<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of
the Commission
Only (as permitted by Rule
14a-6(e)(2)
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
FRONTIER INSURANCE GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
<PAGE>
[LOGO]
INSURANCE GROUP, INC. ROCK HILL, NEW YORK 12775-8000 / TELEPHONE (914)
796-2100
FAX (914)
796-1900
- --------------------------------------------------------------------------------
November 26, 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Frontier Insurance Group, Inc. (the "Company") to be held on Monday, December
30, 1996 at 10:00 a.m., local time, at the Company's corporate headquarters, 195
Lake Louise Marie Road, Rock Hill, New York 12775-8000 (located on Lake Louise
Marie Road, which runs parallel to New York State Route 17, between Exits 109
and 110 of Route 17).
At the Meeting, you will be asked to consider and vote upon proposals to (i)
approve and ratify the financing transaction described in the accompanying proxy
statement (the "Financing Transaction"), and (ii) adopt an amendment (the
"Amendment") to Article FOURTH of the Company's Restated Certificate of
Incorporation, as amended, to increase the authorized number of shares of Common
Stock from 20,000,000 shares to 50,000,000 shares.
Ratification of the Financing Transaction is being sought as a result of an
undertaking by the Company to the New York Stock Exchange, Inc., and the
Amendment will provide additional authorized capital stock for future stock
dividends, acquisitions and other general corporate purposes, as more fully
described in the accompanying Proxy Statement.
The accompanying Proxy Statement, which you are urged to read carefully,
provides important information with respect to the Financing Transaction and the
Amendment. Whether or not you plan to attend the Special Meeting, please
complete, date and sign your proxy card and promptly return it in the enclosed
envelope. If you attend the Special Meeting, you may vote in person even though
you have previously returned a proxy.
On behalf of the Board of Directors,
[Sig]
Walter A. Rhulen
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
[LOGO]
INSURANCE GROUP, INC.
195 Lake Louise Marie Road
Rock Hill, New York 12775-8000
(914) 796-2100
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 30, 1996
------------------------
To the Stockholders of
FRONTIER INSURANCE GROUP, INC.
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of Frontier Insurance Group, Inc. (the "Company") will be held at the
Company's corporate headquarters, 195 Lake Louise Marie Road, Rock Hill, New
York 12775-8000 (located on Lake Louise Marie Road, which runs parallel to New
York State Route 17, between Exits 109 and 110 of Route 17), on Monday, December
30, 1996, at 10:00 a.m., local time, to consider and act upon the following
proposals:
1. To approve and ratify the financing transaction described in the
accompanying Proxy Statement.
2. To adopt an amendment to Article FOURTH of the Company's Restated
Certificate of Incorporation, as amended, to increase the authorized number
of shares of Common Stock, par value $.01 per share ("Common Stock"), from
20,000,000 shares to 50,000,000 shares.
3. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
Only holders of record of Common Stock at the close of business on November
22, 1996, the Record Date for the Special Meeting, are entitled to notice of and
to vote at the Special Meeting.
By Order of the Board of Directors,
Joseph P. Loughlin
Secretary
Rock Hill, New York
November 26, 1996
STOCKHOLDERS WHO DO NOT EXPECT TO ATTEND THE SPECIAL MEETING
ARE REQUESTED TO DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED
PROXY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
<PAGE>
[LOGO]
INSURANCE GROUP, INC.
195 Lake Louise Marie Road
Rock Hill, New York 12775-8000
(914) 796-2100
-------------------------
PROXY STATEMENT
-------------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 30, 1996
------------------------
INTRODUCTION
GENERAL
This Proxy Statement is being furnished to holders of Common Stock, par
value $.01 per share ("Common Stock"), of Frontier Insurance Group, Inc., a
Delaware corporation (the "Company"), in connection with the solicitation of
proxies by the Board of Directors of the Company for use at its Special Meeting
of Stockholders to be held on Monday, December 30, 1996 at the Company's
corporate headquarters, 195 Lake Louise Marie Road, Rock Hill, New York
12775-8000 (located on Lake Louise Marie Road, which runs parallel to New York
State Route 17, between Exits 109 and 110 of Route 17), at 10:00 a.m., local
time, and any and all adjournments or postponements thereof (the "Special
Meeting"). This Proxy Statement is being first mailed to holders of Common Stock
on or about November 26, 1996.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, the stockholders will be asked to consider and vote
upon the following proposals:
1. to approve and ratify the financing transaction described herein (the
"Financing Transaction"), and
2. to adopt an amendment to Article FOURTH of the Company's Restated
Certificate of Incorporation, as amended (the "Amendment"), to increase
the authorized number of shares of Common Stock from 20,000,000 shares to
50,000,000 shares,
all as more fully described in this Proxy Statement.
VOTING AT THE SPECIAL MEETING
Only holders of record of Common Stock at the close of business on November
22, 1996 (the "Record Date") are entitled to notice of and to vote at the
Special Meeting, each such holder of record being entitled to one vote per share
on each matter to be considered at the Special Meeting. On the Record Date,
there were [14,688,064] shares of Common Stock issued and outstanding.
1
<PAGE>
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Common Stock entitled to vote at the
Special Meeting ([7,344,033] shares of the [14,688,064] shares outstanding) is
necessary to constitute a quorum at the Special Meeting. All abstentions and
broker non-votes, if any, will be included as shares that are present and
entitled to vote for purposes of determining the presence of a quorum at the
Special Meeting. The affirmative vote of a majority of the votes cast is
required to approve and ratify the Financing Transaction, provided that the
total votes cast on such proposal represents more than 50% of the shares of
Common Stock entitled to vote thereon at the Special Meeting. The affirmative
vote by the holders of a majority of the outstanding shares of Common Stock
([7,344,033] shares of the [14,688,064] shares outstanding) is required to adopt
the Amendment. In determining whether the foregoing two proposals (the
"Proposals") have received the requisite number of affirmative votes, (i)
abstentions will be included as votes cast and will have the same effect as
votes against the Proposals, and (ii) proxies for which a broker does not have
discretionary authority and has not received voting instructions from the
beneficial owners (so-called "broker non-votes"), if any, will not be counted
and will have no effect on the vote for the approval and ratification of the
Financing Transaction, but will have the effect of a vote against the Amendment.
If the enclosed proxy card is properly executed and returned to the Company
prior to voting at the Special Meeting, the shares represented thereby will be
voted in accordance with the instructions marked thereon. In the absence of
instructions, the shares will be voted FOR the Proposals and at the discretion
of the proxies on any other matters that may properly come before the Special
Meeting. At any time prior to its exercise, a proxy may be revoked by the holder
of Common Stock granting it by delivering written notice of revocation or a duly
executed proxy bearing a later date to the Secretary of the Company at the
address of the Company set forth on the first page of this Proxy Statement or by
attending the Special Meeting and voting in person.
This solicitation, the cost of which will be borne by the Company, is being
made by the Company by mail, and may be made personally or by telephone by
officers and other employees of the Company who will not receive additional
compensation therefor.
The principal executive offices of the Company are located at 195 Lake
Louise Marie Road, Rock Hill, New York 12775.
2
<PAGE>
APPROVAL AND RATIFICATION OF THE FINANCING TRANSACTION
BACKGROUND
On October 18, 1996, the Company completed the sale of 3,450,000 6 1/4%
Convertible Trust Originated Preferred Securities-SM- ("Preferred Securities")
issued by its financing vehicle, Frontier Financing Trust, a Delaware statutory
business trust (the "Trust"), at $50 per Preferred Security, for gross proceeds
to the Trust of $172,500,000, which the Trust invested in 6 1/4% Convertible
Subordinated Debentures Due 2026 issued by the Company (the "Convertible
Debentures"). The Preferred Securities are convertible into an aggregate of
3,678,735 shares of Common Stock through the exchange of such Preferred
Securities for Convertible Debentures having a principal amount equal to the
liquidation amount of the Preferred Securities so exchanged ($50 per Preferred
Security) and the subsequent conversion of the Convertible Debentures.
Of the approximate $167 million of net proceeds to the Company from the sale
of the Convertible Debentures to the Trust, approximately $32 million was used
to repay certain bank indebtedness, approximately $60 million has been
contributed to the statutory surplus of the Company's insurance company
subsidiaries to support growth, and the balance has been added to the Company's
working capital for general corporate purposes, including additional
contributions to the statutory surplus of the Company's insurance company
subsidiaries to support growth, and possible acquisitions.
The Preferred Securities were sold through Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation, Oppenheimer & Co., Inc., Stephens Inc. and Conning &
Company (collectively, the "Initial Purchasers") within the United States to
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act of 1933, as amended (the "Securities Act")) and to a limited number of
institutional "accredited investors" (as defined in Rule 501(a)(1),(2),(3) or
(7) under the Securities Act), and outside the United States pursuant to
Regulation S under the Securities Act, and may not be reoffered or resold in the
United States absent registration or an applicable exemption from the
registration requirements. The Company has agreed to file a shelf registration
statement under the Securities Act for resale of the Preferred Securities and/or
the shares of Common Stock issuable upon conversion by the holders thereof.
SUMMARY OF TERMS OF PREFERRED SECURITIES
THE FOLLOWING IS A CURSORY SUMMARY OF THE TERMS OF THE PREFERRED SECURITIES.
A MORE EXPANSIVE DESCRIPTION OF SUCH TERMS IS SET FORTH IN "DESCRIPTION OF
SECURITIES ISSUED IN FINANCING TRANSACTION" ATTACHED AS ANNEX A TO THIS PROXY
STATEMENT.
The common securities of the Trust (the "Common Securities"), all of which
are owned by the Company, and the Preferred Securities represent undivided
beneficial interests in the assets of the Trust. The Trust exists for the
exclusive purpose of issuing the Preferred Securities and the Common Securities
(collectively, the "Trust Securities"), investing the gross proceeds from the
sale of the Trust Securities in the Convertible Debentures, and engaging in only
those activities necessary or incidental thereto. Upon an event of default under
the Declaration (as defined in Annex A), the holders of the Preferred Securities
will have a preference over the holders of the Common Securities with respect to
payments of distributions and amounts payable upon redemption, liquidation or
otherwise.
Each Preferred Security is convertible, at the option of the holder thereof,
into shares of Common Stock in accordance with the procedures set forth in Annex
A at a conversion rate of 1.0663 shares of Common Stock for each Preferred
Security, subject to adjustment in certain circumstances.
Holders of the Preferred Securities are entitled to receive cumulative cash
dividends at an annual rate of $3.125 per Preferred Security (6 1/4% of the
liquidation amount of $50 per Preferred Security), accruing from October 16,
1996 and payable quarterly in arrears on each January 15, April 15, July 15 and
3
<PAGE>
October 15, commencing January 15, 1997. The payment of distributions out of
moneys held by the Trust and payments on liquidation of the Trust or the
redemption of Preferred Securities, as described below, are guaranteed by the
Company (the "Guarantee") to the extent the Trust has funds available therefor.
The Guarantee, when taken together with the Company's obligations under the
Indenture (as defined in Annex A) pursuant to which the Convertible Debentures
are issued (which provides that the Company may defer payments of interest on
the Convertible Debentures) and its obligations under the Declaration, including
its obligations to pay costs, expenses, debts and liabilities of the Trust
(other than with respect to the Trust Securities), provides a full and
unconditional guarantee of amounts due on the Preferred Securities (subject to
the Company's right to defer payments of interest on the Convertible
Debentures). The Company's obligations under the Guarantee rank (i) senior to
the Common Stock, (ii) PARI PASSU with the most senior preferred stock issued
from time to time by the Company and with any guarantee now or hereafter entered
into by the Company with respect to any preferred or preference stock of the
Company or its affiliates, and (iii) subordinate and junior to all other
liabilities of the Company, except any liabilities that may be PARI PASSU by
their terms. The obligations of the Company under the Convertible Debentures are
subordinate and junior in right of payment to Senior Debt (as defined in Annex
A) of the Company. The Company's subsidiaries do not guarantee the payment of
principal of or interest on the Convertible Debentures and, accordingly, claims
of holders of the Preferred Securities effectively are subordinate to the claim
of creditors and policyholders of the Company's subsidiaries.
