<PAGE> 1
Filed pursuant to Rule 424(b)(3)
Registration Nos. 333-28707 and 333-28707-01
PROSPECTUS
TRENWICK CAPITAL TRUST I
OFFER TO EXCHANGE ITS
8.82% EXCHANGE SUBORDINATED CAPITAL INCOME SECURITIES
(LIQUIDATION AMOUNT $1,000 PER EXCHANGE CAPITAL SECURITY)
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, FOR ANY AND ALL OF ITS OUTSTANDING
8.82% SUBORDINATED CAPITAL INCOME SECURITIES
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
UNCONDITIONALLY GUARANTEED, TO THE EXTENT DESCRIBED HEREIN, BY
TRENWICK GROUP INC.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON JULY 24, 1997, UNLESS EXTENDED.
------------------------
Trenwick Capital Trust I, a statutory business trust formed under the laws
of the State of Delaware (the "Trust"), hereby offers, upon the terms and
subject to the conditions set forth in this Prospectus (as the same may be
amended or supplemented from time to time, the "Prospectus") and in the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange up to $110,000,000 aggregate Liquidation Amount, determined
on the basis of $1,000 per Subordinated Capital Income Security ("Liquidation
Amount"), of its 8.82% Exchange Subordinated Capital Income Securities (the
"Exchange Capital Securities"), which have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), pursuant to a Registration
Statement of which this Prospectus constitutes a part, for a like Liquidation
Amount of its outstanding 8.82% Subordinated Capital Income Securities (the "Old
Capital Securities"), of which $110,000,000 aggregate Liquidation Amount is
outstanding. Pursuant to the Exchange Offer, Trenwick Group Inc., a Delaware
corporation (the "Company"), is also offering to exchange (i) its guarantee of
payments of cash distributions and payments on liquidation of the Trust or
redemption of the Old Capital Securities, to the extent the Trust has funds
legally available therefor (the "Old Guarantee"), for a like guarantee in
respect of the Exchange Capital Securities (the "Exchange Guarantee") and (ii)
all of its 8.82% Junior Subordinated Deferrable Interest Debentures due February
1, 2037 (the "Old Junior Subordinated Debentures") for a like aggregate
principal amount of its 8.82% Exchange Junior Subordinated Deferrable Interest
Debentures due February 1, 2037 (the "Exchange Junior Subordinated Debentures"),
corresponding to the aggregate Liquidation Amount of the Exchange Capital
Securities, which Exchange Guarantee and Exchange Junior Subordinated Debentures
also have been registered under the Securities Act. The Old Capital Securities,
the Old Guarantee and the Old Junior Subordinated Debentures, collectively, are
referred to herein as the "Old Securities" and the Exchange Capital Securities,
the Exchange Guarantee and the Exchange Junior Subordinated Debentures,
collectively, are referred to herein as the "Exchange Securities."
(Continued on the following page)
SEE "RISK FACTORS" COMMENCING ON PAGE 10 FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED BY HOLDERS IN DECIDING WHETHER TO TENDER OLD CAPITAL
SECURITIES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is June 25, 1997.
<PAGE> 2
(Continued from the previous page)
The terms of the Exchange Securities are identical in all material respects
to the terms of the Old Securities, except that (i) the Exchange Securities have
been registered under the Securities Act and therefore will not be subject to
certain restrictions on transfer applicable to the Old Securities, (ii) the
Exchange Securities will not contain the $100,000 minimum Liquidation Amount
transfer restriction, (iii) the Exchange Capital Securities will not provide for
any increase in the Distribution rate thereon which is payable on the Old
Capital Securities if the Company and the Trust do not or cannot fulfill certain
obligations (which obligations will be satisfied upon the consummation of the
Exchange Offer) under a Registration Rights Agreement dated as of January 31,
1997 (the "Registration Rights Agreement") among the Company, the Trust and the
Initial Purchaser (as defined in "Prospectus Summary -- The Exchange
Offer -- Absence of Market for the Exchange Capital Securities") (iv) the
Exchange Junior Subordinated Debentures will be issued in denominations of
$1,000 and will not contain the $100,000 minimum principal amount transfer
restriction and (v) the Exchange Junior Subordinated Debentures will not provide
for any increase in the interest rate thereon which is payable on the Old Junior
Subordinated Debentures if the Company and the Trust do not or cannot fulfill
certain obligations under the Registration Rights Agreement (which obligations
will be satisfied upon the consummation of the Exchange Offer). See "Description
of Exchange Securities" and "Description of Old Securities." The Exchange
Capital Securities are being offered for exchange to satisfy certain obligations
of the Company and the Trust under the Registration Rights Agreement. In the
event that the Exchange Offer is consummated, any Old Capital Securities which
remain outstanding after consummation of the Exchange Offer and the
corresponding Exchange Securities issued in the Exchange Offer will vote
together as a single class for purposes of determining whether holders of the
requisite percentage in outstanding Liquidation Amount thereof have taken
certain actions or exercised certain rights under the Trust Agreement.
This Prospectus and the Letter of Transmittal are first being mailed to all
holders of Old Capital Securities on or about June 25, 1997.
The Exchange Capital Securities and the Old Capital Securities
(collectively, the "Capital Securities") will represent beneficial interests in
the assets of the Trust. The Company is the owner of all of the beneficial
interests represented by common securities of the Trust (the "Common
Securities," and together with the Capital Securities, the "Trust Securities").
The Chase Manhattan Bank is the Property Trustee of the Trust. The Trust exists
for the sole purpose of issuing the Trust Securities, investing the proceeds
thereof in the Old Junior Subordinated Debentures and the Exchange Junior
Subordinated Debentures for which they may be exchanged (together, the "Junior
Subordinated Debentures") and making Distributions. The Junior Subordinated
Debentures are scheduled to mature on February 1, 2037 (the "Stated Maturity
Date"). The Capital Securities may be redeemed, at the option of the Trust, at
any time after February 1, 2007, and the Stated Maturity may under certain
circumstances be shortened in the event of a Tax Event or Investment Company
Event. See "Description of Exchange Securities -- Description of Exchange
Capital Securities -- Conditional Right to Shorten Maturity and Special Event
Redemption." The Capital Securities will have a preference over the Common
Securities (as defined herein) under certain circumstances with respect to cash
distributions and amounts payable on liquidation, redemption or otherwise. See
"Description of Exchange Securities -- Description of Exchange Capital
Securities -- Subordination of Common Securities." As more fully described
below, the Company, in addition to agreeing to pay all fees, expenses, debts and
obligations (other than the Trust Securities) related to the Trust has entered
into several contractual undertakings which, the Company believes, taken
together, guarantee to the holders of the Capital Securities a full and
unconditional right to enforce the payment of distributions, the payment of the
redemption price upon redemption of the Capital Securities and the payment of
the Liquidation Amount with respect to the Capital Securities upon liquidation
of the Trust. (See "Risk Factors -- Rights Under the Guarantee.") Those
contractual arrangements include the Company's obligations under (i) the
Guarantee for the benefit of the holders of Capital Securities, (ii) the Trust
Agreement, (iii) the Junior Subordinated Debentures and (iv) the Indenture.
As used herein, (i) the "Indenture" means the Indenture, dated as of
January 31, 1997, as amended and supplemented from time to time, between the
Company and The Chase Manhattan Bank, as Debenture
(ii)
<PAGE> 3
(Continued from the previous page)
Trustee (the "Debenture Trustee") relating to the Junior Subordinated
Debentures, (ii) the "Trust Agreement" means the Amended and Restated
Declaration of Trust relating to the Trust, dated as of January 31, 1997, among
the Company as Sponsor, The Chase Manhattan Bank as Property Trustee (the
"Property Trustee"), Chase Manhattan Bank Delaware as Delaware Trustee (the
"Delaware Trustee"), and the Administrative Trustees named therein
(collectively, with the Property Trustee and Delaware Trustee, the "Issuer
Trustees"). In addition, as the context may require, unless otherwise expressly
stated, (i) "Capital Securities" and "Trust Securities" include the Old Capital
Securities and the Exchange Capital Securities, (ii) "Trust Securities" includes
the Capital Securities and the Common Securities, (iii) "Junior Subordinated
Debentures" includes the Old Junior Subordinated Debentures and the Exchange
Junior Subordinated Debentures and (iv) "Guarantee" includes the Old Guarantee
and the Exchange Guarantee.
Except as provided below, the Capital Securities will be represented by
global Capital Securities in fully registered form, deposited with a custodian
for and registered in the name of a nominee of DTC. Beneficial interests in such
Capital Securities will trade in DTC's Same-Day Funds Settlement System and
secondary market trading activity in such interests will therefore settle in
immediately available funds.
Holders of the Exchange Capital Securities will be entitled to receive
preferential cumulative cash distributions arising from the payment of interest
on the Junior Subordinated Debentures, accruing from January 31, 1997 or from
the latest date to which distributions thereon have been duly paid or provided
for, and payable semi-annually in arrears on February 1 and August 1 of each
year, commencing August 1, 1997, at the annual rate of 8.82% of the Liquidation
Amount of $1,000 per Trust Security ("Distributions"). So long as no Debenture
Event of Default (as defined in "Description of the Exchange
Securities -- Description of Exchange Junior Subordinated
Debentures -- Debenture Events of Default") has occurred and is continuing, the
Company will have the right to defer payments of interest on the Junior
Subordinated Debentures at any time and from time to time for a period not
exceeding 10 consecutive semi-annual periods with respect to each deferral
period (each, an "Extension Period"), provided that no Extension Period may
extend beyond the Stated Maturity Date. Upon the termination of any such
Extension Period and the payment of all amounts then due, the Company may elect
to begin a new Extension Period, subject to the requirements set forth in the
Indenture. If and for so long as interest payments on the Junior Subordinated
Debentures are so deferred, Distributions on the Trust Securities will also be
deferred and the Company will not be permitted, subject to certain exceptions
described herein, to declare or pay any cash distributions with respect to the
Company's capital stock (which includes common and preferred stock) or to make
any payment with respect to debt securities of the Company that rank pari passu
with or junior to the Junior Subordinated Debentures. 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. During an Extension Period, interest on the Junior Subordinated
Debentures will continue to accrue (and the amount of Distributions to which
holders of the Trust Securities are entitled will accumulate) at the rate of
8.82% per annum, compounded semi-annually, and holders of Trust Securities will
be required to accrue such deferred interest income for United States federal
income tax purposes prior to the receipt of cash payments attributable to such
interest income. See "Description of Exchange Securities -- Description of
Exchange Junior Subordinated Debentures -- Option to Extend Interest Payment
Date" and "Certain Federal Income Tax Consequences -- Interest Income and
Original Issue Discount."
Through the Guarantee, the guarantee agreement of the Company relating to
the Common Securities (the "Common Guarantee"), the Trust Agreement, the Junior
Subordinated Debentures and the Indenture, taken together, the Company has
guaranteed or will guarantee, as the case may be, fully, irrevocably and
unconditionally, all of the Trust's obligations under the Trust Securities. See
"Relationship Among the Exchange Capital Securities, the Exchange Junior
Subordinated Debentures and the Exchange Guarantee." The Old Guarantee and the
Common Guarantee guarantee, and the Exchange Guarantee will guarantee, payments
of Distributions and payments on liquidation or redemption of the Trust
Securities, but in each case only to the extent that the Trust holds funds on
hand legally available therefor and has failed to make such payments, as
described herein. See "Description of Exchange Securities -- Description of
Exchange Guaran-
(iii)
<PAGE> 4
(Continued from the previous page)
tee." If the Company fails to make a required payment on the Junior Subordinated
Debentures, the Trust will not have sufficient funds to make the related
payments, including Distributions, on the Trust Securities. The Guarantee and
the Common Guarantee will not cover any such payment when the Trust does not
have sufficient funds on hand legally available therefor. In such event, a
holder of Capital Securities may institute a legal proceeding directly against
the Company to enforce its rights in respect of such payment. See "Description
of Exchange Securities -- Description of Exchange Junior Subordinated
Debentures -- Enforcement of Certain Rights By Holders of Exchange Capital
Securities." The obligations of the Company under the Guarantee, the Common
Guarantee and the Junior Subordinated Debentures will be subordinate and junior
in right of payment to all Senior Indebtedness (as defined in "Description of
Exchange Securities -- Description of Exchange Junior Subordinated
Debentures -- Subordination").
The Trust Securities will be subject to mandatory redemption in a Like
Amount (as defined herein), (i) in whole but not in part, on the Stated Maturity
Date upon repayment of the Junior Subordinated Debentures at a redemption price
equal to the principal amount of, plus accrued and unpaid interest on, the
Junior Subordinated Debentures (the "Maturity Redemption Price"), (ii) in whole
but not in part, at any time prior to February 1, 2007, contemporaneously with
the optional prepayment of the Junior Subordinated Debentures, upon the
occurrence and continuation of a Special Event (as defined herein) at a
redemption price equal to the Special Event Prepayment Price (as defined below)
(the "Special Event Redemption Price"), and (iii) in whole or in part, on or
after February 1, 2007, contemporaneously with the optional prepayment by the
Company of the Junior Subordinated Debentures, at a redemption price equal to
the Optional Prepayment Price (as defined below) (the "Optional Redemption
Price"). Any of the Maturity Redemption Price, the Special Event Redemption
Price and the Optional Redemption Price may be referred to herein as the
"Redemption Price." See "Description of Exchange Securities -- Description of
Exchange Capital Securities -- Redemption." The Junior Subordinated Debentures
will be prepayable prior to the Stated Maturity Date at the option of the
Company (i) on or after February 1, 2007, in whole or in part, at a prepayment
price (the "Optional Prepayment Price") equal to the principal amount thereof
outstanding, plus accrued and unpaid interest thereon to the date of prepayment,
or (ii) at any time, in whole but not in part, upon the occurrence and
continuation of a Special Event, at a prepayment price (the "Special Event
Prepayment Price") equal to the greater of (a) 100% of the principal amount
thereof or (b) the sum, as determined by a Quotation Agent (as defined herein),
of the present values of the remaining scheduled payments of principal and the
interest thereon discounted to the prepayment date on a semi-annual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Adjusted
Treasury Rate (as defined herein) plus, in either case, accrued interest thereon
to the date of prepayment. Either of the Optional Prepayment Price or the
Special Event Prepayment Price may be referred to herein as the "Prepayment
Price." See "Description of Exchange Securities -- Description of Exchange
Junior Subordinated Debentures -- Optional Prepayment" and "-- Conditional Right
to Shorten Maturity and Special Event Prepayment."
The Company, as the holder of all of the Common Securities, will have the
right at any time to terminate the Trust and cause a Like Amount of the Junior
Subordinated Debentures to be distributed to the holders of the Trust Securities
in liquidation of the Trust, subject to the Company having received an opinion
of counsel to the effect that such distribution will not be a taxable event to
holders of Capital Securities. Unless the Junior Subordinated Debentures are
distributed to the holders of the Trust Securities, in the event of a
liquidation of the Trust as described herein, after satisfaction of liabilities
to creditors of the Trust as required by applicable law, the holders of the
Capital Securities generally will be entitled to receive a Liquidation Amount of
$1,000 per Capital Security plus accumulated Distributions thereon to the date
of payment. See "Description of Exchange Securities -- Description of Exchange
Capital Securities -- Liquidation of the Trust and Distribution of Exchange
Junior Subordinated Debentures."
------------------------
The Trust is making the Exchange Offer of the Exchange Capital Securities
in reliance on the position of the staff of the Division of Corporation Finance
of the Securities and Exchange Commission (the
(iv)
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(Continued from the previous page)
"Commission") as set forth in certain interpretive letters addressed to third
parties in other transactions. However, neither the Company nor the Trust has
sought its own interpretive letter and there can be no assurance that the staff
of the Division of Corporate Finance of the Commission would make a similar
determination with respect to the Exchange Offer as it has in such interpretive
letters to third parties. Based on these interpretations by the staff of the
Division of Corporation Finance of the Commission, and subject to the two
immediately following sentences, the Company and the Trust believe that Exchange
Capital Securities issued pursuant to this Exchange Offer in exchange for Old
Capital Securities may be offered for resale, resold and otherwise transferred
by a holder thereof (other than a holder who is a broker-dealer) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such Exchange Capital Securities are acquired in
the ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such Exchange Capital Securities. Any holder of Old Capital Securities who is an
"affiliate" of the Company or the Trust or who intends to participate in the
Exchange Offer for the purpose of distributing Exchange Capital Securities, or
any broker-dealer who purchased Old Capital Securities from the Trust for resale
pursuant to Rule 144A under the Securities Act ("Rule 144A") or any other
available exemption under the Securities Act, however, (a) will not be able to
rely on the interpretations of the staff of the Division of Corporation Finance
of the Commission set forth in the above-mentioned interpretive letters, (b)
will not be permitted or entitled to tender such Old Capital Securities in the
Exchange Offer and (c) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or other transfer
of such Old Capital Securities unless such sale is made pursuant to an exemption
from such requirements. In addition, as described below, if any broker-dealer
holds Old Capital Securities acquired for its own account as a result of
market-making or other trading activities and exchanges such Old Capital
Securities for Exchange Capital Securities, then such broker-dealer must deliver
a prospectus meeting the requirements of the Securities Act in connection with
any resales of such Exchange Capital Securities.
Each holder of Old Capital Securities who wishes to exchange Old Capital
Securities for Exchange Capital Securities in the Exchange Offer will be
required to represent that (i) it is not an "affiliate" of the Company or the
Trust, (ii) any Exchange Capital Securities to be received by it are being
acquired in the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such Exchange Capital Securities, and (iv) if
such holder is not a broker-dealer, such holder is not engaged in, and does not
intend to engage in, a distribution (within the meaning of the Securities Act)
of such Exchange Capital Securities. In addition, the Company and the Trust may
require such holder, as a condition to such holder's eligibility to participate
in the Exchange Offer, to furnish to the Company and the Trust (or an agent
thereof) in writing information as to the number of "beneficial owners" (within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended)
on behalf of whom such holder holds the Old Capital Securities to be exchanged
in the Exchange Offer. Each broker-dealer that receives Exchange Capital
Securities for its own account pursuant to the Exchange Offer must acknowledge
that it acquired the Exchange Capital Securities for its own account as the
result of market-making activities or other trading activities and must agree
that it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such Exchange Capital Securities. The Letter of
Transmittal states that, by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Based on the position taken by the staff of the
Division of Corporation Finance of the Commission in the interpretive letters
referred to above, the Company and the Trust believe that broker-dealers who
acquired Old Capital Securities for their own accounts, as a result of
market-making activities or other trading activities ("Participating
Broker-Dealers"), may fulfill their prospectus delivery requirements with
respect to the Exchange Capital Securities received upon exchange of such Old
Capital Securities (other than Old Capital Securities which represent an unsold
allotment from the original sale of the Old Capital Securities) with a
prospectus meeting the requirements of the Securities Act, which may be the
prospectus prepared for an exchange offer so long as it contains a description
of the plan of distribution with respect to the resale of such
(v)
<PAGE> 6
(Continued from the previous page)
Exchange Capital Securities. Accordingly, this Prospectus, as it may be amended
or supplemented from time to time, may be used by a Participating Broker-Dealer
during the period referred to below in connection with resales of Exchange
Capital Securities received in exchange for Old Capital Securities where such
Old Capital Securities were acquired by such Participating Broker-Dealer for its
own account as a result of market-making or other trading activities. Subject to
certain provisions set forth in the Registration Rights Agreement, the Company
and the Trust have agreed that this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of such Exchange Capital Securities for a period ending
90 days after the Expiration Date (as defined herein) (subject to extension
under certain limited circumstances described below) or, if earlier, when all
such Exchange Capital Securities have been disposed of by such Participating
Broker-Dealer. See "Plan of Distribution." However, a Participating
Broker-Dealer who intends to use this Prospectus in connection with the resale
of Exchange Capital Securities received in exchange for Old Capital Securities
pursuant to the Exchange Offer must notify the Company or the Trust, or cause
the Company or the Trust to be notified, on or prior to the Expiration Date,
that it is a Participating Broker-Dealer. Such notice may be given in the space
provided for that purpose in the Letter of Transmittal or may be delivered to
the Exchange Agent at one of the addresses set forth herein under "The Exchange
Offer -- Exchange Agent." Any Participating Broker-Dealer who is an "affiliate"
of the Company or the Trust may not rely on such interpretive letters and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. See "The Exchange
Offer -- Resales of Exchange Capital Securities."
Each Participating Broker-Dealer who surrenders Old Capital Securities
pursuant to the Exchange Offer will be deemed to have agreed that, upon receipt
of notice from the Company or the Trust of the occurrence of any event or the
discovery of any fact which makes any statement contained or incorporated by
reference in this Prospectus untrue in any material respect or which causes this
Prospectus to omit to state a material fact necessary in order to make the
statements contained or incorporated by reference herein, in light of the
circumstances under which they were made, not misleading or of the occurrence of
certain other events specified in the Registration Rights Agreement, such
Participating Broker-Dealer will suspend the sale of Exchange Capital Securities
(or the Exchange Guarantee or the Exchange Junior Subordinated Debentures, as
applicable) pursuant to this Prospectus until the Company or the Trust has
amended or supplemented this Prospectus to correct such misstatement or omission
and has furnished copies of the amended or supplemented Prospectus to such
Participating Broker-Dealer or the Company or the Trust has given notice that
the sale of the Exchange Capital Securities (or the Exchange Guarantee or the
Exchange Junior Subordinated Debentures, as applicable) may be resumed, as the
case may be. If the Company or the Trust gives such notice to suspend the sale
of the Exchange Capital Securities (or the Exchange Guarantee or the Exchange
Junior Subordinated Debentures, as applicable), it shall extend the 90-day
period referred to above during which Participating Broker-Dealers are entitled
to use this Prospectus in connection with the resale of Exchange Capital
Securities by the number of days during the period from and including the date
of the giving of such notice to and including the date when Participating
Broker-Dealers shall have received copies of the amended or supplemented
Prospectus necessary to permit resales of the Exchange Capital Securities or to
and including the date on which the Company or the Trust has given notice that
the sale of Exchange Capital Securities (or the Exchange Guarantee or the
Exchange Junior Subordinated Debentures, as applicable) may be resumed, as the
case may be.
Prior to the Exchange Offer, there has been only a limited secondary market
and no public market for the Old Capital Securities. The Exchange Capital
Securities will be a new issue of securities for which there currently is no
market. Although the Initial Purchaser has informed the Company and the Trust
that it currently intends to make a market in the Exchange Capital Securities,
it is not obligated to do so, and any such market making may be discontinued at
any time without notice. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Exchange Capital Securities. The
Company and the Trust currently do not intend to apply for listing of the
Exchange Capital Securities on any securities exchange or for inclusion in the
Nasdaq Stock Market ("NASDAQ").
(vi)
<PAGE> 7
(Continued from the previous page)
The Company and the Trust have agreed to keep the Registration Statement,
of which this Prospectus is a part, effective for a period of 30 calendar days
(or longer if required by applicable law or to allow Participating
Broker-Dealers to satisfy their prospectus delivery requirements) after notice
of the Exchange Offer is mailed to holders of the Old Securities.
Any Old Capital Securities not tendered and accepted in the Exchange Offer
will remain outstanding and will be entitled to all the same rights and will be
subject to the same limitations applicable thereto under the Trust Agreement
(except for those rights in respect of the Exchange Offer). Following
consummation of the Exchange Offer, the holders of Old Capital Securities will
continue to be subject to all of the existing restrictions upon transfer thereof
and neither the Company nor the Trust will have any further obligation to such
holders (other than under certain limited circumstances) to provide for
registration under the Securities Act of the Old Capital Securities held by
them. To the extent that Old Capital Securities are tendered and accepted in the
Exchange Offer, a holder's ability to sell untendered Old Capital Securities
could be adversely affected. See "Risk Factors -- Consequences of a Failure to
Exchange Old Capital Securities."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD CAPITAL SECURITIES ARE URGED TO READ THIS PROSPECTUS
AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO
TENDER THEIR OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER.
Old Capital Securities may be tendered for exchange on or prior to 5:00
p.m., New York City time, on July 24, 1997 (such time on such date being
hereinafter called the "Expiration Date"), unless the Exchange Offer is extended
by the Company or the Trust (in which case the term "Expiration Date" shall mean
the latest date and time to which the Exchange Offer is extended). Tenders of
Old Capital Securities may be withdrawn at any time on or prior to the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
Liquidation Amount of Old Capital Securities being tendered for exchange. The
Exchange Offer is, however, subject to certain events and conditions which may
be waived by the Company or the Trust and to the terms and provisions of the
Registration Rights Agreement. Old Capital Securities may be tendered in the
Exchange Offer for exchange in whole or in part in any integral multiples of
$1,000 Liquidation Amount (one Capital Security) notwithstanding the
requirement, applicable to all other transfers of Old Capital Securities, of a
minimum transfer amount of $100,000 in Liquidation Amount. For purposes of
tenders of Old Capital Securities in the Exchange Offer, the requirement for
minimum transfers of $100,000 Liquidation Amount will be waived. The Company has
agreed to pay all expenses of the Exchange Offer. See "The Exchange
Offer -- Fees and Expenses." Holders of the Old Capital Securities whose Old
Capital Securities are accepted for exchange will not receive Distributions on
such Old Capital Securities and will be deemed to have waived the right to
receive any Distributions on such Old Capital Securities accumulated from and
including January 31, 1997. Accordingly, holders of Exchange Capital Securities
as of the record date for the payment of Distributions on August 1, 1997 will be
entitled to receive Distributions accumulated from and including January 31,
1997. See "The Exchange Offer -- Distributions on Exchange Capital Securities."
Neither the Company nor the Trust will receive any cash proceeds from the
issuance of the Exchange Capital Securities offered hereby. No dealer-manager is
being used in connection with this Exchange Offer. See "Use of Proceeds" and
"Plan of Distribution."
