any time the Capital Securities Guarantee Trustee shall
cease to be eligible to so act under Section 4.1(a), the Capital Securities
Guarantee Trust shall immediately resign in the manner and with the effect set
out in Section 4.2(c).
(c) If the Capital Securities Guarantee Trustee has or shall
acquire any "conflicting interest" within the meaning of Section 310(b) of the
Trust Indenture Act, the Capital Securities 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 CAPITAL SECURITIES
GUARANTEE TRUSTEE
(a) Subject to Section 4.2(b), the Capital Securities Guarantee
Trustee may be appointed or removed without cause at any time by the Guarantor
except during an Event or Default.
(b) The Capital Securities Guarantee Trustee shall not be removed
in accordance with Section 4.2(a) until a Successor Capital Securities Guarantee
Trustee has been appointed and has accepted such appointment by written
instrument executed by such Successor Capital Guarantee Trustee and delivered to
the Guarantor.
(c) The Capital Securities Guarantee Trustee shall hold office
until a Successor Capital Securities Guarantee Trustee shall have been appointed
or until its removal or resignation. The Capital Securities Guarantee Trustee
may resign from office (without the need for prior or subsequent accounting) by
an instrument in writing executed by the Capital Securities Guarantee Trustee
and delivered to the Guarantor, which resignation shall not take effect until a
Successor Capital Securities Guarantee Trustee has been appointed and has
accepted such appointment by instrument in writing executed by such Successor
Capital Securities Guarantee Trustee and delivered to the Guarantor and the
resigning Capital Securities Guarantee Trustee.
(d) If no Successor Capital Securities Guarantee Trustee shall
have been appointed and accepted appointment as provided in this Section 4.2
within 60 days after delivery of an instrument of removal or resignation, the
Capital Securities Guarantee Trustee resigning or being removed may petition any
court of competent jurisdiction for appointment of a Successor Capital
Securities Guarantee Trustee. Such court may thereupon, after prescribing such
notice, if any, as it may deem proper, appoint a Successor Capital Securities
Guarantee Trustee.
(e) No Capital Securities Guarantee Trustee shall be liable for
the acts or omissions to act of any Successor Capital Securities Guarantee
Trustee.
(f) Upon termination of this Capital Securities Guarantee or
removal or resignation of the Capital Securities Guarantee Trustee pursuant to
this Section 4.2, the Guarantor shall pay to the Capital Securities Guarantee
Trustee all amounts due to the Capital Securities Guarantee Trustee accrued to
the date of such termination, removal or resignation.
ARTICLE V
GUARANTEE
SECTION 5.1 GUARANTEE
The Guarantor irrevocably and unconditionally agrees to pay in
full to the Holders the Guarantee Payments (without duplication of amounts
theretofore paid by the Issuer), as and when due, regardless of any defense,
right of set-off or counterclaim that the Issuer may have or assert. The
Guarantor's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holders or by causing
the Issuer to pay such amounts to the Holders.
SECTION 5.2 WAIVER OF NOTICE AND DEMAND
The Guarantor hereby waives notice of acceptance of this Capital
Securities Guarantee and of any liability to which it applies or may apply,
presentment, demand for payment, any right to require a proceeding first against
the Issuer or any other Person before proceeding against the Guarantor, protest,
notice of nonpayment, notice of dishonor, notice of redemption and all other
notices and demands.