The sole assets of the Trust are the Convertible Debentures and the
distribution rate and the distribution payment dates and other payment dates for
the Preferred Securities correspond to the interest rate and interest payment
dates and other payment dates for the Convertible Debentures. If the Company
fails to make principal or interest payments on the Convertible Debentures, the
Trust will not have sufficient funds to make distributions on the Preferred
Securities, in which event the Guarantee will not apply to such distributions
until the Trust has sufficient funds available therefor.
The Company has agreed to file a Shelf Registration Statement (as defined in
Annex A) for the Preferred Securities, the Guarantee, the Convertible Debentures
and the Common Stock issuable upon conversion of the Convertible Debentures
pursuant to a Registration Rights Agreement (as defined in Annex A). Upon the
Company's failure to comply with certain of its obligations under the
Registration Rights Agreement, additional distributions will accrue and be
payable on the Preferred Securities.
The Company has the right to defer payments of interest on the Convertible
Debentures at any time by extending the interest payment date for up to 20
consecutive quarters (each such extension, an "Extension Period"), but not
beyond the maturity of the Convertible Debentures. If interest payments are so
deferred, distributions on the Preferred Securities also will be deferred.
During any Extension Period, distributions will continue to accrue with interest
thereon (to the extent permitted by applicable law) at a rate of 6 1/4% per
annum compounded quarterly. During any Extension Period, the holders of
Preferred Securities will be required to include such deferred interest in their
gross income for United States Federal income tax purposes in advance of their
receipt of the cash distributions with respect to such deferred interest
payments. Moreover, if a holder of Preferred Securities converts its Preferred
Securities into Common Stock during any Extension Period, the holder will not
receive any cash or additional shares of Common Stock related to the deferred
distributions. There could be multiple Extension Periods of varying lengths
throughout the term of the Convertible Debentures (but distributions would
continue to accumulate quarterly and accrue interest until the end of any such
Extension Period).
The Convertible Debentures are redeemable by the Company, at its option, in
whole or in part from time to time, at the applicable Redemption Price (as
defined in Annex A) set forth herein, (i) on or after October 16, 1999, PROVIDED
the closing sale price of the Common Stock as reported on the New York Stock
Exchange is at least $70.34 per share (150% of the per share conversion price)
for a minimum of 20 trading days within a period of 30 consecutive trading days
ending on the fifth trading day prior to the notice of redemption and (ii) on or
after October 16, 2000. The Convertible Debentures may also be redeemed (in
whole, but not in part) in certain circumstances upon the occurrence of a
Redemption Tax Event (as
4
<PAGE>
defined in Annex A), in which event the Redemption Price shall be 100% of the
principal amount of, plus all accrued and unpaid interest on, the Convertible
Debentures so redeemed. The Preferred Securities, which do not have a stated
maturity date, must be redeemed upon the repayment of the Convertible Debentures
at their stated maturity (October 16, 2026) and upon acceleration or earlier
redemption of the Convertible Debentures. Upon redemption of the Convertible
Debentures, the Trust must redeem, on a PRO RATA basis, Trust Securities having
an aggregate liquidation amount equal to the aggregate principal amount of the
Convertible Debentures so redeemed at a redemption price corresponding to the
applicable Redemption Price, plus accrued and unpaid distributions thereon to
the date fixed for redemption.
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust, the then holders of the Preferred
Securities will be entitled to receive out of the assets of the Trust, after
satisfaction of liabilities to creditors, distributions in an amount equal to
the aggregate of the stated liquidation amount of $50 per Preferred Security
plus accrued and unpaid distributions thereon to the date of payment, unless
Convertible Debentures in an aggregate stated principal amount equal to the
aggregate stated liquidation amount of the Preferred Securities are distributed,
on a PRO RATA basis, to the holders of the Preferred Securities due to a Tax
Event (as defined in Annex A), other than a Redemption Tax Event, or an
Investment Company Event (as defined in Annex A).
The issuance of shares of Common Stock upon conversion of any Preferred
Securities will increase the number of outstanding shares of Common Stock and
thereby dilute the voting power of the shares of Common Stock then outstanding.
PURPOSE OF SOLICITATION
The Company has undertaken to the New York Stock Exchange, Inc. (the "NYSE")
to prepare a Proxy Statement for a Special Meeting of Stockholders at which
proxies would be solicited from all stockholders to approve and ratify the
Financing Transaction in order to comply with a NYSE rule which requires that
stockholders of a NYSE listed corporation approve all transactions, other than
public offerings for cash, which result (or could result) in the issuance of in
excess of 20% of the shares of its common stock outstanding. An additional
3,678,735 shares of Common Stock (approximately 25% of the Common Stock
outstanding on the date the Financing Transaction was consummated) are issuable
upon conversion of the Preferred Securities and/or the Convertible Debentures,
thereby requiring approval of the Financing Transaction by the Company's
stockholders under the NYSE rule.
IN THE EVENT THE FINANCING TRANSACTION IS NOT APPROVED AND RATIFIED, THE
PREFERRED SECURITIES WILL REMAIN OUTSTANDING, BUT THE COMMON STOCK WILL BE
SUBJECT TO DELISTING BY THE NYSE. In such event, the Company would consider
available alternatives, including seeking to list the Common Stock on The Nasdaq
National Market. There can be no assurance that such event would not materially
adversely affect the market for or liquidity of the Common Stock.
REQUIRED VOTE
APPROVAL AND RATIFICATION OF THE FINANCING TRANSACTION REQUIRES THE
AFFIRMATIVE VOTE OF A MAJORITY OF THE VOTES CAST, PROVIDED THAT THE TOTAL VOTES
CAST ON SUCH PROPOSAL REPRESENTS MORE THAN 50% OF THE SHARES OF COMMON STOCK
ENTITLED TO VOTE THEREON AT THE SPECIAL MEETING. Unless marked to the contrary,
proxies received will be voted FOR approval and ratification of the Financing
Transaction.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL
AND RATIFICATION OF THE FINANCING TRANSACTION.
5
<PAGE>
ADOPTION OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION
BACKGROUND
The Company presently is authorized to issue 20,000,000 shares of Common
Stock. On the Record Date, there were [14,688,064] shares issued and outstanding
and 4,966,625 shares reserved for issuance (including the shares reserved for
issuance upon conversion of the Debentures).
The Board of Directors has approved, subject to adoption by the Company's
stockholders, the Amendment in substantially the form attached hereto as Exhibit
A to this Proxy Statement, to increase the authorized shares of Common Stock
from 20,000,000 shares to 50,000,000 shares.
The Amendment will provide additional authorized capital stock for future
stock dividends, acquisitions and other general corporate purposes.
REQUIRED VOTE
ADOPTION OF THE AMENDMENT REQUIRES THE AFFIRMATIVE VOTE BY THE HOLDERS OF A
MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK ([7,344,033] SHARES OF THE
[14,688,064] SHARES OUTSTANDING). Unless marked to the contrary, proxies
received will be voted FOR adoption of the Amendment.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ADOPTION OF
THE AMENDMENT.
6
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Common Stock
on the Record Date by (i) each person known by the Company to own beneficially
five percent or more of such shares, (ii) each director, (iii) certain executive
officers of the Company (Messrs. Walter A. Rhulen, Thomas J. Dietz, Harry W.
Rhulen and Peter H. Foley), and (iv) all directors and executive officers as a
group, together with their respective percentage ownership of the outstanding
shares:
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
<TABLE>
<CAPTION>
CURRENTLY ACQUIRABLE PERCENT OF
NAME AND ADDRESS OWNED WITHIN 60 DAYS(1) OUTSTANDING
- ----------------------------------------------------------- ---------- ----------------- ---------------
<S> <C> <C> <C>
Walter A. Rhulen(2)........................................ 988,691(3) -- 6.7%
Peter L. Rhulen(2)......................................... 992,950(4) -- 6.8%
Lawrence E. O'Brien........................................ 34,392 -- *
Douglas C. Moat............................................ 4,963 -- *
Alan Gerry................................................. -- -- *
Thomas J. Dietz............................................ 61,998 74,250 *
Harry W. Rhulen............................................ 94,302(5) 105,854(6) 1.4%
Peter H. Foley............................................. 923 2,750 *
Estate of Jesse M. Farrow(2)............................... 990,575 -- 6.8%
Denver Investment Advisors, LLC............................ 1,309,007(7) -- 8.9%
125-17th Street, 26th Floor,
Denver, CO 80202
Wellington Management Company.............................. 740,124(8) -- 5.0%
75 State Street
Boston, MA 02109
All directors and executive officers
as a group (12 persons).................................. 2,193,181 188,223 16.1%
</TABLE>
- ------------------------
* Less than 1%.
(1) Reflects number of shares of Common Stock acquirable upon exercise of
options.
(2) Address is 195 Lake Louise Marie Road, Rock Hill, NY 12775-8000.
(3) Does not include 4,611 shares of Common stock owned by the wife of Walter A.
Rhulen, the beneficial ownership of which Mr. Rhulen disclaims.
(4) Does not include 245,391 shares, 13,216 shares, 29,700 shares and 12,650
shares of Common Stock owned, respectively, by two children of Mr. Peter L.
Rhulen, Mr. Rhulen's spouse, The Eileen and Peter Rhulen Foundation, Inc.
for which Mr. Rhulen acts as President, and a charitable foundation for
which Mr. Rhulen acts as trustee. Mr. Rhulen disclaims beneficial ownership
of such shares.
(5) Includes 3,394 shares owned by a daughter of Mr. Harry W. Rhulen for whom he
acts as custodian under the Uniform Gifts to Minors Act. Does not include
6,466 shares of Common Stock owned by Mr. Rhulen's wife, as to which Mr.
Rhulen disclaims beneficial ownership.
(6) Includes 103,125 shares purchasable at $45.45 per share upon exercise of
options granted to Mr. Walter A. Rhulen, his father, and given to Mr. Harry
W. Rhulen by his father.
(7) Information is from a Schedule 13G dated March 6, 1996 filed by Denver
Investment Advisors, LLC, which reflects shared dispositive power with
respect to 1,309,007 shares.
(8) Information is from a Schedule 13G dated January 31, 1996 filed by
Wellington Management Company, which reflects shared dispositive power with
respect to 740,124 shares.
On the Record Date, the outstanding Common Stock was held by [871]
registered stockholders.
7
<PAGE>
OTHER BUSINESS
Management does not know of any matter to be brought before the Special
Meeting other than as described above. In the event any other matter properly
comes before the Special Meeting, the persons named in the accompanying form of
proxy have discretionary authority to vote on such matters.
STOCKHOLDER PROPOSALS FOR THE
1997 ANNUAL MEETING OF STOCKHOLDERS
Any stockholder proposal to be considered for inclusion in the Company's
proxy soliciting material for the 1997 Annual Meeting of Stockholders must be
received by the Company at its principal office by December 31, 1996.
Dated: November 26, 1996
8
<PAGE>
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
FRONTIER INSURANCE GROUP, INC.