NOTICE TO NEW HAMPSHIRE RESIDENTS:
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT
ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER
ANY SUCH FACT NOR THE FACT THAT AN EXEMP-
(vii)
<PAGE> 8
(Continued from the previous page)
TION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE
SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF,
OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION. IT IS
UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR
CLIENT, ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
------------------------
FOR NORTH CAROLINA RESIDENTS ONLY:
THE COMMISSIONER OF INSURANCE OF THE STATE OF NORTH CAROLINA HAS NOT
APPROVED OR DISAPPROVED THE OFFERING OF THE SECURITIES MADE HEREBY NOR HAS THE
COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THIS EXCHANGE
OFFER AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE TRUST. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY OR THE TRUST SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR ANYONE TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
(viii)
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................................................................. 1
Incorporation of Certain Documents by Reference....................................... 1
Prospectus Summary.................................................................... 3
Risk Factors.......................................................................... 10
Use of Proceeds....................................................................... 17
Consolidated Ratios of Earnings to Fixed Charges...................................... 17
Accounting Treatment.................................................................. 17
Capitalization........................................................................ 18
Selected Financial Data............................................................... 19
Trenwick Group Inc. .................................................................. 20
Trenwick Capital Trust I.............................................................. 20
The Exchange Offer.................................................................... 21
Description of Exchange Securities.................................................... 30
Description of Exchange Capital Securities.......................................... 30
Description of Exchange Junior Subordinated Debentures.............................. 42
Description of Exchange Guarantee................................................... 50
Description of Old Securities......................................................... 52
Relationship Among the Exchange Capital Securities, the Exchange Junior Subordinated
Debentures and the Exchange Guarantee............................................... 52
Certain Federal Income Tax Consequences............................................... 54
ERISA Considerations.................................................................. 58
Plan of Distribution.................................................................. 59
Legal Matters......................................................................... 60
Experts............................................................................... 60
</TABLE>
(ix)
<PAGE> 10
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, 13th Floor, Suite
1300, New York, New York 10048 and Suite 1400, Citicorp Center, 14th Floor, 500
West Madison Street, Chicago, Illinois 60661. Copies of such material can also
be obtained at prescribed rates by writing to the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. If available,
such reports and other information may also be accessed through the Commission's
electronic data gathering, analysis and retrieval system ("EDGAR") via
electronic means, including the Commission's web site on the Internet
(http://www.sec.gov). In addition, the Company's common stock, $.10 par value
per share ("Common Stock"), is listed on the NASDAQ National Market and such
material also is available for inspection at the National Association of
Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
No separate financial statements of the Trust have been included herein.
The Company and the Trust do not consider that such financial statements would
be material to holders of the Capital Securities because the Trust is a newly
formed special purpose entity, has no operating history or independent
operations and is not engaged in and does not propose to engage in any activity
other than holding as trust assets the Junior Subordinated Debentures, issuing
the Trust Securities and engaging in incidental activities. See "Trenwick
Capital Trust I" and "Description of Exchange Securities." The Trust is not
currently subject to the information reporting requirements of the Exchange Act.
The Trust will become subject to such requirements upon the effectiveness of the
Registration Statement, although it intends to seek and expects to receive
exemptions therefrom.
This Prospectus constitutes a part of a registration statement on Form S-4
(the "Registration Statement") filed by the Company and the Trust with the
Commission under the Securities Act. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission, and
reference is hereby made to the Registration Statement and to the exhibits
relating thereto for further information with respect to the Company, the Trust
and the Exchange Securities. Any statements contained herein concerning the
provisions of any document are not necessarily complete, and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated into this Prospectus by reference:
(a) Annual Report on Form 10-K for the year ended December 31, 1996;
(b) Quarterly Reports on Form 10-Q and Form 10-Q/A for the quarter ended
March 31, 1997; and
(c) Current Reports on Form 8-K dated January 24, 1997, January 28, 1997
and January 31, 1997.
Such incorporation by reference shall not be deemed to specifically
incorporate by reference the information referred to in Item 402(a)(8) of
Regulation S-K.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the
termination of the offering of the Exchange Securities offered hereby shall be
deemed to be incorporated by reference into this Prospectus and to be a part of
this Prospectus from the date of filing of such document.
<PAGE> 11
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein or in any Prospectus Supplement modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
As used herein, the terms "Prospectus" and "herein" mean this Prospectus
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein do not purport to be complete, and
where reference is made to the particular provisions of such contract or other
document, such provisions are qualified in all respects by reference to all of
the provisions of such contract or other document. The Company will provide
without charge to any person to whom this Prospectus is delivered, on the
written or oral request of such person, a copy of any or all of the foregoing
documents incorporated by reference herein (other than exhibits not specifically
incorporated by reference into the texts of such documents). Requests for such
documents should be directed to: Trenwick Group Inc., Metro Center, One Station
Place, Stamford, Connecticut 06902, Attention: Jane T. Wiznitzer, Vice
President -- Legal Affairs and Secretary. Telephone requests may be directed to
(203) 353-5500.
2
<PAGE> 12
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified in
its entirety by the more detailed information and financial statements included
and incorporated by reference in this Prospectus.
TRENWICK GROUP INC.
Trenwick Group Inc. is a holding company whose operating subsidiary,
Trenwick America Reinsurance Corporation ("Trenwick America Re"), provides
treaty and facultative reinsurance to insurers of property and casualty risks in
the United States. Trenwick America Re's business is primarily obtained through
brokers and reinsurance intermediaries. The major portion of the reinsurance it
writes is automobile liability, professional liability and general liability.
Reinsurance is provided both on an excess of loss and quota share basis. In
addition to underwriting reinsurance on its own account, Trenwick America Re
participates in specialized segments of the reinsurance market through strategic
alliances with leaders in those segments. Over the five-year period ending
December 31, 1996, the combined ratio of the Company's reinsurance operations,
computed on the basis of generally accepted accounting principles, substantially
improved from 112.3% in 1992 to 95.8% in 1996.
Trenwick America Re is licensed or otherwise authorized to conduct
reinsurance business in every state and the District of Columbia. Trenwick
America Re is rated "A+ (Superior)" by A.M. Best Company, an independent
insurance industry rating organization, and its claims-paying ability is rated
"A+ (Good)" by Standard & Poor's Rating Services. A.M. Best ratings are
primarily based upon factors relevant to policyholders and are not directed
toward the protection of investors.
TRENWICK CAPITAL TRUST I
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) the Declaration of Trust executed by the Company as Sponsor and Chase
Manhattan Bank Delaware, as Delaware Trustee, and (ii) the filing of a
certificate of trust with the Delaware Secretary of State on January 21, 1997.
The Trust's business and affairs are conducted by the Issuer Trustees: the
Property Trustee, the Delaware Trustee, and the three individual Administrative
Trustees who are officers of the Company. The Trust exists for the exclusive
purposes of (i) issuing and selling the Trust Securities, (ii) effecting the
Exchange Offer or filing a Shelf Registration Statement, (iii) using the
proceeds from the sale of the Trust Securities to acquire the Junior
Subordinated Debentures issued by the Company, (iv) making Distributions to
holders of the Trust Securities as provided in the Trust Agreement and (v)
engaging in only those other activities necessary, advisable or incidental
thereto (such as registering the transfer of the Trust Securities). Accordingly,
the Junior Subordinated Debentures will be the sole assets of the Trust, and
payments under the Junior Subordinated Debentures will be the sole revenue of
the Trust. All of the Common Securities are owned by the Company.
THE EXCHANGE OFFER
The Exchange Offer......... Up to $110,000,000 aggregate Liquidation Amount of
Exchange Capital Securities are being offered in
exchange for a like aggregate Liquidation Amount of
Old Capital Securities. Old Capital Securities may
be tendered in the Exchange Offer for exchange in
whole or in part in any integral multiples of
$1,000 Liquidation Amount (one Capital Security)
notwithstanding the requirement, applicable to all
other transfers of Old Capital Securities, of a
minimum transfer amount of $100,000 in Liquidation
Amount. For purposes of tenders of Old Capital
Securities in the Exchange Offer, the requirement
for minimum transfers of $100,000 Liquidation
Amount will be waived. The Company and the Trust
are making the Exchange Offer to satisfy their
obligations under the Registration Rights Agreement
relating to the Old Capital Securities. For a
description of the procedures for tendering Old
Capital Securities, see "The Exchange
Offer -- Procedures for Tendering Old Capital
Securities."
3
<PAGE> 13
Expiration Date............ 5:00 p.m., New York City time, on July 24, 1997,
unless the Exchange Offer is extended by the
Company or the Trust (in which case the Expiration
Date will be the latest date and time to which the
Exchange Offer is extended). See "The Exchange
Offer -- Terms of the Exchange Offer."
Conditions to the Exchange
Offer...................... The Exchange Offer is subject to certain
conditions, which may be waived by the Company and
the Trust in their sole discretion. The Exchange
Offer is not conditioned upon any minimum
Liquidation Amount of Old Capital Securities being
tendered. See "The Exchange Offer -- Conditions to
the Exchange Offer."
Offer...................... The Company and the Trust reserve the right in
their sole and absolute discretion, subject to
applicable law, at any time and from time to time,
to (i) delay the acceptance of the Old Capital
Securities for exchange, (ii) terminate the
Exchange Offer if certain specified conditions have
not been satisfied, (iii) extend the Expiration
Date of the Exchange Offer and retain all Old
Capital Securities tendered pursuant to the
Exchange Offer, subject, however, to the right of
holders of Old Capital Securities to withdraw their
tendered Old Capital Securities, or (iv) waive any
condition or otherwise amend the terms of the
Exchange Offer in any respect. See "The Exchange
Offer -- Terms of the Exchange Offer."
Withdrawal Rights.......... Tenders of Old Capital Securities may be withdrawn
at any time on or prior to the Expiration Date by
delivering a written notice of such withdrawal to
the Exchange Agent in conformity with certain
procedures set forth below under "The Exchange
Offer -- Withdrawal Rights."
Procedures for Tendering
Old Capital Securities..... Tendering holders of Old Capital Securities must
complete and sign a Letter of Transmittal in
accordance with the instructions contained therein
and forward the same by mail, facsimile or hand
delivery, together with any other required
documents, to the Exchange Agent, either with the
Old Capital Securities to be tendered or in
compliance with the specified procedures for
guaranteed delivery of Old Capital Securities.
Certain brokers, dealers, commercial banks, trust
companies and other nominees may also effect
tenders by book-entry transfer. Holders of Old
Capital Securities registered in the name of a
broker, dealer, commercial bank, trust company or
other nominee are urged to contact such person
promptly if they wish to tender Old Capital
Securities pursuant to the Exchange Offer. See "The
Exchange Offer -- Procedures for Tendering Old
Capital Securities." Letters of Transmittal and
certificates representing Old Capital Securities
should not be sent to the Company or the Trust.
Such documents should only be sent to the Exchange
Agent.
Resales of Exchange Capital
Securities................. The Company and the Trust are making the Exchange
Offer in reliance on the position of the staff of
the Division of Corporation Finance of the
Commission as set forth in certain interpretive
letters addressed to third parties in other
transactions. However, neither the Company nor the
Trust has sought its own interpretive letter and
there can be no assurance that the staff of the
Division of Corporation Finance of the Commission
would make a similar determination with respect to
the Exchange Offer
4
<PAGE> 14
as it has in such interpretive letters to third
parties. Based on these interpretations by the
staff of the Division of Corporation Finance of the
Commission, and subject to the two immediately
following sentences, the Company and the Trust
believe that Exchange Capital Securities issued
pursuant to this Exchange Offer in exchange for Old
Capital Securities may be offered for resale,
resold and otherwise transferred by a holder
thereof (other than a holder who is a
broker-dealer) without further compliance with the
registration and prospectus delivery requirements
of the Securities Act, provided that such Exchange
Capital Securities are acquired in the ordinary
course of such holder's business and that such
holder is not participating, and has no arrangement
or understanding with any person to participate, in
a distribution (within the meaning of the
Securities Act) of such Exchange Capital
Securities. However, any holder of Old Capital
Securities who is an "affiliate" of the Company or
the Trust or who intends to participate in the
Exchange Offer for the purpose of distributing the
Exchange Capital Securities, or any broker-dealer
who purchased the Old Capital Securities from the
Trust for resale pursuant to Rule 144A or any other
available exemption under the Securities Act, (a)
will not be able to rely on the interpretations of
the staff of the Division of Corporation Finance of
the Commission set forth in the above-mentioned
interpretive letters, (b) will not be permitted or
entitled to tender such Old Capital Securities in
the Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with any sale
or other transfer of such Old Capital Securities
unless such sale is made pursuant to an exemption
from such requirements. In addition, as described
below, if any broker-dealer holds Old Capital
Securities acquired for its own account as a result
of market-making or other trading activities and
exchanges such Old Capital Securities for Exchange
Capital Securities, then such broker-dealer must
deliver a prospectus meeting the requirements of
the Securities Act in connection with any resales
of such Exchange Capital Securities. Each holder of
Old Capital Securities who wishes to exchange Old
Capital Securities for Exchange Capital Securities
in the Exchange Offer will be required to represent
that (i) it is not an "affiliate" of the Company or
the Trust, (ii) any Exchange Capital Securities to
be received by it are being acquired in the
ordinary course of its business, (iii) it has no
arrangement or understanding with any person to
participate in a distribution (within the meaning
of the Securities Act) of such Exchange Capital
Securities, and (iv) if such holder is not a
broker-dealer, such holder is not engaged in, and
does not intend to engage in, a distribution
(within the meaning of the Securities Act) of such
Exchange Capital Securities. Each broker-dealer
that receives Exchange Capital Securities for its
own account pursuant to the Exchange Offer must
acknowledge that it acquired the Old Capital
Securities for its own account as the result of
market-making activities or other trading
activities and must agree that it will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resale of
such Exchange Capital Securities. The Letter of
Transmittal states that, by so acknowledging and by
delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. Based on
the position taken by the staff of the Division of
Corporation Finance of the Commission in the
interpretive letters referred to above, the
5
<PAGE> 15
Company and the Trust believe that Participating
Broker-Dealers who acquired Old Capital Securities
for their own accounts as a result of market-making
activities or other trading activities may fulfill
their prospectus delivery requirements with respect
to the Exchange Capital Securities received upon
exchange of such Old Capital Securities (other than
Old Capital Securities which represent an unsold
allotment from the original sale of the Old Capital
Securities) with a prospectus meeting the
requirements of the Securities Act, which may be
the prospectus prepared for an exchange offer so
long as it contains a description of the plan of
distribution with respect to the resale of such
Exchange Capital Securities. Accordingly, this
Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating
Broker-Dealer in connection with resales of
Exchange Capital Securities received in exchange
for Old Capital Securities where such Old Capital
Securities were acquired by such Participating
Broker-Dealer for its own account as a result of
market-making or other trading activities. Subject
to certain provisions set forth in the Registration
Rights Agreement and to the limitations described
below under "The Exchange Offer -- Resales of
Exchange Capital Securities," the Company and the
Trust have agreed that this Prospectus, as it may
be amended or supplemented from time to time, may
be used by a Participating Broker-Dealer in
connection with resales of such Exchange Capital
Securities for a period ending 90 days after the
Expiration Date (subject to extension under certain
limited circumstances) or, if earlier, when all
such Exchange Capital Securities have been disposed
of by such Participating Broker-Dealer. See "Plan
of Distribution." Any Participating Broker-Dealer
who is an "affiliate" of the Company or the Trust
may not rely on such interpretive letters and must
comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any resale transaction. See "The
Exchange Offer -- Resales of Exchange Capital
Securities."
Effect of Not Accepting the
Exchange Offer............. Old Capital Securities which are not tendered in
the Exchange Offer will continue to have all the
rights presently accruing to them except the right
to an increased Distribution rate on the Old
Capital Securities in certain events if the Company
and the Trust do not or cannot fulfill certain
obligations under the Registration Rights Agreement
(which obligations will be satisfied upon the
consummation of the Exchange Offer). See "Risk
Factors -- Consequences of a Failure to Exchange
Old Capital Securities." The Old Capital Securities
will vote as a single class with Exchange Capital
Securities. However, the Old Capital Securities
will continue to be subject to restrictions on
transfer and, except for limited exceptions for
certain broker-dealers, will have no registration
rights. To the extent that Old Capital Securities
are not tendered and accepted in the Exchange
Offer, a holder's ability to freely sell untendered
Old Capital Securities could be adversely affected.
Exchange Agent............. The exchange agent with respect to the Exchange
Offer is The Chase Manhattan Bank (the "Exchange
Agent"). The applicable addresses, and telephone
and facsimile numbers, of the Exchange Agent are
set forth in "The Exchange Offer -- Exchange Agent"
and the Letter of Transmittal.
6
<PAGE> 16
Use of Proceeds............ Neither the Company nor the Trust will receive any
cash proceeds from the issuance of the Exchange
Capital Securities offered hereby. See "Use of
Proceeds."
Certain Federal Income Tax
Consequences; ERISA
Considerations............. Holders of Old Capital Securities should review the
information set forth under "Certain Federal Income
Tax Consequences" and "ERISA Considerations" prior
to tendering Old Capital Securities in the Exchange
Offer.
THE EXCHANGE SECURITIES
Securities Offered......... Up to 110,000 of the Trust's Exchange Capital
Securities (Liquidation Amount of $1,000 per
Exchange Capital Security) which have been
registered under the Securities Act. The Exchange
Capital Securities will be issued, and the Old
Capital Securities were issued, under the Trust
Agreement. The Exchange Capital Securities and any
Old Capital Securities which remain outstanding
after consummation of the Exchange Offer will vote
together as a single class for purposes of
determining whether holders of the requisite
percentage in outstanding Liquidation Amount
thereof have taken certain actions or exercised
certain rights under the Trust Agreement. See
"Description of Exchange Securities -- Description
of Exchange Capital Securities -- Voting Rights;
Amendment of the Trust Agreement." The terms of the
Exchange Capital Securities are identical in all
material respects to the terms of the Old Capital
Securities, except that the Exchange Capital
Securities have been registered under the
Securities Act and will not be subject to the
$100,000 minimum Liquidation Amount transfer
restriction and certain other restrictions on
transfer applicable to the Old Capital Securities
and will not provide for any increase in the
Distribution rate thereon which is payable on the
Old Capital Securities if the Company or the Trust
do not or cannot fulfill certain obligations under
the Registration Rights Agreement (which
obligations will be satisfied upon the consummation
of the Exchange Offer). See "The Exchange
Offer -- Purpose of the Exchange Offer,"
"Description of Exchange Securities" and
"Description of Old Securities."
Distribution Dates......... February 1 and August 1 of each year, commencing
August 1, 1997.
Extension Periods.......... So long as no Debenture Event of Default has
occurred and is continuing, distributions on the
Exchange Capital Securities will be deferred for
the duration of any Extension Period elected by the
Company with respect to the payment of interest on
the Exchange Junior Subordinated Debentures. No
Extension Period will exceed 10 consecutive
semi-annual periods or extend beyond the Stated
Maturity. The Company has no current intention to
exercise its right to defer payment of interest on
the Junior Subordinated Debentures. See
"Description of Exchange Securities -- Description
of Exchange Junior Subordinated
Debentures -- Option to Extend Interest Payment
Date" and "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue
Discount."
Ranking.................... The Exchange Capital Securities will rank pari
passu, and payments thereon will be made pro rata,
with the Old Capital Securities and the
7
<PAGE> 17
Common Securities except, with respect to the
Common Securities, in certain circumstances
described under "Description of Exchange
Securities -- Description of Exchange Capital
Securities -- Subordination of Common Securities."
The Exchange Junior Subordinated Debentures will
rank pari passu with the Old Junior Subordinated
Debentures and all other junior subordinated
debentures issued by the Company (collectively,
with the Old Junior Subordinated Debentures, the
"Other Debentures") which may be issued and sold
(if at all) to other trusts established or to be
established by the Company, in each case similar to
the Trust (the "Other Trusts"), and will be
unsecured and subordinate and junior in right of
payment to all Senior Indebtedness to the extent
and in the manner set forth in the Indenture. See
"Description of Exchange Securities -- Description
of Exchange Junior Subordinated Debentures." The
Exchange Guarantee will rank pari passu with the
Old Guarantee and all other guarantees issued by
the Company with respect to capital securities
issued or to be issued by Other Trusts
(collectively, the "Other Guarantees"). The
Guarantee and the Common Guarantee will be (i)
subordinate and junior in right of payment to all
other liabilities of the Company; (ii) pari passu
with (A) the most senior preferred or preference
stock now or hereafter issued by the Company, and
(B) any guarantee now or hereafter entered into by
the Company in respect of any capital securities or
common securities of any Other Trusts; and (iii)
senior to the Company's Common Stock. None of the
Indenture, the Guarantee or the Trust Agreement
places any limitation on the amount of secured or
unsecured debt, including Senior Indebtedness, that
may be incurred by the Company. See "Description of
Exchange Securities -- Description of Exchange
Guarantee -- Status of Exchange Guarantee."
Redemption................. The Trust Securities are subject to mandatory
redemption in a Like Amount, (i) in whole but not
in part, on the Stated Maturity upon repayment of
the Junior Subordinated Debentures, (ii) in whole
but not in part, at any time contemporaneously with
the optional prepayment of the Junior Subordinated
Debentures by the Company upon the occurrence and
continuation of a Special Event and (iii) in whole
or in part, on or after February 1, 2007
contemporaneously with the optional prepayment by
the Company of the Junior Subordinated Debentures,
in each case at the applicable Redemption Price.
See "Description of Exchange
Securities -- Description of Exchange Capital
Securities -- Redemption."
Ratings.................... The Old Capital Securities are rated "BBB" by
Standard & Poor's Ratings Services and "baa3" by
Moody's Investors Service and the Exchange Capital
Securities are expected to be rated similarly. A
security rating is not a recommendation to buy,
sell or hold securities and may be subject to
revision or withdrawn at any time by the assigning
rating organization.
Absence of Market for the
Exchange Capital
Securities................. The Exchange Capital Securities will be a new issue
of securities for which there currently is no
market. Although Lehman Brothers, the initial
purchaser of the Old Capital Securities (the
"Initial Purchaser"), has informed the Company and
the Trust that it currently intends to make a
market in the Exchange Capital Securities, the
Initial Purchaser
8
<PAGE> 18
is not obligated to do so, and any such market
making may be discontinued at any time by the
Initial Purchaser without notice. Accordingly,
there can be no assurance as to the development or
liquidity of any market for the Exchange Capital
Securities. The Trust and the Company do not intend
to apply for listing of the Old Capital Securities
or the Exchange Capital Securities on any
securities exchange or for quotation through
NASDAQ. See "Plan of Distribution."
9
<PAGE> 19
RISK FACTORS
Prospective investors should carefully review the information included and
incorporated by reference in this Prospectus or in any Prospectus Supplement and
should particularly consider the following matters.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES
The obligations of the Company under the Junior Subordinated Debentures
will be unsecured and rank subordinate and junior in right of payment to all
Senior Indebtedness. Because the Company is a holding company, the right of the
Company to participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise (and thus the ability of
holders of the Capital Securities to benefit indirectly from such distribution)
is subject to the prior claims of creditors of that subsidiary, including its
reinsureds, except to the extent that the Company may itself be recognized as a
creditor of that subsidiary. Accordingly, the Junior Subordinated Debentures
will be effectively subordinated to all existing and future liabilities of the
Company's subsidiaries, and holders of Junior Subordinated Debentures should
look only to the assets of the Company for payments on the Junior Subordinated
Debentures. At March 31, 1997 and December 31, 1996, the Company's subsidiaries
had total liabilities of $625.3 million and $586.0 million, respectively. The
Guarantee and the Common Guarantee will be (i) subordinate and junior in right
of payment to all other liabilities of the Company; (ii) pari passu with (A) the
most senior preferred or preference stock now or hereafter issued by the
Company, and (B) any guarantee now or hereafter entered into by the Company in
respect of the capital securities or common securities of any Other Trusts; and
(iii) senior to the Company's Common Stock. None of the Indenture, the Guarantee
or the Trust Agreement places any limitation on the amount of secured or
unsecured debt, including Senior Indebtedness, that may be incurred by the
Company. See "Description of Exchange Securities -- Description of Exchange
Junior Subordinated Debentures -- Subordination" and "Description of Exchange
Securities -- Description of Exchange Guarantee -- Status of Exchange
Guarantee."
The ability of the Trust to pay amounts due on the Capital Securities is
solely dependent upon the Company making payments on the Junior Subordinated
Debentures as and when required.
HOLDING COMPANY STRUCTURE; RESTRICTIONS ON DIVIDENDS
The Company is an insurance holding company whose principal asset is the
capital stock of Trenwick America Re, which it owns through its wholly-owned
subsidiary Trenwick America Corporation. The Company's principal source of
funds, including funds available to pay interest and principal on the Junior
Subordinated Debentures or make payments with respect to its capital stock, is
cash dividends from Trenwick America Re. Accordingly, the Company's ability to
pay interest and principal on the Junior Subordinated Debentures is dependent on
the receipt of such dividends. The payment of dividends by Trenwick America Re
is subject to limits imposed by the insurance laws and regulations of the State
of Connecticut, its state of incorporation and domicile.
Under 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 can be paid by Trenwick America Re in 1997 without
regulatory approval is $62,901,000.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSIDERATIONS
So long as no Debenture Event of Default (as defined herein) shall have
occurred and be continuing, the Company will have the right under the Indenture
to defer payments of interest on the Junior Subordinated Debentures at any time
or from time to time for a period not exceeding 10 consecutive semi-annual
periods
10
<PAGE> 20
with respect to each Extension Period, provided that no Extension Period may
extend beyond the Stated Maturity. As a consequence of any such deferral,
semi-annual Distributions on the Capital Securities by the Trust will be
deferred (and the amount of Distributions to which holders of the Capital
Securities are entitled will accumulate additional Distributions thereon at the
rate of 8.82% per annum, compounded semi-annually, but not exceeding the
interest rate then accruing on the Junior Subordinated Debentures) from the
relevant payment date for such Distributions during any such Extension Period.
