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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period to .
Commission file number 0-14737
TRENWICK GROUP INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1152790
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Metro Center, One Station Place, Stamford, Connecticut 06902
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 353-5500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- -------------------
<S> <C>
COMMON STOCK, $.10 PAR VALUE NASDAQ NATIONAL MARKET SYSTEM
6% CONVERTIBLE DEBENTURES DUE DECEMBER 15, 1999 NASDAQ NATIONAL MARKET SYSTEM
PREFERRED STOCK PURCHASE RIGHTS
</TABLE>
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 10K or any amendment to this
Form 10-K. / /
The aggregate market value on February 28, 1997 of the voting stock held by
non-affiliates of the registrant was $356,141,427
The number of shares outstanding of each of the issuer's classes of common
stock as of the close of the period covered by this report:
Class Outstanding at February 28, 1997
Common Stock, $.10 par value 7,954,501
Certain information required by Items 1 through 8 of Form 10-K is incorporated
by reference into Parts I and II hereof from the registrant's annual report to
stockholders for the fiscal year ended December 31, 1996 and the information
required by Items 10 through 13 of Form 10-K is incorporated by reference into
Part III hereof from the registrant's proxy statement which will be filed with
the Securities and Exchange Commission within 120 days of the close of the
registrant's fiscal year ended December 31, 1996.
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TRENWICK GROUP INC.
Table of Contents
<TABLE>
<CAPTION>
Page
Item Number
- - ---- ------
<S> <C>
PART I
1. Business .................................................................. 1
2. Properties ................................................................ 17
3. Legal Proceedings ......................................................... 17
4. Submission of Matters to a Vote of Security Holders ....................... 17
PART II
5. Market for the Corporation's Common Stock and Related Stockholder Matters... 18
6. Selected Financial Data ................................................... 19
7. Management's Discussion and Analysis of Financial Condition and
Results of Operation ...................................................... 20
8. Financial Statements and Supplementary Data ............................... 20
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ...................................................... 20
PART III
10. Directors and Executive Officers .......................................... 20
11. Executive Compensation .................................................... 20
12. Security Ownership of Certain Beneficial Owners and Management ............ 20
13. Certain Relationships and Related Transactions ............................ 20
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ........... 21
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL BACKGROUND AND HISTORY
Trenwick Group Inc. is a holding company incorporated in the state of Delaware
in 1985. Through its wholly owned subsidiary, Trenwick America Corporation, a
Delaware corporation, Trenwick owns and operates Trenwick America Reinsurance
Corporation, (Trenwick America Re), a Connecticut corporation. The term
"Trenwick", as used herein, refers to Trenwick America Re in discussions of that
company's reinsurance business and refers to Trenwick Group Inc. in all other
circumstances. Trenwick America Corporation, which acquired Trenwick America Re
in 1983, became a wholly owned subsidiary of Trenwick in 1985 as a result of a
corporate restructuring. Trenwick also owns two inactive Bermuda subsidiaries.
Trenwick primarily provides reinsurance to insurers of property and casualty
risks in the United States. Trenwick writes both treaty and facultative
reinsurance. Treaty is divided into conventional treaty and specialty business.
Specialty underwriting combines the actuarial analytical methods of treaty
underwriting and the individual risk assessment skills of facultative
underwriting. Like treaty reinsurance, specialty reinsurance is written for a
class of risk in which statistical methods are used to estimate future
profitability. Like facultative underwriting, however, specialty underwriting
also relies on the analysis of the reinsured's risks themselves as well as
insurance policy forms and rates.
Trenwick generally obtains all of its business through brokers and reinsurance
intermediaries which seek its participation on reinsurance being placed for
their customers. Reinsurance is provided both on an excess of loss and quota
share basis, which in 1996 amounted to 57% and 43% of its business,
respectively. In underwriting reinsurance, Trenwick does not target types of
clients, classes of business or types of reinsurance. Rather, it selects
transactions based upon the quality of the reinsured, the attractiveness of the
reinsured's insurance rates and policy conditions and the adequacy of the
proposed reinsurance terms.
LINES AND TYPES OF BUSINESS
Trenwick's net premiums written for its principal lines of business are set
forth in the following table for the periods indicated.
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NET PREMIUMS WRITTEN BY LINES OF BUSINESS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Casualty
Automobile Liability $ 64,539 $ 61,388 $ 38,323
Errors and Omissions 48,888 50,077 32,707
General Liability 22,519 20,819 17,910
Workers' Compensation 20,502 873 1,079
Medical Malpractice 9,846 6,933 3,245
Products Liability 2,595 3,101 2,966
Other Casualty 10,452 12,731 6,600
-------- -------- --------
Total Casualty 179,341 155,922 102,830
Property 47,023 41,240 36,805
-------- -------- --------
Total $226,364 $197,162 $139,635
======== ======== ========
</TABLE>
The major lines of reinsurance currently written by Trenwick are automobile
liability, errors and omissions, general liability and workers' compensation
which account for an aggregate of at least 64% of net premiums written in all
years indicated. Casualty business increased by 15% as a result of an increase
in new casualty business developed through existing and new relationships with
various reinsurance brokers. The growth in new casualty business is primarily
attributable to an increase in workers compensation as a result of two new
contracts. In 1996, the amount of property business underwritten by Trenwick
remained constant as a percentage of total net written premiums.
In 1996, insurance companies continued to increase their retentions, thereby
reducing the amount of reinsurance placed with reinsurers. As a result, errors
and omissions, products liability and other casualty lines of business decreased
in 1996. In addition, Trenwick declined to renew certain accounts which did not
meet it's pricing standards.
In 1996, 1995 and 1994, twelve programs underwritten by Trenwick accounted for
approximately 49%, 52% and 51%, respectively, of gross premiums written. One
ceding company accounted for 15%, 19%, and 14% of gross premiums written for
years 1996, 1995 and 1994, respectively. The majority of this business has been
in force since 1988 and involves working layer excess of loss automobile
liability for trucking risks written by Canal Insurance Company, an established
specialist in this line of business. Canal has an A.M. Best Company rating of A+
and statutory capital and surplus at December 31, 1996 in excess of $277
million. During 1996, Trenwick continued its strategic reinsurance agreement
with PXRE Reinsurance Company (PXRE Re), assuming approximately 15% of PXRE Re's
property business. This program with PXRE Re accounted for approximately 6%, 9%
and 12%, respectively, of gross premiums written in years 1996, 1995 and 1994.
Trenwick also obtained approximately 10% and 12% of gross premiums written in
1996 from Continental Casualty Company and American International Group,
respectively. Trenwick expects to renew these accounts for 1997. While Trenwick
believes that the loss of any one of these accounts would have a material
adverse effect on premiums written, Trenwick does not believe that such a loss
would result in a concurrent material decrease in its earnings. Further,
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Trenwick believes that it would continue to underwrite new business to replace
these accounts, in the event that they were non-renewed.
The table set forth below shows the distribution of net premiums written by type
which classifies the business by type of underwriting methodology used.
NET PREMIUMS WRITTEN BY TYPE OF BUSINESS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
CASUALTY
Standard treaty $144,074 64% $108,330 55% $ 61,071 44%
Specialty treaty 46,048 20 50,593 26 39,722 28
Facultative 6,404 3 6,035 3 4,149 3
-------- --- -------- --- -------- ---
196,526 87% 164,958 84% 104,942 75%
PROPERTY 29,838 13% 32,204 16% 34,693 25%
-------- --- -------- --- -------- ---
Total $226,364 100% $197,162 100% $139,635 100%
======== === ======== === ======== ===
</TABLE>
Treaty Reinsurance
Approximately 97% of Trenwick's net premiums written is currently represented by
treaty reinsurance including standard treaty, specialty and property business.
Specialty business underwritten by Trenwick generally includes specialty
coverages and classes such as professional liability, directors' and officers'
liability and other excess and surplus lines exposures. Specialty also
encompasses reinsurance of business written by managing general agents or
alternative risk mechanisms other than insurance companies. Net treaty premiums
written increased 15%, 41% and 39% in 1996, 1995 and 1994, respectively. In
1996, Trenwick wrote on a quota share and excess of loss basis an aggregate of
229 treaties, as compared to 222 treaties in 1995 and 250 treaties in 1994.
Trenwick's commitment is currently limited to $2,000,000 per account on casualty
treaty business and $1,500,000 on property business. Larger commitments are
subject to Trenwick's Underwriting Committee referral process.
Facultative Reinsurance
Facultative writings, consisting entirely of casualty business, currently
account for 3% of net premiums written. All facultative business is written on
an excess of loss basis. The average gross limit provided by Trenwick is
$592,000. Maximum facultative gross capacity per risk is $2,000,000. Trenwick
retains the first $500,000 per transaction. In 1996, casualty facultative net
premiums written represented by 384 contracts increased 6% when compared to
1995. In 1995 and 1994, casualty facultative net premiums written represented by
318 and 215 contracts increased 45% and 5%, respectively, when compared to 1994
and 1993.
MARKETING
Trenwick generally obtains all its reinsurance business through reinsurance
brokers which represent the ceding company in negotiations for the purchase of
reinsurance. The process of effecting a brokered
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reinsurance placement typically begins when a ceding company enlists the aid of
a reinsurance broker in structuring a reinsurance program. Often the ceding
company and the broker will consult with one or more lead reinsurers as to the
pricing and contract terms of the reinsurance protection being sought. Once the
ceding company has approved the terms quoted by the lead reinsurer, the broker
will offer participations to qualified reinsurers until the program is fully
subscribed by reinsurers at terms agreed to by all parties.
Trenwick pays such intermediaries or brokers commissions representing negotiated
percentages of the premium it writes. These commissions, which currently average
3%, constitute part of Trenwick's total acquisition costs and are included in
its underwriting expenses. Brokers do not have the authority to bind Trenwick
with respect to reinsurance agreements, nor does Trenwick commit in advance to
accept any portion of the business that brokers submit to it. Reinsurance
business from any ceding company, whether new or renewal, is subject to
acceptance by Trenwick.
In 1996, Trenwick's three largest broker sources accounted for 31%, 18% and 12%,
respectively, of Trenwick's gross premiums written. In 1995, the three largest
broker sources accounted for 34%, 19% and 9%, respectively. These three brokers
are among the ten largest brokers in the reinsurance industry. Trenwick's
concentration of business through a small number of sources is consistent with
the concentration of the property and casualty broker reinsurance market, in
which a majority of the business is written through the ten largest brokers.
Loss of all or a substantial portion of the business provided by these brokers
could have a material adverse effect on the business and operations of Trenwick.
Trenwick does not believe, however, that the loss of such business would have a
long-term adverse effect because of Trenwick's competitive position within the
broker reinsurance market and the availability of business from other brokers.
UNDERWRITING
Trenwick's underwriting philosophy emphasizes a transactional approach to
underwriting in which any reinsurance transaction for any line of property or
casualty business is considered on its own merits. The underwriter's primary
objective is to assess the potential for an underwriting profit. The risk
assessment process undertaken by Trenwick's underwriters involves a
comprehensive analysis of historical data and estimates of future value of loss
costs which may not be evident in the historical data. The factors which
Trenwick considers include the type of risk, details of the underlying insurance
coverage provided, adequacy of pricing using actuarial analysis and the
reinsurance terms and conditions. Before it agrees to participate in a
transaction, Trenwick frequently conducts underwriting and claims audits of
ceding companies to assist it in evaluating the information submitted by the
ceding companies.
Trenwick's Underwriting Committee, composed of its most senior underwriters and
Chief Actuary, is responsible for its underwriting policy and quality standards.
The quality control process involves both pre-binding referral of individual
transactions and post-binding internal audits of each underwriting department.
The referral process provides a three-tiered system of checks and balances to
reduce the potential for significant loss. Accounts displaying characteristics
specified in Trenwick's Underwriting Policy Manual are subject to successive
referral to the Department Manager, Underwriting Committee representatives, and
in some cases, the Chief Executive Officer. The quality control process is
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<PAGE> 7
supplemented by conducting periodic internal audits of each underwriting
department to ensure compliance with underwriting policies and procedures.
COMPETITION
Trenwick competes with numerous major international and domestic reinsurance and
insurance companies. These competitors, many of which have substantially greater
financial and staff resources than Trenwick, include independent reinsurance
companies, subsidiaries or affiliates of established insurance companies,
reinsurance departments of certain commercial insurance companies and
underwriting syndicates.
The reinsurance market has two basic segments: reinsurers that primarily obtain
their business directly from insurers and those that primarily obtain business
through reinsurance intermediaries or brokers. Although Trenwick generally
obtains all of its business through reinsurance intermediaries or brokers, and
therefore, competes directly with other reinsurers that obtain their business in
this way, it also competes indirectly with reinsurers who obtain business
directly from primary insurers because Trenwick's brokers must compete with
direct reinsurers for business to be offered to Trenwick.
Competition in the types of reinsurance business which Trenwick underwrites is
based on many factors, including the perceived overall financial strength of the
reinsurer, rates charged, other terms and conditions, A.M. Best rating, service
offered, speed of service (including claims payment) and perceived technical
ability and experience of staff. The number of jurisdictions in which a
reinsurer is licensed or authorized to do business is also a factor. Trenwick is
licensed or otherwise authorized to conduct reinsurance business in every state
and the District of Columbia.
The financial security of insurers and reinsurers has emerged as a key issue of
the 1990's. To be accepted as a reinsurer by ceding companies and their brokers,
a reinsurer must demonstrate higher levels of financial security and solvency
than were previously required. Transactions tend to have fewer and larger
participants, which may negatively affect the availability of underwriting
opportunities. However, ceding companies have become more specialized, which
management believes will favor reinsurers such as Trenwick which possess
technical underwriting and risk assessment skills. The alternative risk segment
of the market has grown, thereby removing some premiums from the traditional
property and casualty primary insurance market. Alternative risk mechanisms,
which depend more heavily on reinsurance than the traditional companies they
have replaced, have created new opportunities for specialized reinsurers.
Trenwick's management believes that the reinsurance industry, including the
intermediary market, will continue to undergo further consolidation and that
size and financial strength will continue to be significant factors in effective
competition. Trenwick's statutory surplus was $286 million at December 31, 1996.
Based on the most recent information prepared by the Reinsurance Association of
America (RAA), this surplus placed Trenwick among the top nineteenth ranked
reinsurance companies and the top fourteen reinsurers in the U.S. broker market,
as measured by policyholder surplus, of those companies reporting to the RAA.
The RAA is an industry organization of professional property and casualty
reinsurers which, among other things, compiles data on reinsurers and their
reinsurance operations.
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<PAGE> 8
Trenwick is rated "A+ (Superior)," the second-highest classification accorded by
A.M. Best Company. A.M. Best Company is an independent insurance industry rating
organization. The "A+ (Superior)" rating is assigned to those companies which in
A.M. Best Company's opinion have achieved excellent overall performance when
compared to the norms of the property and casualty insurance industry and which
generally have demonstrated a strong ability to meet their respective
policyholder and other contractual obligations. A.M. Best Company reviews its
ratings at least annually and there is no assurance that Trenwick will be able
to maintain its current rating. Trenwick's Standard & Poor's Insurance Rating
Services Claims-Paying Ability Rating is "A+ (Good)".
CLAIMS ADMINISTRATION
Claims are managed by Trenwick's professional claims staff whose
responsibilities include the review of initial loss reports, creation of claim
files, determination of whether further investigation is required, establishment
and adjustment of case reserves and payment of claims. In addition, the claims
staff conducts comprehensive claims audits of both specific claims and overall
claims procedures at the offices of selected ceding companies. In certain
instances, a claims audit may be performed prior to assuming reinsurance
business as part of a comprehensive risk evaluation process.
UNPAID CLAIMS AND CLAIMS EXPENSES
Insurers and reinsurers establish claims and claims expense reserves
representing estimates of future amounts needed to pay claims and related
expenses with respect to insured events which have occurred. Claims and claims
expense reserves have two components: case reserves, which are reserves for
reported claims, and incurred but not reported ("IBNR") reserves, which are
reserves for claims not yet reported. Significant periods of time may elapse
between the occurrence of an insured claim, the reporting of the claims to the
insurer and the subsequent reporting of the claims to the reinsurer, the
insurer's payment of that claim, and later payments by the reinsurer.
Trenwick first establishes its case reserves for reported claims when it
receives notice of the claim. It is Trenwick's policy to establish reserves for
reported claims in an amount equal to the greater of the reserve recommended by
the ceding company or the claim as estimated by Trenwick's claims personnel.
Trenwick periodically conducts investigations to determine if the amount
reserved by the ceding company is appropriate or should be adjusted. During the
claim settlement period, which may be many years, additional facts regarding
individual claims may become known. As Trenwick learns additional facts, it may
become necessary to refine and adjust upward or downward the estimated reserves
on a claim, and even then the ultimate net reserve may be less than or greater
than the revised estimates. Trenwick does not discount any of its reserves for
reported or unreported claims in any line of its business for anticipated
investment income.
Trenwick uses a combination of actuarial methods to determine its IBNR reserves.
These methods fall into two general categories: (1) methods by which ultimate
claims are estimated based upon historical patterns of reported claim
development experienced by Trenwick, as supplemented by reported industry data,
and (2) methods in which the level of Trenwick's IBNR claim reserves are
established based upon the IBNR claim reserves relative to earned premium of
other reinsurers, applied by accident year, line of
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business and type of reinsurance (excess of loss versus quota share) written by
Trenwick. Reserve methods implicitly recognize the impact of inflation and other
factors affecting claims payments by taking into account changes in historical
payment patterns, the volume of business written, and trends in claim frequency
and severity as reflected in Trenwick's reported claim activity. Due to the
inherent uncertainties of estimating insurance company claim reserves, actual
claims and claims expenses may deviate, perhaps substantially, from estimates of
Trenwick's reserves reflected in the consolidated financial statements.
Management believes that its claim reserve methods are reasonable and prudent
and that Trenwick's reserves for claims and claims expenses at December 31, 1996
are adequate.
Trenwick's known exposure to environmental claims, including asbestos and
pollution liability, is primarily associated with its participation in business
written by its predecessor company between 1978 and 1983. Exposure to
environmental claims on Trenwick's business written since 1983 is generally
limited by exclusions on its own reinsurance contracts and also by exclusions on
policies issued by ceding companies. Casualty business written in 1983 and prior
is not material to Trenwick's overall book of business. As of December 31, 1996
outstanding claims including incurred but not reported claims for environmental
liability were approximately $9.2 million, approximately 2% of Trenwick's total
net outstanding reserves. Under Trenwick's current interpretation of policy
language, management does not believe that it has a material exposure to
environmental claims that requires additional reserves beyond its current
estimates.
The following table presents an analysis of gross and net unpaid claims and
claims expenses and a reconciliation of beginning and ending gross and net
unpaid claims and claims expense balances for 1996, 1995 and 1994. The gross
unpaid claims and claims expense balances for December 31, 1996 and 1995 are
reflected in Trenwick's consolidated balance sheet. The net unpaid claims and
claims expense balances are stated on a net basis after deductions for
reinsurance recoverable on unpaid claims and claims expenses from
retrocessionaires.
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ANALYSIS OF ACTIVITY IN UNPAID CLAIMS AND CLAIMS EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Unpaid claims and claims expenses,
beginning of year $ 411,874 $327,001 $389,298 $294,008 $354,582 $268,091
Provision for claims and claims expenses:
for claims incurred in the current year 161,061 133,755 135,013 115,133 115,348 93,287
for claims incurred in prior years (3,669) (4,439) (23,666) (2,065) (995) (447)
--------- -------- -------- -------- -------- --------
Subtotal 157,392 129,316 111,347 113,068 114,353 92,840
--------- -------- -------- -------- -------- --------
Payments for claims and claims expenses:
for claims incurred in the current year (22,603) (22,570) (18,849) (18,271) (21,007)
(14,623)
for claims incurred in prior years (79,486) (46,860) (69,922) (61,804) (58,630) (52,300)
--------- -------- -------- -------- -------- --------
Subtotal (102,089) (69,430) (88,771) (80,075) (79,637) (66,923)
--------- -------- -------- -------- -------- --------
Unpaid claims and claims expenses, end of year $ 467,177 $386,887 $411,874 $327,001 $389,298 $294,008
========= ======== ======== ======== ======== ========
Reinsurance recoverable on unpaid claims
and claims expenses, end of year $ 80,290 $ 84,873 $ 95,290
======== ======== ========
</TABLE>
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In 1996, Trenwick agreed to commute an aggregate excess of loss reinsurance
agreement covering the years 1989 through 1993. As a result of the commutation,
Trenwick received a total consideration of $29.7 million representing
outstanding reserves of approximately the same amount. The commutation was
recorded in 1996 as a paid loss recovery.
In 1996, 1995 and 1994, Trenwick recorded a decrease of $4,439,000, $2,065,000,
and $447,000, respectively, in estimated net claims for claims occurring in
prior accident years. The decrease over the last three years primarily reflects
the favorable development of Trenwick's casualty business written primarily
between accident years 1987 and 1992, partially offset by unfavorable
development in accident years 1993 through 1995. In 1996, Trenwick recorded a
decrease of $3,669,000 in estimated gross claims for claims occurring in prior
accident years.
The following table presents the development of Trenwick's net unpaid claims and
claims expenses for 1986 through 1996. The top line of the table shows the net
unpaid claims and claims expenses at the balance sheet date for each of the
indicated years. This reflects the net estimated amounts of claims and claims
expenses for claims arising in that year and in all prior years that are unpaid
at the balance sheet date, including claims that had been incurred but not yet
reported to Trenwick. The upper portion of the table shows the net cumulative
subsequently paid amounts as of successive years with respect to that liability.
The middle portion of the table shows the net re-estimated amount of the
previously recorded net unpaid claims and claims expenses based on experience as
of the end of each succeeding year. The estimates change as more information
becomes known about the frequency and severity of claims for individual years. A
redundancy (deficiency) exists when the net re-estimated liability at each
December 31 is less (greater) than the prior net liability estimate. The net
"Cumulative Redundancy (Deficiency)" depicted in the table for any particular
calendar year represents the aggregate change in the initial net estimates over
all subsequent calendar years.
The lower portion of the table presents a reconciliation of the net unpaid
claims and claims expenses as of the end of year with the related gross unpaid
claims and claims expenses as of December 31, 1992 through 1996. Additionally,
the table presents a reconciliation of the gross re-estimated unpaid claims and
claims expenses as of the end of the latest re-estimation year, with separate
disclosure of the related re-estimated reinsurance recoverable on unpaid claims
and claims expenses. The "gross cumulative redundancy" depicted in the table for
the calendar years 1991 through 1996 represents the aggregate change in the
initial gross estimates over all subsequent calendar years.
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DEVELOPMENT OF UNPAID CLAIMS AND CLAIMS EXPENSES
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989
------ -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net unpaid claims and claims
expenses, end of year $386,887 $327,001 $294,008 $268,091 $266,685 $258,774 $245,105 $214,391
Cumulative amount of net
liability paid as of:
One year later -- 46,860 61,804 52,300 52,260 44,930 42,234 29,407
Two years later -- -- 81,417 90,382 93,312 80,725 77,183 60,888
Three years later -- -- -- 89,445 118,345 111,225 102,590 84,283
Four years later -- -- -- -- 111,174 127,431 124,129 101,597
Five years later -- -- -- -- -- 116,224 134,657 116,047
Six years later -- -- -- -- -- -- 122,089 124,465
Seven years later -- -- -- -- -- -- -- 110,656
Eight years later -- -- -- -- -- -- -- --
Nine years later -- -- -- -- -- -- -- --
Ten years later -- -- -- -- -- -- -- --
Net liability re-estimated
as of:
One year later -- 322,562 291,943 267,644 255,379 253,781 238,324 206,724
Two years later -- -- 279,561 263,473 255,379 243,488 233,565 199,864
Three years later -- -- -- 246,367 252,458 243,586 223,417 196,232
Four years later -- -- -- -- 236,009 241,600 224,171 188,052
Five years later -- -- -- -- -- 225,592 223,172 189,148
Six years later -- -- -- -- -- -- 213,327 188,884
Seven years later -- -- -- -- -- -- -- 180,619
Eight years later -- -- -- -- -- -- -- --
Nine years later -- -- -- -- -- -- -- --
Ten years later -- -- -- -- -- -- -- --
Net cumulative redundancy
(deficiency)
Amount of original liability 4,439 14,447 21,724 30,676 33,182 31,778 33,772
Percentage 1% 5% 8% 12% 13% 13% 16%
Gross liability, end of year 467,177 411,874 389,298 354,582 351,897 332,503
Reinsurance recoverable 80,290 84,873 95,290 86,491 85,212 73,729
Net liability, end of year 386,887 327,001 294,008 268,091 266,685 258,774
Gross re-estimated
liability-latest 408,205 353,464 310,255 301,714 282,978
Re-estimated recoverable-latest 85,643 73,903 63,888 65,705 57,386
Net re-estimated
liability-latest 322,562 279,561 246,367 236,009 225,592
Gross cumulative redundancy 3,669 35,834 44,327 50,183 49,525
</TABLE>
<TABLE>
<CAPTION>
1988 1987(1) 1986(1)
-------- -------- ---------
<S> <C> <C> <C>
Net unpaid claims and claims
expenses, end of year $169,785 $123,148 $ 99,144
Cumulative amount of net
liability paid as of:
One year later 19,983 21,086 46,885
Two years later 34,855 32,409 60,636
Three years later 53,243 40,285 67,093
Four years later 67,132 48,307 71,060
Five years later 77,922 53,827 74,390
Six years later 87,397 58,568 76,089
Seven years later 93,109 64,172 77,801
Eight years later 78,032 67,798 79,497
Nine years later -- 53,974 80,418
Ten years later -- -- 66,878
Net liability re-estimated
as of:
One year later 163,848 123,978 107,025
Two years later 154,646 118,452 106,213
Three years later 150,470 109,536 104,273
Four years later 145,457 106,093 102,507
Five years later 137,426 102,436 101,524
Six years later 137,818 97,304 100,418
Seven years later 138,255 96,900 97,911
Eight years later 133,192 98,125 97,186
Nine years later -- 97,785 100,209
Ten years later -- -- 100,053
Net cumulative redundancy
(deficiency)
Amount of original liability 36,593 25,363 (909)
Percentage 22% 21% (1)%
Gross liability, end of year
Reinsurance recoverable
Net liability, end of year
Gross re-estimated
liability-latest
Re-estimated recoverable-latest
Net re-estimated
liability-latest
Gross cumulative redundancy
</TABLE>
(1) Amounts for 1986 and 1987 include claims activity associated with a Bermuda
subsidiary, prior to its sale by Trenwick in 1987.
10
<PAGE> 13
In evaluating the information in the table above, it should be noted that each
amount includes the effects of all changes in amounts for prior periods. For
example, if a claim determined in 1991 to be $150,000 was first reserved in 1986
at $100,000, the $50,000 deficiency (actual claim minus original estimate) would
be included in the gross cumulative redundancy (deficiency) in each of the years
1986-1991 shown on the preceding page. This table does not present accident or
policy year development data. Conditions and trends that have affected the
development of liability in the past may not necessarily occur in the future.
Accordingly, it may not be appropriate to extrapolate future redundancies or
deficiencies based on this table.
The trend depicted in the table indicates that net unpaid claims and claims
expense liability at December 31, 1995 have developed redundantly due to
favorable developments for claims occurring between accident years 1987 and
1992, partially offset by unfavorable development in accident years 1993 through
1995. The deficiency shown in the table for the year 1986 reflects adverse
development for claims occurring during that period and are widespread
throughout the industry. The industry factors which contributed to adverse claim
developments during this period included inadequate premium levels and
inadequate terms attributable to overly competitive market conditions.
Trenwick's exposure to these unfavorable market conditions is limited by the
insubstantial amount of premiums it wrote during this period.
RETROCESSION AGREEMENTS
Reinsurance companies enter into retrocessional agreements for the same reasons
insurers seek reinsurance, including reduction of net liability on individual
risks, protection against catastrophic losses and maintenance of acceptable
ratios. Trenwick has various retrocessional facilities, all of which are on a
treaty basis. These retrocessional facilities include one treaty for Trenwick's
facultative casualty reinsurance business which applies on a risk or account
basis and two for its treaty property business which protect it against multiple
claims arising out of a single occurrence or event. As a result of these
facilities, Trenwick's maximum retention generally does not exceed $500,000 per
occurrence on facultative business and $2,000,000 per occurrence on property
catastrophe business. Since 1989, Trenwick has purchased aggregated excess of
loss ratio treaties from several reinsurers. These facilities provided Trenwick
with a layer of protection against adverse results from primarily casualty
business in excess of specified loss ratios.
Trenwick remains liable with respect to reinsurance ceded in the event that the
retrocessionaire is unable to meet its obligations assumed under the reinsurance
agreement. All retrocessionaires must be formally approved by Trenwick's
Security Committee comprising of the Chief Executive Officer, as Committee
Chairman, and the Chief Financial Officer. The Security Committee re-evaluates
the financial condition of Trenwick's retrocessionaires at least annually. The
evaluation process involves financial analysis of current audited financial data
and comparative analysis of such data in accordance with guidelines established
by Trenwick. Business may not be conducted with retrocessionaires who are not
currently approved by the Security Committee.
Trenwick's principal retrocessionaires domiciled in the United States are Centre
Reinsurance Company of New York, Continental Casualty Company, Kemper
Reinsurance Company and National Indemnity Company, which are rated A or better
by A.M. Best Company. The principal retrocessionaires domiciled outside the
United States are syndicates at Lloyds of London and Unionamerica Insurance
Company,
11
<PAGE> 14
Limited. At December 31, 1996, Trenwick had no material uncollectible amounts
due from its retrocessionaires.
INVESTMENTS
Trenwick's investments comply with the insurance laws of the state of
Connecticut, its domiciliary state, and of the other states in which Trenwick is
licensed or authorized. These laws prescribe the kind, quality and concentration
of investments which may be made by insurance companies. In general, these laws
permit investments, within specified limits and subject to certain
qualifications, in federal, state and municipal obligations, corporate bonds,
preferred and common stock, real estate mortgages and real estate. The
Investment Committee of Trenwick's Board of Directors oversees investments and
sets procedures and guidelines for investment strategy. Trenwick's internal
staff manages Trenwick's investments and utilizes the services of an investment
adviser. Trenwick's investment strategy focuses on capital preservation and
income predictability. This strategy also requires that the risks associated
with these objectives are properly managed. Accordingly, the Company emphasizes
investment grade fixed maturity investments. At December 31, 1996, 92% of
Trenwick's fixed income investments were rated Aa or better and none had a
Moody's Investors Service quality rating less than A.
The Company's investment strategy permits an allocation for equity securities.
At December 31, 1996, 3% of the Company's total investments and cash were
invested in common and preferred equities of U.S. corporations. The primary risk
associated with these securities is the exposure to daily market fluctuations.
Trenwick invests in three types of structured securities, collateralized
mortgage obligations (CMO), mortgage-backed securities not backed by U.S.
government agencies (non-agency MBS) and asset-backed securities (ABS), each
accounting for 12%, 7% and 6%, respectively, of Trenwick's portfolio at December
31, 1996.
CMOs consist of planned amortization classes (PACs) which have been constructed
with a certain amount of call protection and CMOs that have lost their PAC
protection (sometimes called "broken" or "busted" PACs), due to actual
prepayments being significantly higher or lower than originally forecast. These
agency backed CMOs are not subject to credit risk, as all holdings are backed
indirectly or directly by the Federal government or one of its agencies. The
material risk inherent to holding these CMOs is prepayment risk, which relates
to the timing of cash flows that result from amortization, whether it
accelerated, because of lower interest rates and therefore higher than expected
prepayments, or decelerated, because of higher interest rates and therefore
lower than expected prepayments. Changes in principal repayments could
negatively affect investment income due to the timing of the reinvested funds.
Non-agency MBSs are constructed primarily from the securitization of mortgages
on commercial or residential real estate and, lacking any agency backing, are
inherently subject to credit risk. They also have an element of prepayment risk
which is contingent on the structure of each security and its underlying
collateral. The non-agency MBS issues Trenwick has purchased have a rating of A
or better from various Nationally Recognized Statistical Rating Organizations.
12
<PAGE> 15
The asset-backed securities owned by Trenwick have primarily credit card, auto
and equipment receivables as collateral and are subject also to credit risk.
These securities have less cash flow uncertainty than non-agency MBS and CMO
issues, because the issuer has the ability to add in new collateral should the
asset-backed security experience faster prepayments, or in the event of default
on the underlying collateral. The asset-backed securities owned by Trenwick are
rated Aaa by Moody's Investors Service as of December 31, 1996.
Trenwick also invests in agency pass-through securities which account for 3% of
Trenwick's portfolio at December 31, 1996. As with CMOs, these securities are
subject to prepayment risk.
13
<PAGE> 16
The table below sets forth the distribution of Trenwick's investments at
December 31, 1996 by type, maturity and quality rating.
INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AVERAGE ESTIMATED
MATURITY FAIR AMORTIZED
IN YEARS VALUE COST
-------- --------- ---------
<S> <C> <C> <C>
TYPE
U.S. government bonds 3.5 $ 91,702 $ 90,421
Tax-exempt bonds(1) 4.9 367,029 360,201
Mortgage-backed and asset-backed securities 9.4 211,228 206,774
Debt securities issued by foreign governments 3.2 3,227 3,156
Public utilities 5.6 2,918 2,803
Corporate securities 4.2 37,774 37,001
Short-term securities .5 120 120
-------- ---------
Total fixed maturity investments 6.0 713,998 700,476
Equity securities - 25,959 21,346
Cash and cash equivalents - 14,253 14,253
-------- ---------
Total investments and cash $754,210 $ 736,075
======== =========
MATURITY
Due in one year or less .6 $ 64,268 $ 63,899
Due in one year through five years 3.3 314,690 308,687
Due after five years through ten years 6.8 273,802 266,533
Due after ten years 21.6 61,238 61,357
-------- ---------
Total fixed maturity investments 6.0 $713,998 $ 700,476
======== ==========
QUALITY (FIXED MATURITY INVESTMENTS)
Aaa(2)-U.S. government bonds $ 91,702 $ 90,421
Tax-exempt bonds 325,545 319,998
Mortgage-backed and asset-backed securities 167,701 163,725
Corporate securities 2,964 2,902
-------- ---------
587,912 577,046
-------- ---------
Aa(2)-Tax-exempt bonds 37,901 36,833
Mortgage-backed securities 28,592 27,850
Corporate securities 5,178 5,130
-------- ---------
71,671 69,813
-------- ---------
A(2)-Tax-exempt bonds 3,583 3,370
Mortgage-backed securities 14,935 15,199
Debt securities issued by foreign governments 3,227 3,156
Public utilities 2,918 2,803
Corporate securities 29,632 28,969
-------- ---------
54,295 53,497
-------- ---------
Short-term securities 120 120
-------- ---------
Total fixed maturity investments $713,998 $ 700,476
======== =========
</TABLE>
(1) Tax-exempt bonds include $83,515,000 escrowed in U.S. Government
Securities, $166,140,000 insured by Municipal Bond Investors Assurance
Corporation, Financial Guaranty Insurance Company, AMBAC Indemnity
Corporation, or Financial Security Assurance Corporation and $41,895,000
both escrowed and insured.
(2) Quality rating as assigned by Moody's Investors Service, Inc. for all
except certain mortgage-backed securities not backed by U.S. government
agencies which are as assigned by Fitch Investors Service, Standard and
Poor's or Duff and Phelps. Ratings are generally assigned upon the
issuance of the securities, subject to revision on the basis of ongoing
evaluations.
14
<PAGE> 17
REGULATION
NAIC
The National Association of Insurance Commissioners ("NAIC") is an organization
which assists state insurance supervisory officials in achieving insurance
regulatory objectives, including the maintenance and improvement of state
regulation. From time to time various regulatory and legislative changes have
been proposed in the insurance industry, some of which could have an effect on
reinsurers. Among the proposals that have in the past been or are at present
being considered are the possible introduction of federal regulation in addition
to, or in lieu of, the current system of state regulation of insurers, and
proposals in various state legislatures (some of which proposals have been
enacted) to conform portions of their insurance laws and regulations to various
model acts adopted by the NAIC. Trenwick is unable to predict what effect, if
any, these developments may have on its operations and financial condition. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
RBC
The NAIC's initiative to establish minimum capital requirements, referred to as
Risk Based Capital ("RBC"), for property and casualty companies was completed
and adopted in 1993. This formula is used by state insurance regulators as an
early warning tool to identify, for the purpose of initiating regulatory action,
insurance companies that potentially are inadequately capitalized. The ratios
calculated for Trenwick America Re exceeded all of the RBC trigger points at
December 31, 1996. Trenwick believes its capital will continue to exceed these
RBC capital and surplus requirements for the foreseeable future. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
State Insurance Regulation
The premium rates and policy terms of reinsurance agreements generally are not
subject to regulation by any government authority. This contrasts with property
and casualty insurance where the premium rates and policy terms are generally
closely regulated by state insurance departments. As a practical matter,
however, the premium rates charged by insurers may place a limit on the rates
which can be charged by reinsurers.
The regulation and supervision to which Trenwick is subject relates primarily to
the standards of solvency that must be met and maintained, licensing
requirements for reinsurers, the nature of and limitations on investments,
restrictions on the size of risks which may be insured, deposits of securities
for the benefit of a reinsured, methods of accounting, periodic examinations of
the financial condition and affairs of reinsurers, the form and content of
reports of financial condition required to be filed, and reserves for unearned
premiums, losses and other purposes. In general, such regulation is for the
protection of the reinsureds, and ultimately, their policyholders rather than
their security holders. Trenwick believes that it is in compliance with all such
regulations.
15
<PAGE> 18
Trenwick America Re is subject to regulation under the insurance statutes and
insurance holding company statutes of various states, including Connecticut, the
domiciliary state of Trenwick America Re. These laws and regulations vary from
state to state, but generally require an insurance holding company, and insurers
and reinsurers that are subsidiaries of an insurance holding company, to
register with the state regulatory authorities and to file with those
authorities certain reports including information concerning their capital
structure, ownership, financial condition and general business operations.
State laws also require prior notice or regulatory agency approval of direct or
indirect changes in control of an insurer, reinsurer or its holding company and
of certain significant intercorporate transfers of assets within the holding
company structure. An investor who acquires securities representing or
convertible into more than 10% of the voting power of the securities of Trenwick
would become subject to at least some of such regulations and would be subject
to approval by the Connecticut Insurance Commissioner prior to acquiring such
shares. Such investor would also be required to file certain notices and reports
with the Commissioner prior to such acquisition.
Dividends
The principal source of cash for the payment of dividends by Trenwick is the
receipt of dividends from Trenwick America Re. Under the Connecticut insurance
laws and regulations, the maximum amount of shareholder dividends or other
distributions that Trenwick America Re may declare or pay to the Company within
any twelve month period, without the permission of the Connecticut Insurance
Commissioner, is limited to the greater of 10% of policyholder surplus at
December 31 of the preceding year, or 100% of net income excluding realized
capital gains, for the twelve month period ending December 31 of the preceding
year, both determined in accordance with statutory accounting practices. For the
purpose of computing the limitation, carryforward provisions apply with respect
to net income realized in the two previous calendar years which has not already
been paid out as dividends. The maximum amount of dividends which could be paid
by Trenwick America Re in 1997 without regulatory approval would be $62,901,000.
Investment Limitations
Connecticut Law contains rules governing the types and amounts of investments
which are permissible for a Connecticut insurer or reinsurer, including Trenwick
America Re. These rules are designated to ensure the safety and liquidity of the
insurer's investment portfolio. In general, these rules only permit a
Connecticut insurer to purchase investments which are interest bearing, interest
accruing, entitled to dividends or otherwise income earning and not then in
default in any respect, and the insurer must be entitled to receive for its
exclusive account and benefit the interest or income accruing thereon. No
security or investment is eligible for purchase at a price above its fair value
or market value. In addition, these rules require investments by Trenwick to be
diversified. Trenwick believes that it is in compliance with all applicable
Connecticut insurance laws.
16
<PAGE> 19
EMPLOYEES
At December 31, 1996, Trenwick employed a total of 71 persons. Trenwick has no
employees represented by a labor union and believes that its employee relations
are good.
ITEM 2. PROPERTIES
Trenwick's offices in Stamford, Connecticut are occupied pursuant to a lease
covering approximately 27,000 square feet of office space located at Metro
Center, One Station Place. Although the lease expires on July 15, 1998, Trenwick
has the option to extend and renew the terms of the lease.
ITEM 3. LEGAL PROCEEDINGS
Trenwick is party to various legal proceedings generally arising in the normal
course of its reinsurance business. Trenwick does not believe that the eventual
outcome of any such proceeding will have a material effect on its financial
condition or business. Trenwick's subsidiaries are regularly engaged in the
investigation and the defense of claims arising out of the conduct of their
reinsurance business. Pursuant to Trenwick's reinsurance arrangements, disputes
between Trenwick America Re and its ceding companies are generally required to
be finally settled by arbitration.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
17
<PAGE> 20
PART II
ITEM 5. MARKET FOR CORPORATION'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Trenwick Common Stock is listed on the NASDAQ Stock Market under the ticker
symbol TREN. There were 134 holders of record and in excess of 1,200 beneficial
owners of Common Stock as of February 28, 1997. The other information called for
by this item can be found in Note 12 of Notes to the Consolidated Financial
Statements of Trenwick on Page 72 of the Annual Report to Stockholders and is
incorporated herein by reference.
For a description of restrictions on Trenwick's ability to pay dividends,
reference is made to Item 1. Business - Regulation, Management's Discussion and
Analysis of Financial Condition and Results of Operations and Note 6 of Notes to
the Consolidated Financial Statements of Trenwick.
18
<PAGE> 21
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net premiums written $226,364 $197,162 $139,635 $101,392 $ 81,883
======== ======== ======== ======== ========
Net premiums earned $211,069 $177,394 $132,683 $ 93,180 $ 81,831
Net investment income 41,226 36,828 33,932 34,954 30,859
Net realized investment gains (losses) 299 368 (196) 1,842 181
Service fees - - - - 206
-------- -------- -------- -------- --------
Total revenues $252,594 $214,590 $166,419 $129,976 $113,077
======== ======== ======== ======== ========
Net income $ 33,848 $ 29,841 $ 20,282 $ 23,739 $ 18,539
======== ======== ======== ======== ========
PER SHARE DATA
Primary earnings
Net income $ 4.95 $ 4.44 $ 3.04 $ 3.48 $ 2.76
======== ======== ======== ======== ========
Weighted average shares outstanding 6,832 6,723 6,670 6,831 6,728
======== ======== ======== ======== ========
Fully diluted earnings (assuming conversion
of dilutive convertible securities):
Net income $ 4.25 $ 3.80 $ 2.78 $ 3.12 $ 2.75
======== ======== ======== ======== =-======
Weighted average shares outstanding 8,966 8,960 8,847 8,965 6,746
======== ======== ======== ======== ========
Dividends $ 1.24 $ 1.12 $ 1.00 $ .86 $ .76
======== ======== ======== ======== ========
BALANCE SHEET DATA
Investments and cash $754,210 $653,704 $551,784 $546,303 $500,359
Total assets 920,804 820,930 727,245 700,407 652,473
Unpaid claims and claims expenses 467,177 411,874 389,298 354,582 351,897
Convertible debentures 103,500 103,500 103,500 103,500 103,500
Total stockholders' equity 265,753 240,776 188,213 206,763 169,373
Shares of common stock outstanding 6,725 6,590 6,440 6,583 6,510
Book value per share $ 39.52 $ 36.54 $ 29.23 $ 31.41 $ 26.02
CERTAIN GAAP FINANCIAL RATIOS
Combined ratio 95.8% 95.6% 103.2% 102.5% 112.3%
Net premiums written to surplus ratio 0.85:1 0.82:1 0.74:1 0.49:1 0.48:1
Unpaid claims and claims expenses
to surplus ratio 1.76:1 1.71:1 2.07:1 1.71:1 2.08:1
</TABLE>
The other information called for by this item can be found on Pages 31 through
73 of Trenwick's 1996 Annual Report to Stockholders under the captions
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Financial Statements" and is incorporated herein by reference.
19
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The information called for by this item can be found on Pages 31 through 42 of
Trenwick's 1996 Annual Report to Stockholders under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item can be found on Pages 44 through 73 of
Trenwick's Annual Report to Stockholders and to the items included in Item 14(a)
of this report, and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Incorporated by reference to the captions "Board of Directors", "Management",
and "Executive Compensation" in the Proxy Statement for the Annual Meeting in
1997 ("Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the caption "Executive Compensation" in the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the caption "Principal Stockholders" in the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the caption "Certain Relationships and Related
Transactions" in the Proxy Statement.
20
<PAGE> 23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) Documents
(1) & (2) The Financial Statements, Schedules and the Report of
Independent Accountants on the Financial Statement Schedules,
listed in the accompanying index on Page 28, are filed as part
of this Report.
(3) Exhibits
3.1 Trenwick's Restated Certificate of Incorporation.
Incorporated by reference to Exhibit 3.1 to Trenwick's
Registration Statement on Form S-1, File No. 33-5085.
3.2 Certificate of Amendment of Trenwick's Restated
Certificate of Incorporation. Incorporated by
reference to Exhibit 3.3 to Trenwick's Annual Report
on Form 10-K for the year ended December 31, 1993,
File No. 0-14737.
3.3 Trenwick's By-laws. Incorporated by reference to
Exhibit 3.2 to Trenwick's Registration Statement on
Form S-1, File No. 33-5085.
4.1 Rights Agreement dated as of November 2, 1989 between
Trenwick and First Chicago Trust Company of New York.
Incorporated by reference to Exhibit 4 to Trenwick's
Form 8-A dated June 11, 1989, File No. 0-14737.
4.2 (a) Indenture dated as of January 31, 1997, between
The Chase Manhattan Bank and Trenwick.
(b) Amended and Restated Declaration of Trust of
Trenwick Capital Trust I dated as of January 31,
1997.
+10.1 Trenwick Incentive Stock Option Plan, as amended
through August 3, 1993. Incorporated by reference to
Exhibit 10.1 to Trenwick's Annual Report on Form 10-K
for the year ended December 31, 1994, File No.
0-14737.
10.2 Incentive Stock Option Agreement between Trenwick and
James F. Billett, Jr. Incorporated by reference to
Exhibit 10.11 to Trenwick's Registration Statement on
Form S-1, File No. 33-5085.
10.3 Trenwick 1987 Stock Incentive Plan, as amended through
August 3, 1993. Incorporated by reference to Exhibit
10.5 to Trenwick's Annual Report on Form 10-K for the
year ended December 31, 1994, File No. 0-14737.
+ As required by Item 14, each of Exhibits 10.1 through 10.17 is hereby
identified as a management contract or compensatory plan or arrangement.
21
<PAGE> 24
10.4 Form of Stock Option Agreement for executive officers
(performance options). Incorporated by reference to
Exhibit 10.32 to Trenwick's Annual Report on Form 10-K
for the year ended December 31, 1988, File No.
0-14737.
10.5 Form of Restricted Stock Agreement for executive
officers. Incorporated by reference to Exhibit 10.31
to Trenwick's Annual Report on Form 10-K for the year
ended December 31, 1988, File No. 0-14737.
10.6 Trenwick 1989 Stock Plan, as amended through August 3,
1993. Incorporated by reference to Exhibit 10.8 to
Trenwick's Annual Report on Form 10-K for the year
ended December 31, 1994, File No. 0-14737.
10.7 Form of Non-qualified Stock Option Agreement for
executive officers. Incorporated by reference to
Exhibit 10.36 to Trenwick's Annual Report on Form 10-K
for the year ended December 31, 1989, File No.
0-14737.
10.8 Trenwick 1993 Stock Option Plan. Incorporated by
reference to Exhibit 10.1 to Trenwick's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1994, File No. 0-14737.
10.9 Form of 1993 Stock Option Plan Non-qualified Stock
Option Agreement for executive officers. Incorporated
by reference to Exhibit 10.11 to Trenwick's Annual
Report on Form 10-K for the year ended December 31,
1994, File No. 0-14737.
10.10 Trenwick 1993 Stock Option Plan for Non-Employee
Directors. Incorporated by reference to Exhibit 10.2
to Trenwick's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994, File No. 0-14737.
10.11 Trenwick Near Term Cash Bonus Plan. Incorporated by
reference to Exhibit 10.10 to Trenwick's Registration
Statement on Form S-1, File No. 33-5085.
10.12 Trenwick Unfunded Supplemental Executive Retirement
Plan, as amended through December 14, 1993.
Incorporated by reference to Exhibit 10.14 to
Trenwick's Annual Report on Form 10-K for the year
ended December 31, 1994, File No. 0-14737.
10.13 Leased Automobile Policy for executive officers.
10.14 Description of life insurance and long-term disability
insurance coverage for executive officers.
Incorporated by reference to Exhibit 10.16 to
Trenwick's Annual Report on Form 10-K for the year
ended December 31, 1994, File No. 0-14737.
10.15 Trenwick Directors Deferred Compensation Plan.
Incorporated by reference to Exhibit 10.17 to
Trenwick's Annual Report on Form 10-K for the year
ended December 31, 1994, File No. 0-14737.
10.16 Description of Trenwick Directors Retirement Plan.
Incorporated by reference to Exhibit 10.18 to
Trenwick's Annual Report on Form 10-K for the year
ended December 31, 1994, File No. 0-14737.
22
<PAGE> 25
10.17 Commercial Real Estate Lease Agreement between
Trenwick and One Station Place, Limited Partnership
dated July 15, 1988. Incorporated by reference to
Exhibit 10.33 to Trenwick's Annual Report on Form 10-K
for year ended December 31, 1988, File No. 0-14737.
10.18 Aggregate Excess of Loss Reinsurance Agreement between
Trenwick and National Indemnity Company dated December
31, 1984 and amendment thereto. Incorporated by
reference to Exhibit 10.29 to Trenwick's registration
statement on Form S-1, File No. 33-5085.
10.19 Automobile Liability First Excess of Loss/Quota Share
Reinsurance Agreement between Trenwick and the Canal
Insurance Company/Canal Indemnity Company.*
10.20 Interests and Liabilities Agreement between Trenwick
and Kemper Reinsurance Group and participants
thereon.*
10.21 Aggregate Excess of Loss Ratio Cover between Trenwick
and Continental Casualty Company.*
10.22 Property Catastrophe Treaty between Trenwick and
numerous reinsurers.*
10.23 Special Catastrophe Excess of Loss Reinsurance
Agreement Placement Slip between Trenwick and each of
Continental Casualty Company, Zurich Reinsurance
Company of New York, Folksamerica Reinsurance Company,
and Kemper Reinsurance Company.*
10.24 Property Quota Share Retrocession Placement Slip
between Trenwick and each of Toa-Re Insurance Co.
(U.K.) Ltd. and Underwriters at Lloyd's.*
10.25 Property Pro Rata Retrocessional Agreement between
PXRE Reinsurance Company and Trenwick. Incorporated by
reference to Exhibit 10.24 to Trenwick's Annual Report
on Form 10-K for the year ended December 31, 1993,
File No. 0-14737.
* Incorporated by reference to Exhibits 10.40 through and including 10.45 to
Amendment No. 1 to Trenwick's Annual Report on Form 10-K for the year
ended December 31, 1991, filed with the Commission on December 8, 1992,
File No. 0-14737.
23
<PAGE> 26
10.26 Coinsured Aggregate Excess of Loss Reinsurance
Agreement between Trenwick and Centre Reinsurance
Company of New York. Incorporated by reference to
Exhibit 10.28 to Trenwick's Annual Report on Form 10-K
for the year ended December 31, 1994, File No.
0-14737.
10.27 1995 Property Catastrophe Treaty between Trenwick and
numerous reinsurers.
10.28 1995 Special Catastrophe Excess of Loss Reinsurance
Agreement between Trenwick and Zurich Reinsurance
Company of New York and Kemper Reinsurance Company.
10.29 1995 First Facultative Casualty Excess of Loss
Reinsurance Agreement between Trenwick and numerous
reinsurers.
10.30 1995 First Facultative Excess of Loss Reinsurance
Agreement between Trenwick and numerous reinsurers.
10.31 1996 First Facultative Casualty Excess of Loss
Reinsurance Agreement between Trenwick and numerous
reinsurers.
10.32 1996 Property Catastrophe Excess of Loss Agreement
between Trenwick and numerous reinsurers.
10.33 1996 Coinsured Aggregate Excess of Loss Reinsurance
Agreement between Trenwick and Centre Reinsurance
Company of New York and CNA Re.
10.34 1996 Special Catastrophe Excess of Loss Retrocession
Agreement between Tarco and several reinsurers.
11.0 Computation of Earnings Per Share. Reference is made
to page 27 of this report.
12.0 Computation of Ratios.
13.0 Trenwick's 1996 Annual Report to Stockholders. Such
report, except for those portions thereof which are
expressly incorporated by reference in this Form 10-K,
is furnished for the information of the Commission and
is not to be deemed "filed" as part of this Form 10-K.
21.0 List of Subsidiaries.
23.0 Consent of Price Waterhouse LLP.
27.0 Financial Data Schedule.
28.0 Information from reports furnished to state insurance
regulatory authorities.
(B) Reports on Form 8-K
None
24
<PAGE> 27
SIGNATURES
Pursuant to the Requirements of Section 13 or 15(d) of Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
TRENWICK GROUP INC.
(Registrant)
By JAMES F. BILLETT, JR.
---------------------------
James F. Billett, Jr.