SECTION 5.3 OBLIGATIONS NOT AFFECTED
(a) The obligations, covenants, agreements and duties of the
Guarantor under this Capital Securities Guarantee shall in no way be affected or
impaired by reason of the happening from time to time of any of the following:
(i) the release or waiver, by operation of law or
otherwise, of the performance or observance by the Issuer of any express
or implied agreement, covenant, term or condition relating to the
Capital Securities to be performed or observed by the Issuer;
(ii) the extension of time for the payment by the Issuer
of all or any portion of the Distributions, Redemption Price,
Liquidation Distribution or any other sums payable under the terms of
the Capital Securities or the extension of time for the performance of
any other obligation under, arising out of, or in connection with, the
Capital Securities (other than an extension of time for payment of
Distributions, Redemption Price, Liquidation Distribution or other sum
payable that results from the extension of any interest payment period
on the Debentures permitted by the Indenture);
(iii) any failure, omission, delay or lack of diligence on
the part of the Holders to enforce, assert or exercise any right,
privilege, power or remedy conferred on the Holders pursuant to the
terms of the Capital Securities, or any action on the part of the Issuer
granting indulgence or extension of any kind;
(vi) the voluntary or involuntary liquidation,
dissolution, sale of any collateral, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition or readjustment of debt of or other similar
proceedings affecting, the Issuer or any of the assets of the Issuer;
(v) any invalidity of, or defect or deficiency in,
the Capital Securities;
(vi) the settlement or compromise of any obligation
guaranteed hereby or hereby incurred;
(vii) the consummation of the Exchange Offer; or
(viii) any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a
guarantor, it being the intent of this Section 5.3 that the obligations
ofthe Guarantor hereunder shall be absolute and unconditional under any
and all circumstances.
(b) There shall be no obligation of the Holders to give notice
to, or obtain consent of, the Guarantor with respect to the happening of any of
the foregoing.
SECTION 5.4 RIGHTS OF HOLDERS
(a) The Holders of a Majority in Liquidation Amount of the
Capital Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Capital Securities
Guarantee Trustee in respect of this Capital Securities Guarantee or exercising
any trust or power conferred upon the Capital Securities Guarantee Trustee under
this Capital Securities Guarantee.
(b) If the Capital Securities Guarantee Trustee fails to enforce
such Capital Securities Guarantee, any Holder of Capital Securities may
institute a legal proceeding directly against the Guarantor to enforce the
Capital Securities Guarantee Trustee's rights under this Capital Securities
Guarantee, without first instituting a legal proceeding against the Issuer, the
Capital Securities Guarantee Trustee or any other person or entity. The
Guarantor waives any right or remedy to require that any action be brought first
against the Issuer or any other person or entity before proceeding directly
against the Guarantor.
SECTION 5.5 GUARANTEE OF PAYMENT
This Capital Securities Guarantee creates a guarantee of payment
and not of collection.
SECTION 5.6 SUBROGATION
The Guarantor shall be subrogated to all (if any) rights of the
Holders against the Issuer in respect of any amounts paid to such Holders by the
Guarantor under this Capital Securities Guarantee; provided, however, that the
Guarantor shall not (except to the extent required by mandatory provisions of
law) be entitled to enforce or exercise any right that it may acquire by way of
subrogation or any indemnity, reimbursement or other agreement, in all cases as
a result of payment under this Capital Securities Guarantee, if, at the time of
any such payment, any amounts are due and unpaid under this Capital Securities
Guarantee. If any amount shall be paid to the Guarantor in violation of the
preceding sentence, the Guarantor agrees to hold such amount in trust for the
Holders and to pay over such amount to the Holders.
SECTION 5.7 INDEPENDENT OBLIGATIONS
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the Capital
Securities, and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Capital
Securities Guarantee notwithstanding the occurrence of any event referred to in
subsections (a)(i) through (viii), inclusive, of Section 5.3 hereof.