Prior to the termination of any such Extension Period, the Company may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 10 consecutive semi-annual periods or to
extend beyond the Stated Maturity Date. Upon the termination of any Extension
Period and the payment of all interest then accrued and unpaid on the Junior
Subordinated Debentures (together with interest thereon at the annual rate of
8.82%, compounded semi-annually, to the extent permitted by applicable law), the
Company may elect to begin a new Extension Period, subject to the above
requirements. There is no limitation on the number of times that the Company may
elect to begin an Extension Period. See "Description of Exchange
Securities -- Description of Exchange Capital Securities -- Distributions" and
"Description of Exchange Securities -- Description of Exchange Junior
Subordinated Debentures -- Option to Extend Interest Payment Date."
Should the Company exercise its right to defer payments of interest on the
Junior Subordinated Debentures, each holder of Trust Securities will be required
to accrue income (as original issue discount ("OID")) in respect of the deferred
stated interest allocable to its Trust Securities for United States federal
income tax purposes, which will be allocated but not distributed to holders of
Trust Securities. As a result, each such holder of Capital Securities will
recognize income for United States federal income tax purposes in advance of the
receipt of cash and will not receive the cash related to such income from the
Trust if the holder disposes of the Capital Securities prior to the record date
for the payment of Distributions thereafter. See "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue Discount" and "-- Sales of
Capital Securities."
Should the Company elect to exercise its right to defer payments of
interest on the Junior Subordinated Debentures in the future, the market price
of the Capital Securities is likely to be affected. A holder that disposes of
its Capital Securities during an Extension Period, therefore, might not receive
the same return on its investment as a holder that continues to hold its Capital
Securities. In addition, merely as a result of the existence of the Company's
right to defer payments of interest on the Junior Subordinated Debentures, the
market price of the Capital Securities may be more volatile than the market
prices of other securities on which OID accrues and that are not subject to such
deferrals.
CONDITIONAL RIGHT TO SHORTEN MATURITY AND SPECIAL EVENT REDEMPTION
If a Tax Event (as defined below) occurs, then the Company will have the
right, prior to the termination of the Trust, either (i) to shorten the Stated
Maturity of the Junior Subordinated Debentures to the minimum extent required,
but not less than 20 years from the date of original issuance thereof, such that
in the written opinion of counsel experienced in such matters delivered to the
Company, after shortening the maturity, interest paid on the Junior Subordinated
Debentures will 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 Junior Subordinated Debentures, as described below.
Prospective investors should be aware that the Company's exercise of its right
to shorten the maturity of the Junior Subordinated Debentures will be a taxable
event to holders of the Capital Securities if the Junior Subordinated Debentures
are treated as equity for purposes of United States federal income taxation
before the maturity is shortened. See "Description of Exchange
Securities -- Description of Exchange Capital Securities -- Conditional Right to
Shorten Maturity and Special Event Redemption" and "Description of Exchange
Securities -- Description of Exchange Junior Subordinated
Debentures -- Conditional Right to Shorten Maturity and Special Event
Prepayment."
If a Tax Event or an Investment Company Event (as defined below) occurs,
then the Company will have the right, within 90 days following the occurrence of
such Tax Event or Investment Company Event, as the case may be, to prepay the
Junior Subordinated Debentures in whole (but not in part) in the manner set
forth
11
<PAGE> 21
under "Description of Exchange Securities -- Description of Exchange Junior
Subordinated Debentures -- Conditional Right to Shorten Maturity and Special
Event Prepayment," and therefore to cause a mandatory redemption of the Capital
Securities prior to the Stated Maturity (the circumstances under which the
Company has the right to so prepay the Exchange Junior Subordinated Debentures
in connection with a Tax Event being referred to herein as a "Conditional Tax
Redemption Event"). Each of a Conditional Tax Redemption Event or an Investment
Company Event is sometimes referred to herein as a "Special Event."
A "Tax Event" means the receipt by the Company and the Trust of an opinion
of counsel to the Company experienced in such matters to the effect that, as a
result of any amendment to, or change (including any announced prospective
change) in, the laws or any regulations thereunder of the United States or any
political subdivision or taxing authority thereof or therein or as a result of
any administrative pronouncement or judicial decision interpreting or applying
such laws or regulations, which amendment or change is effective or which
pronouncement or decision is announced on or after the date of the original
issuance of the Capital Securities, 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) the Trust 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 Junior Subordinated Debentures, (ii) interest payable
by the Company on the Junior Subordinated Debentures is not, or within 90 days
of such opinion, will not be, deductible by the Company, in whole or in part,
for United States federal income tax purposes or (iii) the Trust is, or will be
within 90 days 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").
An "Investment Company Event" means that the Company shall have received an
opinion of an independent counsel experienced in practice under the Investment
Company Act of 1940, as amended (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 insubstantial risk that the Trust 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 the date of the original issuance of the Capital
Securities.
EXCHANGE OF CAPITAL SECURITIES FOR JUNIOR SUBORDINATED DEBENTURES
The Company, as the holder of all of the outstanding Common Securities,
will have the right at any time to terminate the Trust and cause a Like Amount
of Junior Subordinated Debentures to be distributed to the holders of the Trust
Securities in liquidation of the Trust, subject to the Company's having received
an opinion by independent tax counsel experienced in such matters 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 to holders of Capital Securities. See "Description of Exchange
Securities -- Description of Exchange Capital Securities -- Liquidation of the
Trust and Distribution of Exchange Junior Subordinated Debentures."
POSSIBLE TAX LAWS AFFECTING THE CAPITAL SECURITIES
On February 6, 1997, as part of the Clinton Administration's Fiscal 1998
Budget Proposal, the Treasury Department proposed legislation (the "Proposed
Legislation") which would, among other things, generally deny corporate issuers
a deduction for interest in respect of debt obligations, such as the Junior
Subordinated Debentures, issued on or after the date "of first committee
action," if such debt obligations have a maximum term in excess of 15 years and
are not shown as indebtedness on the issuer's applicable consolidated balance
sheet. In addition, the Proposed Legislation would generally deny corporate
issuers a deduction for interest in respect of certain debt obligations, such as
the Junior Subordinated Debentures, issued after the date "of first committee
action," if such debt obligations have a weighted average maturity of more than
40 years. The Proposed Legislation has not yet been introduced by any member of
the 105th Congress. If Congress were to enact any other proposed legislation,
and if such enactment gave rise to a Tax Event, the Company would be
12
<PAGE> 22
permitted to cause a redemption of the Trust Securities at the Special Event
Prepayment Price by electing to prepay the Exchange Junior Subordinated
Debentures at the Special Event Prepayment Price. See "Certain Federal Income
Tax Consequences -- Proposed Tax Legislation."
POSSIBLE ADVERSE EFFECT ON MARKET PRICES
There can be no assurance as to the market prices for the Exchange Capital
Securities or the Exchange Junior Subordinated Debentures distributed to the
holders of Old Securities if a termination of the Trust were to occur.
Accordingly, the Exchange Capital Securities or the Exchange Junior Subordinated
Debentures may trade at a discount from the price that the investor paid to
purchase the Exchange Capital Securities offered hereby. Because holders of
Exchange Capital Securities may receive Exchange Junior Subordinated Debentures
in liquidation of the Trust and because Distributions are otherwise limited to
payments on the Exchange Junior Subordinated Debentures, prospective investors
of Exchange Capital Securities are also making an investment decision with
regard to the Exchange Junior Subordinated Debentures and should carefully
review all the information regarding the Exchange Junior Subordinated Debentures
contained herein. See "Description of Exchange Securities -- Description of
Exchange Junior Subordinated Debentures."
RIGHTS UNDER THE GUARANTEE
The Chase Manhattan Bank will act as Guarantee Trustee and will hold the
Exchange Guarantee for the benefit of the holders of the Exchange Capital
Securities. The Chase Manhattan Bank will also act as Property Trustee and as
Debenture Trustee under the Indenture. Chase Manhattan Bank Delaware will act as
Delaware Trustee under the Trust Agreement. The Old Guarantee guarantees, and
the Exchange Guarantee will guarantee, as the case may be, to the holders of the
Capital Securities the following payments, to the extent not paid by the Trust:
(i) any accumulated and unpaid Distributions required to be paid on the Capital
Securities, to the extent that the Trust has funds on hand legally available
therefor at such time, (ii) the applicable Redemption Price with respect to any
Capital Securities called for redemption, to the extent that the Trust has funds
on hand legally available therefor at such time, and (iii) upon a voluntary or
involuntary termination and liquidation of the Trust (unless the Junior
Subordinated Debentures are distributed to holders of the Capital Securities),
the lesser of (a) the aggregate of the Liquidation Amount and all accumulated
and unpaid Distributions to the date of payment, to the extent that the Trust
has funds on hand legally available therefor at such time and (b) the amount of
assets of the Trust remaining available for distribution to holders of the
Capital Securities upon a termination and liquidation of the Trust. The holders
of a majority in Liquidation Amount of the Exchange Capital Securities will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Guarantee Trustee in respect of the Exchange
Guarantee or to direct the exercise of any trust power conferred upon the
Guarantee Trustee. Any holder of the Exchange Capital Securities may institute a
legal proceeding directly against the Company to enforce its rights under the
Exchange Guarantee without first instituting a legal proceeding against the
Trust, the Guarantee Trustee or any other person or entity. If the Company
defaults on its obligation to pay amounts payable under the Exchange Junior
Subordinated Debentures, the Trust will not have sufficient funds for the
payment of Distributions or amounts payable on liquidation of the Trust or
redemption of the Exchange Capital Securities or otherwise, and, in such event,
holders of the Exchange Capital Securities will not be able to rely upon the
Exchange Guarantee for payment of such amounts. Instead, in the event a
Debenture Event of Default shall have occurred and be continuing and such event
is attributable to the failure of the Company to pay principal of (or premium,
if any) or interest on the Exchange Junior Subordinated Debentures on the
payment date on which such payment is due and payable, then a holder of Exchange
Capital Securities may institute a legal proceeding directly against the Company
for enforcement of payment to such holder of the principal of (or premium, if
any) or interest on such Exchange Junior Subordinated Debentures having a
principal amount equal to the Liquidation Amount of the Capital Securities of
such holder (a "Direct Action"). Notwithstanding any payments made to a holder
of Exchange Capital Securities by the Company in connection with a Direct
Action, the Company shall remain obligated to pay the principal of (and premium,
if any) and interest on the Exchange Junior Subordinated Debentures, and the
Company shall be subrogated to the rights of the holder of such Exchange Capital
Securities with respect to payments on the Exchange
13
<PAGE> 23
Capital Securities to the extent of any payments made by the Company to such
holder in any Direct Action. Except as described herein, holders of Exchange
Capital Securities will not be able to exercise directly any other remedy
available to the holders of the Exchange Junior Subordinated Debentures or to
assert directly any other rights in respect of the Exchange Junior Subordinated
Debentures. See "Description of Exchange Securities -- Description of Exchange
Junior Subordinated Debentures -- Enforcement of Certain Rights by Holders of
Exchange Capital Securities," "-- Debenture Events of Default" and "Description
of Exchange Securities -- Description of Exchange Guarantee." The Trust
Agreement provides that each holder of Exchange Capital Securities by acceptance
thereof agrees to the provisions of the Indenture.
LIMITED VOTING RIGHTS
Holders of Exchange Capital Securities will generally have limited voting
rights relating only to the modification of the Exchange Capital Securities, the
termination or liquidation of the Trust, and the exercise of the Trust's rights
as holder of Exchange Junior Subordinated Debentures. Holders of Exchange
Capital Securities will not be entitled to vote to appoint, remove or replace
the Property Trustee or the Delaware Trustee, and such voting rights are vested
exclusively in the holder of the Common Securities except upon the occurrence of
certain events described herein. The Property Trustee, the Administrative
Trustees and the Company may amend the Trust Agreement without the consent of
holders of Exchange Capital Securities to ensure that the Trust will be
classified for United States federal income tax purposes as a grantor trust even
if such action adversely affects the interests of such holders. See "Description
of Exchange Securities -- Description of Exchange Capital Securities -- Voting
Rights; Amendment of the Trust Agreement" and "-- Removal of Issuer Trustees."
CONSEQUENCES OF A FAILURE TO EXCHANGE OLD CAPITAL SECURITIES
The Old Capital Securities have not been registered under the Securities
Act or any state securities laws and therefore may not be offered, sold or
otherwise transferred except in compliance with the registration requirements of
the Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions. Old Capital
Securities which remain outstanding after consummation of the Exchange Offer
will continue to bear a legend reflecting such restrictions on transfer. In
addition, upon consummation of the Exchange Offer, holders of Old Capital
Securities which remain outstanding will not be entitled to any rights to have
such Old Capital Securities registered under the Securities Act or to any
similar rights under the Registration Rights Agreement (subject to certain
limited exceptions). The Company and the Trust do not intend to register under
the Securities Act any Old Capital Securities which remain outstanding after
consummation of the Exchange Offer (subject to such limited exceptions, if
applicable). To the extent that Old Capital Securities are tendered and accepted
in the Exchange Offer, a holder's ability to sell untendered Old Capital
Securities could be adversely affected.
The Exchange Capital Securities and any Old Capital Securities which remain
outstanding after consummation of the Exchange Offer will vote together as a
single class for purposes of determining whether holders of the requisite
percentage in outstanding Liquidation Amount thereof have taken certain actions
or exercised certain rights under the Trust Agreement. See "Description of
Exchange Securities -- Description of Exchange Capital Securities -- Voting
Rights; Amendment of the Trust Agreement."
The Registration Rights Agreement provides, among other things, that, if an
Exchange Offer Registration Statement or a Shelf Registration Statement (if
required to be filed) is not declared effective by the Commission on or prior to
July 25, 1997, Additional Interest shall accrue on the principal amount of the
Junior Subordinated Debentures affected thereby, and Additional Distributions
will accumulate on the Liquidation Amount of the Trust Securities affected
thereby, commencing July 28, 1997, at a rate of 0.25% per annum of the
Liquidation Amount of such Old Capital Securities for the period from the
occurrence of such event until such time as the Exchange Offer Registration
Statement or any required Shelf Registration Statement is declared effective. In
addition, if the Exchange Offer is not consummated on or prior to the 30th day
after the date on which the Exchange Offer Registration Statement is declared
effective, Additional Interest shall accrue on the principal amount of the
Junior Subordinated Debentures affected thereby, and
14
<PAGE> 24
Additional Distributions will accumulate on the Liquidation Amount of the Trust
Securities affected thereby until the Exchange Offer is consummated. Upon the
consummation of the Exchange Offer, the Trust and the Company will have
satisfied their obligations under the Registration Rights Agreement and holders
of Old Capital Securities will not be entitled to any such additional
Distributions thereon or any further registration rights under the Registration
Rights Agreement, except under limited circumstances with respect to certain
broker-dealers. See "Description of Old Securities."
ABSENCE OF PUBLIC MARKET
The Old Capital Securities were issued to, and the Company believes the Old
Capital Securities are currently owned by, a relatively small number of
beneficial owners. The Old Capital Securities have not been registered under the
Securities Act and will be subject to restrictions on transferability if they
are not exchanged for the Exchange Capital Securities. Although the Exchange
Capital Securities generally may be resold or otherwise transferred by the
holders (who are not affiliates of the Company or the Trust) without compliance
with the registration requirements under the Securities Act, they will
constitute a new issue of securities with no established trading market. Old
Capital Securities may be transferred by the holders thereof only in blocks
having a Liquidation Amount of not less than $100,000 (100 Old Capital
Securities). Exchange Capital Securities may be transferred by the holders
thereof in blocks having a Liquidation Amount of $1,000 (one Exchange Capital
Security) or integral multiples thereof. The Company and the Trust have been
advised by the Initial Purchaser that the Initial Purchaser presently intends to
make a market in the Exchange Capital Securities. However, the Initial Purchaser
is not obligated to do so and any market-making activity with respect to the
Exchange Capital Securities may be discontinued at any time without notice. In
addition, such market-making activity will be subject to the limits imposed by
the Securities Act and the Exchange Act and may be limited during the Exchange
Offer. Accordingly, no assurance can be given that an active public or other
market will develop for the Exchange Capital Securities or the Old Capital
Securities or as to the liquidity of or the trading market for the Exchange
Capital Securities or the Old Capital Securities. If an active public market
does not develop, the market price and liquidity of the Exchange Capital
Securities may be adversely affected.
If a public trading market develops for the Exchange Capital Securities,
future trading prices will depend on many factors, including, among other
things, prevailing interest rates, the Company's results and the market for
similar securities. Depending on prevailing interest rates, the market for
similar securities and other factors, including the financial condition of the
Company, the Exchange Capital Securities may trade at a discount.
Notwithstanding the registration of the Exchange Capital Securities in the
Exchange Offer, holders who are affiliates of the Company or the Trust may
publicly offer for sale or resell the Exchange Capital Securities only in
compliance with the provisions of Rule 144 under the Securities Act or pursuant
to another effective registration statement.
Each broker-dealer that receives Exchange Capital Securities for its own
account in exchange for Old Capital Securities, where such Old Capital
Securities were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Capital Securities.
See "Plan of Distribution."
FLUCTUATION AND UNCERTAINTY OF PROPERTY AND CASUALTY REINSURANCE INDUSTRY
RESULTS
The results of companies in the property and casualty reinsurance industry
historically have been subject to significant fluctuations and uncertainties.
The industry's profitability can be affected significantly by volatile and
unpredictable developments (including catastrophes); changes in reserves
resulting from the general claims and legal environments as different types of
claims arise and judicial interpretations relating to the scope of insurers' and
reinsurers' liability develop; fluctuations in interest rates and other changes
in the investment environment which affect returns on invested capital; and
inflationary pressures that affect the size of losses. The demand for property
and casualty reinsurance can also vary significantly, generally rising as the
overall level of economic activity increases and falling as such activity
decreases. The property and casualty
15
<PAGE> 25
reinsurance industry historically has been cyclical, and the industry as a whole
has been in a softening market since the late 1980s primarily due to premium
rate competition, which has resulted in lower underwriting profitability. The
Company's results of operations may be adversely affected by these fluctuations
and uncertainties.
UNCERTAINTY REGARDING ADEQUACY OF LOSS RESERVES
The Company maintains loss reserves to cover its estimated ultimate
liability for losses and loss adjustment expenses with respect to reported and
unreported claims incurred as of the end of each accounting period. Reserves do
not represent an exact calculation of liability, but instead represent
estimates, generally involving actuarial projections at a given time, of what
the Company expects the ultimate settlement and administration of claims will
cost based on its assessment of facts and circumstances then known, estimates of
future trends in claims severity, frequency, judicial theories of liability and
other factors. These variables are affected by both internal and external
events, such as changes in ceding companies' claims handling procedures,
economic inflation, judicial trends and legislative changes. Many of these items
are not directly quantifiable, particularly on a prospective basis.
Additionally, there may be significant reporting lags between the occurrence of
the reinsured event and the time it is actually reported to the reinsurer.
Reserve estimates are continually refined in a regular ongoing process as
experience develops and further claims are reported and settled. Adjustments to
reserves are reflected in the results of the periods in which such estimates are
changed. Because establishment of reserves is an inherently uncertain process
involving estimates of future losses, there can be no certainty that currently
established reserves will prove adequate in light of subsequent actual
experience. The inherent uncertainties of estimating loss reserves are generally
greater for casualty coverages than for property coverages, due primarily to the
longer period of time that typically elapses before a definitive determination
of ultimate loss can be made, changing theories of legal liability involving
certain types of claims and changing political climates.
16
<PAGE> 26
USE OF PROCEEDS
Neither the Company nor the Trust will receive any cash proceeds from the
issuance of the Exchange Capital Securities offered hereby. In consideration for
issuing the Exchange Capital Securities in exchange for Old Capital Securities
as described in this Prospectus, the Trust will receive Old Capital Securities
in like Liquidation Amount. The Old Capital Securities surrendered in exchange
for the Exchange Capital Securities will be retired and cancelled.
The proceeds to the Trust (without giving effect to expenses of the
offering payable by the Company) from the offering of the Old Capital Securities
were $110,000,000. All of the proceeds from the sale of Old Capital Securities
were invested by the Trust in the Junior Subordinated Debentures. The Company
used approximately $46,997,000 of the net proceeds from the sale of the Old
Junior Subordinated Debentures to redeem its 6% Convertible Debentures due
December 15, 1999 (the "Convertible Debentures") at a redemption price equal to
102.57% of the aggregate principal amount of Convertible Debentures so redeemed,
plus accrued and unpaid interest thereon to the date of redemption. Of the
$103,500,000 aggregate principal amount of Convertible Debentures which were
outstanding on January 31, 1997, $45,819,000 principal amount were redeemed and
$57,681,000 principal amount were converted into an aggregate of 1,783,926
shares of the Company's Common Stock, par value $.10 share.* The amount of any
remaining net proceeds are to 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, stock repurchases and
other corporate purposes.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical consolidated ratios of
earnings to fixed charges of the Company for the three months ended March 31,
1997 and for the five years ended December 31, 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
- ------------------ ------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ------------------ -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
6.0 7.4 6.6 4.4 5.2 11.2
</TABLE>
The consolidated ratios of earnings to fixed charges represent the number
of times fixed charges (interest expense and one-third of all rent expense,
considered to represent an appropriate interest factor, charged to income) are
covered by income before income taxes, extraordinary item, cumulative effect of
accounting change and fixed charges.
ACCOUNTING TREATMENT
The financial statements of the Trust (the sole assets of which are the
8.82% Junior Subordinated Debentures due February 1, 2037 of Trenwick Group
Inc.) are reflected in the Company's consolidated financial statements with the
Capital Securities shown as "Company-obligated mandatorily redeemable preferred
capital securities of subsidiary trust holding solely Junior Subordinated
Debentures of Trenwick." Disclosures about the Capital Securities, the Guarantee
and the Junior Subordinated Debentures will be included in the notes to the
consolidated financial statements. The Company will record Distributions payable
on the Capital Securities as an expense in its consolidated statement of
earnings.
- ---------------
*All share and per share information reflects a 3 for 2 stock split, paid on
April 15, 1997.
17
<PAGE> 27
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of March 31, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
MARCH
31, DECEMBER 31,
1997 1996
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Convertible debentures............................... $ -- $ 103,500
-------- --------
Company-obligated mandatorily redeemable preferred
capital securities of subsidiary trust holding
solely Junior Subordinated Debentures of
Trenwick*.......................................... 110,000 --
-------- --------
Preferred stock, $.10 par value, 1,000,000 shares
authorized; none outstanding....................... -- --
-------- --------
Common stockholders' equity:**
Common stock, $.10 par value, 22,500,000 shares
authorized; 11,936,442 and 10,087,826 shares
outstanding..................................... 1,194 1,009
Additional paid-in capital......................... 153,406 94,423
Retained earnings.................................. 165,411 159,512
Net unrealized appreciation of securities available
for sale, net of income taxes................... 3,635 11,789
Deferred compensation under stock award plan....... (1,172) (980)
-------- --------
Total common stockholders' equity.................. $322,474 $ 265,753
-------- --------
Total capitalization............................ $432,474 $ 369,253
======== ========
</TABLE>
- ---------------
*As described herein, the proceeds from the sale of the Old Capital Securities
were used to purchase $110,000,000 aggregate principal amount of the Old
Junior Subordinated Debentures.
**All share and per share information reflects a 3 for 2 stock split, paid on
April 15, 1997.