Chairman, President and
Chief Executive Officer
Dated: March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- - --------- ----- ----
<S> <C> <C>
JAMES F. BILLETT, JR. Chairman of the Board, March 28, 1997
- - ---------------------------- President and Chief
James F. Billett, Jr. Executive Officer and
Director (Principal
Executive Officer)
ALAN L. HUNTE Vice President and March 28, 1997
- - ------------------------------- Treasurer (Principal
Alan L. Hunte Financial Officer and
Accounting Officer)
ANTHONY S. BROWN Director March 28, 1997
- - -------------------------------
Anthony S. Brown
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
<S> <C> <C>
NEIL DUNN Director March 28, 1997
- - -------------------------------
Neil Dunn
ALAN R. GRUBER Director March 28, 1997
- - -------------------------------
Alan R. Gruber
P. ANTHONY JACOBS Director March 28, 1997
- - -------------------------------
P. Anthony Jacobs
HERBERT PALMBERGER Director March 28, 1997
- - -------------------------------
Herbert Palmberger
JOSEPH D. SARGENT Director March 28, 1997
- - -------------------------------
Joseph D. Sargent
FREDERICK D. WATKINS Director March 28, 1997
- - -------------------------------
Frederick D. Watkins
STEPHEN R. WILCOX Director March 28, 1997
- - -------------------------------
Stephen R. Wilcox
</TABLE>
26
<PAGE> 29
TRENWICK GROUP INC.
ITEM 14.(A)(3) - Exhibit 11.0 -- COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------------------
Pro forma 1996 1996 1995 1994
-------------- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME AVAILABLE TO COMMON STOCKHOLDERS:
Net income (primary) $36,204 $33,848 $29,841 $20,282
=======
Add interest on convertible debentures, net
of applicable income taxes 4,228 4,216 4,270
------- ------- -------
Income available (fully diluted) $38,076 $34,057 $24,552
======= ======= =======
WEIGHTED AVERAGE SHARES OF COMMON
STOCK OUTSTANDING:
Common shares 7,860 6,671 6,482 6,458
Equivalent shares associated with
employee stock options 161 161 241 212
------- ------- ------- -------
Common and common equivalent shares
(primary) 8,021 6,832 6,723 6,670
=======
Additional fully diluted equivalent shares
associated with employee stock options - 103 43
Shares associated with debenture
conversions 2,134 2,134 2,134
------- ------- -------
Common and common equivalent shares
(fully diluted) 8,966 8,960 8,847
======= ======= =======
PER SHARE AMOUNTS:
Primary $ 4.51 $ 4.95 $ 4.44 $ 3.04
======= ======= ======= =======
Fully diluted $ 4.25 $ 3.80 $ 2.78
======= ======= =======
</TABLE>
1996 pro forma amounts for net income and weighted average common shares
reflect, as of January 1, 1996, the February 20, 1997 debenture conversion by
adding back to net income the applicable interest expense, net of income taxes,
and increasing the average shares for the shares issued on conversion.
27
<PAGE> 30
TRENWICK GROUP INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Financial Statements:
Consolidated Balance Sheet at December 31, 1996 and 1995 ............. *
Consolidated Statement of Income
for the three years ended December 31, 1996...................... *
Consolidated Statement of Changes in Stockholders' Equity
for the three years ended December 31, 1996...................... *
Consolidated Statement of Cash Flows
for the three years ended December 31, 1996...................... *
Notes to Consolidated Financial Statements............................ *
Report of Independent Accountants
on Consolidated Financial Statements.................................. *
Financial Statement Schedules:
III - Condensed Financial Information of Registrant ............ S-1/S-2
Report of Independent Accountants on Financial Statement
Schedules ......................................................... S-3
</TABLE>
* Incorporated by reference to Trenwick's 1996 Annual Report to Stockholders.
Schedules other than those listed above are omitted since they are either not
required or are not applicable or the information required is presented in the
consolidated financial statements, including the notes thereto.
28
<PAGE> 31
TRENWICK GROUP INC. AND SUBSIDIARIES
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Assets:
Investments in consolidated subsidiaries $346,060 $323,221
Fixed maturity investments available for sale
at fair value (amortized cost: $14,793 and $14,786) 14,814 15,027
Cash and cash equivalents 2,964 1,323
Deferred debt issuance costs 986 1,281
Due from consolidated subsidiaries 4,303 3,132
Net deferred income taxes 391 81
Other assets 11 487
-------- --------
Total assets $369,529 $344,552
======== ========
Liabilities:
Convertible debentures $103,500 $103,500
Other liabilities 276 276
-------- --------
Total liabilities 103,776 103,776
Stockholders' equity 265,753 240,776
-------- --------
Total liabilities and stockholders' equity $369,529 $344,552
======== ========
</TABLE>
STATEMENT OF INCOME -- PARENT COMPANY ONLY
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1996 1995 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Revenues:
Consolidated subsidiary dividends $ 9,100 $ 9,500 $ 9,400
Net investment income 1,000 940 1,001
Net realized investment gains -- -- 90
------- ------- -------
Total revenues 10,100 10,440 10,491
Interest and operating expenses 6,504 6,486 6,469
------- ------- -------
Income before income taxes 3,596 3,954 4,022
Income taxes (1,997) (1,954) (1,738)
------- ------- -------
Income before equity in undistributed
income of consolidated subsidiaries 5,593 5,908 5,760
Equity in undistributed income of
consolidated subsidiaries 28,255 23,933 14,522
------- ------- -------
Net income $33,848 $29,841 $20,282
======= ======= =======
</TABLE>
S-1
<PAGE> 32
TRENWICK GROUP INC. AND SUBSIDIARIES
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS -- PARENT COMPANY ONLY
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1996 1995 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Dividends and net investment income received $ 10,537 $ 10,436 $ 9,949
Interest and operating expenses paid (5,642) (5,678) (5,827)
Income taxes received 2,061 2,116 2,377
-------- -------- --------
Cash provided by operating activities 6,956 6,874 6,499
Cash flows for investing activities:
Sales of fixed maturity investments -- -- 5,280
Cash flows for financing activities (5,315) (5,764) (12,294)
-------- -------- --------
Change in cash and cash equivalents 1,641 1,110 (515)
Cash and cash equivalents, beginning of year 1,323 213 728
-------- -------- --------
Cash and cash equivalents, end of year $ 2,964 $ 1,323 $ 213
======== ======== ========
</TABLE>
S-2
<PAGE> 33
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
Trenwick Group Inc.
Our audits of the consolidated financial statements referred to in our report
dated January 27, 1997, appearing on Page 43 of the 1996 Annual Report to
Stockholders of Trenwick Group Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedules listed in Item 14
(a) of this Form 10-K. In our opinion, these Financial Statement Schedules
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.
Price Waterhouse LLP
New York, New York
January 27, 1997
S-3
<PAGE> 1
EXHIBIT 4.2(a)
================================================================================
---------------
INDENTURE
Dated as of January 31, 1997
between
TRENWICK GROUP INC.
and
THE CHASE MANHATTAN BANK,
as Trustee
---------------
$113,403,000
8.82% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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................................................... 11
SECTION 2.04. Legends............................................................ 12
SECTION 2.05. Global Security.................................................... 12
SECTION 2.06. Interest........................................................... 13
SECTION 2.07. Transfer and Exchange.............................................. 14
SECTION 2.08. Replacement Securities............................................. 15
SECTION 2.09. Treasury Securities................................................ 16
SECTION 2.10. Temporary Securities............................................... 16
SECTION 2.11. Cancellation....................................................... 16
SECTION 2.12. Defaulted Interest................................................. 17
SECTION 2.13. CUSIP Numbers...................................................... 17
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.............................. 18
SECTION 3.03. Appointments to Fill Vacancies in Trustee's Office................. 18
SECTION 3.04. Provision as to Paying Agent....................................... 19
SECTION 3.05. Certificate to Trustee............................................. 19
SECTION 3.06. Compliance with Consolidation Provisions........................... 20
SECTION 3.07. Limitation on Dividends............................................ 20
SECTION 3.08. Covenants as to Trenwick Capital Trust I........................... 21
SECTION 3.09. Payment of Expenses................................................ 21
SECTION 3.10. Payment Upon Resignation or Removal................................ 21
ARTICLE IV. SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE.............. 22
SECTION 4.01. Securityholders' Lists............................................. 22
SECTION 4.02. Preservation and Disclosure of Lists............................... 22
SECTION 4.03. Reports of the Company............................................. 23
SECTION 4.04. Reports by the Trustee............................................. 24
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE V. REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT................. 24
SECTION 5.01. Events of Default.................................................. 24
SECTION 5.02. Payment of Securities on Default; Suit Therefor.................... 26
SECTION 5.03. Application of Moneys Collected by Trustee......................... 28
SECTION 5.04. Proceedings by Securityholders..................................... 28
SECTION 5.05. Proceedings by Trustee............................................. 29
SECTION 5.06. Remedies Cumulative and Continuing................................. 29
SECTION 5.07. Direction of Proceedings and Waiver
of Defaults by Majority of Securityholders......................... 30
SECTION 5.08. Notice of Defaults................................................. 30
SECTION 5.09. Undertaking to Pay Costs........................................... 31
SECTION 5.10 Waiver of Stay or Extension Laws................................... 31
SECTION 5.11 Delay or Omission Not Waiver....................................... 31
ARTICLE VI. CONCERNING THE TRUSTEE.......................................................... 32
SECTION 6.01. Duties and Responsibilities of Trustee............................. 32
SECTION 6.02. Reliance on Documents, Opinions, etc............................... 33
SECTION 6.03. No Responsibility for Recitals, etc................................ 34
SECTION 6.04. Trustee, Authenticating Agent, Paying Agents,
Transfer Agents or Registrar May Own Securities.................... 34
SECTION 6.05. Moneys to be Held in Trust......................................... 34
SECTION 6.06. Compensation and Expenses of Trustee............................... 35
SECTION 6.07. Officers' Certificate as Evidence.................................. 35
SECTION 6.08. Conflicting Interest of Trustee.................................... 36
SECTION 6.09. Eligibility of Trustee............................................. 36
SECTION 6.10. Resignation or Removal of Trustee.................................. 36
SECTION 6.11. Acceptance by Successor Trustee.................................... 37
SECTION 6.12. Succession by Merger, etc.......................................... 38
SECTION 6.13. Limitation on Rights of Trustee as a Creditor...................... 38
SECTION 6.14. Authenticating Agents.............................................. 38
ARTICLE VII. CONCERNING THE SECURITYHOLDERS.................................................. 39
SECTION 7.01. Action by Securityholders.......................................... 39
SECTION 7.02. Proof of Execution by Securityholders.............................. 40
SECTION 7.03. Who Are Deemed Absolute Owners..................................... 40
SECTION 7.04. Securities Owned by Company Deemed Not
Outstanding........................................................ 40
SECTION 7.05. Revocation of Consents; Future Holders Bound....................... 41
ARTICLE VIII. SECURITYHOLDERS' MEETINGS....................................................... 41
SECTION 8.01. Purpose of Meetings................................................ 41
SECTION 8.02. Call of Meetings by Trustee........................................ 42
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 8.03. Call of Meetings by Company or Securityholders..................... 42
SECTION 8.04. Qualifications for Voting.......................................... 42
SECTION 8.05. Regulations........................................................ 42
SECTION 8.06. Voting............................................................. 44
ARTICLE IX. AMENDMENTS...................................................................... 44
SECTION 9.01. Without Consent of Securityholders................................. 44
SECTION 9.02. With Consent of Securityholders.................................... 45
SECTION 9.03. Compliance with Trust Indenture Act of 1939; Effect of
Supplemental Indentures............................................ 46
SECTION 9.04. Notation on Securities............................................. 47
SECTION 9.05. Evidence of Compliance of
Supplemental Indenture to be Furnished to Trustee.................. 47
ARTICLE X. CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE............................... 47
SECTION 10.01. Company May Consolidate, etc., on Certain Terms.................... 47
SECTION 10.02. Successor Corporation to be Substituted for Company................ 48
SECTION 10.03. Opinion of Counsel to be Given Trustee............................. 48
ARTICLE XI. SATISFACTION AND DISCHARGE OF INDENTURE......................................... 48
SECTION 11.01. Discharge of Indenture............................................. 48
SECTION 11.02. Deposited Moneys and U.S. Government
Obligations to be Held in Trust by Trustee......................... 49
SECTION 11.03. Paying Agent to Repay Moneys Held.................................. 49
SECTION 11.04. Return of Unclaimed Moneys......................................... 49
SECTION 11.05. Defeasance Upon Deposit of Moneys or U.S.
Government Obligations............................................. 50
SECTION 11.06. Reinstatement...................................................... 51
ARTICLE XII. IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS................. 51
SECTION 12.01. Indenture and Securities Solely Corporate Obligations.............. 51
ARTICLE XIII. MISCELLANEOUS PROVISIONS........................................................ 52
SECTION 13.01. Successors......................................................... 52
SECTION 13.02. Official Acts by Successor Corporation............................. 52
SECTION 13.03. Surrender of Company Powers........................................ 52
SECTION 13.04. Address for Notices, etc........................................... 52
SECTION 13.05. Governing Law...................................................... 52
SECTION 13.06. Evidence of Compliance with Conditions Precedent................... 52
SECTION 13.07. Business Days...................................................... 53
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 13.08. Trust Indenture Act of 1939 to Control............................. 53
SECTION 13.09. Table of Contents, Headings, etc................................... 53
SECTION 13.10. Execution in Counterparts.......................................... 53
SECTION 13.11. Separability....................................................... 53
SECTION 13.12. Assignment......................................................... 54
SECTION 13.13. Acknowledgment of Rights........................................... 54
ARTICLE XIV. CONDITIONAL RIGHT TO SHORTEN MATURITY; PREPAYMENT OF SECURITIES --
NO SINKING FUND................................................................ 54
SECTION 14.01. Special Event Prepayment........................................... 54
SECTION 14.02. Optional Prepayment by Company..................................... 55
SECTION 14.03. No Sinking Fund.................................................... 55
SECTION 14.04. Notice of Prepayment; Selection of Securities...................... 55
SECTION 14.05. Payment of Securities Called for Prepayment........................ 56
SECTION 14.06. Conditional Right to Shorten Maturity.............................. 56
ARTICLE XV. SUBORDINATION OF SECURITIES..................................................... 57
SECTION 15.01. Agreement to Subordinate........................................... 57
SECTION 15.02. Default on Senior Indebtedness..................................... 57
SECTION 15.03. Liquidation; Dissolution; Bankruptcy............................... 58
SECTION 15.04. Subrogation........................................................ 59
SECTION 15.05. Trustee to Effectuate Subordination................................ 59
SECTION 15.06. Notice by the Company.............................................. 59
SECTION 15.07. Rights of the Trustee; Holders of Senior Indebtedness.............. 61
SECTION 15.08. Subordination May Not Be Impaired.................................. 61
ARTICLE XVI. EXTENSION OF INTEREST PAYMENT PERIOD............................................ 62
SECTION 16.01. Extension of Interest Payment Period............................... 62
SECTION 16.02. Notice of Extension................................................ 63
EXHIBIT A Form of Security; Trustee's Certificate of Authentication A-1
</TABLE>
iv
<PAGE> 6
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
SECTION OF
TRUST INDENTURE ACT
OF 1939, AS AMENDED INDENTURE SECTION
- - -------------------- -----------------
<S> <C>
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
</TABLE>
- - ------------------
* 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.
v
<PAGE> 7
THIS INDENTURE, dated as of January 31, 1997, between Trenwick
Group Inc., a corporation existing under the laws of the State of Delaware
(hereinafter sometimes called the "Company"), and The Chase Manhattan Bank, 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 (as defined herein) 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 defined below) or which are by reference therein
defined in the Securities Act (as defined below), shall (except as herein
otherwise expressly provided or unless the context otherwise requires) have the
meanings assigned to such terms in the Trust Indenture Act of 1939 and in the
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) Property Trustee; (iv)
Administrative Trustees; (v) Direct Action; (vi) Purchase Agreement and (vii)
Initial Purchaser. 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 14.01, 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
<PAGE> 8
such prepayment date plus (i) 1.25% if such prepayment date occurs on or prior
to February 1, 1998 and (ii) 0.50% in all other cases.
"Adverse Tax Consequence" shall have the meaning set forth in
the definition of Tax Event.
"Affiliate" shall have the same meaning as given to that term
in Rule 405 under the Securities Act or any successor rule thereunder.
"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 Subordinated Capital Income
Securities representing undivided beneficial interests in the assets of Trenwick
Capital Trust I which rank pari passu with the Common Securities issued by
Trenwick Capital Trust I; 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 Trenwick Capital Trust I or other Persons, as
such guarantee may be modified, amended or supplemented from time to time, that
operates directly or indirectly for the benefit of holders of Capital Securities
of Trenwick Capital Trust I 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.
2
<PAGE> 9
"Common Securities" shall mean undivided beneficial interests
in the assets of Trenwick Capital Trust I which rank pari passu with Capital
Securities issued by Trenwick Capital Trust I; 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, as such guarantee
may be modified, amended or supplemented from time to time.
"Common Stock" shall mean the Common Stock, par value $0.10
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 Trenwick Group Inc., 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.
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<PAGE> 10
"Declaration" shall mean the Amended and Restated Declaration
of Trust of Trenwick Capital Trust I, dated as of January 31, 1997, among the
Trustees (as defined therein) and the Company, as Sponsor, as such Declaration
may be modified, amended or supplemented from time to time.
"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 8.82% Capital
Securities (liquidation amount $1,000 per security) of Trenwick Capital Trust I,
issued pursuant to an Exchange Offer (including any Private Exchange (as defined
in the Registration Rights Agreement)).
"Exchange Capital Securities Guarantee" shall mean the Capital
Securities Guarantee Agreement, issued pursuant to an Exchange Offer (including
any Private Exchange (as defined in the Registration Rights Agreement)).
"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
Trenwick Capital Trust I to exchange Exchange Capital Securities for Initial
Capital Securities.
"Exchange Securities" shall mean the Company's 8.82% Junior
Subordinated Deferrable Interest Debentures due February 1, 2037, issued
pursuant to an Exchange Offer (including any Private Exchange (as defined in the
Registration Rights Agreement)), as authenticated and issued under this
Indenture.
"Extension Period" shall have the meaning set forth in Section
16.01.
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"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 as it may from time to time be modified, amended or supplemented by one or
more indentures supplemental hereto entered into pursuant to the applicable
provision hereof including, for all purposes of this instrument and any
supplemental indenture, the provisions of the Trust Indenture Act of 1939 that
are deemed to be a part of and govern this instrument and any such supplemental
indenture, respectively.
"Initial Capital Securities" shall mean 8.82% Subordinated
Capital Income Securities (liquidation amount $1,000 per security) of Trenwick
Capital Trust, as initially issued under the Declaration.
"Initial Capital Securities Guarantee" shall mean the Capital
Securities Guarantee Agreement, dated as of January 31, 1997, between the
Company and The Chase Manhattan Bank, as guarantee trustee.
"Initial Securities" shall mean the Company's 8.82% Junior
Subordinated Deferrable Interest Debentures due February 1, 2037, as initially
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 Trenwick Capital Trust I 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 January 31, 1997.
"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.
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<PAGE> 12
"Officers' Certificate" shall mean a certificate signed by (i)
the Chairman of the Board of Directors, a Vice Chairman of the Board of
Directors, the President, the Chief Executive Officer or a Vice President, and
(ii) the Chief Financial Officer, the Chief Accounting Officer, the Treasurer,
an Assistant Treasurer, the Secretary or an Assistant Secretary, and delivered
to the Trustee, which certificate shall comply with the provisions of Section
13.06 hereof.
"Opinion of Counsel" shall mean a written opinion of legal
counsel who is reasonably acceptable to the Trustee, which opinion shall comply
with the provisions of Section 13.06 hereof.
"Optional Prepayment Price" shall have the meaning set forth
in Section 14.02.
"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 Trenwick
Capital Trust I.
"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
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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 and which office is, at
the time of execution of this Indenture, located at 450 West 33rd Street, New
York, New York 10001.
"Property Trustee" shall have the same meaning as set forth in
the Declaration.
"Purchase Agreement" shall mean the Purchase Agreement dated
January 28, 1997 among the Company, Trenwick Capital Trust I and the Initial
Purchaser as defined therein.
"Quotation Agent" shall mean the Reference Treasury Dealer.
"Reference Treasury Dealer" shall mean (i) Lehman Brothers
Inc. 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, or (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 Quotation Agent 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 Quotation Agent 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 January 31, 1997, by and among the Company,
Trenwick Capital Trust I and the Initial Purchaser, 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 any officer or assistant officer of the Trustee assigned by the
Trustee to administer this Indenture 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.
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<PAGE> 14
"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 trust affiliated with the Company and similar to Trenwick Capital Trust I
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.
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<PAGE> 15
"Special Event" shall mean either an Investment Company Event
or a Conditional Tax Redemption Event, as the case may be.
"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 to be prepaid or
(ii) the sum, as determined by a Quotation Agent, of the present values of the
remaining scheduled payments of principal and interest thereon to February 1,
2007, the first day on which any Security is subject to optional prepayment,
discounted to the prepayment date on a semi-annual basis (assuming a 360-day
year consisting of twelve 30-day months 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 Adjusted Treasury Rate plus, in each case, accrued and unpaid
interest thereon, including Compounded Interest and Additional Interest, and
Additional Sums, if any, to the date of such prepayment.
"Stated Maturity" shall mean February 1, 2037, 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 Trenwick Capital Trust I
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 January
31, 1997, 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) Trenwick
Capital Trust I 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) Trenwick Capital Trust I 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").
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<PAGE> 16
"Tax Event Maturity Shortening" shall have the meaning
specified in Section 14.06.
"Trenwick Capital Trust I" or "Trust" shall mean Trenwick
Capital Trust I, a statutory business trust organized under the laws of the
State of Delaware for the exclusive purposes of (i) issuing and selling the
Trust Securities, (ii) effecting the Exchange Offer or filing a Shelf
Registration Statement (as defined in the Declaration), (iii) using the proceeds
from the sale of Trust Securities to acquire the Junior Subordinated Debentures,
(iv) making Distributions (as defined in the Declaration) to holders of the
Trust Securities as provided in the Declaration and (v) engaging in only those
other activities necessary, advisable or incidental thereto (such as registering
the transfer of the Trust Securities).
"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; provided, however, that in the event the Trust
Indenture Act of 1939 is amended after such date, "Trust Indenture Act of 1939"
means, to the extent required by any such amendment, the Trust Indenture Act of
1939 as so amended.
"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.
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<PAGE> 17
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 hereto, 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 receipt of a Company Order and such
other documents as may be required by Section 13.06, authenticate for original
issue up to, and the aggregate principal amount of Securities outstanding at any
time may not exceed, one hundred thirteen million four hundred three thousand
U.S. dollars ($113,403,000) aggregate principal amount of the Securities; except
as provided in Sections 2.07, 2.08, 2.10 and 14.05 hereof. The Company Order
shall specify the amount of Securities to be authenticated and the date on which
such Securities are to be authenticated. 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 Interest, if
any) and any Additional Sums 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.
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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, upon receipt of a Company
Order, 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 Trustee is notified in writing that 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 or unless the
Registration Rights Agreement shall require otherwise.
SECTION 2.05. Global Security.
(a) In connection with a Dissolution Event,
(i) if any Capital Securities are held in book-entry
form, the global securities representing such Capital 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, together with a
Company Order, 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 registration of 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.
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(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 8.82% per
annum (the "Coupon Rate") from the most recent date to which interest has been
paid or, if no interest has been paid, from January 31, 1997, 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 February 1 and August 1 of each year (each, an
"Interest Payment Date") commencing on August 1, 1997, 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
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<PAGE> 20
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 Trenwick Capital Trust I 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
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.
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(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, the
Declaration and the Capital Securities Guarantee have each been qualified under
the Trust Indenture Act of 1939 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 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.
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(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, typewritten, 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 destroy the cancelled Securities in accordance with its
normal practices (subject to the record retention requirement of the Exchange
Act) unless the Company directs that such cancelled Securities 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.
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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.
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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 Chase Manhattan Bank, 450 West 33rd Street, 15th Floor, New York, New York,
10001, Attention: Global Trust Services. 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.
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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 Event of Default, 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
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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
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 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.
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SECTION 3.08. Covenants as to Trenwick Capital Trust I.
In the event Securities are issued to Trenwick Capital Trust I
or a trustee of such trust in connection with the issuance of Trust Securities
by Trenwick Capital Trust I, 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 Trenwick Capital Trust I; 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 Trenwick Capital Trust I (a) to remain a business trust, except
in connection with a distribution of Securities, the redemption of all of the
Trust Securities of Trenwick Capital Trust I 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 Trenwick Capital Trust I and in connection with the sale of the
Trust Securities by Trenwick Capital Trust I, 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
Purchaser 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 Trenwick Capital Trust I
(including, but not limited to, costs and expenses relating to the
organization of Trenwick Capital Trust I, the offering, sale and
issuance of the Trust Securities (including commissions to the Initial
Purchaser in connection therewith), the fees and expenses of the
Property Trustee and the Delaware Trustee, the costs and expenses
relating to the operation of Trenwick Capital Trust I;
(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 Trenwick Capital Trust I or its
assets) and all liabilities, costs and expenses with respect to such
taxes of Trenwick Capital Trust I; 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 Trenwick Capital Trust I.
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
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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 list need be furnished so long as the Trustee is in
possession thereof by reason of its acting as Security registrar.
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:
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(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
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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.
Within 60 days after May 15 of each year, commencing May 15,
1997, the Trustee shall provide to the holders of the Securities such reports as
are required by Section 313 of the Trust Indenture Act of 1939, if any, in the
form and in the manner provided by Section 313 of the Trust Indenture Act of
1939. The Trustee shall also comply with the requirements of Section 313(d) of
the Trust Indenture Act of 1939.
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
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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, provided,
however, that if an Event of Default specified in any one of paragraphs (d) or
(e) of this Section 5.01 occurs, all unpaid principal and accrued interest on
the Securities at the time outstanding shall become due and
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payable without any declaration or other act on the part of the Trustee or any
holder of the Securities.
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 Trenwick Capital Trust I or a trustee of such trust, without duplication
of any other amounts paid by Trenwick Capital Trust I 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.
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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
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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 90 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 90 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
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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. Without the consent of each holder of Capital Securities then
outstanding, the Company shall not take any action that impairs or affects the
right of holders of Capital Securities to bring a Direct Action.
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
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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
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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.
SECTION 5.10 Waiver of Stay or Extension Laws.
The Company (to the extent it may lawfully do so) shall not at
any time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law wherever enacted, now or at
any time hereafter in force, which may affect the covenants or the performance
of this Indenture; and the Company (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and shall not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but shall suffer and permit the execution of every such power as though
no such law had been enacted.
SECTION 5.11 Delay or Omission Not Waiver.
No delay or omission of the Trustee or any Securityholder to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article V or by law
to the Trustee or to the Securityholders may be exercised from time to time, and
as often as may be deemed expedient, by the Trustee or by the Securityholders,
as the case may be.
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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
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the terms of this Indenture or adequate indemnity against such risk is not
reasonably assured to it.
Every portion of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Article VI and to the provisions of the Trust
Indenture Act of 1939.
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,
and the Trustee need not investigate any fact or matter stated in such
document;
(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 the Trustee shall not be liable for any
action taken or suffered or omitted by it hereunder in good faith in
reliance on such Officers' Certificate; 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
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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.
(h) The Trustee shall not be charged with knowledge of any
Default or Event of Default except (i) a Default under Sections 5.01(a)
and 5.01(b) of this Indenture (other than with respect to the payment
of Additional Interest) or (ii) any Default or Event of Default of
which a Responsible Officer shall have actual knowledge thereof or the
Trustee shall have received notice thereof in accordance with Section
13.03 hereof from the Company or any Securityholder.
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.
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SECTION 6.06. Compensation and Expenses of Trustee.
The Company 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
Trustee's compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust. 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 reasonable attorney's
fees and 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 resignation or
removal of the Trustee and 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.
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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 of 1939, the
Trustee and the Company shall in all respects comply with the provisions of
Section 310(b) of the Trust Indenture Act of 1939.
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
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(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.
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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 of 1939, excluding any creditor relationship described in Section
311(b) of the Trust Indenture Act of 1939. A Trustee who has resigned or been
removed shall be subject to Section 311(a) of the Trust Indenture Act of 1939 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
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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
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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,
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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;
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(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 Board
Resolution, 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
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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 or any other provision hereof granting rights to
holders of Capital Securities, 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 or any other
provision hereof granting any rights to holders of Capital Securities, 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.
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(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
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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
Trenwick Capital Trust I following a Dissolution Event;
(g) to qualify or maintain qualification of this Indenture
under the Trust Indenture Act of 1939; 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
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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
Trenwick Capital Trust I, 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 Board
Resolution 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 of 1939; Effect of
Supplemental.
Any supplemental indenture executed pursuant to the provisions
of this Article IX shall comply with the Trust Indenture Act of 1939. 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.
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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 to 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 of 1939, 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,
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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 Trenwick Group Inc., 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 or cause to be deposited with the
Trustee, in trust, funds sufficient to pay on the Stated Maturity
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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
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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 91st
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.
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"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 11.05 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, employee 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.
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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
two-thirds (2/3) 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, Metro Center, One Station Place, Stamford, CT 06902, Attention:
Jane T. Wiznitzer, Vice President-Legal Affairs 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 Chase Manhattan Bank, 450 West
33rd Street, 15th Floor, New York, New York 10001, Attention: Global Trust
Services.
SECTION 13.05. Governing Law.
This Indenture and each Security 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.
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
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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 of 1939 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.
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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 Trenwick Capital Trust I 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 Trenwick Capital Trust I, 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. 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, notwithstanding Section 14.02(a) but subject to
Section 14.02(b), 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, if the Company elects
to effect a prepayment, 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.
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SECTION 14.02. Optional Prepayment by Company.
(a) Subject to the provisions of this Article XIV, the Company
shall have the right to prepay the Securities, in whole or in part, from time to
time, on or after February 1, 2007, at the optional prepayment price equal to
the outstanding principal amount of the Securities to be prepaid, plus accrued
and unpaid interest thereon (including Compounded Interest and Additional
Interest, if any) and any Additional Sums to the applicable date of prepayment
(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 beneficial owner of such Securities 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.
(b) Notwithstanding the first sentence of Section 14.02(a),
upon the entry of an order for dissolution of Trenwick Capital Trust I by a
court of competent jurisdiction, the Securities thereafter will be subject to
optional prepayment, in whole only, but not in part, on or after February 1,
2007, at the optional prepayment price set forth in Section 14.02(a) and
otherwise in accordance with this Article XIV.
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
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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
20 years from the date of original issuance of Securities under this Indenture,
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
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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, or if any judicial
proceeding shall be pending with respect to any such default, then, in any 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
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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
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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 6.06 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
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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,
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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
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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
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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, and
so long as no Event of Default has occurred and is continuing, 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 Trenwick Capital Trust I 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 Chase Manhattan Bank hereby accepts the trusts in this
Indenture declared and provided, upon the terms and conditions hereinabove set
forth.
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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.
TRENWICK GROUP INC.
By: /s/ James F. Billett, Jr.
----------------------------------------
James F. Billett, Jr.
Chairman, President and Chief
Executive Officer
THE CHASE MANHATTAN BANK, as Trustee
By: /s/ G. McFarlane
----------------------------------------
G. McFarlane
Vice President
<PAGE> 71
EXHIBIT A
(FORM OF FACE OF SECURITY)
[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 THREE 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
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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 RULE 501 (A)(1), (2), (3) OR (7) OF
REGULATION D 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.
THE HOLDER OF THIS SECURITY FURTHER AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
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.
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No. ________ CUSIP No. ________
TRENWICK GROUP INC.
8.82% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE
DUE FEBRUARY 1, 2037
Trenwick Group Inc., 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
____________________________, or registered assigns, the principal sum of
____________________________________________U.S. dollars ($____________) on
February 1, 2037 (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 January 31, 1997, 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 February 1 and August 1 of each year, commencing August 1, 1997, at
the rate of 8.82% 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.
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<PAGE> 74
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.
By its acceptance hereof, the Holder agrees to be bound by the
terms of the Registration Rights Agreement.
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.
4
<PAGE> 75
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
he executed.
Dated: __________________
TRENWICK GROUP INC.
By:_____________________________
Name:
Title:
Attest:
By:___________________________
Name:
Title:
5
<PAGE> 76
(FORM OF CERTIFICATE OF AUTHENTICATION)
CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the
within-mentioned Indenture.
THE CHASE MANHATTAN BANK, as Trustee
By: ______________________________________
Authorized Officer
6
<PAGE> 77
(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 January
31, 1997 (the "Indenture"), duly executed and delivered between the Company and
The Chase Manhattan Bank, 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 to be prepaid or (ii) the sum, as determined by a Quotation Agent, of the
present values of the remaining scheduled payments of principal and interest
thereon to February 1, 2007, the first day on which this Security is subject to
optional prepayment, discounted to the prepayment date on a semi-annual basis
(assuming a 360-day year consisting of twelve 30-day months 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 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 on or after February 1, 2007 (an
"Optional Prepayment"), at the Optional Prepayment Price equal to the principal
amount of this Security plus accrued and unpaid interest thereon (including
Compounded Interest and Additional Sums, if any) to the applicable date of
prepayment.
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 to a date earlier than 20 years
from the date of original issuance of Securities under the Indenture, such that,
in the written opinion of counsel experienced in such matters
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<PAGE> 78
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, and so long as no Event of
Default has occurred and
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<PAGE> 79
is continuing, 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 Trenwick 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
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
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
Trenwick Capital Trust I and cause the Securities to be distributed to the
holders of the Trust Securities in liquidation of Trenwick Capital Trust I,
subject to the provisions of the Indenture requiring the receipt of certain
legal opinions.
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<PAGE> 80
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.
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<PAGE> 81
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this
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 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 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.
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In connection with any transfer of any of the Securities evidenced by this
certificate, the undersigned confirms that such 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 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 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 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 January 28, 1997.
Date:_____________________
Signature:__________________________
(Sign exactly as your name appears on the other side of this Security
Certificate)
12
<PAGE> 1
Exhibit 4.2(b)
TRENWICK CAPITAL TRUST I
-----------------------------------------
AMENDED AND RESTATED DECLARATION OF TRUST
Dated as of January 31, 1997
-----------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE I INTERPRETATION AND DEFINITIONS.................................................... 1
SECTION 1.1 Definitions.........................................................................1
ARTICLE II TRUST INDENTURE ACT.................................................................8
SECTION 2.1 Trust Indenture Act; Application....................................................8
SECTION 2.2 Lists of Holders of Securities......................................................9
SECTION 2.3 Reports by the Property Trustee.....................................................9
SECTION 2.4 Periodic Reports to Property Trustee................................................9
SECTION 2.5 Evidence of Compliance with Conditions Precedent....................................9
SECTION 2.6 Events of Default; Waiver...........................................................9
SECTION 2.7 Event of Default; Notice.......................................................... 11
ARTICLE III ORGANIZATION...................................................................... 11
SECTION 3.1 Name.............................................................................. 11
SECTION 3.2 Office............................................................................ 12
SECTION 3.3 Purpose........................................................................... 12
SECTION 3.4 Authority......................................................................... 12
SECTION 3.5 Title to Property of the Trust.................................................... 12
SECTION 3.6 Powers and Duties of the Administrative Trustees.................................. 12
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees.............................. 15
SECTION 3.8 Powers and Duties of the Property Trustee......................................... 16
SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee....................... 18
SECTION 3.10 Certain Rights of Property Trustee................................................ 19
SECTION 3.11 Delaware Trustee.................................................................. 21
SECTION 3.12 Not Responsible for Recitals or Issuance of Securities............................ 22
SECTION 3.13 Duration of Trust................................................................. 22
SECTION 3.14 Mergers........................................................................... 22
ARTICLE IV SPONSOR........................................................................... 23
SECTION 4.1 Sponsor's Purchase of Common Securities........................................... 23
SECTION 4.2 Responsibilities of the Sponsor................................................... 23
SECTION 4.3 Right to Proceed.................................................................. 24
ARTICLE V TRUSTEES.......................................................................... 24
SECTION 5.1 Number of Trustees; Appointment of Co-Trustee..................................... 24
SECTION 5.2 Delaware Trustee.................................................................. 25
SECTION 5.3 Property Trustee; Eligibility..................................................... 25
SECTION 5.4 Certain Qualifications of Administrative Trustees and Delaware
Trustee Generally................................................................. 26
</TABLE>
i
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<TABLE>
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Page
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<S> <C> <C>
SECTION 5.5 Administrative Trustees........................................................... 26
SECTION 5.6 Delaware Trustee.................................................................. 27
SECTION 5.7 Appointment, Removal and Resignation of Trustees.................................. 27
SECTION 5.8 Vacancies among Trustees.......................................................... 28
SECTION 5.9 Effect of Vacancies............................................................... 28
SECTION 5.10 Meetings.......................................................................... 29
SECTION 5.11 Delegation of Power............................................................... 29
SECTION 5.12 Merger, Conversion, Consolidation or Succession to Business....................... 29
SECTION 5.13 Undertaking for Costs............................................................. 29
ARTICLE VI DISTRIBUTIONS..................................................................... 30
SECTION 6.1 Distributions..................................................................... 30
ARTICLE VII ISSUANCE OF SECURITIES............................................................ 30
SECTION 7.1 General Provisions Regarding Securities........................................... 30
SECTION 7.2 Execution and Authentication...................................................... 31
SECTION 7.3 Form and Dating................................................................... 31
SECTION 7.4 Registrar and Paying Agent........................................................ 33
SECTION 7.5 Paying Agent to Hold Money in Trust............................................... 33
SECTION 7.6 Replacement Securities............................................................ 34
SECTION 7.7 Outstanding Capital Securities.................................................... 34
SECTION 7.8 Capital Securities in Treasury.................................................... 34
SECTION 7.9 Temporary Securities.............................................................. 34
SECTION 7.10 Cancellation...................................................................... 35
SECTION 7.11 CUSIP Numbers..................................................................... 36
ARTICLE VIII DISSOLUTION OF TRUST.............................................................. 36
SECTION 8.1 Dissolution of Trust.............................................................. 36
ARTICLE IX TRANSFER OF INTERESTS............................................................. 37
SECTION 9.1 Transfer of Securities............................................................ 37
SECTION 9.2 Transfer Procedures and Restrictions.............................................. 37
SECTION 9.3 Deemed Security Holders........................................................... 45
SECTION 9.4 Book-Entry Interests.............................................................. 45
SECTION 9.5 Notices to Clearing Agency........................................................ 46
SECTION 9.6 Appointment of Successor Clearing Agency.......................................... 46
ARTICLE X LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES,
TRUSTEES OR OTHERS................................................................ 46
SECTION 10.1 Liability......................................................................... 46
SECTION 10.2 Exculpation....................................................................... 47
</TABLE>
ii
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<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 10.3 Fiduciary Duty.................................................................... 47
SECTION 10.4 Indemnification................................................................... 48
SECTION 10.5 Outside Businesses................................................................ 51
ARTICLE XI ACCOUNTING........................................................................ 51
SECTION 11.1 Fiscal Year....................................................................... 51
SECTION 11.2 Certain Accounting Matters........................................................ 52
SECTION 11.3 Banking........................................................................... 52
SECTION 11.4 Withholding....................................................................... 52
ARTICLE XII AMENDMENTS AND MEETINGS........................................................... 53
SECTION 12.1 Amendments........................................................................ 53
SECTION 12.2 Meetings of the Holders of Securities; Action by Written Consent.................. 54
ARTICLE XIII REPRESENTATIONS OF PROPERTY TRUSTEE AND
DELAWARE TRUSTEE.................................................................. 56
SECTION 13.1 Representations and Warranties of Property Trustee................................ 56
ARTICLE XIV REGISTRATION RIGHTS............................................................... 57
SECTION 14.1 Registration Rights Agreement; Additional Interest................................ 57
ARTICLE XV MISCELLANEOUS..................................................................... 59
SECTION 15.1 Notices........................................................................... 59
SECTION 15.2 Governing Law..................................................................... 60
SECTION 15.3 Intention of the Parties.......................................................... 60
SECTION 15.4 Headings.......................................................................... 60
SECTION 15.5 Successors and Assigns............................................................ 60
SECTION 15.6 Partial Invalidity................................................................ 61
SECTION 15.7 Counterparts...................................................................... 61
ANNEX I........................................................................................................ I-1
EXHIBIT A-1................................................................................................... A1-1
EXHIBIT A-2................................................................................................... A2-1
</TABLE>
iii
<PAGE> 5
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Section of
Trust Indenture Act Section of
of 1939, as amended Declaration
- - ------------------- -----------
<S> <C>
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)
</TABLE>
- - -------------------
* This Cross-Reference Table does not constitute part of the Declaration and
shall not affect the interpretation of any of its terms or provisions.
iv
<PAGE> 6
AMENDED AND RESTATED DECLARATION OF TRUST
OF
TRENWICK CAPITAL TRUST I
AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration")
dated as of January 31, 1997, among the Trustees (as defined herein) and the
Sponsor (as defined herein).
WHEREAS, the Delaware Trustee and the Sponsor established
Trenwick Capital Trust I (the "Trust"), a statutory business trust formed under
the Business Trust Act (as defined herein) pursuant to a Declaration of Trust
dated as of January 21, 1997 (the "Original Declaration"), and a Certificate of
Trust filed with the Secretary of State of the State of Delaware on January 21,
1997, for the exclusive purposes of (i) issuing and selling the Trust Securities
(as defined herein), (ii) effecting the Exchange Offer or filing a Shelf
Registration Statement (each as defined herein), (iii) using the proceeds from
the sale of Trust Securities to acquire the Debentures (as defined herein), (iv)
making Distributions (as defined herein) to holders of the Trust Securities as
provided herein and (v) engaging in only those other activities necessary,
advisable or incidental thereto (such as registering the transfer of the Trust
Securities);
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 Declaration 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;
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(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 (as defined
below) 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" has the same meaning as given to that term in Rule
405 under the Securities Act or any successor rule thereunder.
"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 Section 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).
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"Capital Securities Guarantee" means the guarantee agreement
dated as of January 31, 1997 of the Sponsor in respect of the Capital
Securities, as modified, supplemented or amended from time to time.
"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 Date" means the "Closing Date" 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 January 31, 1997 of the Sponsor in respect of the Common Securities,
as modified, supplemented or amended from time to time.
"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.
"Compounded Interest" shall have the meaning ascribed to it in
the Indenture.
"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 Chase Manhattan Bank, 450 West
33rd Street, 15th Floor, New York, New York 10001.
"Covered Person" means: (a) any officer, director,
shareholder, partner, member, representative, employee or agent of (i) the Trust
or (ii) an Affiliate of the Trust; and (b) any Holder of Securities.
"Debenture Issuer" means Trenwick Group Inc., 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.
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"Debenture Trustee" means The Chase Manhattan Bank, 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 8.82% Junior Subordinated Deferrable
Interest Debentures due February 1, 2037 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 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 (including pursuant to any Private Exchange
(as defined in the Registration Rights Agreement)).
"Exchange Offer" means the exchange offer (including any
Private Exchange (as defined in the Registration Rights Agreement)) contemplated
in Section 2(a) of the Registration Rights Agreement.
"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.
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"Indemnified Person" means a Company Indemnified Person or a
Fiduciary Indemnified Person.
"Indenture" means the Indenture, dated as of January 31, 1997,
between the Debenture Issuer and the Debenture Trustee, as modified,
supplemented or amended from time to time.
"Initial Capital Securities" means 8.82% Subordinated Capital
Income Securities (liquidation amount $1,000 per security) of the Trust issued
on the Closing Date.
"Initial Debentures" means the Debentures as authenticated and
issued under the Indenture on the Closing Date.
"Initial Purchaser" means Lehman Brothers Inc.
"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.
"Legal Action" has the meaning set forth in Section
3.6(a)(vii).
"Like Amount" has the meaning set forth in Section 3 of Annex
I.
"Liquidation Amount" with respect to any Security means the
amount designated as such with respect thereto in Section 2(a) of 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 of all outstanding Securities of the relevant
class.
"Offering Memorandum" has the meaning set forth in Section
3.6(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;
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(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 January 31, 1997, by and among the Sponsor, the Trust and
the Initial Purchaser, as modified, supplemented or amended from time to time.
"Registration Statement" means a registration statement filed
under the Securities Act.
"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.
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"Responsible Officer," when used with respect to the Property
Trustee, means any officer of the Property Trustee with direct responsibility
for the administration of this Declaration and also means, with respect to a
particular corporate trust matter, any other officer of the Property Trustee 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 and any Private Exchange (as
defined in the Registration Rights Agreement)).
"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.
"Shelf Registration Statement" means a "shelf" registration
statement of the Sponsor and the Trust as contemplated in Section 2(b) of the
Registration Rights Agreement.
"Special Event" has the meaning set forth in the Indenture.
"Sponsor" means Trenwick Group Inc., 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).
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"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 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 as
trustee 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
Sections 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.
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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 five 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 Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act.
SECTION 2.3 Reports by the Property Trustee.
Within 60 days after May 15 of each year, commencing May 15,
1997, the Property 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 Property Trustee shall also comply with the requirements of
Section 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 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.
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 Section 314(c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to Section
314(c)(1) of the Trust Indenture Act 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:
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(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 Section 316(a)(1)(B) of the Trust Indenture Act and such Section
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
Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act and such
Sections 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
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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
Section 316(a)(1)(B) of the Trust Indenture Act and such Section 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 known to a Responsible Officer of the Property
Trustee, 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 (other than with respect to the payment of Additional
Interest or Compounded Interest); or
(ii) any Default or Event of 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 "Trenwick Capital Trust
I" 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.
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SECTION 3.2 Office.
The address of the principal office of the Trust is Trenwick
Capital Trust I, c/o Trenwick Group Inc., Metro Center, One Station Place,
Stamford, Connecticut 06902. On ten Business Days' prior written notice to the
Holders, the Administrative Trustees may designate another principal office.
SECTION 3.3 Purpose.
The Trust exists for the exclusive purpose of (a) issuing and
selling Securities, (b) using the proceeds from the sale of the Securities to
acquire the Debentures, (c) making Distributions to Holders of the Securities as
herein provided, (d) effecting the Exchange Offer or filing a Shelf Registration
Statement, and (e) except as otherwise limited herein, engaging 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 on the Closing Date and (y)
the issuance of a second series of Capital Securities upon the
consummation of the Exchange Offer.
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(ii) in connection with the issue and sale of the Capital
Securities and the Common Securities, and in connection with the
Exchange Offer or any Shelf Registration Statement, 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) of
Regulation D under the Securities Act) and outside the United
States to non-U.S. Persons in offshore transactions complying
with Rule 903 or 904 of 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 and take such actions as are
required to effect the Exchange Offer or any Shelf
Registration Statement;
(B) execute and file any documents prepared by the Sponsor, or
take any acts as determined by the Sponsor to be necessary, to
qualify or register all or part of the Capital Securities in
any State or foreign jurisdiction 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) or 12(g) 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;
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(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 Section 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 this Declaration or the Trust Indenture Act;
(x) to give the certificate required by Section 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:
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(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) taking 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 Sponsor.
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees.
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), which Additional Sums shall be applied by the Property
Trustee as directed by the Administrative Trustees), 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;
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(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
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(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 the 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 prepayment
on the prepayment 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. The Sponsor hereby covenants that, without the consent of the
holders of all the Capital Securities then outstanding, it will not take any
action to impair or affect the right of holders of Capital Securities to bring a
Direct Action.
(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 Section 317(a) of the Trust Indenture Act.
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(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 Section 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
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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
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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;
(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
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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 Section 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. In the event the
Delaware Trustee shall at any time be required to take any action or perform any
duty hereunder, the Delaware Trustee shall be entitled to the benefits of
Section 3.9(b)(ii)-(viii) and Section 3.10. No implied covenants or obligations
shall be read into this Declaration against the Delaware Trustee.
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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 February 1, 2042.
SECTION 3.14 Mergers.
(a) The Trust may not merge with or into, consolidate,
amalgamate, or be replaced by, or sell, convey, transfer or lease its properties
and assets as an entirety, or 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 with or into, consolidate, amalgamate, or be replaced
by, or sell, 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 with
respect to 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 with respect to 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 other organization on which the Capital
Securities are then listed or quoted, if any;
(iv) such merger, consolidation, amalgamation, replacement,
sale, 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, consolidation, amalgamation, replacement,
sale, conveyance, transfer or lease does not adversely affect the
rights, preferences and privileges of the Holders of the
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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, consolidation, amalgamation,
replacement, sale, 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, consolidation, amalgamation, replacement,
sale, 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, consolidation, amalgamation,
replacement, sale, 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 with or into, or be replaced by, or
sell, convey, transfer or lease its properties and assets as an entirety, or
substantially as an entirety to, any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger, replacement, sale, 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.
On the Closing Date, 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:
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(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 and foreign jurisdictions 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 or foreign jurisdictions;
(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
Stock Market's 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) or 12(g) 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,
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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, 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.
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(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 5.7(c).
(c) If the Property Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 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 Section 310(b) of the Trust Indenture Act)
shall in all respects comply with the provisions of Section 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 Chase Manhattan Bank
450 West 33rd Street
15th Floor
New York, New York 10001
Attention: Corporate Trustee Administration Department
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:
James F. Billett, Jr.
Alan L. Hunte
Jane T. Wiznitzer
(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
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.
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SECTION 5.6 Delaware Trustee.
The initial Delaware Trustee shall be:
Chase Manhattan Bank Delaware
1201 Market Street
Wilmington, Delaware 19801
Attention: Corporate Trustee Administration Department
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:
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(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 5.7, 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.
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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 (other than the Property
Trustee) of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs,
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including reasonable attorney's fees and expenses, against any party litigant in
the suit (other than the Property Trustee), 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), which Additional Sums shall be applied by the Property Trustee as
directed by the Administrative Trustees) (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 Subordinated Capital Income 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 or
unless the Registration Rights Agreement shall require otherwise. The Trust
shall issue no securities or other interests in the assets of the Trust other
than the Capital Securities and the Common Securities. The definition of
Exchange Capital Securities as used in this Declaration shall be deemed to
include any Capital Securities issued in a Private Exchange (as defined in the
Registration Rights Agreement), and any Capital Securities issued in a Private
Exchange shall be deemed to be of the same series as the Exchange Capital
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.
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(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 officer 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, typewritten,
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
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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, 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 another 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
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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) of Regulation D under the Securities Act) and did not purchase
Capital Securities in reliance on Rule 144A or 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 and Registrar for the Common Securities.
(b) The Administrative Trustees initially appoint the Property
Trustee as Registrar and Paying 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 or in the event of an Event of
Default, 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.
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SECTION 7.6 Replacement Securities.
If any Holder claims that a Security owned by it has been
lost, destroyed or wrongfully taken or if any 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), it ceases to be outstanding unless the Property Trustee receives proof
satisfactory to it that the replaced 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 a Responsible Officer of 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
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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 in
accordance with its customary procedures unless the Administrative Trustees
otherwise direct the Property Trustee in writing. 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.
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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
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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) and after satisfaction of all liabilities of the
Trust, the Administrative Trustees shall file a certificate of cancellation with
the Secretary of State of the State of Delaware.
(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) 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.
(b) The Sponsor may not transfer the Common Securities, except
as set forth in Section 10.01 of the Indenture.
(c) 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 registration of 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, 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
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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.
Upon exchange of any Capital Securities pursuant to a Registration Statement
with respect to the Exchange Offer, except as provided in the Registration
Rights Agreement or by the terms of the Capital Securities, all requirements
pertaining to Securities Act 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 Rule 144A Global
Capital Security or the Regulation S Global Capital Security, as the case may
be. No such transfer or exchange of a Restricted Definitive Capital Security or
of an interest in the Rule 144A Global Capital Security or the Regulation S
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) Rule 144A Global Capital Security or the
Regulation S 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
registration of 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 delivered
to register a transfer: (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 the Sponsor as to the compliance with the
restrictions set forth in the Restricted Securities Legend.
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(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 beneficial interests in
Global Capital Securities 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
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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.
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.
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
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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:
THE CAPITAL SECURITY REPRESENTED HEREBY 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 TO OFFER, SELL OR OTHERWISE TRANSFER
THIS CAPITAL SECURITY, PRIOR TO THE DATE WHICH IS THREE 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) (THE "RESALE RESTRICTION
TERMINATION DATE") ONLY (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 ("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 RULE 501 (A)(1), (2), (3) OR (7) OF
REGULATION D 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 DATED JANUARY 28, 1997.
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THE HOLDER OF THIS CAPITAL SECURITY BY ITS
ACCEPTANCE HEREOF REPRESENTS AND ACKNOWLEDGES THAT IT EITHER
(A) IS NOT A PLAN SUBJECT TO THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974, AS AMENDED, OR SECTION 4975 OF THE
INTERNAL REVENUE CODE of 1986, AS AMENDED, AND IS NOT
PURCHASING SUCH SECURITIES (OR INTEREST THEREIN) ON BEHALF OF
OR WITH "PLAN ASSETS" OF ANY SUCH PLAN OR (B) IS ELIGIBLE FOR
THE EXEMPTIVE RELIEF AVAILABLE UNDER PTCE 96-23, 95-60, 91-38,
90-1 OR 84-14.
THE HOLDER OF THIS CAPITAL SECURITY 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.
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, unless otherwise
notified in writing, 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,
unless otherwise notified in writing, 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 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.
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(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 (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 registration of
transfer or exchange 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
registration of 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.
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(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) a Registration Statement with respect to the
Exchange Offer 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, the Declaration and the Capital
Securities Guarantee have each 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.
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(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) ERISA. 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, or a plan subject to Section 4975 of the Code ("ERISA Plan"), unless
the acquisition and holding by the Plan of such Securities is eligible for the
exemptive relief available under one of the following class exemptions: (i)
Prohibited Transaction Class Exemption 90-1 ("PTCE 90-1"), regarding investments
by insurance company pooled separate accounts, (ii) Prohibited Transaction Class
Exemption 91-38 ("PTCE 91-38"), regarding investments by bank collective
investment funds, (iii) Prohibited Transaction Class Exemption 84-14 ("PTCE
84-14"), regarding transactions effected by qualified professional asset
managers, (iv) Prohibited Transaction Class Exemption 96-23 ("PTCE 96-23"),
regarding transactions effected by in-house asset managers, or (v) Prohibited
Transaction Class Exemption 95-60 ("PTCE 95-60"), regarding investments by
insurance company general accounts.