-------------------------------------------------------------------
-------------------------------------------------------------------
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
-------------------------------------------------------------------
-------------------------------------------------------------------
Frontier Insurance Group, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies as follows:
1. The name of the Corporation is Frontier Insurance Group, Inc. and
the name under which the Corporation originally was incorporated is Frontier
Financial Corp.
2. The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of Delaware on April 22, 1986.
3. The Restated Certificate of Incorporation of the Corporation, as
heretofore amended or supplemented (the "Certificate of Incorporation"), is
hereby further amended by striking out "Article FOURTH" and substituting in
lieu thereof a new "Article FOURTH" changing the authorized capital stock of
the Corporation to read as follows:
"FOURTH: (a) The total number of shares of stock which the
Corporation shall have authority to issue is fifty-one million
(51,000,000) shares, of which fifty million (50,000,000) shares are
to be shares of Common Stock, $.01 par value per share, and one
million (1,000,000) shares are to be shares of Preferred Stock, $.01
par value per share.
(b) The board of directors of the Corporation is authorized to issue
shares of Preferred Stock from time to time in one or more series for
such consideration as it may determine; to fix or alter the voting
powers, designations, preferences and rights, including but not
limited to dividend rights, dividend rate, conversion rights and
terms of redemption (including sinking fund provisions), redemption
price or prices and liquidation preferences, or any of them, as to
wholly unissued series of shares of Preferred Stock; and to fix the
number of shares constituting any such series and designation
thereof, or any number of them, and to increase or decrease the
number of shares of any series subsequent to the issue of shares of
that series, but not below the number of shares of such series then
outstanding. In case the number of shares of such series be so
decreased, the shares constituting such decrease shall resume the
status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series."
4. The amendment to the Certificate of Incorporation herein certified
has been duly adopted in the manner and by the vote prescribed by Section
242 of the General Corporation Law of the State of Delaware.
1
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this certificate be signed by its President and Chief
Executive Officer and attested by its Secretary this 30th day of December, 1996.
FRONTIER INSURANCE GROUP, INC.
By:
-----------------------------------------
Walter A. Rhulen
Chairman of the Board, President
and Chief Executive Officer
Attest:
By:
-------------------------
Joseph P. Loughlin
Secretary
2
<PAGE>
ANNEX A
DESCRIPTION OF SECURITIES
ISSUED IN FINANCING TRANSACTION
DESCRIPTION OF THE PREFERRED SECURITIES
GENERAL
The common securities of the Trust (the "Common Securities"), all of which
are owned by the Company, and the Preferred Securities represent undivided
beneficial ownership interests in the assets of the Trust.
The Common Securities rank PARI PASSU with, and payments are made thereon on
a PRO RATA basis with, the Preferred Securities, except that upon the occurrence
of an event of default (a "Declaration Event of Default") under the Amended and
Restated Declaration of Trust dated October 16, 1996 (the "Declaration"), the
rights of the holders of the Common Securities to receive payment of periodic
distributions and payments upon liquidation, redemption and otherwise are
subordinated to the rights of the holders of Preferred Securities. See
"--Subordination of Common Securities." Title to the Convertible Debentures,
which constitute the sole assets of the Trust, is held by The Bank of New York,
as property trustee for the Trust (the "Property Trustee"), for the benefit of
the holders of the Preferred Securities and the Common Securities (the "Trust
Securities"). The Declaration does not permit the issuance by the Trust of any
securities other than the Trust Securities or the incurrence of any indebtedness
by the Trust. The payment of distributions out of moneys held by the Trust, and
payments upon redemption of the Preferred Securities or liquidation of the
Trust, are guaranteed by the Company to the extent described under "Description
of the Guarantee." The Guarantee is held by The Bank of New York, as guarantee
trustee (the "Guarantee Trustee") for the benefit of the holders of the
Preferred Securities. The Guarantee does not cover payment of distributions or
payments upon redemption of the Preferred Securities or liquidation of the Trust
when the Trust does not have sufficient available funds to make such
distributions or payments. In such event, the remedy of a holder of Preferred
Securities is to (i) vote to direct the Property Trustee to enforce the Property
Trustee's rights under the Convertible Debentures or (ii) if the failure of the
Trust to pay distributions is attributable to the failure of the Company to pay
interest or principal on the Convertible Debentures, to institute a proceeding
directly against the Company for enforcement of payment to such holder of the
principal of or interest on the Convertible Debentures having a principal amount
equal to the aggregate liquidation amount of the Preferred Securities of such
holder on or after the respective due date specified in the Convertible
Debentures. See "--Voting Rights."
DISTRIBUTIONS
Distributions on the Preferred Securities are fixed at a rate per annum of
6 1/4% of the stated liquidation amount of $50 per Preferred Security (equal to
$3.125 per annum per Preferred Security). Distributions in arrears bear interest
thereon at a rate per annum of 6 1/4% compounded quarterly. The term
"distribution" as used herein includes any such interest (including any
Additional Interest and Liquidation Damages, each as defined herein) payable
unless otherwise stated. The amount of distributions payable for any period is
computed on the basis of a 360-day year of twelve 30-day months.
Distributions on the Preferred Securities are cumulative, accrue from
October 16, 1996 (the date of initial issuance) and are payable quarterly in
arrears on each January 15, April 15, July 15 and October 15, commencing January
15, 1997, when, as and if available for payment, by the Property Trustee, except
as otherwise described below. The Company has the right under the Indenture
dated October 16, 1996 relating to the Convertible Debentures (the "Indenture")
to defer interest, during which period no interest
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shall be due and payable on the Convertible Debentures. As a consequence of such
extension, quarterly distributions on the Preferred Securities would be deferred
(though such distributions would continue to accrue with interest) during any
such extended interest payment period. In the event that the Company exercises
this right then, during such period, the Company shall not (a) declare or pay
dividends on, make distributions with respect to, redeem, purchase, acquire or
make a liquidation payment with respect to, any of its capital stock (except for
(i) dividends or distributions in shares of Common Stock on Common Stock, (ii)
purchases or acquisitions of shares of Common Stock made in connection with any
employee benefit plan of the Company or its subsidiaries, purchases made from
employees or officers pursuant to employment agreements, or purchases made under
option agreements (or upon the exercise of options granted thereunder), PROVIDED
the plan or agreement was in existence on October 9, 1996 and PROVIDED, FURTHER,
that such repurchases by the Company made from officers or employees of the
Company or its subsidiaries pursuant to employment agreements shall be made at a
price not to exceed market value on the date of any such repurchase and shall
not exceed $5.0 million in the aggregate for all such employees and officers,
(iii) conversions or exchanges of Common Stock of one class into Common Stock of
another class or (iv) purchases of fractional interests in shares of the
Company's capital stock pursuant to the conversion or exchange provisions of any
of the Company's securities being converted or exchanged), (b) make any payment
of interest, principal or premium, if any, or repay, repurchase or redeem any
debt securities issued by the Company that rank junior to or PARI PASSU with the
Convertible Debentures (except by conversion into or exchange for shares of
Common Stock), or (c) shall not make any guarantee payments with respect to the
foregoing (other than such payments made pursuant to the Guarantee). Prior to
the termination of any such Extension Period, the Company may further extend
such Extension Period, PROVIDED that such Extension Period, together with all
previous and further extensions thereof, may not exceed 20 consecutive quarters
and that such Extension Period may not extend beyond the maturity date of the
Convertible Debentures. Upon the termination of any Extension Period and the
payment of all amounts then due, the Company may commence a new Extension
Period, subject to the above requirements. Consequently, there could be multiple
Extension Periods of varying lengths throughout the term of the Convertible
Debentures. See "Description of the Convertible Debentures--Interest" and
"Description of the Convertible Debentures--Option to Extend Interest Payment
Period." If distributions are deferred, the deferred distributions and accrued
interest thereon shall be paid to the holders of record of Preferred Securities
as they appear on the books and records of the Trust on the record date
following the termination of the Extension Period.
Distributions on the Preferred Securities will be made to the extent the
Trust has funds available therefor in the Property Account. The amount of such
funds will be limited to payments received by the Trust from the Company with
respect to the Convertible Debentures. See "Description of the Convertible
Debentures." The payment of distributions out of funds held by the Trust is
guaranteed by the Company, as set forth under "Description of the Guarantee."
Distributions on the Preferred Securities are payable to the holders thereof
as they appear on the books and records of the Trust on the relevant record
dates, which will be 15 days prior to the relevant payment dates. In the event
that any date on which distributions are payable on the Preferred Securities is
not a Business Day, payment of the distribution payable on such date will be
made on the next succeeding day which is a Business Day (without any
distribution or other payment for any such delay), except that, if such Business
Day is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date. A "Business Day" means any day other than a day on
which banking institutions in New York City or in Wilmington, Delaware, are
authorized or required by law to close.
CONVERSION RIGHTS
GENERAL. The Preferred Securities are convertible at any time prior to the
close of business on the Business Day immediately preceding the date of
repayment of such Preferred Securities, whether at
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maturity or upon redemption, at the option of the holder thereof and in the
manner described below, into shares of Common Stock at an initial conversion
rate of 1.0663 shares of Common Stock for each Preferred Security (equivalent to
a conversion price of $46.89 per share of Common Stock, based upon the $38.75
per share closing price of the Common Stock on the NYSE on October 9, 1996)
subject to adjustment as described below under "--Conversion Price
Adjustments--General" and "--Conversion Price Adjustments--Fundamental Changes."
The Trust has covenanted in the Declaration not to convert Convertible
Debentures held by it except pursuant to a notice of conversion delivered to the
Property Trustee, as conversion agent (the "Conversion Agent"), by a holder of
Preferred Securities. A holder of a Preferred Security wishing to exercise its
conversion right is required to deliver an irrevocable conversion notice,
together, if the Preferred Security is a Certificated Security (as defined
herein), with such Certificated Security, to the Conversion Agent which shall,
on behalf of such holder, exchange such Preferred Security for the applicable
portion of the Convertible Debentures, and immediately convert such Convertible
Debentures into Common Stock. Holders may obtain copies of the required form of
the conversion notice from the Conversion Agent. Procedures for converting
book-entry Preferred Securities into shares of Common Stock differ.
Holders of Preferred Securities at the close of business on a distribution
record date are entitled to receive the distribution payable on such Preferred
Securities on the corresponding distribution payment date notwithstanding the
conversion of such Preferred Securities following such distribution record date
but prior to the distribution payment date. Except as provided in the
immediately preceding sentence, neither the Trust nor the Company will make, or
be required to make, any payment, allowance or adjustment for accumulated and
unpaid distributions, whether or not in arrears, on the converted Preferred
Securities. The Company will make no payment or allowance for distributions on
the shares of Common Stock issued upon such conversion, except to the extent
that such shares of Common Stock are held of record on the record date for any
such distributions and except as provided in the preceding sentence. Each
conversion will be deemed to have been effected immediately prior to the close
of business on the day on which the related conversion notice was received by
the Conversion Agent.
No fractional shares of Common Stock will be issued as a result of
conversion, but in lieu thereof such fractional interest will be paid by the
Company in cash based on the last reported sale price of Company Common Stock on
the date such Preferred Securities are surrendered for conversion.