18
<PAGE> 28
SELECTED FINANCIAL DATA
The data below should be read in connection with the financial information
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1996 and Quarterly Report on Form 10-Q and Form 10-Q/A for the quarter ended
March 31, 1997. Results for the quarter ended March 31, 1997 are not necessarily
indicative of results which may be expected for any other interim period or for
the year as a whole.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
----------------------- ------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net premiums written.............. $ 59,558 $ 58,883 $226,364 $197,162 $139,635 $101,392 $ 81,883
======= ======= ======== ======== ======== ======== ========
Net premiums earned............... $ 53,914 $ 47,691 $211,069 $177,394 $132,683 $ 93,180 $ 81,831
Net investment income............. 11,729 9,869 41,226 36,828 33,932 34,954 30,859
Net realized investment gains
(losses)........................ 1,915 50 299 368 (196) 1,842 181
Service fees...................... -- -- -- -- -- -- 206
------- ------- -------- -------- -------- -------- --------
Total revenues.................... $ 67,558 $ 57,610 $252,594 $214,590 $166,419 $129,976 $113,077
======= ======= ======== ======== ======== ======== ========
Income before extraordinary
item............................ $ 9,801 $ 8,182 $ 33,848 $ 29,841 $ 20,282 $ 23,739 $ 18,539
Extraordinary loss on debt
redemption net of income tax.... 1,037 -- -- -- -- -- --
------- ------- -------- -------- -------- -------- --------
Net income........................ $ 8,764 $ 8,182 $ 33,848 $ 29,841 $ 20,282 $ 23,739 $ 18,539
======= ======= ======== ======== ======== ======== ========
PER SHARE DATA
Primary earnings:
Income before extraordinary
item.............................. $ 0.89 $ 0.80 $ 3.30 $ 2.96 $ 2.03 $ 2.32 $ 1.84
Extraordinary loss................ (0.10) -- -- -- -- -- --
------- ------- -------- -------- -------- -------- --------
Net income........................ $ 0.79 $ 0.80 $ 3.30 $ 2.96 $ 2.03 $ 2.32 $ 1.84
======= ======= ======== ======== ======== ======== ========
Fully diluted earnings (assuming
conversion of dilutive
convertible securities):
Income before extraordinary
item............................ $ 0.81 $ 0.69 $ 2.83 $ 2.53 $ 1.85 $ 2.08 $ 1.84
Extraordinary loss................ (0.06) -- -- -- -- -- --
------- ------- -------- -------- -------- -------- --------
Net income........................ $ 0.75 $ 0.69 $ 2.83 $ 2.53 $ 1.85 $ 2.08 $ 1.84
======= ======= ======== ======== ======== ======== ========
Dividends per common share........ $ .24 $ .21 $ .83 $ .75 $ .67 $ .5 $ .51
======= ======= ======== ======== ======== ======== ========
BALANCE SHEET DATA
Investments and cash.............. $ 825,487 $675,874 $754,210 $653,704 $551,784 $546,303 $500,359
Total assets...................... 1,021,062 850,323 920,804 820,930 727,245 700,407 652,473
Unpaid claims and claims
expenses........................ 481,974 427,158 467,177 411,874 389,298 354,582 351,897
Convertible debentures............ -- 103,500 103,500 103,500 103,500 103,500 103,500
Company-obligated mandatorily
redeemable preferred capital
securities of subsidiary trust
holding solely Junior
Subordinated Debentures of
Trenwick........................ 110,000 -- -- -- -- -- --
Total common stockholders'
equity.......................... 322,474 239,338 265,753 240,776 188,213 206,763 169,373
Shares of common stock
outstanding..................... 11,936 9,902 10,088 9,886 9,660 9,874 9,765
Book value per common share....... $ 27.02 $ 24.17 $ 26.34 $ 24.36 $ 19.48 $ 20.94 $ 17.35
CERTAIN GAAP FINANCIAL RATIOS
Combined ratio.................... 96.7% 95.3% 95.8% 95.6% 103.2% 102.5% 112.3%
Net premiums written to surplus
ratio........................... N/A N/A 0.85:1 0.82:1 0.74:1 0.49:1 0.48:1
Unpaid claims and claims expenses
to surplus ratio................ 1.49:1 1.78:1 1.76:1 1.71:1 2.07:1 1.71:1 2.08:1
</TABLE>
- ---------------
All share and per share information reflects a 3 for 2 stock split, paid on
April 15, 1997.
19
<PAGE> 29
TRENWICK GROUP INC.
Trenwick Group Inc. is a holding company whose operating subsidiary,
Trenwick America Reinsurance Corporation ("Trenwick America Re"), provides
treaty and facultative reinsurance to insurers of property and casualty risks in
the United States. Trenwick America Re's business is primarily obtained through
brokers and reinsurance intermediaries. The major portion of the reinsurance it
writes is automobile liability, professional liability and general liability.
Reinsurance is provided both on an excess of loss and quota share basis. In
addition to underwriting reinsurance on its own account, Trenwick America Re
participates in specialized segments of the reinsurance market through strategic
alliances with leaders in those segments. Over the five-year period ending
December 31, 1996, the combined ratio of the Company's reinsurance operations,
computed on the basis of generally accepted accounting principles, substantially
improved from 112.3% in 1992 to 95.8% in 1996.
Trenwick America Re is licensed or otherwise authorized to conduct
reinsurance business in every state and the District of Columbia. Trenwick
America Re is rated "A+ (Superior)" by A.M. Best Company, an independent
insurance industry rating organization, and its claims-paying ability is rated
"A+ (Good)" by Standard & Poor's Rating Services. A.M. Best ratings are
primarily based upon factors relevant to policyholders and are not directed
toward the protection of investors.
TRENWICK CAPITAL TRUST I
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) the Declaration of Trust dated as of January 21, 1997 executed by the
Company as Sponsor and Chase Manhattan Bank Delaware as Delaware Trustee, and
(ii) the filing of a certificate of trust with the Delaware Secretary of State
on January 21, 1997. The Trust exists for the exclusive purposes of (i) issuing
and selling the Trust Securities, (ii) effecting the Exchange Offer or filing a
Shelf Registration Statement, (iii) using the proceeds from the sale of Trust
Securities to acquire Junior Subordinated Debentures, (iv) making Distributions
to holders of the Trust Securities as provided in the Trust Agreement and (v)
engaging in only those other activities necessary, advisable or incidental
thereto (such as registering the transfer of the Trust Securities). Accordingly,
the Junior Subordinated Debentures will be the sole assets of the Trust, and
payments under the Junior Subordinated Debentures will be the sole revenues of
the Trust. All of the Common Securities are owned by the Company. The Common
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Exchange Capital Securities, except that upon the occurrence and
continuance of an event of default under the Trust Agreement resulting from a
Debenture Event of Default, the rights of the Company as holder of the Common
Securities to payments in respect of Distributions and payments upon
liquidation, redemption or otherwise will be subordinated to the rights of the
holders of the Capital Securities. See "Description of Exchange
Securities -- Description of Exchange Capital Securities -- Subordination of
Common Securities." The Company has acquired Common Securities in a Liquidation
Amount equal to 3% of the total capital of the Trust. The Trust has a term of 45
years, but may terminate earlier as provided in the Trust Agreement. The Trust's
business and affairs are conducted by its trustees, each appointed by the
Company as holder of the Common Securities. The trustees for the Trust are The
Chase Manhattan Bank as the Property Trustee, Chase Manhattan Bank Delaware as
the Delaware Trustee, and three individual trustees as the Administrative
Trustees who are employees or officers of or affiliated with the Company
(collectively, the "Issuer Trustees"). The Chase Manhattan Bank, as Property
Trustee, acts as sole indenture trustee under the Trust Agreement. The Chase
Manhattan Bank also acts as indenture trustee under the Guarantee and the
Indenture. See "Description of Exchange Securities -- Description of Exchange
Guarantee" and "-- Description of Exchange Junior Subordinated Debentures." The
holder of the Common Securities of the Trust or, if an Event of Default under
the Trust Agreement has occurred and is continuing, the holders of a majority in
Liquidation Amount of the Capital Securities will be entitled to appoint, remove
or replace the Property Trustee and/or the Delaware Trustee. In no event will
the holders of the Capital Securities have the right to vote to appoint, remove
or replace the Administrative Trustees; such voting rights will be vested
exclusively in the holder of the Common Securities. The duties and obligations
of each Issuer Trustee are governed by the Trust Agreement. The Company will pay
all fees, expenses, debts and obligations (other than the Trust Securities)
related to the Trust and the offering of the Capital Securities and will pay,
directly or indirectly, all
20
<PAGE> 30
ongoing costs, expenses and liabilities of the Trust. The principal executive
office of the Trust is Trenwick Capital Trust I, c/o Trenwick Group Inc., Metro
Center, One Station Place, Stamford, CT 06902.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Old Capital Securities, the Company and
the Trust entered into the Registration Rights Agreement with the Initial
Purchaser, pursuant to which the Company and the Trust agreed to file and to use
their reasonable best efforts to cause to become effective with the Commission a
registration statement with respect to the exchange of the Old Capital
Securities for other capital securities with terms identical in all material
respects to the terms of the Old Capital Securities. A copy of the Registration
Rights Agreement has been filed as an Exhibit to the Registration Statement of
which this Prospectus is a part.
The Exchange Offer is being made to satisfy the contractual obligations of
the Company and the Trust under the Registration Rights Agreement. The form and
terms of the Exchange Capital Securities are the same as the form and terms of
the Old Capital Securities except that the Exchange Capital Securities have been
registered under the Securities Act and will not be subject to the $100,000
minimum Liquidation Amount transfer restriction and certain other restrictions
on transfer applicable to the Old Capital Securities. The Exchange Capital
Securities will not provide, as do the Old Capital Securities, for the accrual
of Additional Interest on the Junior Subordinated Debentures affected thereby,
or for the accumulation of Additional Distributions on the Trust Securities
affected thereby, if the Exchange Offer Registration Statement is not declared
effective or the Exchange Offer is not consummated, or any required Shelf
Registration Statement is not declared effective. Upon the consummation of the
Exchange Offer, the Company and the Trust will have satisfied their obligations
under the Registration Rights Agreement and holders of Old Capital Securities
will not be entitled to any such additional Distributions thereon or any further
registration rights under the Registration Rights Agreement, except under
limited circumstances with respect to certain broker-dealers. See "Risk
Factors -- Consequences of a Failure to Exchange Old Capital Securities" and
"Description of Old Securities."
The Exchange Offer is not being made to, nor will the Trust accept tenders
for exchange from, holders of Old Capital Securities in any jurisdiction in
which the Exchange Offer or the acceptance thereof would not be in compliance
with the securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to
the Exchange Offer means any person in whose name the Old Capital Securities are
registered on the books of the Trust or any other person who has obtained a
properly completed bond power from such holder, or any person whose Old Capital
Securities are held of record by The Depository Trust Company ("DTC") who
desires to deliver such Old Capital Securities by book-entry transfer at DTC.
Pursuant to the Exchange Offer, the Company will exchange as soon as
practicable after the date hereof the Old Guarantee for the Exchange Guarantee
and the Old Junior Subordinated Debentures, in an amount corresponding to the
Old Capital Securities accepted for exchange, for a like aggregate principal
amount of the Exchange Junior Subordinated Debentures. The Exchange Guarantee
and Exchange Junior Subordinated Debentures have been registered under the
Securities Act.
TERMS OF THE EXCHANGE OFFER
The Trust hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to $110,000,000 aggregate Liquidation Amount of
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<PAGE> 31
Exchange Capital Securities for a like aggregate Liquidation Amount of Old
Capital Securities properly tendered on or prior to the Expiration Date and not
properly withdrawn in accordance with the procedures described below. The Trust
will issue, promptly after the Expiration Date, an aggregate Liquidation Amount
of up to $110,000,000 of Exchange Capital Securities in exchange for a like
principal amount of outstanding Old Capital Securities tendered and accepted in
connection with the Exchange Offer. Old Capital Securities may be tendered in
the Exchange Offer for exchange in whole or in part in any integral multiples of
$1,000 Liquidation Amount (one Old Capital Security) notwithstanding the
requirement, applicable to all other transfers of Capital Securities, of a
minimum transfer amount of $100,000 in Liquidation Amount. For purposes of
tenders of Old Capital Securities in the Exchange Offer, the requirement for
minimum transfers of $100,000 Liquidation Amount will be waived.
The Exchange Offer is not conditioned upon any minimum Liquidation Amount
of Old Capital Securities being tendered. As of the date of this Prospectus,
$110,000,000 aggregate Liquidation Amount of Old Capital Securities is
outstanding.
Holders of Old Capital Securities do not have any appraisal or dissenters'
rights in connection with the Exchange Offer. Old Capital Securities which are
not tendered for or are tendered but not accepted in connection with the
Exchange Offer will remain outstanding and be entitled to the benefits of the
Trust Agreement, but will not be entitled to any further registration rights
under the Registration Rights Agreement, except under limited circumstances with
respect to certain broker-dealers. See "Risk Factors -- Consequences of a
Failure to Exchange Old Capital Securities" and "Description of Old Securities."
If any tendered Old Capital Securities are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Old Capital Securities
will be returned, without expense, to the tendering holder thereof promptly
after the Expiration Date.
Holders who tender Old Capital Securities in connection with the Exchange
Offer will not be required to pay brokerage commissions or fees or, subject to
the instructions in the Letter of Transmittal, transfer taxes with respect to
the exchange of Old Capital Securities in connection with the Exchange Offer.
The Company will pay all charges and expenses, other than certain applicable
taxes described below, in connection with the Exchange Offer. See "-- Fees and
Expenses."
NEITHER THE COMPANY, THE BOARD OF DIRECTORS OF THE COMPANY NOR ANY ISSUER
TRUSTEE OF THE TRUST MAKES ANY RECOMMENDATION TO HOLDERS OF OLD CAPITAL
SECURITIES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION
OF THEIR OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO
ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF OLD CAPITAL
SECURITIES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE
EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD CAPITAL SECURITIES TO
TENDER BASED ON SUCH HOLDERS OWN FINANCIAL POSITION AND REQUIREMENTS.
The term "Expiration Date" means 5:00 p.m., New York City time, on July 24,
1997 unless the Exchange Offer is extended by the Company or the Trust (in which
case the term "Expiration Date" shall mean the latest date and time to which the
Exchange Offer is extended). The Company and the Trust have no present
expectation that the Expiration Date will be extended.
The Company and the Trust expressly reserve the right in their sole and
absolute discretion, subject to applicable law, at any time and from time to
time, to (i) delay the acceptance of the Old Capital Securities for exchange,
(ii) terminate the Exchange Offer (whether or not any Old Capital Securities
have theretofore been accepted for exchange) if the Trust determines, in its
sole and absolute discretion, that any of the events or conditions referred to
under "-- Conditions to the Exchange Offer" have occurred or exist or have not
been satisfied, (iii) extend the Expiration Date of the Exchange Offer and
retain all Old Capital Securities tendered pursuant to the Exchange Offer,
subject, however, to the right of holders of Old Capital Securities to withdraw
their tendered Old Capital Securities as described under "-- Withdrawal Rights,"
and (iv) waive any
22
<PAGE> 32
condition or otherwise amend the terms of the Exchange Offer in any respect. If
the Exchange Offer is amended in a manner determined by the Company and the
Trust to constitute a material change, or if the Company and the Trust waive a
material condition of the Exchange Offer, the Company and the Trust will
promptly disclose such amendment by means of a Prospectus supplement that will
be distributed to the holders of the Old Capital Securities, and the Company and
the Trust will extend the Exchange Offer to the extent required by Rule 14e-1
under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and by
making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which the Company and the Trust may choose to make any public
announcement and subject to applicable law, the Company and the Trust shall have
no obligation to publish, advertise or otherwise communicate any such public
announcement other than by issuing a release to an appropriate news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE CAPITAL SECURITIES
Upon the terms and subject to the conditions of the Exchange Offer, the
Trust will exchange, and will issue to the Exchange Agent, Exchange Capital
Securities for Old Capital Securities validly tendered and not withdrawn
promptly after the Expiration Date.
In all cases, delivery of Exchange Capital Securities in exchange for Old
Capital Securities tendered and accepted for exchange pursuant to the Exchange
Offer will be made only after timely receipt by the Exchange Agent of (i) Old
Capital Securities or a book-entry confirmation of a book-entry transfer of Old
Capital Securities into the Exchange Agent's account at DTC, including an
Agent's Message if the tendering holder has not delivered a Letter of
Transmittal, (ii) the Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees or (in the
case of a book-entry transfer) an Agent's Message in lieu of the Letter of
Transmittal, and (iii) any other documents required by the Letter of
Transmittal.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of Old Capital Securities into the Exchange Agent's account
at DTC. The term "Agent's Message" means a message transmitted by DTC to and
received by the Exchange Agent and forming a part of a book-entry confirmation,
which states that DTC has received an express acknowledgement from the tendering
Participant (as defined herein), which acknowledgement states that such
Participant has received and agrees to be bound by the Letter of Transmittal and
that the Trust and the Company may enforce such Letter of Transmittal against
such Participant.
Subject to the terms and conditions of the Exchange Offer, the Trust will
be deemed to have accepted for exchange, and thereby exchanged, Old Capital
Securities validly tendered and not withdrawn as, if and when the Trust gives
oral or written notice to the Exchange Agent of the Trust's acceptance of such
Old Capital Securities for exchange pursuant to the Exchange Offer. The Exchange
Agent will act as agent for the Trust for the purpose of receiving tenders of
Old Capital Securities, Letters of Transmittal and related documents, and as
agent for tendering holders for the purpose of receiving Old Capital Securities,
Letters of Transmittal and related documents and transmitting Exchange Capital
Securities to validly tendering holders. Such exchange will be made promptly
after the Expiration Date. If for any reason whatsoever, acceptance for exchange
or the exchange of any Old Capital Securities tendered pursuant to the Exchange
Offer is delayed (whether before or after the Trust's acceptance for exchange of
Old Capital Securities) or the Trust extends the Exchange Offer or is unable to
accept for exchange or exchange Old Capital Securities tendered pursuant to the
Exchange Offer, then, without prejudice to the Trust's rights set forth herein,
the Exchange Agent may, nevertheless, on behalf of the Trust and subject to Rule
14e-1(c) under the Exchange Act, retain tendered Old Capital Securities and such
Old Capital Securities may not be withdrawn except to the extent tendering
holders are entitled to withdrawal rights as described under "-- Withdrawal
Rights."
Pursuant to the Letter of Transmittal or Agent's Message in lieu thereof, a
holder of Old Capital Securities will warrant and agree in the Letter of
Transmittal that it has full power and authority to tender,
23
<PAGE> 33
exchange, sell, assign and transfer Old Capital Securities, that the Trust will
acquire good, marketable and unencumbered title to the tendered Old Capital
Securities, free and clear of all liens, restrictions, charges and encumbrances,
and the Old Capital Securities tendered for exchange are not subject to any
adverse claims or proxies. The holder also will warrant and agree that it will,
upon request, execute and deliver any additional documents deemed by the Trust
or the Exchange Agent to be necessary or desirable to complete the exchange,
sale, assignment, and transfer of the Old Capital Securities tendered pursuant
to the Exchange Offer.
PROCEDURES FOR TENDERING OLD CAPITAL SECURITIES
VALID TENDER. Except as set forth below, for Old Capital Securities to be
validly tendered pursuant to the Exchange Offer, a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees or (in the case of a book-entry tender) an Agent's Message
in lieu of the Letter of Transmittal and any other required documents, must be
received by the Exchange Agent at one of its addresses set forth under
"-- Exchange Agent," on or prior to the Expiration Date and (i) tendered Old
Capital Securities must be received by the Exchange Agent, or (ii) such Old
Capital Securities must be tendered pursuant to the procedures for book-entry
transfer set forth below and a book-entry confirmation, including an Agent's
Message if the tendering holder has not delivered a Letter of Transmittal must
be received by the Exchange Agent, in each case on or prior to the Expiration
Date, or (iii) the guaranteed delivery procedures set forth below must be
complied with.
If less than all of the Old Capital Securities are tendered, a tendering
holder should fill in the amount of Old Capital Securities being tendered in the
appropriate box on the Letter of Transmittal or so indicate in an Agent's
Message in lieu of the Letter of Transmittal. The entire amount of Old Capital
Securities delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER,
AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
BOOK-ENTRY TRANSFER. The Exchange Agent will establish an account with
respect to the Old Capital Securities at DTC for purposes of the Exchange Offer
no later than two (2) business days after the date of this Prospectus. Any
financial institution that is a participant in DTC's book-entry transfer
facility system may make a book-entry delivery of the Old Capital Securities by
causing DTC to transfer such Old Capital Securities into the Exchange Agent's
account at DTC in accordance with DTC's procedures for transfers. However,
although delivery of Old Capital Securities may be effected through book-entry
transfer into the Exchange Agent's account at DTC, the Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees or an Agent's Message in lieu of a Letter of Transmittal
and any other required documents, must in any case be delivered to and received
by the Exchange Agent at its address set forth under "-- Exchange Agent" on or
prior to the Expiration Date, or the guaranteed delivery procedure set forth
below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
SIGNATURE GUARANTEES. Certificates for the Old Capital Securities need not
be endorsed and signature guarantees on the Letter of Transmittal are
unnecessary unless (a) a certificate for the Old Capital Securities is
registered in a name other than that of the person surrendering the certificate
or (b) such holder completes the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" in the Letter of Transmittal. In the case of (a)
or (b) above, such certificates for Old Capital Securities must be duly endorsed
or accompanied by a properly executed bond power, with the endorsement or
signature on the bond power and on the Letter of Transmittal guaranteed by a
firm or other entity identified in Rule 17Ad-15 under
24
<PAGE> 34
the Exchange Act as an "eligible guarantor institution," including (as such
terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal
securities broker or dealer or government securities broker or dealer; (iii) a
credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association that is a
participant in a Securities Transfer Association (an "Eligible Institution"),
unless surrendered on behalf of such Eligible Institution. See Instruction 1 to
the Letter of Transmittal.
GUARANTEED DELIVERY. If a holder desires to tender Old Capital Securities
pursuant to the Exchange Offer and the certificates for such Old Capital
Securities are not immediately available or time will not permit all required
documents to reach the Exchange Agent on or prior to the Expiration Date, or the
procedure for book-entry transfer cannot be completed on a timely basis, such
Old Capital Securities may nevertheless be tendered, provided that all of the
following guaranteed delivery procedures are complied with:
(a) such tenders are made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form accompanying the Letter of Transmittal,
is received by the Exchange Agent, as provided below, on or prior to the
Expiration Date; and
(c) the certificates (or a book-entry confirmation) representing all
tendered Old Capital Securities, in proper form for transfer, together with
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof or Agent's Message in lieu thereof), with any required signature
guarantees and any other documents required by the Letter of Transmittal,
are received by the Exchange Agent within three (3) NASDAQ trading days
after the date of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of Exchange
Capital Securities in exchange for Old Capital Securities tendered and accepted
for exchange pursuant to the Exchange Offer will in all cases be made only after
timely receipt by the Exchange Agent of Old Capital Securities, or of a
book-entry confirmation with respect to such Old Capital Securities, and a
properly completed and duly executed Letter of Transmittal (or facsimile thereof
or Agent's Message in lieu thereof), together with any required signature
guarantees and any other documents required by the Letter of Transmittal.
Accordingly, the delivery of Exchange Capital Securities might not be made to
all tendering holders at the same time, and will depend upon when Old Capital
Securities, book-entry confirmations with respect to Old Capital Securities and
other required documents are received by the Exchange Agent.
The Trust's acceptance for exchange of Old Capital Securities tendered
pursuant to any of the procedures described above will constitute a binding
agreement between the tendering holder and the Trust upon the terms and subject
to the conditions of the Exchange Offer.
DETERMINATION OF VALIDITY. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered Old Capital Securities will be determined by the Company and the
Trust, in their sole discretion, whose determination shall be final and binding
on all parties. The Company and the Trust reserve the absolute right, in their
sole and absolute discretion, to reject any and all tenders determined by them
not to be in proper form or the acceptance of which, or exchange for, may, in
the opinion of counsel to the Company and the Trust, be unlawful. The Company
and the Trust also reserve the absolute right, subject to applicable law, to
waive any of the conditions of the Exchange Offer as set forth under
"-- Conditions to the Exchange Offer" or any condition or irregularity in any
tender of Old Capital Securities of any particular holder whether or not similar
conditions or irregularities are waived in the case of other holders.
The interpretation by the Company and the Trust of the terms and conditions
of the Exchange Offer (including the Letter of Transmittal and the instructions
thereto) will be final and binding. No tender of Old Capital Securities will be
deemed to have been validly made until all irregularities with respect to such
tender have been cured or waived. Neither the Company, the Trust, any affiliates
or assigns of the Company or the
25
<PAGE> 35
Trust, the Exchange Agent nor any other person shall be under any duty to give
any notification of any irregularities in tenders or incur any liability for
failure to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney,
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by the Company
and the Trust, proper evidence satisfactory to the Company and the Trust, in
their sole discretion, of such person's authority to so act must be submitted.
A beneficial owner of Old Capital Securities that are held by or registered
in the name of a broker, dealer, commercial bank, trust company or other nominee
or custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the Exchange Offer.
RESALES OF EXCHANGE CAPITAL SECURITIES
The Trust is making the Exchange Offer for the Exchange Capital Securities
in reliance on the position of the staff of the Division of Corporation Finance
of the Commission as set forth in certain interpretive letters addressed to
third parties in other transactions. However, neither the Company nor the Trust
sought its own interpretive letter and there can be no assurance that the staff
of the Division of Corporation Finance of the Commission would make a similar
determination with respect to the Exchange Offer as it has in such interpretive
letters to third parties. Based on these interpretations by the staff of the
Division of Corporation Finance of the Commission, and subject to the two
immediately following sentences, the Company and the Trust believe that Exchange
Capital Securities issued pursuant to this Exchange Offer in exchange for Old
Capital Securities may be offered for resale, resold and otherwise transferred
by a holder thereof (other than a holder who is a broker-dealer) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such Exchange Capital Securities are acquired in
the ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such Exchange Capital Securities. However, any holder of Old Capital Securities
who is an "affiliate" of the Company or the Trust or who intends to participate
in the Exchange Offer for the purpose of distributing Exchange Capital
Securities, or any broker-dealer who purchased Old Capital Securities from the
Trust for resale pursuant to Rule 144A or any other available exemption under
the Securities Act, (a) will not be able to rely on the interpretations of the
staff of the Division of Corporation Finance of the Commission set forth in the
above-mentioned interpretive letters, (b) will not be permitted or entitled to
tender such Old Capital Securities in the Exchange Offer and (c) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any sale or other transfer of such Old Capital Securities
unless such sale is made pursuant to an exemption from such requirements. In
addition, as described below, if any broker-dealer holds Old Capital Securities
acquired for its own account as a result of market-making or other trading
activities and exchanges such Old Capital Securities for Exchange Capital
Securities, then such broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of such
Exchange Capital Securities.