ARTICLE VI
LIMITATION OF TRANSACTION; SUBORDINATION
SECTION 6.1 LIMITATION OF TRANSACTIONS
So long as any Capital Securities remain outstanding, if at any
time (i) there shall have occurred any event of which the Guarantor has actual
knowledge that (x) with the giving of notice or the lapse of time, or both,
would constitute an Event of Default and (y) in respect of which the Guarantor
shall not have taken reasonable steps to cure, (ii) the Guarantor shall be in
default with respect to its payment of any obligations under this Capital
Securities Guarantee and the Debentures held by the Property Trustee, or (iii)
the Guarantor shall have given notice of its election of the exercise of its
right to defer payment of interest pursuant to Section 16.01 of the Indenture
and any such extension shall be continuing, then the Guarantor shall not
(1) declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to any of
the Guarantor's capital stock (which includes common and preferred
stock);
(2) make any payment of principal, premium, if any, or interest
on or repay or repurchase or redeem any debt securities of the Guarantor
(including any Other Debentures) that rank pari passu with or junior in right of
payment to the Debentures; or
(3) make any guarantee payments with respect to any guarantee by
the Guarantor of the debt securities of any subsidiary of the Guarantor
(including Other Guarantees) if such guarantee ranks pari passu or
junior in right of payment to the Debentures
other than (a) dividends or distributions in shares of, or options, warrants,
rights to subscribe for or purchase shares of common stock of the Guarantor, (b)
any declaration of a dividend in connection with the implementation of a
stockholder's rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (c)
payments under the Capital Securities Guarantee, (d) as a direct result of, and
only to the extent necessary to avoid the issuance of fractional shares of the
Guarantor's capital stock following, a reclassification of the Guarantor's
capital stock or the exchange or the conversion of one class or series of the
Guarantor's capital stock for another class or series of the Guarantor's capital
stock, (e) the purchase of fractional interests in shares of the Guarantor's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, and (f) purchases of common
stock related to the issuance of common stock or rights under any of the
Guarantor's benefit plans for its directors, officers or employees or any of the
Guarantor's dividend reinvestment plans.
SECTION 6.2 RANKING
This Capital Securities Guarantee will constitute an unsecured
obligation of the Guarantor and will rank (i) subordinate and junior in right of
payment to all other liabilities of the Guarantor (other than obligations in
respect of Other Guarantees), (ii) pari passu with (A) the most senior preferred
or preference stock now or hereafter issued by the Guarantor, and (B) with any
Other Guarantee and the Common Securities Guarantee, and (iii) senior to the
Guarantor's common stock.
ARTICLE VII
TERMINATION
SECTION 7.1 TERMINATION
This Capital Securities Guarantee shall terminate (i) upon full
payment of the Redemption Price (as defined in the Declaration) of all Capital
Securities, or (ii) upon liquidation of the Issuer, the full payment of the
amounts payable in accordance with the Declaration or the distribution of the
Debentures to the Holders of all of the Capital Securities. Notwithstanding the
foregoing, this Capital Securities Guarantee will continue to be effective or
will be reinstated, as the case may be, if at any time any Holder of Capital
Securities must restore payment of any sums paid under the Capital Securities or
under this Capital Securities Guarantee.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 EXCULPATION
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Guarantor or any Covered Person for
any loss, damage or claim inured by reason of any act or omission performed or
omitted by such Indemnified Person in good faith in accordance with this Capital
Securities Guarantee and in a manner that such Indemnified Person reasonably
believed to be within the scope of the authority conferred on such Indemnified
Person by this Capital Securities Guarantee or by law, except that an
Indemnified Person shall be liable for any such loss, damage or claim incurred
by reason of such Indemnified Person's negligence or willful misconduct with
respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in
good faith upon the records of the Guarantor and upon such information,
opinions, reports or statements presented to the Guarantor by any Person as to
matters the Indemnified Person reasonably believes are within such other
Person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Guarantor, including information,
opinions, reports or statements as to the value and amount of the assets,
liabilities, profits, losses, or any other facts pertinent to the existence and
amount of assets from which Distributions to Holders of Capital Securities might
properly be paid.
SECTION 8.2 INDEMNIFICATION
(a) The Guarantor agrees to indemnify each Indemnified Person
for, and to hold each Indemnified Person harmless against, any and all loss,
liability, damage, claim or expense incurred without negligence or bad faith on
its part, arising out of or in connection with the acceptance or administration
of the trust or trusts hereunder, including the costs and expenses (including
reasonable legal fees and expenses) of defending itself against, or
investigating, any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The obligation to
indemnify as set forth in this Section 8.2 shall survive the termination of this
Capital Securities Guarantee.