Each certificate representing Capital Securities or Exchange
Capital Securities, as the case may be, shall bear a legend to the effect that
the holder of the Capital Security or the Exchange Capital Security or any
interest therein represents and acknowledges that (a) it is not an ERISA Plan
and is not purchasing such securities (or interest therein) on behalf of or with
"plan assets," of any ERISA Plan or (b) its purchase and holding of the Capital
Securities (or interest therein) is eligible for the exemptive relief available
under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14. 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
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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. DTC will make book-entry transfers among the
Clearing Agency Participants and receive and transmit payments of
Distributions on the Global Certificates to such 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 Section 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.
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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:
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(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 Sponsor 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 Sponsor 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.
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(iv) Any indemnification under paragraphs (i) and (ii) of this
Section 10.4(a) (unless ordered by a court) shall be made by the
Sponsor 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 Sponsor 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 Sponsor 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 disinterested 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 Sponsor 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 Sponsor 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 Sponsor would have the power to indemnify him against such
liability under the provisions of this Section 10.4(a).
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(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 Sponsor agrees to indemnify the (i) Property Trustee,
(ii) the Delaware Trustee, (iii) any Affiliate of the Property Trustee or the
Delaware Trustee, and (iv) any officers, directors, shareholders, members,
partners, employees' representatives, custodians, nominees or agents of the
Property Trustee or 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 resignation or
removal of the Property Trustee or the Delaware Trustee, as the case may be, and
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
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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.
(d) The Sponsor agrees to pay the Property Trustee and the
Delaware Trustee, from time to time, such compensation for all services rendered
by the Property Trustee and the Delaware Trustee hereunder as may be mutually
agreed upon in writing by the Sponsor and the Property Trustee or the Delaware
Trustee, as the case may be, and, except as otherwise expressly provided herein,
to reimburse the Property Trustee and the Delaware Trustee upon its or their
request for all reasonable expenses, disbursements and advances incurred or made
by the Property Trustee or the Delaware Trustee, as the case may be, in
accordance with the provisions of this Declaration, except any such expense,
disbursement or advance as may be attributable to its or their negligence or bad
faith.
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.
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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. The books of account
and the records of the Trust shall be examined by and reported upon as of the
end of each Fiscal Year of the Trust by a firm of independent certified
accountants selected by the Administrative Trustees.
(b) The Administrative Trustees shall cause to be prepared and
delivered to the Property Trustee and to each of the Holders of Securities,
within 90 days after the end of each Fiscal Year of the Trust, 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.
(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 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
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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);
(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); and
(C) an Opinion of counsel complying with Section 3.7(vii)
hereof,
provided, however, that the Property Trustee shall not be required to
sign any such amendment until it is furnished an Opinion of Counsel to
the effect that such amendment will not:
(1) cause the Trust to fail to continue to be classified for
purposes of United States federal income taxation as a grantor
trust;
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(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(b), this Section 12.1 and the
last sentence of Section 3.8(e) 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
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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.
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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 this Declaration has been duly authorized by all necessary
corporate action on the part of the Property Trustee. This 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
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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 Delaware or 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 the 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 January 28, 1997, the date of the Offering
Memorandum, 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 (except as set forth in the Registration Rights Agreement)
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 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 date of the Offering Memorandum and (iii) they will
use their best efforts to maintain the Shelf Registration Statement, if any,
continuously effective under the Securities Act until the third 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 date of the Offering
Memorandum, 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
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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 affected thereby, and additional Distributions shall
accumulate on the Liquidation Amount of the Capital Securities affected
thereby, 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 date of the Offering Memorandum
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 date of the Offering
Memorandum, then, commencing on the 181st day after the date of the
Offering Memorandum. Additional Interest shall accrue on the principal
amount of the Debentures affected thereby, and additional Distributions
shall accumulate on the Liquidation Amount of the Capital Securities
affected thereby, 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 Closing 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 affected
thereby, and additional Distributions shall accumulate on the
Liquidation Amount of the Capital Securities affected thereby, 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.
(c) 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 February 1 and August 1 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.
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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 registered, certified or first class mail, as follows:
(i) if given to the Trust, in care of the mailing address set
forth below (or such other address as the Trust may give notice of to
the Property Trustee, the Delaware Trustee and the Holders):
Trenwick Capital Trust I
c/o Trenwick Group Inc.
Metro Center
One Station Place
Stamford, Connecticut 06902
Attention: Chief Financial Officer
Telecopy: (203) 353-5544
(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):
Chase Manhattan Bank Delaware
1201 Market Street
Wilmington, Delaware 19801
Attention: Corporate Trustee Administration Department
Telecopy: (302) 984-4889
(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 Chase Manhattan Bank
Global Trust Services
450 West 33rd Street
15th Floor
New York, New York 10001
Attention: Corporate Trustee Administration Department
Telecopy: (212) 946-8158
(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 Property
Trustee and the Trust):
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Trenwick Group Inc.
Metro Center
One Station Place
Stamford, Connecticut 06902
Attention: Jayne T. Wiznitzer, Esq.
Vice President - Legal Affairs
and Secretary
Telecopy: (203) 353-5544
(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 registered,
certified or 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. Sections 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. Section 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.
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SECTION 15.6 Partial Invalidity.
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 and shall remain in full force and effect and may be enforced
in accordance with the provisions hereof.
SECTION 15.7 Counterparts.
This Declaration may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which shall constitute one
and the same instrument.
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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/ James F. Billett, Jr.
---------------------------------------
James F. Billett, Jr., not in his
individual capacity but solely in his
capacity as Administrative Trustee
/s/ Alan L. Hunte
---------------------------------------
Alan L. Hunte, not in his individual
capacity but solely in his capacity as
Administrative Trustee
/s/ Jane T. Wiznitzer
---------------------------------------
Jane T. Wiznitzer, not in her individual
capacity but solely in her capacity as
Administrative Trustee
CHASE MANHATTAN BANK DELAWARE, not in
its individual capacity but solely in
its capacity as Delaware Trustee
By: /s/ John J. Cashin
-------------------------------------
Name: John J. Cashin
Title: Senior Trust Officer
THE CHASE MANHATTAN BANK, not in its
individual capacity but solely in its
capacity as Property Trustee
By: /s/ G. McFarlane
-------------------------------------
Name: G. McFarlane
Title: Vice President
TRENWICK GROUP INC.,
as Sponsor
By: /s/ James F. Billett, Jr.
-------------------------------------
Name: James F. Billett, Jr.
Title: Chairman, President and Chief
Executive Officer
<PAGE> 68
ANNEX I
TERMS OF
8.82% CAPITAL SECURITIES
8.82% COMMON SECURITIES
Pursuant to Section 7.1 of the Amended and Restated
Declaration of Trust, dated as of January 31, 1997 among Trenwick Group Inc., as
Sponsor, the Chase Manhattan Bank, as Property Trustee, Chase Manhattan Bank
Delaware, as Delaware Trustee, and the Administrative Trustees named therein (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. One hundred ten thousand (110,000)
Subordinated Capital Income Securities of the Trust, with an aggregate
Liquidation Amount (as defined in Section 2 hereof) of one hundred ten million
U.S. dollars ($110,000,000), and with a Liquidation Amount of $1,000 per
Security, are hereby designated for the purposes of identification only as
"8.82% Subordinated Capital Income 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 on the Closing Date except that such Capital Securities (the
"Exchange Capital Securities") will not be subject to (i) the transfer
restrictions under the Securities Act contained in the series of Capital
Securities issued on the Closing Date (except Capital Securities issued pursuant
to a Private Exchange (as defined in the Registration Rights Agreement), which
may be subject to such restrictions, but which shall be deemed to be of the same
series as the Exchange Capital Securities), (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 on the Closing Date 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. Three thousand four hundred three
(3,403) Common Securities of the Trust with an aggregate Liquidation Amount with
respect to the assets of the Trust of three million four hundred three thousand
U.S. dollars ($3,403,000) 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 "8.82% 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 8.82% (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
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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
(including Compounded Interest and Additional Interest, if any) unless otherwise
stated but does not include Additional Sums. 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
January 31, 1997, and will be payable semi-annually in arrears on February 1 and
August 1 of each year, commencing on August 1, 1997, 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 and so long as no Event
of Default has occurred and is continuing under the Indebenture, 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
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on the special record date or other specified date applicable to the Debentures
determined in accordance with the Indenture.
(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."
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(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) "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 (as defined in the
Indenture), of the present values of the remaining scheduled payments of
principal and interest on the Debentures to February 1, 2007 (the first date on
which the Debentures are subject to optional prepayment), 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
Adjusted Treasury Rate (as defined in the Indenture), plus, in each case,
accumulated and unpaid Distributions thereon, if any, to the date of such
prepayment.
(iii) "Optional Redemption Price" shall mean a price equal to
the outstanding principal amount of the Debentures to be redeemed, plus accrued
interest thereon to the date of 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
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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.
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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 Sections 316(a)(1)(A) and (B) of the Trust Indenture Act, and
such Sections 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.
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(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 Sections 316(a)(1)(A) and (B) of the Trust Indenture Act, and
such Sections 316(a)(1)(A) and (B) are hereby expressly excluded from this
Trust Agreement.
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(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
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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 affected thereby, and additional Distributions shall
accumulate on the Liquidation Amount of the Trust Securities affected thereby,
each at a rate of 0.25% per annum as more fully set forth in Article XIV of the
Declaration.
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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.
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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 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.]
THE CAPITAL SECURITY REPRESENTED HEREBY 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 TO OFFER, SELL OR OTHERWISE TRANSFER THIS CAPITAL SECURITY, PRIOR TO THE
DATE WHICH IS THREE 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)
(THE "RESALE RESTRICTION TERMINATION DATE") ONLY (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 ("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
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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 RULE 501 (A)(1), (2),
(3) OR (7) OF REGULATION D 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 DATED JANUARY 28, 1997.
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF
REPRESENTS AND ACKNOWLEDGES THAT IT EITHER (A) IS NOT A PLAN SUBJECT TO THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, OR SECTION 4975 OF
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND IS NOT PURCHASING SUCH
SECURITIES (OR INTEREST THEREIN) ON BEHALF OF OR WITH "PLAN ASSETS" OF ANY SUCH
PLAN OR (B) IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER PTCE 96-23,
95-60, 91-38, 90-1 OR 84-14.
THE CAPITAL SECURITIES WILL BE ISSUED, AND UNTIL REGISTERED
UNDER THE SECURITIES ACT MAY BE TRANSFERRED, ONLY IN BLOCKS HAVING A LIQUIDATION
AMOUNT OF NOT LESS THAN $100,000 (100 CAPITAL SECURITIES). ANY TRANSFER OF
CAPITAL SECURITIES IN A BLOCK HAVING A LIQUIDATION AMOUNT OF LESS THAN $100,000
SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH
TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF SUCH CAPITAL SECURITIES FOR
ANY PURPOSE, INCLUDING BUT NOT LIMITED TO THE RECEIPT OF DISTRIBUTIONS ON SUCH
CAPITAL SECURITIES, AND SUCH TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST
WHATSOEVER IN SUCH CAPITAL SECURITIES.
THE HOLDER OF THIS CAPITAL SECURITY 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.
[IF A 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.]
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Certificate No. _________ No. of Capital Securities ________
CUSIP NO. _______________
Certificate Evidencing Subordinated Capital Income Securities
of
TRENWICK CAPITAL TRUST I
8.82% Subordinated Capital Income Securities
(Liquidation Amount $1,000 per Capital Security)
TRENWICK CAPITAL TRUST I, 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
__________________ Subordinated Capital Income Securities of the Trust
representing undivided beneficial interests in the assets of the Trust
designated the 8.82% Subordinated Capital Income 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 dated as of
January 31, 1997, among Trenwick Group Inc., as Sponsor, The Chase Manhattan
Bank, as Property Trustee, Chase Manhattan Bank Delaware, as Delaware Trustee,
and the Administrative Trustees named therein, 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, the Capital Securities Guarantee and the Indenture to any
Holder 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 (i) 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 and (ii) to be bound by the terms of the Registration Rights
Agreement.
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IN WITNESS WHEREOF, the Trust has duly executed this
certificate.
Dated: ____________, 1997
TRENWICK CAPITAL TRUST I
By:
-------------------------------------
[Name]
Not in his individual capacity but
solely in his capacity as
Administrative Trustee
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Capital Securities referred to in the
within-mentioned Declaration.
THE CHASE MANHATTAN BANK,
as Property Trustee
By:
-------------------------------------
Authorized Officer
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[FORM OF REVERSE OF SECURITY]
Distributions payable on each Capital Security will be fixed
at a rate per annum of 8.82% (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 (including Compounded Interest and
Additional Interest, if any) unless otherwise stated but does not include
Additional Sums. 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 Trust 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 January 31, 1997 and will be
payable semi-annually in arrears on February 1 and August 1 of each year,
commencing on August 1, 1997, 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, and as
long as no Event of Default has occurred and is continuing under the Indenture,
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.
A1-5
<PAGE> 83
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.
A1-6
<PAGE> 84
[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 January 28, 1997.
Date:_____________________
Signature:__________________________
(Sign exactly as your name appears on the other side of this Capital Security
Certificate)
A1-7
<PAGE> 85
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 THREE 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 RULE 501 (A) (1), (2), (3) OR (7) OF REGULATION D 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 JANUARY 28, 1997. 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.
A2-1
<PAGE> 86
Certificate No. No. of Common Securities: ____________
Certificate Evidencing Common Securities
of
TRENWICK CAPITAL TRUST I
8.82% Common Securities
(Liquidation Amount $1,000 per Common Security)
TRENWICK CAPITAL TRUST I, a statutory business trust formed
under the laws of the State of Delaware (the "Trust"), hereby certifies that
Trenwick Group Inc. (the "Holder") is the registered owner of ________________
common securities of the Trust representing undivided beneficial interests in
the assets of the Trust designated the 8.82% 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
January 31, 1997, among Trenwick Group Inc., as Sponsor, The Chase Manhattan
Bank, as Property Trustee, Chase Manhattan Bank Delaware, as Delaware Trustee,
and the Administrative Trustees named therein, 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.
IN WITNESS WHEREOF, the Trust has executed this certificate this _____
day of ___________, 1997.
TRENWICK CAPITAL TRUST I
By:
_____________________________________
[Name]
Not in his individual capacity but
solely in his capacity as
Administrative Trustee
A2-2
<PAGE> 87
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Common Security will be fixed at
a rate per annum of 8.82% (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 (including Compounded Interest and
Additional Interest, if any) unless otherwise stated but does not include
Additional Sums. 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 Trust 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 January 31, 1997 and will be payable
semi-annually in arrears on February 1 and August 1 of each year, commencing on
August 1, 1997, 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 and as long as no
Event of Default has occurred and is continuing under the Indenture, 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 rank junior to the Capital Securities in
certain circumstances as set forth in the Declaration.
The Common Securities shall be redeemable as provided in the
Declaration.
A2-3
<PAGE> 88
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.
A2-4
<PAGE> 89
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 January 28,
1997.
Date:_______________________
Signature:______________________________
(Sign exactly as your name appears on the other side of this Common Security
Certificate)
A2-5
<PAGE> 1
EXHIBIT 10.13
CORPORATE ADMINISTRATION
COMPANY VEHICLE LEASING POLICY
The Company provides leased vehicles, equipped with cellular phones if desired,
to employees of Executive Vice President status (or equivalent) and above. Other
individuals may be entitled to leased vehicles upon approval of the Chief
Executive Officer. Corporate Administration's responsibilities and related
procedures regarding the policy are as follows:
LEASE ADMINISTRATION
1. Once the individual has selected their vehicle and negotiated the
leasing terms, a Credit Application is prepared by the Corporate Manager,
and a lease is drawn up. The lease is then given to the Chairman/Chief
Executive Officer or the Corporate Manager for execution.
2. A check request for the down payment is prepared and forwarded with
the lease and related documentation to Corporate Accounting for
processing. License, taxes and up front costs shall not exceed $6,000,
exclusive of refundable amounts. Monthly lease payments shall not exceed
$550.
3. The Corporate Manager provides Human Resources with a copy of the
lease with the odometer reading for their Benefits file.
INSURANCE
1. The leased vehicles are incorporated into Trenwick Group Inc.'s
inforce Business Automobile insurance policy that is issued through Willis
Corroon.
2. The Corporate Manager contacts Don Herington at Willis Corroon
(212) 837-0819 and provides him with vehicle information, i.e., VIN
number, make, model, engine size, garage location. Willis Corroon will
prepare and forward Insurance I.D. cards. Cards are to be kept in the
vehicles at all times.
<PAGE> 2
Company Vehicle Leasing Policy
Page Two
VEHICLE REGISTRATION
1. Corporate Administration is also responsible for the
registration of the vehicle at the DMV Department, if the dealership
does not provide this service. Insurance I.D. Cards are required for
registration. Place the Registration documentation in the vehicles upon
receipt.
2. The annual emissions testing is also handled through Corporate
Administration. The insurance I.D. Card, Registration and $10 cash are
required at the time of testing. The money is obtained from Petty Cash
through the Receptionist.
MAINTENANCE
At the request of the individual driver, appointment pick-ups and
drop-offs of vehicles for scheduled vehicle maintenance, (i.e., oil
changes, tune ups, tire rotations, etc.) are coordinated by Corporate
Administration at the respective dealerships.
EQUIPMENT
The removal/replacement/installation of cellular telephones into leased
vehicles is coordinated by Corporate Administration. The Corporate
Manager contacts Connecticut Telephone, 810 Post Road, Fairfield (203)
256-8100 to schedule on-site appointments for any of these services.
LeasingV/g/rmd
13 MARCH 1997
<PAGE> 1
EXHIBIT 10.31
INDEX
to the
FIRST CASUALTY RETROCESSIONAL EXCESS OF LOSS REINSURANCE AGREEMENT
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
ACCESS TO RECORDS - ARTICLE XX 10
AMENDMENTS AND ALTERATIONS - ARTICLE XXI 10
AMOUNT OF COVER AND RETENTION - ARTICLE V 3
ARBITRATION - ARTICLE XXIII 11
BUSINESS COVERED - ARTICLE I 1
COSTS - ARTICLE XI 6
CURRENCY - ARTICLE XIX 9
EXCESS OF ORIGINAL POLICY LIMITS - ARTICLE VI 3
ERRORS AND OMISSIONS - ARTICLE XIII 7
EXCLUSIONS - ARTICLE III 1
EXTRA CONTRACTUAL OBLIGATIONS - ARTICLE VII 4
FEDERAL EXCISE TAX - ARTICLE XVI 8
INSOLVENCY - ARTICLE XXII 10
INTERMEDIARY - ARTICLE XXV 12
LETTER OF CREDIT - ARTICLE XVIII 8
LIABILITY OF THE RETROCESSIONAIRE - ARTICLE IV 2
NET RETAINED LINES - ARTICLE IX 5
NOTICE OF LOSS AND LOSS SETTLEMENTS - ARTICLE XII 6
OFFSET - ARTICLE XVII 8
PREMIUM - ARTICLE XIV 7
REINSTATEMENT - ARTICLE XV 8
SERVICE OF SUIT - ARTICLE XXIV 11
TERM AND CANCELLATION - ARTICLE VIII 4
TERRITORY - ARTICLE II 1
ULTIMATE NET LOSS - ARTICLE X 5
</TABLE>
GUY CARPENTER & COMPANY (CANADA) LIMITED
<PAGE> 2
FIRST CASUALTY RETROCESSIONAL EXCESS OF LOSS REINSURANCE AGREEMENT
between
TRENWICK AMERICA REINSURANCE CORPORATION
(hereinafter referred to as the "COMPANY")
and the Retrocessionaires
Subscribing to the Interests and Liabilities Agreements
to which this Agreement is attached
(hereinafter referred to as the "RETROCESSIONAIRE")
ARTICLE I
BUSINESS COVERED
This Agreement is to indemnify the COMPANY, as set forth in Article V -
AMOUNT OF COVER AND RETENTION, in respect of the excess liability which may
accrue to the COMPANY under all reinsurance binders, acceptances, cover notes,
certificates or policies (hereinafter referred to as "Policies") underwritten by
the COMPANY and classified by the COMPANY as casualty facultative business.
ARTICLE II
TERRITORY
This Agreement shall apply wherever the COMPANY's policies apply.
ARTICLE III
EXCLUSIONS
This Agreement does not apply to and specifically excludes:
1. Business classified by the COMPANY as Surety.
2. Business classified by the COMPANY as Insolvency and Financial
Guarantee.
3. Business classified by the COMPANY as Aviation.
4. Business classified by the COMPANY as Credit Insurance.
5. War Risk.
6. Loss or liability excluded by the "Nuclear Incident Exclusion
Clause - Liability Reinsurance - USA" attached hereto.
7. Loss or liability excluded by the "Nuclear Incident Exclusion
Clause - Liability Reinsurance - Canada" attached hereto.
-1-
GUY CARPENTER & COMPANY (CANADA) LIMITED
<PAGE> 3
EXCLUSIONS (Continued)
8. Business classified by the COMPANY as Directors and Officers
Liability.
9. Business classified by the COMPANY as Securities Exchange Act
Liability.
10, Class I Railroads.
11. Surplus Relief.
12. Funding plans.
13. Business classified by the COMPANY as Ocean Marine. This
exclusion, however, shall not apply with respect to the legal
liability arising out of the ownership, operation, use of or
navigation of ships or vessels:
A. Classified as yachts, small pleasurecraft or sports fishing
vessels: or
B. Operating exclusively in inland and/or coastal waters.
14. Aggregate Stop Loss Business.
Nevertheless, in the event the COMPANY becomes liable for a risk
excluded above without its knowledge, either by an existing insured extending
its operations, automatic provisions of policy or as imposed by law, or by
inadvertent acceptance, this Agreement shall apply in respect of such risk but
only until discovery by the COMPANY and, pending cancellation of such risk, for
a period of ten (10) days in addition to the time permitted for cancellation in
the COMPANY's reinsurance policy, such total period not to exceed 120 days in
all.
As respects casualty reinsurance accepted under this Agreement, if the
insured's main operations are not excluded hereunder, exclusions listed above
shall not apply provided such operations or perils are incidental to the
insured's main operation. The COMPANY shall be the sole judge of the meaning of
the word "incidental".
ARTICLE IV
LIABILITY OF THE RETROCESSIONAIRE
The liability of the RETROCESSIONAIRE, subject always to the terms and
conditions of this Agreement, shall begin and end simultaneously with that of
the COMPANY and shall be subject otherwise to the same general and special
stipulations, clauses, waivers and modifications of the COMPANY's policies and
any endorsements thereon.
-2-
GUY CARPENTER & COMPANY (CANADA) LIMITED
<PAGE> 4
ARTICLE V
AMOUNT OF COVER AND RETENTION
No claim shall be made under this Agreement unless and until the COMPANY
shall have first sustained, as a result of any one occurrence, and/or in the
aggregate where applicable, an amount in excess of $500,000 Ultimate Net Loss
each original insured each casualty line, and the RETROCESSIONAIRE shall be
liable for the amount in excess of $500,000 Ultimate Net Loss, each such
occurrence each casualty line, and/or in the aggregate where applicable, in
respect of each insured; but the sum recoverable shall not exceed $1,500,000
Ultimate Net Loss each such occurrence each casualty line, and/or in the
aggregate where applicable, in respect of each original insured.
It is agreed that the RETROCESSIONAIRE shall follow the definitions
contained in the policies issued by the COMPANY concerning any references made
herein to the term "occurrence".
Notwithstanding the foregoing, it is further understood and agreed that
within any contract year the COMPANY shall retain, as a deductible, aggregate
loss that would otherwise be recoverable hereunder, equal to 3% of the COMPANY'S
Gross Net Written Premium Income, withheld for each contract year.
However, the sum recoverable by the COMPANY hereunder within any one
contract year shall not exceed an earned to incurred loss ratio of 275.0% for
each contract year or $10,000,000, whichever is greater.
The COMPANY is permitted to arrange share or surplus reinsurance in
respect of any occurrence provided that such reinsurance shall inure to the
benefit of the COMPANY and/or the RETROCESSIONAIRE.
It is further understood that the COMPANY is permitted to have share
reinsurance on a ground up basis for special accounts which will be underwritten
outside the scope of this Agreement.
ARTICLE VI
EXCESS OF ORIGINAL POLICY LIMITS
This Agreement shall protect the COMPANY, within the limits hereof,
in connection with any loss in excess of the limit of its original policy, such
loss in excess of the limit having been incurred because of failure by it to
settle within the policy limit or by reason of alleged or actual negligence or
bad faith in rejecting an offer of settlement or in the preparation of the
defense or in the trial of any action against its Insured or Reinsured or in the
preparation or prosecution of an appeal consequent upon such action. However,
this Article shall not apply where the loss has been incurred due to the fraud
of a member of the Board of Directors or a corporate officer of the COMPANY
acting individually or collectively or in collusion with a member of the Board
of Directors or a corporate officer or a partner of any other corporation or
partnership.
-3-
GUY CARPENTER & COMPANY (CANADA) LIMITED
<PAGE> 5
EXCESS OF POLICY LIMITS (Continued)
This Agreement shall further protect the COMPANY in connection with any
punitive damages for which the COMPANY may be required to pay.
For the purposes of this Article, the date of the excess policy limits
loss is deemed to be the date of the original loss that gave rise to the excess
policy limits award provided herein.
ARTICLE VII
EXTRA CONTRACTUAL OBLIGATIONS
This Agreement shall protect the COMPANY within the limits hereon, where
the ultimate net loss includes any extra contractual obligations. The term
"extra contractual obligations" is defined as those liabilities not covered
under any other provision of this Agreement and which arise from the handling of
any claim on business covered hereunder, such liabilities arising because of but
not limited to the following: failure by the COMPANY to settle within the
contract limit, or by reason of alleged or actual negligence, fraud or bad faith
in rejecting an offer of settlement or in the preparation of the defense or in
the trial of any action against its insured or reinsured or in the preparation
or prosecution of an appeal consequent upon such action.
The date on which any extra contractual obligation is incurred by the
COMPANY shall be deemed, in all circumstances, to be the date of the original
disaster and/or casualty.
However, this Article shall not apply where the loss has been incurred
due to fraud by a member of the Board of Directors or a corporate officer of the
COMPANY acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.
ARTICLE VIII
TERM AND CANCELLATION
This Agreement shall apply to new and renewal policies of the COMPANY
becoming effective on and after 1st January, 1996.
This Agreement shall continue in force until cancelled by either party
at any lst January upon one hundred and twenty (120) days prior written notice
to the other party. In the event of such cancellation, the liability of the
RETROCESSIONAIRE with respect to policies in effect on the date of cancellation
shall continue until the expiration, cancellation, or next anniversary date of
each such policy, whichever occurs first; but in no event shall the period of
run-off exceed twelve (12) months plus odd time. Odd time is defined as an
additional twelve (12) months.
Notwithstanding the foregoing, the COMPANY, by giving one hundred and
twenty (120) days prior written notice to the RETROCESSIONAIRE at any lst
January, may elect to terminate this Agreement and shall have the option to
commute all future liabilities of the RETROCESSIONAIRE.
-4-
GUY CARPENTER & COMPANY (CANADA) LIMITED
<PAGE> 6
TERM AND CANCELLATION (Continued)
Alternatively, the COMPANY shall have the option to take back the in
force business at the expiry date hereof with return of unearned Reinsurance
Premium hereunder. Furthermore, Contrary to ARTICLE V - AMOUNT OF COVER AND
RETENTION the COMPANY shall retain an amount of 3% of the earned Gross Net
Written Premium Income rather than 3% of the Gross Net Written Premium Income
and the dollar maximum recoverable will be reduced pro rata by the percentage
that unearned Gross Net Written Premium Income bears to the Gross Net Written
Premium Income.
If this Agreement shall terminate while a loss covered hereunder is in
progress, it is agreed that, subject to the other conditions of this Agreement,
the RETROCESSIONAIRE shall indemnify the COMPANY as if the entire loss had
occurred during the term of this Agreement, provided the loss covered hereunder
started before the time of termination.
ARTICLE IX
NET RETAINED LINES
This Agreement applies only to that portion of any reinsurance which the
COMPANY retains net for its own account, and in calculating the amount of any
loss hereunder and also in computing the amount or amounts in excess of which
this Agreement attaches, only loss or losses in respect of that portion of any
reinsurances which the COMPANY retains net for its own account shall be
included.
The amount of the RETROCESSIONAIRE's liability hereunder in respect of
any loss or losses shall not be increased by reason of the inability of the
COMPANY to collect from any other RETROCESSIONAIRE, whether specific or general,
any amount which may have become due from them, whether such inability arises
from the insolvency of such other RETROCESSIONAIRE or otherwise.
ARTICLE X
ULTIMATE NET LOSS
The term "ultimate net loss" shall mean the sum actually paid by the
COMPANY (including 80% of any Extra Contractual Obligations as defined in
Article VII and 80% of any loss in Excess of Original Policy Limits as defined
in Article VI) in settlement of losses or liability under its reinsurance
policies after making deductions for all recoveries, all salvages and all claims
upon other reinsurances whether collected or not and shall not include
adjustment expenses arising from the settlement of losses except for settlement
of claims where the original policy or reinsurance agreement includes such
expense within the limit of indemnity.
-5-
GUY CARPENTER & COMPANY (CANADA) LIMITED
<PAGE> 7
ULTIMATE NET LOSS (Continued)
All salvages, recoveries, or payments recovered or received subsequent
to a loss settlement under this Agreement shall be applied as if recovered or
received prior to the aforesaid settlement and all necessary adjustments shall
be made by the parties hereto. These amounts shall be applied in the inverse
order to which liability applies. Nothing in this Article shall be construed to
mean that losses under this Agreement are not recoverable until the COMPANY's
ultimate net loss has been ascertained.
ARTICLE XI
COSTS
In the event of a loss arising to which the RETROCESSIONAIRE hereon may
be liable to contribute, the RETROCESSIONAIRE shall contribute to the adjustment
costs incurred by the COMPANY in the ratio that its proportion of the loss as
finally settled bears to the total of the whole amount of such ultimate net
loss. Adjustment costs shall exclude all office expenses of the COMPANY, all
expenses for salaried employees and general retainer fees for counsel normally
paid by the COMPANY.
ARTICLE XII
NOTICE OF LOSS AND LOSS SETTLEMENTS
In the event of an occurrence which in the COMPANY's opinion is likely
to give rise to a claim hereunder, prompt notice thereof shall BE given to the
RETROCESSIONAIRE through Guy Carpenter and Company (Canada) Limited, 200 King
Street West, Suite 1806, P.O. BOX 64, Toronto, Ontario, Canada M5H 3T4. All loss
settlements made by the COMPANY, provided the same are within the terms of this
Agreement, shall be unconditionally binding upon the RETROCESSIONAIRE and
amounts failing to the share of the RETROCESSIONAIRE shall be immediately
payable by it upon reasonable evidence of the amount paid or to be paid being
presented to the RETROCESSIONAIRE.
The RETROCESSIONAIRE shall not be relieved of liability by reason of an
error or accidental omission by the COMPANY in reporting a loss or claim,
provided such error or omission is rectified within a reasonable time period
after discovery.
THIS AGREEMENT SHALL COVER LOSSES RESULTING FROM RISKS ATTACHING IN EACH
CONTRACT YEAR THAT THIS REINSURANCE IS in FORCE. NOTWITHSTANDING THE ABOVE
PARAGRAPH, ALL LOSSES OR CLAIMS WITH RESPECT TO GENERAL LIABILITY BUSINESS
WRITTEN ON AN OCCURRENCE BASIS AND REPORTED TO TRENWICK AMERICA (REGARDLESS OF
THE COMPANY'S OPINION OF THE LIKELIHOOD OF A CLAIM HEREUNDER), SHALL BE REPORTED
WITH FULL PARTICULARS BY THE COMPANY TO THE RETROCESSIONAIRE WITHIN FIVE YEARS.
NO LIABILITY SHALL ATTACH HEREUNDER FOR ANY LOSS OR CLAIM NOT REPORTED WITHIN
THIS PERIOD.
-6-
GUY CARPENTER & COMPANY (CANADA) LIMITED
<PAGE> 8
ARTICLE XIII
ERRORS AND OMISSIONS
Any inadvertent delay, omission or error shall not be held to relieve
either party hereto from any liability which would attach to it hereunder if
such delay, omission or error had not been made, provided such delay, omission
or error is rectified within a reasonable time after discovery. Nevertheless,
the Article shall not apply with respect to loss reports rendered to the
RETROCESSIONAIRE beyond the period required to afford coverage in accordance
with paragraph three, Article XII - NOTICE OF LOSS AND LOSS SETTLEMENTS.
ARTICLE XIV
PREMIUM
An Annual Deposit Premium of $918,000 shall be paid in respect of each
annual period in which this Agreement is in force, by the COMPANY to the
RETROCESSIONAIRE in quarterly installments in arrears as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
First Quarter $183,600
Second Quarter $183,600
Third Quarter $275,400
Fourth Quarter $275,400
</TABLE>
Within 60 days after the end of each calendar quarter the COMPANY shall
report to the RETROCESSIONAIRE its actual Gross Net Written Premium Income for
each quarter.
The Reinsurance Premium shall be calculated by the COMPANY by applying a
gross cession rate of 20%, less the 3% rate withheld as an aggregate loss
deductible, as outlined in Article V - AMOUNT OF COVER AND RETENTION, for a net
cession rate of 17% to be applied to the Gross Net Written Premium Income for
each quarter. Should the Reinsurance Premium so calculated exceed the
accumulated Deposit Premium already paid, then the COMPANY shall remit the
balance due to the RETROCESSIONAIRE within sixty days from the end of the
relevant quarter. However, should the final Reinsurance Premium so calculated be
less than the premium already paid, but only after the Gross Net Written Premium
Income has fully developed, then the RETROCESSIONAIRE shall remit the balance
due to the COMPANY immediately upon receipt of the report.
This reinsurance premium due the RETROCESSIONAIRE will continue to be
adjusted after 31st December, 1996 subject to the calculations described in the
above paragraph.
The term "Gross Net Written Premium Income" shall mean the written
premiums on business covered under this Agreement, less cancellations and
returns and less any premiums paid for reinsurance, recoveries under which would
inure to the RETROCESSIONAIRE's benefit.
-7-
GUY CARPENTER & COMPANY (CANADA) LIMITED
<PAGE> 9
ARTICLE XV
REINSTATEMENT
In the event of any claim arising or payments made under this Agreement, the
indemnity provided hereby shall be automatically reinstated to the original
amount without the payment of any additional premium.
ARTICLE XVI
FEDERAL EXCISE TAX
(This clause applies only to those RETROCESSIONAIRES who are domiciled
outside of the United States of America with the exception of RETROCESSIONAIRES
at Lloyd's of London and any other RETROCESSIONAIRES who may be exempt from
Federal Excise Tax.)
The RETROCESSIONAIRE agrees to the deduction of Federal Excise Tax from
all premium payable hereon, but only to the extent that such premium is subject
to Federal Excise Tax.
In the event that a return premium becomes due hereunder, the
RETROCESSIONAIRE will deduct the statutorily prescribed percentage from the
amount of the return and the COMPANY or its agent may take steps to recover the
tax from the United States Government.
ARTICLE XVII
OFFSET
The COMPANY and the RETROCESSIONAIRE may offset any balances, whether with
respect to premiums, commissions, claims, losses, loss expenses, salvage or any
other amounts due from one party to the other in any period in which this
Agreement is in force.
ARTICLE XVIII
LETTER OF CREDIT
(This clause applies only to those RETROCESSIONAIRES who cannot qualify for
credit by any state having jurisdiction over the COMPANY's loss reserves.)
As regards policies or bonds issued by the COMPANY and coming within the
scope of this Agreement, it is agreed that if the COMPANY cannot receive full
regulatory credit for the RETROCESSIONAIRE'S portion of any loss (including
allocated loss adjustment expenses), premium, as agreed, and/or unearned
Reinsurance Premium reserves (if any) required by law because of the regulatory
status of the RETROCESSIONAIRE in any jurisdiction within the United States,
then the COMPANY shall forward to the RETROCESSIONAIRE a statement specifying
the RETROCESSIONAIRE'S portion of such reserves. Upon receipt of such statement,
the RETROCESSIONAIRE agrees that it shall promptly provide the COMPANY with a
clean, unconditional and irrevocable Letter of Credit with a minimum term of one
year and issued by any bank acceptable to the governmental authority having
jurisdiction over the
-8-
GUY CARPENTER & COMPANY (CANADA) LIMITED
<PAGE> 10
LETTER OF CREDIT (Continued)
COMPANY'S loss reserves in an amount equal to RETROCESSIONAIRE'S proportion of
said loss reserves.
The COMPANY and the RETROCESSIONAIRE agree that the Letter of Credit
provided by the RETROCESSIONAIRE under this provision may be drawn upon at any
time, notwithstanding any other provisions in this Agreement, and that the
COMPANY or its successors in interest shall use and apply any amounts which it
may draw upon such Letter of Credit for the following purposes only:
(a) To pay the RETROCESSIONAIRE'S portion or to reimburse itself
for the RETROCESSIONAIRE'S portion of any liability for loss
or unearned Reinsurance Premium (if any) or any other amount
due the COMPANY hereunder;
(b) To make refund of any sum which is in excess of the actual
amount required to pay the RETROCESSIONAIRE'S portion of any
liability for loss or unearned Reinsurance Premium (if any) or
any other amount due hereunder-
The bank shall have no responsibility whatsoever in connection with the
propriety of withdrawals made by the COMPANY or the disposition of funds
withdrawn, except to assure that withdrawals are made only upon the order of
properly authorized representatives of the COMPANY.
The rights and obligations of the COMPANY and the RETROCESSIONAIRE, as
set forth in this Article, shall not be diminished in any manner whatsoever by
the insolvency of any party hereto.
ARTICLE XIX
CURRENCY
All accounts shall be rendered and payments made in United States
dollars. For the purpose of converting foreign currency into United States
dollars, the rates of exchange shall be the rates stipulated from time to time
by the Treasurer of the COMPANY in accordance with the mean rates of exchange
ruling in New York, New York and used within the COMPANY as the basis of all
currency transactions.
Notwithstanding the above, the COMPANY shall be obligated:
1. In the event of blocked currencies, to notify the
RETROCESSIONAIRE of their existence and to adjust subsequent
accounts to reflect exchange rates realized when currencies
become unblocked.
2. In the event of significant changes in exchange rates between
recording dates of premium and collection thereof to notify the
RETROCESSIONAIRE and adjust subsequent accounts accordingly.
-9-
GUY CARPENTER & COMPANY (CANADA) LIMITED
<PAGE> 11
CURRENCY (Continued)
3. In the administration of the two preceding paragraphs to deal
impartially with any such adjustment.
ARTICLE XX
ACCESS TO RECORDS
The RETROCESSIONAIRE or its duly accredited representatives shall have
the right after providing reasonable notice to examine the books and records of
the COMPANY at all reasonable times for the purpose of obtaining information
concerning this Agreement or the subject matter thereof.
ARTICLE XXI
AMENDMENTS AND ALTERATIONS
It is hereby understood and agreed that any amendments and/or
alterations to this Agreement that are mutually agreed upon, either by addendum
or by correspondence, shall be automatically binding on the parties hereto and
shall be considered to form an integral part hereof.
ARTICLE XXII
INSOLVENCY
In the event of the insolvency of the COMPANY, recoveries hereunder
shall be payable directly to the COMPANY, or to its liquidator, receiver,
conservator or statutory successor on the basis of the liability of the COMPANY
without diminution because of the insolvency of the COMPANY or because the
liquidator, receiver, conservator or statutory successor of the COMPANY had
failed to pay all or a portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator, or statutory successor of the COMPANY shall
give written notice to the RETROCESSIONAIRE of the pendency of a claim against
the COMPANY indicating the policy or bond reinsured which claim would involve a
possible liability on the part of the RETROCESSIONAIRE within a reasonable time
after such claim is filed in the conservation or liquidation proceeding or in
the receivership, and that during the pendency of such claim the
RETROCESSIONAIRE may investigate such claim and interpose, at its own expense in
the proceeding where such claim is to be adjudicated, any defense or defenses
that it may deem available to the COMPANY or its liquidator, receiver,
conservator or statutory successor. The expense thus incurred by the
RETROCESSIONAIRE shall be chargeable, subject to the approval of the court,
against the COMPANY as part of the expense of conservation or liquidation to the
extent of a pro rata share of the benefit which may accrue to the COMPANY solely
as a result of the defense undertaken by the RETROCESSIONAIRE.
-10-
GUY CARPENTER & COMPANY (CANADA) LIMITED
<PAGE> 12
INSOLVENCY (Continued)
Where two or more RETROCESSIONAIRES on this Agreement are involved in
the same claim and a majority in interest elect to interpose defense to such
claim, the expense shall be apportioned in accordance with the terms of this
Agreement as though such expense had been incurred by the COMPANY.
ARTICLE XXIII
ARBITRATION
Any difference of opinion between the COMPANY and a RETROCESSIONAIRE
with respect to the interpretation of this Agreement or the performance of the
obligations under this Agreement shall be submitted to arbitration. Each party
shall select an arbitrator within thirty (30) days after written request for
arbitration has been received from the party requesting arbitration. If either
party refuses or neglects to appoint an arbitrator within thirty (30) days after
receipt of written notice from the other party requesting it to do so, the
requesting party may appoint two arbitrators. The two arbitrators shall select a
third arbitrator within ten (10) days after both have been appointed. Should the
arbitrators fail to agree on a third arbitrator, then the third arbitrator shall
be selected pursuant to the commercial arbitration rules of the American
Arbitration Association. The arbitrators shall be officials or former officials
of other insurance or reinsurance companies.
The decision in writing of any two arbitrators, when filed with the
parties hereto, shall be final and binding on both parties. Judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. The arbitration proceedings are to be governed by the
rules of the American Arbitration Association and the New York State arbitration
law. The arbitration is to take place in New York, New York unless another
location is mutually agreed upon between the COMPANY and the RETROCESSIONAIRE.
ARTICLE XXIV
SERVICE OF SUIT
(Applies only to those RETROCESSIONAIRES who are domiciled outside the
United States of America.)
In the event of the failure of the RETROCESSIONAIRES to pay any amount
claimed to be due hereunder, or to comply with any other terms or provisions of
this Agreement, the RETROCESSIONAIRES, at the request of the COMPANY, will
submit to the jurisdiction of any court of competent jurisdiction within the
United States and will comply with all requirements necessary to give such court
jurisdiction, and all matters arising hereunder shall be determined in
accordance with the law and practice of such court.
The RETROCESSIONAIRES shall, within thirty (30) days after demanded by
the COMPANY, designate an agent for the service of process and upon default in
so designating an agent, the RETROCESSIONAIRES agree and hereby designate the
Registrar of Companies to be their duly authorized agent and true and lawful
attorney to accept service of process on behalf of the RETROCESSIONAIRES in any
such suit and upon the request of the
-11-
GUY CARPENTER & COMPANY (CANADA) LIMITED
<PAGE> 13
SERVICE OF SUIT (Continued)
COMPANY to give a written undertaking to the COMPANY that it will enter a
general appearance upon the RETROCESSIONAIRES' behalf in the event such a suit
be instituted.
ARTICLE XXV
INTERMEDIARY
Guy Carpenter & Company (Canada) Limited is hereby recognized as the
intermediary negotiating this Agreement for all business hereunder. All
communications (including but not limited to notices, statements, premiums,
return premiums, commissions, taxes, losses, loss adjustment expenses, salvages,
and loss settlements) relating thereto shall be transmitted to the COMPANY or
the RETROCESSIONAIRE through Guy Carpenter & Company (Canada), Limited, 200 King
Street West, Suite 1806, P.O. Box 64, Toronto, Ontario, Canada M5H 3T4. Payments
by the COMPANY to the intermediary shall be deemed to constitute payment to the
RETROCESSIONAIRE. Payments by the RETROCESSIONAIRE to the intermediary shall be
deemed to constitute payment to the COMPANY only to the extent that such
payments are actually received by the COMPANY.
-12-
GUY CARPENTER & COMPANY (CANADA) LIMITED
<PAGE> 14
NUCLEAR INCIDENT EXCLUSION CLAUSE
LIABILITY - REINSURANCE - CANADA
1. This Agreement does not cover any loss or liability accruing to the COMPANY
as a member of, or subscriber to, any association of insurers or reinsurers
formed for the purpose of covering nuclear energy risks or as a direct or
indirect reinsurer of any such member, subscriber or association.
2. Without in any way restricting the operation of paragraph 1 of this clause it
is agreed that for all purposes of this Agreement all the original liability
contracts of the COMPANY, whether new, renewal or replacement, of the following
classes, namely,
Personal Liability
Farmers Liability
Storekeepers Liability
which become effective on or after 31st December 1984, shall be deemed to
include, from their inception dates and thereafter, the following provision: -
Limited Exclusion Provision.
This Policy does not apply to bodily injury or property damage with
respect to which the Insured is also insured under a contract of nuclear energy
liability insurance (whether the Insured is unnamed in such contract and whether
or not it is legally enforceable by the Insured) issued by the Nuclear Insurance
Association of Canada or any other group or pool of insurers or would be an
Insured under any such policy but for its termination upon exhaustion of its
limits of liability.
With respect to property, loss of use of such property shall be
deemed to be property damage.
3. Without in any way restricting the operation of paragraph 1 of this clause it
is agreed that for all purposes of this Agreement all the original liability
contracts of the COMPANY, whether new, renewal or replacement, of any class
whatsoever (other than Personal Liability, Farmers Liability, Storekeepers
Liability or Automobile Liability contracts), which become effective on or after
31st December 1984, shall be deemed to include from their inception dates and
thereafter, the following provision: -
Broad Exclusion Provision.
It is agreed that this Policy does not apply:
(a) to liability imposed by or arising under the Nuclear Liability
Act: nor
GUY CARPENTER & COMPANY (CANADA) LIMITED
<PAGE> 15
NUCLEAR INCIDENT EXCLUSION CLAUSE
LIABILITY - REINSURANCE - CANADA
(Continued)
(b) to bodily injury or property damage with respect to which an
Insured under this policy is also insured under a contract of
nuclear energy liability insurance (whether the Insured is
unnamed in such contract and whether or not it is legally
enforceable by the Insured) issued by the Nuclear Insurance
Association of Canada or any other insurer or group or pool of
insurers or would be an Insured under any such policy but for its
termination upon exhaustion of its limit of liability; nor
(c) to bodily injury or property damage resulting directly or
indirectly from the nuclear energy hazard arising from:
(i) the ownership, maintenance, operation or use of a nuclear
facility by or on behalf of an Insured;
(ii) the furnishing by an Insured of services, materials, parts
or equipment in connection with the planning,
construction, maintenance, operation or use of any nuclear
facility; and
(iii) the possession, consumption, use, handling, disposal or
transportation of fissionable substances, or of other
radioactive material (except radioactive isotopes, away
from a nuclear facility, which have reached the final
stage of fabrication so as to be useable for any
scientific, medical, agricultural, commercial or
industrial purpose) used, distributed, handled or sold by
an Insured.
As used in this Policy:
1. The term "nuclear energy hazard" means the radioactive. toxic,
explosive, or other hazardous properties of radioactive material;
2. The term "radioactive material" means uranium, thorium, plutonium,
neptunium, their respective derivatives and compounds, radioactive
isotopes of other elements and any other substances that the Atomic
Energy Control Board may, by regulation, designate as being prescribed
substances capable of releasing atomic energy, or as being requisite for
the production, use or application of atomic energy;
3. The term "nuclear facility" means":
(a) any apparatus designed or used to sustain nuclear fission in a
self-supporting chain reaction or to contain a critical mass of
plutonium, thorium and uranium or any one or more of them;
GUY CARPENTER & COMPANY (CANADA) LIMITED
<PAGE> 16
NUCLEAR INCIDENT EXCLUSION CLAUSE
LIABILITY - REINSURANCE - CANADA
(Continued)
(b) any equipment or device designed or used for (i) separating the
isotopes of plutonium, thorium and uranium or any one or more of
them, (ii) processing or utilizing spent fuel, or (iii) handling,
processing or packaging waste;
(c) any equipment or device used for the processing, fabricating or
alloying of plutonium, thorium or uranium enriched in the isotope
uranium 233 or in the isotope uranium 235, or any one or more of
them if at any time the total amount of such material in the
custody of the Insured at the premises where such equipment or
device is located consists of or contains more than 25 grams of
plutonium or uranium 233 or any combination thereof, or more than
250 grams of uranium 235;
(d) any structure, basin, excavation, premises or place prepared or
used for the storage or disposal of waste radioactive material;
and includes the site on which any of the foregoing is located, together
with all operations conducted thereon and all premises used for such
operations.
4. The term "fissionable substance" means any prescribed substance that is, or
from which can be obtained, a substance capable of releasing atomic energy by
nuclear fission.
5. With respect to property, loss of use of such property shall be deemed to be
property damage.
GUY CARPENTER & COMPANY (CANADA) LIMITED
<PAGE> 17
NUCLEAR INCIDENT EXCLUSION CLAUSE
- LIABILITY - REINSURANCE - U.S.A.
(Continued)
Owners, Landlords and Tenants Liability, Contractual Liability,
Elevator Liability, Owners or Contractors (including railroad)
Protective Liability, Manufacturers and Contractors Liability,
Product Liability, Professional and Malpractice Liability,
Storekeepers Liability, Garage Liability, Automobile Liability (including
Massachusetts Motor Vehicle or Garage Liability) shall be deemed to include,
with respect to such coverage, from the time specified in Clause V of this
paragraph (3), the following provision (specified as the Broad Exclusion
Provision):
Broad Exclusion Provision*
It is agreed that the policy does not apply:
I. Under any Liability Coverage,
to (injury, sickness, disease, death or destruction**
(bodily injury or property damage
(a) with respect to which an insured under the policy is also an
insured under a nuclear energy liability policy issued by Nuclear
Energy Liability Insurance Association, Mutual Atomic Energy
Liability Underwriters or Nuclear Insurance Association of
Canada, or would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability; or
(b) resulting from the hazardous properties of nuclear material
and with respect to which (1) any person or organization is
required to maintain financial protection pursuant to the Atomic
Energy Act of 1954, or any law amendatory thereof, or (2) the
insured is, or had this policy not been issued would be entitled
to indemnity from the United States of America, or any agency
thereof, under any agreement entered into by the United States of
America, or any agency thereof, with any person or organization.
II. Under any Medical Payments Coverage, or under any Supplementary
Payments Provision relating
to (immediate medical or surgical relief**
(first aid
to expenses incurred with respect
to (bodily injury, sickness, disease or death**
(bodily injury
resulting from the hazardous properties of nuclear
material and arising out of the operation of a nuclear
facility by any person or organization.
III. Under any Liability Coverage,
to (injury, sickness, disease, death or destruction**
(bodily injury or property damage
resulting from the hazardous properties of nuclear
material, if
(a) the nuclear material (1) is at any nuclear facility
owned by, or operated by or on behalf of, an insured or
(2) has been discharged or dispersed therefrom;
(b) the nuclear material is contained in spent fuel or
waste at any time possessed, handled, used, processed,
stored, transported or disposed of by or on behalf of an
insured; or
GUY CARPENTER & COMPANY (CANADA) LIMITED
<PAGE> 18
NUCLEAR INCIDENT EXCLUSION CLAUSE
- LIABILITY - REINSURANCE - U.S.A.
(Continued)
(c) the (injury, sickness, disease, death or destruction**
(bodily injury or property damage arising out of
the furnishing by an insured of services, materials,
parts or equipment in connection with the planning,
construction, maintenance, operation or use of any
nuclear facility, but if such facility is located within
the United States of America, its territories or
possessions or Canada, this exclusion (c) applies only
to (injury to or destruction of property at such nuclear
facility**
(property damage to such nuclear facility and any
property thereat.
IV. As used in this endorsement:
"hazardous properties" include radioactive, toxic or
explosive properties; "nuclear material" means source
material, special nuclear material or by-product
material: "source material", "special nuclear material",
and "by-product material" have the meanings given them in
the Atomic Energy Act of 1954 or in any law amendatory
thereof; "spent fuel" means any fuel element or fuel
component, solid or liquid, which has been used or
exposed to radiation in a nuclear reactor; "waste" means
any waste material (1) containing by-product material and
(2) resulting from the operation by any person or
organization of any nuclear facility included within th
definition of nuclear facility under paragraph (a) or (b)
thereof; "nuclear facility" means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1)
separating the isotopes of uranium or plutonium, (2)
processing or utilizing spent fuel, or (3) handling,
processing or packaging waste,
(c) any equipment or device used for the processing,
fabricating or alloying of special nuclear material if at
any time the total amount of such material in the custody
of the insured at the premises where such equipment or
device is located consists of or contains more than 25
grams of plutonium or uranium 233 or any combination
thereof, or more than 250 grams of uranium 235,
(d) any structure, basin, excavation, premises or place
prepared or used for the storage or disposal of waste,
and includes the site on which any of the foregoing is
located, all operations conducted on such site and all
premises used for such operations: "nuclear reactor"
means any apparatus designed or used to sustain nuclear
fission in a self-supporting chain reaction or to contain
a critical mass of fissionable material;
(With respect to injury to or destruction of property,
the word "injury" or "destruction"** ("property damage"
includes all forms of radioactive contamination of
property.
(includes all forms of radioactive contamination of
property**
GUY CARPENTER & COMPANY (CANADA) LIMITED
<PAGE> 19
NUCLEAR INCIDENT EXCLUSION CLAUSE
- LIABILITY - REINSURANCE - U.S.A.