Each holder of Old Capital Securities who wishes to exchange Old Capital
Securities for Exchange Capital Securities in the Exchange Offer will be
required to represent that (i) such holder is not an "affiliate" of the Company
or the Trust, (ii) any Exchange Capital Securities to be received by such holder
are being acquired in the ordinary course of its business, (iii) such holder has
no arrangement or understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of such Exchange Capital Securities,
and (iv) if such holder is not a broker-dealer, such holder is not engaged in,
and does not intend to engage in, a distribution (within the meaning of the
Securities Act) of such Exchange Capital Securities. In addition, the Company
and the Trust may require such holder, as a condition to such holder's
eligibility to participate in the Exchange Offer, to furnish to the Company and
the Trust (or an agent thereof) in writing information as to the number of
"beneficial owners" (within the meaning of Rule 13d-3 under the Exchange Act) on
behalf of whom such holder holds the Capital Securities to be exchanged in the
Exchange Offer. Each broker-dealer that receives Exchange Capital Securities for
its own account pursuant to the Exchange Offer must acknowledge that it acquired
the Old Capital Securities for its own account as the result of market-making
activities or other trading activities and must agree that it will deliver a
prospectus meeting the
26
<PAGE> 36
requirements of the Securities Act in connection with any resale of such
Exchange Capital Securities. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Based on the position taken by the staff of the Division of Corporation
Finance of the Commission in the interpretive letters referred to above, the
Company and the Trust believe that Participating Broker-Dealers who acquired Old
Capital Securities for their own accounts as a result of market-making
activities or other trading activities may fulfill their prospectus delivery
requirements with respect to the Exchange Capital Securities received upon
exchange of such Old Capital Securities (other than Old Capital Securities which
represent an unsold allotment from the original sale of the Old Capital
Securities) with a prospectus meeting the requirements of the Securities Act,
which may be the prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to the resale of
such Exchange Capital Securities.
This Prospectus, as it may be amended or supplemented from time to time,
may be used by a Participating Broker-Dealer during the period referred to below
in connection with resales of Exchange Capital Securities received in exchange
for Old Capital Securities where such Old Capital Securities were acquired by
such Participating Broker-Dealer for its own account as a result of
market-making or other trading activities. Subject to certain provisions set
forth in the Registration Rights Agreement, the Company and the Trust have
agreed that this Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection with resales of
such Exchange Capital Securities for a period ending 90 days after the
Expiration Date (subject to extension under certain limited circumstances
described below) or, if earlier, when all such Exchange Capital Securities have
been disposed of by such Participating Broker-Dealer. See "Plan of
Distribution." A Participating Broker-Dealer who intends to use this Prospectus
in connection with the resale of Exchange Capital Securities received in
exchange for Old Capital Securities pursuant to the Exchange Offer must notify
the Company or the Trust, or cause the Company or the Trust to be notified, on
or prior to the Expiration Date, that it is a Participating Broker-Dealer. Such
notice may be given in the space provided for that purpose in the Letter of
Transmittal or may be delivered to the Exchange Agent at one of the addresses
set forth herein under "-- Exchange Agent." Any Participating Broker-Dealer who
is an "affiliate" of the Company or the Trust may not rely on such interpretive
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each Participating Broker-Dealer who surrenders Old Capital Securities
pursuant to the Exchange Offer will be deemed to have agreed that, upon receipt
of notice from the Company or the Trust of the occurrence of any event or the
discovery of any fact which makes any statement contained or incorporated by
reference in this Prospectus untrue in any material respect or which causes this
Prospectus to omit to state a material fact necessary in order to make the
statements contained or incorporated by reference herein, in light of the
circumstances under which they were made, not misleading or of the occurrence of
certain other events specified in the Registration Rights Agreement, such
Participating Broker-Dealer will suspend the sale of Exchange Capital Securities
(or the Exchange Guarantee or the Exchange Junior Subordinated Debentures, as
applicable) pursuant to this Prospectus until the Company or the Trust has
amended or supplemented this Prospectus to correct such misstatement or omission
and has furnished copies of the amended or supplemented Prospectus to such
Participating Broker-Dealer or the Company or the Trust has given notice that
the sale of the Exchange Capital Securities (or the Exchange Guarantee or the
Exchange Junior Subordinated Debentures, as applicable) may be resumed, as the
case may be. If the Company or the Trust gives such notice to suspend the sale
of the Exchange Capital Securities (or the Exchange Guarantee or the Exchange
Junior Subordinated Debentures, as applicable), it shall extend the 90-day
period referred to above during which Participating Broker-Dealers are entitled
to use this Prospectus in connection with the resale of Exchange Capital
Securities by the number of days during the period from and including the date
of the giving of such notice to and including the date when Participating
Broker-Dealers shall have received copies of the amended or supplemented
Prospectus necessary to permit resales of the Exchange Capital Securities or to
and including the date on which the Company or the Trust has given notice that
the sale of Exchange Capital Securities (or the Exchange Guarantee or the
Exchange Junior Subordinated Debentures, as applicable) may be resumed, as the
case may be.
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WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Capital Securities may
be withdrawn at any time on or prior to the Expiration Date.
For a withdrawal to be effective, a written, telegraphic, telex or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at one of its addresses set forth under "-- Exchange Agent"
on or prior to the Expiration Date. Any such notice of withdrawal must specify
the name of the person who tendered the Old Capital Securities to be withdrawn,
the aggregate principal amount of Old Capital Securities to be withdrawn, and
(if certificates for such Old Capital Securities have been tendered) the name of
the registered holder of the Old Capital Securities as set forth on the Old
Capital Securities, if different from that of the person who tendered such Old
Capital Securities. If Old Capital Securities have been delivered or otherwise
identified to the Exchange Agent, then prior to the physical release of such Old
Capital Securities, the tendering holder must submit the serial numbers shown on
the particular Old Capital Securities to be withdrawn and the signature on the
notice of withdrawal must be guaranteed by an Eligible Institution, except in
the case of Old Capital Securities tendered for the account of an Eligible
Institution. If Old Capital Securities have been tendered pursuant to the
procedures for book-entry transfer set forth in "-- Procedures for Tendering Old
Capital Securities," the notice of withdrawal must specify the name and number
of the account at DTC to be credited with the withdrawal of Old Capital
Securities, in which case a notice of withdrawal will be effective if delivered
to the Exchange Agent by written, telegraphic, telex or facsimile transmission.
Withdrawals of tenders of Old Capital Securities may not be rescinded. Old
Capital Securities properly withdrawn will not be deemed validly tendered for
purposes of the Exchange Offer, but may be retendered at any subsequent time on
or prior to the Expiration Date by following any of the procedures described
above under "-- Procedures for Tendering Old Capital Securities."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Trust, in its sole
discretion, whose determination shall be final and binding on all parties.
Neither the Company, the Trust, any affiliates or assigns of the Company or the
Trust, the Exchange Agent nor any other person shall be under any duty to give
any notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Old Capital Securities
which have been tendered but which are withdrawn will be returned to the holder
thereof promptly after withdrawal.
DISTRIBUTIONS ON EXCHANGE CAPITAL SECURITIES
Holders of Old Capital Securities whose Old Capital Securities are accepted
for exchange will not receive Distributions on such Old Capital Securities and
will be deemed to have waived the right to receive any Distributions on such Old
Capital Securities accumulated from and including January 31, 1997. Accordingly,
holders of Exchange Capital Securities as of the record date for the payment of
Distributions on August 1, 1997 will be entitled to Distributions accumulated
from and including January 31, 1997.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Company and the Trust will not be required
to accept for exchange, or to exchange, any Old Capital Securities for any
Exchange Capital Securities, and, as described below, may terminate the Exchange
Offer (whether or not any Old Capital Securities have theretofore been accepted
for exchange) or may waive any conditions to or amend the Exchange Offer, if any
of the following conditions have occurred or exists or have not been satisfied:
(a) there shall occur a change in the current interpretation by the
staff of the Commission which permits the Exchange Capital Securities
issued pursuant to the Exchange Offer in exchange for Old Capital
Securities to be offered for resale, resold and otherwise transferred by
holders thereof (other than broker-dealers and any such holder which is an
"affiliate" of the Company or the Trust within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act provided that such
Exchange Capital Securities are acquired in
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the ordinary course of such holders' business and such holders have no
arrangement or understanding with any person to participate in the
distribution of such Exchange Capital Securities; or
(b) any law, statute, rule or regulation shall have been adopted or
enacted which, in the judgment of the Company or the Trust, would
reasonably be expected to impair its ability to proceed with the Exchange
Offer; or
(c) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration
Statement or proceedings shall have been initiated or, to the knowledge of
the Company or the Trust, threatened for that purpose or any governmental
approval has not been obtained, which approval the Company or the Trust
shall, in its sole discretion, deem necessary for the consummation of the
Exchange Offer as contemplated hereby.
(d) the Company shall have received an opinion of counsel, rendered by
a law firm experienced in such matters, to the effect that, as a result of
the consummation of the Exchange Offer there is more than an insubstantial
risk that (x) the Trust would be subject to United States federal income
tax with respect to income received or accrued on the Junior Subordinated
Debentures, (y) interest payable by the Company on the Junior Subordinated
Debentures would not be deductible by the Company, in whole or in part, for
United States federal income purposes, or (z) the Trust would be subject to
more than a de minimis amount of other taxes, duties or other governmental
charges, in which case the Company and the Trust may, in lieu of
consummating of the Exchange Offer, file a Shelf Registration Statement in
accordance with the Registration Rights Agreement.
If the Company or the Trust determines in its sole and absolute discretion
that any of the foregoing events or conditions has occurred or exists or has not
been satisfied, it may, subject to applicable law, terminate the Exchange Offer
(whether or not any Old Capital Securities have theretofore been accepted for
exchange) or may waive any such condition or otherwise amend the terms of the
Exchange Offer in any respect. If such waiver or amendment constitutes a
material change to the Exchange Offer, the Company or the Trust will promptly
disclose such waiver or amendment by means of a Prospectus supplement that will
be distributed to the registered holders of the Old Capital Securities and will
extend the Exchange Offer to the extent required by Rule 14e-1 under the
Exchange Act.
EXCHANGE AGENT
The Chase Manhattan Bank has been appointed as Exchange Agent for the
Exchange Offer. Delivery of the Letters of Transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent as follows:
BY REGISTERED OR CERTIFIED MAIL, HAND OR OVERNIGHT DELIVERY:
------------------------------------------------------------
The Chase Manhattan Bank
55 Water Street, Room 234
North Building
New York, New York 10041
Attention: Sharon Lewis
Confirm by Telephone:
---------------------
(212) 638-0454
Facsimile Transmissions:
------------------------
(Eligible Institutions Only)
(212) 638-7380
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via facsimile other than as set forth above, will
not constitute a valid delivery.
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FEES AND EXPENSES
The Company has agreed to pay the Exchange Agent reasonable and customary
fees for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith. The Company will also pay brokerage houses and
other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus and related documents
to the beneficial owners of Old Capital Securities, and in handling or tendering
for their customers.
Holders who tender their Old Capital Securities for exchange will not be
obligated to pay any transfer taxes in connection therewith. If, however,
Exchange Capital Securities are to be delivered to, or are to be issued in the
name of, any person other than the registered holder of the Old Capital
Securities tendered, or if a transfer tax is imposed for any reason other than
the exchange of Old Capital Securities in connection with the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
Neither the Company nor the Trust will make any payment to brokers, dealers
or other nominees soliciting acceptances of the Exchange Offer.
DESCRIPTION OF EXCHANGE SECURITIES
DESCRIPTION OF EXCHANGE CAPITAL SECURITIES
Pursuant to the terms of the Trust Agreement, the Trust has issued the Old
Capital Securities and the Common Securities and will issue the Exchange Capital
Securities. The Exchange Capital Securities will represent preferred beneficial
interests in the Trust and the holders of the Exchange Capital Securities and
the Old Capital Securities will be entitled to a preference over the Common
Securities in certain circumstances with respect to Distributions and amounts
payable on redemption of the Trust Securities or liquidation of the Trust. See
"--Subordination of Common Securities." The Trust Agreement has been qualified
under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
This summary of all of the material provisions of the Exchange Capital
Securities and the Trust Agreement does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the provisions
of the Trust Agreement, including the definitions therein of certain terms. A
copy of the Trust Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.
GENERAL
The Capital Securities (including the Old Capital Securities and the
Exchange Capital Securities) are limited to $110,000,000 aggregate Liquidation
Amount at any one time outstanding. The Capital Securities will rank pari passu,
and payments will be made thereon pro rata, with the Common Securities except as
described under "-- Subordination of Common Securities." Legal title to the
Junior Subordinated Debentures will be held by the Property Trustee in trust on
behalf of the Trust for the benefit of the holders of the Capital Securities and
Common Securities. The Exchange Guarantee will not guarantee payment of
Distributions or amounts payable on redemption of the Exchange Capital
Securities or liquidation of the Trust when the Trust does not have funds on
hand legally available for such payments. See "-- Description of Exchange
Guarantee."
DISTRIBUTIONS
Distributions on the Exchange Capital Securities will be cumulative, will
accrue from January 31, 1997 (the date of original issuance of the Old Capital
Securities) or from the latest date to which distributions thereon have been
duly paid or provided for at the annual rate of 8.82% of the principal amount
thereof, payable semi-annually in arrears on February 1 and August 1 of each
year, commencing on August 1, 1997, to the holders of the Exchange Capital
Securities on the relevant record dates. The record dates will be the fifteenth
day preceding the relevant Distribution Date (as defined below). The amount of
Distributions
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payable for any period will 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 a period. In the event that
any date on which Distributions are payable on the Exchange Capital Securities
is not a Business Day (as defined below), then payment of the Distribution
payable on such date will be made on the next succeeding day that is a Business
Day (and without any interest or other payment in respect to any such delay), in
each case with the same force and effect as if made on such date (each date on
which Distributions are payable in accordance with the foregoing, a
"Distribution Date"). A "Business Day" shall mean 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 remain closed.
So long as no Debenture Event of Default shall have occurred and be
continuing, the Company will have the right under the Indenture to defer the
payment of interest on the Exchange Junior Subordinated Debentures at any time
or from time to time for a period not exceeding 10 consecutive semi-annual
periods with respect to each Extension Period, provided that no Extension Period
may extend beyond the Stated Maturity. Upon any such election, semi-annual
Distributions on the Exchange Capital Securities will be deferred by the Trust
during any such Extension Period. Distributions to which holders of the Exchange
Capital Securities are entitled during any such Extension Period will accumulate
additional Distributions thereon at the rate per annum of 8.82% thereof,
compounded semi-annually from the relevant Distribution Date, 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 a
period, but not exceeding the interest rate then accruing on the Exchange Junior
Subordinated Debentures. The term "Distributions," as used herein, shall include
any such additional Distributions.
Prior to the termination of any such Extension Period, and so long as no
Debenture Event of Default has occurred and is continuing, the Company may
further extend the Extension Period provided that no Extension Period may exceed
10 consecutive semi-annual periods or extend beyond the Stated Maturity. Upon
the termination of any such Extension Period and the payment of all amounts then
due, and subject to the foregoing limitations, the Company may elect to begin a
new Extension Period. The Company must give the Property Trustee, the
Administrative Trustees and the Debenture Trustee notice of its election of any
such Extension Period at least five Business Days prior to the earlier of (i)
the date the Distributions on the Capital Securities would have been payable
except for the election to begin or extend such Extension Period or (ii) the
date the Administrative Trustees are required to give notice to any securities
exchange or to holders of such Exchange Capital Securities of the record date or
the date such Distributions are payable but in any event not less than five (5)
Business Days prior to such record date. There is no limitation on the number of
times that the Company may elect to begin an Extension Period. See
"-- Description of Exchange Junior Subordinated Debentures -- Option to Extend
Interest Payment Date" and "Certain Federal Income Tax Consequences -- Interest
Income and Original Issue Discount."
During any such Extension Period, the Company may not, and may not permit
any subsidiary 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, 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 Exchange Junior
Subordinated Debentures 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 Exchange Junior Subordinated Debentures (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 redemption or repurchase of any such rights pursuant thereto, (c)
payments under the 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
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<PAGE> 41
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged, and (f) purchases of common stock related
to the issuance of common stock or rights under any of the Company's benefit
plans for its directors, officers or employees or any of the Company's dividend
reinvestment plans). None of the Company's subsidiaries will be prohibited from
declaring and paying cash distributions with respect to its capital stock or
from making payments with respect to its debt securities.
Although the Company may in the future exercise its right to defer payments
of interest on the Exchange Junior Subordinated Debentures, the Company has no
such current intention.
The revenue of the Trust available for distribution to holders of the
Exchange Capital Securities will be limited to payments under the Exchange
Junior Subordinated Debentures held by the Trust. See "-- Description of
Exchange Junior Subordinated Debentures -- General." If the Company does not
make interest payments on the Exchange Junior Subordinated Debentures, the
Property Trustee will not have funds available to pay Distributions on the
Exchange Capital Securities. The payment of Distributions (if and to the extent
the Trust has funds on hand legally available for the payment of such
Distributions) will be guaranteed by the Company on a limited basis as set forth
herein under "-- Description of Exchange Guarantee."
CONDITIONAL RIGHT TO SHORTEN MATURITY AND SPECIAL EVENT REDEMPTION
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
Exchange Junior Subordinated Debentures to the minimum extent required, but not
less than 20 years from the date of original issuance thereof, such that, in the
written opinion of counsel experienced in such matters delivered to the Company,
after shortening the maturity, interest paid on the Exchange Junior Subordinated
Debentures will 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 Exchange Junior Subordinated Debentures, as described
below.
If a Tax Event or an Investment Company Event occurs, then the Company
shall have the right, within 90 days following the occurrence of such Tax Event
or Investment Company Event, as the case may be, to prepay the Exchange Junior
Subordinated Debentures in whole (but not in part) in the manner and at the
price determined as set forth under "-- Description of Exchange Junior
Subordinated Debentures -- Conditional Right to Shorten Maturity and Special
Event Prepayment," and therefore to cause a mandatory redemption of the Exchange
Capital Securities prior to the Stated Maturity (the circumstances under which
the Company has the right to so prepay the Exchange Junior Subordinated
Debentures in connection with a Tax Event being referred to herein as a
"Conditional Tax Redemption Event"). Each of a Conditional Tax Redemption Event
or an Investment Company Event are sometimes referred to herein as a "Special
Event."
REDEMPTION
Upon the repayment on the Stated Maturity or prepayment prior to the Stated
Maturity of the Exchange Junior Subordinated Debentures, the proceeds from such
repayment or prepayment shall be applied by the Property Trustee to redeem a
Like Amount (as defined below) of the Trust Securities, upon not less than 30
nor more than 60 days' notice of a date of redemption (the "Redemption Date"),
at the applicable Redemption Price, which shall be equal to (i) in the case of
the repayment of the Exchange Junior Subordinated Debentures on the Stated
Maturity, the Maturity Redemption Price (equal to the principal of, and accrued
and unpaid interest on, the Exchange Junior Subordinated Debentures), (ii) in
the case of the optional prepayment of the Exchange Junior Subordinated
Debentures upon the occurrence and continuation of a Special Event, the Special
Event Redemption Price (equal to the Special Event Prepayment Price in respect
of the Exchange Junior Subordinated Debentures) and (iii) in the case of the
optional prepayment of the Exchange Junior Subordinated Debentures other than as
contemplated in clause (ii) above, the Optional Redemption Price (equal to the
Optional Prepayment Price in respect of the Exchange Junior Subordinated
Debentures). See "-- Description of Exchange Junior Subordinated
Debentures -- Optional Prepayment" and "-- Conditional Right to Shorten Maturity
and Special Event Prepayment."
"Like Amount" means (i) with respect to a redemption of the Trust
Securities, Trust Securities having a Liquidation Amount equal to the principal
amount of Exchange Junior Subordinated Debentures to be paid in
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accordance with their terms and (ii) with respect to a distribution of Exchange
Junior Subordinated Debentures upon the liquidation of the Trust, Exchange
Junior Subordinated Debentures having a principal amount equal to the
Liquidation Amount of the Trust Securities of the holder to whom such Exchange
Junior Subordinated Debentures are distributed.
The Company will have the option to prepay the Exchange Junior Subordinated
Debentures, (i) in whole or in part, on or after February 1, 2007, at the
applicable Optional Prepayment Price and (ii) in whole but not in part, at any
time, upon the occurrence of a Special Event, at the Special Event Prepayment
Price.
LIQUIDATION OF THE TRUST AND DISTRIBUTION OF EXCHANGE JUNIOR SUBORDINATED
DEBENTURES
The Company, as the holder of all of the outstanding Common Securities,
will have the right at any time to dissolve the Trust and cause a Like Amount of
the Exchange Junior Subordinated Debentures to be distributed to the holders of
the Trust Securities in liquidation of the Trust, subject to the Company's
having received an opinion by independent tax counsel experienced in such
matters 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 to holders of Exchange Capital Securities.
The Trust shall automatically dissolve upon the first to occur of: (i)
certain events of bankruptcy, dissolution or liquidation of the Company; (ii)
the distribution of a Like Amount of the Exchange Junior Subordinated Debentures
to the holders of the Trust Securities, if the Company, as Sponsor, has given a
written direction to the Property Trustee to terminate the Trust (which
direction is optional and, except as described above, wholly within the
discretion of the Company, as the holder of all of the outstanding Common
Securities); (iii) redemption of all of the Trust Securities as described under
"-- Redemption"; (iv) expiration of the term of the Trust; and (v) the entry of
an order for the dissolution of the Trust by a court of competent jurisdiction.
If a dissolution occurs as described in clause (i), (ii), (iv) or (v)
above, 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, to the holders of the Trust Securities a Like Amount
of the Exchange Junior Subordinated Debentures, unless such distribution is
determined by the Property Trustee not to be practicable, in which event such
holders will be entitled to receive out of the 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 plus accumulated and unpaid Distributions
thereon to the date of payment (such amount being the "Liquidation
Distribution"). If such Liquidation Distribution can be paid only in part
because the Trust has insufficient assets on hand legally available to pay in
full the aggregate Liquidation Distribution, then the amounts payable directly
by the Trust on the Capital Securities and the Common Securities shall be paid
on a pro rata basis, except that if a Debenture Event of Default has occurred
and is continuing, the Capital Securities shall have a priority over the Common
Securities. See "-- Subordination of Common Securities." If an early dissolution
occurs as described in clause (v) above, the Exchange Junior Subordinated
Debentures will be subject to optional prepayment, in whole but not in part, on
or after February 1, 2007.
If the Company elects not to prepay the Junior Subordinated Debentures
prior to maturity in accordance with their terms and either elects not to or is
unable to liquidate the Trust and distribute the Junior Subordinated Debentures
to holders of the Trust Securities, the Trust Securities will remain outstanding
until the repayment of the Junior Subordinated Debentures on the Stated
Maturity.
After the liquidation date is fixed for any distribution of Junior
Subordinated Debentures to holders of the Trust Securities, (i) the Trust
Securities will no longer be deemed to be outstanding, (ii) each registered
global certificate, if any, representing Trust Securities and held by DTC or its
nominee will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution and (iii) any certificates representing Trust Securities not held
by DTC or its nominee will be deemed to represent Exchange Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of such
Trust Securities, and bearing accrued and unpaid interest in an amount equal to
the accumulated and unpaid Distributions on such Trust Securities until such
certificates are presented to the
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Administrative Trustees or their agent for cancellation, whereupon the Company
will issue to such holder, and the Debenture Trustee will authenticate, a
certificate representing such Junior Subordinated Debentures. See "-- Form,
Denomination, Book-Entry Procedures and Transfer."
There can be no assurance as to the market prices for the Exchange Capital
Securities or the Exchange Junior Subordinated Debentures that may be
distributed in exchange for the Trust Securities if a dissolution and
liquidation of the Trust were to occur. Accordingly, the Capital Securities that
an investor may purchase, or the Junior Subordinated Debentures that the
investor may receive on dissolution and liquidation of the Trust, may trade at a
discount to the price that the investor paid to purchase the Capital Securities
offered hereby.
REDEMPTION PROCEDURES
If applicable, Trust Securities shall be redeemed at the applicable
Redemption Price with the proceeds from the contemporaneous repayment or
prepayment of the Exchange Junior Subordinated Debentures. Any redemption of
Trust Securities shall be made and the applicable Redemption Price shall be
payable on the Redemption Date only to the extent that the Trust has funds
legally available for the payment of such applicable Redemption Price. See also
"-- Subordination of Common Securities."
If the Trust gives a notice of redemption in respect of the Exchange
Capital Securities, then, by 12:00 noon, New York City time, on the Redemption
Date, to the extent funds are legally available, with respect to the Exchange
Capital Securities held by DTC or its nominees, the Property Trustee will
deposit irrevocably with DTC funds sufficient to pay the applicable Redemption
Price with respect to the Exchange Capital Securities held by DTC or its
nominee. See "-- Form, Denomination, Book-Entry Procedures and Transfer." With
respect to the Exchange Capital Securities held in certificated form, the
Property Trustee, to the extent funds are legally available, will irrevocably
deposit with the paying agent for the Exchange Capital Securities funds
sufficient to pay the applicable Redemption Price and will give such paying
agent irrevocable instructions and authority to pay the applicable Redemption
Price to the holders thereof upon surrender of their certificates evidencing the
Exchange Capital Securities. See "-- Payment and Paying Agency." Notwithstanding
the foregoing, Distributions payable on or prior to the Redemption Date shall be
payable to the holders of such Exchange Capital Securities on the relevant
record dates for the related Distribution Dates. If notice of redemption shall
have been given and funds deposited as required, then upon the date of such
deposit, all rights of the holders of the Exchange Capital Securities will
cease, except the right of the holders of the Exchange Capital Securities to
receive the applicable Redemption Price, but without interest on such Redemption
Price, and the Exchange Capital Securities will cease to be outstanding. In the
event that any Redemption Date of Exchange Capital Securities is not a Business
Day, then the applicable Redemption Price payable on such date will be paid on
the next succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay), except that, if such Business Day
falls in the next calendar year, such payment will be made on the immediately
preceding Business Day. In the event that payment of the applicable Redemption
Price is improperly withheld or refused and not paid either by the Trust or by
the Company pursuant to the Exchange Guarantee as described under
"-- Description of Exchange Guarantee," (i) Distributions on the Exchange
Capital Securities will continue to accumulate at the then applicable rate, from
the Redemption Date originally established by the Trust to the date such
applicable Redemption Price is actually paid, and (ii) the actual payment date
will be the Redemption Date for purposes of calculating the applicable
Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), the Company or its subsidiaries may at any time and
from time to time purchase outstanding Exchange Capital Securities by tender, in
the open market or by private agreement.