(b) Each Indemnified Person shall give prompt notice to the
Guarantor of any action threatened or commenced against it in respect of which
any indemnity is sought hereunder, enclosing a copy of all papers served on, and
notices and demands delivered to, such Indemnified Person, if any, but failure
to so notify the Guarantor shall not relieve the Guarantor from any liability
which it may have under this Section 8.2, except to the extent that it is
materially prejudiced by such failure. The Guarantor shall be entitled to assume
the defense of any such action or proceeding with counsel reasonably
satisfactory to the Indemnified Person who shall not, except with the consent of
the Indemnified Person, be counsel to the Guarantor. Upon assumption by the
Guarantor of the defense of any such action or proceeding, the Indemnified
Person shall have the right to participate in such action or proceeding and to
retain its own counsel, but the Guarantor shall not be liable for any legal fees
or expenses subsequently incurred by such Indemnified Person in connection with
the defense thereof unless (i) the Guarantor has agreed to pay such fees and
expenses, (ii) the Guarantor shall have failed to employ counsel reasonably
satisfactory to the Indemnified Person in a timely manner, or (iii) the
Indemnified Person shall have been advised by counsel (who shall not be employed
by such Indemnified Person and who shall be reasonably satisfactory to the
Guarantor) that such representation would constitute an actual or potential
conflict of interests for counsel selected by the Guarantor. The Guarantor shall
not consent to the terms of any compromise or settlement of any action defended
by the Guarantor in accordance with the foregoing without the prior consent of
the Indemnified Person, and the Indemnified Person shall not consent to the
terms of any compromise or settlement of any action being defended by the
Guarantor in accordance with the foregoing without the prior consent of the
Guarantor. Notwithstanding the immediately preceding sentence, if at any time an
Indemnified Person shall have requested the Guarantor to reimburse the
Indemnified Person for fees and expenses of counsel as contemplated above, the
Guarantor agrees that it shall be liable for any settlement of any proceeding
effected without its written consent if (i) such settlement is entered into more
than 30 business days after receipt by the Guarantor of the aforesaid request
and (ii) the Guarantor shall not have reimbursed the Indemnified Person in
accordance with such request prior to the date of such settlement.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 SUCCESSORS AND ASSIGNS
All guarantees and agreements contained in this Capital
Securities Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
of the Capital Securities then outstanding.
SECTION 9.2 AMENDMENTS
Except with respect to any changes that do not adversely affect
the rights of Holders (in which case no consent of Holders will be required),
this Capital Securities Guarantee may only be amended with the prior approval of
the Holders of at least a Majority in Liquidation Amount of the Capital
Securities. The provisions of Section 12.2 of the Declaration with respect to
meetings of Holders of the Capital Securities apply to the giving of such
approval.
SECTION 9.3 NOTICES
All notices provided for in this Capital Securities Guarantee
shall be in writing, duly signed by the party giving such notice, and shall be
delivered, telecopied or mailed by first class mail, as follows:
(a) If given to the Issuer, in care of the Administrative
Trustees at the Issuer's mailing address set forth below (or such other
address as the Issuer may give notice to the Holders of the Capital
Securities):
Orion Capital Trust II
9 Farm Springs Road
Farmington, CT 06032
Attention: Michael P. Maloney, Esq.
Administrative Trustee
Telecopy: (860) 674-6890
with a copy to
Donovan Leisure Newton & Irvine LLP
30 Rockefeller Plaza
New York, New York 10112
Attn: John J. McCann, Esq.
Fax: (212) 632-3315
(b) If given to the Capital Securities Guarantee Trustee, at the
Capital Securities Guarantee Trustee's mailing address set forth below
(or such other addresses the Capital Securities Guarantee Trustee may
give notice of to the Holders of the Capital Securities);
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust Administration
Telecopy: (212) 815-5915
(c) If given to the Guarantor, at the Guarantor's mailing address
set forth below (or such other address as the Guarantor may give notice
of to the Holders of the Capital Securities):
Orion Capital Corporation
9 Farm Springs Road
Farmington, CT 06032
Attention: Michael P. Maloney, Esq.
Senior Vice President, General
Counsel and Secretary
Telecopy: (860) 674-6890
(d) If given to any Holder of Capital Securities, at the address
set forth on the books and records of the Issuer.