CONVERSION PRICE ADJUSTMENTS--GENERAL. The conversion price is subject to
adjustment in certain events, including (a) the issuance of shares of Common
Stock as a dividend or a distribution with respect to Common Stock, (b)
subdivisions, combinations or reclassifications of Common Stock (other than a
recapitalization or reclassification of shares of Company Common Stock subject
to subdivision (i) under "Conversion Price Adjustments--Fundamental Changes"
below), (c) the issuance to all holders of Common Stock of rights or warrants
entitling them (for a period not exceeding 45 days) to subscribe for shares of
Common Stock at less than the then Current Market Price (as defined below), (d)
the distribution to holders of Common Stock of evidences of indebtedness of the
Company, securities or capital stock, cash or assets (including securities, but
excluding those rights, warrants, dividends and distributions referred to above
and dividends and distributions paid exclusively in cash), (e) the payment of
dividends (and other distributions) on Common Stock paid exclusively in cash,
excluding cash dividends if the annualized per share amount thereof does not
exceed 15% of the Current Market Price of Common Stock as of the trading day
immediately preceding the date of declaration of such dividend (such adjustment
being limited to the amount in excess of 15% of such Current Market Price), and
(f) payment to holders of Common Stock in connection with a tender or exchange
offer (other than an odd-lot offer) by the Company or any subsidiary of the
Company for Common Stock at a price in excess of 110% of the then Current Market
Price of Common Stock as of the trading day next succeeding the last date
tenders or exchanges may be made pursuant to such tender or exchange offer.
"Current Market Price" means the average of the daily closing prices for the
five consecutive trading days selected by the Company commencing not more than
20 trading days before, and ending not later than, the earlier of the day in
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question or, if applicable, the day before the "ex" date with respect to the
issuance or distribution in question.
The Company from time to time may reduce the conversion price of the
Convertible Debentures (and thus the conversion price of the Preferred
Securities) by any amount selected by the Company for any period of at least 20
days, in which case the Company shall give at least 15 days' notice of such
reduction. The Company may, at its option, make such reductions in the
conversion price, in addition to those set forth above, as the Company's Board
of Directors deems advisable to avoid or diminish any income tax to holders of
Common Stock resulting from any dividend or distribution of stock (or rights to
acquire stock) or from any event treated as such for income tax purposes.
No adjustment of the conversion price will be made upon the issuance of any
shares of Common Stock pursuant to any present or future plan providing for the
reinvestment of dividends or interest payable on securities of the Company and
the investment of additional optional amounts in shares of Common Stock under
any such plan. No adjustment in the conversion price is required unless such
adjustment would require a change of at least one percent (1%) in the price then
in effect; PROVIDED, HOWEVER, that any adjustment that would not be required to
be made shall be carried forward and taken into account in any subsequent
adjustment. If any action would require adjustment of the conversion price
pursuant to more than one of the provisions described above, only one adjustment
shall be made and such adjustment shall be the amount of adjustment that has the
highest absolute value to the holder of the Preferred Securities.
CONVERSION PRICE ADJUSTMENTS--FUNDAMENTAL CHANGES. If any transaction shall
occur (including without limitation (i) any recapitalization or reclassification
of shares of Common Stock, (ii) any consolidation or merger of the Company with
or into another person or any merger of another person into the Company (other
than a merger that does not result in a reclassification, conversion, exchange
or cancellation of Common Stock), (iii) any sale or transfer of all or
substantially all of the assets of the Company, or (iv) any compulsory share
exchange) pursuant to which either shares of Common Stock shall be converted
into the right to receive other securities, cash or other property, or, in the
case of a sale or transfer of all or substantially all of the assets of the
Company, the holders of Common Stock shall be entitled to receive other
securities, cash or other property, then appropriate provision shall be made so
that the holder of each Preferred Security then outstanding shall have the right
thereafter to convert such Preferred Security only into:
(x) in the case of any such transaction that does not constitute a
Common Stock Fundamental Change (as defined below) and subject to funds
being legally available for such purpose under applicable law at the time of
such conversion, the kind and amount of the securities, cash or other
property that would have been receivable upon such recapitalization,
reclassification, consolidation, merger, sale, transfer or share exchange by
a holder of the number of shares of Common Stock issuable upon conversion of
such Preferred Security immediately prior to such recapitalization,
reclassification, consolidation, merger, sale, transfer or share exchange,
after giving effect, in the case of any Non-Stock Fundamental Change (as
defined below), to any adjustment in the conversion price in accordance with
clause (i) of the following paragraph, and
(y) in the case of any such transaction that constitutes a Common Stock
Fundamental Change, common stock of the kind received by holders of Common
Stock as a result of such Common Stock Fundamental Change in an amount
determined in accordance with clause (ii) of the following paragraph.
The company formed by such consolidation or resulting from such merger or
that acquires such assets or that acquires the Company's shares, as the case may
be, shall make provisions in its certificate or articles of incorporation or
other constituent document to establish such right. Such certificate or articles
of incorporation or other constituent document shall provide for adjustments
that, for events subsequent to the effective date of such certificate or
articles of incorporation or other constituent document, shall be as
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nearly equivalent as may be practicable to the relevant adjustments provided for
in the preceding paragraphs and in this paragraph.
Notwithstanding any other provision in the preceding paragraphs to the
contrary, if any Fundamental Change (as defined below) occurs, then the
conversion price in effect will be adjusted immediately after such Fundamental
Change as follows:
(i) in the case of a Non-Stock Fundamental Change, the conversion price
immediately following such Non-Stock Fundamental Change shall be the lower
of (A) the conversion price in effect immediately prior to such Non-Stock
Fundamental Change, but after giving effect to any other prior adjustments
effected pursuant to the preceding paragraphs, and (B) the product of (1)
the greater of the Applicable Price (as defined below) and the then
applicable Reference Market Price (as defined below) and (2) a fraction, the
numerator of which is $50 and the denominator of which is (x) the amount of
the redemption price for one Preferred Security if the redemption date were
the date of such Non-Stock Fundamental Change plus (y) any then-accrued and
unpaid distributions on one Preferred Security; and
(ii) in the case of a Common Stock Fundamental Change, the conversion
price of the Preferred Securities immediately following such Common Stock
Fundamental Change shall be the conversion price in effect immediately prior
to such Common Stock Fundamental Change, but after giving effect to any
other prior adjustments effected pursuant to the preceding paragraphs,
multiplied by a fraction, the numerator of which is the Purchaser Stock
Price (as defined below) and the denominator of which is the Applicable
Price; PROVIDED, HOWEVER, that in the event of a Common Stock Fundamental
Change in which (A) 100% of the value of the consideration received by a
holder of Common Stock is common stock of the successor, acquiror or other
third party (and cash, if any, paid with respect to any fractional interests
in such common stock resulting from such Common Stock Fundamental Change)
and (B) all of the Common Stock shall have been exchanged for, converted
into or acquired for, common stock of the successor, acquiror or other third
party (and any cash with respect to fractional interests), the conversion
price of the Preferred Securities immediately following such Common Stock
Fundamental Change shall be the conversion price in effect immediately prior
to such Common Stock Fundamental Change multiplied by a fraction, the
numerator of which is one (1) and the denominator of which is the number of
shares of common stock of the successor, acquiror or other third party
received by a holder of one share of Common Stock as a result of such Common
Stock Fundamental Change.
Depending upon whether a Fundamental Change is a Non-Stock Fundamental
Change or a Common Stock Fundamental Change, a holder may receive significantly
different consideration upon conversion. In the event of a Non-Stock Fundamental
Change, the holder has the right to convert Preferred Securities into the kind
and amount of shares of stock and other securities, property or assets
(including cash), except as otherwise provided above, as is determined by the
number of shares of Common Stock receivable upon conversion at the conversion
price as adjusted in accordance with clause (i) of the preceding paragraph.
However, in the event of a Common Stock Fundamental Change in which less than
100% of the value of the consideration received by a holder of Common Stock is
common stock of the successor, acquiror or other third party, a holder of a
Preferred Security who converts such share following the Common Stock
Fundamental Change will receive consideration in the form of such common stock
only, whereas a holder who converted such share prior to the Common Stock
Fundamental Change would have received consideration in the form of such common
stock as well as any other securities or assets (which may include cash)
issuable upon conversion of such Convertible Preferred Security immediately
prior to such Common Stock Fundamental Change.
The term "Applicable Price" means (i) in the event of a Non-Stock
Fundamental Change in which the holders of Common Stock receive only cash, the
amount of cash received by a holder of one share of Common Stock and (ii) in the
event of any other Fundamental Change, the average of the daily Closing
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Price (as defined in the Indenture) for one share of Common Stock during the 10
Trading Days (as defined in the Indenture) immediately prior to the record date
for the determination of the holders of Common Stock entitled to receive cash,
securities, property or other assets in connection with such Fundamental Change
or, if there is no such record date, prior to the date upon which the holders of
Common Stock shall have the right to receive such cash, securities, property or
other assets.
The term "Common Stock Fundamental Change" means any Fundamental Change in
which more than 50% of the value (as determined in good faith by the Board of
Directors of the Company) of the consideration received by holders of Common
Stock consists of common stock that, for the 10 Trading Days immediately prior
to such Fundamental Change, has been admitted for listing or admitted for
listing subject to notice of issuance on a national securities exchange or
quoted on Nasdaq; PROVIDED, HOWEVER, that a Fundamental Change shall not be a
Common Stock Fundamental Change unless either (i) the Company continues to exist
after the occurrence of such Fundamental Change and the outstanding Preferred
Securities continue to exist as outstanding Preferred Securities, or (ii) not
later than the occurrence of such Fundamental Change, the outstanding Preferred
Securities are converted into or exchanged for shares of convertible preferred
stock or debentures of a corporation succeeding to the business of the Company,
which convertible preferred stock has powers, preferences and relative,
participating, optional or other rights, and qualifications, limitations and
restrictions substantially similar to those of the Preferred Securities and
which debentures have terms substantially similar to those of the Convertible
Debentures.
The term "Fundamental Change" means the occurrence of any transaction or
event or series of transactions or events pursuant to which all or substantially
all of the Common Stock shall be exchanged for, converted into, acquired for or
shall constitute solely the right to receive cash, securities, property or other
assets (whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization or
otherwise); PROVIDED, HOWEVER, in the case of any such series of transactions or
events, for purposes of adjustment of the conversion price, such Fundamental
Change shall be deemed to have occurred when substantially all of the Common
Stock shall have been exchanged for, converted into or acquired or shall
constitute solely the right to receive, such cash, securities, property or other
assets, but the adjustment shall be based upon the consideration that the
holders of Common Stock received in the transaction or event as a result of
which more than 50% of the Common Stock shall have been exchanged for, converted
into or acquired for, or shall constitute solely the right to receive, such
cash, securities, property or other assets.
The term "Non-Stock Fundamental Change" means any Fundamental Change other
than a Common Stock Fundamental Change.
The term "Purchaser Stock Price" means, with respect to any Common Stock
Fundamental Change, the average of the daily Closing Price for one share of the
common stock received by the holders of Common Stock in such Common Stock
Fundamental Change during the 10 Trading Days immediately prior to the date
fixed for the determination of the holders of Common Stock entitled to receive
such common stock or, if there is no such date, prior to the date upon which the
holders of Common Stock shall have the right to receive such common stock.
The term "Reference Market Price" shall initially mean $25.83 (which is an
amount equal to 66 2/3% of the last reported sale price of $38.75 per share of
the Common Stock on the NYSE on October 9, 1996) and, in the event of any
adjustment to the conversion price other than as a result of a Fundamental
Change, the Reference Market Price shall also be adjusted so that the ratio of
the Reference Market Price to the conversion price after giving effect to any
such adjustment shall always be the same as the ratio of the initial Reference
Market Price to the initial conversion price of $46.89 per share.