If less than all of the Capital Securities and Common Securities are to be
redeemed on a Redemption Date, then the aggregate Liquidation Amount of such
Trust Securities to be redeemed shall generally be allocated pro rata among the
Capital Securities and Common Securities based upon the relative Liquidation
Amounts of such classes.
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Notice of any redemption will be mailed at least 30 days but not more than
60 days prior to the Redemption Date to each holder of Trust Securities at its
registered address. Unless the Company defaults in payment of the applicable
Prepayment Price on, or in the repayment of, the Junior Subordinated Debentures,
on and after the Redemption Date Distributions will cease to accrue on the Trust
Securities called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Capital
Securities and Common Securities, as applicable, shall be made pro rata based on
the Liquidation Amount of the Capital Securities and Common Securities;
provided, however, that if on any Distribution Date or Redemption Date a
Debenture Event of Default shall have occurred and be continuing, no payment of
any Distribution on, or applicable Redemption Price of, any of the Common
Securities, and no other payment on account of the redemption, liquidation or
other acquisition of the Common Securities, shall be made unless payment in full
in cash of all accumulated and unpaid Distributions on all of the outstanding
Capital Securities for all Distribution periods terminating on or prior thereto,
or in the case of payment of the applicable Redemption Price the full amount of
such Redemption Price, shall have been made or provided for, and all funds
available to the Property Trustee shall first be applied to the payment in full
in cash of all Distributions on, or Redemption Price of, the Capital Securities
then due and payable.
In the case of any Event of Default (as defined below), the Company as
holder of the Common Securities will be deemed to have waived any right to act
with respect to such Event of Default until the effect of such Event of Default
shall have been cured, waived or otherwise eliminated. Until any such Event of
Default has been so cured, waived or otherwise eliminated, the Property Trustee
shall act solely on behalf of the holders of the Capital Securities and not on
behalf of the Company as holder of the Common Securities, and only the holders
of the Capital Securities will have the right to direct the Property Trustee to
act on their behalf.
EVENTS OF DEFAULT; NOTICE
The occurrence of a Debenture Event of Default (see "-- Description of
Exchange Junior Subordinated Debentures -- Debenture Events of Default")
constitutes an "Event of Default" under the Trust Agreement.
Within ninety days after the occurrence of any Event of Default actually
known to the Property Trustee, the Property Trustee shall transmit notice of
such Event of Default to the holders of the Capital Securities, the
Administrative Trustees and the Company as Sponsor, unless such Event of Default
shall have been cured or waived. The Company as Sponsor, and the Administrative
Trustees are required to file annually with the Property Trustee a certificate
as to whether or not they are in compliance with all the conditions and
covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the Capital
Securities shall have a preference over the Common Securities as described under
"-- Liquidation of the Trust and Distribution of Exchange Junior Subordinated
Debentures" and "-- Subordination of Common Securities."
REMOVAL OF ISSUER TRUSTEES
Unless a Debenture Event of Default shall have occurred and be continuing,
any Issuer Trustee may be removed at any time by the holder of the Common
Securities. 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 Company as the holder of the Common
Securities. No resignation or removal of an Issuer Trustee and no appointment of
a successor trustee shall be effective until the acceptance of appointment by
the successor trustee in accordance with the provisions of the Trust Agreement.
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MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any company into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any company resulting from any merger,
conversion or consolidation to which such Issuer Trustee shall be a party, or
any company succeeding to all or substantially all the corporate trust business
of such Issuer Trustee, shall be the successor of such Issuer Trustee under the
Trust Agreement, provided such company shall be otherwise qualified and
eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or sell, convey, transfer or lease its properties and assets as an
entirety, or substantially as an entirety, to any company or other Person,
except as described below. The Trust may, at the request of the Company, as the
holder of all of the outstanding Common Securities, with the consent of the
Administrative Trustees but without the consent of the Property Trustee, the
Delaware Trustee or the holders of the Capital Securities, 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 either (a) expressly assumes all of the obligations of the
Trust with respect to the Trust Securities or (b) substitutes for the Trust
Securities other securities having substantially the same terms as the Trust
Securities (the "Successor Securities") so long as the Successor Securities rank
the same as the Trust Securities rank with respect to distributions and payments
upon liquidation, redemption and otherwise, (ii) the Company expressly appoints
a trustee of such successor entity possessing the same powers and duties as the
Property Trustee with respect to the Junior Subordinated 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 Trust 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 Company has received an
opinion from independent counsel to the Trust experienced in such matters to the
effect that (a) such merger, consolidation, amalgamation, replacement, sale,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the Trust Securities (including any Successor
Securities) in any material respect (other than any dilution of such holders'
interests in the new entity), and (b) following such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, neither the Trust nor
such successor entity will be required to register as an investment company
under the Investment Company Act, (viii) the Company or any permitted successor
or assignee owns all of the common securities of such successor entity and
guarantees the obligations of such successor entity under the Successor
Securities at least to the extent provided by the Guarantee and (ix) the Trust
shall not, except with the consent of holders of 100% in Liquidation Amount of
the Trust 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.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "-- Removal of Issuer Trustees,"
"-- Mergers, Consolidations, Amalgamation or Replacements of the Trust" and
"Description of Exchange Guarantee -- Amendments and
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Assignment" and as otherwise required by law and the terms of the Trust
Securities and the Trust Agreement, the holders of the Exchange Capital
Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the Company, 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 Trust
Securities (i) to cure any ambiguity, correct or supplement any provisions in
the Trust Agreement that may be inconsistent with any other provision, or to
make any other provisions with respect to matters or questions arising under the
Trust Agreement, which shall not be inconsistent with the other provisions of
the Trust Agreement, (ii) to modify, eliminate or add to any provisions of the
Trust Agreement to such extent as shall be necessary to ensure that the Trust
will be classified for United States federal income tax purposes as a grantor
trust at all times that any Trust Securities are outstanding or to ensure that
the Trust will not be required to register as an "investment company" under the
Investment Company Act, or (iii) to qualify or maintain qualification of the
Trust Agreement 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 Trust Securities. Any amendments of the Trust
Agreement pursuant to the foregoing shall become effective when notice thereof
is sent to the holders of the Trust Securities. The Trust Agreement may be
amended by the Issuer Trustees and the Company, as the holder of all of the
outstanding Common Securities, with the consent of holders representing a
majority (based upon Liquidation Amount) of the outstanding Trust Securities and
upon receipt by the Issuer Trustees of an opinion of counsel to the effect that
such amendment or the exercise of any power granted to the Issuer Trustees in
accordance with such amendment will not affect the Trust's status as a grantor
trust for United States federal income tax purposes or the Trust's exemption
from status as an "investment company" under the Investment Company Act,
provided that, without the consent of each holder of Trust Securities, the Trust
Agreement may not be amended (i) to change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount of
any Distribution required to be made in respect of the Trust Securities as of a
specified date or (ii) to restrict the right of a holder of Trust Securities to
institute suit for the enforcement of any such payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Property
Trustee for the benefit of the holders of the Trust Securities, the Issuer
Trustees shall not (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee, or execute any
trust or power conferred on such Debenture Trustee with respect to the Junior
Subordinated Debentures, (ii) waive certain past defaults under the Indenture,
(iii) exercise any right to rescind or annul a declaration of acceleration of
the maturity of the principal of the Junior Subordinated Debentures or (iv)
consent to any amendment, modification or termination of the Indenture or the
Junior Subordinated Debentures, where such consent shall be required, without,
in each case, obtaining the prior approval of the holders of a majority in
Liquidation Amount of all outstanding Capital Securities; provided, however,
that where a consent under the Indenture would require the consent of each
holder of Junior Subordinated Debentures affected thereby, no such consent shall
be given by the Property Trustee without the prior approval of each holder of
the Capital Securities. The Issuer Trustees shall not revoke any action
previously authorized or approved by a vote of the holders of the Capital
Securities except by subsequent vote of such holders. The Property Trustee shall
notify each holder of Capital Securities of any notice of default with respect
to the Junior Subordinated Debentures. In addition to obtaining the foregoing
approvals of such holders of the Capital Securities, prior to taking any of the
foregoing actions, the Issuer Trustees shall obtain an opinion of counsel
experienced in such matters to the effect there is no more than an insubstantial
risk that the Trust would not be classified for United States federal income tax
purposes as a grantor trust on account of such action.
Any required approval of holders of Exchange Capital Securities may be
given at a meeting of such holders convened for such purpose or pursuant to
written consent. The Administrative Trustees will cause a notice of any meeting
at which holders of Exchange 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 given to each holder of record of Exchange Capital Securities in the manner
set forth in the Trust Agreement.
No vote or consent of the holders of Exchange Capital Securities will be
required for the Trust to redeem and cancel the Exchange Capital Securities in
accordance with the Trust Agreement.
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Notwithstanding that holders of the Capital Securities are entitled to vote
or consent under any of the circumstances described above, any of the Capital
Securities that are owned by the Company, the Issuer Trustees or any affiliate
of the Company or any Issuer Trustees, shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
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 Company as the holder of all the
outstanding Common Securities.
FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
The Exchange Capital Securities initially will be represented by one or
more Exchange Capital Securities certificates in registered, global form
(collectively, the "Global Capital Securities"). The Global Capital Securities
will be deposited upon issuance with the Property Trustee as custodian for DTC,
in New York, New York, and registered in the name of DTC or its nominee, in each
case for credit to an account of a direct or indirect participant in DTC as
described below.
Except as set forth below, the Global Capital Securities may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the Global Capital
Securities may not be exchanged for Capital Securities in certificated form
except in the limited circumstances described below. See "-- Exchange of
Book-Entry Capital Securities for Certificated Capital Securities."
Other Exchange Capital Securities will be issued only in registered,
certificated (i.e., non-global) form. Other Exchange Capital Securities may not
be exchanged for beneficial interests in any Exchange Global Capital Securities
except in the limited circumstances described below. See "-- Exchange of
Certificated Capital Securities for Book-Entry Capital Securities."
Transfer of beneficial interests in the Global Capital Securities will be
subject to the applicable rules and procedures of DTC and its direct or indirect
participants (including, if applicable, those of Euroclear and CEDEL), which may
change from time to time.
Depositary Procedures
DTC has advised the Trust and the Company that DTC is a limited-purpose
trust company created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants. The Participants
include securities brokers and dealers (including the Initial Purchaser), banks,
trust companies, clearing companies and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interest and transfer of ownership interest of each
actual purchaser of each security held by or on behalf of DTC are recorded on
the records of the Participants and Indirect Participants.
DTC has also advised the Trust and the Company that, pursuant to procedures
established by it, (i) upon deposit of the Global Capital Securities, DTC will
credit the accounts of Participants with portions of the Liquidation Amount of
the Global Capital Securities equal to the respective Liquidation Amounts of Old
Capital Securities accepted for exchange in the Exchange Offer and (ii)
ownership of such interests in the Global Capital Securities will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the Participants) or by the Participants and
the Indirect Participants (with respect to other owners of beneficial interests
in the Global Capital Securities).
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Investors in the Global Capital Securities may hold their interests therein
directly through DTC if they are Participants, or indirectly through
organizations (including Euroclear and CEDEL) which are Participants. All
interests in a Global Capital Security, including those held through Euroclear
or CEDEL, may be subject to the procedures and requirements of DTC. Those
interests held through Euroclear or CEDEL may also be subject to the procedures
and requirements of such system. The laws of some states require that certain
persons take physical delivery in certificated form of securities that they own.
Consequently, the ability to transfer beneficial interests in a Global Capital
Security to such persons will be limited to that extent. Because DTC can act
only on behalf of Participants, which in turn act on behalf of Indirect
Participants and certain banks, the ability of a person having beneficial
interests in a Global Capital Security to pledge such interests to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of such interests, may be affected by the lack of a physical certificate
evidencing such interests. For certain other restrictions on the transferability
of the Capital Securities, see "-- Exchange of Book-Entry Capital Securities for
Certificated Capital Securities", and "-- Exchange of Certificated Capital
Securities for Book-Entry Capital Securities" below.
Except as described below, owners of interests in the Global Capital
Securities will not have Capital Securities registered in their name, will not
receive physical delivery of Capital Securities in certificated form and will
not be considered the registered owners or holders thereof under the Trust
Agreement for any purpose.
Payments in respect of the Global Capital Securities registered in the name
of DTC or its nominee will be payable by the Property Trustee to DTC or its
nominee in its capacity as the registered holder under the Trust Agreement.
Under the terms of the Trust Agreement, the Property Trustee will treat the
persons in whose names the Capital Securities, including the Global Capital
Securities, are registered as the owners thereof for the purpose of receiving
such payments and for any and all other purposes whatsoever. Consequently,
neither the Property Trustee nor any agent thereof has or will have any
responsibility or liability for (i) any aspect of DTC's records or any
Participant's or Indirect Participant's records relating to or payments made on
account of beneficial ownership interests in the Global Capital Securities, or
for maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in the Global Capital Securities or (ii) any other matter
relating to the actions and practices of DTC or any of its Participants or
Indirect Participants. DTC has advised the Trust and the Company that its
current practice, upon receipt of any payment in respect of securities such as
the Capital Securities, is to credit the accounts of the relevant Participants
with the payment on the payment date, in amounts proportionate to their
respective holdings in Liquidation Amount of beneficial interests in the
relevant security as shown on the records of DTC unless DTC has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of Capital
Securities will be governed by standing instructions and customary practices and
will be the responsibility of the Participants or the Indirect Participants and
will not be the responsibility of DTC, the Property Trustee, the Trust or the
Company. Neither the Trust or the Company nor the Property Trustee will be
liable for any delay by DTC or any of its Participants in identifying the
beneficial owners of the Capital Securities, and the Trust or the Company and
the Property Trustee may conclusively rely on and will be protected in relying
on instructions from DTC or its nominee for all purposes.
Except for trades involving only Euroclear and CEDEL participants,
interests in the Global Capital Securities will trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will
therefore settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its Participants.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear and CEDEL will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Capital Securities described herein, crossmarket transfers between the
Participants in DTC, on the one hand, and Euroclear or CEDEL participants, on
the other hand, will be effected through DTC in accordance with DTC's rules on
behalf of
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Euroclear or CEDEL, as the case may be, by its respective depositary; however,
such cross-market transactions will require delivery of instructions to
Euroclear or CEDEL, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or CEDEL, as the case may be, will, if
the transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Global Capital Securities in
DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Euroclear participants and CEDEL
participants may not deliver instructions directly to the depositaries for
Euroclear or CEDEL.
Because of time zone differences, the securities account of a Euroclear or
CEDEL participant purchasing an interest in a Global Capital Security from a
Participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or CEDEL participant, during the securities settlement
processing day (which must be a business day for Euroclear and CEDEL)
immediately following the settlement date of DTC. Cash received in Euroclear or
CEDEL as a result of sales of interest in a Global Capital Security by or
through a Euroclear or CEDEL participant to a Participant in DTC will be
received with value on the settlement date of DTC but will be available in the
relevant Euroclear or CEDEL cash account only as of the business day for
Euroclear or CEDEL following DTC's settlement date.
DTC has advised the Trust and the Company that it will take any action
permitted to be taken by a holder of Exchange Capital Securities only at the
direction of one or more Participants to whose account with DTC interests in the
Global Capital Securities are credited and only in respect of such portion of
the Liquidation Amount of the Capital Securities as to which such Participant or
Participants has or have given such direction. However, if there is an Event of
Default under the Trust Agreement, DTC reserves the right to exchange the Global
Capital Securities for Exchange Capital Securities in certificated form and to
distribute such Exchange Capital Securities to its Participants.
The information in this section concerning DTC, Euroclear and CEDEL and
their book-entry systems, has been obtained from sources that the Trust and the
Company believe to be reliable, but neither the Trust nor the Company takes
responsibility for the accuracy thereof.
Neither the Trust or the Company nor the Property Trustee will have any
responsibility for the performance by DTC, Euroclear or CEDEL or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
Exchange of Book-Entry Capital Securities for Certificated Capital
Securities
A Global Capital Security is exchangeable for Exchange Capital Securities
in registered certificated form if (i) DTC (x) notifies the Trust that it is
unwilling or unable to continue as depositary for the Global Capital Security
and the Trust thereupon fails to appoint a successor depositary within 90 days
or (y) has ceased to be a clearing agency registered under the Exchange Act,
(ii) the Company in its sole discretion elects to cause the issuance of the
Exchange Capital Securities in certificated form or (iii) there shall have
occurred and be continuing an Event of Default or any event which after notice
or lapse of time or both would be an Event of Default under the Trust Agreement.
In addition, beneficial interests in a Global Capital Security may be exchanged
for certificated Exchange Capital Securities upon request but only upon at least
20 days prior written notice given to the Property Trustee by or on behalf of
DTC in accordance with customary procedures. In all cases, certificated Exchange
Capital Securities delivered in exchange for any Global Capital Security or
beneficial interests therein will be registered in the names, and issued in any
approved denominations, requested by or on behalf of the Depositary (in
accordance with its customary procedures).
Exchange of Certificated Capital Securities for Book-Entry Capital
Securities
Other Capital Securities, which will be issued in certificated form, may
not be exchanged for beneficial interests in any Global Capital Security unless
such exchange occurs in connection with a transfer of such other Capital
Securities and the transferor first delivers to the Property Trustee a written
certificate (in the
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form provided in the Trust Agreement) to the effect that such transfer will
comply with the appropriate transfer restrictions applicable to such Capital
Securities.
PAYMENT AND PAYING AGENCY
The clearing agency for the Exchange Capital Securities (the "Clearing
Agency") shall initially be DTC. Payments in respect of the Exchange Capital
Securities held in global form shall be made to the Clearing Agency, which shall
credit the relevant accounts at the Clearing Agency on the applicable
Distribution Dates or, in respect of the Exchange Capital Securities that are
not held by the Clearing Agency, such payments shall be made by check mailed to
the address of the holder entitled thereto as such address shall appear on the
register. The paying agent for the Exchange Capital Securities (the "Paying
Agent") shall initially be the Property Trustee. The Paying Agent shall be
permitted to resign as Paying Agent upon 30 days' written notice to the Property
Trustee and the Company. In the event that the Property Trustee shall no longer
be the Paying Agent, the Administrative Trustees shall appoint a successor
(which shall be a bank or trust company acceptable to the Administrative
Trustees) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Exchange Capital Securities.
Registration of transfers of the Exchange Capital Securities will be
effected without charge by or on behalf of the Trust, subject to payment of any
tax or other governmental charges that may be imposed in connection with any
transfer or exchange. The Trust will not be required to register or cause to be
registered the transfer of the Exchange Capital Securities after they have been
called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of
an Event of Default, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, after such Event of Default, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the Property
Trustee is under no obligation to exercise any of the powers vested in it by the
Trust Agreement at the request of any holder of Trust Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby. If no Event of Default has occurred and is continuing
and the Property Trustee is required to decide between alternative causes of
action, construe ambiguous provisions in the Trust Agreement or is unsure of the
application of any provision of the Trust Agreement, and the matter is not one
on which holders of the Capital Securities or the Common Securities are entitled
under the Trust Agreement to vote, then the Property Trustee shall take such
action as is directed by the Company and, if not so directed, shall take such
action as it deems advisable and in the best interests of the holders of the
Trust Securities and will have no liability except for its own bad faith,
negligence or willful misconduct.
The Property Trustee currently provides commercial banking and other
services to the Company.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Trust in such a way that the Trust (i) will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act, (ii) will continue to be classified for United States
federal income tax purposes as a grantor trust, and (iii) will cooperate with
the Company to ensure that the Junior Subordinated Debentures will be treated as
indebtedness of the Company for United States federal income tax purposes. In
this connection, the Administrative Trustees are authorized to take any action,
not inconsistent with applicable law, the certificate of trust of the Trust or
the Trust Agreement, that the Administrative Trustees determine in their
discretion to be necessary or desirable for such purposes, as long as such
action does not materially adversely affect the interests of the holders of the
Trust Securities.
Holders of the Trust Securities have no preemptive or similar rights.
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The Trust may not borrow money, issue debt, execute mortgages or pledge any
of its assets.
DESCRIPTION OF EXCHANGE JUNIOR SUBORDINATED DEBENTURES
The Old Junior Subordinated Debentures were issued and the Exchange Junior
Subordinated Debentures will be issued under the Indenture. The Indenture has
been qualified under the Trust Indenture Act. This summary of certain terms and
provisions of the Junior Subordinated Debentures and the Indenture does not
purport to be complete, and where reference is made to particular provisions of
the Indenture, such provisions, including the definitions of certain terms, some
of which are not otherwise defined herein, are qualified in their entirety by
reference to all of the provisions of the Indenture and those terms made a part
of the Indenture by the Trust Indenture Act.
GENERAL
Concurrently with the issuance of the Old Trust Securities, the Trust
invested the proceeds thereof, together with the consideration paid by the
Company for the Common Securities, in Junior Subordinated Debentures issued by
the Company. Pursuant to the Exchange Offer, the Company will exchange Exchange
Junior Subordinated Debentures, in an amount corresponding to the Old Capital
Securities accepted for exchange, for a like aggregate principal amount of the
Old Junior Subordinated Debentures as soon as practicable after the date hereof.
Interest on the Exchange Junior Subordinated Debentures will be cumulative,
and will accrue from January 31, 1997 (the date of original issuance of the Old
Junior Subordinated Debentures) or from the latest date to which interest
thereon has been duly paid or provided for at the annual rate of 8.82% of the
principal amount thereof, payable semi-annually in arrears on February 1 and
August 1 of each year (each, an "Interest Payment Date"), commencing August 1,
1997, to the person in whose name each Exchange Junior Subordinated Debenture is
registered, subject to certain exceptions, at the close of business on the
fifteenth day preceding the relevant payment date. It is anticipated that, until
the liquidation, if any, of the Trust, each Exchange Junior Subordinated
Debenture will be held in the name of the Property Trustee in trust for the
benefit of the holders of the Trust Securities. The amount of interest payable
for any period will be computed on the basis of a 360-day year of twelve 30-day
months and for any period less than 6 months, the actual months elapsed and the
actual days elapsed in a partial month in a period. In the event that any date
on which interest is payable on the Exchange Junior Subordinated Debentures is
not a Business Day, then payment of the interest payable on such date will be
made on the next succeeding day that is a Business Day (and without any interest
or other payment in respect of any such delay) with the same force and effect as
if made on the date such payment was originally payable. Accrued interest that
is not paid on the applicable Interest Payment Date will bear additional
interest on the amount thereof (to the extent permitted by law) at the rate per
annum of 8.82% thereof, compounded semiannually. The term "interest", as used
herein, shall include semi-annual interest payments, interest on semi-annual
interest payments not paid on the applicable Interest Payment Date and
Additional Sums (as defined below), as applicable.
The Exchange Junior Subordinated Debentures will be issued in denominations
of $1,000 and integral multiples thereof. The Exchange Junior Subordinated
Debentures will mature on February 1, 2037.
The Exchange Junior Subordinated Debentures will rank pari passu with Old
Junior Subordinated Debentures and with all Other Debentures and will be
unsecured and subordinate and junior in right of payment to the extent and in
the manner set forth in the Indenture to all Senior Indebtedness. See
"-- Subordination." Because the Company is a nonoperating holding company, the
right of the Company to participate in any distribution of assets of any
subsidiary upon such subsidiary's liquidation or reorganization or otherwise
(and thus the ability of holders of the Exchange Capital Securities to benefit
indirectly from such distribution), is subject to the prior claims of creditors
of that subsidiary, except to the extent that the Company may itself be
recognized as a creditor of that subsidiary. Accordingly, the Exchange Junior
Subordinated Debentures will be effectively subordinated to all existing and
future liabilities of the Company's subsidiaries, and holders of Exchange Junior
Subordinated Debentures should look only to the assets of the Company for
payments on the Exchange Junior Subordinated Debentures. In addition, since the
Company's operating subsidiary is a reinsurance company subject to regulatory
control by the Connecticut Insurance Department, the ability of such subsidiary
to pay dividends to the Company without prior regulatory approval
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is limited by applicable laws and regulations. The Indenture does not limit the
incurrence or issuance of other secured or unsecured debt of the Company,
including Senior Indebtedness. See "-- Subordination."
FORM, REGISTRATION AND TRANSFER
If the Exchange Junior Subordinated Debentures are distributed to the
holders of the Trust Securities, the Exchange Junior Subordinated Debentures may
be represented by one or more global certificates registered in the name of Cede
& Co. as the nominee of DTC. The depositary arrangements for such Exchange
Junior Subordinated Debentures are expected to be substantially similar to those
in effect for the Exchange Capital Securities. For a description of DTC and the
terms of the depositary arrangements relating to payments, transfers, voting
rights, redemptions and other notices and other matters, see "-- Description of
Exchange Capital Securities -- Form, Denomination, Book-Entry Procedures and
Transfer."
PAYMENT AND PAYING AGENTS
Payment of principal, interest or premium, if any, on Exchange Junior
Subordinated Debentures will be made at the office of the Debenture Trustee in
The City of New York or at the office of such Paying Agent or Paying Agents as
the Company may designate from time to time, except that at the option of the
Company payment of any interest may be made (i) by check mailed to the address
of the Person entitled thereto as such address shall appear in the register for
Exchange Junior Subordinated Debentures or (ii) by transfer to an account
maintained by the Person entitled thereto as specified in such register,
provided that proper transfer instructions have been received by the relevant
Record Date. Payment of any interest on any Exchange Junior Subordinated
Debenture will be made to the Person in whose name such Exchange Junior
Subordinated Debenture is registered at the close of business on the Record Date
for such interest, except in the case of defaulted interest. The Company may at
any time designate additional Paying Agents or rescind the designation of any
Paying Agent.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or
then held by the Company in trust, for the payment of the principal, interest or
premium, if any, on any Exchange Junior Subordinated Debenture and remaining
unclaimed for two years after such principal, interest or premium, if any, has
become due and payable shall, at the request of the Company, be repaid to the
Company and the holder of such Exchange Junior Subordinated Debenture shall
thereafter look, as a general unsecured creditor, only to the Company for
payment thereof.