All such notices shall be deemed to have been given when received
in person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery,
such notice or other document shall be deemed to have been delivered on the date
of such refusal.
SECTION 9.4 EXCHANGE OFFER
In the event an Exchange Offer Registration Statement (as defined
in the Registration Rights Agreement) becomes effective and the Issuer issues
any capital securities in the Exchange Offer, the Guarantor will enter into a
new capital securities guarantee agreement, in substantially the same form as
this Capital Securities Guarantee, with respect to such capital securities.
SECTION 9.5 BENEFIT
This Capital Securities Guarantee is solely for the benefit of
the Holders of the Capital Securities and, subject to Section 3.1(a), is not
separately transferable from the Capital Securities.
SECTION 9.6 GOVERNING LAW
THIS CAPITAL SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF.
THIS CAPITAL SECURITIES GUARANTEE is executed as of the day and
year first above written.
ORION CAPITAL CORPORATION,
as Guarantor
By: /s/ Michael P. Maloney
Michael P. Maloney, Esq.
Senior Vice President, General
Counsel and Secretary
THE BANK OF NEW YORK, as
Capital Securities Guarantee Trustee
By:/s/ Walter N. Gitlin
Walter N. Gitlin
Vice President
<PAGE> Exhibit 10(xxi)
CONFORMED COPY
August 12, 1997
Mr. W. Marston Becker
Chairman
Orion Capital Corporation
9 Farm Springs Road
Farmington, CT 06032
Dear Mr. Becker:
This letter amends the Letter Agreement dated September 13, 1993 amended on
February 14, 1995 (as so amended, the "Agreement") between Intercargo Corpor-
ation (the "Company") and Orion Capital Corporation ("Orion") with respect to
Orion's ownership of shares of the Company's common stock. For purposes of
this amendment, the definitions as set forth in the original Agreement shall
have the same meanings in this letter.
By this letter the Company and Orion agree that the Agreememt is amended as
follows:
1. The "Percentage Limitation" referred to in Section 5(a) of the Agreement
is increased to "35%".
2. The reference to "December 31, 1998 in Section 5(a) and Section 5(b) of
the Agreement is changed to "June 30, 2000".
3. All other terms and conditions of the Agreement remain unchanged.
Sincerely,
INTERCARGO CORPORATION
By:/s/ Michael L. Rybak
--------------------
Michael L. Rybak
Vice President and
Chief Financial Officer
Accepted and agreed to on the date written above.
ORION CAPITAL CORPORATION
By: /s/ W. Marston Becker
---------------------
W. Marston Becker
Chairman
<PAGE> Exhibit 11
<TABLE>
<CAPTION>
ORION CAPITAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(000s omitted except for per common share data)
Year Ended December 31,
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
BASIC -
Weighted average number of
shares outstanding.......................... 27,333 27,400 28,110
======== ======= =======
Net earnings available to
common stockholders......................... $115,806 $86,631 $67,622
======== ======= =======
Net earnings per common share ................ $ 4.24 $ 3.16 $ 2.41
======== ======= =======
DILUTED -
Weighted average number of shares
outstanding.................................. 27,333 27,400 28,110
Dilutive effect of stock options and
stock awards................................. 567 388 264
-------- ------- -------
Weighted average number of common and
diluted equivalent shares.................... 27,900 27,788 28,374