(1) This Agreement does not cover any loss or liability accruing to the
COMPANY as a member of, or subscriber to, any association of insurers or
reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of paragraph (1) of
this Clause it is understood and agreed that for all purposes of this Agreement
all the original policies of the COMPANY (new, renewal and replacement) of the
classes specified in Clause 11 of this paragraph (2) from the time specified in
Clause III in this paragraph (2) shall be deemed to include the following
provision (specified as the Limited Exclusion Provision):
Limited Exclusion Provision*
I. It is agreed that the policy does not apply under any
liability coverage, to (injury, sickness, disease, death
or destruction** (bodily injury or property damage with
respect to which an insured under the policy is also an
insured under a nuclear energy liability policy issued by
Nuclear Energy Liability Insurance Association, Mutual
Atomic Energy Liability Underwriters or Nuclear Insurance
Association of Canada, or would be an insured under any
such policy but for its termination upon exhaustion of its
limit of liability.
II. Family Automobile Policies (liability only), Special
Automobile Policies (private passenger automobiles,
liability only), Farmers Comprehensive Personal Liability
Policies (liability only), Comprehensive Personal
Liability Policies (liability only) or policies of a
similar nature; and the liability portion of combination
forms related to the four classes of policies stated
above, such as the Comprehensive Dwelling Policy and the
applicable types of Homeowners Policies.
III. The inception dates and thereafter of all original
policies as described in II above, whether new, renewal or
replacement, being policies which either (a) become
effective on or after lst May, 1960, or (b) become
effective before that date and contain the Limited
Exclusion Provision set out above; provided this paragraph
(2) shall not be applicable to Family Automobile Policies,
Special Automobile Policies or policies or combination
policies of a similar nature, issued by the COMPANY on New
York risks, until 90 days following approval of the
Limited Exclusion Provision by the Governmental Authority
having jurisdiction thereof.
(3) Except for those classes of policies specified in Clause II of
paragraph (2) and without in any way restricting the operation of paragraph (1)
of this Clause, it is understood and agreed that for all purposes of this
Agreement the original liability policies of the COMPANY (new, renewal and
replacement) affording the following coverages:
GUY CARPENTER & COMPANY (CANADA) LIMITED
<PAGE> 20
NUCLEAR INCIDENT EXCLUSION CLAUSE
- LIABILITY - REINSURANCE - U.S.A.
(Continued)
V. The inception dates and thereafter of all original
policies affording coverages specified in this paragraph
(3), whether new, renewal or replacement, being policies
which become effective on or after 1st May, 1960, provided
this paragraph (3) shall not be applicable to
(i) Garage and Automobile Policies issued by the COMPANY
on New York risks, or
(ii) statutory liability insurance required under Chapter
90, General Laws of Massachusetts, until 90 days
following approval of the Broad Exclusion Provision by
the Governmental Authority having jurisdiction thereof.
(4) Without in any way restricting the operation of paragraph (1) of
this Clause, it is understood and agreed that paragraphs (2) and (3) above are
not applicable to original liability policies of the COMPANY in Canada and that
with respect to such policies this Clause shall be deemed to include the Nuclear
Energy Liability Exclusion Provisions adopted by the Canadian Underwriters'
Association or the Independent Insurance Conference of Canada.
*NOTE: The words preceding the double asterisk in the Limited Exclusion
Provision and in the Broad Exclusion Provision shall apply only in relation to
original liability policies which include a Limited Exclusion Provision or a
Broad Exclusion Provision containing those words.
GUY CARPENTER & COMPANY (CANADA) LIMITED
<PAGE> 1
EXHIBIT 10.32
TRENWICK AMERICA REINSURANCE CORPORATION
FIRST LAYER PROPERTY CATASTROPHE
EXCESS OF LOSS RETROCESSION
AGREEMENT AR 1570-96
(1996 AGREEMENT YEAR)
<PAGE> 2
FIRST LAYER PROPERTY CATASTROPHE EXCESS OF LOSS
RETROCESSION AGREEMENT
ARTICLE PAGE
------- ----
COVERAGE I 2
TERM II 3
EXTENDED TERMINATION III 3
TERRITORY IV 4
EXCLUSIONS V 4
DEFINITIONS VI 7
RETENTION AND LIMIT VII 8
REINSTATEMENT VIII 8
NET RETAINED LIABILITY IX 9
RATE AND PREMIUM X 9
EXTRA CONTRACTUAL OBLIGATIONS AND
EXCESS LIMITS LIABILITY XI 10
REPORTS AND REMITTANCES XII 11
RESERVES AND LETTERS OF CREDIT XIII 12
LOSS NOTICES AND SETTLEMENTS XIV 14
OFFSET XV 15
SALVAGE AND SUBROGATION XVI 15
WARRANTY XVII 16
DELAYS, ERRORS, OR OMISSIONS XVIII 16
AMENDMENTS XIX 17
ACCESS TO RECORDS XX 17
INSOLVENCY XXI 17
ARBITRATION XXIII 19
TAXES XXIII 20
FEDERAL EXCISE TAX XXIV 20
CURRENCY XXV 21
SERVICE OF SUIT XXVI 21
INTERMEDIARY XXVII 23
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FIRST LAYER PROPERTY CATASTROPHE EXCESS OF LOSS
RETROCESSION AGREEMENT
THIS AGREEMENT is made and entered into by and between TRENWICK
AMERICA REINSURANCE CORPORATION, a Connecticut corporation (hereinafter called
the "Retrocedent") of the one part, and the various Retrocessionaires as
identified by the Interests and Liabilities Agreements attaching to and forming
part of this Agreement (hereinafter called the "Retrocessionaires") of the other
part.
WITNESSETH:
That in consideration of the mutual covenants hereinafter contained and
upon the terms and conditions hereinbelow set forth, the parties hereto agree as
follows:
ARTICLE I
COVERAGE
The Retrocessionaires will indemnify the Retrocedent, subject to the
limits set forth in the Retention and Limit Article for any loss or losses
occurring during the term of this Agreement under all original contracts
underwritten by the Retrocedent and classified by the Retrocedent as:
PROPERTY REINSURANCE BUSINESS ASSUMED, INCLUDING THE PROPERTY PORTIONS
OF MULTI-LINE BUSINESS AND WORKERS COMPENSATION AND/OR EMPLOYERS
LIABILITY LOSSES ARISING FROM ONE OR MORE OF THE FOLLOWING PERILS:
FIRE, LIGHTNING, EXPLOSION, STRUCTURAL COLLAPSE, WINDSTORM, HAIL,
FLOOD, SEISMIC ACTIVITY, VOLCANIC ERUPTION, COLLISION, RIOTS AND
STRIKES, CIVIL COMMOTION, OR MALICIOUS MISCHIEF, AND ANY PHYSICAL
DAMAGE AND/OR CONSEQUENTIAL LOSS COVERAGE CONTINGENT THEREON EFFECTED
BY AN INSURED ON BEHALF OF ANOTHER PARTY.
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All reinsurance for which the Retrocessionaires will be obligated by
virtue of this Agreement will be subject to the same terms, conditions,
interpretations, waivers, modifications, and alterations as the respective
original contracts of the Retrocedent to which this Agreement applies. Nothing
herein will in any manner create any obligations or establish any rights against
the Retrocessionaires in favor of any third parties or any persons not parties
to this Agreement except as provided in the Insolvency Article.
ARTICLE II
TERM
This Agreement will apply to all losses occurring during the 12-month
term incepting at 12:01 a.m. Eastern Standard Time on January 1, 1996.
Notwithstanding the expiration of this Agreement as hereinabove
provided, its provisions will continue to apply to all unfinished business
hereunder to the end that all obligations and liabilities incurred by each party
hereunder will be fully performed and discharged.
ARTICLE III
EXTENDED TERMINATION
Should this Agreement expire while a loss occurrence covered hereunder
is in progress, subject to the other conditions of this Agreement, the
Retrocessionaires will indemnify the Retrocedent as if the entire loss
occurrence had arisen during the term of this Agreement, and provided that no
part of said loss occurrence is claimed against any renewal of this Agreement.
3
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ARTICLE IV
TERRITORY
The territorial limits of this Agreement will include the United States
of America, the District of Columbia, Canada, and incidental locations
elsewhere.
ARTICLE V
EXCLUSIONS
No reinsurance indemnity will be afforded under this Agreement for:
A. Loss or damage directly caused by war and/or civil war, but
this exclusion will not apply to business written in
accordance with the Market War and/or Civil War Exclusion
Agreement.
B. Any loss or liability accruing to the Retrocedent directly or
indirectly and whether as insurer or reinsurer from any pool of
insurers or reinsurers formed for the purposes of covering
Atomic or Nuclear Energy Risks.
C. Nuclear risks as defined in the following:
1. Nuclear Incident Exclusion Clause -- Physical Damage
-Reinsurance (U.S.A.) attached to this Agreement, or as
may be revised hereafter by the Lloyd's Underwriters'
Non-Marine Association.
2. Nuclear Incident Exclusion Clause -- Physical Damage
-Reinsurance (Canada) attached to this Agreement, or as
may be revised hereafter by the Lloyd's Underwriters'
Non-Marine Association.
3. Nuclear Energy Risks Exclusion Clause (Reinsurance)
(1994) (Worldwide Excluding U.S.A. & Canada) attached to
this Agreement, or as may be revised hereafter by the
Lloyd's Underwriters' Non-Marine Association.
4
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4. Nuclear Incident Exclusion Clauses -- Physical Damage
and Liability (Boiler and Machinery Policies) --
Reinsurance (U.S.A. and Canada) attached to this
Agreement, or as may be revised hereafter by the Lloyd's
Underwriters' Non-Marine Association.
D. Financial Guarantee, Insolvency, or Credit Business.
E. Fidelity and Surety.
F. Reinsurance of Coastal Pools when written as such.
G. Life business, other than Accidental Death and Dismemberment.
H. Aviation, Aerospace, and Satellite business.
I. Casualty business, except as set forth in the Coverage Article.
J. Hail damage to growing or standing crops.
K. Banking or Funding Plans.
L. Target Risks as excluded in the Retrocedent's original contracts
or the original policies of the Retrocedent's reinsureds.
M. Loss or liability excluded by the Insolvency Funds Exclusion
Clause attached to this Agreement.
N. Reinsurance assumed on an excess of loss and/or pro rata
reinsurance basis issued in the name of and for the account of a
Lloyd's Syndicate or of an insurance or reinsurance company,
whether such liability is accepted either directly or under any
form of reinsurance from other insurers and/or reinsurers, and
all such liability is excluded from the protection of this
Reinsurance and cannot be taken into account in arriving at the
amount in the excess of which this Reinsurance attaches or the
ultimate net loss sustained by the Retrocedent.
O. All losses sustained by the Retrocedent howsoever and
wheresoever arising including all Business Interruption,
Consequential Loss and/or other contingent losses proximately
caused by a peril insured in respect of the Retrocedent's
exposures from:
1. All marine business when written as such; however, not
to exclude such exposures if they emanate from a
multi-line insurance contract and/or policy.
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2. All Offshore exposures arising from business of any
description connected with the oil and/or gas and/or
sulphur and/or uranium exploration and production
industries in all their phases and including all
associated support and/or service industries.
"Offshore" will be defined as:
(a) That area encompassing locations covered by
oceans or seas in which the water ebbs and
flows
and/or
(b) Other navigable waters or waterways which will
mean any water which is in fact navigable by
ships or vessels, whether or not the tide ebbs
and flows there, and whether or not there is a
public right of navigation on that water.
P. Losses in respect of overhead transmission and distribution
lines and their supporting structures other than those on or
within 500 feet of the insured premises; however, public
utilities extension and/or suppliers extension and/or
contingent business interruption coverages are not subject to
this exclusion, provided that these are not part of a
transmitter's or distributor's policy.
Q. Auto Collision.
The exclusions set forth above will not apply where the Retrocedent is
obliged to provide coverage by reason of membership in any state plan, pool,
facility, joint underwriting association or similar involuntary participation.
The Retrocedent may submit to the Retrocessionaires, for special
acceptance hereunder, business not covered by this Agreement. If said business
is accepted by the Retrocessionaires, it will be subject to the terms of this
Agreement, except as such terms are modified by such acceptance.
6
<PAGE> 8
ARTICLE VI
DEFINITIONS
The following words and phrases used in this Agreement will have the
indicated meanings:
A. "Original contracts" as used in this Agreement will mean any
and all policies, binders, certificates, acceptances,
contracts, or agreements of reinsurance, whether written or
oral.
B. "Net written premium" as used in this Agreement will mean 100%
of the gross written premium on property business and 5% of
the gross written premium on Workers Compensation and
Employers Liability business both the subject of and accounted
for during the term of this Agreement, less returned premiums,
and less premiums paid for reinsurance, recoveries under which
inure to the benefit of this Agreement.
C. "Loss occurrence" as used in this Agreement will mean all
losses arising out of or following one event. As regards
aggregate and/or stop loss original contracts assumed by the
Retrocedent, the proportion of such loss or losses that forms
part of the Retrocedent's ultimate net loss under this
Agreement will be the proportion of the whole aggregate
recovery that the original reinsured's individual catastrophe
loss bears to its total losses used in arriving at aggregate
excess recoveries.
D. "Ultimate net loss" as used in this Agreement will mean the
actual loss or losses sustained by the Retrocedent both as
regards the original contracts and this Agreement, including
100% of any extra contractual obligations and/or excess limits
liabilities incurred by any original reinsured and 80% of any
extra contractual obligations and/or excess limits liabilities
incurred by the Retrocedent, on its net retained liability
after making deductions for all recoveries, salvages, and all
reinsurance (other than underlying reinsurance) whether
collectible or not. Ultimate net loss will cover loss expense
incurred by the Retrocedent (both as regards the original
contracts and this Agreement) and arising from the settlement
of claims, including interest and court costs incurred in
investigation, adjustment, and litigation and a pro rata share
of salaries and expenses of the field adjusters of the
original reinsured and the Retrocedent while adjusting such
claims, and expenses of other employees of the original
reinsured and the Retrocedent who have been temporarily
diverted from their normal and customary duties as a result of
such claims. However, both salaries of other employees and
office expenses of the original reinsured and Retrocedent will
be excluded. All salvages, recoveries, or reinsurance payments
received subsequent to any
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<PAGE> 9
loss settlement hereunder will be applied as if received prior
to the settlement, and all necessary adjustments will be made
by the parties hereto. Nothing in this definition, however,
should be construed to mean that losses under this Agreement
are not recoverable until the Retrocedent's ultimate net loss
has been ascertained.
ARTICLE VII
RETENTION AND LIMIT
No claim will be made hereunder unless the Retrocedent has first
sustained an ultimate net, loss in excess of $4,000,000 each and every loss
occurrence. The Retrocessionaires will then be liable for the amount of ultimate
net loss in excess of $4,000,000 each and every loss occurrence, but the limit
of liability of the Retrocessionaires will not exceed $6,000,000 with respect to
each and every loss occurrence.
ARTICLE VIII
REINSTATEMENT
In the event that all or any portion of the reinsurance under this
Agreement is exhausted by loss, the amount so exhausted will be reinstated from
the time of occurrence of such loss. The Retrocessionaires' liability will not
exceed $6,000,000 in respect of each and every loss occurrence nor $12,000,000
during the 12-month term of this Agreement.
For each amount so reinstated, the Retrocedent win pay an additional
premium based upon the pro rata amount of the reinstatement only. The
provisional reinstatement premium, based on the minimum and deposit premium and
finally adjusted as set forth in
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<PAGE> 10
the Rate and Premium Article, will be paid by the Retrocedent at the time of the
reinstatement.
ARTICLE IX
NET RETAINED LIABILITY
In computing the amount or amounts in excess of which this Agreement
attaches, only a loss or losses in respect to that portion of any reinsurance
that the Retrocedent retains net for its own account will be included. The
amount of the Retrocessionaires' liability hereunder with respect to any loss or
losses will not be increased by the inability of the Retrocedent to collect from
any other Retrocessionaires any amounts that may have become due from them,
whether such inability arises from the insolvency of such Retrocessionaires or
otherwise.
ARTICLE X
RATE AND PREMIUM
For the term of this Agreement, there will be a minimum and deposit
premium hereon of $1,500,000, payable in equal semi-annual installments of
$750,000 on January I and July 1. At Agreement expiration, the Retrocedent will
adjust the minimum and deposit premium against a rate of 90% of the net written
premium (excluding any reinstatement premium) for business classified by the
Retrocedent as catastrophe business and 7.7% of the net written premium
(excluding any reinstatement premium) for all other business covered hereunder.
9
<PAGE> 11
ARTICLE XI
EXTRA CONTRACTUAL OBLIGATIONS AND EXCESS LIMITS LIABILITY
This Agreement will extend to cover losses arising from claims related
extra contractual obligations and/or excess limits liabilities whether incurred
by the original reinsured or the Retrocedent in accordance with the percent
factors as set forth in the ultimate net loss definition.
"Extra contractual obligations" as used in this Agreement will mean
those liabilities not covered under any other provision of this Agreement, which
arise from the handling of any claim on business covered hereunder, such
liabilities arising because of, but not limited to, the following: failure to
settle within the policy limit, by reason of alleged or actual negligence,
fraud, or bad faith in rejecting an offer of settlement, in the preparation of
the defense, in the trial of any action against the insured or reinsured, or in
the preparation or prosecution of an appeal consequent upon such action.
"Excess limits liabilities" as used in this Agreement will mean damages
payable in excess of the original reinsured's policy limit as a result of
alleged or actual negligence, fraud, or bad faith in failing to settle and/or
rejecting a settlement within the policy limit, in the preparation of the
defense, in the trial of any action against the insured or reinsured, or in the
preparation or prosecution of an appeal consequent upon such action. Excess
limits liabilities will mean any amounts for which the original reinsured or the
Retrocedent would have been contractually liable to pay had it not been for the
limits of the original policy.
There will be no recovery hereunder for an extra contractual obligation
and/or excess limits liability loss that has been incurred due to fraud
committed by a member of
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the board of directors or a corporate officer of an original reinsured or the
Retrocedent, acting individually, collectively, or in collusion with a member of
the board of directors, a corporate officer, or a partner of any other
corporation, partnership, or organization involved in the defense or settlement
of a claim on behalf of an original reinsured or the Retrocedent.
The date on which any extra contractual obligation and/or excess limits
liability is incurred by an original reinsured or the Retrocedent will be
deemed, in all circumstances, to be the date of the related occurrence under the
original policy. Nothing in this Article will be construed to create a separate
or distinct loss occurrence apart from the original covered loss occurrence that
gave rise to the extra contractual obligations and/or excess limits liabilities
discussed in the preceding paragraphs. In no event will the total limit of
liability of the Retrocessionaires exceed their applicable limit of liability as
set forth in the Retention and Limit Article.
ARTICLE XII
REPORTS AND REMITTANCES
Within 60 days of the close of each quarter, the Retrocedent will
furnish the Retrocessionaires with a report of reinsurance premium due them for
that annual period. Such report will show and properly segregate the
Retrocedent's premium to which the reinsurance rate applies as well as contain
such other information as may be required by the Retrocessionaires for
completion of their NAIC annual statements. Within 60 days of Agreement
expiration, the premium due the Retrocessionaires will be balanced against the
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<PAGE> 13
minimum and deposit premium set forth in the Rate and Premium Article, and any
balance shown to be due the Retrocessionaires will be remitted with said annual
report. Any balance shown to be due the Retrocedent will be paid within 30 days
following receipt of the annual report by the Retrocessionaires.
ARTICLE XIII
RESERVES AND LETTERS OF CREDIT
(This Article is only applicable to those Retrocessionaires who cannot
qualify for credit by each state or governmental authority having
jurisdiction over the Retrocedent's loss reserves.)
As regards original contracts issued by the Retrocedent coming within
the scope of this Agreement, the Retrocedent agrees that, when it files with the
Insurance Department or sets up on its books reserves for known losses that have
been reported to the Retrocessionaires (including loss and loss expense paid by
the Retrocedent but not recovered from the Retrocessionaires and loss and loss
expense reported and outstanding), which it is required by law to set up, it
will forward to the Retrocessionaires a statement showing the proportion of such
loss reserves applicable to them. The Retrocessionaires hereby agree that they
will apply for and secure delivery to the Retrocedent of a clean, irrevocable,
and unconditional Letter of Credit, dated on or before December 31 of the year
in which the request is made, and issued by Citibank, N.A. (or another member of
the Federal Reserve System) or any bank approved for use by the NAIC Securities
Valuation Office, and containing provisions acceptable to the insurance
regulatory authorities having jurisdiction over the Retrocedent's reserves in an
amount equal to the Retrocessionaires'
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proportion of such reserves as shown in the statement prepared by the
Retrocedent. Under no circumstances will any amount relating to reserves in
respect of Incurred But Not Reported losses be included in the amount of the
Letter of Credit.
The Letter of Credit will be issued for a period of not less than one
year, and will be automatically extended for one year from its date of
expiration or any future expiration date unless 30 days prior to any expiration
date the issuing bank notifies the Retrocedent by registered mail that it elects
not to consider the Letter of Credit extended for any additional period. An
issuing bank, not a member of the Federal Reserve System or not chartered in the
state of domicile of the Retrocedent, will provide 60 days notice to the
Retrocedent prior to any expiration in the event of nonextension.
Notwithstanding any other provisions of this Agreement, the Retrocedent
or its court-appointed successor in interest may draw upon such credit at any
time without diminution because of the insolvency of the Retrocedent or of any
Retrocessionaire for one or more of the following purposes only:
A. To pay the Retrocessionaire's share or to reimburse the
Retrocedent for the Retrocessionaire's share of any loss
reinsured by this Agreement, which has not been otherwise
paid.
B. To make refund of any sum in excess of the actual amount
required to pay the Retrocessionaire's share of any liability
reinsured by this Agreement.
C. In the event of nonextension of the Letter of Credit as
provided for above, to establish deposit of the
Retrocessionaire's share of reserves for losses under this
Agreement. Such cash deposit will be held in an interest
bearing account separate from the Retrocedent's other assets,
and interest thereon will accrue to the benefit of the
Retrocessionaires.
The issuing bank will have no responsibility whatsoever in connection
with the propriety of withdrawals made by the Retrocedent or the disposition of
funds withdrawn,
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except to ensure that withdrawals are made only upon the order of properly
authorized representatives of the Retrocedent.
At annual intervals, or more frequently as agreed but never more
frequently than semi-annually, the Retrocedent will prepare a specific
statement, for the sole purpose of amending the Letter of Credit, of the
Retrocessionaires' share of reserves for losses. If the statement shows that the
Retrocessionaires' share of such reserves exceeds the balance of credit as of
the statement date, the Retrocessionaires will, within 30 days after receipt of
notice of such excess, secure delivery to the Retrocedent of an amendment of the
Letter of Credit, increasing the amount of credit by the amount of such
difference. If, however, the statement shows that the Retrocessionaires' share
of such reserves is less than the balance of credit as of the statement date,
the Retrocedent will, within 30 days after receipt of written request from the
Retrocessionaires, release such excess credit by agreeing to secure an amendment
to the Letter of Credit, reducing the amount of credit available by the amount
of such excess credit.
ARTICLE XIV
LOSS NOTICES AND SETTLEMENTS
The Retrocedent will advise the Retrocessionaires promptly of all
losses that, in the opinion of the Retrocedent, appear to involve the
Retrocessionaires under this Agreement and of all subsequent developments
pertaining thereto that, in the opinion of the Retrocedent, may materially
affect them as well. Inadvertent omission in dispatching the aforementioned
notices will in no way affect the obligation of the Retrocessionaires
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under this Agreement, providing the Retrocedent informs the Retrocessionaires of
such omission promptly upon discovery.
The Retrocedent will have the right to settle all claims under this
Agreement. The loss settlements of the original reinsured, provided they are
within the terms of the original contracts, and the loss settlements of the
Retrocedent, provided they are within the terms of this Agreement, will be
unconditionally binding on the Retrocessionaires in proportion to their
participation in this Agreement. Amounts due the Retrocedent hereunder in the
settlement of loss and loss expense will be payable by the Retrocessionaires
immediately upon being furnished by the Retrocedent with reasonable evidence of
the amount paid or to be paid in excess of the Retrocedent's ultimate net loss
retention as set forth in the Retention and Limit Article, by reason of any one
loss occurrence.
ARTICLE XV
OFFSET
The Retrocedent and each Retrocessionaire hereunder will be entitled to
deduct from amounts due the other party under this Agreement any amounts due
itself from the other party under this Agreement.
ARTICLE XVI
SALVAGE AND SUBROGATION
The Retrocessionaires will be credited with their share of salvage
and/or subrogation (i.e., reimbursement obtained or recovery made by the
Retrocedent less
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expense incurred in obtaining such reimbursement or making such recovery)
pertaining to the claims and settlements involving reinsurance hereunder.
Salvage and/or subrogation will always be used to reimburse the excess
Retrocessionaires (and the Retrocedent if it carries a portion of the excess
coverage net) in the reverse order of their participation in said loss before
being used in any way to reimburse the Retrocedent for the loss within its
primary retention. If salvage and/or subrogation is insufficient to cover the
expense incurred in its recovery, the net expense (after deduction of the amount
recovered, if any) will be added to ultimate net loss as will loss expense
incurred by the Retrocedent prior to any reimbursement for salvage and/or
subrogation.
ARTICLE XVII
WARRANTY
It is hereby warranted that no claim will be paid hereunder unless two
or more original risks are involved in the same loss occurrence. It is further
warranted that the Retrocedent will retain 5% net and unreinsured.
ARTICLE XVIII
DELAYS, ERRORS, OR OMISSIONS
Inadvertent delays, errors, or omissions made in connection with this
Agreement or any transaction hereunder will not relieve either party from any
liability that would have attached had such delay, error, or omission not
occurred, provided always that such error
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or omission is rectified immediately upon discovery. The liability of the
Retrocessionaires under this Agreement will in no event exceed the limits
specified in the Retention and Limit Article, nor will the Retrocessionaires'
liability be extended to cover any risks, perils, or classes of insurance
excluded herein except as set forth in the Exclusions Article.
ARTICLE XIX
AMENDMENTS
This Agreement may be altered or amended in any of its terms and
conditions by mutual consent of the Retrocedent and the Retrocessionaires by
addenda hereto, which will then constitute a part of this Agreement.
ARTICLE XX
ACCESS TO RECORDS
Provided that the Retrocedent has been given reasonable notice, the
Retrocessionaires will have the right to inspect at any reasonable time, through
their designated representatives, all records of the Retrocedent that pertain in
any way to this Agreement.
ARTICLE XXI
INSOLVENCY
In the event of the Retrocedent's insolvency, the reinsurance under
this Agreement will be payable by the Retrocessionaires directly to the
Retrocedent, its liquidator,
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receiver, conservator, or statutory successor, on the basis of the Retrocedent's
liability under the original contracts without diminution because of the
Retrocedent's insolvency or because the liquidator, receiver, conservator, or
statutory successor of the Retrocedent has failed to pay all or a portion of any
claims, subject however, to the right of the Retrocessionaires to offset from
such funds due hereunder, any sums that may be payable to it by said insolvent
Retrocedent in accordance with the Offset Article.
As a condition precedent to the Retrocessionaires' foregoing
obligation, however, the liquidator, receiver, conservator, or statutory
successor of the Retrocedent will give written notice of the pendency of a claim
against the insolvent Retrocedent on the original contract or contracts
reinsured within a reasonable time after such claim is filed in the insolvency
proceeding. During the pendency of such claim, the Retrocessionaires may
investigate such claim and interpose, at their own expense, in the proceeding
where such claim is to be adjudicated, any defense that they may deem available
to the Retrocedent, its liquidator, receiver, conservator, or statutory
successor. The expense thus incurred by the Retrocessionaires will be chargeable
against the Retrocedent, subject to court approval, as part of the expense of
conservation or liquidation to the extent that such proportionate share of the
benefit will accrue to the Retrocedent solely as a result of the defense
undertaken by the Retrocessionaires. Where two or more Retrocessionaires are
involved in the same claim and a majority in interest elect to interpose defense
to such claim, the expense will be apportioned in accordance with the terms of
this Agreement as though such expense had been incurred by the Retrocedent.
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ARTICLE XXII
ARBITRATION
In the event of any arbitration between the Retrocedent and its
original reinsureds under the terms of any original contract, the
Retrocessionaires agree unreservedly to abide by the result of such arbitration.
If any dispute will arise between the parties to this Agreement with
reference to the interpretation of this Agreement or their rights with respect
to any transaction involved, whether such dispute arises before or after
termination of this Agreement, such dispute, upon the written request of either
party, will be submitted to three arbitrators, one to be chosen by each party,
and the third by the two so chosen. If either party refuses or neglects to
appoint an arbitrator within thirty days after the receipt of written notice
from the other party requesting it to do so, the requesting party may appoint
two arbitrators. If the two arbitrators fail to agree in the selection of a
third arbitrator within thirty days of their appointment, the third arbitrator
will be selected from a panel of three names to be supplied by the Insurance
Arbitration Forums. If the two arbitrators cannot mutually agree on the
arbitrator to be chosen from this panel, each party to the arbitration will have
the right to reject one member of the panel. This rejection process will be
sequential, with the right of first rejection to be decided by a toss of a coin.
All arbitrators will be active or retired disinterested officers of insurance or
reinsurance companies not under the control of either party to this Agreement.
The arbitrators will interpret this Agreement as an honorable
engagement and not as merely a legal obligation. The arbitrators will adopt
their own rules and procedures.
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They will make their award with a view of effecting the general purpose of this
Agreement in a reasonable manner rather than in accordance with a literal
interpretation of the language. Each party will submit its case to its
arbitrator within thirty days of the appointment of the third arbitrator.
The decision in writing of any two arbitrators, when filed with the
parties hereto, will be final and binding on both parties. Judgment may be
entered upon the final decision of the arbitrators in any court having
jurisdiction. Each party will bear the expense of its own arbitrator and will
jointly and equally bear with the other party the expense of the third
arbitrator and of the arbitration. Said arbitration will take place in the City
in which the Retrocedent's Head Office is located unless some other place is
mutually agreed upon by the parties to this Agreement.
ARTICLE XXIII
TAXES
The Retrocedent will pay all taxes (except Federal Excise Tax) on
premiums reported to the Retrocessionaires on this Agreement.
ARTICLE XXIV
FEDERAL EXCISE TAX
(This Article applies to Retrocessionaires domiciled outside the United
States of America, excepting Lloyd's London Underwriters and other
Retrocessionaires exempt from Federal Excise Tax.)
The Retrocessionaires will allow for the purpose of paying Federal
Excise Tax the applicable percentage of the premium payable hereon (as imposed
under Section 4371 of
20
<PAGE> 22
the Internal Revenue Service Code) to the extent such premium is subject to such
tax. In the event of any return of premium, the Retrocessionaires will deduct
the aforesaid percentage from the return premium payable hereon and the
Retrocedent or its agent will recover such tax from the United States
Government.
ARTICLE XXV
CURRENCY
The use of the sign "$" in this Agreement is in reference to United
States of America Dollars. Therefore, premiums due the Retrocessionaires and
loss payments due the Retrocedent hereunder will be in United States of America
Dollars.
ARTICLE XXVI
SERVICE OF SUIT
(This Article applies to those Retrocessionaires domiciled outside the
United States of America as well as those Retrocessionaires
unauthorized in the Retrocedent's state of domicile. This Article is
not intended to conflict with or override the parties' obligation to
arbitrate their disputes in accordance with the Arbitration Article.)
In the event of the failure of any Retrocessionaire hereon to pay any
amount claimed to be due hereunder, the Retrocessionaire, at the request of the
Retrocedent, will submit to the jurisdiction of A Court of competent
jurisdiction within the United States. Nothing in this Article constitutes or
should be understood to constitute a waiver of the Retrocessionaire's right to
commence an action in any Court of competent jurisdiction in
21
<PAGE> 23
the United States, to remove an action to a United States District Court, or to
seek a transfer of a case to another Court as permitted by the laws of the
United States or of any state in the United States. Service of process in such
suit may be made upon Mendes and Mount, 750 Seventh Avenue, New York, New York
10019-6829, or another party specifically designated in the applicable Interests
and Liabilities Agreement attached hereto. In any suit instituted against it
upon this Agreement, the Retrocessionaire will abide by the final decision of
such Court or of any Appellate Court in the event of an appeal.
The above named are authorized and directed to accept service of
process on behalf of the Retrocessionaire in any such suit and/or upon the
request of the Retrocedent to give a written undertaking to the Retrocedent that
they will enter a general appearance upon the Retrocessionaire's behalf in the
event such a suit is instituted.
Further, pursuant to any statute of any state, territory, or district
of the United States that makes provision therefor, the Retrocessionaire hereby
designates the Superintendent, Commissioner, or Director of Insurance or other
officer specified for that purpose in the statute (or his successor or
successors in office) as its true and lawful attorney upon whom may be served
any lawful process in any action, suit, or proceeding instituted by or on behalf
of the Retrocedent or any beneficiary hereunder arising out of this Agreement,
and hereby designates the above named as the person to whom the said officer is
authorized to mail such process or a true copy thereof.
22
<PAGE> 24
ARTICLE XXVII
INTERMEDIARY
Aon Re Inc. is hereby recognized as the Intermediary negotiating this
Agreement for all business hereunder. All communications (including but not
limited to notices, statements, premiums, return premiums, commissions, taxes,
losses, loss expenses, salvages, and loss settlements) relating thereto will be
transmitted to the Retrocedent or the Retrocessionaires through Aon Re Inc., 123
N. Wacker Drive, Chicago, Illinois 60606. Payments by the Retrocedent to the
Intermediary will be deemed payment to the Retrocessionaires. Payments by the
Retrocessionaires to the Intermediary will be deemed payment to the Retrocedent
only to the extent that such payments are actually received by the Retrocedent.
23
<PAGE> 25
U.S.A.
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE
1. This Reinsurance does not cover any loss or liability accruing to
the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from
any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic
or Nuclear Energy risks.
2. Without in any way restricting the operation of paragraph (1) of
this Clause, this Reinsurance does not cover any loss or liability accruing to
the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from
any insurance against Physical Damage (including business interruption or
consequential loss arising out of such Physical Damage) to:
I. Nuclear reactor power plants including all auxiliary property on
the site, or
II. Any other nuclear reactor installation, including laboratories
handling radioactive materials in connection with reactor
installations, and "critical facilities" as such, or
III. Installations for fabricating complete fuel elements or for
processing substantial quantities of "special nuclear material",
and for reprocessing, salvaging, chemically separating, storing or
disposing of "spent" nuclear fuel or waste materials, or
IV. Installations other than those listed in paragraph (2) III above
using substantial quantities of radioactive isotopes or other
products of nuclear fission.
3. Without in any way restricting the operations of paragraphs (1) and
(2) hereof, this Reinsurance does not cover any loss or liability by radioactive
contamination accruing to the Reassured, directly or indirectly, and whether as
Insurer or Reinsurer, from any insurance on property which is on the same site
as a nuclear reactor power plant or other nuclear installation and which
normally would be insured therewith except that this paragraph (3) shall not
operate
(a) where Reassured does not have knowledge of such nuclear
reactor power plant or nuclear installation, or
(b) where said insurance contains a provision excluding coverage
for damage to property caused by or resulting from
radioactive contamination, however caused. However on and
after 1st January 1960 this sub-paragraph (b) shall only
apply provided the said radioactive contamination exclusion
provision has been approved by the Governmental Authority
having jurisdiction thereof.
4. Without in any way restricting the operations of paragraphs (1),
(2) and (3) hereof, this Reinsurance does not cover any loss or liability by
radioactive contamination accruing to the Reassured, directly or indirectly,
and whether as Insurer or Reinsurer, when such radioactive contamination is a
named hazard specifically insured against.
5. It is understood and agreed that this Clause shall not extend to
risks using radioactive isotopes in any form where the nuclear exposure is not
considered by the Reassured to be the primary hazard.
6. The term "special nuclear material" shall have the meaning given
it in the Atomic Energy Act of 1954 or by any law amendatory thereof.
7. Reassured to be sole judge of what constitutes:
(a) substantial quantities, and
(b) the extent of installation, plant or site.
Note. - Without in any way restricting the operation of paragraph (1) hereof,
it is understood and agreed that
(a) all policies issued by the Reassured on or before 31st
December 1957 shall be free from the application of the other
provisions of this Clause until expiry date or 31st December
1960 whichever first occurs whereupon all the provisions of
this Clause shall apply.
(b) with respect to any risk located in Canada policies issued by
the Reassured on or before 31st December 1958 shall be free
from the application of the other provisions of this Clause
until expiry date or 31st December 1960 whichever first
occurs whereupon all the provisions of this Clause shall
apply.
<PAGE> 26
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE - CANADA
1. This Agreement does not cover any loss or liability accruing to the
Reinsured directly or indirectly and whether as Insurer or
Reinsurer, from any Pool of Insurers or Reinsurers formed for the
purpose of covering Atomic or Nuclear Energy risks.
2. Without in any way restricting the operation of paragraph 1 of this
clause, this Agreement does not cover any loss or liability
accruing to the Reinsured, directly or indirectly, and whether as
Insurer or Reinsurer, from any insurance against Physical Damage
(including business interruption or consequential loss arising out
of such Physical Damage) to:
(a) Nuclear reactor power plants including all auxiliary property
on the site, or
(b) Any other nuclear reactor installation, including
laboratories handling radioactive materials in connection
with reactor installations, and critical facilities as
such, or
(c) Installations for fabricating complete fuel elements or for
processing substantial quantities of prescribed substances,
and for reprocessing, salvaging, chemically separating,
storing or disposing of spent nuclear fuel or waste
materials, or
(d) Installations other than those listed in (c) above using
substantial quantities of radioactive isotopes or other
products of nuclear fission.
3. Without in any way restricting the operations of paragraphs 1 and 2
of this clause, this Agreement does not cover any loss or liability
by radioactive contamination accruing to the Reinsured, directly or
indirectly, and whether as Insurer or Reinsurer, from any insurance
on property which is on the same site as a nuclear reactor power
plant or other nuclear installation and which normally would be
insured therewith, except that this paragraph 3 shall not operate:
(a) where the Reinsured does not have knowledge of such nuclear
reactor power plant or nuclear installation, or
(b) where the said insurance contains a provision excluding
coverage for damage to property caused by or resulting from
radioactive contamination, however caused.
4. Without in any way restricting the operation of paragraphs 1, 2
and 3 of this clause, this Agreement does not cover any loss or
liability by radioactive contamination accruing to the Reinsured,
directly or indirectly, and whether as Insurer or Reinsurer, when
such radioactive contamination is a named hazard specifically
insured against.
5. This clause shall not extend to risks using radioactive isotopes in
any form where the nuclear exposure is not considered by the
Reinsured to be the primary hazard.
6. The term "prescribed substances" shall have the meaning given to it
by the Atomic Energy Control Act or by any law amendatory thereof.
7. Reinsured to be sole judge of what constitutes:
(a) substantial quantities, and
(b) the extent of installation, plant or site.
8. Without in any way restricting the operation of paragraphs 1, 2, 3
and 4 of this clause, this Agreement does not cover any loss or
liability accruing to the Reinsured, directly or indirectly, and
whether as Insurer or Reinsurer caused:
(a) by any nuclear incident as defined in the Nuclear Liability
Act or any other nuclear liability act, law or statute, or
any law amendatory thereof or nuclear explosion, except for
ensuing loss or damage which results directly from fire,
lightning or explosion of natural, coal or manufactured gas;
(b) by contamination by radioactive material.
NOTE: Without in any way restricting the operation of paragraphs
1, 2, 3 and 4 of this clause, paragraph 8 of this clause
shall only apply to all original contracts of the Reinsured
whether new, renewal or replacement which become effective
on or after December 31, 1992.
<PAGE> 27
NUCLEAR ENERGY RISKS EXCLUSION CLAUSE REINSURANCE (1994)
WORLDWIDE EXCLUDING U.S.A. & CANADA)
This agreement shall exclude Nuclear Energy Risks whether such risks are written
directly and or by way of reinsurance and/or via Pools and/or Associations.
For all purposes of this agreement Nuclear Energy Risks shall mean all first
party and/or third party insurances or reinsurances ??????? Workers'
Compensation and Employers' Liability in respect of:
(I) All Property on the site of a nuclear power station.
Nuclear Reactors, reactor buildings and plant and equipment
therein on any site other than a nuclear power station.
(II) All Property on any site (including but not limited to the sites
referred to in (1) above) used or having been used for:
(a) The generation of nuclear energy; or
(b) The Production, Use or Storage or Nuclear Material.
(III) Any other Property eligible for insurance by the relevant local
Nuclear Insurance Pool and/or Association but only to the extent
of the requirements of that local Pool and/or Association.
(IV) The supply of goods and services to any of the sites, described in
(I) to (III) above, unless such insurances or reinsurances shall
exclude the perils or irradiation and contamination by Nuclear
Material.
Except as undernoted, Nuclear Energy Risks shall not include:-
(i) Any insurance or reinsurance in respect of the construction or
erection or installation or replacement or repair or maintenance
or decommissioning of Property as described in (I) to (III) above
(including contractors, plant and equipment):
(ii) Any Machinery Breakdown or other Engineering insurance or
reinsurance not coming within the scope of (i) above;
Provided always that such insurance or reinsurance shall exclude the perils of
irradiation and contamination by Nuclear Material.
However, the above exemption shall not extend to:-
(1) The provision of any insurance or reinsurance whatsoever in
respect of:-
(a) Nuclear Material:
(b) Any Property in the High Radioactivity Zone or Area of any
Nuclear Installation as from the introduction of Nuclear
Material or - for reactor installations - as from fuel
loading or first criticality where so agreed with the
relevant local Nuclear Insurance Pool and/or Association.
(2) The provision of any insurance or reinsurance for the undernoted
perils: -
-- Fire, lightning, explosion;
-- Earthquake;
-- Aircraft and other aerial devices or articles dropped
therefrom;
-- Irradiation and radioactive contamination;
-- Any other peril insured by the relevant local Nuclear
Insurance Pool and/or Association.
In respect of any other Property not specified in (1) above which
directly involves the Production, Use or Storage of Nuclear
Material as from the introduction of Nuclear Material into such
Property.
<PAGE> 28
Definitions
"NUCLEAR MATERIAL" means:-
(i) Nuclear fuels other than natural uranium and depleted uranium,
capable of producing energy by a self-sustaining chain process
of nuclear fusion outside a NUCLEAR REACTOR either alone or in
combination with some other material, and
(ii) Radioactive Products or Waste
"RADIOACTIVE PRODUCTS OR WASTE" means any radioactive material produced
in, or any material made radioactive by exposure to the radiation
incidental to the production or utilisation of nuclear fuel, but does
not include radioisotopes which have reached the final stage of
fabrication so as to be usable for any scientific, medical,
agricultural, commercial or industrial purpose.
"NUCLEAR INSTALLATION" means:
(i) Any NUCLEAR REACTOR:
(ii) Any factory using nuclear fuel for the production of NUCLEAR
MATERIAL, or any factory for the processing of NUCLEAR
MATERIAL, including any factory for the reprocessing of
irradiated nuclear fuel; and
(iii) Any facility where NUCLEAR MATERIAL is stored, other than
storage incidental to the carriage of such material.
"NUCLEAR REACTOR" means any structure containing nuclear fuel in such
an arrangement that a self-sustaining chain process of nuclear fission
can occur therein without an additional source of neutrons.
"PRODUCTION, USE OR STORAGE OF NUCLEAR MATERIAL" means the production,
manufacture, enrichment, conditioning, processing, reprocessing, use,
storage, handling and disposal of Nuclear Material.
"PROPERTY" shall mean all land, buildings, structures, plant,
equipment, vehicles, contents (including but not limited to liquids and
gases) and all materials of whatever description whether fixed or not.
"HIGH RADIOACTIVITY ZONE OR AREA" means:-
(i) For nuclear power stations and Nuclear Reactors, the vessel or
structure which immediately contains the core (including its
supports and shrouding) and all the contents thereof, the fuel
elements, the control rods and the irradiated fuel store; and
(ii) For a non-reactor Nuclear Installation, any area where the
level of radioactivity requires the provision of a biological
shield.
<PAGE> 29
NUCLEAR INCIDENT EXCLUSION CLAUSE -
PHYSICAL DAMAGE AND LIABILITY
(BOILER AND MACHINERY POLICIES) - REINSURANCE - U.S.A
(1) This reinsurance does not cover any loss or liability accruing to
the Reassured as a member of, or subscriber to, any association of insurers or
reinsurers formed for the purpose of covering nuclear energy risks or as a
direct reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of paragraph (1) of
this Clause it is understood and agreed that for all purposes of this
reinsurance all original Boiler and Machinery Insurance or Reinsurance
contracts of the Reassured shall be deemed to include the following provisions
of this paragraph;
This Policy does not apply to "loss," whether it be direct or indirect,
proximate or remote
(a) from an Accident caused directly or indirectly by nuclear
reaction, nuclear radiation or radioactive contamination, all whether
controlled or uncontrolled; or
(b) from nuclear reaction, nuclear radiation or radioactive
contamination, all whether controlled or uncontrolled, caused directly
or indirectly by, contributed to or aggravated by an Accident.
(3) However, it is agreed that loss arising out of the use of
Radioactive Isotopes in any form is not hereby excluded from reinsurance
protection.
(4) Without in any way restricting the operation of paragraph (1)
hereof, it is understood and agreed that
(a) all policies issued by the Reassured effective on or
before 30th April, 1958, shall be free from the application of the other
provisions of this Clause until expiry date or 30th April, 1961, whichever first
occurs, whereupon all the provisions of this Clause shall apply,
(b) with respect to any risk located in Canada policies issued
by the Reassured effective on or before 30th June, 1958, shall be free from
the application of the other provisions of this Clause until expiry date of
30th June, 1961, whichever first occurs, whereupon all the provisions of this
Clause shall apply.
<PAGE> 30
NUCLEAR INCIDENT EXCLUSION CLAUSE -
PHYSICAL DAMAGE AND LIABILITY
(BOILER AND MACHINERY POLICIES) - REINSURANCE - U.S.A
(1) This reinsurance does not cover any loss or liability accruing to
the Reassured as a member of, or subscriber to, any association of insurers or
reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of paragraph (1) of
this Clause it is understood and agreed that for all purposes of this
reinsurance all original Boiler and Machinery Insurance or Reinsurance
contracts of the Reassured shall be deemed to include the following provisions
of this paragraph;
This Policy does not apply to "loss," whether it be direct or indirect,
proximate or remote
(a) from an Accident caused directly or indirectly by nuclear
reaction, nuclear radiation or radioactive contamination, all whether
controlled or uncontrolled; or
(b) from nuclear reaction, nuclear radiation or radioactive
contamination, all whether controlled or uncontrolled, caused directly
or indirectly by, contributed to or aggravated by an Accident.
(3) However, it is agreed that loss arising out of the use of
Radioactive Isotopes in any form is not hereby excluded from reinsurance
protection.
(4) Without in any way restricting the operation of paragraph (1)
hereof, it is understood and agreed that all policies issued by the Reassured
effective on or before 31st December, 1958, shall be free from the application
of the other provisions of this Clause until expiry date or 31st December, 1961,
whichever first occurs, whereupon all the provisions of this Clause shall apply.
<PAGE> 31
INSOLVENCY FUNDS EXCLUSIONS CLAUSE
This Agreement excludes all liability of the Company arising, by contract,
operation of law, or otherwise, from its participation or membership, whether
voluntary or involuntary, in any insolvency fund. "Insolvency fund" includes
any guaranty fund, plan, pool, association, fund, or other arrangement,
howsoever denominated, established, or governed that provides for any
assessment of or payment or assumption by the Company of part or all of any
claim, debt, charge, fee, or other obligation of an insurer, or its successors
or assigns, which has been declared by any competent authority to be insolvent,
or which is otherwise deemed unable to meet any claim, debt, charge, fee, or
other obligation in whole or in part.
<PAGE> 1
PAGE 2
EXHIBIT 10.33
ARTICLE PAGE #
<TABLE>
<CAPTION>
<S> <C> <C>
1. BUSINESS COVERED 3
2. TERM 3
3. TERRITORY 4
4. RETENTION, REINSURER'S SHARE AND LIMIT 4
5. LOSS SETTLEMENTS 6
6. REINSURANCE PREMIUM 6
7. ADDITIONAL PREMIUM 7
8. EXPERIENCE ACCOUNT 7
9. REINSURER'S MARGIN 8
10. FUNDS WITHHELD 8
11. COMMUTATION 10
12. REPORTS AND REMITTANCES 11
13. TAXES 12
14. COVENANTS OF THE REINSURED 12
15. DEFINITIONS 13
16. ULTIMATE NET LOSS 13
17. NET RETAINED LINES 14
18. RIGHT OF OFFSET 14
19. ERRORS AND OMISSIONS 15
20. CURRENCY 15
21. EXTRA CONTRACTUAL OBLIGATIONS 15
22. EXCESS OF ORIGINAL POLICY LIMITS LOSS 16
23. ARBITRATION 17
24. ACCESS TO RECORDS 18
25. INSOLVENCY 18
26. GOVERNING LAW 19
27. SERVICE OF SUIT 19
28. AMENDMENTS AND ALTERATIONS 20
29. ASSIGNMENT 20
30. NO THIRD PARTY RIGHTS 20
31. NO IMPLIED WAIVER 20
32. SECURITY 20
33. MERGERS AND ACQUISITIONS 21
34. INTERMEDIARY 21
</TABLE>
BALIS & CO., INC.
<PAGE> 2
Page 3
ARTICLE 1 - BUSINESS COVERED
In consideration of the premium to be paid by the Reinsured and subject to the
terms, conditions, exclusions and limits hereafter set forth, the Reinsurer
agrees to indemnify the Reinsured on an aggregate excess of loss basis for the
Reinsurer's Share of Ultimate Net Loss that the Reinsured has incurred as a
result of losses occurring during the Term of this Agreement as respects the
Reinsured's contracts, agreements and other evidence of reinsurance in respect
of all casualty reinsurance assumed business entered into by the Reinsured (the
"POLICIES"), but specifically excluding the following business:
- - - finite risk reinsurance
- - - pollution liability when written by the Reinsured as a named peril, but
excluding first party cleanup
- - - policyholder dividends
- - - nuclear incidents: in accordance with the attached Nuclear Incident Exclusion
Clauses:
a. Nuclear Incident Exclusion Clause - Liability - Reinsurance -
U.S.A. and Canada;
b. Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance
- U.S.A. and Canada;
C. Nuclear Incident Exclusion Clause - Physical Damage and Liability
(Boiler and Machinery Policies) - Reinsurance - U.S.A. and Canada;
d. Nuclear Energy Risks Exclusion Clause - Reinsurance - Worldwide
excluding U.S.A. and Canada.
- - - war risks (in accordance with the attached War Risk Exclusion Clause)
- - - insolvency and guarantee funds (in accordance with the attached Insolvency
And Guarantee Funds Exclusion Clause)
- - - residual market assessments, second injury fund assessments, rehabilitation
assessments, and any other similar type assessments
- - - financial guarantee business
- - - loss portfolio transfers
ARTICLE 2 - TERM
The term (the "TERM") of this Agreement shall commence at 12:01 a.m., Eastern
Standard Time, January 1, 1996 (the "EFFECTIVE DATE") and shall remain in force
until the earlier of 11:59 p.m., Eastern Standard Time, December 31, 1996 or the
date of cancellation (the "EXPIRATION DATE").
BALIS & CO., INC.
<PAGE> 3
Page 4
This Agreement may not be canceled by the Reinsured. The Reinsurer shall have
the right to cancel this Agreement as provided for in the articles entitled
"COVENANTS OF THE REINSURED", "MERGERS AND ACQUISITIONS", or "RIGHT OF OFFSET"
and as provided for below:
In the event that the Reinsured fails to pay the Reinsurance Premium and/or the
Additional Premium, if any, within 15 days of the date such premium is due, the
Reinsurer shall notify the Reinsured in writing via registered mail of the
overdue amounts. In the event that the Reinsured does not remit the overdue
amounts to the Reinsurer within 15 days of receiving such notification from the
Reinsurer, the Reinsurer shall have the right to immediately cancel this
Agreement by mailing the Reinsured a written notice of cancellation and the
Total Aggregate Limit, notwithstanding any provision to the contrary contained
herein, shall be immediately reduced to an amount equal to the positive balance
in the Experience Account (or zero if the Experience Account Balance is
negative) as of the date of cancellation. The mailing of such notice shall be
sufficient notice and the effective date of cancellation shall be the date the
notice of cancellation was posted.
In the event that the Reinsured fails to pay a Reinsurance Premium and/or an
Additional Premium, if any, that is due after the Expiration Date of this
Agreement within 15 days of the date such premium is due, the Reinsurer shall
notify the Reinsured in writing via registered mail of the overdue amounts. In
the event that the Reinsured does not remit the overdue amounts to the Reinsurer
within 15 days of receiving such notification from the Reinsurer, the Total
Aggregate Limit, notwithstanding any provision to the contrary contained herein,
shall immediately and without further notice be reduced to an amount equal to
the positive balance in the Experience Account (or zero if the Experience
Account Balance is negative).
ARTICLE 3 - TERRITORY
This Agreement shall apply only to losses occurring in the United States of
America, Canada and Europe.
ARTICLE 4 - RETENTION, REINSURER'S SHARE AND LIMIT
1) LIMIT A:
The Reinsurer agrees to indemnify the Reinsured for the Reinsurer's Share of the
amount of the Reinsured's aggregate Ultimate Net Loss that is in excess of 63%
of the Net Subject Earned Premium.
The "REINSURER'S SHARE" under Limit A shall be determined as follows:
If the Ultimate Net Loss is less than 63% of the Net Subject Earned
Premium, the Reinsurer's Share under Limit A shall equal zero,
otherwise, the Reinsurer's Share under Limit A shall equal the lesser
of (1) "A" divided by "B" or (2) 100%,
BALIS & CO., INC.