REDEMPTION
The Convertible Debentures mature on October 16, 2026, and may be redeemed,
at the Company's option, in whole or in part, upon written notice to the holders
of the Convertible Debentures of not less than 30 nor more than 60 days, for
cash at the applicable Redemption Price set forth herein, (i) on or after
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October 16, 1999 in the event the closing sale price of the Company Common Stock
as reported on the NYSE is at least $70.34 per share (equivalent to 150% of the
per share conversion price) for a minimum of 20 trading days within a period of
30 consecutive trading days ending on the fifth trading day prior to the notice
of redemption, and (ii) on or after October 16, 2000. See "Description of the
Convertible Debentures--Optional Redemption." The Convertible Debentures may
also be redeemed for cash (in whole, but not in part) in certain circumstances
upon the occurrence of a Redemption Tax Event (as defined below), in which event
the Redemption Price shall be 100% of the principal amount of the Convertible
Debentures so redeemed, plus any accrued and unpaid interest thereon to the date
fixed for redemption. See "--Special Event Distribution or Redemption" below.
The Preferred Securities, which do not have a stated maturity date, must be
redeemed upon the repayment of the Convertible Debentures at their stated
maturity (October 16, 2026) and upon acceleration or earlier redemption of the
Convertible Debentures. Upon redemption of the Convertible Debentures, the Trust
must redeem Trust Securities on a PRO RATA basis having an aggregate liquidation
amount equal to 100% of the aggregate principal amount of the Convertible
Debentures so redeemed at a redemption price corresponding to the Redemption
Price (including accrued and unpaid distributions thereon to the date fixed for
redemption); PROVIDED, HOWEVER, that holders of the Trust Securities be given
not less than 30 nor more than 60 days notice of such redemption. See
"--Redemption Procedures," "Description of the Convertible Debentures--General"
and "Description of the Convertible Debentures--Optional Redemption."
SPECIAL EVENT DISTRIBUTION OR REDEMPTION
If, at any time, a Tax Event or an Investment Company Event each, as defined
below and each, a "Special Event") shall occur and be continuing, the Trust
shall, unless the Convertible Debentures are redeemed upon the occurrence of a
Redemption Tax Event (as defined below), be dissolved with the result that,
after satisfaction of creditors, if any, of the Trust, Convertible Debentures
with an aggregate principal amount equal to the aggregate stated liquidation
amount of, with an interest rate identical to the distribution rate of, and
accrued and unpaid interest equal to accrued and unpaid distributions on, and
having the same record date for payment as the Trust Securities outstanding at
such time, would be distributed on a PRO RATA basis to the holders of the Trust
Securities in liquidation of such holders' interests in the Trust, within 90
days following the occurrence of such Special Event; PROVIDED, HOWEVER, that in
the case of the occurrence of a Tax Event, as a condition of such dissolution
and distribution, the Regular Trustees shall have received an opinion of
nationally recognized independent tax counsel experienced in such matters (a "No
Recognition Opinion"), which opinion may rely on published revenue rulings of
the Internal Revenue Service to the effect that the holders of the Preferred
Securities will not recognize any income, gain or loss for United States Federal
income tax purposes as a result of such dissolution and distribution of
Convertible Debentures; and, PROVIDED, FURTHER, that if at the time there is
available to the Trust the opportunity to eliminate the Special Event within
such 90-day period by taking some ministerial action, such as filing a form or
making an election, or pursuing some other similar reasonable measure which in
the sole judgment of the Company has or will cause no adverse effect on the
Trust, the Company or the holders of the Trust Securities and will involve no
material cost, the Trust will pursue such measure in lieu of dissolution.
Furthermore, if in the case of the occurrence of a Tax Event, (i) the Regular
Trustees have received an opinion (a "Redemption Tax Opinion") of nationally
recognized independent tax counsel experienced in such matters that, as a result
of a Tax Event, there is more than an insubstantial risk that the Company would
be precluded from deducting the interest on the Convertible Debentures for
United States Federal income tax purposes even if the Convertible Debentures
were distributed to the holders of Trust Securities in liquidation of such
holders' interests in the Trust as described above, or (ii) the Regular Trustees
shall have been informed by such tax counsel that a No Recognition Opinion
cannot be delivered to the Trust (each such case, a "Redemption Tax Event"), the
Company shall have the right, upon not less than 30 nor more than 60 days'
notice, to cause the redemption of the Convertible Debentures in whole (but not
in part) for cash within 90 days following the occurrence of such Redemption Tax
Event at a Redemption Price equal to 100% of the principal amount of the
Convertible Debentures so redeemed, plus any accrued and unpaid interest thereon
to the date fixed for redemption, and promptly following
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such redemption, the Trust Securities having an aggregate liquidation amount
equal to the aggregate principal amount of the Convertible Debentures so
redeemed will be redeemed by the Trust, on a PRO RATA basis, at a redemption
price corresponding to the Redemption Price for which such Convertible
Debentures were so redeemed (including accrued and unpaid distributions thereon
to the date fixed for redemption); PROVIDED, HOWEVER, that if at the time there
is available to the Company or the Trust the opportunity to eliminate the
Redemption Tax Event within such 90-day period by taking some ministerial
action, such as filing a form or making an election, or pursuing some other
similar reasonable measure which in the sole judgment of the Company has or will
cause no adverse effect on the Trust, the Company or the holders of the Trust
Securities, and will involve no material cost, the Company or the Trust will
pursue such measure in lieu of redemption. Because the Company is a holding
company, its ability to redeem the Convertible Debentures and, therefore, for
the Trust to redeem the Preferred Securities, is dependent, to a significant
degree, on the ability of the Company's subsidiaries to pay dividends in
sufficient amounts.
"Tax Event" means that the Regular Trustees shall have received an opinion
of nationally recognized independent tax counsel experienced in such matters (a
"Dissolution Tax Opinion") to the effect that as a result of (a) 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, (b) any amendment to, or change in, an
interpretation or application of any such laws or regulations by any legislative
body, court, governmental agency or regulatory authority (including the
enactment of any legislation and the publication of any judicial decision or
regulatory determination), (c) any interpretation or pronouncement that provides
for a position with respect to such laws or regulations that differs from the
generally accepted position or (d) any action taken by any governmental agency
or regulatory authority, which amendment or change is enacted, promulgated,
issued or announced or which interpretation or pronouncement is issued or
announced or which action is taken, in each case, after October 9, 1996
(collectively, a "Change in Tax Law"), there is more than an insubstantial risk
that (i) the Trust is, or will be within 90 days of the date thereof, subject to
United States Federal income tax with respect to interest accrued or received on
the Convertible Debentures, (ii) the Trust is, or will be within 90 days of the
date thereof, subject to more than a DE MINIMIS amount of other taxes, duties or
other governmental charges or (iii) interest payable by the Company on the
Convertible Debentures is not, or within 90 days of the date thereof will not
be, deductible for United States Federal income tax purposes. Notwithstanding
anything in the previous sentence to the contrary, a Tax Event shall not include
any Change in Tax Law that requires the Company for United States Federal income
tax purposes to defer taking a deduction for any original issue discount ("OID")
that accrues with respect to the Convertible Debentures until the interest
payment related to such OID is paid in money; PROVIDED, that such Change in Tax
Law does not create more than an insubstantial risk that the Company will be
prevented from taking a deduction for OID accruing with respect to the
Convertible Debentures at a date that is no later than the date the interest
payment related to such OID is actually paid by the Company in money.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of nationally recognized independent counsel experienced in
practice under the Investment Company Act of 1940, as amended (the "1940 Act"),
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 1940 Act Law"),
there is more than an insubstantial risk that the Trust is or will be considered
an "investment company" which is required to be registered under the 1940 Act,
which Change in 1940 Act Law becomes effective on or after October 9, 1996.
On the date fixed for any distribution of Convertible Debentures, upon
dissolution of the Trust, (i) the Preferred Securities and the Common Securities
will no longer be deemed to be outstanding and (ii) certificates representing
Trust Securities will be deemed to represent beneficial interests in the
Convertible Debentures having an aggregate principal amount equal to the stated
liquidation amount of, and bearing accrued and unpaid interest equal to accrued
and unpaid distributions on, such Trust
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Securities until such certificates are presented to the Company or the Company's
agent for transfer or reissuance.
There can be no assurance as to the market price for the Convertible
Debentures which may be distributed in exchange for Preferred Securities if a
dissolution and liquidation of the Trust were to occur. Accordingly, the
Convertible Debentures which the investor may subsequently receive on
dissolution and liquidation of the Trust may trade at a discount to the price of
the Preferred Securities exchanged. If the Convertible Debentures are
distributed to the holders of the Preferred Securities, the Company will use its
best efforts to cause the Convertible Debentures to be listed on the NYSE or on
any other national securities exchange or similar organization as the Preferred
Securities are then listed or quoted.
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all of the outstanding Preferred
Securities unless all accrued and unpaid distributions have been paid on all
Preferred Securities for all quarterly distribution periods terminating on or
prior to the date of redemption.
In the event of any redemption in part, the Trust shall not be required to
(i) issue, register the transfer of or exchange any Preferred Security during a
period beginning at the opening of business 15 days before any selection for
redemption of Preferred Securities and ending at the close of business on the
earliest date on which the relevant notice of redemption is deemed to have been
given to all holders of Preferred Securities to be so redeemed and (ii) register
the transfer of or exchange of any Preferred Securities so selected for
redemption, in whole or in part, except for the unredeemed portion of any
Preferred Securities being redeemed in part.
If the Trust gives a notice of redemption in respect of Preferred Securities
(which notice will be irrevocable), and if the Company has paid to the Property
Trustee a sufficient amount of cash in connection with the related redemption or
maturity of the Convertible Debentures, then, by 12:00 noon, New York City time,
on the redemption date, the Trust will irrevocably deposit with the Depository
Trust Company ("DTC") funds sufficient to pay the amount payable on redemption
of all book-entry certificates, will give DTC irrevocable instructions and
authority to pay such amount in respect of Preferred Securities represented by
one or more fully registered global Preferred Security certificates (the "Global
Certificates") registered in the name of Cede & Co. (as nominee for DTC) and
will irrevocably deposit with the paying agent for the Preferred Securities
funds sufficient to pay such amount in respect of any Preferred Security
certificates in fully registered form (the "Certificated Securities") and will
give such paying agent irrevocable instructions and authority to pay such amount
to the holders of Certificated Securities upon surrender of their certificates.
If notice of redemption shall have been given and funds are deposited as
required, then upon the date of such deposit, all rights of holders of such
Preferred Securities so called for redemption will cease, except the right of
the holders of such Preferred Securities to receive the Redemption Price, but
without interest on such Redemption Price. In the event that any date fixed for
redemption of Preferred Securities is not a Business Day, then payment of the
amount payable on such date will be made on the next succeeding day which is a
Business Day (without any interest or other payment in respect of any such
delay), except that, if such Business Day falls in the next calendar year, such
payment will be made on the immediately preceding Business Day. In the event
that payment of the Redemption Price for Preferred Securities is improperly
withheld or refused and not paid either by the Trust or by the Company pursuant
to the Guarantee described under "Description of the Guarantee," distributions
on such Preferred Securities will continue to accrue at the then applicable
rate, from the original redemption date to the date of payment, in which case
the actual payment date will be considered the date fixed for redemption for
purposes of calculating the amount payable upon redemption (other than for
calculating any premium).
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In the event that fewer than all of the outstanding Trust Securities are to
be redeemed, the Trust Securities will be redeemed PRO RATA, and in the event
that fewer than all of the outstanding Preferred Securities are to be redeemed,
the Preferred Securities will be redeemed PRO RATA.