======== ======= =======
Net earnings available to common
stockholders................................. $115,806 $86,631 $67,622
======== ======= =======
Net earnings per common share ................ $ 4.15 $ 3.12 $ 2.38
======== ======= =======
</TABLE>
EXHIBIT 21
SUBSIDIARIES OF ORION CAPITAL CORPORATION
State or Other
Jurisdiction
Subsidiary Of Incorporation
- ---------- ----------------
Auto Insurance Centers, Inc. Nevada
Carolina American Insurance Company South Carolina
Clarke & Towner, Inc. Connecticut
Colorado Casualty Insurance Company Colorado
Connecticut Specialty Group, Inc. Connecticut
Connecticut Specialty Insurance Company Connecticut
Connecticut Specialty Insurance Group, Inc. Connecticut
Design Professionals Administration Corporation California
Design Professionals Insurance Company Connecticut
Dimock & Associates, Inc. Insurance Brokers California
DPIC Companies, Inc. California
DPIC Management Services Corp. Connecticut
EBI Companies, Inc. Connecticut
EBI Consulting Services, Inc. California
EBI Indemnity Company Connecticut
EFC Property Management, Inc. California
Employee Benefits Insurance Company Connecticut
Guaranty National Corporation Colorado
Guaranty National Insurance Company Colorado
Guaranty National Insurance Company of California California
Guaranty National Warranty Services Company Colorado
Independent Financial Planners Corporation New Jersey
Intercon General Agency, Inc. Texas
Jabawwat, Inc. Delaware
Landmark American Insurance Company Oklahoma
Wm. H. McGee & Co., Inc. New York
Wm. H. McGee & Co., (Bermuda) Ltd. Bermuda
Wm. H. McGee & Co., of Canada, Ltd. Canada
Wm. H. McGee & Co., of Puerto Rico, Inc. Puerto Rico
Wm. H. McGee Services, Inc. New York
Nations' Care, Inc. Connecticut
Orion Capital Companies, Inc. Connecticut
Orion Properties Corporation Delaware
Peak Property and Casualty Insurance Corporation Colorado
Peninsula Excess Insurance Brokers, Inc. California
Security Insurance Company of Hartford Connecticut
Security Insurance Company (UK) Limited United Kingdom
SecurityRe, Inc. Connecticut
Security Reinsurance Company Connecticut
Security Warranty Association of Florida, Inc. Florida
The Connecticut Indemnity Company Connecticut
The Fire and Casualty Insurance Company of Conn. Connecticut
Unisun Insurance Company South Carolina
Viking Insurance Company of Wisconsin Wisconsin
Viking Insurance Holdings, Inc. Delaware
Viking County Mutual Insurance Company Texas
Viking General Agency, Inc. Texas
*The listed subsidiaries are wholly-owned by Orion Capital Corporation
as of December 31, 1997. The Company owns 24.7% of Intercargo Corporation
of Schaumburg, Illinois.
<PAGE> Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No. 2-
65348 on Forms S-8 and S-16 relating to the Orion Capital Corporation 1976 and
1979 Stock Option Plans, No. 2-80636 on Form S-8 relating to the Orion Capital
Corporation 1982 Long-Term Performance Incentive Plan, No. 2-63344 on Form S-8
relating to the Orion Capital Corporation Employees' Stock Savings and
Retirement Plan, No. 33-59847 on Form S-8 relating to the Orion Capital Cor-
poration 1994 Stock Option Plan for Non-Employee Directors and No. 333-44901
on Form S-8 relating to the Wm. H. McGee & Co. Inc. 401(K) and Profit
Sharing Plan, of our report dated February 11, 1998, appearing in this Annual
Report on Form 10-K of Orion Capital Corporation for the year ended December 31,
1997.