<PAGE> 4
Page 5
Where:
"A" is equal to 195.0% of the Reinsurance Premium
paid, plus the lesser of (1) the amount of Ultimate
Net Loss incurred from Clash losses, or (2) $7
million; and
"B" is equal to the amount of Ultimate Net Loss in
excess of 63% of the Net Subject Earned Premium.
UNDER NO CIRCUMSTANCES SHALL THE REINSURER'S AGGREGATE LIMIT OF LIABILITY FOR
ULTIMATE NET LOSS UNDER THIS LIMIT A EXCEED 195.0% OF THE REINSURANCE PREMIUM
PAID, PLUS $7 MILLION.
2) LIMIT B:
The Reinsurer agrees to indemnify the Reinsured for the Reinsurer's Share of the
amount of the Reinsured's aggregate Ultimate Net Loss that is in excess of 90%
of the Net Subject Earned Premium.
The "REINSURER'S SHARE" under Limit B shall be determined as follows:
If the Ultimate Net Loss is less than 90% of the Net
Subject Earned Premium, the Reinsurer's Share under
Limit B shall equal zero, otherwise, the Reinsurer's
Share under Limit B shall be equal to the lesser of
(1) "C" divided by "D" or (2) "E",
Where:
"C" is equal to 25% of the Reinsurance Premium paid;
and
"D" is equal to the amount of Ultimate Net Loss in
excess of 90% of the Net Subject Earned Premium;
and
"E" is equal to 100% less the Reinsurer's Share
under Limit A calculated above.
UNDER NO CIRCUMSTANCES SHALL THE REINSURER'S AGGREGATE LIMIT OF LIABILITY FOR
ULTIMATE NET LOSS UNDER THIS LIMIT B EXCEED 25% OF THE REINSURANCE PREMIUM PAID.
3) TOTAL AGGREGATE LIMIT:
Notwithstanding the Reinsurer's obligations under Limit A and Limit B above, the
Reinsurer's maximum aggregate limit of liability for Ultimate Net Loss under
this Agreement shall be subject to a maximum aggregate limit (the "TOTAL
AGGREGATE LIMIT") equal to the lesser of:
BALIS & CO., INC.
<PAGE> 5
Page 6
(1) 220.0% of Reinsurance Premium paid, plus the lesser of (1) the
amount of Ultimate Net Loss incurred from Clash losses, or (2)
$7 million; or
(2) $45.0 million plus the amount of Ultimate Net loss covered
under Limit A that exceeds 195.0% of the Reinsurance Premium
paid.
Notwithstanding the foregoing, the Total Aggregate Limit of liability hereunder
is further subject to adjustment as provided for in the articles entitled
"TERM", "COVENANTS OF THE REINSURED" or "RIGHT OF OFFSET".
UNDER NO CIRCUMSTANCES SHALL THE TOTAL LIABILITY OF THE REINSURER UNDER OR
RELATED TO THIS AGREEMENT EXCEED THE TOTAL AGGREGATE LIMIT.
ARTICLE 5 - LOSS SETTLEMENTS
The Reinsurer agrees to pay the Reinsured the amounts of Ultimate Net Loss due
hereunder and paid by the Reinsured (or payable by the Reinsured in case of
insolvency in accordance with the article entitled "INSOLVENCY") quarterly in
arrears and payment will be due within sixty (60) days following receipt and
verification of an account statement submitted by the Reinsured to the
Reinsurer. Ultimate Net Loss payments due by the Reinsurer in accordance with
the provisions herein shall first be paid by way of offset against the Funds
Withheld Balance until such account is exhausted.
Notwithstanding any provision to the contrary contained herein, and except for
the articles entitled "EXTRA CONTRACTUAL OBLIGATIONS" and "EXCESS OF ORIGINAL
POLICY LIMITS", coverage under this Agreement is expressly limited to claims or
losses arising under the Reinsured's Policies; provided, however, that such
claims or losses are within the terms, conditions and limitations of the
original policies and within the terms, conditions and limitations of this
Agreement.
ARTICLE 6 - REINSURANCE PREMIUM
Subject to the article entitled "FUNDS WITHHELD", the Reinsured shall pay to the
Reinsurer a premium (the "REINSURANCE PREMIUM") equal to 7.5% of the projected
Subject Earned Premium, payable in equal quarterly installments in advance,
subject to a maximum Reinsurance Premium of $23,076,923.
Within thirty (30) days following the end of each calendar quarter the Reinsured
shall make appropriate adjustments for the amount by which 7.5% of the Subject
Earned Premium for that calendar quarter exceeds or is less than the amounts
previously paid by the Reinsured for that calendar quarter.
BALIS & CO., INC.
<PAGE> 6
Page 7
ARTICLE 7 - ADDITIONAL PREMIUM
Subject to the article entitled "FUNDS WITHHELD", the Reinsured shall pay to
the Reinsurer an additional premium (the "Additional Premium") equal to 65% of
the Ultimate Net Loss, covered under Limit A, in excess of 195% of the
Reinsurance Premium paid, subject to a maximum Additional Premium equal to $4.55
million, and such Additional Premium shall be paid to the Reinsurer with the
applicable quarterly Ultimate Net Loss report as indicated in the article
entitled "REPORTS AND REMITTANCES".
Within thirty (30) days following the end of each calendar quarter the Reinsured
shall make appropriate adjustments for the amount by which 65% of the Ultimate
Net Loss, covered under Limit A that is in excess of 195.0% of the Reinsurance
Premium paid to date, exceeds or is less than the amounts of Additional Premiums
previously paid by the Reinsured.
ARTICLE 8 - EXPERIENCE ACCOUNT
A notional account (the "EXPERIENCE ACCOUNT") shall be calculated by the
Reinsurer from the Effective Date of this Agreement and maintained until there
is a complete and final release of all of the Reinsurer's obligations to the
Reinsured under this Agreement.
The balance of the Experience Account (the "EXPERIENCE ACCOUNT BALANCE") as of
any December 31st shall be defined as:
(1) 100% of the Reinsurance Premium and Additional Premium, if any,
received by the Reinsurer (or Funds Withheld in accordance with the
article entitled "FUNDS WITHHELD"), less
(2) the Reinsurer's Margin paid to the Reinsurer, less
(3) 100% of Ultimate Net Loss paid (or offset) by the Reinsurer, plus
(4) the Cumulative Experience Account Investment Credit.
The Reinsurance Premium, and Additional Premium, if any, shall be
credited to the Experience Account on the day said monies are
received by the Reinsurer's designated bank, or credited to the Funds
Withheld Balance in accordance with the article entitled "FUNDS
WITHHELD", as the case may be.
The Ultimate Net Loss due from the Reinsurer shall be charged against
the Experience Account on the day said monies are received by the
Reinsured's designated bank, or offset against the Funds Withheld
Balance in accordance with the article entitled "FUNDS WITHHELD", as
the case may be, and further subject to the article entitled "REPORTS
AND REMITTANCES".
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For the purpose of calculating the balance of the Experience
Account, the Reinsurer's Margin shall be deemed to be deducted in
proportion to and at the same time as the crediting to the
Experience Account of the Reinsurance Premium.
The Experience Account investment credit (the "EXPERIENCE ACCOUNT
INVESTMENT CREDIT") for each calendar year shall equal the average
daily balance of the Experience Account for that calendar year (or
portion thereof), determined as if the Reinsurance Premium and
Additional Premium, if any, as finally computed were paid on
January 1, 1996, multiplied by 7% (or the pro-rata portion
thereof). The cumulative Experience Account Investment Credit (the
"CUMULATIVE EXPERIENCE ACCOUNT INVESTMENT CREDIT") shall be equal
to the sum of the Experience Account Investment Credit for each
calendar year, or portion thereof, since the Effective Date of this
Agreement.
ARTICLE 9 - REINSURER'S MARGIN
The Reinsurer's margin (the "REINSURER'S MARGIN") shall be equal to 8.5% of the
Reinsurance Premium payable under this Agreement.
ARTICLE 10 - FUNDS WITHHELD
Subject to the terms herein, the Reinsured shall retain the Reinsurance Premium
and Additional Premium, if any, due hereunder on a funds withheld basis,
provided however, that the Reinsurer's Margin shall be paid in cash to the
Reinsurer and shall not be affected by the terms of this "Funds Withheld"
article. The amount of such withheld Reinsurance Premium, net of Reinsurer's
Margin, and Additional Premium, if any, shall be called "FUNDS WITHHELD". In
consideration of the Reinsurer agreeing to the Funds Withheld, the Reinsured
agrees (i) to calculate a notional Funds Withheld account from the Effective
Date of this Agreement until there is a complete and final release of all of the
Reinsurer's obligations to the Reinsured under this Agreement and (ii) that the
Funds Withheld Balance may be set off by the Reinsurer against liability of any
nature whatsoever (whether then contingent, due and payable, or in the future
becoming due) that the Reinsurer may then have, or in the future may have under
this Agreement and (iii) that such setoff shall occur as a condition precedent
to any payments by the Reinsurer hereunder.
The balance of the Funds Withheld account (the "FUNDS WITHHELD BALANCE") as of
any December 31st shall be defined as:
(1) 100% of the Reinsurance Premium and Additional Premium, if any, due
hereunder, less
(2) the Reinsurer's Margin paid to the Reinsurer, less
(3) 100% of Ultimate Net Loss paid (or offset) by the Reinsurer, plus
(4) the Cumulative Funds Withheld Investment Credit.
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The Reinsurance Premium, and Additional Premium, if any, shall be credited to
the Funds Withheld Balance on the date such monies are payable.
The Ultimate Net Loss due from the Reinsurer shall be charged against the Funds
Withheld Balance on the date such monies are due and further subject to article
entitled "REPORTS AND REMITTANCES".
For the purpose of calculating the balance of the Funds Withheld Account, the
Reinsurer's Margin shall be deemed to be deducted in proportion to and at the
same time as the crediting to the Funds Withheld Account of the Reinsurance
Premium.
The Funds Withheld investment credit (the "FUNDS WITHHELD INVESTMENT CREDIT")
for each calendar year shall equal the average daily balance of the Funds
Withheld Balance for that calendar year (or portion thereof), determined as if
the Reinsurance Premium and Additional Premium, if any, as finally computed was
paid on January 1, 1996, multiplied by 9% (or the pro-rata portion thereof). The
cumulative Funds Withheld Investment Credit (the "CUMULATIVE FUNDS WITHHELD
INVESTMENT CREDIT") shall be equal to sum of the Funds Withheld Investment
Credit for each calendar year, or portion thereof, since the Effective Date of
this Agreement.
The Reinsured promises to pay to the Reinsurer the Funds Withheld Balance
immediately upon the sooner of: 1) commutation of this Agreement, 2) an Event of
Default, or 3) December 31, 2010. The Reinsured shall not have the right to
prepay all or a part of the Funds Withheld Balance without the Reinsurer's
express written consent.
The following shall be defined as "EVENTS OF DEFAULT" and the whole of the Funds
Withheld Balance shall, upon demand of the Reinsurer, become immediately due and
payable, together with all accrued interest and other unpaid sums owing in
relation thereto:
(1) Payment Defaults
The Reinsured fails to make any payment under this Agreement when due
and in the manner therein provided, except where the Reinsurer
receives the overdue payment within fifteen business days of the
non-payment;
(2) Executions
Creditors attach or take possession of or distress, execution,
sequestration, seizure, attachment or other equivalent or analogous
process is levied or enforced upon or sued out against any material
amount of the Reinsured's assets; or
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(3) Insolvency
The Reinsured commences a proceeding or proceedings are commenced
against it seeking dissolution, winding-up, liquidation,
administration, reorganization, suspension or compromise of payments
or other relief under any applicable bankruptcy, insolvency or other
similar law or seeking the appointment of an administrator or a
trustee, receiver, manager, receiver-manager, liquidator, custodian,
curator or other similar official of it or any substantial part of
the Reinsured's assets, or the Reinsured consents to any such relief
(including any bankruptcy petition) or appointment in involuntary
proceedings taken against it, or makes a bulk sale of its assets or a
general assignment or proposal for the benefit of creditors, or fails
or admits its inability to pay its debts as they become due, or
suspends or ceases or threatens to suspend or cease carrying on
business; or it takes any action in furtherance of any of the
foregoing.
ARTICLE 11 - COMMUTATION
Subject to the terms of this article, the Reinsured may, at its sole option,
commute this Agreement at any December 31st, beginning on December 31, 2000,
subject to ninety (90) days prior written notice by the Reinsured to the
Reinsurer by registered or certified mail.
If the Reinsured elects to commute this Agreement, the Reinsured shall pay to
the Reinsurer as a condition precedent to the commutation the Funds Withheld
Balance as of the date of commutation of this Agreement and the Reinsurer shall
pay to the Reinsured the following amounts within sixty (60) business days of
the date of commutation:
(1) Commuted Value of Ceded Unpaid Ultimate Net Loss
If, at the time of commutation, the Ceded Unpaid Ultimate Net Loss is less than
or equal to the balance in the Experience Account, the Reinsurer agrees to pay
all Ceded Unpaid Ultimate Net Loss at the amount valued by the Reinsured.
If, at the time of commutation, the Ceded Unpaid Ultimate Net Loss is greater
than the balance in the Experience Account, the Ceded Unpaid Ultimate Net Loss
shall be commuted at a present value amount to be mutually agreed. If the
present value amount of the Ceded Unpaid Ultimate Net Loss cannot be mutually
agreed by the Reinsured and the Reinsurer, then a mutually acceptable
independent third party actuary shall be called upon to make an independent
estimation of the present value amount of the Ceded Unpaid Ultimate Net Loss
(the cost of which shall be shared equally by the Reinsured and Reinsurer). If
the actuary's estimation is acceptable to both Reinsurer and Reinsured, then
this Agreement shall be commuted at the value as estimated by the actuary. If
the actuary's value is unacceptable to either the Reinsured or the Reinsurer, or
if the parties cannot agree on the selection of the actuary, then the Agreement
will not be commuted at that time.
(2) Premium Refund
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(2) Premium Refund
Upon commutation under (1) above, the Reinsurer shall pay to the Reinsured a
"PREMIUM REFUND" equal to the positive balance, if any, of the Experience
Account after deducting the value of the commuted Ceded Unpaid Ultimate Net Loss
as per (1) above.
Payment of the Ceded Unpaid Ultimate Net Loss and Premium Refund, if any, by the
Reinsurer as described above shall constitute a complete and final release of
the Reinsurer in respect of any and all of the Reinsurer's obligations of any
nature whatsoever to the Reinsured under or related to this Agreement.
ARTICLE 12 - REPORTS AND REMITTANCES
1. The Reinsured shall furnish to the Reinsurer within fifteen (15) days
prior to the close of the calendar quarter an estimate of the amount of
Ultimate Net Loss ceded under this Agreement as of the close of that
calendar quarter, including a separate estimate of the amount of Ultimate
Net Loss incurred from Clash losses.
2. The Reinsured shall furnish to the Reinsurer within thirty (30) days after
the close of each calendar quarter:
(a) quarterly account of Subject Earned Premium segregated by line of
business (and for the total of all lines).
(b) quarterly accounts of paid and unpaid Ultimate Net Loss segregated by
line of business (and for the total of all lines of business).
(c) a reconciliation of the Funds Withheld Balance from inception to the
close of the most recent preceding calendar quarter.
3. The Reinsured shall furnish to the Reinsurer within thirty (30) days after
the end of each calendar quarter, quarterly accounts of paid Ultimate Net
Loss ceded under this Agreement which are due to be paid by the Reinsurer
to the Reinsured. As respects the Funds Withheld Balance, Ultimate Net
Loss amounts shall be deemed to be paid as of the date the Reinsurer
agrees to the amount to be paid and such agreement shall be made within
sixty (60) days after receipt of this account.
4. The Reinsured shall furnish to the Reinsurer within one hundred twenty
(120) days after the close of each calendar year annual paid projections
of Ultimate Net Loss, including Allocated Loss Adjustment Expense,
segregated by line of business.
5. The Reinsurer shall furnish to the Reinsured within thirty (30) days after
the close of each quarter a reconciliation of the Experience Account from
inception to the close of the most recent preceding calendar quarter.
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6. All amounts due and payable under this Agreement shall be remitted
directly by wire transfer between the Reinsured and the Reinsurer with
notice to the Intermediary, unless such amounts are withheld by the
Reinsured in accordance with the Funds Withheld provision of this
Agreement.
7. Any late payments by either party shall accrue interest at a rate equal to
the greater of 1% per month, compounded semi-annually, or the yield on the
one year United States Treasury Bill existent on the first business day
after the previous January 1st, as published in the Wall Street Journal,
plus 250 basis points.
ARTICLE 13 - TAXES
The Reinsured shall pay all taxes of any nature associated with this Agreement
and undertakes not to claim any deduction of the premium hereon when making
Canadian tax returns or when making tax returns, other than Income or Profits
Tax returns, to any State or Territory of the United States of America or the
District of Columbia. Provided, however, that this Article shall not impose any
liability on the Reinsured for any income, capital gains, profits or other
similar taxes payable by the Reinsurer in respect of its operations or this
Agreement.
ARTICLE 14 - COVENANTS OF THE REINSURED
The Reinsured agrees not to change claims handling procedures, loss reserving
process, levels of ceding commissions in its underlying contracts, or the levels
of reinsurance protection in any manner from that in effect at the inception of
this Agreement which materially affects this Agreement or the obligations of the
parties hereunder, unless the Reinsured has received the prior written approval
of the Reinsurer to such changes, such approval not to be unreasonably withheld.
In the event that the Reinsured does not adhere to these Covenants, the
Reinsurer shall have the right to immediately cancel this Agreement by mailing
the Reinsured a written notice of cancellation and the remaining unpaid Total
Aggregate Limit, notwithstanding any provision to the contrary contained herein,
shall be immediately reduced to an amount equal to the positive balance in the
Experience Account (or zero if the Experience Account Balance is negative) as of
the date of cancellation. The mailing of such notice shall be sufficient notice
and the effective date of cancellation shall be the date the notice of
cancellation was posted.
In the event that the Reinsurer learns about a violation of these Covenants
after the Expiration Date of this Agreement, the remaining unpaid Total
Aggregate Limit, notwithstanding any provision to the contrary contained herein,
shall be reduced to an amount equal to the positive balance in the Experience
Account (or zero if the Experience Account Balance is negative) upon written
notice by the Reinsurer to the Reinsured by registered or certified mail.
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Notwithstanding the foregoing, the remedy to the Reinsurer in the event of a
breach by the Reinsured of any of the foregoing covenants may not be invoked
unless the Reinsurer is called upon to pay Ultimate Net Loss under this
Agreement which is in excess of the Funds Withheld Balance.
ARTICLE 15 - DEFINITIONS
All words and phrases that have a capitalized initial letter in this Agreement
have a special meaning which is either introduced in certain Articles or which
is defined below and which shall include the plural as well as the singular.
"AGREEMENT" means this agreement as the same may be amended from time to time in
accordance with the terms hereof and all instruments supplemental hereto or in
amendment or confirmation hereof; additionally, the expressions "herein",
"hereof", "hereto", "above", "below" and similar expressions used in any
paragraph, subparagraph, section or article of this Agreement shall refer to
this Agreement and not to that paragraph, subparagraph, section or article only,
unless otherwise expressly provided.
"CEDED UNPAID ULTIMATE NET LOSS" shall mean the cumulative Ultimate Net Loss
ceded under this Agreement by the Reinsured from the Effective Date less
cumulative Ultimate Net Loss paid (or offset) under this Agreement by the
Reinsurer to the Reinsured from the Effective Date.
"SUBJECT EARNED PREMIUM" shall mean gross premiums earned on all casualty
business in-force, written or renewed by the Reinsured during the Term of this
Agreement less return premiums less premiums ceded for all reinsurance which
would inure to the benefit of the Reinsurer under this Agreement. For purposes
of this Agreement, the projected Subject Earned Premium is equal to $223
million.
"NET SUBJECT EARNED PREMIUM" shall mean Subject Earned Premium less Reinsurance
Premium ceded to the Reinsurer under this Agreement.
"CLASH" loss shall mean the Reinsured's Ultimate Net Loss, as defined herein,
that is triggered by clash losses as classified by the Reinsured in accordance
with the Reinsured's underwriting guidelines.
ARTICLE 16 - ULTIMATE NET LOSS
"ULTIMATE NET LOSS" shall mean the actual loss incurred by the Reinsured and
Allocated Loss Adjustment Expense ("ALAE") on Business Covered on the
Reinsured's Net Retained Lines, and shall include 80% of the amounts of any
Extra Contractual Obligations and 80% of the amounts of any Excess of Original
Policy Limits after making deductions for all recoveries, salvages, subrogations
and all claims on inuring reinsurance, whether collectible or not.
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ALAE shall mean all legal expenses and other expenses (including interest
accruing before and/or after entry of judgment) incurred by the Reinsured in
connection with the investigation, adjustment, settlement or litigation of
claims or losses, including salaries and expenses of the Reinsured's field
employees while adjusting such claims or losses and expenses of the Reinsured's
officials incurred in connection with claims or losses. However, salaries of the
Reinsured's officials or normal overhead charges such as rent, postal, lighting,
cleaning, heating, etc. shall not be included.
All salvages, recoveries or payments recovered or received subsequent to a loss
settlement under this Agreement shall be applied as if recovered or received
prior to the aforesaid settlement and all necessary adjustments shall be made by
the parties hereto, provided always that nothing in this clause shall be
construed to mean that Ultimate Net Loss under this Agreement are not
recoverable until the Reinsured's Ultimate Net Loss has been ascertained.
The Ultimate Net Loss, as determined by the Reinsured, is subject to agreement
by the Reinsurer. If the Reinsurer disagrees with the Ultimate Net Loss
determined by the Reinsured and the Reinsurer is called upon to pay Ultimate Net
Loss under this Agreement, a mutually agreed upon independent national actuarial
firm shall be engaged to evaluate the Ultimate Net Loss covered under this
Agreement and such evaluation shall be subject to the confines of the Ultimate
Net Loss determined by the Reinsured and the Ultimate Net Loss determined by the
Reinsurer and shall be binding. Such cost to be shared equally by the Reinsured
and the Reinsurer. If the parties fail to agree on the selection of an
independent national actuarial firm each of them shall name two, of whom the
other shall decline one, and the decision shall be made by drawing lots.
ARTICLE 17 - NET RETAINED LINES
This Agreement applies only to that portion of any policy which the Reinsured
retains net for its own account, and in calculating the amount of any loss
hereunder and also in computing the amount or amounts in excess of the
Retentions, only loss or losses in respect of that portion of any policy which
the Reinsured retains net for its own account shall be included.
The amount of the Reinsurer's liability hereunder in respect of any loss or
losses shall not be increased by reason of the inability of the Reinsured to
collect from any other reinsurer(s), whether specific or general, any amounts
which may have become due from such reinsurer(s), whether such inability arises
from the insolvency of such other reinsurer(s) or otherwise.
ARTICLE 18 - RIGHT OF OFFSET
The Reinsured and the Reinsurer may offset any balance or amount due from one
party to the other under this Agreement or any other contract heretofore or
hereafter entered into between the Reinsured and the Reinsurer, whether acting
as assuming reinsurer or ceding company or in any other capacity.
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In extension and not in limitation to the above, the Reinsurer shall have an
absolute right to offset any amounts due to the Reinsured against the Funds
Withheld Balance. In the event that this right of offset between the Reinsured
and the Reinsurer is specifically disallowed or judged to be unenforceable by
any court of competent jurisdiction, arbitration panel or regulatory body then
all amounts in the Funds Withheld Balance shall immediately become due and
payable in full. If the Funds Withheld Balance is not remitted to the Reinsurer
within fifteen (15) days, the Reinsurer shall have the option to immediately
cancel this Agreement by mailing the Reinsured a written notice of cancellation
and the remaining unpaid Total Aggregate Limit, notwithstanding any provision to
the contrary contained herein, shall be immediately reduced to an amount equal
to the positive balance in the Experience Account (or zero if the Experience
Account Balance is negative) as of the date of cancellation. The mailing of such
notice shall be sufficient notice and the effective date of cancellation shall
be the date the notice of cancellation was posted.
In the event that the Reinsured fails to remit to the Reinsurer the Funds
Withheld Balance that is due and payable in accordance with the provisions in
this article after the Expiration Date of this Agreement within 15 days of the
date such payment is due, the Reinsurer shall notify the Reinsured in writing
via registered mail of the overdue amounts. In the event that the Reinsured does
not remit the overdue amounts to the Reinsurer within 15 days of receiving such
notification from the Reinsurer, the remaining unpaid Total Aggregate Limit,
notwithstanding any provision to the contrary contained herein, shall be
immediately reduced to an amount equal to the positive balance in the Experience
Account (or zero if the Experience Account Balance is negative) without further
notice.
ARTICLE 19 - ERRORS AND OMISSIONS
Any omission or error by either party to this Agreement will not relieve either
party of liability hereunder, provided such act, omission, or error is not
prejudicial to the other party and is rectified promptly upon discovery by the
responsible party.
ARTICLE 20 - CURRENCY
The provisions of this Agreement involving dollar designated amounts are
expressed in United States currency and all payments shall be made in this
currency.
ARTICLE 21 - EXTRA CONTRACTUAL OBLIGATIONS
This Agreement shall indemnify the Reinsured within the limits hereof, where the
Ultimate Net Loss includes 80% of any Extra Contractual Obligations.
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"Extra Contractual Obligations" are defined as those liabilities not covered
under any other provision of this Agreement and which arise from the handling of
any claim on Business Covered hereunder, such liabilities arising because of,
but not limited to the failure by the Reinsured to settle within the policy
limit, or by reason of alleged or actual negligence, fraud or bad faith in
rejecting an offer of settlement or in the preparation of the defense or in the
trial of any action against its insured or in the preparation or prosecution of
an appeal consequent upon such action.
The date on which any Extra Contractual Obligation is incurred by the Reinsured
shall be deemed, in all circumstances, to be the date of the original accident,
casualty, disaster or loss occurrence.
However, this Article shall not apply and there shall be no recovery hereunder
where the loss has been incurred due to the fraud by a member of the Board of
Directors, a corporate officer, or a supervisory employee of the Reinsured
acting individually or collectively or in collusion with a member of the Board
of Directors, a corporate officer, supervisory employee or partner of any (other
corporation, partnership, or organization involved in the defense or settlement
of a claim on behalf of the Reinsured.
ARTICLE 22 - EXCESS OF ORIGINAL POLICY LIMITS LOSS
This Agreement shall indemnify the Reinsured, within the limits hereof, where
the Ultimate Net Loss includes 80% of any Excess of Original Policy Limits Loss.
"Excess of Original Policy Limits Loss" shall mean any loss of the Reinsured in
excess of the limit of its original policy, such loss in excess of the limit
having been incurred because of failure by it to settle within the policy limit
or by reason of alleged or actual negligence, fraud or bad faith in rejecting an
offer of settlement or in the preparation of the defense or in the trial of any
action against its insured or in the preparation or prosecution of an appeal
consequent upon such action.
However, this Article shall not apply and there shall be no recovery hereunder
where the loss has been incurred due to the fraud by a member of the Board of
Directors, a corporate officer, or a supervisory employee of the Reinsured
acting individually or collectively or in collusion with a member of the Board
of Directors, a corporate officer, supervisory employee or partner of any other
corporation, partnership, or organization involved in the defense or settlement
of a claim on behalf of the Reinsured.
For the purposes of this Article, the word "loss" shall mean any amounts for
which the Reinsured would have been contractually liable to pay had it not been
for the limit of the original policy.
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ARTICLE 23 - ARBITRATION
Any dispute arising out of the interpretation, performance or breach of this
Agreement, including the formation or validity thereof, shall be submitted for
decision to a panel of three arbitrators. Notice requesting arbitration must be
in writing and sent certified or registered mail, return receipt requested.
One arbitrator shall be chosen by each party and the two arbitrators shall,
before instituting the hearing, choose an impartial third arbitrator (the
"Umpire") who shall preside at the hearing. If either party fails to appoint its
arbitrator within thirty (30) days after being requested to do so by the other
party, the latter, after ten (10) days notice by certified or registered mail of
its intention to do so, may appoint the second arbitrator.
If the two arbitrators are unable to agree upon the Umpire within thirty (30)
days of their appointment, the two arbitrators shall request the American
Arbitration Association ("AAA") to provide a list of possible Umpires with the
qualifications set forth in this Article and the parties shall then mutually
agree upon an Umpire from this list. If the parties are unable to agree upon the
Umpire within thirty (30) days of the receipt of the AAA list or if the AAA
fails to provide such a list within thirty (30) days of the request, either
party may apply to the United States Federal Court for the Southern District of
New York to appoint an Umpire with those qualifications. The Umpire shall
promptly notify in writing all parties to the arbitration of his selection.
All arbitrators shall be disinterested active or former executive officers of
insurance or reinsurance companies or Underwriters at Lloyd's of London.
Within thirty (30) days after notice of appointment of all arbitrators, the
panel shall meet and determine timely periods for briefs, discovery procedures
and schedules for hearings.
The panel shall be relieved of all judicial formality and shall not be bound by
the strict rules of procedure and evidence. Unless the panel agrees otherwise,
arbitration shall take place in New York, New York, but the venue may be changed
when deemed by the panel to be in the best interest of the arbitration
proceeding. Insofar as the arbitration panel looks to substantive law, it shall
consider the law of the State of New York. The decision of any two arbitrators
when rendered in writing shall be final and binding. The panel is empowered to
grant interim relief as it may deem appropriate.
To the extent, and only to the extent, that the provisions of this Agreement are
ambiguous or unclear, the panel shall make its decision considering the custom
and practice of the applicable insurance and reinsurance business. The panel
shall render its decision within sixty (60) days following the termination of
hearings, which decision shall be in writing, stating the reasons thereof.
Judgment upon the award may be entered in any court having jurisdiction thereof.
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Each party shall bear the expense of its own arbitrator and shall jointly and
equally bear with the other party the cost of the third arbitrator. The
remaining costs of the arbitration shall be allocated by the panel. The panel
may, at its discretion, award such further costs and expenses as it considers
appropriate, including but not limited to attorneys fees, to the extent
permitted by law.
ARTICLE 24 - ACCESS TO RECORDS
The Reinsurer or its duly appointed representatives shall have free access to
the books, records and papers of the Reinsured or its agents at all reasonable
times during the continuance of this Agreement or any liability hereunder, for
the purpose of obtaining information concerning this Agreement or the subject
matter thereof.
ARTICLE 25 - INSOLVENCY
In the event of the insolvency of the Reinsured, reinsurance under this
Agreement shall be payable by the Reinsurer on the basis of the liability of the
Reinsured under Policy or Policies reinsured without diminution because of the
insolvency of the Reinsured, to the Reinsured or to its liquidator, receiver, or
statutory successor except as provided by Section 4118(a) of the New York
Insurance Law or except when the Agreement specifically provides another payee
of such reinsurance in the event of the insolvency of the Reinsured and when the
Reinsurer with the consent of the direct insured or insureds has assumed such
Policy obligations of the Reinsured as direct obligations of the Reinsurer to
the payees under such Policies and in substitution for the obligations of the
Reinsured so such payees.
It is agreed, however, that the liquidator or receiver or statutory successor of
the insolvent Reinsured shall give written notice to the Reinsurer of the
pendency of a claim against the insolvent Reinsured on the Policy or Policies
reinsured within a reasonable time after such claim is filed in the insolvency
proceeding and that during the pendency of such claim, the Reinsurer may
investigate such claim and interpose, at its own expense, in the proceeding when
such claim is to be adjudicated, any defense or defenses which it may deem
available to the Reinsured or its liquidator or receiver or statutory successor.
The expense thus incurred by the Reinsurer shall be chargeable, subject to court
approval, against the insolvent Reinsured as part of the expense of liquidation
to the extent of a proportionate share of the benefit which may accrue to the
Reinsured solely as a result of the defense undertaken by the Reinsurer.
When two or more Reinsurers are involved in the same claim and a majority in
interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Agreement as though such
expense had been incurred by the insolvent Reinsured.
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Should any party hereto be placed in rehabilitation or liquidation or should a
rehabilitator, liquidator, receiver, conservator or other person or entity of
similar capacity be appointed as respects such party, all amounts due any of the
parties hereto whether by reason of premiums, losses or otherwise under this
Agreement or any other contract(s) of reinsurance heretofore or hereafter
entered into between the parties (whether or not any such contract(s) be assumed
or ceded) shall at all times be subject to the right of offset at any time and
from time to time, and upon the exercise of same, only the net balance shall be
due and payable in accordance with
Section 7427 of the Insurance Law of the State of New York to the extent such
statute or any other applicable law, statute or regulation governing such offset
shall apply.
ARTICLE 26 - GOVERNING LAW
This Agreement shall be interpreted and governed by the laws of the State of New
York without regard to its principles of choice of law.
ARTICLE 27 - SERVICE OF SUIT
(This Article only applies to reinsurers domiciled outside of the United States
and/or unauthorized in any state, territory, or district of the United States
having jurisdiction over the Reinsured).
It is agreed that in the event of the failure of the Reinsurer to pay any amount
claimed to be due hereunder or to perform any other obligation under the
Agreement, the Reinsurer, at the request of the Reinsured, will submit to the
jurisdiction of a court of competent jurisdiction within the United States.
Nothing in this Article constitutes or should be understood to constitute a
waiver of the Reinsurer's rights to commence an action in any court of competent
jurisdiction in the United States, to remove an action to a United States
District Court, or to seek a transfer of a case to another court as permitted
by the laws of the United States or of any state in the United States. It is
further agreed that service of process in such suit may be made upon Willkie
Farr and Gallagher, One Citicorp Center, 47th Floor, New York, New York, 10022,
and that in any suit instituted, the Reinsurer will abide by the final decision
of such court or of any appellate court in the event of an appeal.
The above-named are authorized and directed to accept service of process on
behalf of the Reinsurer in any such suit and/or upon the request of the
Reinsured to give a written undertaking to the Reinsured that they will enter a
general appearance upon the Reinsurer's behalf in the event such a suit shall be
instituted.
BALIS & CO. INC.
<PAGE> 19
Page 20
Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefor, the Reinsurer hereon hereby
designates the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the statute, or his successor or
successors in office, as its true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Reinsured or any beneficiary hereunder arising out of this Agreement of
reinsurance, and hereby designates the above-named as the person to whom the
said officer is authorized to mail such process or a true copy thereof.
The foregoing is not intended to conflict with or override the obligation of the
parties hereto to arbitrate their disputes as provided in the Arbitration
clause.
ARTICLE 28 - AMENDMENTS AND ALTERATIONS
This Agreement may be changed, altered or amended as the parties may agree,
provided such change, alteration or amendment is evidenced in writing or by
endorsement executed by the Reinsured and the Reinsurer.
ARTICLE 29 - ASSIGNMENT
Except as expressly provided otherwise in the article entitled "INSOLVENCY",
neither party may assign or transfer any rights, interests or obligations under
this Agreement to any person or entity without the written consent of the other
party and any effort to so assign such rights, interests or obligations without
the consent of the other party shall be null and void.
ARTICLE 30 - NO THIRD PARTY RIGHTS
This Agreement is solely between the Reinsured and the Reinsurer, and in no
instance shall any other party have any rights under this Agreement except as
expressly provided otherwise in the Insolvency Article.
ARTICLE 31 - NO IMPLIED WAIVER
The failure of any party to enforce any of the provisions herein shall not be
construed to be a waiver of the right of such party to enforce any such
provision.
ARTICLE 32 - SECURITY
If the Reinsurer's surplus falls below $40 million, the Reinsured may require
the Reinsurer to post a "clean", unconditional, evergreen and irrevocable Letter
of Credit or to provide a reinsurance trust fund issued by a bank acceptable to
the Reinsured in favor of the Reinsured in an amount up to the excess of the
Ceded Unpaid Ultimate Net Loss over the Funds Withheld Balance.
BALIS & CO. INC.
<PAGE> 20
Page 21
ARTICLE 33 - MERGERS AND ACQUISITIONS
It is understood and agreed that if at any time during the Term of this
Agreement the Reinsured acquires (by acquisition, reinsurance of or renewal of)
any other insurance or reinsurance company or individual or groups of individual
book(s) of business of any other insurance or reinsurance company that comprises
not more than ten (10) percent (whether individually or in the aggregate with
respect to related transactions or parties) of Subject Earned Premium, such
company or book(s) of business will be covered hereunder, provided that written
notice is given to the Reinsurer of any such newly affiliated company or book(s)
of business as soon as practicable with full particulars as to how such
affiliation is likely to affect this Agreement. If such acquisition, as defined
above, comprises more than ten (10) percent (whether individually or in the
aggregate with respect to related transactions or parties)) of Subject Earned
Premium, such company or book(s) of business will be covered hereunder provided
that prior written notice of such transaction is given to the Reinsurer with
full particulars as to how such transaction is likely to affect this Agreement,
and the Reinsurer agrees in its sole discretion in writing that this Agreement
applies to such acquired insurance or reinsurance company or book(s) of
business.
In the event that the Reinsured merges with another company at any time during
the Term of this Agreement, this Agreement shall survive such merger and the
surviving entity shall be covered hereunder provided that prior written notice
of such transaction is given to the Reinsurer with full particulars as to how
such transaction is likely to affect this Agreement, and the Reinsurer agrees in
its sole discretion in writing that this Agreement applies to such surviving
entity.
ARTICLE 34 - INTERMEDIARY
Balis & Co., Inc. is hereby recognized as the Intermediary negotiating this
Agreement for all business hereunder. All communications (including but not
limited to notices and statements) relating to this Agreement shall be
transmitted to the Reinsured through Balis & Co., Inc., Two Logan Square,
Philadelphia, PA 19103-2772. All amounts due under this Agreement (including but
not limited to Reinsurance Premium and Ultimate Net Loss) shall be remitted
directly by wire transfer between the Reinsured and the Reinsurer with notice to
the Intermediary.
BALIS & CO. INC.
<PAGE> 21
NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE
(Wherever the word "Reassured" appears in this Clause, it shall be deemed to
read "Reassured", "Reinsured", "Company", or whatever other word is employed
throughout the text of the reinsurance agreement to which this Clause is
attached to designate the company or companies reinsured.)
(1) This reinsurance does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any association of insurers
or reinsurers formed for the purpose of covering nuclear energy risks
or as a direct or indirect reinsurer of any such member, subscriber or
association.
(2) Without in any way restricting the operation of paragraph (1) of this
Clause, it is understood and agreed that for all purposes of this
reinsurance all the original policies of the Reassured (new, renewal
and replacement) of the classes specified in clause II of this
paragraph (2) from the time specified in clause III in this paragraph
(2) shall be deemed to include the following provision (specified as
the Limited Exclusion Provision):
LIMITED EXCLUSION PROVISION.*
I. It is agreed that the policy does not apply, under any liability
coverage, to
injury, sickness, disease, death or destruction
bodily injury or property damage
with respect to which an insured under the policy is also an
insured under a nuclear energy liability policy issued by Nuclear
Energy Liability Insurance Association, Mutual Atomic Energy
Liability Underwriters or Nuclear Insurance Association of
Canada, or would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability.
II. Family Automobile Policies (liability only), Special Automobile
Policies (private passenger automobiles, liability only), Farmers
Comprehensive Personal Liability Policies (liability only),
Comprehensive Personal Liability Policies (liability only) or
policies of a similar nature; and the liability portion of
combination forms related to the four classes of policies stated
above, such as the Comprehensive Dwelling Policy and the
applicable types of Homeowners Policies.
III. The inception dates and thereafter of all original policies as
described in II above, whether new, renewal or replacement, being
policies which either
(a) become effective on or after 1st May, 1960, or
(b) become effective before that date and contain the Limited
Exclusion Provision set out above;
provided this paragraph (2) shall not be applicable to Family
Automobile Policies, Special Automobile Policies, or policies or
combination policies of a similar nature, issued by the
Reassured on New York risks, until 90 days following approval of
the Limited Exclusion Provision by the Governmental Authority
having jurisdiction thereof.
BALIS & CO., INC.
<PAGE> 22
Page 2
(3) Except for those classes of policies specified in clause II of
paragraph (2) and without in any way restricting the operation of
paragraph (1) of this Clause, it is understood and agreed that for all
purposes of this reinsurance the original liability policies of the
Reassured (new, renewal and replacement) affording the following
coverages:
Owners, Landlords and Tenants Liability, Contractual Liability,
Elevator Liability, Owners or Contractors (including railroad)
Protective Liability, Manufacturers and Contractors Liability,
Products Liability, Professional and Malpractice Liability,
Storekeepers Liability, Garage Liability, Automobile Liability
(including Massachusetts Motor Vehicle or Garage Liability)
shall be deemed to include, with respect to such coverages, from the
time specified in clause V of this paragraph (3), the following
provision (specified as the Broad Exclusion Provision):
BROAD EXCLUSION PROVISION.*
It is agreed that the policy does not apply:
I. Under any Liability Coverage, to
injury, sickness, disease, death or destruction
bodily injury or property damage
(a) with respect to which an insured under the policy is also
an insured under a nuclear energy liability policy issued by
Nuclear Energy Liability Insurance Association, Mutual Atomic
Energy Liability Underwriters or Nuclear Insurance
Association of Canada, or would be an insured under any such
policy but for its termination upon exhaustion of its limit
of liability; or
(b) resulting from the hazardous properties of nuclear
material and with respect to which (1) any person or
organization is required to maintain financial protection
pursuant to the Atomic Energy Act of 1954, or any law
amendatory thereof, or (2) the insured is, or had this policy
not been issued would be, entitled to indemnity from the
United States of America, or any agency thereof, under any
agreement entered into by the United States of America, or
any agency thereof, with any person or organization.
II. Under any Medical Payments Coverage, or under any Supplementary
Payments Provision relating to
immediate medical or surgical relief
first aid,
to expenses incurred with respect to
bodily injury, sickness, disease or death
bodily injury
BALIS & CO., INC.
<PAGE> 23
Page 3
resulting from the hazardous properties of nuclear material and arising
out of the operation of a nuclear facility by any person or organization.
III. Under any Liability Coverage, to
injury, sickness, disease, death or destruction
bodily injury or property damage
resulting from the hazardous properties of nuclear material, if
(a) the nuclear material (1) is at any nuclear facility owned by, or
operated by or on behalf of, an insured or (2) has been discharged
or dispersed therefrom;
(b) the nuclear material is contained in spent fuel or waste at any
time possessed, handled, used, processed, stored, transported or
disposed of by or on behalf of an insured; or
(c) the
injury, sickness, disease, death or destruction
bodily injury or property damage
arises out of the furnishing by an insured of services, materials,
parts or equipment in connection with the planning, construction,
maintenance, operation or use of any nuclear facility, but if such
facility is located within the United States of America, its
territories or possessions or Canada, this exclusion (c) applies
only
to
injury to or destruction of property at such nuclear facility.
property damage to such nuclear facility and any
property threat.
IV. As used in this endorsement:
"HAZARDOUS PROPERTIES" include radioactive, toxic or explosive
properties; "NUCLEAR MATERIAL" means source material, special nuclear
material or byproduct material; "SOURCE MATERIAL", "SPECIAL NUCLEAR
MATERIAL", and "BYPRODUCT MATERIAL" have the meanings given them in the
Atomic Energy Act of 1954 or in any law amendatory thereof; "SPENT FUEL"
means any fuel element or fuel component, solid or liquid, which has
been used or exposed to radiation in a nuclear reactor; "WASTE" means
any waste material (1) containing byproduct material and (2) resulting
from the operation by any person or organization of any nuclear facility
included within the definition of nuclear facility under paragraph (a)
or (b) thereof, "NUCLEAR FACILITY" means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1) separating the
isotopes of uranium or plutonium, (2) processing or utilizing
spent fuel, or (3) handling, processing or packaging waste,
BALIS & CO., INC.
<PAGE> 24
NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE - CANADA
1. This Reinsurance does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any association of insurers or
reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or
association.
2. Without in any way restricting the operation of paragraph 1 of this clause
it is agreed that for all purposes of this Reinsurance all the original
liability contracts of the Reassured, whether new, renewal or replacement,
of the following classes, namely,
Personal Liability,
Farmers Liability,
Storekeepers Liability,
which become effective on or after 31st December, 1984, shall be deemed
to include, from their inception dates and thereafter, the following
provision: -
Limited Exclusion Provision.
This Policy does not apply to bodily injury or property damage with
respect to which an Insured is also insured under a contract of nuclear
energy liability insurance (whether the Insured is unnamed in such
contract and whether or not it is legally enforceable by the Insured)
issued by the Nuclear Insurance Association of Canada or any other group
or pool of insurers or would be an Insured under any such policy but for
its termination upon exhaustion of its limit of liability.
With respect to property, loss of use of such property shall be deemed to
be property damage.
3. Without in any way restricting the operation of paragraph 1 of this clause
it is agreed that for all purposes of this Reinsurance all the original
liability contracts of the Reassured, whether new, renewal or replacement,
of any class whatsoever (other than Personal Liability, Farmers Liability,
Storekeepers Liability or Automobile Liability contracts), which become
effective on or after 31st December, 1984, shall be deemed to include,
from their inception dates and thereafter, the following provision: -
Broad Exclusion Provision.
It is agreed that this Policy does not apply:
(a) to liability imposed by or arising under the Nuclear
Liability Act; nor
(b) to bodily injury or property damage with respect to which
an Insured under this policy is also insured under a
contract of nuclear energy liability insurance (whether
the Insured is unnamed in such contract and whether or not
it is legally enforceable by the Insured) issued by the
Nuclear Insurance Association of Canada or any other
insurer or group or pool of insurers or would be an
Insured under any such policy but for its termination upon
exhaustion of its limit of liability; nor
(c) to bodily injury or property damage resulting directly or
indirectly from the nuclear energy hazard arising from:
BALIS & CO., INC.
<PAGE> 25
(i) the ownership, maintenance, operation or use of a nuclear
facility by or on behalf of an Insured;
(ii) the furnishing by an Insured of services, materials,
parts or equipment in connection with the planning,
construction, maintenance, operation or use of any
nuclear facility; and
(iii) the possession, consumption, use, handling, disposal or
transportation of fissionable substances, or of other
radioactive material (except radioactive isotopes, away
from a nuclear facility, which have reached the final
stage of fabrication so as to be usable for any
scientific, medical, agricultural, commercial or
industrial purpose) used, distributed, handled or sold by
an Insured.
As used in this Policy:
1. The term "nuclear energy hazard" means the radioactive, toxic,
explosive or other hazardous properties of radioactive material;
2. The term "radioactive material" means uranium, thorium, plutonium,
neptunium, their respective derivatives and compounds, radioactive
isotopes of other elements and any other substances that the Atomic
Energy Control Board may, by regulation, designate as being prescribed
substances capable of releasing atomic energy, or as being requisite
for the production, use or application of atomic energy;
3. The term "nuclear facility" means:
(a) any apparatus designed or used to sustain nuclear fission
in a self-supporting chain reaction or to contain a
critical mass of plutonium, thorium and uranium or any one
or more of them;
(b) any equipment or device designed or used for (i)
separating the isotopes of plutonium, thorium and uranium
or any one or more of them, (ii) processing or utilizing
spent fuel, or (iii) handling, processing or packaging
waste;
(c) any equipment or device used for the processing,
fabricating or alloying of plutonium, thorium or uranium
enriched in the isotope uranium 233 or in the isotope
uranium 235, or any one or more of them if at any time the
total amount of such material in the custody of the
Insured at the premises where such equipment or device is
located consists of or contains more than 25 grams of
plutonium or uranium 233 or any combination thereof, or
more than 250 grams of uranium 235;
(d) any structure, basin, excavation, premises or place
prepared or used for the storage or disposal of waste
radioactive material;
and includes the site on which any of the foregoing is located, together
with all operations conducted thereon and all premises used for such
operations.
4. The term "fissionable substance" means any prescribed substance that is,
or from which can be obtained, a substance capable of releasing atomic
energy by nuclear fission.
5. With respect to property, loss of use of such property shall be deemed to
be property damage,
BALIS & CO., INC.
<PAGE> 26
NMA 1979
(11/10/84)
NOTES: Wherever used herein the terms:
"Reassured" shall be understood to mean "Company",
"Reinsured", "Reassured" or whatever other
term is used in the attached reinsurance
document to designate the reinsured company
or companies.
"Agreement" shall be understood to mean "Agreement",
"Contract", "Policy" or whatever other term
is used to designate the attached
reinsurance document.
"Reinsurers" shall be understood to mean "Reinsurers",
"Underwriters" or whatever other term is
used in the attached reinsurance document to
designate the reinsurer or reinsurers.
BALIS & CO., INC.
<PAGE> 27
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE
(Wherever the word "Reassured" appears in this Clause, it shall be deemed to
read "Reassured", "Reinsured", "Company", or whatever other word is employed
throughout the text of the reinsurance agreement to which this clause is
attached to designate the company or companies reinsured.)
(1) This reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly, and whether as Insurer or
Reinsurer, from any Pool of Insurers or Reinsurers formed for the
purpose of covering Atomic or Nuclear Energy risks.
(2) Without in any way restricting the operation of paragraph (1) of this
Clause, this reinsurance does not cover any loss or liability
accruing to the Reassured, directly or indirectly, and whether as
Insurer or Reinsurer, from any insurance against Physical Damage
(including business interruption or consequential loss arising out of
such Physical Damage) to:
I. Nuclear reactor power plants including all auxiliary property
on the site, or
II. Any other nuclear reactor installation, including laboratories
handling radioactive materials in connection with reactor
installations, and "critical facilities" as such, or
III. Installations for fabricating complete fuel elements or for
processing substantial quantities of "special nuclear
material", and for reprocessing, salvaging, chemically
separating, storing or disposing of "spent" nuclear fuel or
waste materials, or
IV. Installations other than those listed in paragraph (2) III
above using substantial quantities of radioactive isotopes or
other products of nuclear fission.
(3) Without in any way restricting the operation of paragraphs (1) and
(2) hereof, this reinsurance does not cover any loss or liability by
radioactive contamination accruing to the Reassured, directly or
indirectly, and whether as Insurer or Reinsurer, from any insurance
on property which is on the same site as a nuclear reactor power
plant or other nuclear installation and which normally would be
insured therewith except that this paragraph (3) shall not operate
(a) where Reassured does not have knowledge of such nuclear
reactor power plant or nuclear installation, or
(b) where said insurance contains a provision excluding coverage
for damage to property caused by or resulting from radioactive
contamination, however caused. However, on and after 1st
January, 1960, this subparagraph (b) shall only apply provided
the said radioactive contamination exclusion provision has
been approved by the Governmental Authority having
jurisdiction thereof.
(4) Without in any way restricting the operation of paragraphs (1), (2)
and (3) hereof, this reinsurance does not cover any loss or liability
by radioactive contamination accruing to the Reassured, directly or
indirectly, and whether as Insurer or Reinsurer, when such
radioactive contamination is a named hazard specifically insured
against.
BALIS & CO., INC.
<PAGE> 28
(5) It is understood and agreed that this Clause shall not extend to
risks using radioactive isotopes in any form where the nuclear
exposure is not considered by the Reassured to be the primary hazard.
(6) The term "special nuclear material" shall have the meaning given it
in the Atomic Energy Act of 1954 or by any Law amendatory thereof
(7) The Reassured to be sole judge of what constitutes:
(a) substantial quantities, and
(b) the extent of installation, plant or site.
BALIS & CO., INC.
<PAGE> 29
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE -
REINSURANCE - CANADA
1. This Contract does not cover any loss or liability accruing to the
Reassured, directly or indirectly, and whether as Insurer or Reinsurer,
from any Pool of Insurers or Reinsurers formed for the purpose of
covering Atomic or Nuclear Energy risks.
2. Without in any way restricting the operation of paragraph 1 of this
clause, this Contract does not cover any loss or liability accruing to
the Reassured, directly or indirectly, and whether as Insurer or
Reinsurer, from any insurance against Physical Damage (including
business interruption or consequential loss arising out of such
Physical Damage) to:
(1) Nuclear reactor power plants including all auxiliary property
on the site, or
(2) Any other nuclear reactor, installation, including
laboratories handling radioactive materials in connection with
reactor installations, and critical facilities as such, or
(3) Installations for fabricating complete fuel elements or for
processing substantial quantities of prescribed substances,
and for reprocessing, salvaging, chemically separating,
storing or disposing of spent nuclear fuel or waste materials,
or
(4) Installations other than those listed in (3) above using
substantial quantities of radioactive isotopes or other
products of nuclear fission.
3. Without in any way restricting the operation of paragraphs 1 and 2 of
this clause, this Contract does not cover any loss or liability by
radioactive contamination accruing to the Reassured, directly or
indirectly, and whether as Insurer or Reinsurer from any insurance on
property which is on the same site as a nuclear reactor power plant or
other nuclear installation and which normally would be insured
therewith, except that this paragraph 3 shall not operate.
(a) where the Reassured does not have knowledge of such nuclear
reactor power plant or nuclear installation, or
(b) where the said insurance contains a provision excluding
coverage for damage to property caused by or resulting from
radioactive contamination, however caused.
4. Without in any way restricting the operation of paragraphs 1, 2 and 3
of this clause, this Contract does not cover any loss or liability by
radioactive contamination accruing to the Reassured, directly or
indirectly, and whether as Insurer or Reinsurer, when such radioactive
contamination is a named hazard specifically insured against.
5. This clause shall not extend to risks using radioactive isotopes in any
form where the nuclear exposure is not considered by the Reassured to
the primary hazard.
6. The term "prescribed substances" shall have the meaning given it by
the Atomic Energy Control Act or by any law amendatory thereof.
BALIS & CO., INC.
<PAGE> 30
Page 2
7. The Reassured to be sole judge of what constitutes:
(a) substantial quantities, and
(b) the extent of installation, plant or site.