OPTION TO EXTEND INTEREST PAYMENT DATE
So long as no Debenture Event of Default has occurred and is continuing,
the Company will have the right under the Indenture at any time during the term
of the Exchange Junior Subordinated Debentures to defer the payment of interest
at any time or from time to time for a period not exceeding 10 consecutive
semi-annual periods with respect to each Extension Period, provided that no
Extension Period may extend beyond the Stated Maturity. At the end of such
Extension Period, the Company must pay all interest then accrued and unpaid
(together with interest thereon at the annual rate of 8.82%, compounded
semi-annually, to the extent permitted by applicable law). During an Extension
Period, interest will continue to accrue and holders of Exchange Junior
Subordinated Debentures (and holders of Exchange Capital Securities while
Exchange Capital Securities are outstanding) will be required to include the
accruals of such interest in gross income for United States federal income tax
purposes (as original issue discount) prior to the receipt of cash attributable
to such interest. See "Certain Federal Income Tax Consequences -- Interest
Income and Original Issue Discount."
During any such Extension Period, the Company may not and may not permit
any subsidiary 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
Exchange Junior Subordinated Debentures or (iii) make any guarantee payments
with respect
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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 Exchange Junior Subordinated Debentures (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 redemption or repurchase of any such rights pursuant thereto, (c)
payments under the Guarantee, (d) as a direct result of, and only to the extent
necessary to avoid the issuance of fractional shares of the Company's capital
stock following, a reclassification of the Company's capital stock or the
exchange or conversion of one class or series of the Company's capital stock for
another class or series of the Company's capital stock, (e) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged and (f) purchases of common stock related to the issuance
of common stock or rights under any of the Company's benefit plans for its
directors, officers or employees or any of the Company's dividend reinvestment
plans). None of the Company's subsidiaries will be prohibited from declaring and
paying cash distributions with respect to its capital stock or from making
payments with respect to its debt securities.
Prior to the termination of any such Extension Period, and so long as no
Debenture Event of Default has occurred and is continuing, the Company may
further extend the Extension Period, provided that no Extension Period may
exceed 10 consecutive semi-annual periods or extend beyond the Stated Maturity.
Upon the termination of any such Extension Period and the payment of all amounts
then due on any Interest Payment Date, the Company may elect to begin a new
Extension Period, subject to the above requirements. No interest shall be due
and payable during an Extension Period, except at the end thereof. The Company
must give the Property Trustee, the Administrative Trustees and the Debenture
Trustee notice of its election of any Extension Period (or an extension thereof)
at least five Business Days prior to the earlier of (i) the date the
Distributions on the Trust Securities would have been payable except for the
election to begin or extend such Extension Period or (ii) the date the
Administrative Trustees are required to give notice to any securities exchange
or to holders of Capital Securities of the record date or the date such
Distributions are payable, but in any event not less than five Business Days
prior to such record date. The Property Trustee shall give notice of the
Company's election to begin or extend a new Extension Period to the holders of
the Capital Securities. There is no limitation on the number of times that the
Company may elect to begin an Extension Period.
OPTIONAL PREPAYMENT
The Exchange Junior Subordinated Debentures will be prepayable, in whole or
in part, at the option of the Company on or after February 1, 2007, at a
prepayment price (the "Optional Prepayment Price") equal to the outstanding
principal amount of the Exchange Junior Subordinated Debentures to be prepaid,
plus accrued and unpaid interest thereon to the date of prepayment and any
Additional Sums (as defined in "-- Conditional Right to Shorten Maturity and
Special Event Prepayment").
CONDITIONAL RIGHT TO SHORTEN MATURITY AND SPECIAL EVENT PREPAYMENT
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
Junior Subordinated Debentures to the minimum extent required, but not less than
20 years from the date of original issuance thereof, such that in the written
opinion of counsel experienced in such matters delivered to the Company, after
shortening the maturity, interest paid on the Junior Subordinated Debentures
will be deductible for federal income tax purposes or (ii) to prepay the Junior
Subordinated Debentures as described below.
If a Special Event (as defined below) shall occur and be continuing, the
Company may, at its option, prepay the Junior Subordinated Debentures in whole
(but not in part) at any time within 90 days of the occurrence of such Special
Event, at a prepayment price (the "Special Event Prepayment Price") equal to the
greater of (i) 100% of the principal amount of such Junior Subordinated
Debentures 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 date on which the Junior Subordinated Debentures are
subject to optional prepayment, in each case discounted to the prepayment date
on a semiannual basis (assuming a
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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 to the date of prepayment and any Additional Sums (as
defined herein).
A "Special Event" means a Conditional Tax Redemption Event (as defined
under "-- Description of Exchange Capital Securities -- Conditional Right to
Shorten Maturity and Special Event Redemption") or an Investment Company Event,
as the case may be.
"Adjusted Treasury Rate" means, with respect to any prepayment date, the
rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such prepayment date plus (i) 1.25% if such prepayment date
occurs on or prior to February 1, 1998 and (ii) 0.50% in all other cases.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the remaining
term to the Stated Maturity of the Junior Subordinated Debentures to be prepaid
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 term of the Junior Subordinated
Debentures.
"Quotation Agent" means: (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; and (ii) any
other Primary Treasury Dealer selected by the Debenture Trustee after
consultation with the Company.
"Comparable Treasury Price" means, with respect to any prepayment date, (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 Debenture Trustee obtains fewer than three such Reference Treasury
Dealer Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Quotation Agent and any prepayment date, the average, as determined by the
Debenture Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted to the
Debenture Trustee by such Quotation Agent at 5:00 p.m., New York City time, on
the third Business Day preceding such prepayment date.
"Additional Sums" as hereinafter used means the additional amounts as may
be necessary in order that the amount of Distributions then due and payable by
the Trust on the outstanding Capital Securities and Common Securities shall not
be reduced as a result of any additional taxes, duties and other governmental
charges to which the Trust has become subject as a result of a Tax Event.
Notice of any prepayment will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Exchange Junior
Subordinated Debentures to be prepaid at its registered address. Unless the
Company defaults in payment of the prepayment price, on and after the prepayment
date, interest ceases to accrue on such Exchange Junior Subordinated Debentures
called for prepayment.
If the Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, the Company will pay as
additional amounts on the Exchange Junior Subordinated Debentures the Additional
Sums.
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RESTRICTIONS ON CERTAIN PAYMENTS; COVENANTS AS TO THE TRUST
The Company will covenant that if, at any time, (1) there shall have
occurred any event of which the Company has actual knowledge that (x) is, or
with the giving of notice or the lapse of time, or both, would be, a Debenture
Event of Default and (y) in respect of which the Company shall not have taken
reasonable steps to cure, (2) the Company shall be in default with respect to
its payment of any obligations under the Guarantee and the Junior Subordinated
Debentures are held by the Trust or (3) the Company shall have given notice of
its election of an Extension Period as provided in the Indenture and shall not
have rescinded such notice, and such Extension Period, or any extension thereof,
shall have commenced, 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 redeem any debt securities of the Company (including Other Debentures) that
rank pari passu with or junior in right of payment to the Exchange Junior
Subordinated Debentures 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 under Other Guarantees) if such guarantee ranks pari passu with or
junior in right of payment to the Junior Subordinated Debentures (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's rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (c)
payments under the 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).
The Company's covenants will not prevent its subsidiaries from declaring
and paying cash distributions with respect to capital stock of the subsidiaries
or from making payments with respect to debt securities of the subsidiaries.
The Company has covenanted in the Indenture that, for so long as the
Exchange Junior Subordinated Debentures are issued to the Trust or a trustee of
the Trust, the Company will (i) directly or indirectly maintain ownership of all
of the outstanding Common Securities of the Trust, provided that certain
successors which are permitted pursuant to the Indenture may succeed to the
Company's ownership of the Common Securities, and (ii) to use its reasonable
efforts to cause the Trust (a) to remain a business trust, except in connection
with a distribution of Capital Securities, the redemption of all of the Trust
Securities or certain mergers, consolidations or amalgamations each as permitted
by the Trust Agreement, and (b) consistent with the terms and provisions of the
Trust Agreement, to continue to be classified as a grantor trust and not as an
association taxable as a Company for United States federal income tax purposes
and (iii) use its reasonable efforts to cause each holder to be treated as
owning an individual beneficial interest in the Capital Securities.
MODIFICATION OF INDENTURE
From time to time the Company and the Debenture Trustee may, without the
consent of the holders of Junior Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies (provided that any such action
does not materially adversely affect the interest of the holders of the Junior
Subordinated Debentures) and qualifying, or maintaining the qualification of,
the Indenture under the Trust Indenture Act. The Indenture contains provisions
permitting the Company and the Debenture Trustee, with the consent of the
holders of a majority in principal amount of Junior Subordinated Debentures, to
modify the Indenture in a manner affecting the rights of the holders of Junior
Subordinated Debentures; provided, that no such modification may, without the
consent of the holders of each outstanding Junior Subordinated Debenture so
affected, (i) change the Stated
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Maturity, or reduce the principal amount of the Junior Subordinated Debentures,
or reduce the rate or extend the time of payment of interest thereon or (ii)
reduce the percentage of principal amount of Junior Subordinated Debentures, the
holders of which are required to consent to any such modification of the
Indenture.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Junior Subordinated Debentures constitutes a
"Debenture Event of Default" (whatever the reason for such Debenture Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body): (i)
failure for 30 days to pay any interest on the Exchange Junior Subordinated
Debentures or any Other Debentures, when due (subject to the deferral of any due
date in the case of an Extension Period); or (ii) failure to pay any principal
of or premium, if any, on the Exchange Junior Subordinated Debentures or any
Other Debentures when due whether at maturity, upon redemption, by declaration
of acceleration of maturity or otherwise; or (iii) failure to observe or perform
in any material respect certain other covenants contained in the Indenture for
90 days after written notice to the Company from the Debenture Trustee or the
holders of at least 25% in aggregate outstanding principal amount of the Junior
Subordinated Debentures; or (iv) certain events in bankruptcy, insolvency or
reorganization of the Company.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Debenture
Trustee. The Debenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Junior Subordinated Debentures may declare
the principal due and payable immediately upon a Debenture Event of Default
(other than an Event of Default resulting from bankruptcy, insolvency or a
reorganization involving the Company). If an Event of Default results from
bankruptcy, insolvency or a reorganization involving the Company, the Debentures
shall become due and payable without any further action or notice. The holders
of a majority in aggregate outstanding principal amount of the Junior
Subordinated Debentures may annul such declaration and waive the default if the
default (other than the nonpayment of the principal of the Junior Subordinated
Debentures which has become due solely by such acceleration) has been cured and
a sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures affected thereby may, on behalf of the holders of
all the Junior Subordinated Debentures, waive any past default, except a default
in the payment of principal, interest or premium, if any, (unless such default
has been cured and a sum sufficient to pay all matured installments of interest,
premium, if any, and principal due otherwise than by acceleration has been
deposited with the Debenture Trustee) or a default in respect of a covenant or
provision which under the Indenture cannot be modified or amended without the
consent of the holder of each outstanding Junior Subordinated Debenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF EXCHANGE CAPITAL SECURITIES
If a Debenture Event of Default shall have occurred and be continuing and
shall be attributable to the failure of the Company to pay principal of or
premium, if any, or interest on the Junior Subordinated Debentures on the due
date, a holder of Capital Securities may institute a Direct Action. The Company
may not amend the Indenture to remove the foregoing right to bring a Direct
Action without the prior written consent of the holders of all of the Capital
Securities. If the right to bring a Direct Action is removed following the
Exchange Offer, the Trust may become subject to the reporting obligations under
the Exchange Act. Notwithstanding any payments made to a holder of Exchange
Capital Securities by the Company in connection with a Direct Action, the
Company shall remain obligated to pay the principal of or premium, if any, or
interest on the Exchange Junior Subordinated Debentures, and the Company shall
be subrogated to the rights of the holder of such Capital Securities with
respect to payments on the Exchange Capital Securities to the extent of any
payments made by the Company to such holder in any Direct Action.
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The holders of the Exchange Capital Securities will not be able to exercise
directly any remedies, other than those set forth in the preceding paragraph,
available to the holders of the Exchange Junior Subordinated Debentures unless
there shall have been an Event of Default under the Trust Agreement. See
"-- Description of Exchange Capital Securities -- Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Company shall not consolidate with or merge
into any other Person or sell, convey, transfer or lease its properties as an
entirety, or substantially as an entirety, to any Person, (whether or not
affiliated with the Company) unless: (i) the Company is the surviving Person or
the Person formed by or surviving such consolidation or merger 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 or the
District of Columbia, and such successor Person expressly assumes the Company's
obligations on the Junior Subordinated Debentures; (ii) immediately after giving
effect to such consolidation, merger, sale, conveyance, transfer or lease, no
Debenture Event of Default, and no event which, after notice or lapse of time or
both, would become a Debenture Event of Default, shall have occurred and be
continuing; and (iii) certain other conditions as prescribed in the Indenture
are met.
The general provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Company that may adversely affect holders of the
Exchange Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Exchange Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and payable
at maturity within one year or are to be called for prepayment within one year,
and the Company deposits or causes to be deposited with the Debenture Trustee
funds, in trust, for the purpose and in an amount sufficient to pay and
discharge the entire indebtedness on the Exchange Junior Subordinated Debentures
not previously delivered to the Debenture Trustee for cancellation, for the
principal and premium, if any, and interest to the date of the deposit or to the
Stated Maturity, as the case may be, then the Indenture will cease to be of
further effect (except as to the Company's obligations to pay all other sums due
pursuant to the Indenture and to provide the officers' certificates and opinions
of counsel described therein), and the Company will be deemed to have satisfied
and discharged the Indenture.
SUBORDINATION
In the Indenture, the Company has covenanted and agreed that any Exchange
Junior Subordinated Debentures issued thereunder will be subordinate and junior
in right of payment to all Senior Indebtedness to the extent provided in the
Indenture. Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the benefit
of creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Company, the holders of Senior Indebtedness will
first be entitled to receive payment in full before the holders of Junior
Subordinated Debentures will be entitled to receive or retain any payment in
respect thereof.
In the event of the acceleration of the maturity of the Junior Subordinated
Debentures, the holders of all Senior Indebtedness outstanding at the time of
such acceleration will first be entitled to receive payment in full before the
holders of Junior Subordinated Debentures will be entitled to receive or retain
any payment in respect of the Junior Subordinated Debentures.
No payments on account of principal or premium, if any, or interest in
respect of the Junior Subordinated Debentures may be made if there shall have
occurred and be continuing a default in any payment with respect to Senior
Indebtedness, or an event of default with respect to any Senior Indebtedness
resulting in the acceleration of the maturity thereof, or if any judicial
proceeding shall be pending with respect to any such default.
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"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 Trenwick Capital Trust or a trustee of such trust and (b) any other trust,
or a trustee of such trust, 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.
"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.
By reason of such subordination, in the event of an insolvency, creditors
of the Company who are holders of Senior Indebtedness, as well as certain
general creditors of the Company, may recover more, ratably, than the holders of
the Junior Subordinated Debentures. Additionally, the Company currently conducts
substantially all of its operations through a subsidiary, and the holders of
Junior Subordinated Debentures will be structurally subordinated to the
creditors of such subsidiary. The Company relies primarily on dividends from
such subsidiary to meet its obligations for payment of its corporate expenses
and principal and interest on its outstanding debt obligations. See "Risk
Factors -- Ranking of Subordinated Obligations under the Guarantee and the
Junior Subordinated Debentures."
The Indenture places no limitation on the amount of additional Senior
Indebtedness that may be incurred by the Company. The Company expects from time
to time to incur additional indebtedness constituting Senior Indebtedness.
GOVERNING LAW
The Indenture and the Exchange Junior Subordinated Debentures will 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.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
Following the Exchange Offer and the qualification of the Indenture under
the Trust Indenture Act, the Debenture Trustee shall have and be subject to all
the duties and responsibilities specified with respect to an indenture trustee
under the Trust Indenture Act. Subject to such provisions, the Debenture Trustee
is under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Exchange Junior Subordinated
Debentures, unless offered reasonable indemnity by such holder against the
costs, expenses and liabilities which might be incurred thereby. The Debenture
Trustee is not required to
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expend or risk its own funds or otherwise incur personal financial liability in
the performance of its duties if the Debenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
The Debenture Trustee currently provides commercial banking and other
services to the Company.
DESCRIPTION OF EXCHANGE GUARANTEE
The Old Guarantee was executed and delivered by the Company concurrently
with the issuance by the Trust of the Old Capital Securities for the benefit of
the holders from time to time of the Old Capital Securities. Upon consummation
of the Exchange Offer, the Old Guarantee will be exchanged by the Company for
the Exchange Guarantee for the benefit of the holders from time to time of the
Exchange Capital Securities. To the extent that Old Capital Securities are not
tendered and accepted pursuant to the Exchange Offer for Exchange Capital
Securities, the Company will continue to provide the holders of Old Capital
Securities with the guarantees set forth under the Old Guarantee. The Chase
Manhattan Bank will act as trustee ("Guarantee Trustee") under the Exchange
Guarantee. The Exchange Guarantee has been qualified under the Trust Indenture
Act. This summary description of all the material provisions of the Exchange
Guarantee does not purport to be complete and is subject to, and qualified in
its entirety by reference to, all of the provisions of the Exchange Guarantee,
including the definitions therein of certain terms, and the Trust Indenture Act.
The Guarantee Trustee will hold the Exchange Guarantee for the benefit of the
holders of the Exchange Capital Securities.
GENERAL
The Company will fully, irrevocably and unconditionally agree to pay in
full on a subordinated basis, to the extent set forth herein, the Guarantee
Payments (as defined below) to the holders of the Exchange Capital Securities,
as and when due, regardless of any defense, right of set-off or counterclaim
that the Trust may have or assert other than the defense of payment. The
following payments with respect to the Exchange Capital Securities, to the
extent not paid by or on behalf of the Trust (the "Guarantee Payments"), will be
subject to the Exchange Guarantee: (i) any accumulated and unpaid Distributions
required to be paid on Exchange Capital Securities, to the extent that the Trust
has funds on hand legally available therefor at such time, (ii) the applicable
Redemption Price with respect to Exchange Capital Securities called for
redemption, to the extent that the Trust has funds on hand legally available
therefor at such time, or (iii) upon a voluntary or involuntary termination and
liquidation of the Trust (other than in connection with the distribution of
Exchange Junior Subordinated Debentures to the holders of the Exchange Capital
Securities in exchange for Exchange Capital Securities as provided in the Trust
Agreement), the lesser of (a) the Liquidation Distribution and (b) the amount of
assets of the Trust remaining available for distribution to holders of Exchange
Capital Securities to the extent the Trust has funds on hand legally available
therefor at such time. The Company's obligation to make a Guarantee Payment may
be satisfied by direct payment of the required amounts by the Company to the
holders of the Exchange Capital Securities or by causing the Trust to pay such
amounts to such holders.
Because the Company is a holding company, the right of the Company to
participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise, is subject to the prior
claims of creditors of that subsidiary, except to the extent the Company may
itself be recognized as a creditor of that subsidiary. Accordingly, the
Company's obligations under the Exchange Guarantee will be effectively
subordinated to all existing and future liabilities of the Company's
subsidiaries, and claimants should look only to the assets of the Company for
payments thereunder. See "-- Description of Exchange Junior Subordinated
Debentures -- General." The Exchange Guarantee does not limit the incurrence or
issuance of other secured or unsecured debt of the Company, including Senior
Indebtedness, whether under the Indenture, any other indenture that the Company
has entered into or may enter into in the future or otherwise.
The Company will, through the Exchange Guarantee, the Trust Agreement, the
Exchange Junior Subordinated Debentures and the Indenture, taken together,
fully, irrevocably and unconditionally guarantee all of the Trust's obligations
under the Exchange Capital Securities. No single document standing alone or
operating in conjunction with fewer than all of the other documents constitutes
such guarantee. It is only the
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combined operation of these documents that has the effect of providing a full,
irrevocable and unconditional guarantee of the Trust's obligations under the
Exchange Capital Securities. See "Relationship Among the Exchange Capital
Securities, the Exchange Junior Subordinated Debentures and the Exchange
Guarantee."
STATUS OF EXCHANGE GUARANTEE
The Exchange Guarantee will constitute an unsecured obligation of the
Company. The Exchange Guarantee and the Common Guarantee will be (i) subordinate
and junior in right of payment to all other liabilities of the Company; (ii)
pari passu with (A) the most senior preferred or preference stock now or
hereafter issued by the Company, and (B) any guarantee now or hereafter entered
into by the Company, in respect of any capital securities or common securities
of any Other Trusts; and (iii) senior to the Company's common stock.
The Exchange Guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The Exchange
Guarantee will be held for the benefit of the holders of the Capital Securities.
The Exchange Guarantee will not be discharged except by payment of the Guarantee
Payments in full to the extent not paid by the Trust or upon distribution to the
holders of the Exchange Capital Securities of the Exchange Junior Subordinated
Debentures. The Exchange Guarantee does not place a limitation on the amount of
additional Senior Indebtedness that may be incurred by the Company. The Company
expects from time to time to incur additional indebtedness constituting Senior
Indebtedness.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of the Exchange Capital Securities (in which case no
consent of holders will be required), the Exchange Guarantee may not be amended
without the prior approval of the holders of a majority of the Liquidation
Amount of such outstanding Exchange Capital Securities. The manner of obtaining
any such approval will be as set forth under "-- Description of the Exchange
Capital Securities -- Voting Rights; Amendment of the Trust Agreement." All
guarantees and agreements contained in the Exchange Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of the Company and
shall inure to the benefit of the holders of the Exchange Capital Securities
then outstanding.
EVENTS OF DEFAULT
An event of default under the Exchange Guarantee will occur upon the
failure of the Company to perform any of its payment or other obligations
thereunder. The holders of a majority in Liquidation Amount of the Exchange
Capital Securities will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Exchange Guarantee or to direct the exercise of any trust or
power conferred upon the Guarantee Trustee under the Exchange Guarantee.
Any holder of the Exchange Capital Securities may institute a legal
proceeding directly against the Company to enforce its rights under the Exchange
Guarantee without first instituting a legal proceeding against the Trust, the
Guarantee Trustee or any other person or entity.
The Company, as guarantor, will be required to file annually with the
Guarantee Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Exchange Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the continuance of a default by
the Company in performance of the Exchange Guarantee, will undertake to perform
only such duties as are specifically set forth in the Exchange Guarantee and,
during the continuance of such a default, must exercise the same degree of care
and skill as a prudent person would exercise or use in the conduct of his or her
own affairs. Subject to this provision, the Guarantee Trustee will be under no
obligation to exercise any of the powers vested in it by the Exchange Guarantee
at the request of any holder of the Exchange Capital Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
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The Guarantee Trustee currently provides commercial banking and other
services to the Company.
TERMINATION OF THE EXCHANGE GUARANTEE
The Exchange Guarantee will terminate and be of no further force and effect
upon full payment of the applicable Redemption Price of the Exchange Capital
Securities, upon full payment of the Liquidation Amount payable upon liquidation
of the Trust or upon distribution of Exchange Junior Subordinated Debentures to
the holders of the Capital Securities. The Exchange Guarantee will continue to
be effective or will be reinstated, as the case may be, if at any time any
holder of the Exchange Capital Securities must restore payment of any sums paid
under the Exchange Capital Securities or the Exchange Guarantee.
GOVERNING LAW
The Exchange Guarantee will 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.
DESCRIPTION OF OLD SECURITIES
The information contained in this section is relevant to holders of Old
Securities whose Old Securities are not to be tendered and accepted for exchange
by the Expiration Date of the Exchange Offer. See "Risk Factors -- Consequences
of a Failure to Exchange Old Capital Securities."
The terms of the Old Securities are identical in all material respects to
the Exchange Securities, except that (i) the Old Securities have not been
registered under the Securities Act, are subject to certain restrictions on
transfer and are entitled to certain rights under the Registration Rights
Agreement (which rights will terminate upon consummation of the Exchange Offer,
except under limited circumstances), (ii) the Old Securities contain a $100,000
minimum Liquidation Amount transfer restriction and certain other restrictions
on transfer applicable to Old Capital Securities, (iii) the Old Capital
Securities provide for additional Distributions which will terminate as set
forth below, (iv) the Old Junior Subordinated Debentures contain a $100,000
minimum principal amount transfer restriction and (v) the Old Junior
Subordinated Debentures provide for additional interest which will terminate as
set forth below. The Registration Rights Agreement provides that, if an Exchange
Offer Registration Statement or a Shelf Registration Statement (if required to
be filed) is not declared effective by the Commission on or prior to July 25,
1997, Additional Interest shall accrue on the principal amount of the Junior
Subordinated Debentures affected thereby, and Additional Distributions will
accumulate on the Liquidation Amount of the Trust Securities affected thereby
commencing July 28, 1997, at the rate of 0.25% per annum of the Liquidation
Amount of the Old Capital Securities, for the period from the occurrence of such
event until such time the Exchange Offer Registration Statement or any required
Shelf Registration Statement is declared effective. In addition, if the Exchange
Offer is not consummated on or prior to the 30th day after the date on which the
Exchange Offer Registration Statement is declared effective, Additional Interest
shall accrue on the principal amount of the Junior Subordinated Debentures
affected thereby and Additional Distributions will accumulate on the Liquidation
Amount of the Trust Securities affected thereby, until the Exchange Offer is
consummated. Upon the completion of the Exchange Offer, the Company and the
Trust will have satisfied their obligations under the Registration Rights
Agreement and the Old Securities will not be entitled to any such additional
interest or Distributions. Accordingly, holders of Old Capital Securities should
review the information set forth under "Risk Factors -- Consequences of a
Failure to Exchange Old Capital Securities" and "Description of Exchange
Securities."