Deloitte & Touche LLP
Hartford, Connecticut
March 20, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
EXHIBIT 27.1
THIS FINANCIAL SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
ORION CAPITAL CORPORATION'S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DECEMBER-31-1997
<PERIOD-START> JANUARY-1-1997
<PERIOD-END> DECEMBER-31-1997
<DEBT-HELD-FOR-SALE> 1,469,846
<DEBT-CARRYING-VALUE> 312,770
<DEBT-MARKET-VALUE> 322,395
<EQUITIES> 438,501
<MORTGAGE> 2,249
<REAL-ESTATE> 0
<TOTAL-INVEST> 2,543,733
<CASH> 9,275
<RECOVER-REINSURE> 496,752
<DEFERRED-ACQUISITION> 147,124
<TOTAL-ASSETS> 3,884,058
<POLICY-LOSSES> 1,871,711
<UNEARNED-PREMIUMS> 551,590
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 20,495
<NOTES-PAYABLE> 310,228
<COMMON> 182,789
0
0
<OTHER-SE> 540,321
<TOTAL-LIABILITY-AND-EQUITY> 3,884,058
1,357,680
<INVESTMENT-INCOME> 164,908
<INVESTMENT-GAINS> 47,775
<OTHER-INCOME> 20,172
<BENEFITS> 905,458
<UNDERWRITING-AMORTIZATION> 387,165
<UNDERWRITING-OTHER> 60,645
<INCOME-PRETAX> 176,180
<INCOME-TAX> 46,481
<INCOME-CONTINUING> 115,806
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115,806
<EPS-BASIC> 4.15
<EPS-DILUTED> 4.24
<RESERVE-OPEN> 1,377,416
<PROVISION-CURRENT> 896,226
<PROVISION-PRIOR> 9,232
<PAYMENTS-CURRENT> 370,907
<PAYMENTS-PRIOR> 521,240
<RESERVE-CLOSE> 1,390,727
<CUMULATIVE-DEFICIENCY> 9,232
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
EXHIBIT 27.2
THIS FINANCIAL SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ORION CAPITAL CORPORATION'S FIRST,
SECOND AND THIRD QUARTER OF 1996 FINANCIAL STATEMENTS AND FOR THE YEAR ENDED DECEMBER 31, 1996 AND 1995, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THE SCHEDULE HAS BEEN RESTATED FOR FAS
NO. 128 AND THE COMPANY'S 2-FOR-1 STOCK SPLIT OF ITS COMMON STOCK ISSUED ON JULY 7, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<RESTATED>
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-1-1996 JAN-1-1996 JAN-1-1996 JAN-1-1995 JAN-1-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1995 DEC-31-1996
<DEBT-HELD-FOR-SALE> 767,994 1,093,717 1,132,064 782,869 1,205,308
<DEBT-CARRYING-VALUE> 264,664 342,559 334,734 265,169 326,841
<DEBT-MARKET-VALUE> 271,265 347,188 340,061 276,282 334,755
<EQUITIES> 304,416 386,873 366,757 304,885 361,593
<MORTGAGE> 1,598 1,288 1,214 1,979 1,187
<REAL-ESTATE> 0 0 0 0 0
<TOTAL-INVEST> 1,618,357 2,235,282 2,233,468 1,602,861 2,309,767
<CASH> 7,298 26,744 20,924 3,584 11,607
<RECOVER-REINSURE> 305,576 367,354 394,599 291,527 430,293
<DEFERRED-ACQUISITION> 82,238 127,700 137,014 77,673 136,168
<TOTAL-ASSETS> 2,537,445 3,338,290 3,354,324 2,473,588 3,464,357
<POLICY-LOSSES> 1,304,761 1,673,025 1,713,179 1,274,982 1,785,664
<UNEARNED-PREMIUMS> 320,643 484,034 505,963 302,105 496,249
<POLICY-OTHER> 0 0 0 0 0
<POLICY-HOLDER-FUNDS> 18,227 20,777 20,879 18,946 22,489
<NOTES-PAYABLE> 209,164 311,246 311,073 209,148 310,904
<COMMON> 161,668 161,661 161,746 161,996 173,925
0 0 0 0 0
0 0 0 0 0
<OTHER-SE> 326,124 335,905 368,144 328,907 402,808
<TOTAL-LIABILITY-AND-EQUITY> 2,537,445 3,338,290 3,354,324 2,473,588 3,464,357
186,932 621,511 954,447 749,003 1,300,752