8. Without in any way restricting the operation of paragraphs 1,2,3 and 4
of this clause, this Contract does not cover any loss or liability
accruing to the Reassured, directly or indirectly, and whether as
Insurer or Reinsurer caused:
(1) by any nuclear incident as defined in The Nuclear Liability
Act or any other nuclear liability act, law or statute, or any
law amendatory thereof or nuclear explosion, except for
ensuing loss or damage which results directly from fire,
lightning or explosion of natural, coal or manufactured gas;
(2) by contamination by radioactive material.
NOTE: - Without in any way restricting the operation of paragraph 1,2,3 and 4 of
this clause, paragraph 8 of this clause shall only apply to all original
contracts of the Reassured whether new, renewal or replacement which become
effective on or after December 31, 1992.
NOTES: Wherever used herein the terms:
"Reassured" shall be understood to mean "Company",
"Reinsured", "Reassured" or whatever other
term is used in the attached reinsurance
document to designate the reinsured company
or companies.
"Contract" shall be understood to mean "Agreement",
"Contract", "Policy" or whatever other term
is used to designate the attached
reinsurance document.
"Reinsurers" shall be understood to mean "Reinsurers",
"Underwriters" or whatever other term is
used in the attached reinsurance document to
designate the reinsurer or reinsurers.
BALIS & CO., INC.
<PAGE> 31
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE AND LIABILITY
(BOILER AND MACHINERY POLICIES) - REINSURANCE
(1) This reinsurance does not cover any loss or liability accruing
to the Reassured as a member of, or subscriber to, any
association of insurers or reinsurers formed for the purpose
of covering nuclear energy risks or as a direct or indirect
reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of paragraph (1)
of this Clause, it is understood and agreed that for all
purposes of this reinsurance all original Boiler and Machinery
Insurance or Reinsurance contracts of the Reassured shall be
deemed to include the following provisions of this paragraph:
This policy does not apply to "loss", whether it be direct or
indirect, proximate or remote
(a) from an Accident caused directly or
indirectly by nuclear reaction, nuclear
radiation or radioactive contamination, all
whether controlled or uncontrolled; or
(b) from nuclear reaction, nuclear radiation or
radioactive contamination, all whether
controlled or uncontrolled, caused directly
or indirectly by, contributed to or
aggravated by an Accident.
(3) However, it is agreed that loss arising out of the use of
Radioactive Isotopes in any form is not hereby excluded from
reinsurance protection.
(4) Without in any way restricting the operation of paragraph (1)
hereof, it is understood and agreed that
(a) all policies issued by the Reassured
effective on or before 30th April, 1958,
shall be free from the application of the
other provisions of this Clause until expiry
date or 30th April, 1961, whichever first
occurs, whereupon all the provisions of this
Clause shall apply.
(b) with respect to any risk located in Canada,
policies issued by the Reassured effective
on or before 30th June, 1958, shall be free
from the application of the other provisions
of this Clause until expiry date or 30th
June, 1961, whichever first occurs,
whereupon all the provisions of this Clause
shall apply.
BALIS & CO., INC.
<PAGE> 32
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE
AND LIABILITY (BOILER AND MACHINERY POLICIES) -
REINSURANCE - CANADA
(1) This Reinsurance does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any association of insurers
or reinsurers formed for the purpose of covering nuclear energy risks
or as a direct or indirect reinsurer of any such member, subscriber or
association.
(2) Without in any way restricting the operation of paragraph (1) of this
Clause it is understood and agreed that for all purposes of this
Reinsurance all original Boiler and Machinery Insurance or Reinsurance
contracts of the Reassured shall be deemed to include the following
provisions of this paragraph;
This Policy does not apply to loss, whether it be direct or indirect, proximate
or remote
(a) from an Accident caused directly or indirectly by nuclear
reaction, nuclear radiation or radioactive contamination, all
whether controlled or uncontrolled; or
(b) from nuclear reaction, nuclear radiation or radioactive
contamination, all whether controlled or uncontrolled, caused
directly or indirectly by, contributed to or aggravated by an
Accident.
(3) However, it is agreed that loss arising out of the use of Radioactive
Isotopes in any form is not hereby excluded from reinsurance
protection.
(4) Without in any way restricting the operation of paragraph (1) hereof,
it is understood and agreed that policies issued by the Reassured
effective on or before 31st December, 1958, shall be free from the
application of the other provisions of this Clause until expiry date or
31st December, 1961, whichever first occurs, whereupon all the
provisions of this Clause shall apply.
NOTES: Wherever used herein the terms:
"Reassured" shall be understood to mean "Company",
"Reinsured", "Reassured" or whatever other
term is used in the attached reinsurance
document to designate the reinsured company
or companies.
"Agreement" shall be understood to mean "Agreement",
"Contract", "Policy" or whatever other term
is used to designate the attached
reinsurance document.
"Reinsurers" shall be understood to mean "Reinsurers",
"Underwriters" or whatever other term is
used in the attached reinsurance document
to designate the reinsurer or reinsurers.
BALIS & CO. INC.
<PAGE> 33
NUCLEAR ENERGY RISKS EXCLUSION CLAUSE (REINSURANCE) (1984)
(Worldwide excluding U.S.A. & Canada)
This agreement shall exclude Nuclear Energy Risks whether such risks are written
directly and/or by way of reinsurance and/or via Pools and/or Associations.
For all purposes of this agreement, Nuclear Energy Risks shall be defined as all
first party and/or third party insurances (other than Workers' Compensation and
Employers' Liability) in respect of:
I. Nuclear reactors and nuclear power stations or plant
II. Any other premises or facilities whatsoever related to or
concerned with
(a) the production of nuclear energy or
(b) the production of storage or handling of nuclear
fuel or nuclear waste
III. Any other premises or facilities eligible for insurance by any
local Nuclear Pool and/or Associations, but only to the extent
of the requirements of the local Pool and/or Association, it
being the intention always that Reinsurers shall follow the
fortunes of the Reinsured insofar as the Reinsured complies
with the requirements of any such local Pool and/or
Association.
However, this exclusion shall not apply
(a) to any insurance or reinsurance in respect of the
construction, erection or installation of
buildings, plant and other property (including
contractor's plant and equipment used in
connection therewith):
(i) for the storage of nuclear fuel -- prior to the
commencement of storage
(ii) as regards reactor installations -- prior to
the commencement of loading of nuclear fuel
into the reactor, or prior to the initial
criticality, depending on the commencement of
the insurance or reinsurance of the relevant
local Nuclear Pool and/or Association
(b) to a Machinery Breakdown or other Engineering
insurance or reinsurance not coming within the
scope of (a) above, nor affording coverage in the
"high radioactivity" zone.
N.M.A. 1975 (8/12/83) Form approved by Lloyd's Underwriters' Non-Marine
Association. 05/10/89
BALIS & CO. INC.
<PAGE> 34
WAR RISKS EXCLUSION CLAUSE
As regards interest which at time of loss or damage are on shore, no Liability
shall attach hereto in respect of any loss or damage which is occasioned by war,
invasion hostilities, acts of foreign enemies, civil war, rebellion,
insurrection, military or usurped power, or martial law or confiscation by order
of any government or public authority.
This War Exclusion Clause shall not, however, apply to interests which at time
of loss or damage are within the territorial limits of the United States of
America (comprising fifty States of the Union and the District of Columbia, its
territories and possessions, including the Panama Canal Zone and the
Commonwealth of Puerto Rico and including Bridges between the United States of
America and Mexico provided they are under United States ownership), Canada, St.
Pierre and Miquelon, provided such interests are insured under original
policies, endorsements or binders containing a standard war or hostilities or
warlike operations exclusion clause.
Nevertheless, this clause shall not be construed to apply to loss or damage
occasioned by Riots, Strikes, Civil Commotion, Vandalism, Malicious Damage,
including acts committed by agents of any government, party or faction engaged
in war, hostilities or other warlike operation, provided such agents are acting
secretly and not in connection with any operations of military or naval armed
forces in the country where the interest insured is situated.
BALIS & CO. INC.
<PAGE> 35
INSOLVENCY FUNDS EXCLUSION CLAUSE
This Agreement excludes all liability of the Company arising by contract,
operation of law, or otherwise, from its participation or membership, whether
voluntary or involuntary, in any insolvency fund. "Insolvency fund" includes any
guaranty fund, insolvency find, plan, pool, association, fund or other
arrangement, howsoever denominated, established or governed; which provides for
any assessment of or payment or assumption by the Company of part or all of any
claim, debt, charge, fee, or other obligation of an insurer, or its successors
or assigns, which has been declared by an competent authority to be insolvent,
or which is otherwise deemed unable to meet any claim, debt, charge, fee or
other obligation in whole or in part.
NOTE: Wherever used herein the terms:
"Company" Shall be understood to mean "Company", "Reinsured", "Reassured" or
whatever other term is used in the attached reinsurance document to designate
the reinsured company or companies.
"Contract" Shall be understood to mean "Agreement", "Contract", "Policy" or
whatever other term is used to designate the attached reinsurance document.
"Reinsurers" Shall be understood to mean "Reinsurers", "Underwriters" or
whatever other term is used in the attached reinsurance document to designate
the reinsurer or reinsurers.
BALIS & CO. INC.
<PAGE> 1
EXHIBIT 10.34
SPECIAL CATASTROPHE EXCESS OF LOSS
RETROCESSION AGREEMENT
ARTICLE PAGE
COVERAGE I 2
TERM AND CANCELLATION II 3
EXTENDED TERMINATION III 3
TERRITORY IV 4
EXCLUSIONS V 4
DEFINITIONS VI 7
LIMIT VII 8
NET RETAINED LIABILITY VIII 8
PREMIUM IX 9
CONTINGENT PROFIT COMMISSION X 10
EXTRA CONTRACTUAL OBLIGATIONS AND
EXCESS LIMITS LIABILITY XI 11
REPORTS AND REMITTANCES XII 13
RESERVES AND LETTERS OF CREDIT XIII 13
LOSS NOTICES AND SETTLEMENTS XIV 16
OFFSET XV 16
SALVAGE AND SUBROGATION XVI 17
DELAYS, ERRORS, OR OMISSIONS XVII 17
AMENDMENTS XVIII 18
ACCESS TO RECORDS XIX 18
INSOLVENCY XX 18
ARBITRATION XXI 20
TAXES XXII 21
FEDERAL EXCISE TAX XXIII 22
CURRENCY XXIV 22
SERVICE OF SUIT XXV 23
INTERMEDIARY XXVI 24
<PAGE> 2
SPECIAL CATASTROPHE EXCESS OF LOSS
RETROCESSION AGREEMENT
THIS AGREEMENT is made and entered into by and between TRENWICK
AMERICA REINSURANCE CORPORATION, a Connecticut corporation (hereinafter called
the "Retrocedent") of the one part, and the various Retrocessionaires as
identified by the Interests and Liabilities Agreements attaching to and forming
a part of this Agreement (hereinafter called the "Retrocessionaires") of the
other part.
WITNESSETH:
That in consideration of the mutual covenants hereinafter contained and
upon the terms and conditions hereinbelow set forth, the parties hereto agree as
follows:
ARTICLE I
COVERAGE
The Retrocessionaires will indemnify the Retrocedent, subject to the
limits set forth in the Limit Article for any loss or losses occurring on or
after inception of this Agreement under all original contracts underwritten by
the Retrocedent and classified by the Retrocedent as:
PROPERTY REINSURANCE BUSINESS ASSUMED, INCLUDING THE PROPERTY PORTIONS
OF MULTI-LINE BUSINESS AND WORKERS COMPENSATION AND/OR EMPLOYERS
LIABILITY LOSSES ARISING FROM ONE OR MORE OF THE FOLLOWING PERILS:
FIRE, LIGHTNING, EXPLOSION, STRUCTURAL COLLAPSE, WINDSTORM, HAIL,
FLOOD, SEISMIC ACTIVITY, VOLCANIC ERUPTION, COLLISION, RIOTS AND
STRIKES, CIVIL COMMOTION, OR MALICIOUS MISCHIEF, AND ANY PHYSICAL
DAMAGE AND/OR CONSEQUENTIAL LOSS COVERAGE CONTINGENT THEREON EFFECTED
BY AN INSURED ON BEHALF OF ANOTHER PARTY.
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<PAGE> 3
All reinsurance for which the Retrocessionaires will be obligated by
virtue of this Agreement will be subject to the same terms, conditions,
interpretations, waivers, modifications, and alterations as the respective
original contracts of the Retrocedent to which this Agreement applies, except as
modified herein. Nothing herein will in any manner create any obligations or
establish any rights against the Retrocessionaires in favor of any third parties
or any persons not parties to this Agreement except as provided in the
Insolvency Article.
ARTICLE II
TERM AND CANCELLATION
This Agreement will apply to all losses occurring on or after 12:01
a.m. Eastern Standard Time on January 1, 1996, and will remain in full force and
effect until 12:01 a.m. Eastern Standard Time on January 1, 1999.
This Agreement may be canceled any January 1 by either party giving at
least 60 days prior notice by certified or registered mail to the other party.
During any such period of notice, the Retrocessionaires will remain bound by the
terms of this Agreement; however, the Retrocessionaires will not be liable for
any losses occurring on or after the cancellation or expiration date.
ARTICLE III
EXTENDED TERMINATION
Should this Agreement expire while a loss occurrence covered hereunder
is in progress, subject to the other conditions of this Agreement, the
Retrocessionaires will
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<PAGE> 4
indemnify the Retrocedent as if the entire loss occurrence had arisen during the
term of this Agreement, and provided that no part of said loss occurrence is
claimed against any renewal of this Agreement.
ARTICLE IV
TERRITORY
The territorial limits of this Agreement will include the United States
of America, the District of Columbia, Canada, and incidental locations
elsewhere.
ARTICLE V
EXCLUSIONS
No reinsurance indemnity will be afforded under this Agreement for:
A. Loss or damage directly caused by war and/or civil war, but
this exclusion will not apply to business written in
accordance with the Market War and/or Civil War Exclusion
Agreement.
B. Any loss or liability accruing to the Retrocedent directly or
indirectly and whether as insurer or reinsurer from any pool
of insurers or reinsurers formed for the purposes of covering
Atomic or Nuclear Energy Risks.
C. Nuclear risks as defined in the following:
1. Nuclear Incident Exclusion Clause -- Physical Damage
-- Reinsurance (U.S.A.) attached to this Agreement,
or as may be revised hereafter by the Lloyd's
Underwriters' Non-Marine Association.
2. Nuclear Incident Exclusion Clause -- Physical Damage
-- Reinsurance (Canada) attached to this Agreement,
or as may be revised hereafter by the Lloyd's
Underwriters' Non-Marine Association.
4
<PAGE> 5
3. Nuclear Energy Risks Exclusion Clause (1994)
(Reinsurance) (Worldwide Excluding U.S.A. & Canada)
attached to this Agreement, or as may be revised
hereafter by the Lloyd's Underwriters' Non-Marine
Association.
4. Nuclear Incident Exclusion Clause -- Physical Damage
and Liability (Boiler and Machinery Policies) --
Reinsurance (U.S.A.) and (Canada) attached to this
Agreement, or as may be revised hereafter by the
Lloyd's Underwriters' Non-Marine Association.
D. Financial Guarantee, Insolvency, or Credit Business.
E. Fidelity and Surety.
F. Reinsurance of Coastal Pools when written as such.
G. Life business, other than Accidental Death and Dismemberment.
H. Aviation, Aerospace, and Satellite business.
I. Casualty business, except as set forth in the Coverage
Article.
J. Hail damage to growing or standing crops.
K. Banking or Funding Plans.
L. Target Risks as excluded in the Retrocedent's original
contracts or the original policies of the Retrocedent's
reinsureds.
M. Loss or liability excluded by the Insolvency Funds Exclusion
Clause attached to this Agreement.
N. Reinsurance assumed on an excess of loss and/or pro rata
reinsurance basis issued in the name of and for the account of
a Lloyd's Syndicate or of an insurance or reinsurance company,
whether such liability is accepted either directly or under
any form of reinsurance from other insurers and/or reinsurers,
and all such liability is excluded from the protection of this
reinsurance and cannot be taken into account in arriving at
the amount in the excess of which this reinsurance attaches.
The Retrocedent will be the sole judge as to which insurance
or reinsurance companies come within the scope of this
definition.
O. All losses sustained by the Retrocedent howsoever and
wheresoever arising including all Business Interruption,
Consequential Loss and/or other
5
<PAGE> 6
contingent losses proximately caused by a peril insured in
respect of the Retrocedent's exposures from:
1. All marine business when written as such, however not
to exclude such exposures if they emanate from a
multi-line insurance contract and/or policy.
2. All Offshore exposures arising from business of any
description connected with the oil and/or gas and/or
sulphur and/or uranium exploration and production
industries in all their phases and including all
associated support and/or service industries.
"Offshore" will be defined as:
a. That area encompassing locations covered by
oceans or seas in which the water ebbs and
flows
and/or
b. Other navigable waters or waterways which
will mean any water which is in fact
navigable by ships or vessels, whether or
not the tide ebbs and flows there, and
whether or not there is a public right of
navigation on that water.
P. Losses in respect of overhead transmission and distribution
lines and their supporting structures other than those on or
within 500 feet of the insured premises; however, public
utilities extension and/or suppliers extension and/or
contingent business interruption coverages are not subject to
this exclusion, provided that these are not part of a
transmitter's or distributor's policy.
The exclusions set forth above will not apply where the Retrocedent is
obliged to provide coverage by reason of membership in any state plan, pool,
facility, joint underwriting association or similar involuntary participation.
The Retrocedent may submit to the Retrocessionaires, for special
acceptance hereunder, business not covered by this Agreement. If said business
is accepted by the Retrocessionaires, it will be subject to the terms of this
Agreement, except as such terms are modified by such acceptance.
6
<PAGE> 7
ARTICLE VI
DEFINITIONS
The following words and phrases used in this Agreement will have the
indicated meanings:
A. "Original contracts" as used in this Agreement will mean any
and all policies, binders, certificates, acceptances,
contracts, or agreements of reinsurance, whether written or
oral.
B. "Loss occurrence" as used in this Agreement will mean all
losses arising out of or following one event. As regards
aggregate and/or stop loss original contracts assumed by the
Retrocedent, the proportion of such loss or losses that forms
part of the Retrocedent's ultimate net loss under this
Agreement will be the proportion of the whole aggregate
recovery that the original reinsured's individual catastrophe
loss bears to its total losses used in arriving at aggregate
excess recoveries.
C. "Ultimate net loss" as used in this Agreement will mean the
actual loss or losses sustained by the Retrocedent both as
regards the original contracts and this Agreement, including
100% of any claims related extra contractual obligations
and/or excess limits liabilities incurred by any original
reinsured and 80% of any claims related extra contractual
obligations and/or excess limits liabilities incurred by the
Retrocedent, on its net retained liability after making
deductions for all recoveries, salvages, and all reinsurance
(other than underlying reinsurance) whether collectible or
not. Ultimate net loss will cover loss expense incurred by the
Retrocedent (both as regards the original contracts and this
Agreement) and arising from the settlement of claims,
including interest and court costs incurred in investigation,
adjustment, and litigation and a pro rata share of salaries
and expenses of the field adjusters of the original reinsured
and the Retrocedent while adjusting such claims, and expenses
of other employees of the original reinsured and the
Retrocedent who have been temporarily diverted from their
normal and customary duties as a result of such claims.
However, both salaries of other employees and office expenses
of the original reinsured and Retrocedent will be excluded.
All salvages, recoveries, or reinsurance payments received
subsequent to any loss settlement hereunder will be applied as
if received prior to the settlement, and all necessary
adjustments will be made by the parties hereto. Nothing in
this definition, however, should be construed to mean that
losses under this Agreement are not recoverable until the
Retrocedent's ultimate net loss has been ascertained.
7
<PAGE> 8
D. "Agreement year" as used in this Agreement will mean a period of 12
consecutive months, commencing with the inception of this Agreement, or
any anniversary thereof
ARTICLE VII
LIMIT
The Retrocessionaires will be liable for up to $8,000,000 of the amount
of ultimate net loss incurred by the Retrocedent during the term of this
Agreement, subject to no more than $4,000,000 any one Agreement year in respect
of any loss or losses on the Retrocedent's net retained liability as follows:
<TABLE>
<CAPTION>
Retrocedent's Catastrophe Layer Net
------------------------------- ---
<S> <C>
100% of $2,000,000 Excess of $ 2,000,000 $2,000,000
100% of $2,000,000 Excess of $10,000,000 $2,000,000.
</TABLE>
The structure of the limit for the second and subsequent Agreement
years will be mutually agreed upon at the commencement of each Agreement year.
ARTICLE VIII
NET RETAINED LIABILITY
In computing the amount or amounts in excess of which this Agreement
attaches, only a loss or losses in respect to that portion of any reinsurance
that the Retrocedent retains net for its own account will be included. The
amount of the Retrocessionaires' liability hereunder with respect to any loss or
losses will not be increased by the inability of the Retrocedent to collect from
any other retrocessionaires any amounts that may have become due from them,
whether such inability arises from the insolvency of such retrocessionaires or
otherwise.
8
<PAGE> 9
ARTICLE IX
PREMIUM
For the first Agreement year, there will be a deposit premium of
$1,450,000, payable in equal quarterly installments of $362,500 on January 1,
1996, April 1, 1996, July 1, 1996, and October 1, 1996.
For the second Agreement year, there will be a deposit premium of
$1,450,000, payable in equal quarterly installments of $362,500 on January 1,
1997, April 1, 1997, July 1, 1997, and October 1, 1997. At January 1, 1997, the
Retrocedent will also pay an additional premium equal to 33% of losses incurred
during the first Agreement year.
For the third Agreement year, there will be a deposit premium of
$1,450,000, payable in equal quarterly installments of $362,500 on January 1,
1998, April 1, 1998, July 1, 1998, and October 1, 1998. At January 1, 1998, the
Retrocedent will also pay an additional premium equal to 100% of losses incurred
during the first two Agreement years, less previously paid additional premium.
At January 1, 1999, the Retrocedent will pay a final additional premium
of 100% of losses incurred during the three-year term of this Agreement, less
previously paid additional premium, subject, however, to a maximum additional
premium payment for the entire three-year term of $2,544,500. In no event,
however, will the total premium paid as deposit premium and additional premium
exceed $6,894,500 for the entire three-year term of this Agreement.
9
<PAGE> 10
All premiums due hereunder will be payable by wire transfer and will be
received by the Retrocessionaires within 30 days of inception of this Agreement
and within 30 days of each calendar quarter thereafter.
ARTICLE X
CONTINGENT PROFIT COMMISSION
The Retrocessionaires will allow the Retrocedent a contingent profit
commission of 100% of the net profit of this Agreement. "Net profit" as used
herein is the earned reinsurance premium as in A. below, less reinsurance losses
as in B. below:
A. "Earned reinsurance premium" is 85% of the deposit premium and
100% of any additional premium.
B. "Reinsurance losses" are the Retrocessionaires' portion of
payments (including loss expense) made on losses occurring
during the adjustment period, plus the Retrocedent's estimate
of the Retrocessionaires' portion of the reserve for
outstanding losses (including loss expenses) occurring during
said period.
The adjustment period will extend from January 1, 1996 through and
including December 31, 1998. If, by reason of cancellation of this Agreement,
the adjustment period is less than three years, it will be subject to adjustment
as if it were a complete adjustment period. The contingent profit commission
will be computed and a statement forwarded to the Retrocessionaires within 30
days following expiration or early cancellation. Upon verification of amount
due, the Retrocessionaires will immediately pay the Retrocedent.
Notwithstanding expiration or early cancellation of this Agreement,
annual computations for the adjustment period will continue to be made until all
accounts relating to income and outgo for the adjustment period have been
closed. If an incurred loss is
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<PAGE> 11
reported in the Agreement year preceding an adjustment, the Retrocedent has an
additional 60 days to recalculate the contingent profit commission. In the
event that reinsurance losses used in any contingent profit commission
computation are found to have been over- or under-estimated by subsequent
developments, then either party on an annual basis may request a revision of
previous computations to reflect such developments. The Retrocedent will refund
to the Retrocessionaires, or the Retrocessionaires will pay the Retrocedent,
whatever amount is due as a result of the revision. Such revision may be
requested even though this Agreement has expired or been terminated prior to the
time of such request.
ARTICLE XI
EXTRA CONTRACTUAL OBLIGATIONS AND EXCESS LIMITS LIABILITY
This Agreement will extend to cover losses arising from claims related
extra contractual obligations and/or excess limits liabilities whether incurred
by the original reinsured or the Retrocedent in accordance with the percent
factors as set forth in the ultimate net loss definition.
"Extra contractual obligations" as used in this Agreement will mean
those liabilities not covered under any other provision of this Agreement, which
arise from the handling of any claim on business covered hereunder, such
liabilities arising because of, but not limited to, the following: failure to
settle within the policy limit, by reason of alleged or actual negligence,
fraud, or bad faith in rejecting an offer of settlement, in the preparation of
the defense, in the trial of any action against the insured or reinsured, or in
the preparation or prosecution of an appeal consequent upon such action.
11
<PAGE> 12
"Excess limits liabilities" as used in this Agreement will mean damages
payable in excess of the original reinsured's policy limit as a result of
alleged or actual negligence, fraud, or bad faith in failing to settle and/or
rejecting a settlement within the policy limit, in the preparation of the
defense, in the trial of any action against the insured or reinsured, or in the
preparation or prosecution of an appeal consequent upon such action. Excess
limits liabilities will mean any amounts for which the original reinsured or the
Retrocedent would have been contractually liable to pay had it not been for the
limits of the original policy.
There will be no recovery hereunder for an extra contractual obligation
and/or excess limits liability loss that has been incurred due to fraud
committed by a member of the board of directors or a corporate officer of an
original reinsured or the Retrocedent, acting individually, collectively, or in
collusion with a member of the board of directors, a corporate officer, or a
partner of any other corporation, partnership, or organization involved in the
defense or settlement of a claim on behalf of an original reinsured or the
Retrocedent.
The date on which any extra contractual obligation and/or excess limits
liability is incurred by an original reinsured or the Retrocedent will be
deemed, in all circumstances, to be the date of the related occurrence under the
original policy. Nothing in this Article will be construed to create a separate
or distinct loss occurrence apart from the original covered loss occurrence that
gave rise to the extra contractual obligations and/or excess limits liabilities
discussed in the preceding paragraphs. In no event will the total limit of
liability of the Retrocessionaires exceed their applicable limit of liability as
set forth in the Limit Article.
12
<PAGE> 13
ARTICLE XII
REPORTS AND RENUTTANCES
As soon as possible following the end of each Agreement year, the Retrocedent
will furnish the Retrocessionaires with a report of reinsurance premium due them
for that period. Such report will contain such other information as may be
required by the Retrocessionaires for completion of their NAIC annual
statements. The premium due the Retrocessionaires will be balanced against
amounts previously paid as set forth in the Premium Article, and any balance
shown to be due the Retrocessionaires will be remitted with said annual report.
ARTICLE XIII
RESERVES AND LETTERS OF CREDIT
(This Article is only applicable to those Retrocessionaires who cannot
qualify for credit by each state or governmental authority having
jurisdiction over the Retrocedent's loss reserves.)
As regards original contracts issued by the Retrocedent coming within
the scope of this Agreement, the Retrocedent agrees that, when it files with the
Insurance Department or sets up on its books reserves for known losses that have
been reported to the Retrocessionaires (including loss and loss expense paid by
the Retrocedent but not recovered from the Retrocessionaires and loss and loss
expense reported and outstanding), which it is required by law to set up, it
will forward to the Retrocessionaires a statement showing the proportion of such
loss reserves applicable to them. The Retrocessionaires hereby agree that they
will apply for and secure delivery to the Retrocedent of a clean,
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<PAGE> 14
irrevocable, and unconditional Letter of Credit, dated on or before December 31
of the year in which the request is made, and issued by Citibank, N.A. (or
another member of the Federal Reserve System) or any bank approved for use by
the NAIC Securities Valuation Office, and containing provisions acceptable to
the insurance regulatory authorities having jurisdiction over the Retrocedent's
reserves in an amount equal to that Retrocessionaire's proportion of such
reserves as shown in the statement prepared by the Retrocedent. Under no
circumstances will any amount relating to reserves in respect of Incurred But
Not Reported losses be included in the amount of the Letter of Credit.
The Letter of Credit will be issued for a period of not less than one
year, and will be automatically extended for one year from its date of
expiration or any future expiration date unless 30 days prior to any expiration
date the issuing bank notifies the Retrocedent by registered mail that it elects
not to consider the Letter of Credit extended for any additional period. An
issuing bank, not a member of the Federal Reserve System or not chartered in the
state of domicile of the Retrocedent, will provide 60 days notice to the
Retrocedent prior to any expiration in the event of nonextension.
Notwithstanding any other provisions of this Agreement, the Retrocedent
or its court-appointed successor in interest may draw upon such credit at any
time without diminution because of the insolvency of the Retrocedent or of any
Retrocessionaire for one or more of the following purposes only:
A. To pay the Retrocessionaire's share or to reimburse the
Retrocedent for the Retrocessionaire's share of any loss
reinsured by this Agreement, which has not been otherwise
paid.
B. To make refund of any sum in excess of the actual amount
required to pay the Retrocessionaire's share of any liability
reinsured by this Agreement.
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<PAGE> 15
C. In the event of nonextension of the Letter of Credit as
provided for above, to establish deposit of the
Retrocessionaire's share of reserves for losses under this
Agreement. Such cash deposit will be held in an interest
bearing account separate from the Retrocedent's other assets,
and interest thereon will accrue to the benefit of the
Retrocessionaires.
The issuing bank will have no responsibility whatsoever in connection
with the propriety of withdrawals made by the Retrocedent or the disposition of
funds withdrawn, except to ensure that withdrawals are made only upon the order
of properly authorized representatives of the Retrocedent.
At annual intervals, or more frequently as agreed but never more
frequently than semi-annually, the Retrocedent will prepare a specific
statement, for the sole purpose of amending the Letter of Credit, of the
Retrocessionaires' share of reserves for losses. If the statement shows that the
Retrocessionaires' share of such reserves exceeds the balance of credit as of
the statement date, the Retrocessionaires will, within 30 days after receipt of
notice of such excess, secure delivery to the Retrocedent of an amendment of the
Letter of Credit, increasing the amount of credit by the amount of such
difference. If, however, the statement shows that the Retrocessionaires' share
of such reserves is less than the balance of credit as of the statement date,
the Retrocedent will, within 30 days after receipt of written request from the
Retrocessionaires, release such excess credit by agreeing to secure an amendment
to the Letter of Credit, reducing the amount of credit available by the amount
of such excess credit.
15
<PAGE> 16
ARTICLE XIV
LOSS NOTICES AND SETTLEMENTS
The Retrocedent will advise the Retrocessionaires promptly of all
losses that, in the opinion of the Retrocedent, appear to involve the
Retrocessionaires under this Agreement and of all subsequent developments
pertaining thereto that, in the opinion of the Retrocedent, may materially
affect them as well. Inadvertent ornission in dispatching the aforementioned
notices will in no way affect the obligation of the Retrocessionaires under this
Agreement, providing the Retrocedent informs the Retrocessionaires of such
ornission promptly upon discovery.
The Retrocedent will have the right to settle all claims under this
Agreement. The loss settlements of the original reinsured, provided they are
within the terms of the original contracts, and the loss settlements of the
Retrocedent, provided they are within the terms of this Agreement, will be
unconditionally binding on the Retrocessionaires in proportion to their
participation in this Agreement. Amounts due the Retrocedent hereunder in the
settlement of ultimate net loss will be payable by the Retrocessionaires
immediately upon reasonable evidence of the amount paid or to be paid being
furnished by the Retrocedent.
ARTICLE XV
OFFSET
The Retrocedent and each Retrocessionaire hereunder will be entitled to
deduct from amounts due the other party under this Agreement any amounts due
itself from the other party under this Agreement.
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<PAGE> 17
ARTICLE XVI
SALVAGE AND SUBROGATION
The Retrocessionaires will be credited with their share of salvage
and/or subrogation, less recovery expense, pertaining to the claims and
settlements involving reinsurance hereunder.
Salvage and/or subrogation will always be used to reimburse the
Retrocessionaires in the reverse order of their participation (including the
Retrocedent's pro rata share in excess layers) in said loss before being used in
any way to reimburse the Retrocedent for the loss as set forth in the Limit
Article. If salvage and/or subrogation is insufficient to cover the expense
incurred in its recovery, the net expense (after deduction of the amount
recovered, if any) will be added to ultimate net loss as will loss expense
incurred by the Retrocedent prior to any reimbursement for salvage and/or
subrogation.
ARTICLE XVII
DELAYS, ERRORS, OR OMSSIONS
Inadvertent delays, errors, or omissions made in connection with this
Agreement or any transaction hereunder will not relieve either party from any
liability that would have attached had such delay, error, or omission not
occurred, provided always that such error or omission is rectified immediately
upon discovery. The liability of the Retrocessionaires under this Agreement will
in no event exceed the limits specified in the Limit Article, nor
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<PAGE> 18
will the Retrocessionaires' liability be extended to cover any risks, perils, or
classes of insurance excluded herein except as set forth in the Exclusions
Article.
ARTICLE XVIII
AMENDMENTS
This Agreement may be altered or amended in any of its terms and
conditions by mutual consent of the Retrocedent and the Retrocessionaires by
addenda hereto, which will then constitute a part of this Agreement.
ARTICLE XIX
ACCESS TO RECORDS
Provided that the Retrocedent has been given reasonable notice, the
Retrocessionaires will have the right to inspect at any reasonable time, through
their designated representatives, all records of the Retrocedent that pertain in
any way to this Agreement.
ARTICLE XX
INSOLVENCY
In the event of the Retrocedent's insolvency, the reinsurance under
this Agreement will be payable by the Retrocessionaires directly to the
Retrocedent, its liquidator, receiver, conservator, or statutory successor, on
the basis of the Retrocedent's liability
18
<PAGE> 19
under the original contracts without diminution because of the Retrocedent's
insolvency or because the liquidator, receiver, conservator, or statutory
successor of the Retrocedent has failed to pay all or a portion of any claims,
subject however, to the right of the Retrocessionaires to offset from such funds
due hereunder, any sums that may be payable to it by said insolvent Retrocedent
in accordance with the Offset Article.
The liquidator, receiver, conservator, or statutory successor of the
Retrocedent will give written notice of the pendency of a claim against the
insolvent Retrocedent on the original contract or contracts reinsured within a
reasonable time after such claim is filed in the insolvency proceeding. During
the pendency of such claim, the Retrocessionaires may investigate such claim and
interpose, at their own expense, in the proceeding where such claim is to be
adjudicated, any defense that they may deem available to the Retrocedent, its
liquidator, receiver, conservator, or statutory successor. The expense thus
incurred by the Retrocessionaires will be chargeable against the Retrocedent,
subject to court approval, as part of the expense of conservation or liquidation
to the extent that such proportionate share of the benefit will accrue to the
Retrocedent solely as a result of the defense undertaken by the
Retrocessionaires. Where two or more Retrocessionaires are involved in the same
claim and a majority in interest elect to interpose defense to such claim, the
expense will be apportioned in accordance with the terms of this Agreement as
though such expense had been incurred by the Retrocedent.
19
<PAGE> 20
ARTICLE XM
ARBITRATION
In the event of any arbitration between the Retrocedent and its
original reinsureds under the terms of any original contract, the
Retrocessionaires agree unreservedly to abide by the result of such arbitration.
If any dispute will arise between the parties to this Agreement with
reference to the interpretation of this Agreement or their rights with respect
to any transaction involved, whether such dispute arises before or after
termination of this Agreement, such dispute, upon the written request of either
party, will be submitted to three arbitrators, one to be chosen by each party,
and the third by the two so chosen. If either party refuses or neglects to
appoint an arbitrator within thirty days after the receipt of written notice
from the other party requesting it to do so, the requesting party may appoint
two arbitrators. If the two arbitrators fail to agree in the selection of a
third arbitrator within thirty days of their appointment, the third arbitrator
will be selected from a panel of three names to be supplied by the Insurance
Arbitration Forums. If the two arbitrators cannot mutually agree on the
arbitrator to be chosen from this panel, each party to the arbitration will have
the right to reject one member of the panel. This rejection process will be
sequential, with the right of first rejection to be decided by a toss of a coin.
All arbitrators will be active or retired disinterested officers of insurance or
reinsurance companies not under the control of either party to this Agreement.
The arbitrators will interpret this Agreement as an honorable
engagement and not as merely a legal obligation. The arbitrators will adopt
their own rules and procedures.
20
<PAGE> 21
They will make their award with a view of effecting the general purpose of this
Agreement in a reasonable manner rather than in accordance with a literal
interpretation of the language. Each party will submit its case to its
arbitrator within thirty days of the appointment of the third arbitrator.
The decision in writing of any two arbitrators, when filed with the
parties hereto, will be final and binding on both parties. Judgment may be
entered upon the final decision of the arbitrators in any court having
jurisdiction. Each party will bear the expense of its own arbitrator and will
jointly and equally bear with the other party the expense of the third
arbitrator and of the arbitration. Said arbitration will take place in the City
in which the Retrocedent's Head Office is located unless some other place is
mutually agreed upon by the parties to this Agreement.
ARTICLE XXII
TAXES
The Retrocedent will pay all taxes (except Federal Excise Tax) on
premiums reported to the Retrocessionaires on this Agreement.
21
<PAGE> 22
ARTICLE XXIII
FEDERAL EXCISE TAX
(This Article applies to Retrocessionaires domiciled outside the United
States of America, excepting Lloyd's London Underwriters and other
Retrocessionaires exempt from Federal Excise Tax.)
The Retrocessionaires will allow for the purpose of paying Federal
Excise Tax the applicable percentage of the premium payable hereon (as imposed
under Section 4371 of the Internal Revenue Service Code) to the extent such
premium is subject to such tax. In the event of any return of premium, the
Retrocessionaires will deduct the aforesaid percentage from the return premium
payable hereon and the Retrocedent or its agent will recover such tax from the
United States Government.
ARTICLE XXIV
CURRENCY
The use of the sign "$" in this Agreement is in reference to United
States of America Dollars. Therefore, premiums due the Retrocessionaires and
loss payments due the Retrocedent hereunder will be in United States of America
Dollars.
22
<PAGE> 23
ARTICLE XXV
SERVICE OF SUIT
(This Article applies to those Retrocessionaires domiciled outside the
United States of America as well as those Retrocessionaires
unauthorized in the Retrocedent's state of domicile. This Article is
not intended to conflict with or override the parties' obligation to
arbitrate their disputes in accordance with the Arbitration Article.)
In the event of the failure of any Retrocessionaire hereon to pay any
amount claimed to be due hereunder, the Retrocessionaire, at the request of the
Retrocedent, will submit to the jurisdiction of a court of competent
jurisdiction within the United States. Nothing in this Article constitutes or
should be understood to constitute a waiver of the Retrocessionaire's right to
commence an action in any court of competent jurisdiction in the United States,
to remove an action to a United States District Court, or to seek a transfer of
a case to another court as permitted by the laws of the United States or of any
state in the United States. Service of process in such suit may be made upon
Mendes and Mount, 750 Seventh Avenue, New York, New York 10019-6829, or another
party specifically designated in the applicable Interests and Liabilities
Agreement attached hereto. In any suit instituted against it upon this
Agreement, the Retrocessionaire will abide by the flnal decision of such court
or of any appellate court in the event of an appeal.
The above-named are authorized and directed to accept service of
process on behalf of the Retrocessionaire in any such suit and/or upon the
request of the Retrocedent to give a written undertaking to the Retrocedent that
they will enter a general appearance upon the Retrocessionaire's behalf in the
event such a suit is instituted.
23
<PAGE> 24
Further, pursuant to any statute of any state, territory, or district
of the United States that makes provision therefor, the Retrocessionaire hereby
designates the Superintendent, Commissioner, or Director of Insurance or other
officer specified for that purpose in the statute (or his successor or
successors in office) as its true and lawful attorney upon whom may be served
any lawful process in any action, suit, or proceeding instituted by or on behalf
of the Retrocedent or any beneficiary hereunder arising out of this Agreement,
and hereby designates the above-named as the person to whom the said officer is
authorized to mail such process or a true copy thereof.
ARTICLE XXVI
INTERMEDIARY
Aon Re Inc. is hereby recognized as the Intermediary negotiating this
Agreement for all business hereunder. Correspondence regarding Agreement terms,
including provisional notice of cancellation (if applicable), will be
transmitted through Aon Re Inc., Two World Trade Center, New York, New York
10048. All statements for premiums, return premiums, commissions, taxes, losses,
loss expense, salvages, and loss settlements will be transmitted through Aon Re
Inc., 123 North Wacker Drive, Chicago, Illinois 60606. Payments by the
Retrocedent to Aon Re Inc. will be deemed payment to the Retrocessionaires.
Payments by the Retrocessionaires to Aon Re Inc. will be deemed payment to the
Retrocedent only to the extent that such payments are actually received by the
Retrocedent.
24
<PAGE> 25
U.S.A.
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE
1. This Reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly and whether as Insurer or Reinsurer, from
any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or
Nuclear Energy risks.
2. Without in any way restricting the operation of paragraph (1) of this
Clause, this Reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any
insurance against Physical Damage (including business interruption or
consequential loss arising out of such Physical Damage) to:
I. Nuclear reactor power plants including all auxiliary on the site, or
II. Any other nuclear reactor installation, including laboratories
handling radioactive materials in connection with reactor
installations, and "critical facilities" as such, or
III. Installations for fabricating complete fuel elements or for
processing substantial quantities of "special nuclear material", and
for reprocessing, salvaging, chemically separating, storing or
disposing of "spent" nuclear fuel or waste materials, or
IV. Installations other than those listed in paragraph (2) III above
using substantial quantities of radioactive isotopes or other
products of nuclear fission.
3. Without in any way restricting the operations of paragraphs (1) and (2)
hereof, this Reinsurance does not cover any loss or liability by radioactive
contamination accruing to the Reassured, directly or indirectly, and whether as
Insurer or Reinsurer, from any insurance on property which is on the same site
as a nuclear reactor power plant or other nuclear installation and which
normally would be insured therewith except that this paragraph (3) shall not
operate
(a) where Reassured does not have knowledge of such nuclear reactor
power plant or nuclear installation, or
(b) where said insurance contains a provision excluding coverage for
damage to property caused by or resulting from radioactive
contamination, however caused. However on and after 1st January
1960 this sub-paragraph (b) shall only apply provided the said
radioactive contamination exclusion provision has been approved
by the Governmental Authority having jurisdiction thereof.
4. Without in any way restricting the operations of paragraphs (1), (2) and
(3) hereof, this Reinsurance does not cover any loss or liability by
radioactive contamination accruing to the Reassured, directly or indirectly,
and whether as Insurer or Reinsurer, when such radioactive contamination is a
named hazard specifically insured against.
5. It is understood and agreed that this Clause shall not extend to risks
using radioactive isotopes in any form where the nuclear exposure is not
considered by the Reassured to be the primary hazard.
6. The term "special nuclear material" shall have the meaning given it in
the Atomic Energy Act of 1954 or by law amendatory thereof.
7. Reassured to be sole judge of what constitutes:
(a) substantial quantities, and
(b) the extent of installation, plant or site.
Note - Without in any way restricting the operation of paragraph (1) hereof, it
is understood and agreed that
(a) all policies issued by the Reassured on or before 31st December
1957 shall be free from the application of the other provisions of
this Clause until expiry date or 31st December 1960 whichever
first occurs whereupon all the provisions of this Clause shall
apply.
(b) with respect to any risk located in Canada policies issued by the
Reassured on or before 31st December 1958 shall be free from the
application of the other provisions of this Clause until expiry
date or 31st December 1960 whichever first occurs whereupon all
the provisions of this Clause shall apply.
<PAGE> 26
NUCLEAR INCIDENT EXCLUSION CLAUSE -
PHYSICAL DAMAGE AND LIABILITY
(BOILER AND MACHINERY POLICIES) - REINSURANCE - U.S.A.
(1) This reinsurance does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any association of insurers
or reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of paragraph (1) of this
Clause it is understood and agreed that for all purposes of this reinsurance
all original Boiler and Machinery Insurance or Reinsurance contracts of the
Reassured shall be deemed to include the following provisions of this
paragraph;
This policy does not apply to "loss," whether it be direct or indirect,
proximate or remote.
(a) from an Accident caused directly or indirectly by nuclear reaction,
nuclear radiation or radioactive contamination, all whether
controlled or uncontrolled; or
(b) from nuclear reaction, nuclear radiation or radioactive
contamination, all whether controlled or uncontrolled, caused
directly or indirectly by, contributed to or aggravated by an
Accident.
(3) However, it is agreed that loss arising out of the use of Radioactive
Isotopes in any form is not hereby excluded from reinsurance protection.
(4) Without in any way restricting the operation of paragraph (1) hereof, it
is understood and agreed that
(a) all policies issued by the Reassured effective on or before 30th
April, 1958, shall be free from the application of the other
provisions of this Clause until expiry date or 30th April, 1961,
whichever first occurs, whereupon all the provisions of this Clause
shall apply.
(b) with respect to any risk located in Canada policies issued by the
Reassured effective on or before 30th June, 1958, shall be free
from the application of the other provisions of this Clause until
expiry date of 30th June, 1961, whichever first occurs, whereupon
all the provisions of this Clause shall apply.
<PAGE> 27
NUCLEAR INCIDENT EXCLUSION CLAUSE --
PHYSICAL DAMAGE AND LIABILITY
(BOILER AND MACHINERY POLICIES) -- REINSURANCE -- CANADA
(1) This reinsurance does not cover any loss or liability accruing to
the Reassured as a member of, or subscriber to, any association of insurers or
reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of paragraph (1) of
this Clause it is understood and agreed that for all purposes of this
reinsurance all original Boiler and Machinery Insurance or Reinsurance
contracts of the Reassured shall be deemed to include the following provisions
of this paragraph;
This Policy does not apply to "loss," whether it be direct or indirect,
proximate or remote
(a) from an Accident caused directly or indirectly by nuclear
reaction, nuclear radiation or radioactive contamination,
all whether controlled or uncontrolled; or
(b) from nuclear reaction, nuclear radiation or radioactive
contamination, all whether controlled or uncontrolled,
caused directly or indirectly by, contributed to or
aggravated by an Accident.
(3) However, it is agreed that loss arising out of the use of
Radioactive Isotopes in any form is not hereby excluded from reinsurance
protection.
(4) Without in any way restricting the operation of paragraph (1)
hereof, it is understood and agreed that policies issued by the Reassured
effective on or before 31st December, 1958, shall be free from the application
of the other provisions of this Clause until expiry date or 31st December,
1961, whichever first occurs, whereupon all the provisions of this Clause shall
apply.
<PAGE> 28
INSOLVENCY FUNDS EXCLUSIONS CLAUSE
This Agreement excludes all liability of the Company arising, by contract,
operation of law, or otherwise, from its participation or membership, whether
voluntary or involuntary, in any insolvency fund. "Insolvency fund" includes
any guaranty fund, plan, pool, association, fund, or other arrangement,
howsoever denominated, established, or governed that provides for any
assessment of or payment or assumption by the Company of part or all of any
claim, debt, charge, fee, or other obligation of an insurer, or its successors
or assigns, which has been declared by any competent authority to be insolvent,
or which is otherwise deemed unable to meet any claim, debt, charge, fee, or
other obligation in whole or in part.
<PAGE> 29
NUCLEAR ENERGY RISKS EXCLUSION CLAUSE (REINSURANCE)
(WORLDWIDE EXCLUDING U.S.A. & CANADA)
This agreement shall exclude Nuclear Energy Risks whether such risks
are written directly and/or by way of reinsurance and/or via Pools and/or
Associations.
For all purposes of this agreement Nuclear Energy Risks shall be
defined as all first party and/or third party insurances (other than Workers'
Compensation and/or Employers' Liability) in respect of.
i) nuclear reactors and nuclear power stations or plant.
ii) any other premises or facilities whatsoever related to or
concerned with:
a) the production of nuclear energy; or
b) the production or storage or handling of nuclear fuel
or nuclear waste.
iii) Any other premises or facilities eligible for insurance by any
local Nuclear Pool and/or Association but only to the extent of
the requirements of the local Pool and/or Association, it being
the intention always that Reinsurers shall follow the fortunes
of the Company insofar as the Company complies with the
requirements of any such local Pool and/or Association.
However, this Exclusion shall not apply:
a) to any insurance or reinsurance in respect of the construction,
erection or installation of buildings, plant and other property
(including contractor's plant and equipment used in connection
therewith):
i) for the storage of nuclear fuel - prior to the
commencement of storage;
ii) as regards reactor installations - prior to the
commencement of loading of nuclear fuel into the
reactor, or prior to the initial criticality, depending
on the commencement of the insurance or reinsurance of
the relevant local Nuclear Pool and/or Association.
b) to any Machinery Breakdown or other Engineering insurance or
reinsurance not coming within the scope of (a) above, nor
affording coverage in the "high radioactivity" zone.
<PAGE> 30
1. This Agreement does not cover any loss or liability accruing to the
Reinsured directly or indirectly, and whether as Insurer or Reinsurer
from any Pool of Insurers or Reinsurers formed for the purpose of
covering Atomic or Nuclear Energy risks.
2. Without in any way restricting the operation of paragraph 1 of this
clause, this Agreement does not cover any loss or liability accruing to
the Reinsured, directly or indirectly, and whether as Insurer or
Reinsurer, from any insurance against Physical Damage (including
business interruption or consequential loss arising out of such Physical
Damage) to:
(a) Nuclear reactor power plants including all auxiliary property on
the site, or
(b) Any other nuclear reactor installation, including laboratories
handling radioactive materials in connection with reactor
installations, and critical facilities as such, or
(c) Installations for fabricating complete fuel elements or for
processing substantial quantities of prescribed substances, and
for reprocessing, salvaging, chemically separating, storing or
disposing of spent nuclear fuel or waste materials, or
(d) Installations other than those listed in (c) above using
substantial quantities of radioactive isotopes or other products
of nuclear fission.
3. Without in any way restricting the operation of paragraphs 1 and 2 of
the clause, this Agreement does not cover any loss or liability by
radioactive contamination accruing to the Reinsured, directly or
indirectly, and whether as Insurer or Reinsurer, from any insurance on
property which is on the same site as a nuclear reactor power plant or
other nuclear installation and which normally would be insured
therewith, except that this paragraph 3 shall not operate:
(a) where the Reinsured does not have knowledge of such nuclear
reactor power plant or nuclear installation, or
(b) where the said insurance contains a provision excluding coverage
for damage to property caused by or resulting from radioactive
contamination, however caused.
4. Without in any way restricting the operation of paragraphs 1, 2 and 3 of
this clause, this Agreement does not cover any loss or liability by
radioactive contamination accruing to the Reinsured, directly or
indirectly, and whether as Insurer or Reinsurer, when such radioactive
contamination is a named hazard specifically insured against.
5. This clause shall not extend to risks using radioactive isotopes in any
form where the nuclear exposure is not considered by the Reinsured to be
the primary hazard.
6. The term "prescribed substances" shall have the meaning given to it by
the Atomic Energy Control Act or by any law amendatory thereof.
7. Reinsured to be sole judge of what constitutes:
(a) substantial quantities, and
(b) the extent of installation, plant or site.
8. Without in any way restricting the operation of paragraphs 1, 2, 3 and 4
of this clause, this Agreement does not cover any loss or liability
accruing to the Reinsured, directly or indirectly, and whether as
Insurer or Reinsurer caused:
(a) by any nuclear incident as defined in the Nuclear Liability Act
or any other nuclear liability act, law or statute, or any law
amendatory thereof or nuclear explosion, except for ensuing loss
or damage which results directly from fire, lighting or
explosion of natural, coal or manufactured gas;
(b) by contamination by radioactive material.
NOTE: Without in any way restricting the operation of paragraphs 1,
2, 3 and 4 of this clause, paragraph 8 of this clause shall only
apply to all original contracts of the Reinsured whether new,
renewal or replacement which become effective on or after
December 31, 1992.
<PAGE> 1
Exhibit 12.0
TRENWICK GROUP INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C>
Net Income $33,848 $29,841 $20,282 $23,739 $18,539
Income Taxes 9,980 8,572 2,753 4,220 925
SUBTOTAL 43,828 38,413 23,035 27,959 19,464
FIXED CHAGRES:
Interest Expense 6,503 6,496 6,469 6,454 1,688
Deferred Debt Issuance Costs 294 276 260 244 --
Office Space & Equipment Rental 323 309 316 251 240
Total Fixed Charges 7,120 7,081 7,045 6,949 1,908
Earnings before Income Taxes
and Fixed Charges $50,948 $45,494 $30,080 $34,908 $21,372
Ratio of Earnings to Fixed Charges 7.2 6.4 4.3 5.0 11.2
</TABLE>
<PAGE> 1
What differentiates Trenwick from other companies...is the combination of the
level of our talent and the way we've organized and leveraged it.
<PAGE> 2
TRENWICK GROUP INC.
Trenwick Group Inc. is a publicly traded holding company whose principal
subsidiary, Trenwick America Reinsurance Corporation (Trenwick America Re),
underwrites reinsurance.
Trenwick America Re reinsures property and casualty risks primarily written by
U.S. insurance companies. Substantially all of Trenwick America Re's business is
produced by reinsurance brokers. The bulk of the business underwritten is
treaty, including standard and specialty business. Trenwick America Re also
underwrites facultative reinsurance.
Trenwick America Re is domiciled in Connecticut and is licensed, authorized or
approved to write reinsurance in all 50 states and the District of Columbia. It
had statutory surplus of approximately $286 million as of December 31, 1996.
Based on the most recent information prepared by the Reinsurance Association of
America (RAA), there are over 50 active U.S. property/casualty reinsurers.