Subject to the foregoing and applicable law (including, without limitation,
United States Federal securities laws), the Company or its subsidiaries may at
any time and from time to time purchase outstanding Preferred Securities by
tender offer, in the open market or by private agreement.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the amount payable upon redemption of, the
Trust Securities, as applicable, shall be made PRO RATA based on the liquidation
amount of the Trust Securities; PROVIDED, HOWEVER, that if on any distribution
date or redemption date a Declaration Event of Default shall have occurred and
be continuing, no payment of any distribution on, or amount payable upon
redemption of, any Common Security, and no other payment on account of the
redemption, liquidation or other acquisition of Common Securities shall be made
unless payment in full in cash of all accumulated and unpaid distributions on
all outstanding Preferred Securities for all distribution periods terminating on
or prior thereto, or in the case of payment of the amount payable upon
redemption of the Preferred Securities, the full amount with respect to all
outstanding Preferred Securities, 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 the amount payable upon redemption of,
the Preferred Securities then due and payable.
In the case of any Declaration Event of Default, the holder of Common
Securities will be deemed to have waived any such Declaration Event of Default
until all such Declaration Events of Default with respect to the Preferred
Securities have been cured, waived or otherwise eliminated. Until any such
Declaration Events of Default with respect to the Preferred Securities have been
so cured, waived or otherwise eliminated, the Property Trustee shall act solely
on behalf of the holders of the Preferred Securities and not the holder of the
Common Securities, and only the holders of the Preferred Securities will have
the right to direct the Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each a "Liquidation"), the then holders
of the Preferred Securities will be entitled to receive out of the assets of the
Trust, after satisfaction of liabilities to creditors, distributions in an
amount equal to the aggregate of the stated liquidation amount of $50 per
Preferred Security plus accrued and unpaid distributions thereon to the date of
payment (the "Liquidation Distribution"), unless, in connection with such
Liquidation related to a Special Event, Convertible Debentures in an aggregate
stated principal amount equal to the aggregate stated liquidation amount of,
with an interest rate identical to the distribution rate of, and accrued and
unpaid interest equal to accrued and unpaid distributions on, the Preferred
Securities have been distributed on a PRO RATA basis to the holders of the
Preferred Securities.
If, upon any Liquidation (other than a Liquidation related to a Special
Event as described in the preceding paragraph), the Liquidation Distribution can
be paid only in part because the Trust has insufficient assets available to pay
in full the aggregate Liquidation Distribution, then the amounts payable
directly by the Trust on the Preferred Securities shall be paid on a PRO RATA
basis. The holders of the Common Securities will be entitled to receive
distributions upon any such dissolution PRO RATA with the holders of the
Preferred Securities, except that if a Declaration Event of Default has occurred
and is continuing, the Preferred Securities shall have a preference over the
Common Securities with regard to such distributions.
Pursuant to the Declaration, the Trust shall dissolve (i) on October 16,
2031, the expiration of the term of the Trust, (ii) upon the bankruptcy of the
Company, (iii) upon the filing of a certificate of
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dissolution or its equivalent with respect to the Company, or the revocation of
the charter of the Company and the expiration of 90 days after the date of
revocation without a reinstatement thereof, (iv) after having obtained the
consent of at least a majority in liquidation amount of the Trust Securities,
voting together as a single class, to dissolve, (v) upon the distribution of all
of the Convertible Debentures in connection with the occurrence of a Special
Event, (vi) upon the entry of a decree of a judicial dissolution of the Company
or the Trust, or (vii) upon the redemption or conversion of all the Preferred
Securities. Subject to clause (v) above and the terms of the Trust Securities as
set forth in the Declaration, following the dissolution of the Trust, the
Trustees shall liquidate the Trust and file a certificate of cancellation for
its termination.
MERGER, CONSOLIDATION OR AMALGAMATION OF THE TRUST
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other entity, except as
described below. The Trust may, with the consent of a majority of the trustees
who are employees or officers of, or affiliated with, the Company (the "Regular
Trustees") and without the consent of the holders of the Trust Securities, the
Property Trustee or The Bank of New York (Delaware) (the "Delaware Trustee"),
consolidate, amalgamate, merge with or into, or be replaced by a trust organized
as such under the laws of any State of the United States; PROVIDED, that (i) if
the Trust is not the survivor, such successor entity either expressly assumes
all of the obligations of the Trust under the Trust Securities or substitutes
for the Preferred Securities other securities having substantially the same
terms as the Preferred Securities (the "Successor Securities"), so long as the
Successor Securities rank the same as the Preferred Securities rank with respect
to distributions, assets and payments, (ii) the Company expressly acknowledges a
trustee of such successor entity possessing the same powers and duties as the
Property Trustee as the holder of the Convertible Debentures, (iii) the
Preferred Securities or any Successor Securities are listed, or any Successor
Securities will be listed upon notification of issuance, on any national
securities exchange or with another organization on which the Preferred
Securities are then listed or quoted, (iv) such merger, consolidation,
amalgamation or replacement does not cause the Preferred Securities (including
any Successor Securities) to be downgraded by any nationally recognized
statistical rating organization, (v) such merger, consolidation, amalgamation or
replacement does not adversely affect the rights, preferences and privileges of
the holders of the Preferred Securities (including any Successor Securities) in
any material respect (other than with respect to any dilution of the holders'
interest in the new entity), (vi) such successor entity has a purpose
substantially identical to that of the Trust, (vii) the Company guarantees the
obligations of such successor entity under the Successor Securities to the same
extent as provided by the Guarantee, (viii) prior to such merger, consolidation,
amalgamation or replacement, the Company has received an opinion of a nationally
recognized independent counsel to the Trust reasonably acceptable to the
Property Trustee experienced in such matters to the effect that: (A) such
merger, consolidation, amalgamation or replacement will 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 with
respect to any dilution of the holders' interest in the new entity), (B)
following such merger, consolidation, amalgamation or replacement, neither the
Trust nor such successor entity will be required to register as an investment
company under the 1940 Act, and (C) following such merger, consolidation,
amalgamation or replacement, the Trust (or such successor trust) will be treated
as a grantor trust for United States Federal income tax purposes.
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
constitutes a Declaration Event of Default; PROVIDED, that pursuant to the
Declaration, the holder of the Common Securities will be deemed to have waived
any Declaration Event of Default with respect to the Common Securities until all
Declaration Events of Default with respect to the Preferred Securities have been
cured, waived or otherwise eliminated. Until such Declaration Events of Default
with respect to the Preferred Securities have been so cured, waived or otherwise
eliminated, the Property Trustee will be deemed to be acting
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solely on behalf of the holders of the Preferred Securities and only the holders
of the Preferred Securities will have the right to direct the Property Trustee
with respect to certain matters under the Declaration and, therefore, the
Indenture.
If the Property Trustee fails to enforce its rights under the Convertible
Debentures after a holder of Preferred Securities has made a written request,
such holder of record of Preferred Securities may, to the extent permitted by
law, institute a legal proceeding against the Company to enforce the Property
Trustee's rights under the Convertible Debentures without first instituting any
legal proceeding against the Property Trustee or any other person or entity.
Notwithstanding the foregoing, if a Declaration Event of Default has occurred
and is continuing and such event is attributable to the failure of the Company
to pay interest or principal on the Convertible Debentures on the date such
interest or principal is otherwise payable (or in the case of redemption, the
redemption date), then a holder of Preferred Securities may directly institute a
proceeding (a "Direct Action") for enforcement of payment to such holder of the
principal of or interest on the Convertible Debentures having a principal amount
equal to the aggregate liquidation amount of the Preferred Securities of such
holder on or after the respective due date specified in the Convertible
Debentures. In connection with such Direct Action, the Company will be
subrogated to the rights of such holder of Preferred Securities under the
Declaration to the extent of any payment made to such holder of Preferred
Securities in such Direct Action. The holders of Preferred Securities will not
be able to exercise directly any other remedy available to the holders of the
Convertible Debentures.
Upon the occurrence of a Declaration Event of Default, the Property Trustee,
as the sole holder of the Convertible Debentures, or, in the event that the
Convertible Debentures have been distributed to the holders of the Preferred
Securities due to the occurrence of a Special Event, the holders of not less
than 25% in principal amount of outstanding Convertible Debentures, will have
the right under the Indenture to declare the principal of and interest on the
Convertible Debentures to be immediately due and payable. The Company and the
Trust are each required to file annually with the Property Trustee an officer's
certificate as to its compliance with all conditions and covenants under the
Declaration.
VOTING RIGHTS
Except as described herein, under the Delaware Business Trust Act, as
amended (the "Trust Act"), the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"), and under "Description of the Guarantee--Amendments and
Assignment," and as otherwise required by law and the Declaration, the holders
of the Preferred Securities have no voting rights.
Subject to the requirement of the Property Trustee to obtain a tax opinion
in certain circumstances set forth in the last sentence of this paragraph, the
holders of a majority in liquidation amount of the Preferred Securities have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Property Trustee, or direct the exercise of any trust or
power conferred upon the Property Trustee under the Declaration, including the
right to direct the Property Trustee, as holder of the Convertible Debentures,
to (i) exercise the remedies available to it under the Indenture as a holder of
the Convertible Debentures, (ii) waive any past Indenture Event of Default that
is waivable under the Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal amount of all the Convertible Debentures shall be
due and payable, or (iv) consent to any amendment, modification, or termination
of the Indenture or the Convertible Debentures where such consent shall be
required; PROVIDED, HOWEVER, that where a consent or action under the Indenture
would require the consent or act of the holders of more than a majority of the
aggregate principal amount of Convertible Debentures affected thereby, only the
holders of the percentage of the aggregate stated liquidation amount of the
Preferred Securities which is at least equal to the percentage required under
the Indenture may direct the Property Trustee to give such consent or take such
action. If the Property Trustee fails to enforce its rights under the
Convertible Debentures after a holder of record of Preferred Securities has made
a written request, such holder of record of Preferred Securities may, to the
extent permitted by law, institute a legal proceeding against the Company to
enforce the Property Trustee's rights under the Convertible Debentures without
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first instituting any legal proceeding against the Property Trustee or any other
person or entity. Notwithstanding the foregoing, if a Declaration Event of
Default has occurred and is continuing and such event is attributable to the
failure of the Company to pay interest or principal on the Convertible
Debentures on the date such interest or principal is otherwise payable (or in
the case of redemption on the redemption date), then a holder of Preferred
Securities may directly institute a proceeding for enforcement of payment to
such holder of the principal of or interest on the Convertible Debentures having
a principal amount equal to the aggregate liquidation amount of the Preferred
Securities of such holder on or after the respective due date specified in the
Convertible Debentures. The Property Trustee shall notify all holders of the
Preferred Securities of any notice of default received from the Indenture
Trustee with respect to the Convertible Debentures. Such notice shall state that
such Indenture Event of Default also constitutes a Declaration Event of Default.
The Property Trustee is under no obligation to take any of the actions described
in clause (i), (ii) or (iii) above unless the Property Trustee has obtained an
opinion of independent tax counsel to the effect that as a result of such
action, the Trust will not fail to be classified as a grantor trust for United
States Federal income tax purposes and each holder will be treated as owning an
undivided beneficial interest in the Convertible Debentures.