RELATIONSHIP AMONG THE EXCHANGE CAPITAL SECURITIES, THE
EXCHANGE JUNIOR SUBORDINATED DEBENTURES AND THE EXCHANGE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Exchange Capital
Securities (to the extent the Trust has funds on hand legally available for the
payment of such Distributions) will be irrevocably guaranteed by the Company as
and to the extent set forth under "Description of Exchange
Securities -- Description of Exchange Guarantee." Taken together, the Company's
obligations under the Exchange Junior Subordinated Debentures, the Indenture,
the Trust Agreement and the Exchange Guarantee will provide, in the aggregate, a
full, irrevocable and unconditional guarantee of payments of Distributions and
other amounts due on the
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Exchange Capital Securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Trust's obligations under the Exchange Capital Securities. If and to the extent
that the Company does not make the required payments on the Exchange Junior
Subordinated Debentures, the Trust will not have sufficient funds to make the
related payments, including Distributions, on the Exchange Capital Securities.
The Exchange Guarantee will not cover any such payment when the Trust does not
have sufficient funds on hand legally available therefor. In such event, the
remedy of a holder of Exchange Capital Securities is to institute a Direct
Action. The obligations of the Company under the Exchange Guarantee will be
subordinate and junior in right of payment to all Senior Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Exchange Junior Subordinated Debentures, such payments will be sufficient to
cover Distributions and other payments due on the Exchange Capital Securities,
primarily because: (i) the aggregate principal amount or Prepayment Price of the
Exchange Junior Subordinated Debentures will be equal to the sum of the
Liquidation Amount or Redemption Price, as applicable, of the Exchange Capital
Securities and Common Securities; (ii) the interest rate and interest and other
payment dates on the Exchange Junior Subordinated Debentures will match the
Distribution rate and Distribution and other payment dates for the Trust
Securities; (iii) the Company shall pay for all and any costs, expenses and
liabilities of the Trust except the Trust's obligations to holders of Trust
Securities under such Trust Securities; and (iv) the Trust Agreement provides
that the Trust is not authorized to engage in any activity that is not
consistent with the limited purposes thereof.
ENFORCEMENT RIGHTS OF HOLDERS OF EXCHANGE CAPITAL SECURITIES
A holder of any Exchange Capital Security may institute a legal proceeding
directly against the Company to enforce its rights under the Exchange Guarantee
without first instituting a legal proceeding against the Guarantee Trustee, the
Trust or any other person or entity. A default or event of default under any
Senior Indebtedness would not constitute a default or Event of Default under the
Trust Agreement. However, in the event of payment defaults under, or
acceleration of, Senior Indebtedness, the subordination provisions of the
Indenture provide that no payments may be made in respect of the Exchange Junior
Subordinated Debentures until such Senior Indebtedness has been paid in full or
any payment default thereunder has been cured or waived. Failure to make
required payments on Exchange Junior Subordinated Debentures would constitute an
Event of Default under the Trust Agreement.
LIMITED PURPOSE OF THE TRUST
The Exchange Capital Securities will represent preferred beneficial
interests in the Trust. The Trust exists for the exclusive purposes of (i)
issuing and selling the Trust Securities, (ii) effecting the Exchange Offer or
filing a Shelf Registration Statement, (iii) using the proceeds from the sale of
Trust Securities to acquire the Junior Subordinated Debentures, (iv) making
Distributions to holders of the Trust Securities as provided in the Trust
Agreement and (v) engaging in only those other activities necessary, advisable
or incidental thereto (such as registering the transfer of the Trust
Securities). A principal difference between the rights of a holder of an
Exchange Capital Security and a holder of Exchange Junior Subordinated Debenture
is that a holder of a Exchange Junior Subordinated Debenture will be entitled to
receive from the Company the principal amount of (and premium, if any) and
interest on Exchange Junior Subordinated Debentures held, while a holder of
Exchange Capital Securities is entitled to receive Distributions from the Trust
(or, in certain circumstances, from the Company under the Exchange Guarantee) if
and to the extent the Trust has funds on hand legally available for the payment
of such Distributions.
RIGHTS UPON DISSOLUTION
Unless the Exchange Junior Subordinated Debentures are distributed to
holders of the Trust Securities, upon any voluntary or involuntary termination
and liquidation of the Trust, the holders of the Trust Securities will be
entitled to receive, out of assets held by the Trust, the Liquidation
Distribution in cash. See
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"Description of Exchange Securities -- Description of Exchange Capital
Securities -- Liquidation of the Trust and Distribution of Exchange Junior
Subordinated Debentures." Upon any voluntary or involuntary liquidation or
bankruptcy of the Company, the Property Trustee, as holder of the Exchange
Junior Subordinated Debentures, would be a subordinated creditor of the Company,
subordinated in right of payment to all Senior Indebtedness as set forth in the
Indenture, but entitled to receive payment in full of principal (and premium, if
any) and interest, before any stockholders of the Company receive payments or
distributions. Since the Company will be the guarantor under the Exchange
Guarantee and will agree to pay for all costs, expenses and liabilities of the
Trust (other than the Trust's obligations to the holders of its Trust
Securities), the positions of a holder of Exchange Capital Securities and a
holder of Exchange Junior Subordinated Debentures relative to stockholders of
the Company in the event of liquidation or bankruptcy of the Company are
expected to be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
In the opinion of Baker & McKenzie, tax counsel to the Company and the
Trust ("Tax Counsel"), the following is a summary of the material United States
federal income tax consequences of the exchange of Old Securities for Exchange
Securities, and the purchase, ownership and disposition of Exchange Capital
Securities held as capital assets by a holder. This summary does not deal with
special classes of holders such as banks, thrifts, real estate investment
trusts, regulated investment companies, insurance companies, dealers in
securities or currencies, tax-exempt investors, or persons that hold or will
hold the Capital Securities as a position in a "straddle," as part of a
"synthetic security" or "hedge," as part of a "conversion transaction" or other
integrated investment, or as other than a capital asset. This summary also does
not address the tax consequences to persons that have a functional currency
other than the U.S. dollar or the tax consequences to shareholders, partners or
beneficiaries of a holder of Capital Securities. Further, it does not include
any description of any alternative minimum tax consequences or the tax laws of
any state or local government or of any foreign government that may be
applicable to the Capital Securities. This summary is based on the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury regulations thereunder,
the administrative and judicial interpretations thereof, as of the date hereof,
all of which are subject to change, possibly on a retroactive basis. An opinion
of Tax Counsel is not binding on the Internal Revenue Service (the "IRS") or the
courts. Prospective investors should note that no rulings have been or are
expected to be sought from the IRS and no assurance can be given that the IRS
will not take contrary positions. Moreover, no assurance can be given that any
of the opinions expressed herein will not be challenged by the IRS or, if
challenged, that such a challenge would not be successful.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Old Capital Securities, Tax Counsel
rendered its opinion that, under then current law and assuming full compliance
with the terms of the Trust Agreement and the Indenture (and certain other
documents), and based on certain facts and assumptions contained in such
opinion, the Trust will be classified for United States federal income tax
purposes as a grantor trust and not as an association taxable as a corporation.
Accordingly, for United States federal income tax purposes, each holder of
Capital Securities generally will be considered the owner of an undivided
interest in the Junior Subordinated Debentures, and each holder will be required
to include in its gross income any interest (or accrued original issue discount
("OID")) with respect to its allocable share of those Junior Subordinated
Debentures.
EXCHANGE OF CAPITAL SECURITIES
The exchange of Old Capital Securities for Exchange Capital Securities
should not be a taxable event to holders for United States federal income tax
purposes because (a) the Exchange Capital Securities and Exchange Junior
Subordinated Debentures should not be considered to differ materially in kind or
extent from the Old Capital Securities and Old Junior Subordinated Debentures
and (b) the exchange will occur by
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operation of the terms of the Old Capital Securities and Old Junior Subordinated
Debentures. If, however, the exchange of the Old Capital Securities for the
Exchange Capital Securities were treated as an exchange for federal income tax
purposes, such exchange should constitute a tax-free recapitalization for United
States federal income tax purposes. Accordingly, the Exchange Capital Securities
and Exchange Junior Subordinated Debentures should have the same issue price as
the Old Capital Securities and Old Junior Subordinated Debentures, and a holder
should have the same adjusted tax basis and holding period in the Exchange
Capital Securities and Exchange Junior Subordinated Debentures as the holder had
in the Old Capital Securities and Old Junior Subordinated Debentures immediately
before the exchange.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
In connection with the issuance of the Old Junior Subordinated Debentures,
Tax Counsel rendered its opinion generally to the effect that, under then
current law and assuming full compliance with the terms of the Indenture (and
certain other documents), and based on certain facts and assumptions contained
in such opinion, the Old Junior Subordinated Debentures will be classified for
United States federal income tax purposes as indebtedness of the Company.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under recently issued Treasury regulations (the "Regulations") applicable
to debt instruments issued on or after August 13, 1996, a "remote" contingency
that stated interest will not be timely paid will be ignored in determining
whether a debt instrument is issued with OID. The Company believes that the
likelihood of its exercising its option to defer payments of interest is
"remote" since exercising that option would prevent the Company from declaring
dividends on any class of its equity securities. Accordingly, the Company
intends to take the position that the Junior Subordinated Debentures will not be
considered to have been issued with OID and, accordingly, stated interest on the
Junior Subordinated Debentures generally will be taxable to a holder as ordinary
income at the time it is paid or accrued in accordance with such holder's method
of accounting.
Under the Regulations, if the Company were to exercise its option to defer
payments of interest, the Junior Subordinated Debentures would at that time be
treated as reissued with OID, and all stated interest on the Junior Subordinated
Debentures would thereafter be treated as OID as long as the Junior Subordinated
Debentures remain outstanding. In such event, all of a holder's taxable interest
income with respect to the Junior Subordinated Debentures would thereafter be
accounted for on an economic accrual basis regardless of such holder's method of
tax accounting, and actual distributions of stated interest would not be
reported as taxable income. Consequently, a holder of Capital Securities would
be required to include in gross income OID even though the Company would not
make actual cash payments during an Extension Period. Moreover, under the
Regulations, if the option to defer the payment of interest was determined not
to be "remote", the Junior Subordinated Debentures would be treated as having
been originally issued with OID. In such event, all of a holder's taxable
interest income with respect to the Junior Subordinated Debentures would be
accounted for on an economic accrual basis regardless of such holder's method of
tax accounting, and actual distributions of stated interest would not be
reported as taxable income.
The Regulations have not yet been addressed in any rulings or other
interpretations by the IRS, and it is possible that the IRS could take a
position contrary to the interpretation herein.
Because income on the Capital Securities will constitute interest or OID,
corporate holders of the Capital Securities will not be entitled to a
dividends-received deduction with respect to any income recognized with respect
to the Capital Securities.
MARKET DISCOUNT AND BOND PREMIUM
If a holder has acquired a Capital Security, other than upon original
issue, for an amount less than its issue price, the Capital Security may be
considered a "market discount bond." If a Capital Security is a market discount
bond, a portion of the gain on the sale or redemption of the Capital Security
(see "-- Sales of Capital Securities") equal to the amount of the market
discount accrued with respect to the Capital Security
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while it was held by the holder will be treated as interest income. In addition,
interest on indebtedness incurred to purchase or carry the Capital Security that
is a market discount bond, to the extent that it exceeds in any year the
interest on the Capital Security to be included in the holder's income for that
year, may not be fully deductible in that year. The foregoing market discount
rules will not apply if the holder elects to include in income in each taxable
year the portion of the market discount attributable to that year (accrued on
either a straight line or constant interest rate basis) with respect to all
market discount bonds acquired during or after the taxable year in which such
election is made. This election may be revoked only with the consent of the IRS.
If a holder has acquired a Capital Security, other than upon original
issue, for an amount more than its stated redemption price at maturity, such
holder may elect to amortize such bond premium on a yield to maturity basis.
This election results in a deemed election to apply the same accrual principles
to all of the holder's debt instruments with amortizable bond premium. This
election may be revoked only with the consent of the IRS.
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
The Company will have the right at any time to liquidate the Trust and
cause the Junior Subordinated Debentures to be distributed to the holders of the
Trust Securities. Under current law, such a distribution, for United States
federal income tax purposes, would be treated as a nontaxable event to each
holder, and each holder would receive an aggregate tax basis in the Junior
Subordinated Debentures equal to such holder's aggregate tax basis in its
Capital Securities. A holder's holding period in the Junior Subordinated
Debentures so received in liquidation of the Trust would include the period
during which the Capital Securities were held by such holder. If, however, the
Trust is characterized for United States federal income tax purposes as an
association taxable as a corporation at the time of its dissolution, the
distribution of the Junior Subordinated Debentures may constitute a taxable
event to holders of Capital Securities and a holder's holding period in Junior
Subordinated Debentures would begin on the date such Junior Subordinated
Debentures were received.
Under certain circumstances described herein (see "Description of Exchange
Securities -- Description of Exchange Capital Securities"), the Junior
Subordinated Debentures may be redeemed for cash and the proceeds of such
redemption distributed to holders in redemption of their Capital Securities.
Under current law, such a redemption would, for United States federal income tax
purposes, constitute a taxable disposition of the redeemed Capital Securities,
and a holder could recognize gain or loss as if it sold such redeemed Capital
Securities for cash. See "-- Sales of Capital Securities."
SALES OF CAPITAL SECURITIES
A holder that sells Capital Securities will recognize gain or loss equal to
the difference between its adjusted tax basis in the Capital Securities and the
amount realized on the sale of such Capital Securities (other than with respect
to accrued and unpaid interest which has not yet been included in income, which
will be treated as ordinary income). A holder's adjusted tax basis in the
Capital Securities generally will be its initial purchase price increased by OID
(if any) previously includible in such holder's gross income to the date of
disposition and decreased by payments (if any) received on the Capital
Securities in respect of OID. Subject to the discussion under "Certain Federal
Income Tax Consequences -- Market Discount and Bond Premium" such gain or loss
generally will be a capital gain or loss and generally will be a long-term
capital gain or loss if the Capital Securities have been held for more than one
year.
The Capital Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
Junior Subordinated Debentures. A holder who uses the accrual method of
accounting for tax purposes (and a cash method holder, if the Junior
Subordinated Debentures are deemed to have been issued with OID) who disposes of
his Capital Securities between record dates for payments of distributions
thereon will be required to include accrued but unpaid interest on the Junior
Subordinated Debentures through the date of disposition in income as ordinary
income (i.e., interest or, possibly, OID), and to add such amount to his
adjusted tax basis in his pro rata share of the underlying Junior Subordinated
Debentures deemed disposed of. To the extent the selling price is less than the
holder's adjusted
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tax basis (which will include all accrued but unpaid interest) a holder will
recognize a capital loss. Subject to certain limited exceptions, capital losses
cannot be applied to offset ordinary income for United States federal income tax
purposes.
PROPOSED TAX LEGISLATION
On February 6, 1997, as part of the Clinton Administration's Fiscal 1998
Budget Proposal, the Treasury Department proposed legislation (the "Proposed
Legislation") which would, among other things, generally deny corporate issuers
a deduction for interest in respect of debt obligations, possibly including the
Junior Subordinated Debentures, issued on or after the date "of first committee
action," if such debt obligations have a maximum term in excess of 15 years and
are not shown as indebtedness on the issuer's applicable consolidated balance
sheet. In addition, the Proposed Legislation would generally deny corporate
issuers a deduction for interest in respect of certain debt obligations,
possibly including the Junior Subordinated Debentures, issued after the date "of
first committee action," if such debt obligations have a weighted average
maturity of more than 40 years. The Proposed Legislation has not yet been
introduced by any member of the 105th Congress. If Congress were to enact any
other proposed legislation, and if such enactment gave rise to a Tax Event, the
Company would be permitted to cause a redemption of the Trust Securities at the
Special Event Prepayment Price by electing to prepay the Junior Subordinated
Debentures at the Special Event Prepayment Price. See "Description of Exchange
Securities -- Description of Exchange Junior Subordinated
Debentures -- Conditional Right to Shorten Maturity and Special Event
Prepayment."
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is not a U.S. Holder
for United States federal income tax purposes and for whom the income, and gain
or loss, from the Exchange Capital Securities would not be treated as
effectively connected with a United States trade or business. A "U.S. Holder" is
a holder of Capital Securities who or which is a citizen or individual resident
(or is treated as a citizen or individual resident) of the United States for
federal income tax purposes, a corporation or partnership created or organized
(or treated as created or organized for federal income tax purposes) in or under
the laws of the United States or any political subdivision thereof, or a trust
or estate the income of which is includible in its gross income for federal
income tax purposes without regard to its source. (For taxable years beginning
after December 31, 1996 (or for the immediately preceding taxable year, if the
trustee of a trust so elects), a trust is a U.S. Holder for federal income tax
purposes if, and only if, (i) a court within the United States is able to
exercise primary supervision over the administration of the trust and (ii) one
or more United States trustees have the authority to control all substantial
decisions of the trust.) Under present United States federal income tax laws:
(i) payments by the Trust or any of its paying agents to any holder of a Capital
Security who or which is a United States Alien Holder will not be subject to
United States federal withholding tax; provided that, (a) the beneficial owner
of the Capital Security does not actually or constructively own 10 percent or
more of the total combined voting power of all classes of stock of the Company
entitled to vote, (b) the beneficial owner of the Capital Security is not a
controlled foreign corporation that is related to the Company through stock
ownership, and (c) either (A) the beneficial owner of the Capital Security
certifies to the Trust or its agent, under penalties of perjury, that it is not
a United States holder and provides its name and address or (B) a securities
clearing organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "Financial
Institution"), and holds the Capital Security in such capacity, certifies to the
Trust or its agent, under penalties of perjury, that such statement has been
received from the beneficial owner by it or by a Financial Institution between
it and the beneficial owner and furnishes the Trust or its agent with a copy
thereof; and (ii) a United States Alien Holder of a Capital Security will not be
subject to United States federal withholding tax on any gain realized upon the
sale or other disposition of a Capital Security.
INFORMATION REPORTING TO HOLDERS
Generally, income on the Capital Securities will be reported to holders on
Forms 1099, which forms should be mailed to holders of Capital Securities by
January 31 following each calendar year.
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BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Capital Securities may
be subject to a "backup" withholding tax of 31 percent unless the holder
complies with certain identification requirements. Any withheld amounts will be
allowed as a credit against the holder's United States federal income tax,
provided the required information is provided to the IRS.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
CAPITAL SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL
OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
A fiduciary of a pension, profit-sharing or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), (an "ERISA Plan") considering the exchange of Old Capital Securities
for Exchange Capital Securities, or an acquisition of Exchange Capital
Securities (or any interest therein) from a holder of such Exchange Capital
Securities (or any interest therein) should consider the fiduciary standards of
ERISA in the context of the ERISA Plan's particular circumstances before
authorizing the investment in the Exchange Capital Securities (or any interest
therein). Among other factors, the fiduciary should consider whether such an
investment is in accordance with the documents governing the ERISA Plan and
whether the investment is appropriate for the ERISA Plan in view of its overall
investment policy and diversification of its portfolio.
Certain provisions of ERISA and the Code prohibit ERISA Plans, as well as
individual retirement accounts and Keogh plans subject to section 4975 of the
Code (collectively, "Plans"), from engaging in certain transactions involving
"plan assets" with parties that are "parties in interest" under ERISA or
"disqualified persons" under the Code with respect to the Plan. The U.S.
Department of Labor has issued a final regulation (the "Regulation") with regard
to whether the underlying assets of an entity in which employee benefit plans
acquire equity interests are deemed to be plan assets.
Under such Regulation, for purposes of ERISA and section 4975 of the Code,
the assets of the Trust would be deemed to be "plan assets" of a Plan whose
assets were used to purchase Exchange Capital Securities (or any interest
therein) if the Exchange Capital Securities (or any interest therein) were
considered to be equity interests in the Trust and no exception to plan asset
status were applicable under the Regulation.
If the assets of the Trust were deemed to be plan assets of Plans that are
holders of the Exchange Capital Securities (or any interest therein), a Plan's
investment in the Exchange Capital Securities (or any interest therein) might be
deemed to constitute a delegation under ERISA of the duty to manage plan assets
by a fiduciary investing in Exchange Capital Securities (or any interest
therein). In addition, the Company might be considered a "party in interest" or
"disqualified person" with respect to Plans whose assets were used to acquire
Exchange Capital Securities (or any interest therein). If this were the case, an
investment in Exchange Capital Securities (or any interest therein) by a Plan
might constitute or, in the course of the operation of the Trust, give rise to a
prohibited transaction under ERISA or the Code. In particular, it is likely
that, under such circumstances, a prohibited "extension of credit" to the
Company would be considered to occur under ERISA and the Code.
Because of the possibility that the assets of the Trust would be considered
plan assets of Plans whose assets were invested in the Exchange Capital
Securities (or any interest therein), and the likelihood that under such
circumstances a prohibited extension of credit would occur, the Exchange Capital
Securities (or any interest therein) may not be purchased or held by any Plan or
any person investing "plan assets" of any Plan,
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unless such purchaser or holder is eligible for the exemptive relief available
under Prohibited Transaction Class Exemption ("PTCE") 96-23 (for certain
transactions determined by in-house asset managers), PTCE 95-60 (for certain
transactions involving insurance company general accounts), PTCE 91-38 (for
certain transactions involving bank collective investment funds), PTCE 90-1 (for
certain transactions involving insurance company separate accounts) or PTCE
84-14 (for certain transactions determined by independent qualified asset
managers). The certificates representing the Exchange Capital Securities will
bear a legend to the effect that either (a) the holder of the Exchange Capital
Securities (or any interest therein) is not a Plan and is not purchasing such
securities (or any interest therein) on behalf of or with "plan assets" of any
Plan or (b) the holder's purchase and holding of the Exchange Capital Securities
(or any interest therein) is eligible for the exemptive relief available under
PTCE 96-23, 95-60, 91-38, 90-1 or 84-14. Such legend will also require each
holder of a Exchange Capital Security (or any interest therein) to deliver to
the transferee of such Exchange Capital Security (or interest therein) notice of
such restriction.
Due to the complexity of these rules and the penalties imposed upon persons
involved in prohibited transactions, it is important that any person considering
the purchase of Exchange Capital Securities (or interest therein) with Plan
assets consult with its counsel regarding the consequences under ERISA and the
Code of the acquisition and ownership of Exchange Capital Securities (or
interest therein) and the availability of exemptive relief under the class
exemptions listed above. In John Hancock Mutual Life Insurance Co. v. Harris
Trust and Savings Bank, 114 S.Ct. 517 (1993), the Supreme Court ruled that
assets held in an insurance company's general account may be deemed to be "plan
assets" for ERISA purposes under certain circumstances. Employee benefit plans
which are governmental plans (as defined in Section 3(32) of ERISA) and certain
church plans (as defined in Section 3(33) of ERISA) generally are not subject to
ERISA's requirements.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Capital Securities for its own
account in connection with the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Capital
Securities. This Prospectus, as it may be amended or supplemented from time to
time, may be used by Participating Broker-Dealers during the period referred to
below in connection with resales of Exchange Capital Securities received in
exchange for Old Capital Securities if such Old Capital Securities were acquired
by such Participating Broker-Dealers for their own accounts as a result of
market-making activities or other trading activities. The Company and the Trust
have agreed that this Prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer in connection with resales
of such Exchange Capital Securities for a period ending 90 days after the
Expiration Date (subject to extension under certain limited circumstances
described herein) or, if earlier, when all such Exchange Capital Securities have
been disposed of by such Participating Broker-Dealer. However, a Participating
BrokerDealer who intends to use this Prospectus in connection with the resale of
Exchange Capital Securities received in exchange for Old Capital Securities
pursuant to the Exchange Offer must notify the Company or the Trust, or cause
the Company or the Trust to be notified, on or prior to the Expiration Date,
that it is a Participating Broker-Dealer. Such notice may be given in the space
provided for that purpose in the Letter of Transmittal or may be delivered to
the Exchange Agent at one of the addresses set forth herein under "The Exchange
Offer -- Exchange Agent." See "The Exchange Offer -- Resales of Exchange Capital
Securities."
The Company or the Trust will not receive any cash proceeds from the
issuance of the Exchange Capital Securities offered hereby. Exchange Capital
Securities received by broker-dealers for their own accounts in connection with
the Exchange Offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing of
options on the Exchange Capital Securities or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Capital Securities.
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Any broker-dealer that resells Exchange Capital Securities that were
received by it for its own account in connection with the Exchange Offer and any
broker or dealer that participates in a distribution of such Exchange Capital
Securities may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any profit on any such resale of Exchange Capital Securities
and any commissions or concessions received by any such persons may be deemed to
be underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
LEGAL MATTERS
The validity of the Exchange Guarantee and the Exchange Junior Subordinated
Debentures will be passed upon for the Company and the Trust by Baker &
McKenzie, New York, New York. Certain matters relating to United States federal
income tax considerations will be passed upon for the Company and the Trust by
Baker & McKenzie, New York, New York. Certain matters of Delaware law relating
to the validity of the Exchange Capital Securities will be passed upon for the
Company by Potter Anderson & Corroon, Wilmington, Delaware.
EXPERTS
The consolidated financial statements of the Company and subsidiaries
incorporated by reference in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, have been incorporated herein by reference
in reliance upon the reports of Price Waterhouse LLP, independent accountants,
given upon the authority of such firm as experts in accounting and auditing.
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