Trenwick America Re ranked nineteenth among professional reinsurers at year-end
1996 when measured in terms of capital and surplus. By the same measure,
Trenwick America Re ranked fourteenth among brokerage market reinsurers. Among
independent reinsurers, those companies neither owned by nor affiliated with
large U.S. or foreign insurance or financial institutions, Trenwick America Re
ranked fourth.
Trenwick America Re is rated A+ (Superior) by A.M. Best Company, an
industry-recognized rating organization. Trenwick America Re is one of only six
brokerage market reinsurers to hold this rating, the highest currently awarded
to any company in the brokerage segment. In 1996, Standard & Poor's Insurance
Rating Services upgraded Trenwick America Re's Claims-Paying Ability Rating to
A+ (Good).
1
<PAGE> 3
FULLY DILUTED
EARNINGS PER SHARE
[BAR GRAPH]
BOOK VALUE PER SHARE
[BAR GRAPH]
2
<PAGE> 4
FIVE YEAR SUMMARY
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994 1993 1992
- - ------------------------------------------------------------------------------------------------------------------
(in thousands except per share data)
INCOME STATEMENT DATA
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net premiums written $226,364 $197,162 $139,635 $101,392 $ 81,883
- - ------------------------------------------------------------------------------------------------------------------
Net investment income 41,226 36,828 33,932 34,954 30,859
- - ------------------------------------------------------------------------------------------------------------------
Net income 33,848 29,841 20,282 23,739 18,539
- - ------------------------------------------------------------------------------------------------------------------
GAAP combined ratio 95.8% 95.6% 103.2% 102.5% 112.3%
- - ------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
- - ------------------------------------------------------------------------------------------------------------------
Net income per share
- - ------------------------------------------------------------------------------------------------------------------
Primary $ 4.95 $ 4.44 $ 3.04 $ 3.48 $ 2.76
- - ------------------------------------------------------------------------------------------------------------------
Fully diluted 4.25 3.80 2.78 3.12 2.75
- - ------------------------------------------------------------------------------------------------------------------
Dividends per share 1.24 1.12 1.00 .86 .76
- - ------------------------------------------------------------------------------------------------------------------
Book value per share 39.52 36.54 29.23 31.41 26.02
- - ------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
- - ------------------------------------------------------------------------------------------------------------------
Total assets $920,804 $820,930 $727,245 $700,407 $652,473
- - ------------------------------------------------------------------------------------------------------------------
Investments and cash 754,210 653,704 551,784 546,303 500,359
- - ------------------------------------------------------------------------------------------------------------------
Unpaid claims and claims expenses 467,177 411,874 389,298 354,582 351,897
- - ------------------------------------------------------------------------------------------------------------------
Convertible debentures 103,500 103,500 103,500 103,500 103,500
- - ------------------------------------------------------------------------------------------------------------------
Stockholders' equity 265,753 240,776 188,213 206,763 169,373
- - ------------------------------------------------------------------------------------------------------------------
Shares of common stock outstanding 6,725 6,590 6,440 6,583 6,510
- - ------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 5
CHAIRMAN'S LETTER
[PHOTO OF JAMES F. BILLETT, JR, CHAIRMAN]
DEAR FELLOW STOCKHOLDER:
Once again, I'm pleased to report that Trenwick Group Inc.'s operating
performance was excellent last year. The highlights included record earnings of
$4.25 per share and double-digit premium and EPS growth of 15% and 12%,
respectively. The Company reported record operating cash flows of $110.5 million
and growth in investment income of 12%. In addition, we achieved a superior
combined ratio of 95.8%, and Trenwick's ROE of 13.4% once again exceeded our
hurdle of twice the risk-free rate by better than 100 basis points.
All of this was difficult to accomplish in a marketplace that was oversaturated
with capital and where demand for reinsurance shrank appreciably. We continued
to prosper because we have an abundance of the industry's only scarce resource -
talented people. I'll expand on our advantage and address our focus on this
resource throughout my letter.
5
<PAGE> 6
Notwithstanding our strong operating performance, Trenwick's shares
underperformed the market in 1996. A negative return of 15.6% for the year,
including dividends, was far below my expectations. The property/casualty
insurance business, of which the reinsurance industry is a subset, also
underperformed the overall market and, excluding the pricey take-outs of
National Re (by General Re) and American Re (by Munich Re), the reinsurance
segment underperformed the market, too.
By design, there is a relatively high level of inside ownership, including
restricted stock and stock options, at Trenwick. This feature distinguishes us
from other companies in our industry. I've always believed it's fundamental to
align the interests of management and key employees with those of stockholders.
Sharing the wealth is generally the theme, but sharing the pain, from time to
time, is a real character builder. Disappointing share performance in 1996 had a
tangible impact on the fortunes of our key people. Our longer term total return
to stockholders had been top tier (e.g., through 1995, 21.26% compounded over
five years), but last year's reversal of that trend got everyone's attention.
While we can't directly control the price of our stock, we've recently taken
some steps which I believe will result in a higher correlation between the
consistently fine operating performance of the Company and its valuation in the
market.
In January 1997, we successfully completed a $110 million private offering of
8.82% Subordinated Capital Income Securities with a 40 year maturity.
Substantially all
6
<PAGE> 7
the proceeds of this financing were to be used to redeem Trenwick's outstanding
convertible debentures, to the extent holders of the debentures didn't exercise
their right to convert them into Trenwick common stock.
In February 1997, we called our outstanding convertible debentures, redeemed
$45.8 million and issued 1.2 million shares of Trenwick common stock to those
debenture-holders who elected conversion.
The combined result of these two undertakings was accretive to stockholders.
Trenwick, in effect, repurchased 944,741 shares at a price of $49.75 per share
with funds provided by opportunistic long-term financing at a competitive fixed
interest rate. Because less than 100% of the debentureholders redeemed their
debentures, Trenwick now has investments and cash at the holding company level
in excess of $75 million available for general corporate purposes, including
business expansion and share repurchases. In addition, the Company's debt to
total capitalization ratio improved to 25% from 28%.
In March 1997, Trenwick's Board approved a 3-for-2 stock split, the first in our
history. The distribution will be paid on April 15, 1997 to stockholders of
record on March 18, 1997. As a result of the conversion of nearly 56% of the
Company's convertible debentures and the subsequent stock split, the float in
Trenwick shares will increase to 11.9 million shares from 6.7 million shares,
improving liquidity for stockholders. Also in March 1997, Trenwick's Board of
Directors increased the Company's thirty-seventh consecutive quarterly dividend
by 16% over the prior quarter.
7
<PAGE> 8
The financial engineering discussed above is consistent with our historical
comprehensive approach to running the business for the benefit of stockholders.
Capital management is one of several tools we've previously employed to build
value.
We faced many challenges as a growth company in a maturing industry last year.
Price competition and consolidation in the underlying property/casualty
insurance business squeezed reinsurance margins and generally reduced demand for
reinsurance. While our premium growth exceeded comparable reinsurance industry
growth rates, our rate of growth declined to 15% from 41% in 1995 and 38% in
1994. I expect our rate of growth to remain in double digits in 1997, but to be
lower than last year's rate.
Strategic hiring is another important tool we use to build value. We grew at a
faster pace in 1996 than the rest of the pack because of our investment in
additional talent in 1995, which I wrote to you about in some detail last year.
The experienced team we acquired caused our core casualty treaty business to
increase at a net rate of 20%, including both voluntary and involuntary
shrinkage in our renewal business. This investment delivered immediate returns
last year and will improve our longer term prospects, as well.
Our initiatives toward new strategic hires in 1996 were either unsuccessful or
incomplete. We're in the market, as I write, to attract talented individuals or
teams of individuals who are prepared to trade their
8
<PAGE> 9
intellectual assets or proprietary skills and relationships for a seat at
Trenwick's collaborative management table and a stake in the incremental value
they contribute. I want to increase our already disproportionate share of this
scarce resource. I believe it's the lowest risk/highest return consolidation
strategy in our industry.
For the past few years, I've written to you about our tactic of engaging in
strategic alliances. We've defined strategic alliances as reinsurance
relationships with reinsurance market leaders in lines of business where we
don't have expertise, or don't have current plans to build the infrastructure
necessary to compete successfully as a leader in those lines ourselves. Call it
the "join'em rather than fight'em" approach. As a rule of thumb, we believe
strategic alliances must be long-term in intent, quota share in form and have
the potential to contribute $1 per share (pre-split) in GAAP earnings within 36
months. In 1996, we celebrated the fourth successive year of our very profitable
strategic alliance with PXRE Re. In addition, we entered into two new strategic
alliances last year; one with Transatlantic Reinsurance Company and another with
Duncanson & Holt, a wholly-owned subsidiary of UNUM Corporation. Details of
these new partnerships are outlined in the 1996 Operations Review in this Annual
Report. In 1996, strategic alliances accounted for 9% of Trenwick's net
premiums. I expect our three fully operational alliances will represent 12% of
our net writings in 1997.
9
<PAGE> 10
There is a common thread that connects our predilection for strategic hiring and
strategic alliances: talented people. Whether we acquire them or ally with them,
I believe they're the key ingredient for profitable long-term growth.
We also looked to build value last year through continued efforts on the
merger/acquisition front. We had several discussions, none of which developed
into a feasible plan. As with the other value-building tools we use, we remain
open to discussions with potential partners who need the strengths or structure
we bring and who offer an opportunity for us to build more value jointly than
independently. We believe the best opportunities for expediting growth in value
are with organizations whose talents are complementary to our own.
While I believe there is a dearth of talented people in our industry, I don't
mean to suggest that we're the only company that has any. What differentiates
Trenwick from other companies, however, is the combination of the level of our
talent and the way we've organized and leveraged it.
Frankly, not one of us is totally capable of performing all functions at the
highest skill level. But, we've designed a unique series of integrated
marketing, underwriting and operational processes that interface our best
talents at their respective strongest points. The result is a better answer for
all constituencies. For long-term stockholders, Trenwick's systematic and
multidimensional approach to the business, its unim-
10
<PAGE> 11
peachable balance sheet and its superior track record represents more than a
safe haven in uncertain times. Trenwick is a company that's growing
deliberately, both by acquiring talented people and by creating an environment
where those talents can produce real gains.
Before I close, I'd like to ask that you remember Donald E. Chisholm, a director
of Trenwick since 1995 and a member of the Board's Compensation Committee since
1996. Don died on March 1, 1997 after an extended illness. He was 58 years old.
While his tenure at Trenwick was far too brief, his experience in the industry
was considerable. In over three decades of service, Don was associated with
three reinsurance companies in addition to ours, one as a founder and two as
Chief Executive. Don had a wry sense of humor and was a wily negotiator and
loyal friend. I'll miss his savvy advice and good company.
I'll write to you throughout the year to discuss our plans and results. I'll be
available at our Annual Meeting in May or at other mutually convenient times to
answer your questions or receive your input.
/s/ James F. Billett, Jr.
James F. Billett, Jr.
Chairman, President and
Chief Executive Officer
11
<PAGE> 12
1996 OPERATIONS REVIEW
[PHOTO OF
Left to Right Paul Feldsher, Stephen H. Binet, Robert A. Giambo, James F.
Billett, Jr., James E. Roberts, Alan L. Hunte]
Trenwick increased net written premiums to $226.4 million in 1996, despite a
softening of market conditions. This increase represents the Company's fourth
consecutive year of premium growth. Although changes in the reinsurance
environment slowed the rate of premium growth to 15% from the previous year's
41% pace, Trenwick succeeded in surpassing the domestic reinsurance industry's
overall premium growth rate of 4.5% for the year.
The property and casualty industry, of which reinsurance is a part, struggled
through the eighth year of prolonged price competition. Lower rates, broadened
coverage and an abundance of capacity were evident in most lines of insurance.
Some ceding companies sought to sustain growth by buying less reinsurance and
retaining more premium. Others, challenged by shrinking margins
13
<PAGE> 13
and fierce competition, pushed for reductions in their reinsurance costs through
rate decreases or higher ceding commissions on the reinsurance they continued to
place.
In mid-year, Lloyd's of London successfully completed its Reconstruction and
Renewal plan, ending several years of uncertainty over its ability to continue
as a viable market. As new sources of capital rushed to enter Lloyd's, its
underwriters embarked on an aggressive attempt to recapture business, including
specialty reinsurance business, that had fled the London market in favor of
domestic reinsurers.
The increasingly competitive climate was a significant factor in prolonging the
consolidation of the reinsurance industry which began in the early 1990's.
Eleven reinsurance companies were acquired, merged or withdrew from the U.S.
market in 1996. While the previous restructuring of the business had been
confined to the brokerage segment of the market, the most recent wave of
activity breached the direct segment. Two of the six U.S. direct reinsurers were
acquired in 1996. A third underwent a major capital and structural
reorganization.
Continued attrition in the industry, including disruption in the direct segment,
created openings for those broker market reinsurers with the credentials to meet
reinsurance buyers' increasingly stringent financial criteria. Trenwick, with
statutory surplus of approximately $286 million at the end of 1996, an A+
(Superior) rating from A.M. Best Company and an A+ (Good) Claims-Paying Ability
Rating from Standard & Poor's Insurance Rating Services, was well qualified to
benefit from those opportunities.
14
<PAGE> 14
In 1996, Trenwick worked to grow its premium writings by solidifying its
relationships within the reinsurance brokerage community and by enhancing its
reputation as a significant participant in lower-layer casualty placements.
Trenwick added a substantial number of new casualty accounts and created
incremental growth by entering into new strategic alliances with market leaders
in product lines in which it did not materially participate. The Company also
worked to further boost productivity, strengthening its ability to compete even
more efficiently in an increasingly difficult environment.
OPERATIONS
For the fourth straight year, Trenwick performed at a record level of
productivity. While overhead costs rose $1.6 million, including the first full
year of expenses associated with the addition of a team of senior underwriters
in mid-1995, net earned premiums grew by $33.7 million and the overhead ratio
(calculated by dividing underwriting expenses by net earned premium) declined by
6%.
Through attrition, the number of people employed by Trenwick declined 4% during
1996 as the Company remained committed to rethinking positions rather than
replacing them. The Company also continued its efforts to maximize the average
premium associated with each transaction. Net written premiums expanded by 15%
while the number of treaty casualty contracts, which account for most of
Trenwick's business, shrank by 2%.
15
<PAGE> 15
One component of the Company's ability to write and process more business with a
relatively stable head count has been a continuous review of its information and
support systems. In 1996, Trenwick concluded a company-wide upgrade of computer
hardware and software. During the year, the Information Systems Department also
initiated and completed an extensive project to address the "Millennium Problem"
involving recognition of the year 2000 by all the Company's software, a task
many companies have not yet tackled, without disrupting operations and with
minimal use of outside assistance.
The revenue per employee and overhead ratio graphs below further illustrate
Trenwick's consistent progress in controlling costs and infrastructure. The
ability to significantly expand its business while utilizing existing
resources, which Trenwick has cultivated over the last five years, is an
increasingly valuable skill in an environment where profit margins are under
increasing pressure.
REVENUE PER EMPLOYEE OVERHEAD RATIO
(in thousands)
[BAR GRAPH] [BAR GRAPH]
16
<PAGE> 16
UNDERWRITING
Trenwick's underwriting methodology combines transactional analysis with a
formal control process. Underwriters review transactions from a broad spectrum
of classes and lines of business. Their decision to participate or decline is
based on an assessment of the profit potential of the individual transaction
rather than on a predetermined profile of the Company's overall portfolio.
Overlying the transactional review is a formal system of collaborative
referrals, actuarial reviews and audits that evaluates the Company's
underwriting practices, ensures that exposures are properly identified and
guards against significant losses. A committee composed of the Company's senior
underwriters and its chief actuary periodically reviews underwriting policy and
monitors accumulations and concentrations of risk in both the property and
casualty segments of Trenwick's business.
As market conditions softened during 1996, Trenwick continued to measure
individual transactions against a standard of current or reasonably foreseeable
underwriting profit - i.e. premium that exceeds projected claims and expenses.
Consequently, Trenwick was willing to participate in less than half the
transactions offered to it in 1996, and the Company withdrew from a number of
renewal accounts that did not offer the prospect of underwriting profitability.
Statutory combined ratio for 1996 rose nominally to 95.7% from 95.5% in 1995,
assisted by favorable development in prior years' reserves, the absence of major
catastrophes which would have impacted Trenwick primarily through its strategic
alliance with PXRE Reinsurance Company (PXRE Re), and the prudent purchase of
outgoing reinsurance to protect results in a declining market.
17
<PAGE> 17
Trenwick underwrites three types of business. Facultative is underwritten on a
risk-by-risk basis where Trenwick applies its own pricing to the individual
exposure. Treaty is divided into standard treaty business and specialty treaty
business. Standard treaty involves blocks of risks where the class of business
or the size and longevity of the account generate sufficient data for analysis
by a variety of actuarial techniques. Specialty treaty business also entails
grouping multiple risks, but generally involves classes or coverages which are
less statistically predictable. Trenwick underwrites this business with a hybrid
methodology combining quantitative tests with a more detailed examination of the
original risks, rates and coverages within the block of business.
In April 1993, shortly after Trenwick initiated the controlled growth strategy
it continues to pursue, the Company embarked on a strategic alliance with PXRE
Re. By aligning with a leader in property catastrophe reinsurance with a
worldwide spread of business, Trenwick was able to immediately benefit from the
rise in catastrophe rates that followed Hurricane Andrew in 1992 and augment its
own expertise in an area of the business in which it was a minor participant.
Trenwick and PXRE Re continued as strategic partners through 1996. Although
property catastrophe rates have drifted downward since 1993 and PXRE Re has
responded by reducing its premium writings, Trenwick continued to derive
significant profits from the relationship.
Trenwick added to the premium it underwrites on its own behalf by forging two
additional strategic alliances in 1996. Early in the year, Trenwick brought
additional capacity to the expertise provided by Transatlantic
18
<PAGE> 18
Reinsurance Company (Transatlantic Re), the recognized domestic leader in
reinsurance of health care professional liability. This type of specialty
reinsurance generally involves large limits, and those reinsurers with
significant capacity enjoy commensurate pricing advantages.
In October, Trenwick entered into a partnership with Duncanson & Holt (D&H), a
wholly-owned subsidiary of UNUM Corporation. Duncanson & Holt, which functions
as an underwriting manager for a number of pools and reinsurance facilities, is
the largest provider of accident and health reinsurance in the United States.
Trenwick assumes a portion of the reinsurance from a broad base of the business
underwritten by Duncanson & Holt. In addition, the Company allows D&H to issue
reinsurance in Trenwick's name to those D&H property and casualty clients who
feel more comfortable buying from a reinsurer in the same segment of the
industry, like Trenwick, than from life reinsurers who constitute the majority
of the participants in D&H's syndicated facilities.
Both of these new strategic alliances extended Trenwick's activities into areas
in which it did not previously participate. Because of the accounting provisions
that characterize reinsurance transactions, only a portion of the annualized
premiums associated with the Transatlantic relationship was reported in 1996.
Premiums and fees derived from the Duncanson & Holt alliance, which began in the
fourth quarter, will not be reflected until 1997.
19
<PAGE> 19
The table below compares Trenwick's total net premiums written, including
premiums from the PXRE Re and Transatlantic alliances, by type of business for
the last two years:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- - -------------------------------------------------------------------------------------
CASUALTY
- - -------------------------------------------------------------------------------------
<S> <C> <C>
Standard Treaty $144,074 $108,330
- - -------------------------------------------------------------------------------------
Specialty Treaty 46,048 50,593
- - -------------------------------------------------------------------------------------
Facultative 6,404 6,035
- - -------------------------------------------------------------------------------------
196,526 164,958
- - -------------------------------------------------------------------------------------
PROPERTY 29,838 32,204
- - -------------------------------------------------------------------------------------
TOTAL $226,364 $197,162
- - -------------------------------------------------------------------------------------
</TABLE>
The 19% increase in casualty premiums was the result of a 62% rise in new
business over 1995 and a 3% advance in renewal premiums. Trenwick added 48 new
treaty casualty accounts in 1996, causing new casualty premiums to surge. The
influx in new business reflects the momentum of the Company's marketing program,
augmented by the success of a team of four senior underwriters, who joined the
Company during 1995, in attracting incremental business to Trenwick.
Specialty renewal business was adversely impacted by the decision of several
large ceding companies to buy less reinsurance on maturing programs where
sufficient data now allows the ceding company to predict future results with a
higher degree of certainty.
For the past four years, Trenwick has lobbied for larger shares on selected
existing casualty accounts. The Company boosted its participations on 30 treaty
transactions in 1994 and 26 in 1995. Over time, Trenwick's
20
<PAGE> 20
ability to garner greater shares of existing transactions diminishes as buyers
consolidate their placements among a handful of high quality incumbent
reinsurers. Expanding limits of some reinsurance programs and continuing
attrition among reinsurers afforded a number of opportunities in 1996, and
Trenwick broadened its participation on 20 renewal accounts during the year.
However, the effect of these larger shares on the level of 1996 renewal premiums
was essentially offset by increased retentions by ceding companies, Trenwick's
withdrawal from several renewals which did not meet its underwriting criteria
and the difficulties experienced by many insurance company cedants as they
struggled to maintain market share in the face of fierce competition.
Consequently, continuing casualty business increased by only 3% over 1995.
Trenwick increased its facultative premiums by 6% in 1996. Competition in this
commodity line closely mirrored the contentious conditions prevalent in the
general insurance market. The Company continued to focus its facultative
activities in the lower layers of commercial auto liability. Trenwick applies
its own pricing to this type of business and can quickly select from a large
number of submissions, increasing the likelihood of profitability. Facultative
business is exclusively casualty and constitutes approximately 3% of Trenwick's
net premiums.
In the absence of large natural disasters producing significant losses to the
U.S. reinsurance market in 1996, property reinsurance rates continued their
downward slide. Guy Carpenter & Co., a leading reinsurance brokerage firm,
recently estimated the reduction in property reinsurance costs at approximately
17%. As a result, Trenwick's total property premiums, including those obtained
from its
21
<PAGE> 21
partnership with PXRE Re, dropped 7% to $29.8 million. The Company quoted only
13% of new transactions offered to it and added only two new accounts over the
year.
The graphs below display the distribution of the types and lines of business
that comprised Trenwick's underwriting portfolio at the end of 1996:
1996 NET PREMIUMS WRITTEN BY TYPE
[PIE CHART]
<TABLE>
<CAPTION>
<S> <C>
Standard Treaty Casualty 63.7%
Facultative 2.8%
Treaty Property 13.2%
Specialty Treaty Casualty 20.3%
</TABLE>
1996 NET PREMIUMS WRITTEN BY LINE
[PIE CHART]
<TABLE>
<CAPTION>
<S> <C>
Property 20.8%
Medical Malpractice 4.3%
Products Liability 1.1%
Workers' Compensation 9.1%
Miscellaneous 4.6%
Auto Liability 28.5%
General Liability 10.0%
Errors & Omissions 21.6%
</TABLE>
22
<PAGE> 22
By type of business, casualty represented 87% of total net written premiums in
1996, up from 84% in 1995, reflecting deteriorating property pricing. By line of
business, auto liability and errors and omissions liability for professionals
each showed small proportional decreases but totaled slightly more than half of
Trenwick's business. Medical malpractice rose from 3.5% of the portfolio in 1995
to 4.3% in 1996 directly as a result of the new strategic alliance with
Transatlantic Re. Workers' compensation, which had been negligible in prior
years, jumped to a 9.1% share in 1996. This business was derived from several
new transactions with regional writers of this line. Like the bulk of Trenwick's
casualty business, the Company participated in lower layers of these reinsurance
placements. The combination of relatively low attachment points, narrow
reinsurance limits and the characteristics of lines such as workers'
compensation and auto liability allows for more meaningful actuarial analysis
and generally produces more stable and predictable results than more volatile
types of reinsurance.
New casualty business represented approximately one third of Trenwick's total
premiums in 1996. Because of the time required for premium to flow through the
pipeline between insurance company and reinsurer, new casualty premiums first
recorded in any given year include premiums from accounts first written up to
two years before. The growth in 1996 new casualty was the cumulative product of
several years of controlled expansion. The senior underwriters who joined the
Company in mid-1995 from Re Capital Corporation, which was acquired by another
reinsurer, created new opportunities for Trenwick on accounts which were already
familiar to them and were a major factor in fueling the premium pipeline.
23
<PAGE> 23
Included in the new business attracted by the ex-Re Capital underwriters were
several large transactions with regional or smaller ceding companies. Business
from these sources, which are generally more reinsurance dependent than larger
companies, more than offset business lost to increased retentions by
multinational cedants.
Smaller ceding companies often buy quota share, or proportional, reinsurance.
While the level of quota share business increased somewhat from 1995, more than
half of Trenwick's 1996 premiums were written on an excess of loss basis. Excess
business affords reinsurers direct control of the reinsurance pricing for any
transaction and some degree of insulation from competitive conditions in the
underlying insurance market.
The way in which reinsurance is bought and distributed is in the midst of a
dramatic transformation. Buyers have concentrated their placements within a
small group of top-tier trading partners that often includes a mix of direct and
broker market reinsurers. Consolidation among brokers has created large,
well-integrated intermediaries which are becoming increasingly adept at
generating reinsurance opportunities from related retail insurance operations or
underwriting managers farther down the distribution chain.
24
<PAGE> 24
The goal of Trenwick's marketing effort has been to establish the Company among
the handful of broker markets considered for the most desirable transactions.
Recently, several broker market reinsurers have attempted to short-circuit the
distribution system by establishing or acquiring insurance subsidiaries.
Trenwick chooses not to compete with its clients and relies on independent
reinsurance intermediaries to supply its business from non-related sources. In
1996, Trenwick realigned its systematic marketing process, magnifying its focus
on cementing or creating relationships with those individual brokers who handle
or have access to desirable business. Trenwick's underwriters spent a record
total of 882 working days making 449 personal visits updating market and account
intelligence, ensuring the broadest possible selection of new business
opportunities and positioning the Company at the top of the list for additional
shares of desirable transactions.
In the last four years, Trenwick has secured a position in the top tier of
broker market reinsurers and as a market of choice for lower-layer casualty
business. In 1996, Trenwick expanded its business in size as well as scope, and
worked both smarter and harder to exploit opportunities created by an evolving
distribution system. Despite turbulent market conditions, Trenwick successfully
leveraged relationships into growth and expertise into earnings.
25
<PAGE> 25
INVESTMENTS
Trenwick manages its fixed-income portfolio using an investment process that
matches the duration of a segregated portion of the Company's invested assets to
the duration of its expected liabilities. The balance of the Company's invested
assets are managed to maximize overall yield within the constraints of
Trenwick's conservative investment guidelines. The process allows for better
management of the risks on both sides of the balance sheet.
During 1996, the performance of Trenwick's investment portfolio met its
objectives, both in terms of investment yield, credit quality and
diversification. Since 1994, the Company's improved risk management capabilities
have enabled it to reduce the potential volatility of its fixed-income
securities primarily through additional diversification. Greater emphasis has
also been given to investments with minimal call risk to further reduce the
impact lower interest rates might have on the portfolio's overall performance.
The investment climate in 1996 posed several challenges for the Company.
Maintaining the Company's objectives of a conservatively run portfolio while at
the same time producing consistent growth in income was increasingly difficult
given current relatively low interest rates, lack of adequate supply of
acceptable securities and the highly competitive insurance and reinsurance
market.
26
<PAGE> 26
Declining underwriting margins often require companies to revisit their
investment guidelines to explore ways of generating additional income. Such
changes in portfolio strategy can result in an unacceptable level of investment
risk. Trenwick's investment guidelines remained unchanged in 1996. These
guidelines allowed Trenwick to continue to employ conservative investment
strategies which better balance issues such as liquidity, credit risk, interest
rate risk and volatility.
In 1996, net investment income increased 12% to $41.2 million compared to $36.8
million in 1995, primarily as a result of the sustained growth in Trenwick's
invested asset base. After-tax investment income was $32.1 million versus $28.9
million. Despite the rising interest rate environment, as evidenced by an
increase of 83 basis points in the five-year treasury yield, the overall
pre-tax investment yield declined by 20 basis points, as a result of lower
reinvestment rates on maturities. As of year-end 1995, the Company had net
unrealized gains in its portfolio of $26.7 million. At year-end 1996, the
Company had unrealized gains in its portfolio of $18.1 million, a decrease in
the fair value of the Company's invested assets of $8.6 million, primarily
attributable to lower interest rates. This decline of $5.6 million after-tax, or
$.83 per share, reduced the overall increase in the Company's book value during
1996.
27
<PAGE> 27
Trenwick's fixed-income investment portfolio consisted entirely of investment
grade securities, with 92% having a quality rating of Aa or better. The
following graphs illustrate the composition of Trenwick's investment portfolio
and the quality of its fixed-income investments as of December 31, 1996:
INVESTMENT ASSET ALLOCATION
[PIE CHART]
<TABLE>
<CAPTION>
<S> <C>
Corporate Securities 5.0%
Other 6.1%
U.S. Government Bonds 12.2%
Mortgage & Asset-backed Securities 28.0%
Tax-exempt Bonds 48.7%
</TABLE>
ASSET QUALITY RATINGS
[PIE CHART]
<TABLE>
<CAPTION>
<S> <C>
A 7.6%
Aa 10.0%
Aaa 82.4%
</TABLE>
28
<PAGE> 28
REPORT OF MANAGEMENT
The management of Trenwick is responsible for the 1996 consolidated financial
statements and all other information presented in this Annual Report. The
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles (GAAP), determined by management to be
appropriate, and include amounts based on management's informed estimates and
judgements. Financial information presented elsewhere in this Annual Report is
consistent with the consolidated financial statements. The appropriateness of
data underlying such financial information is monitored through internal
accounting controls, independent accountants and the Board of Directors acting
through an Audit Committee.
Trenwick maintains a system of internal accounting controls designed to
reasonably assure the integrity and reliability of financial reporting and to
provide reasonable assurance to management and the Board of Directors that
assets are safeguarded and that transactions are executed in accordance with
management's authorization and recorded properly. The system of internal
accounting controls is supported by the selection and training of qualified
personnel, by the appropriate division of responsibilities and by written
policies and procedures.
The Audit Committee of the Board of Directors is composed solely of outside
directors who oversee management's financial reporting responsibilities. The
Committee is responsible for recommending to the Board of Directors the
appointment of the independent accountants, which is subject to the ratification
of stockholders. The Committee
29
<PAGE> 29
meets periodically with management and the independent accountants to review
reports of management and the independent accountants regarding accounting
policies and practices, audit results and internal accounting controls. The
Committee has direct access to the independent accountants and meets with them
without management present to discuss the results of the audit.
The 1996 consolidated financial statements have been audited by Trenwick's
independent accountants, Price Waterhouse LLP, in accordance with generally
accepted auditing standards and have been reviewed by the Audit Committee of the
Board of Directors. This audit by Price Waterhouse LLP includes an evaluation of
the internal control structure to the extent necessary to determine the audit
procedures required to express their opinion on the consolidated financial
statements.
/s/James F. Billett, Jr.
- - ------------------------
James F. Billett, Jr.
Chairman, President and
Chief Executive Officer
30
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INDUSTRY OVERVIEW
The property and casualty reinsurance industry is currently in its eighth
consecutive year of soft market conditions. Despite the record level of
catastrophes since 1989 and the continued strengthening of reserves for exposure
to environmental and asbestos losses, there has been little overall rate
improvement in the reinsurance environment. Competition has, in fact, increased
in recent years as a result of the ability of companies to raise additional
capital through public and other financing, the use of both traditional and
non-traditional reinsurance products and realized gains on invested assets.
These factors have mitigated any positive impact which may have occurred from
the decline in the number of reinsurance companies through withdrawal or
acquisition. The remaining companies are larger, offer significantly more
capacity to ceding companies and have greater access to capital through capital
markets or their parent organizations. Further, Lloyd's of London has rebounded
from a period of uncertainty and is now aggressively competitive. The result is
an oversupply of capacity in the reinsurance industry, which is more than
capable of writing the current level of domestic premiums. In 1996, domestic
premiums as reported by the RAA amounted to $18.9 billion, an increase of 4.5%
compared to $18.1 billion in 1995.
During this period of soft market conditions, Trenwick has taken advantage of
both the availability of capital in the financial markets and new opportunities
in the business. In 1992, Trenwick raised additional capital through a
convertible debt offering, thereby increasing its capacity for underwriting
risks and positioning the Company to take advantage of market opportunities.
Having written
31
<PAGE> 31
a majority of its business since 1986, Trenwick has not had to materially
strengthen its reserves for any exposure to environmental or asbestos claims,
enabling the Company to focus all of its resources on the development of future
business. Over the following several years, Trenwick implemented several
strategic initiatives which enabled it to increase its premium writings during
the current soft market. These included increased participations in renewal
business through increased marketing efforts as reinsurance buyers consolidated
their business within a smaller number of higher quality reinsurers such as
Trenwick. This result was augmented by the hiring of a team of senior
underwriters in 1995 from a company purchased by another reinsurer. Trenwick
also initiated several strategic alliances as an entry into lines of business
not then written by the Company. Partners in these alliances include PXRE Re, a
leader in property catastrophe reinsurance, Transatlantic Re, a leading
reinsurer in healthcare professional liability and Duncanson & Holt (a
wholly-owned subsidiary of UNUM Corporation), the largest provider of accident
and health reinsurance in the United States. As a result of these initiatives,
Trenwick has established itself as one of the leading broker market reinsurers
in the United States. Trenwick America Re is rated A+ (Superior) by A.M. Best
Company, the highest rating assigned to any broker segment reinsurer, and is
assigned a Claims-Paying Ability Rating of A+ (Good) by Standard & Poor's.
RESULTS OF OPERATIONS
Premiums
In 1996, Trenwick reported net premiums written of $226.4 million, a 15%
increase over 1995. This compares to a 41% increase in net premiums written in
1995 over 1994. The growth in premium volume in 1996 resulted from a 19%
increase in casualty business, which represents 87% of the Company's business.
This growth was partially offset by a 7% decrease in property business,
including property catastrophe business written pursuant to the Company's
strategic reinsurance agreement with PXRE Re. The increase in casualty business
is attributable to an increase in new casualty business. This business was
developed primarily by the senior underwriting executives
32
<PAGE> 32
hired in 1995 through existing and new relationships with various reinsurance
brokers. New casualty business, representing 33% of total premium writings in
1996, increased 62% over 1995. Continuing casualty business, which consists of
increases in participations in renewal transactions and growth in the original
business written by ceding companies, representing 54% of total premium writings
in 1996, increased 3% in 1996 over 1995. In 1996, insurance companies continued
to increase their retentions, thereby reducing the amount of reinsurance placed
with reinsurers. This reduction has primarily affected the Company's specialty
business and reduced the overall rate of growth in casualty business. In
addition, the Company declined to renew certain accounts which did not meet its
pricing standards. Property business, which represented 13% of total premium
writings in 1996, decreased as a result of continued price deterioration
experienced throughout the year. During 1995, Trenwick modified its process of
estimating premiums from ceding companies, resulting in an increase in accruals
for unreported premiums written at December 31, 1996 of $15.1 million as
compared to 1995, and an increase of $16.6 million in 1995 over 1994. These
estimated premiums did not materially affect the Company's earnings either in
1996 or 1995.
The following table sets forth gross premiums written, net premiums written and
net premiums earned for the periods indicated:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
<S> <C> <C> <C>
Gross premiums written $ 247,358 $ 214,336 $ 153,834
Ceded premiums written (20,994) (17,174) (14,199)
Net premiums written $ 226,364 $ 197,162 $ 139,635
Net premiums earned $ 211,069 $ 177,394 $ 132,683
</TABLE>
33
<PAGE> 33
Underwriting Expenses
The combined ratio is one means of measuring the profitability of a property and
casualty reinsurance company. The combined ratio reflects underwriting
experience, but does not reflect income from investments or provisions for
income taxes. A combined ratio below 100% indicates profitable underwriting, and
a combined ratio exceeding 100% indicates unprofitable underwriting. Although a
reinsurer may have unprofitable underwriting results, the reinsurer may still be
profitable because of investment income earned on its accumulated invested
assets. In 1996 and 1995, Trenwick recorded an underwriting profit of $8.8
million and $7.7 million, respectively, compared to an underwriting loss in 1994
of $4.2 million.
The following table sets forth Trenwick's combined ratios and the components
thereof calculated on a GAAP basis for the periods indicated, together with
Trenwick America Re's combined ratios calculated on a statutory basis:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Claims and claims
expense ratio 61.3% 63.7% 70.0%
Expense ratio
Policy acquisition
expense ratio 27.8 24.8 25.5
Underwriting expense ratio 6.7 7.1 7.7
Total expense ratio 34.5 31.9 33.2
Combined ratio 95.8% 95.6% 103.2%
Trenwick America Re
statutory combined ratio 95.7% 95.5% 103.1%
</TABLE>
The most significant underwriting cost affecting a reinsurance company's
underwriting result is represented by its claims and claims expense ratio, which
is the ratio of incurred claims and claims adjustment expenses to net earned
premiums. The claims and claims expense ratio is a function of estimates of
claims associated with business written in the current period and changes in
estimates of claims on business written in prior periods. As indicated in the
preceding table, Trenwick's claims
34
<PAGE> 34
and claims expense ratio improved in 1996 and 1995 compared to 1994, reflecting
the lack of any material adverse impact from property catastrophe claims in 1996
or 1995. In 1994, catastrophe claims included $9.4 million from the Northridge
Earthquake in Southern California, which added 7.1 percentage points to the
claims and claims expense ratio. The effect of this catastrophe on the Company's
claims ratio was partially mitigated by a general improvement in its other
property business. Trenwick's property premium writings, including catastrophe
business associated with PXRE Re, amounted to $29.8 million, $32.2 million and
$34.7 million in 1996, 1995 and 1994, respectively. In 1996, 1995 and 1994,
estimates of prior accident year claims were reduced by approximately $4.4
million, $2.1 million and $450,000, respectively. The reduction over the last
three years primarily reflects the favorable development of Trenwick's casualty
business between accident years 1987 and 1992, partially offset by unfavorable
development in accident years 1993 through 1995.
Trenwick's expense ratio, which is the ratio of policy acquisition costs and
underwriting expenses to net earned premiums as determined in accordance with
GAAP, increased in 1996 to 34.5% as compared to 31.9% in 1995 and 33.2% in 1994.
Policy acquisition costs, which include brokerage and ceding commissions, vary
directly with premium volume and are subject to changes in the mix of business.
Trenwick writes business on both an excess of loss and quota share basis. Quota
share business generally carries higher ceding commissions than excess of loss
business. In 1996, quota share business increased to 43% of total premium
writings as compared to approximately 35% for 1995 and 1994. Therefore, the
policy acquisition expense ratio increased in 1996 and fluctuated nominally from
1994 to 1995. Underwriting expenses, which generally do not vary with premium
volume, were approximately $14.2 million, $12.6 million and $10.3 million in
1996, 1995 and 1994, respectively. Increased expenses in 1996 and
35
<PAGE> 35
1995 included costs associated with the addition of a five person underwriting
team in May 1995. The underwriting expense ratio, however, decreased .4 of a
percentage point in 1996 compared to 1995 and .6 of a percentage point in 1995
as a result of the increase in premium writings.
Trenwick America Re's statutory combined ratios for 1996, 1995 and 1994,
provided in the preceding table, were 8.1, 15.6 and 3.6 percentage points
better, respectively, than the weighted average statutory combined ratios for
all reinsurance companies that reported their results to the RAA in those
periods. The statutory combined ratios for this group of reinsurance companies
in 1996, 1995 and 1994 were 103.8%, 111.1% and 106.7%, respectively. The
statutory combined ratios as reported to the RAA by those companies, including
Trenwick America Re, which primarily accept business from brokers, for 1996,
1995 and 1994 were 107.6%, 106.9% and 108.9%, respectively.
Investment Income
Net investment income in 1996 of $41.2 million increased 12% compared to net
investment income of $36.8 million in 1995. Net investment income in 1995
increased 9% compared to net investment income of $33.9 million in 1994. Pre-tax
yields on invested assets, excluding equity securities, declined to 6.3% in 1996
from 6.5% in both 1995 and 1994. This decline resulted primarily from the
reinvestment of approximately $63 million and $56 million of maturities in 1996
and 1995, respectively, at lower interest rates. In 1996, maturities included
$24 million in principal repayments associated with Trenwick's portfolio of
structured and agency pass-through securities compared to $18 million in 1995.
As a result of the stabilization of interest rates and a trend toward purchasing
structured securities with less prepayment risk, principal repayments are
expected to remain similar in 1997. Investment income is expected to increase in
1997 as the Company's invested asset base grows along with
36
<PAGE> 36
an increase in operating cash flow. During 1996, the Company sold approximately
$19 million of U.S. government and agency securities and reinvested the proceeds
primarily in structured securities in order to increase the overall yield of the
portfolio. Additionally, approximately $3 million of structured securities were
sold to reduce exposure to possible downgrade and credit risk.
Operating Results
Trenwick's consolidated net income in 1996 was $33.8 million or $4.95 per share
compared to $29.8 million or $4.44 per share in 1995. Trenwick's consolidated
net income was $20.3 million or $3.04 per share in 1994. Fully diluted earnings
per share were $4.25 in 1996, $3.80 in 1995 and $2.78 in 1994. Consolidated net
income in 1994 included after-tax claims of $9.4 million associated with the
1994 Northridge Earthquake. Included in Trenwick's net income were after-tax
realized investment gains of $194,000 or $.03 per share and $239,000 or $.04 per
share in 1996 and 1995, respectively, and losses of $129,000 or $.02 per share
in 1994.
INVESTMENTS
At December 31, 1996, Trenwick had investments and cash of $754.2 million, an
increase of 15% compared to investments and cash of $653.7 million at December
31, 1995. This increase resulted principally from cash provided by operations
reduced by dividends paid to stockholders. Operating cash flow included $29.7
million received in December 1996 for the commutation of a reinsurance agreement
covering the years 1989 through 1993. All fixed maturity and equity investments
are classified as "available for sale" and reported at fair value, with the
37
<PAGE> 37
unrealized gain or loss, net of tax, reported in a separate component of
stockholders' equity. Since December 31, 1995, the market value of the Company's
fixed-income and equity investments decreased approximately $8.6 million. In
1995, Trenwick's investments and cash increased by $101.9 million or
approximately 18% when compared to 1994. That increase resulted principally from
cash provided by operations and the increase in the unrealized appreciation of
its fixed-income and equity portfolio, reduced by dividends paid to
stockholders.
The average maturity of fixed maturity investments at December 31, 1996 was 6.0
years compared to 5.6 years at December 31, 1995. During 1996, the proceeds from
sales and maturities of taxable and tax-exempt securities of $93.1 million,
together with cash provided by operations, were invested primarily in taxable
securities consisting of mortgage-backed securities of $41 million, asset-backed
securities of $24 million, U.S. government securities of $18 million, preferred
stock of $12 million and corporate bonds of $5 million. The proceeds were also
used to invest in $87 million of tax-exempt securities. Fixed-income securities
were invested in the average maturity range of between two to fifteen years.
During 1995, the proceeds from sales and maturities of taxable and tax-exempt
securities of $99.5 million, together with cash provided by operations, were
invested primarily in taxable securities consisting of mortgage-backed
securities of $44 million, asset-backed securities of $28 million and corporate
bonds of $10 million. The proceeds were also used to invest in $78 million of
tax-exempt securities.
The Company's investment policy requires that certain fixed-income investments
be maintained in an amount equal to the discounted present value of net
reinsurance liabilities. The policy also requires that additional fixed-income
investments be maintained in an amount equal to approximately 10 percent of
total reserve liabilities to ensure adequate liquidity in the event of a
significant change in estimated payments. At December 31, 1996, the fixed-income
investments held under this policy had the same average maturity of
approximately 4.1 years as that established for such liabilities.
38
<PAGE> 38
LIQUIDITY AND CAPITAL RESOURCES
Trenwick is a holding company whose principal asset is its investment in the
common stock of Trenwick America Re. As a holding company, Trenwick's principal
source of funds consists of permissible dividends and tax allocation payments
from Trenwick America Re and investment income on Trenwick's fixed-income
portfolio. Trenwick's principal uses of cash are dividends to its stockholders
and servicing its debt obligations. Trenwick America Re receives cash from
premiums, investment income and proceeds from sales and maturities of portfolio
investments and utilizes cash to pay claims, purchase its own reinsurance
protections, meet operating and capital expenses and purchase fixed-income and
equity securities.
Cash provided by operating activities of $110.5 million in 1996 increased
approximately 64% as compared to $67.4 million in 1995. In 1996, Trenwick agreed
to commute an aggregate excess of loss retrocessional agreement covering the
years 1989 through 1993. As a result of the commutation, Trenwick received a
total consideration of $29.7 million representing outstanding reserves of
approximately the same amount. The commutation was recorded in 1996 as a paid
loss recovery. In addition, cash provided by operating activities in 1996 also
increased as a result of an overall increase in premium writings. In 1995, cash
provided by operating activities increased by 11% from $60.8 million in 1994.
The increases in cash provided by operating activities in 1994 and 1995 are
attributable to increases in net premium writings. As evidenced by the increase
over the last three years, Trenwick expects that its cash provided by operating
activities will be sufficient to meet its operating and financing requirements
in 1997 and its longer term operating needs.
At December 31, 1996, Trenwick's investments and cash of $754.2 million exceeded
total liabilities, including gross reserves for claims and claims expenses of
$467.2 million, by $99.2 million, compared to $73.6 million and $12.8 million at
December 31, 1995 and 1994, respectively.
39
<PAGE> 39
At December 31, 1996, 1995 and 1994, Trenwick's net book value amounted to
$265.8 million, $240.8 million and $188.2 million, respectively. Trenwick
maintains a portion of its investment portfolio in cash equivalents which are
available in the event of unanticipated changes in cash requirements. At
December 31, 1996, Trenwick's investments consisted principally of fixed-income
securities, 92% of which are rated Aa or better. Trenwick's general policy is to
hold these securities to maturity. However, there may be business reasons which
would cause all or a portion of these securities to be made available for sale
prior to maturity; therefore, Trenwick records these investments at fair value,
with market value fluctuations reflected in stockholders' equity, net of tax
(see Note 1 to Consolidated Financial Statements).
The ratio of net premiums written to surplus, the "surplus ratio," relates to
the amount of risk to which an insurer's or reinsurer's statutory capital is
exposed, as measured by the amount of premiums written in relation to such
surplus. Property and casualty reinsurance companies currently have a surplus
ratio of approximately 0.7:1. Trenwick America Re's surplus ratios for both 1996
and 1995 were 0.8:1 and 0.6:1 for 1994, respectively. Accordingly, Trenwick has
sufficient surplus capacity to write additional business without significantly
exceeding the industry average.
Trenwick purchases reinsurance to reduce its exposure to catastrophe claims and
the frequency and severity of claims in all lines of business. In 1996,
Trenwick's reinsurance treaties consisted principally of an excess of loss
treaty for its facultative casualty business and two property catastrophe
reinsurance treaties. In addition, Trenwick purchased an annual aggregate excess
of loss ratio treaty for casualty business effective January 1, 1996. These
coverages were renewed effective January 1, 1997.
40
<PAGE> 40
REGULATORY MATTERS
The National Association of Insurance Commissioners (NAIC) has adopted
Risk-Based Capital (RBC) requirements for property and casualty insurance
companies to evaluate the adequacy of statutory capital and surplus in relation
to investment and insurance risks such as asset quality, asset and liability
matching, loss reserve adequacy and other business factors. The RBC formula is
used by state insurance regulators as an early warning tool to identify, for the
purpose of initiating regulatory action, insurance companies that potentially
are inadequately capitalized. In addition, the formula defines minimum capital
standards that supplement the system of low fixed minimum capital and surplus
requirements on a state-by-state basis. Regulatory compliance is determined by a
ratio of the enterprise's regulatory total adjusted capital to its authorized
control level RBC, as defined by the NAIC. Enterprises below specific trigger
points or ratios are classified within certain levels, each of which requires
specific corrective action. The ratios of Total Adjusted Capital to Authorized
Control Level RBC for Trenwick America Re exceeded all the RBC trigger points at
December 31, 1996. Trenwick believes its capital will continue to exceed these
RBC capital and surplus requirements for the foreseeable future.
Under Connecticut insurance laws and regulations, the maximum amount of
shareholder dividends or other distributions that Trenwick America Re may
declare or pay to Trenwick within any twelve month period, without the
permission of the Connecticut Insurance Commissioner, is limited to the greater
of 10% of policyholder surplus at December 31 of the preceding year, or 100% of
net income excluding realized capital gains, for the twelve month period ending
December 31 of the preceding year, both determined in accordance with statutory
accounting practices. For the purpose of computing the limitation, carryforward
provisions apply with respect to net income realized in the two previous
calendar years which has not already been paid out as dividends. The maximum
amount of dividends which could be paid by Trenwick America Re in 1997 without
regulatory approval would be $62,901,000.
41
<PAGE> 41
SUBSEQUENT EVENT
In January 1997, the Company made a private offering of $110 million in 8.82%
Subordinated Capital Income Securities ("Capital Securities") through Trenwick
Capital Trust I, a Delaware statutory business trust. In connection with this
offering, the Company called for redemption all $103.5 million aggregate
principal amount of the Company's 6% convertible debentures due December 15,
1999 on February 20, 1997, at a redemption price of 102.57% principal amount
plus accrued interest to the redemption date. As a result of the redemption
call, $45,819,000 principal amount were redeemed and $57,681,000 principal
amount were converted into an aggregate of 1,189,284 shares of the Company's
common stock, par value $.10 per share. The remaining net proceeds from the
offering of the Capital Securities will be used for general corporate purposes,
which may include investments in and advances to subsidiaries, the financing of
growth and expansion, the financing of possible future acquisitions and other
corporate purposes.
42
<PAGE> 42
REPORT OF INDEPENDENT ACCOUNTANTS
[LETTERHEAD PRICE WATERHOUSE LLP]
To the Board of Directors
and Stockholders of
Trenwick Group Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Trenwick Group Inc. and its subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/PRICE WATERHOUSE LLP
New York, New York
January 27, 1997, except for Note 13,
which is as of February 20, 1997
43
<PAGE> 43
TRENWICK GROUP INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, 1996 1995
- - -------------------------------------------------------- -------- ----------
(dollars in thousands)
ASSETS
- - -------------------------------------------------------- -------- ----------
<S> <C> <C>
Fixed maturity investments available for sale at
fair value (amortized cost: $700,476 and $609,751) $713,998 $633,525
- - -------------------------------------------------------- -------- ----------
Equity securities available for sale at fair value
(cost: $21,346 and $10,507) 25,959 13,419
- - -------------------------------------------------------- -------- ----------
Cash and cash equivalents 14,253 6,760
- - -------------------------------------------------------- -------- ----------
Total investments and cash 754,210 653,704
- - -------------------------------------------------------- -------- ----------
Accrued investment income 10,386 10,198
- - -------------------------------------------------------- -------- ----------
Receivables from ceding insurers 62,689 48,979
- - -------------------------------------------------------- -------- ----------
Reinsurance recoverable balances, net 47,772 68,449
- - -------------------------------------------------------- -------- ----------
Deferred policy acquisition costs 21,805 16,725
- - -------------------------------------------------------- -------- ----------
Net deferred income taxes 20,231 13,585
- - -------------------------------------------------------- -------- ----------
Other assets 3,711 9,290
- - -------------------------------------------------------- -------- ----------
Total assets $920,804 $820,930
- - -------------------------------------------------------- -------- ----------
</TABLE>
44
<PAGE> 44
<TABLE>
<CAPTION>
December 31, 1996 1995
- - -------------------------------------------------------- -------- ----------
(dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
- - -------------------------------------------------------- -------- ----------
LIABILITIES
- - -------------------------------------------------------- -------- ----------
<S> <C> <C>
Unpaid claims and claims expenses $467,177 $411,874
- - -------------------------------------------------------- -------- ----------
Unearned premium income 71,448 56,050
- - -------------------------------------------------------- -------- ----------
Convertible debentures 103,500 103,500
- - -------------------------------------------------------- -------- ----------
Other liabilities 12,926 8,730
- - -------------------------------------------------------- -------- ----------
Total liabilities 655,051 580,154
- - -------------------------------------------------------- -------- ----------
STOCKHOLDERS' EQUITY
- - -------------------------------------------------------- -------- ----------
Preferred stock, $.10 par value,
1,000,000 shares authorized; none outstanding -- --
- - -------------------------------------------------------- -------- ----------
Common stock, $.10 par value, 15,000,000 shares
authorized; 6,725,217 and 6,590,411 shares outstanding 673 659
- - -------------------------------------------------------- -------- ----------
Additional paid-in capital 94,759 89,920
- - -------------------------------------------------------- -------- ----------
Retained earnings 159,512 133,949
- - -------------------------------------------------------- -------- ----------
Net unrealized appreciation of investments
available for sale, net of income taxes 11,789 17,346
- - -------------------------------------------------------- -------- ----------
Deferred compensation under stock award plan (980) (1,098)
- - -------------------------------------------------------- -------- ----------
Total stockholders' equity 265,753 240,776
- - -------------------------------------------------------- -------- ----------
Total liabilities and stockholders' equity $920,804 $820,930
- - -------------------------------------------------------- -------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
45
<PAGE> 45
TRENWICK GROUP INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- - --------------------------------------------- -------- -------- --------
(in thousands except per share data)
Revenues
- - --------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Net premiums earned $211,069 $177,394 $132,683
- - --------------------------------------------- -------- -------- --------
Net investment income 41,226 36,828 33,932
- - ------------------------------------------------------------------------------
Net realized investment gains (losses) 299 368 (196)
- - ------------------------------------------------------------------------------
Total revenues 252,594 214,590 166,419
- - --------------------------------------------- -------- -------- --------
Expenses
- - --------------------------------------------- -------- -------- --------
Claims and claims expenses incurred 129,316 113,068 92,840
- - --------------------------------------------- -------- -------- --------
Policy acquisition costs 58,757 44,024 33,799
- - --------------------------------------------- -------- -------- --------
Underwriting expenses 14,190 12,589 10,276
- - ------------------------------------------------------------------------------
Interest expense 6,503 6,496 6,469
- - --------------------------------------------- -------- -------- --------
Total expenses 208,766 176,177 143,384
- - --------------------------------------------- -------- -------- --------
Income before income taxes 43,828 38,413 23,035
- - --------------------------------------------- -------- -------- --------
Income taxes 9,980 8,572 2,753
- - --------------------------------------------- -------- -------- --------
Net income $ 33,848 $ 29,841 $ 20,282
- - --------------------------------------------- -------- -------- --------
Primary earnings per share $4.95 $4.44 $3.04
- - --------------------------------------------- -------- -------- --------
Weighted average shares outstanding 6,832 6,723 6,670
- - --------------------------------------------- -------- -------- --------
Fully diluted earnings per share
(assuming conversion of dilutive
convertible debentures) $4.25 $3.80 $2.78
- - --------------------------------------------- -------- -------- --------
Weighted average shares outstanding 8,966 8,960 8,847
- - --------------------------------------------- -------- -------- --------
Dividends per common share $1.24 $1.12 $1.00
- - --------------------------------------------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
46
<PAGE> 46
TRENWICK GROUP INC.