In the event the consent of the Property Trustee, as the holder of the
Convertible Debentures, is required under the Indenture with respect to any
amendment, modification or termination of the Indenture, the Property Trustee
shall request the direction of the holders of the Trust Securities with respect
to such amendment, modification or termination and shall vote with respect to
such amendment, modification or termination as directed by a majority in
liquidation amount of the Trust Securities voting together as a single class;
PROVIDED, HOWEVER, that where a consent under the Indenture would require the
consent of the holders of more than a majority of the aggregate principal amount
of the Convertible Debentures, the Property Trustee may only give such consent
at the direction of the holders of at least the same proportion in aggregate
stated liquidation amount of the Trust Securities. The Property Trustee shall
not take any such action in accordance with the directions of the holders of the
Trust Securities unless the Property Trustee has obtained an opinion of tax
counsel to the effect that for the purposes of United States Federal income tax
the Trust will not be classified as other than a grantor trust.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of the Preferred Securities
may be given at a separate meeting of holders of the Preferred Securities
convened for such purpose, at a meeting of all of the holders of the Trust
Securities or pursuant to written consent. The Regular Trustees will cause a
notice of any meeting at which holders of Preferred Securities are entitled to
vote, or of any matter upon which action by written consent of such holders is
to be taken, to be mailed to each holder of record of Preferred Securities. Each
such notice will include a statement setting forth the following information:
(i) the date of such meeting or the date by which such action is to be taken;
(ii) a description of any resolution proposed for adoption at such meeting on
which such holders are entitled to vote or of such matter upon which written
consent is sought; and (iii) instructions for the delivery of proxies or
consents. No vote or consent of the holders of Preferred Securities will be
required for the Trust to redeem and cancel Preferred Securities or distribute
Convertible Debentures in accordance with the Declaration.
Notwithstanding that holders of Preferred Securities are entitled to vote or
consent under any of the circumstances described above, any of the Preferred
Securities that are owned at such time by the Company or any entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, the Company, shall not be entitled to vote or consent and shall,
for purposes of such vote or consent, be treated as if such Preferred Securities
were not outstanding.
Holders of the Preferred Securities have no rights to appoint or remove the
Regular Trustees, who may be appointed, removed or replaced solely by the
Company as the holder of all of the Common Securities.
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MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the Regular
Trustees (and in certain circumstances the Property Trustee, the Delaware
Trustee and the Company), PROVIDED, that if any proposed amendment provides for,
or the Regular Trustees otherwise propose to effect, (i) any action that would
adversely affect the powers, preferences or special rights of the Trust
Securities, whether by way of amendment to the Declaration or otherwise, or (ii)
the dissolution, winding-up or termination of the Trust other than pursuant to
the terms of the Declaration, then the holders of the Trust Securities voting
together as a single class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with the
approval of at least a majority in liquidation amount of the Trust Securities
affected thereby; PROVIDED, FURTHER, that if any amendment or proposal referred
to in clause (i) above would adversely affect only the Preferred Securities or
the Common Securities, then only the affected class will be entitled to vote on
such amendment or proposal and such amendment or proposal shall not be effective
except with the approval of a majority in liquidation amount of such class of
Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified for purposes of United States Federal income taxation as other
than a grantor trust, (ii) reduce or otherwise adversely affect the powers of
the Property Trustee or (iii) cause the Trust to be deemed an "investment
company" required to be registered under the 1940 Act.
TRANSFER RESTRICTIONS
The Preferred Securities (and any Convertible Debentures distributed to
holders of Preferred Securities) are subject to restrictions on transfer and
will bear a legend to that effect. Shares of Common Stock received upon
conversion of Preferred Securities or Convertible Debentures subject to such
restrictions will also be subject to such restrictions and will bear a
comparable legend.
REGISTRATION RIGHTS
The Company and the Trust have entered into a registration rights agreement
with the Initial Purchasers (the "Registration Rights Agreement") pursuant to
which the Company and the Trust have agreed, at the Company's expense, for the
benefit of the holders of the Preferred Securities, the Guarantee, the
Convertible Debentures and the shares of Common Stock issuable upon conversion
of the Convertible Debentures (together, the "Registrable Securities"), (i) to
file with the Securities and Exchange Commission (the "Commission") by December
16, 1996 a registration statement (the "Shelf Registration Statement") covering
resales of the Registrable Securities, (ii) to use their best efforts to cause
the Shelf Registration Statement to be declared effective under the Securities
Act by March 17, 1997, and (iii) to use their best efforts to keep effective the
Shelf Registration Statement until three years after the date it is declared
effective or such earlier date as all Registrable Securities shall have been
disposed of or on which all Registrable Securities held by persons that are not
affiliates of the Company or the Trust may be resold without registration
pursuant to Rule 144(k) under the Securities Act (the "Effectiveness Period").
The Company will provide to each holder of Registrable Securities copies of the
prospectus which is a part of the Shelf Registration Statement, notify each
holder when the Shelf Registration Statement has become effective and take
certain other actions as are required to permit unrestricted resales of the
Registrable Securities. A holder of Registrable Securities that sells such
Registrable Securities pursuant to the Shelf Registration Statement will be
required to be named as a selling security holder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement, including
certain indemnification obligations.
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If (i) on or prior to December 16, 1996 a Shelf Registration Statement has
not been filed with the Commission, or (ii) on or prior to March 17, 1997 such
Shelf Registration Statement is not declared effective (each, a "Registration
Default"), additional interest ("Liquidated Damages") will accrue on the
Convertible Debentures and, accordingly, additional distributions will accrue on
the Preferred Securities, in each case from and including the day following such
Registration Default. Liquidated Damages will be paid quarterly in arrears, with
the first quarterly payment due on the first interest or distribution payment
date, as applicable, following the date on which such Liquidated Damages begin
to accrue, and will accrue at a rate per annum equal to an additional
one-quarter of one percent (0.25%) of the principal amount or liquidation
amount, as applicable, to and including the 90th day following such Registration
Default and one-half of one percent (0.50%) thereof from and after the 91st day
following such Registration Default. Such Liquidated Damages will cease to
accrue on the date on which the Shelf Registration Statement is filed with or
declared effective by the Commission, as applicable. In the event that the Shelf
Registration Statement ceases to be effective during the Effectiveness Period
for more than 60 days, whether or not consecutive, during any 12-month period,
then Liquidated Damages will accrue at a rate per annum equal to an additional
one-half of one percent (0.50%) of the principal amount or liquidation amount,
as applicable, from such 61st day until such time as the Shelf Registration
Statement again becomes effective.
The Company and the Trust have agreed in the Registration Rights Agreement
to use their best efforts to cause the Preferred Securities and the Common Stock
issuable upon conversion of the Convertible Debentures to be listed on the NYSE
upon effectiveness of the Shelf Registration Statement.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities represented by the Global
Certificates shall be made to DTC, which shall credit the relevant accounts at
DTC on the applicable distribution dates or, in the case of Certificated
Securities, such payments shall be made by check mailed to the address of the
holder entitled thereto at such address as shall appear on the register of the
Property Trustee. The Paying Agent is The Bank of New York. The Paying Agent is
permitted to resign as Paying Agent upon 30 days' written notice to the Issuer
Trustees. In the event that The Bank of New York shall no longer be the Paying
Agent, the Regular Trustees shall appoint a successor to act as Paying Agent
(which shall be a bank or company).
REGISTRAR, TRANSFER AGENT, PAYING AGENT AND CONVERSION AGENT
The Property Trustee acts as Registrar, Transfer Agent, Paying Agent and
Conversion Agent for the Preferred Securities.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of the Trust, but upon payment (with the giving of such
indemnity as the Trust or the Company may require) of any tax or other
government charges which may be imposed in relation to it.
The Trust is not required to register or cause to be registered the transfer
of Preferred Securities after such Preferred Securities have been called for
redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Company and certain of its subsidiaries may maintain deposit accounts
and conduct other banking transactions with the Property Trustee in the ordinary
course of their businesses. The Property Trustee has undertaken, prior to the
occurrence of a default with respect to the Trust Securities, to perform only
such duties as are specifically set forth in the Declaration and, after default,
to exercise the same degree of care as a prudent individual would exercise in
the conduct of his or her own affairs. Subject to such provisions, the Property
Trustee is under no obligation to exercise any of the powers vested in it by the
Declaration at the request of any holder of Preferred Securities, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The holders of
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Preferred Securities will not be required to offer such indemnity in the event
such holders, by exercising their voting rights, direct the Property Trustee to
take any action following a Declaration Event of Default.
GOVERNING LAW
The Declaration and the Preferred Securities are governed by, and construed
in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to conduct the affairs of
and to operate the Trust in such a way that the Trust will not be deemed to be
an "investment company" required to be registered under the 1940 Act or
characterized as other than a grantor trust for United States Federal income tax
purposes so that the Convertible Debentures are treated as indebtedness of the
Company for United States Federal income tax purposes. In this connection, the
Regular Trustees are authorized to take any action, not inconsistent with
applicable law, the certificate of trust or the Declaration that the Regular
Trustees determine in their discretion to be necessary or desirable for such
purposes as long as such action does not adversely affect the interests of the
holders of the Preferred Securities.
Holders of the Preferred Securities have no preemptive rights.
DESCRIPTION OF THE GUARANTEE
GENERAL
Pursuant to and to the extent set forth in the Guarantee, the Company has
irrevocably and unconditionally agreed to pay in full to the holders of the
Preferred Securities (except to the extent paid by the Trust), as and when due,
regardless of any defense, right of setoff or counterclaim which the Trust may
have or assert, the following payments (the "Guarantee Payments"), without
duplication: (i) any accrued and unpaid distributions that are required to be
paid on the Preferred Securities to the extent the Trust has funds available
therefor, (ii) the Redemption Price with respect to any Preferred Securities
called for redemption by the Trust to the extent the Trust has funds available
therefor, and (iii) upon a voluntary or involuntary dissolution, winding-up or
termination of the Trust (other than in connection with the distribution of
Convertible Debentures to the holders of Preferred Securities or the redemption
of all the Preferred Securities), the lesser of (a) the aggregate of the
liquidation amount and all accrued and unpaid distributions on the Preferred
Securities to the date of payment, to the extent the Trust has funds available
therefor, and (b) the amount of assets of the Trust remaining available for
distribution to holders of Preferred Securities upon the liquidation of the
Trust. The holders of a majority in liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under the
Guarantee. Any holder of Preferred Securities may directly institute a legal
proceeding against the Company to enforce the obligations of the Company under
the Guarantee without first instituting a legal proceeding against the Trust,
the Guarantee Trustee or any other person or entity. If the Company were to
default on its obligation to pay amounts payable on the Convertible Debentures,
the Trust would lack available funds for the payment of distributions or amounts
payable on redemption of the Preferred Securities or otherwise, and in such
event holders of the Preferred Securities would not be able to rely upon the
Guarantee for payment of such amounts. Instead, a holder of the Preferred
Securities would be required to rely on the enforcement (1) by the Property
Trustee of its rights, as registered holder of the Convertible Debentures,
against the Company pursuant to the terms of the Convertible Debentures or (2)
by such holder of Preferred Securities of its right against the Company to
enforce payments on the Convertible Debentures. See "Description of the
Convertible Debentures." The Declaration provides that each holder of Preferred
Securities, by acceptance thereof, agrees to the provisions of the Guarantee and
the Indenture.
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The Guarantee is a guarantee with respect to the Preferred Securities from
the time of issuance of such Preferred Securities but does not apply to any
payment of distributions or the Redemption Price, or to such payments upon the
dissolution, winding-up or termination of the Trust, except to the extent the
Trust has funds available therefor. If the Company does not make interest
payments on the Convertible Debentures, the Trust will not pay distributions on
the Preferred Securities and will not have funds available therefor. See
"Description of the Convertible Debentures." The Guarantee, when taken together
with the Company's obligations under the Convertible Debentures, the Indenture
(which provides that the Company may defer payments of interest on the
Convertible Debentures) and the Declaration, including its obligations to pay
costs, expenses, debts and liabilities of the Trust (other than with respect to
the Trust Securities), provides a full and unconditional guarantee by the
Company of payments due on the Preferred Securities issued by the Trust (subject
to the Company's right to defer payments of interest on the Convertible
Debentures).