<INVESTMENT-INCOME> 25,086 70,793 106,821 99,040 145,391
<INVESTMENT-GAINS> 3,384 11,126 16,606 11,885 24,180
<OTHER-INCOME> 5,685 11,533 17,473 14,352 23,126
<BENEFITS> 127,132 431,310 655,018 512,233 882,992
<UNDERWRITING-AMORTIZATION> 49,357 165,249 260,270 195,481 363,547
<UNDERWRITING-OTHER> 9,254 24,425 37,891 43,352 51,546
<INCOME-PRETAX> 22,499 57,785 91,252 88,035 127,356
<INCOME-TAX> 4,612 13,767 21,444 20,413 32,033
<INCOME-CONTINUING> 17,887 38,460 62,821 67,622 86,631
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 17,887 38,460 62,821 67,622 86,631
<EPS-BASIC> .65 1.40 2.29 2.41 3.16
<EPS-DILUTED> .64 1.38 2.26 2.38 3.12
<RESERVE-OPEN> 993,978 1,280,317 1,280,317 891,542 1,280,317
<PROVISION-CURRENT> 125,773 648,356 648,356 500,514 874,123
<PROVISION-PRIOR> 1,359 6,662 6,662 11,719 8,869
<PAYMENTS-CURRENT> 19,006 236,857 236,857 146,540 499,176
<PAYMENTS-PRIOR> 89,004 369,475 369,475 263,257 295,713
<RESERVE-CLOSE> 1,013,100 1,329,003 1,329,003 993,978 1,368,420
<CUMULATIVE-DEFICIENCY> 1,359 6,662 6,662 11,719 8,869
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
EXHIBIT 27.3
THIS FINANCIAL SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ORION CAPITAL CORPORATION'S 1997
QUARTERLY FINANCIAL STATEMENTS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
THE SCHEDULE HAS BEEN RESTATED FOR FAS NO. 128 AND THE COMPANY'S 2-FOR-1 STOCK SPLIT OF ITS COMMON STOCK ISSUED
ON JULY 7, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-1-1997 JAN-1-1997 JAN-1-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<DEBT-HELD-FOR-SALE> 1,361,948 1,342,885 1,424,615
<DEBT-CARRYING-VALUE> 328,279 324,640 318,614
<DEBT-MARKET-VALUE> 331,541 331,164 327,661
<EQUITIES> 363,986 382,264 432,765
<MORTGAGE> 1,307 1,280 2,000
<REAL-ESTATE> 0 0 0
<TOTAL-INVEST> 2,450,764 2,511,966 2,617,531
<CASH> 5,606 13,598 2,529
<RECOVER-REINSURE> 414,233 420,615 441,898
<DEFERRED-ACQUISITION> 139,478 141,732 145,377
<TOTAL-ASSETS> 3,608,456 3,677,293 3,761,172
<POLICY-LOSSES> 1,794,801 1,793,358 1,805,057
<UNEARNED-PREMIUMS> 497,114 502,800 508,910
<POLICY-OTHER> 0 0 0
<POLICY-HOLDER-FUNDS> 20,780 21,465 21,286
<NOTES-PAYABLE> 310,734 310,565 310,395
<COMMON> 173,930 173,531 174,342
0 0 0
0 0 0
<OTHER-SE> 403,499 457,287 510,362
<TOTAL-LIABILITY-AND-EQUITY> 3,608,456 3,677,293 3,761,172
323,963 659,189 1,006,639
<INVESTMENT-INCOME> 40,221 81,537 122,291
<INVESTMENT-GAINS> 15,789 24,147 29,299
<OTHER-INCOME> 4,939 10,119 15,133
<BENEFITS> 219,002 444,696 673,781
<UNDERWRITING-AMORTIZATION> 94,798 188,075 287,565
<UNDERWRITING-OTHER> 11,183 26,487 43,928
<INCOME-PRETAX> 43,364 82,679 120,752
<INCOME-TAX> 9,921 20,791 30,519
<INCOME-CONTINUING> 29,478 54,859 79,385
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 29,478 54,859 79,385
<EPS-BASIC> 1.08 2.01 2.91
<EPS-DILUTED> 1.06 1.97 2.85
<RESERVE-OPEN> 1,368,420 1,368,420 1,368,420
<PROVISION-CURRENT> 217,460 441,001 667,098
<PROVISION-PRIOR> 1,542 3,695 6,683
<PAYMENTS-CURRENT> 81,395 163,377 277,151
<PAYMENTS-PRIOR> 125,299 266,521 381,249
<RESERVE-CLOSE> 1,380,728 1,383,218 1,383,801
<CUMULATIVE-DEFICIENCY> 1,542 3,695 6,683
</TABLE>