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- - ---------------------------------------------------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Stockholders' equity, beginning of year $240,776 $188,213 $206,763
- - ---------------------------------------------------- -------- -------- --------
COMMON STOCK, $.10 PAR VALUE, AND ADDITIONAL
PAID-IN CAPITAL
- - ---------------------------------------------------- -------- -------- --------
Exercise of employer stock options
(147,352, 132,040 and 49,050 shares) 4,001 1,657 759
- - ---------------------------------------------------- -------- -------- --------
Income tax benefits from additional compensation
deductions allowable for income tax purposes 1,467 987 142
- - ---------------------------------------------------- -------- -------- --------
Restricted common stock awarded
(10,020, 21,304 and 4,871 shares) 507 933 168
- - ---------------------------------------------------- -------- -------- --------
Restricted common stock awards cancelled
(2,100 and 2,359 shares) (91) -- (76)
- - ---------------------------------------------------- -------- -------- --------
Common stock purchased and retired
(20,466, 3,056 and 194,233 shares) (1,031) (134) (6,590)
- - ---------------------------------------------------- -------- -------- --------
RETAINED EARNINGS
- - ---------------------------------------------------- -------- -------- --------
Net income 33,848 29,841 20,282
- - ---------------------------------------------------- -------- -------- --------
Cash dividends (8,285) (7,287) (6,463)
- - ---------------------------------------------------- -------- -------- --------
NET UNREALIZED APPRECIATION OF INVESTMENTS
AVAILABLE FOR SALE
- - ---------------------------------------------------- -------- -------- --------
Change in unrealized appreciation (8,551) 41,487 (41,558)
- - ---------------------------------------------------- -------- -------- --------
Change in applicable deferred income taxes 2,994 (14,519) 14,545
- - ---------------------------------------------------- -------- -------- --------
DEFERRED COMPENSATION UNDER STOCK AWARD PLAN
- - ---------------------------------------------------- -------- -------- --------
Restricted common stock awarded (507) (933) (168)
- - ---------------------------------------------------- -------- -------- --------
Restricted common stock awards cancelled 91 -- 76
- - ---------------------------------------------------- -------- -------- --------
Compensation expense recognized 534 531 333
- - ---------------------------------------------------- -------- -------- --------
Stockholders' equity, end of year $265,753 $240,776 $188,213
- - ---------------------------------------------------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
47
<PAGE> 47
TRENWICK GROUP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- - ---------------------------------------------------- -------- -------- --------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- - ---------------------------------------------------- -------- -------- --------
Premiums collected $171,017 $144,996 $117,360
- - ---------------------------------------------------- -------- -------- --------
Ceded premiums paid (6,254) (7,908) (5,440)
- - ---------------------------------------------------- -------- -------- --------
Claims and claims expenses paid (102,759) (89,487) (79,216)
- - ---------------------------------------------------- -------- -------- --------
Claims and claims expenses recovered 34,156 7,942 11,972
- - ---------------------------------------------------- -------- -------- --------
Underwriting expenses paid (12,765) (11,008) (8,381)
- - ---------------------------------------------------- -------- -------- --------
Cash provided by underwriting activities 83,395 44,535 36,295
- - ---------------------------------------------------- -------- -------- --------
Net investment income received 42,654 38,829 33,952
- - ---------------------------------------------------- -------- -------- --------
Interest and other expenses paid (6,190) (6,239) (6,231)
- - ---------------------------------------------------- -------- -------- --------
Income taxes paid (9,381) (9,681) (3,194)
- - ---------------------------------------------------- -------- -------- --------
Cash provided by operating activities 110,478 67,444 60,822
- - ---------------------------------------------------- -------- -------- --------
CASH FLOWS FOR INVESTING ACTIVITIES
- - ---------------------------------------------------- -------- -------- --------
Purchases of fixed maturity investments (177,611) (163,262) (192,962)
- - ---------------------------------------------------- -------- -------- --------
Sales of fixed maturity investments 22,460 43,859 87,090
- - ---------------------------------------------------- -------- -------- --------
Maturities of fixed maturity investments 62,983 55,600 70,967
- - ---------------------------------------------------- -------- -------- --------
Purchases of equity securities (12,529) (326) (10,181)
- - ---------------------------------------------------- -------- -------- --------
Sales of equity securities 7,638 37 60
- - ---------------------------------------------------- -------- -------- --------
Additions to premises and equipment (611) (612) (123)
- - ---------------------------------------------------- -------- -------- --------
Cash used for investing activities (97,670) (64,704) (45,149)
- - ---------------------------------------------------- -------- -------- --------
CASH FLOWS FOR FINANCING ACTIVITIES
- - ---------------------------------------------------- -------- -------- --------
Issuance of common stock 4,001 1,657 759
- - ---------------------------------------------------- -------- -------- --------
Repurchase of common stock (1,031) (134) (6,590)
- - ---------------------------------------------------- -------- -------- --------
Dividends paid (8,285) (7,287) (6,463)
- - ---------------------------------------------------- -------- -------- --------
Cash used for financing activities (5,315) (5,764) (12,294)
- - ---------------------------------------------------- -------- -------- --------
Change in cash and cash equivalents 7,493 (3,024) 3,379
- - ---------------------------------------------------- -------- -------- --------
Cash and cash equivalents, beginning of year 6,760 9,784 6,405
- - ---------------------------------------------------- -------- -------- --------
Cash and cash equivalents, end of year $ 14,253 $ 6,760 $ 9,784
- - ---------------------------------------------------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
48
<PAGE> 48
TRENWICK GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles (GAAP), which require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The following is a summary of significant accounting policies.
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of Trenwick Group
Inc. (Trenwick) and its subsidiaries. Trenwick's principal subsidiary, Trenwick
America Reinsurance Corporation (Trenwick America Re), underwrites reinsurance.
INVESTMENTS AND CASH EQUIVALENTS
The Company has classified all of its fixed maturity investments and equity
securities as "Available for sale" and reported them at fair value with net
unrealized gains and losses included in stockholders' equity, net of related
deferred income taxes. The fair value of fixed maturity investments and equity
securities is estimated using quoted market prices or broker dealer quotes. Cash
equivalents represent investments with maturities at date of purchase of three
months or less and are carried at cost which approximates fair value.
49
<PAGE> 49
Realized gains or losses on disposition of investments are determined on the
basis of the specific identification method. Investment income consisting of
dividends and interest, net of investment expenses, is recognized in income when
earned. The amortization of premiums and accretion of discount for fixed
maturity investments is computed utilizing the interest method. Structured
securities, anticipated prepayments and expected maturities are used in applying
the interest method. When actual prepayments differ significantly from
anticipated prepayments, the effective yield is recalculated to reflect actual
payments to date and anticipated future payments. The net investment in the
security is adjusted to the amount that would have existed had the new effective
yield been applied since the acquisition of the security and that adjustment is
included in net investment income.
REVENUES
Insurance premiums are earned on a pro rata basis over the related contract
period, which is generally one year. Unearned premium income represents the
portion of premiums applicable to the unexpired portion of premium coverage with
renewal dates later than year end. Premiums on contracts are accrued on an
estimated basis throughout the term of such contracts. These estimates may
change in the near term.
POLICY ACQUISITION COSTS
Policy acquisition costs are stated net of policy acquisition costs ceded and
consist of commissions and brokerage expenses incurred at policy or contract
issue date. These costs vary with, and are primarily related to, the acquisition
of business and are deferred and amortized over the period in which the related
premiums are earned. Deferred policy acquisition costs are reviewed periodically
to determine that they do not exceed recoverable amounts after allowing for
anticipated investment income.
50
<PAGE> 50
RESERVE FOR UNPAID CLAIMS AND CLAIMS EXPENSES
Claims are recorded as incurred so as to match such costs with premiums over the
contract periods. The amount provided for unpaid claims consists of any unpaid
reported claims and estimates for incurred but not reported claims, net of
salvage and subrogation. The estimates for claims incurred but not reported were
developed based on Trenwick's historical claims experience and an actuarial
evaluation of expected claims experience. Insurance liabilities are necessarily
based on estimates and the ultimate liability may vary from such estimates. Any
adjustments to these estimates are reflected in income when known.
INCOME TAXES
Income taxes are provided based on income reported in the financial statements.
Deferred income taxes are provided based on an asset and liability approach
which requires the recognition of deferred income tax assets and liabilities for
the expected future tax consequences of temporary differences between the
financial statement carrying amounts and the tax bases of assets and
liabilities.
STOCK-BASED COMPENSATION
Trenwick grants stock options for a fixed number of common shares to employees
with an exercise price equal to the market value of the shares at the date of
grant. A newly adopted accounting standard, "Accounting for Stock-Based
Compensation," supersedes the previous opinion and establishes a fair value
based method of accounting for stock-based compensation plans. However, it
permits an entity to continue to apply the accounting provisions of the previous
opinion and make pro forma disclosures of net income and earnings per share, as
if the fair market value based method had been applied. Trenwick continues to
account for the stock option grants in accordance with the previous opinion, and
accordingly, recognizes no compensation expense for the stock option grants.
51
<PAGE> 51
The effect of applying the new standard's fair value method to Trenwick's stock
option awards results in pro forma net income and earnings per share that are
not materially different from amounts reported.
EARNINGS PER SHARE
Primary earnings per share are computed based on the weighted average number of
shares of common stock and common stock equivalents outstanding during each
year. Primary weighted average shares outstanding are adjusted to reflect as
outstanding, throughout each year presented, common stock equivalents pursuant
to the assumed exercise of stock options. Fully diluted earnings per share are
computed based on the assumption that the convertible debentures are converted
into common shares.
PREMISES AND EQUIPMENT
Premises and equipment, including leasehold improvements, are recorded at cost
and are amortized or depreciated using the straight-line method over their
useful lives, which range from three to ten years.
DEBT ISSUANCE COSTS
Debt issuance costs associated with the issuance of convertible debentures are
being amortized over the term of the related debt using the interest method.
Unamortized costs applicable to debentures converting to common stock will be
charged to stockholders' equity at the time of any conversion.
52
<PAGE> 52
The fair value and amortized cost of fixed maturity investments at December 31,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
- - ------------------ -------- --------- ------- ---------
FAIR AMORTIZED FAIR AMORTIZED
(in thousands) VALUE COST VALUE COST
- - ------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
U.S. Treasury
securities and
obligations of
U.S. government
corporations
and agencies $ 91,702 $ 90,421 $ 97,502 $ 94,024
-------- -------- -------- --------
Obligations of
states and
political
subdivisions 367,029 360,201 318,590 308,909
-------- -------- -------- --------
Mortgage-backed
and asset-backed
securities 211,228 206,774 176,642 168,119
-------- -------- -------- --------
Debt securities
issued by for-
eign governments 3,227 3,156 3,347 3,199
-------- -------- -------- --------
Public utilities 2,918 2,803 2,970 2,775
-------- -------- -------- --------
Corporate
securities 37,774 37,001 33,994 32,245
-------- -------- -------- --------
Short-term
securities 120 120 480 480
-------- -------- -------- --------
Total fixed matur-
ity investments $713,998 $700,476 $633,525 $609,751
-------- -------- -------- --------
</TABLE>
The fair value and amortized cost of fixed maturity investments at December 31,
1996 are shown on the following page by contractual or expected maturity
periods. Expected maturities will differ from contractual
53
<PAGE> 53
maturities because borrowers may have the right to call or prepay obligations
with or without penalty. The maturities for mortgage-backed and asset-backed
securities are calculated using expected maturity dates, adjusted for
anticipated prepayments.
<TABLE>
<CAPTION>
FAIR AMORTIZED
(in thousands) VALUE COST
-------- --------
<S> <C> <C>
Due in one year or less $ 64,268 $ 63,899
-------- --------
Due after one year through five years 314,690 308,687
-------- --------
Due after five years through ten years 273,802 266,533
-------- --------
Due after ten years 61,238 61,357
-------- --------
Total fixed maturity investments $713,998 $700,476
-------- --------
</TABLE>
NET INVESTMENT INCOME AND NET REALIZED INVESTMENT GAINS
During the twelve months ended December 31, 1996, all investments were income
producing. The components of net investment income for the years ended December
31 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Fixed maturity investments $ 41,332 $ 37,219 $ 34,538
-------- -------- --------
Equity securities 393 289 122
-------- -------- --------
Cash and cash equivalents 719 621 628
-------- -------- --------
Gross investment income 42,444 38,129 35,288
-------- -------- --------
Investment expenses (1,218) (1,301) (1,356)
-------- -------- --------
Net investment income $ 41,226 $ 36,828 $ 33,932
-------- -------- --------
</TABLE>
Net realized gains (losses) on sales of investments are as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
FIXED MATURITY INVESTMENTS
Gross realized gains $ 137 $ 605 $ 2,006
------- ------- -------
Gross realized losses (1) (274) (2,262)
------- ------- -------
EQUITY SECURITIES
Gross realized gains 862 37 60
------- ------- -------
Gross realized losses (699) -- --
------- ------- -------
Net realized investment
gains (losses) $ 299 $ 368 $ (196)
------- ------- -------
</TABLE>
54
<PAGE> 54
UNREALIZED GAINS (LOSSES) ON FIXED MATURITY INVESTMENTS AND EQUITY SECURITIES
At December 31, 1996 and 1995, unrealized gains and losses are as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- - -------------- --------------------- ----------------------
GAINS LOSSES GAINS LOSSES
------- ------- ------- -------
<S> <C> <C> <C> <C>
U.S. Treasury
securities and
obligations of
U.S. government
corporations
and agencies $ 1,319 $ (38) $ 3,478 $ --
------- ------- ------- -------
Obligations of
states and
political
subdivisions 7,173 (345) 9,848 (167
------- ------- ------- -------
Mortgage-backed
and asset-backed
securities 4,958 (504) 8,523 --
------- ------- ------- -------
Debt securities
issued by for-
eign governments 71 -- 148 --
------- ------- ------- -------
Public utilities 115 -- 195 --
------- ------- ------- -------
Corporate
securities 775 (2) 1,749 --
------- ------- ------- -------
Total fixed matur-
ity investments $14,411 $ (889) $23,941 $ (167)
------- ------- ------- -------
Equity securities $ 4,616 $ (3) $ 2,912 --
------- ------- ------- -------
</TABLE>
55
<PAGE> 55
NET UNREALIZED APPRECIATION OF INVESTMENTS AVAILABLE FOR SALE
The components of the net unrealized appreciation of investments available for
sale at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
-------- --------
<S> <C> <C>
Unrealized appreciation of
fixed maturity investments $ 13,522 $ 23,774
-------- --------
Unrealized appreciation of
equity securities 4,613 2,912
-------- --------
Unrealized appreciation
of investments 18,135 26,686
-------- --------
Deferred income taxes (6,346) (9,340)
-------- --------
Net unrealized appreciation
of investments available
for sale, net of income taxes $ 11,789 $ 17,346
-------- --------
</TABLE>
INVESTMENTS HELD AS COLLATERAL OR ON DEPOSIT
Fixed maturity investments with a carrying value of $104,271,000 are being held
in trust as collateral for certain reinsurance obligations. In addition,
investments with a carrying value of $7,225,000 at December 31, 1996 were on
deposit with various state or governmental insurance departments in order to
comply with insurance laws.
NOTE 3 REINSURANCE ACTIVITY AND RESERVE FOR UNPAID CLAIMS AND CLAIMS EXPENSES
REINSURANCE ACTIVITY
Trenwick's subsidiary, Trenwick America Re, primarily provides reinsurance to
insurers of property and casualty risks in the United States. Trenwick America
Re generally obtains all of its business through brokers and reinsurance
intermediaries which seek its participation on reinsurance being placed for
their customers. Trenwick America Re writes both treaty and facultative
reinsurance both on an excess of loss and quota share basis. In underwriting
reinsurance, Trenwick America Re does not target types of clients, classes of
business or types of reinsurance. Rather, it selects transactions based upon the
quality of the reinsured, the attractiveness of the reinsured's insurance rates
and policy conditions and the adequacy of the proposed reinsurance terms.
56
<PAGE> 56
Trenwick America Re obtained approximately 62% of its gross written premiums
from three brokers in 1996 and 1995, and 57% from three brokers in 1994.
Trenwick America Re's concentration of business through a small number of
sources is consistent with the concentration of the property and casualty broker
reinsurance market, in which a majority of the business is written through the
top ten largest brokers in the reinsurance industry. Loss of all or a
substantial portion of the business provided by these brokers could have a
material adverse effect on the business and operations of Trenwick America Re.
Trenwick does not believe, however, that the loss of such business would have a
long-term adverse effect because of Trenwick's competitive position within the
broker reinsurance market and the availability of business from other brokers.
In 1996, Trenwick America Re obtained approximately 15%, 12% and 10% of its
gross written premiums from three ceding companies. In 1995, Trenwick America Re
obtained approximately 19%, 11% and 9% of its gross written premiums from three
ceding companies and in 1994, approximately 14% and 12% of Trenwick America Re's
gross written premiums were obtained from two ceding companies.
Included in receivables from ceding insurers at December 31, 1996 and 1995 are
accrued premiums of approximately $59,070,000 and $38,794,000, respectively,
which have estimated payment dates ranging from 1996 to 2001. Premium payment
dates are estimated using the anticipated payout pattern of claims which result
in the additional premium due from ceding companies. The fair value of the
accrued premiums for 1996 and 1995 is approximately $57,300,000 and $37,400,000,
respectively, which is estimated using cash flows discounted at an interest rate
of 5%.
57
<PAGE> 57
The effects of reinsurance on premiums written, premiums earned and claims and
claims expenses incurred for the three years ended December 31 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Assumed premiums written $ 247,358 $ 214,336 $ 153,834
--------- --------- ---------
Ceded premiums written (20,994) (17,174) (14,199)
--------- --------- ---------
Net premiums written $ 226,364 $ 197,162 $ 139,635
--------- --------- ---------
Assumed premiums earned $ 231,960 $ 194,592 $ 147,129
--------- --------- ---------
Ceded premiums earned (20,891) (17,198) (14,446)
--------- --------- ---------
Net premiums earned $ 211,069 $ 177,394 $ 132,683
--------- --------- ---------
Assumed claims and claims
expenses incurred $ 156,819 $ 111,351 $ 114,340
--------- --------- ---------
Ceded claims and claims
expenses incurred (27,503) 1,717 (21,500)
--------- --------- ---------
Net claims and claims
expenses incurred $ 129,316 $ 113,068 $ 92,840
--------- --------- ---------
</TABLE>
UNPAID CLAIMS AND CLAIMS EXPENSES
The following table presents an analysis of gross and net unpaid claims and
claims expenses and a reconciliation of beginning and ending net unpaid claims
and claims expense balances for 1996, 1995 and 1994. The gross unpaid claims and
claims expense balances at December 31, 1996 and 1995 are reflected in
Trenwick's consolidated balance sheet. The net unpaid claims and claims expense
balances are stated on a net basis after deductions for reinsurance recoverable
on unpaid claims and claims expenses from retrocessionaires.
58
<PAGE> 58
Activity in the reserve for unpaid claims and claims expenses, net of
reinsurance recoverable, for the years ended December 31 is summarized below:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Reserve for unpaid claims
and claims expenses, net
of related reinsurance
recoverable, at
beginning of year $ 327,001 $ 294,008 $ 268,091
--------- --------- ---------
Provision for claims and
claims expenses, net of
reinsurance
--------- --------- ---------
For claims incurred in
the current year 133,755 115,133 93,287
--------- --------- ---------
For claims incurred in
prior years (4,439) (2,065) (447)
--------- --------- ---------
Subtotal 129,316 113,068 92,840
--------- --------- ---------
Payments for claims and
claims expenses, net of
reinsurance
--------- --------- ---------
For claims incurred in
the current year (22,570) (18,271) (14,623)
--------- --------- ---------
For claims incurred in
prior years (46,860) (61,804) (52,300)
--------- --------- ---------
Subtotal (69,430) (80,075) (66,923)
--------- --------- ---------
Reserve for unpaid claims
and claims expenses, net
of related reinsurance
recoverable, at end
of year 386,887 327,001 294,008
--------- --------- ---------
Reinsurance recoverable on
unpaid claims and claims
expenses, at end of year 80,290 84,873 95,290
--------- --------- ---------
Reserve for unpaid claims
and claims expenses,
gross of reinsurance
recoverable on unpaid
claims, at end of year $ 467,177 $ 411,874 $ 389,298
--------- --------- ---------
</TABLE>
59
<PAGE> 59
In 1996, 1995 and 1994, Trenwick recorded a decrease of $4,439,000, $2,065,000
and $447,000, respectively, in estimates for claims occurring in prior accident
years. The reduction over the last three years primarily reflects the favorable
development of Trenwick's casualty business written between accident years 1987
and 1992 partially offset by unfavorable development in accident years 1993
through 1995.
EXPOSURE TO ENVIRONMENTAL CLAIMS
Trenwick's exposure to environmental claims, including asbestos and pollution
liability, is primarily associated with its participation in business written by
its predecessor company between 1978 and 1983. Exposure to environmental claims
on Trenwick's business written since 1983 is generally limited by exclusions on
its own reinsurance contracts and also by exclusions on policies issued by
ceding companies. Casualty business written in 1983 and prior is not material to
Trenwick's overall book of business. As of December 31, 1996, outstanding claims
including incurred but not reported claims for environmental liability were
approximately $9.2 million, approximately 2% of Trenwick's total net outstanding
reserves. Under Trenwick's current interpretation of policy language,
management does not believe that it has a material exposure to environmental
claims that requires additional reserves beyond its current estimates.
Inflation raises the cost of economic losses and noneconomic damages covered
by insurance contracts and therefore is a factor in determining effective rates
of reinsurance. The methods used by Trenwick to estimate individual case
reserves and reserves for claims incurred but not yet reported implicitly
incorporate the effects of inflation in the projection of ultimate losses.
60
<PAGE> 60
Due to the inherent uncertainties of estimating insurance company claim
reserves, actual claims and claims expenses may deviate, perhaps substantially,
from estimates of Trenwick's reserves reflected in Trenwick's consolidated
financial statements. Trenwick's management believes that its claim reserve
methods are reasonable and prudent and that Trenwick's reserve for claims and
claims expenses at December 31, 1996 are adequate.
REINSURANCE RECOVERABLE
The components of reinsurance recoverable balances net on the balance sheet at
December 31 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
-------- --------
<S> <C> <C>
Paid claims $ 1,505 $ 2,978
-------- --------
Unpaid claims and claims expenses 80,290 84,873
-------- --------
Funds held liability (33,353) (18,323)
-------- --------
Reinsurance balances payable (670) (1,079)
-------- --------
Reinsurance recoverable
balances, net $ 47,772 $ 68,449
-------- --------
</TABLE>
Trenwick America Re purchases reinsurance to reduce its exposure to catastrophe
losses and the frequency of large losses in all lines of business. Trenwick
America Re, however, remains liable in the event that its retrocessionaires do
not meet their contractual obligations.
At December 31, 1996, letters of credit in the amount of $2,103,000 have been
arranged in favor of Trenwick America Re in respect of certain outstanding
claims recoverable and the unearned portion of premiums ceded.
At December 31, 1996, approximately $50,951,000 of reinsurance recoverable on
unpaid claims and claims expenses is recoverable from one reinsurer, Centre
Reinsurance Company of New York. There is no prepaid reinsurance premium which
relates to this reinsurer.
For the years ended December 31, 1996, 1995 and 1994, Trenwick America Re earned
commissions on cessions to retrocessionaires of $29,000, $13,000 and $112,000,
respectively.
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<PAGE> 61
NOTE 4 INCOME TAXES
Trenwick files a consolidated United States income tax return with its United
States subsidiaries. The components of the provision for income taxes for the
years ended December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Current income tax provision $ 13,633 $ 7,821 $ 4,635
-------- -------- --------
Deferred income tax
provision (3,653) 751 (1,882)
-------- -------- --------
Income tax provision $ 9,980 $ 8,572 $ 2,753
-------- -------- --------
</TABLE>
Trenwick's effective income tax rates were 23%, 22% and 12% for the years ended
December 31, 1996, 1995 and 1994, respectively. The income tax provision for
each of the years presented differs from the amounts determined by applying the
applicable U.S. statutory federal income tax rate of 35% to income before income
taxes as a result of the following:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income before income taxes $ 43,828 $ 38,413 $ 23,035
-------- -------- --------
Income taxes at
statutory rate $ 15,340 $ 13,445 $ 8,062
-------- -------- --------
Effect of tax-exempt
investment income (5,286) (4,963) (5,156)
-------- -------- --------
Other, net (74) 90 (153)
-------- -------- --------
Income tax provision $ 9,980 $ 8,572 $ 2,753
-------- -------- --------
</TABLE>
The components of the net deferred income tax provision for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Discounting of unpaid
claims $(4,541) $(1,369) $(1,073)
------- ------- -------
Unearned premium income (1,071) (1,384) (522)
------- ------- -------
Policy acquisition
costs deferred 1,778 2,112 769
------- ------- -------
Alternative minimum taxes (10) 908 (908)
------- ------- -------
Accretion of market discount
on fixed maturity
investments 518 378 --
------- ------- -------
Other, net (327) 106 (148)
------- ------- -------
Total deferred income
tax provision $(3,653) $ 751 $(1,882)
------- ------- -------
</TABLE>
62
<PAGE> 62
Deferred income tax assets (liabilities) are attributable to the following
temporary differences as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
-------- --------
DEFERRED INCOME TAX ASSET
<S> <C> <C>
Discounting of unpaid claims $ 29,237 $ 24,696
-------- --------
Unearned premium income 4,980 3,909
-------- --------
Employee stock option plans 439 209
-------- --------
Alternative minimum taxes 10 --
-------- --------
Other 524 440
-------- --------
Gross deferred income
tax assets 35,190 29,254
-------- --------
DEFERRED INCOME TAX LIABILITY
Policy acquisition
costs deferred (7,632) (5,854)
-------- --------
Unrealized appreciation of
investments available for sale (6,346) (9,340)
-------- --------
Accretion of market discount
on fixed maturity investments (896) (378)
-------- --------
Other (85) (97)
-------- --------
Gross deferred income
tax liabilities (14,959) (15,669)
-------- --------
Net deferred income tax assets $ 20,231 $ 13,585
-------- --------
</TABLE>
Trenwick's management has concluded that the deferred income tax assets are more
likely than not to be realized. Therefore, no valuation allowance has been
provided. Estimates used in the development of the net deferred income tax
assets may change in the near term.
NOTE 5 LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Trenwick's $103,500,000 convertible debentures due December 15, 1999, issued at
par, bear interest at 6% and are convertible, at any time prior to maturity,
into shares of common stock of Trenwick at a conversion price of $48.50 per
share, subject to adjustment under certain conditions. Interest on the
debentures is payable on June 15 and December 15 of each year. The debentures
are redeemable at any time on or after December 15, 1995, in
63
<PAGE> 63
whole or in part, at the option of Trenwick, at a redemption price of 103.43% of
par, decreasing to 100% at maturity. In January 1997, Trenwick called for
redemption on February 20, 1997 all then outstanding debentures at a redemption
price of 102.57% of the principal amount, $106,160,000, plus accrued interest to
the redemption date. See Note 13 for further disclosures with respect to the
redemption of this debt.
Subject to certain limitations, Trenwick is not restricted from incurring
secured or unsecured indebtedness and currently has no secured indebtedness or
indebtedness senior to the debentures. As of December 31, 1996, 2,134,000 shares
of Trenwick's common stock are reserved for issuance in the event of conversion
of the debentures. The fair value of Trenwick's convertible debentures at
December 31, 1996 and 1995 was $108,675,000 and $121,600,000, respectively,
based on the quoted market prices reported by the NASDAQ National Market System.
Trenwick incurred interest expense on its long-term debt of $6,504,000,
$6,486,000 and $6,469,000 for the years ended December 31, 1996, 1995 and 1994,
respectively, at effective rates of approximately 6% for the years then ended.
NOTE 6 INSURANCE REGULATION
Trenwick's reinsurance subsidiary, Trenwick America Re, is domiciled in and
subject to the insurance statutes of Connecticut.
During 1996, 1995 and 1994, Trenwick America Re paid dividends of $4,100,000,
$9,500,000 and $9,400,000, respectively. The statutory limitation on dividends
which can be paid without prior approval of the Connecticut Insurance
Commissioner, applicable to Trenwick America Re, is the greater of 10% of
policyholder surplus at December 31 of the preceding year or 100% of net income,
not including realized capital gains, for the twelve month period ending
December 31 of the preceding year, both determined in accordance with statutory
accounting practices. For the purpose of computing the limitation, carryforward
provisions apply with respect to net income realized in the two previous
calendar years which has
64
<PAGE> 64
not already been paid out as dividends. The amount of dividends or other
distributions that could be paid by Trenwick America Re without prior approval
as of December 31, 1996 was $62,901,000.
The differences between GAAP and statutory accounting practices for Trenwick
America Re are the treatment of acquisition costs, deferred income taxes, other
deferred charges and the carrying value of fixed maturity investments. The
following tables set forth a reconciliation of Trenwick America Re's net income
and statutory surplus, as filed with the insurance regulatory authorities, to
its net income and stockholders' equity as determined in accordance with GAAP
for the years ended and as of December 31:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME
Statutory net income of
Trenwick America Re $ 29,555 $ 28,060 $ 19,966
--------- --------- ---------
Change in deferred policy
acquisition costs 5,080 6,034 2,197
--------- --------- ---------
Provision for net deferred
income taxes 3,307 (690) 1,729
--------- --------- ---------
Other (6) (12) 19
--------- --------- ---------
GAAP net income of
Trenwick America Re $ 37,936 $ 33,392 $ 23,911
--------- --------- ---------
1996 1995 1994
--------- --------- ---------
RECONCILIATION OF SURPLUS
Statutory capital and
surplus of Trenwick
America Re $ 286,284 $ 257,590 $ 236,056
--------- --------- ---------
Deferred acquisition costs 21,805 16,725 10,691
--------- --------- ---------
Unrealized appreciation
(depreciation) of
investments 13,556 23,526 (13,685)
--------- --------- ---------
Net deferred income taxes 19,365 13,144 28,027
--------- --------- ---------
Unauthorized reinsurance 2,669 2,336 2,265
--------- --------- ---------
Non-admitted assets 208 2,142 1,858
--------- --------- ---------
GAAP stockholders' equity of
Trenwick America Re $ 343,887 $ 315,463 $ 265,212
--------- --------- ---------
</TABLE>
65
<PAGE> 65
NOTE 7 STOCK OPTIONS AND BENEFIT PLANS
STOCK OPTIONS
Trenwick has several plans through which it makes options
in common stock available to Trenwick employees at the discretion of the Board
of Directors. Non-employee directors receive automatic grants under a separate
plan. Exercise prices are generally fixed at the market value at the date of
grant. Options vest and are exercisable on various terms, usually either over a
five year period or up to a ten year period. All options have an expiration date
not exceeding ten years. Total authorized common stock reserved for issuance
under all stock benefit plans at December 31, 1996 is 723,963. Transactions
under the stock option plans are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
NUMBER OF SHARES
Outstanding, beginning
of year 758,352 793,892 841,442
-------- -------- --------
Granted 54,500 96,500 4,000
-------- -------- --------
Cancelled (11,370) -- (2,500)
-------- -------- --------
Exercised (147,352) (132,040) (49,050)
-------- -------- --------
Outstanding, end of year 654,130 758,352 793,892
-------- -------- --------
Exercisable, end of year 225,180 340,877 435,892
-------- -------- --------
AVERAGE EXERCISE PRICE
Granted $ 47.44 $ 44.00 $ 41.50
-------- -------- --------
Cancelled 29.14 -- 40.00
-------- -------- --------
Exercised 27.15 12.55 15.45
-------- -------- --------
Outstanding, end of year 37.09 34.29 29.50
-------- -------- --------
Exercisable, end of year 28.18 26.10 20.73
-------- -------- --------
</TABLE>
Included in the above are options granted to certain senior officers under the
1993 Stock Option Plan. The exercise and vesting of these options are
accelerated if the price of Trenwick's common stock achieves certain specified
levels, subject to certain conditions.
66
<PAGE> 66
RESTRICTED COMMON STOCK AWARDS
Trenwick awarded restricted common stock to key employees, primarily under the
terms of the 1989 Stock Plan. In 1996, 10,020 shares were awarded at values of
$48.75 to $53.50 (approximately $507,000), which vest over five to seven years.
Shares awarded in 1995 and 1994 vest over three to five years. Shares
repurchased in 1996, 1995 and 1994 have been in connection with the satisfaction
of employees' withholding taxes payable upon the vesting of previously awarded
shares. Trenwick has recognized compensation expense of $534,000, $531,000 and
$333,000 for 1996, 1995 and 1994, respectively, determined by the award value of
the shares amortized over the applicable vesting period.
RETIREMENT PLANS
Trenwick has a pension plan and a 401(k) savings plan for substantially all
full-time employees. Effective July 1, 1995, Trenwick contributes 8% of eligible
employees' total compensation to the pension plan. Prior to this date, Trenwick
contributed 4% of an eligible employees' total compensation, plus 3% of the
eligible employees' total compensation above the FICA limit. No employee
contributions are made to the plan. Effective January 1, 1996, Trenwick matches
100% of employees' contributions to the savings plan up to 6% of each eligible
employee's total compensation. Prior to January 1, 1996, Trenwick matched 100%
of employees' contributions up to the lesser of 6% of an eligible employee's
total compensation or $2,000. Assets of both plans are administered by a life
insurance company. Trenwick's contributions to the pension plan were $432,000,
$297,000 and $235,000 for 1996, 1995 and 1994, respectively; its contributions
to the savings plan were $314,000, $122,000 and $114,000 for 1996, 1995 and
1994, respectively.
67
<PAGE> 67
NOTE 8 STOCKHOLDER RIGHTS PLAN
Trenwick has adopted a stockholder rights plan under which preferred stock
purchase rights attach to all outstanding shares of Trenwick's common stock. The
rights are exercisable only if a party acquires, or announces a tender offer to
acquire, 20% or more of Trenwick's common stock. Each right entitles a
stockholder to buy 1/100 of a share of Trenwick's Series A Junior Participating
Preferred Stock for a $96 exercise price. Each 1/100 of a share of such
preferred stock will have dividend and voting rights approximately equal to one
share of common stock.
In the event that an acquiror accumulates 20% or more of Trenwick's common
stock, all rights holders except the acquiror may purchase, for the exercise
price, in lieu of the Series A Junior Participating Preferred Stock, shares of
common stock of Trenwick having a market value of twice the exercise price of
each right. If Trenwick is acquired in a merger or other business combination
after the acquisition of 20% of Trenwick's common stock, all rights holders
except the acquiror may purchase the acquiror's shares at a similar discount.
Trenwick is entitled to redeem the rights for one cent each, subject to certain
restrictions. Trenwick has reserved 150,000 shares of its preferred stock for
possible issuance under the plan. The rights will expire on November 2, 1999.
68
<PAGE> 68
NOTE 9 SUPPLEMENTAL CASH FLOWS INFORMATION
A reconciliation of cash provided by operations for the three years ended
December 31 is as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net income $ 33,848 $ 29,841 $ 20,282
--------- --------- ---------
ADJUSTMENTS
Amortization of premiums on
investments, net 1,579 1,003 1,169
--------- --------- ---------
Policy acquisition
costs incurred, net of
amortization (5,080) (6,034) (2,197)
--------- --------- ---------
Provision for deferred
income taxes (3,653) 750 (1,882)
--------- --------- ---------
Net realized investment
(gains) losses (299) (368) 196
--------- --------- ---------
Amortization of debt
issuance costs 295 276 259
--------- --------- ---------
Other non-cash items, net 900 907 601
--------- --------- ---------
(INCREASE) DECREASE IN
ASSETS
Receivables and recoverables 6,623 (1,112) (3,133)
--------- --------- ---------
Other (99) 72 458
--------- --------- ---------
INCREASE (DECREASE) IN
LIABILITIES
Unpaid claims and
claims expenses 55,303 22,576 34,716
--------- --------- ---------
Unearned premium income 15,398 19,744 6,705
--------- --------- ---------
Payables 5,663 (211) 3,648
--------- --------- ---------
Net cash provided by
operating activities $ 110,478 $ 67,444 $ 60,822
--------- --------- ---------
</TABLE>
69
<PAGE> 69
NOTE 10 OTHER ASSETS AND LIABILITIES
Other assets comprise:
<TABLE>
<CAPTION>
December 31, 1996 1995
------ ------
(in thousands)
<S> <C> <C>
Non-marketable equity investment,
at fair value $ -- $6,300
------ ------
Deferred debt issuance costs, net
of accumulated amortization of
$1,075 and $780 986 1,281
------ ------
Premises and equipment, net of
accumulated depreciation and
amortization of $2,373 and $2,050 1,135 889
------ ------
Prepaid reinsurance premiums 305 202
------ ------
Funds held in escrow 515 --
------ ------
Other 770 618
------ ------
Total other assets $3,711 $9,290
------ ------
</TABLE>
At December 31, 1995, Trenwick owned approximately 15% of common stock of
Investors Insurance Holding Corporation, a property and casualty insurer. The
shares were unregistered and Trenwick did not exercise significant influence
over the investment. Consequently, Trenwick accounted for its investment at fair
value, which was equal to cost until substantive events occurred which could
indicate a diminution or appreciation in value. During 1996, Trenwick sold its
investment for $5,601,000, including $515,000 of funds held in escrow, and
recognized a loss of $699,000, which is included in realized investment losses
for the year 1996.
Trenwick's minimum non-cancellable office space lease commitments totalling
$1,258,000 at December 31, 1996 are payable as follows: 1997 - $816,000; 1998 -
$442,000.
Total office rent expense for the years ended December 31, 1996, 1995 and 1994
was $918,000, $883,000 and $899,000, respectively.
70
<PAGE> 70
NOTE 11 FAIR VALUE OF FINANCIAL INSTRUMENTS
Accounting literature defines the fair value of a financial instrument as the
amount at which the instrument could be exchanged in a current transaction
between willing parties and requires disclosure of fair value information about
financial instruments for which it is practicable to estimate that value. In the
event that quoted market prices were not available, fair values are based on
estimates using discounted cash flow or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rates and estimates of the amount and timing of future cash flows.
These fair value estimates may vary in the near term. The following table
presents in summary form the carrying amounts and estimated fair values of
Trenwick's financial instruments at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995 Related
----------------------- -------------------- Footnote
Carrying Fair Carrying Fair Cross
(in thousands) Amount Value Amount Value Reference
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
-------- -------- -------- -------- ------------
Fixed maturity investments $713,998 $713,998 $633,525 $633,525 Notes 1 & 2
-------- -------- -------- -------- ------------
Equity securities 25,959 25,959 13,419 13,419 Notes 1 & 2
-------- -------- -------- -------- ------------
Cash and cash equivalents 14,253 14,253 6,760 6,760 Note 1
-------- -------- -------- -------- ------------
Accrued premiums 59,070 57,300 38,794 37,400 Note 3
-------- -------- -------- -------- ------------
Non-marketable equity investment -- -- 6,300 6,300 Note 10
-------- -------- -------- -------- ------------
Funds held in escrow 515 515 -- -- Note 10
-------- -------- -------- -------- ------------
LIABILITIES
-------- -------- -------- -------- ------------
Convertible debentures $103,500 $108,675 $103,500 $121,600 Notes 5 & 13
-------- -------- -------- -------- ------------
</TABLE>
71
<PAGE> 71
NOTE 12 UNAUDITED QUARTERLY FINANCIAL DATA
Summarized unaudited quarterly financial data reported by Trenwick for the years
ended December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
December September June March
Quarter ended 31 30 30 31
-------- --------- ------- -------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Earned premiums 1996 $54,994 $55,008 $53,376 $47,691
---- -------- --------- ------- -------
1995 46,032 43,200 43,698 44,464
---- -------- --------- ------- -------
1994 37,677 33,137 31,693 30,176
---- -------- --------- ------- -------
Net investment income 1996 10,840 10,332 10,185 9,869
---- -------- --------- ------- -------
1995 9,737 9,354 9,193 8,544
---- -------- --------- ------- -------
1994 8,852 8,596 8,303 8,181
---- -------- --------- ------- -------
Net realized investment 1996 281 (21) (11) 50
gains (losses) ---- -------- --------- ------- -------
1995 87 131 52 98
---- -------- --------- ------- -------
1994 (181) -- (118) 103
---- -------- --------- ------- -------
Net income 1996 8,819 8,520 8,327 8,182
---- -------- --------- ------- -------
1995 8,041 7,956 7,340 6,504
---- -------- --------- ------- -------
1994 6,626 6,402 6,097 1,157
---- -------- --------- ------- -------
Primary earnings 1996 1.29 1.24 1.22 1.20
per common share ---- -------- --------- ------- -------
1995 1.18 1.18 1.09 .97
---- -------- --------- ------- -------
1994 1.00 .96 .92 .17
---- -------- --------- ------- -------
Fully diluted earnings 1996 1.10 1.06 1.05 1.03
per common share ---- -------- --------- ------- -------
1995 1.01 1.01 .95 .86
---- -------- --------- ------- -------
1994 .87 .85 .82 .17(1)
---- -------- --------- ------- -------
Dividends per common 1996 .31 .31 .31 .31
share ---- -------- --------- ------- -------
1995 .28 .28 .28 .28
---- -------- --------- ------- -------
1994 .25 .25 .25 .25
---- -------- --------- ------- -------
Common stock 1996 53.75 54.25 53.50 56.75
price range: high ---- -------- --------- ------- -------
1995 57.50 53.00 45.75 44.25
---- -------- --------- ------- -------
1994 43.88 40.50 43.75 39.50
---- -------- --------- ------- -------
Common stock 1996 46.00 48.75 46.00 50.25
price range: low ---- -------- --------- ------- -------
1995 49.50 42.75 41.75 40.75
---- -------- --------- ------- -------
1994 36.50 36.00 33.75 33.25
---- -------- --------- ------- -------
</TABLE>
(1) The conversion of the convertible debentures into common stock was
anti-dilutive at March 31, 1994.
The stock price range is based on closing prices reported by the NASDAQ
National Market System.
72
<PAGE> 72
NOTE 13 SUBSEQUENT EVENT
In January 1997, the Company made a private offering of $110,000,000 in 8.82%
Subordinated Capital Income Securities due February 20, 2037 through Trenwick
Capital Trust I, a Delaware statutory business trust. In connection with this
offering, the Company called for redemption all $103,500,000 aggregate principal
amount of the Company's 6% convertible debentures due December 15, 1999, on
February 20, 1997, at a redemption price of 102.57% principal amount plus
accrued interest to the redemption date. Of the $103,500,000 principal amount of
debentures outstanding on that date, $45,819,000 principal amount were redeemed
and $57,681,000 principal amount were converted into an aggregate of 1,189,284
shares of the Company's common stock, par value $.10 per share. The remaining
net proceeds from the offering of the Capital Securities will be used for
general corporate purposes, which may include investments in and advances to
subsidiaries, the financing of growth and expansion, the financing of possible
future acquisitions and other corporate purposes.
The following table sets forth the consolidated income statement and earnings
per share data for the year ended December 31, 1996, and the pro forma income
statement and earnings per share data for the year ended December 31, 1996, as
adjusted to provide pro forma effect as if the conversion had been consummated
at January 1, 1996. Pro forma data excludes extraordinary loss on extinguishment
of debt of $1,049,000, net of tax.
<TABLE>
<CAPTION>
AS
(in thousands except per share data) ACTUAL ADJUSTED
---------- ----------
<S> <C> <C>
Net income $ 33,848 $ 36,204
---------- ----------
Primary earnings per share $ 4.95 $ 4.51
---------- ----------
Fully diluted earnings per share $ 4.25 --
---------- ----------
</TABLE>
73
<PAGE> 73
TRENWICK GROUP INC.
BOARD OF DIRECTORS
[PHOTO]
Standing Left to Right:
Sargent, Dunn, Billett,
Jacobs, Gruber
Seated Left to Right:
Wilcox, Watkins, Palmberger,
Brown
(A) Audit Committee
(C) Compensation Committee
(E) Executive Committee
(I) Investment Committee
(*) Committee Chairman
JAMES F. BILLETT, JR. (E*,I*) Chairman,
President and
Chief Executive Officer
Trenwick Group Inc.
ANTHONY S. BROWN (A)
Professor
Terry Sanford Institute
of Public Policy
Duke University
NEIL DUNN (C,E,I)
Managing Director
Voyageur International
Asset Managers Ltd
ALAN R. GRUBER (C*,E)
Chairman of the Executive
and Investment Committees;
Chairman and Chief Executive
Officer (Retired)
Orion Capital Corporation
P. ANTHONY JACOBS (C,E,I)
President and
Chief Operating Officer
Seafield Capital
Corporation
HERBERT PALMBERGER (A)
General Manager
Chubb Insurance Company
of Europe, S.A.
JOSEPH D. SARGENT (C,E)
Chairman, Treasurer and
Chief Financial Officer
Connecticut Surety
Corporation
FREDERICK D. WATKINS (A,C,E)
Executive Vice President
(Retired) Connecticut
General Corporation
STEPHEN R. WILCOX (A*,I)
President
The Wilcox Group, Inc.
OFFICERS
JAMES F. BILLETT, JR.
Chairman, President and
Chief Executive Officer
ALAN L. HUNTE
Vice President and Treasurer
JANE T. WIZNITZER
Vice President - Legal
Affairs and Secretary
71
<PAGE> 74
TRENWICK AMERICA REINSURANCE CORPORATION
BOARD OF DIRECTORS
(E) Executive Committee
(*) Committee Chairman
JAMES F. BILLETT, JR. (E*)
Chairman, President and
Chief Executive Officer
Trenwick America
Reinsurance Corporation
STEPHEN H. BINET
Executive Vice President
Trenwick America
Reinsurance Corporation
PAUL FELDSHER
Executive Vice President
Trenwick America
Reinsurance Corporation
ROBERT A. GIAMBO
Executive Vice President
and Chief Actuary
Trenwick America
Reinsurance Corporation
ALAN R. GRUBER (E)
Chairman of the Executive
and Investment Committees;
Chairman and
Chief Executive Officer
(Retired)
Orion Capital Corporation
ALAN L. HUNTE
Executive Vice President,
Chief Financial Officer
and Treasurer
Trenwick America
Reinsurance Corporation
MICHAEL F. MATHER
Senior Vice President
Trenwick America
Reinsurance Corporation
JAMES E. ROBERTS
Vice Chairman
Trenwick America
Reinsurance Corporation
FREDERICK D. WATKINS (E)
Executive Vice President
(Retired)
Connecticut General
Corporation
76
<PAGE> 75
TRENWICK AMERICA REINSURANCE CORPORATION OFFICERS
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
JAMES F. BILLETT, JR.
VICE CHAIRMAN
JAMES E. ROBERTS
EXECUTIVE VICE PRESIDENTS
STEPHEN H. BINET
PAUL FELDSHER
ROBERT A. GIAMBO
ALAN L. HUNTE
DAVID C. SMITH
SENIOR VICE PRESIDENTS
JEFFREY A. ENGLANDER
LYNN M. HALPER
FRANCIS J. LOCKWOOD
MICHAEL F. MATHER
WILLIAM L. PIERCE
MOLLY P. SANDERS
PETER R. ZIESING
VICE PRESIDENTS
GARY W. DANIELS
KURT A. KRAUSHAAR
EUGENE R. LOCK
YVONNE M. POSTER
JOHN R. PREZZANO
JOSEPH P. SAYDLOWSKI
JOSEPH W. WALSH
JANE T. WIZNITZER
ASSISTANT VICE PRESIDENTS
MICHAEL J. BRENNAN
WILLIAM A. CAMPERLENGO
LYNN Q. S. DEMAN
MICHELLE R. DIENER
ELLEN L. HAY
JOYCE D. HESKE
DONALD R. MASSO
ANDREA S. O'HAGAN
JOHN R. SENESAC, JR.
JODEE P. SOLTES
LORI J. STALOWICZ
RICHARD R. THOMAS, III
JAMES J. WILSON, III
ASSISTANT SECRETARIES
THOMAS P. BOYLE
JOYCE P. CHIMBOLE
DONNA M. INSLEY
MAUREEN M. POIRIER
MARY BETH RAUSER
MARYBETH M. RICE
77
<PAGE> 76
STOCKHOLDER INFORMATION
ANNUAL MEETING
The Annual Meeting of Stockholders of the Company will be held at 10:00 a.m.
local time May 22, 1997 at the Company's corporate headquarters, Metro Center,
One Station Place, Stamford, Connecticut. As of February 28, 1997 there were 134
holders of record and in excess of 1,200 beneficial owners of Trenwick Group
Inc. common stock.
MARKET LISTING
The common stock is listed by the NASDAQ National Market System under the ticker
symbol TREN.
REGISTRAR AND TRANSFER AGENT FOR COMMON STOCK
First Chicago Trust Company of New York
14 Wall Street, Mail Suite 4680
New York, New York 10005
(201) 324-0498
10-K
A copy of the Company's 1996 Form 10-K as filed with the Securities and Exchange
Commission may be obtained without charge by writing to the Office of the
Corporate Secretary, Trenwick Group Inc., Metro Center, One Station Place,
Stamford, Connecticut 06902.
78
<PAGE> 77
CORPORATE ADDRESS
Trenwick Group Inc.
Metro Center
One Station Place
Stamford, Connecticut 06902
Telephone: (203) 353-5500
Facsimile: (203) 353-5550
79
<PAGE> 1
EXHIBIT 21.0
ORGANIZATIONAL CHART
------------------------------
Trenwick Group Inc.
ID No. 06-1152790
------------------------------
|
|
-------------------------------------------
| |
100% | | 100%
- - ------------------------------------- ----------------------------------------
Trenwick Services, Ltd. Trenwick America Corporation
ID No. 06-1087972
- - ------------------------------------- ----------------------------------------
| |
100% | | 100%
- - ------------------------------------- ----------------------------------------
Trenwick Guaranty Insurance Trenwick America Reinsurance Corporation
Company, Ltd. ID No. 06-1117063
Domicile-Connecticut
NAIC Code-34894
- - ------------------------------------- ----------------------------------------
<PAGE> 1
EXHIBIT 23.0
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-09245, No. 33-09248, No. 33-19833, No. 33-31115,
No. 33-68112, No. 33-83092 and No. 33-83094) of our report dated January 27,
1997, except as to the subsequent event described in Note 13 which is as of
February 20, 1997, appearing on page 43 of the 1996 Annual Report to
Stockholders of Trenwick Group Inc., which is incorporated by reference in this
Annual Report on Form 10-K for the year ended December 31, 1996. We also
consent to the incorporation by reference of our report dated January 27, 1997
on the Financial Statement Schedules, which appears on page S-3 of this
Form 10-K.
PRICE WATERHOUSE LLP
New York, New York
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements contained in the FORM 10-K for the year ended December 31,
1996 for Trenwick Group Inc.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U. S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 713,998
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 25,959
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 739,957
<CASH> 14,253
<RECOVER-REINSURE> 47,772<F1>
<DEFERRED-ACQUISITION> 21,805
<TOTAL-ASSETS> 920,804
<POLICY-LOSSES> 467,177
<UNEARNED-PREMIUMS> 71,448
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 103,500
0
0
<COMMON> 673
<OTHER-SE> 265,080
<TOTAL-LIABILITY-AND-EQUITY> 920,804
211,069
<INVESTMENT-INCOME> 41,226
<INVESTMENT-GAINS> 299
<OTHER-INCOME> 0
<BENEFITS> 129,316
<UNDERWRITING-AMORTIZATION> 58,757
<UNDERWRITING-OTHER> 20,693
<INCOME-PRETAX> 43,828
<INCOME-TAX> 9,980
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,848
<EPS-PRIMARY> 4.95
<EPS-DILUTED> 4.25
<RESERVE-OPEN> 327,001<F2>
<PROVISION-CURRENT> 133,755
<PROVISION-PRIOR> (4,439)
<PAYMENTS-CURRENT> (22,570)
<PAYMENTS-PRIOR> (46,860)
<RESERVE-CLOSE> 386,887<F3>
<CUMULATIVE-DEFICIENCY> 3,669<F4>
<FN>
<F1>Represents net reinsurance recoverable balances after offset of funds held and
reinsurance balances payable.
<F2>Reflects net reserve at beginning of year for unpaid claims
<F3>Reflects net reserve at end of year for unpaid claims
<F4>Reflects gross redundancy in restated reserves
</FN>
</TABLE>