The Company also separately has agreed to irrevocably and unconditionally
guarantee the obligations of the Trust with respect to the Common Securities
(the "Common Securities Guarantee") to the same extent as the Guarantee, except
that upon the occurrence and during the continuation of a Declaration Event of
Default, holders of Preferred Securities shall have priority over holders of
Common Securities with respect to distributions and payments on liquidation,
redemption or otherwise.
CERTAIN COVENANTS OF THE COMPANY
In the Guarantee, the Company has covenanted that, so long as any Preferred
Securities remain outstanding, if (i) the Company has exercised its option to
defer interest payments on the Convertible Debentures by extending the interest
payment period and such extension shall be continuing, (ii) the Company shall be
in default with respect to its payment or other obligations under the Guarantee
or (iii) there shall have occurred and be continuing any event that, with the
giving of notice or the lapse of time or both, would constitute an Indenture
Event of Default, then the Company (a) may not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire or make a
liquidation payment with respect to, any of its capital stock (except for (i)
dividends or distributions in shares of Common Stock on Common Stock, (ii)
purchases or acquisitions of shares of Common Stock made in connection with
employee benefit plans of the Company or its subsidiaries, purchases made from
employees or officers pursuant to employment agreements, or purchases made under
option agreements (or upon the exercise of options granted thereunder), PROVIDED
the plan or agreement was in existence on October 9, 1996, with officers or
employees of the Company or its subsidiaries, and PROVIDED FURTHER, that
repurchases by the Company made from officers or employees of the Company or its
subsidiaries pursuant to employment or option agreements shall be made at a
price not to exceed market value on the date of any such repurchase and shall
not exceed $5 million in the aggregate for all such employees and officers,
(iii) conversions or exchanges of any class of common stock into any other class
of common stock or (iv) purchases of fractional interests in shares of the
Company's capital stock pursuant to the conversion or exchange provisions of any
of the Company's securities being converted or exchanged), (b) shall not make
any payment of interest, principal or premium, if any, on or repay, repurchase
or redeem any debt securities of the Company that rank junior to or PARI PASSU
with the Convertible Debentures (except by conversion into or exchange for
shares of Common Stock), and (c) shall not make any guarantee payments with
respect to the foregoing (other than such payments made pursuant to the
Guarantee).
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of Preferred Securities (in which case no vote will be
required), the Guarantee may be amended only with the prior approval of the
holders of at least a majority in liquidation amount of all the outstanding
Preferred Securities. The manner of obtaining any such approval of holders of
the Preferred Securities is as set forth under "Description of the Preferred
Securities--Voting Rights." All guarantees and agreements contained
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<PAGE>
in the Guarantee bind the successors, assigns, receivers, trustees and
representatives of the Company and inure to the benefit of the holders of the
outstanding Preferred Securities. Except in connection with any permitted merger
or consolidation of the Company with or into another entity or any permitted
sale, transfer or lease of the Company's assets to another entity as described
under "Description of the Convertible Debentures--Consolidation, Merger and Sale
of Assets," the Company may not assign its rights or delegate its obligations
under the Guarantee without the prior approval of the holders of at least a
majority of the aggregate stated liquidation amount of the outstanding Preferred
Securities.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate as to each holder of Preferred Securities (i)
upon full payment of the Redemption Price of all Preferred Securities, (ii) upon
distribution of the Convertible Debentures held by the Trust to the holders of
the Preferred Securities, (iii) upon liquidation of the Trust or (iv) upon the
distribution of Common Stock to such holder in respect of the conversion of such
holder's Preferred Securities into Common Stock, and will terminate completely
upon full payment of the amounts payable in accordance with the Declaration. The
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of Preferred Securities must restore payment of
any sum paid under such Preferred Securities or such Guarantee.
STATUS OF THE GUARANTEE
The Guarantee constitutes an unsecured obligation of the Company and ranks
(i) senior to the Common Stock, (ii) PARI PASSU with the most senior preferred
stock issued from time to time by the Company and with any guarantee now or
hereafter entered into by the Company with respect to any preferred or
preference stock of the Company or its affiliates, and (iii) subordinate and
junior to all other liabilities of the Company except any liabilities that may
be PARI PASSU by their terms.
The Company's subsidiaries do not guarantee the payment of principal and
interest on the Convertible Debentures and, accordingly, claims of holders of
the Preferred Securities effectively are subordinate to the claims of creditors
and policyholders of the Company's subsidiaries. In addition, the Convertible
Debentures are subordinate to and junior in right of payment to Senior Debt (as
defined herein). See "Description of the Convertible Debentures."
The Guarantee constitutes a guarantee of payment and not of collection (that
is, the guaranteed party may directly institute a legal proceeding against the
Company to enforce its rights under the Guarantee without instituting a legal
proceeding against any other person or entity).
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee has undertaken, prior to the occurrence of a default
with respect to the Guarantee, to perform only such duties as are specifically
set forth in the Guarantee and, after default with respect to the Guarantee, to
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by the
Guarantee at the request of any holder of Preferred Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
GOVERNING LAW
The Guarantee is governed by, and construed in accordance with, the laws of
the State of New York.
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<PAGE>
DESCRIPTION OF THE CONVERTIBLE DEBENTURES
Under certain circumstances involving the dissolution of the Trust following
the occurrence of a Special Event, Convertible Debentures may be distributed to
the holders of the Trust Securities in liquidation of the Trust. See
"Description of the Preferred Securities--Special Event Distribution or
Redemption."
If the Convertible Debentures are distributed to the holders of Preferred
Securities, the Company will use its best efforts to have the Convertible
Debentures listed on the NYSE or on such other national securities exchange or
similar organization on which the Preferred Securities are then listed or
quoted.
GENERAL
The Convertible Debentures will be issued as unsecured debt under the
Indenture. The Convertible Debentures are limited to an aggregate principal
amount of $177,835,100, such amount being the sum of the aggregate stated
liquidation amount of the Preferred Securities and the Common Securities.
The Convertible Debentures are not subject to a sinking fund provision. The
entire principal amount of the Convertible Debentures will become due and
payable, together with any accrued and unpaid interest thereon, including
Compounded Interest (as defined herein) and Additional Interest, if any, on
October 16, 2026.
The Convertible Debentures, if distributed to holders of Preferred
Securities in liquidation of such holders' interest in the Trust, will initially
be issued in the same form as the Preferred Securities that such Convertible
Debentures replace. Any Global Certificate will be replaced with one or more
Global Securities. Under certain limited circumstances, Convertible Debentures
may be issued in certificated form in exchange for a Global Security. In the
event that Convertible Debentures are issued in certificated form, such
Convertible Debentures will be in denominations of $50 and integral multiples
thereof and may be transferred or exchanged at the offices described below.
Payments on Convertible Debentures issued as a Global Security will be made
to DTC, a successor depository or, in the event that no depository is used, to a
Paying Agent for the Convertible Debentures. In the event Convertible Debentures
are issued in certificated form, principal and interest will be payable, the
transfer of the Convertible Debentures will be registrable and Convertible
Debentures will be exchangeable for Convertible Debentures of other
denominations of a like aggregate principal amount at the corporate trust office
of the Indenture Trustee in New York City; PROVIDED, that unless the Convertible
Debentures are held by the Trust or any successor permissible under "Description
of the Preferred Securities--Merger, Consolidation or Amalgamation of the
Trust," payment of interest may be made at the option of the Company by check
mailed to the address of the persons entitled thereto.
There are no covenants or provisions in the Indenture that afford holders of
Convertible Debentures protection in the event of a highly leveraged transaction
or other similar transaction involving the Company that may adversely affect
such holders.
INTEREST
Each Convertible Debenture bears interest at the rate of 6 1/4% per annum
from October 16, 1996 (the original date of issuance), payable quarterly in
arrears on January 15, April 15, July 15 and October 15 (each, an "Interest
Payment Date"), commencing January 15, 1997, to the person in whose name such
Convertible Debenture is registered, subject to certain exceptions, at the close
of business on the Business Day next preceding such Interest Payment Date. If
any Preferred Securities are held in certificated form, the record date for each
Interest Payment Date shall be 15 days prior to such Interest Payment Date.
The amount of interest payable for any period is computed on the basis of a
360-day year of twelve 30-day months. The amount of interest payable for any
period shorter than a full quarterly period is
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<PAGE>
computed on the basis of the actual number of days elapsed. In the event that
any date on which interest is payable on the Convertible Debentures is not a
Business Day, then payment of the interest payable on such date will be made on
the next succeeding day which is a Business Day (without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company has the right at any time during the term of the Convertible
Debentures to defer interest payments from time to time by extending the
interest payment period for successive periods not exceeding 20 consecutive
quarters for each such period; except that no Extension Period may extend beyond
the maturity date of the Convertible Debentures. At the end of each Extension
Period, the Company shall pay all interest then accrued and unpaid (including
Additional Interest and Liquidated Damages) together with interest thereon
compounded quarterly at the rate specified for the Convertible Debentures to the
extent permitted by applicable law ("Compounded Interest"); PROVIDED, that
during any Extension Period, the Company (a) shall not declare or pay dividends
on, make distributions with respect to, or redeem, purchase or acquire, or make
a liquidation payment with respect to, any of its capital stock (except for (i)
dividends or distributions in shares of Common Stock on Common Stock, (ii)
purchases or acquisitions of shares of Common Stock made in connection with any
employee benefit plan of the Company or its subsidiaries, purchases made from
employees or officers pursuant to employment agreements, or purchases made under
option agreements (or upon the exercise of options granted thereunder), PROVIDED
the plan or agreement was in existence on October 9, 1996, and PROVIDED,
FURTHER, that repurchases by the Company made from officers or employees of the
Company or its subsidiaries pursuant to employment agreements shall be made at a
price not to exceed the market value on the date of any such repurchase and
shall not exceed $5 million in the aggregate for all such employees and
officers, (iii) conversions or exchanges of any shares of any class of common
stock into any other class of common stock, and (iv) purchases of fractional
interests of shares of the Company's capital stock pursuant to the conversion or
exchange provisions of any of the Company's securities being converted or
exchanged), (b) shall not make any payment of interest, principal or premium, if
any, on or repay repurchase or redeem, any debt securities issued by the Company
that rank PARI PASSU with or junior to the Convertible Debentures (except by
conversion into or exchange for shares of Common Stock), and (c) shall not make
any guarantee payments with respect to the foregoing. Upon the termination of
any Extension Period and the payment of all amounts then due, the Company may
commence a new Extension Period, subject to the above requirements. No interest
during an Extension Period, except at the end thereof, shall be due and payable.
The Company has no current intention of exercising its right to defer payments
of interest by extending the interest payment period on the Convertible
Debentures. If the Property Trustee is the sole holder of the Convertible
Debentures, the Company shall give the Regular Trustees and the Property Trustee
notice of its selection of such Extension Period at least one Business Day prior
to the earlier of (i) the date the distributions on the Preferred Securities are
payable or (ii) the date the Trust is required to give notice to the NYSE (or
any applicable self-regulatory organization) or to holders of the Preferred
Securities on the record date or the date such distribution is payable, but in
any event not less than ten Business Days prior to such record date. The Company
shall cause the Trust to give notice of the selection of such Extension Period
to the holders of the Preferred Securities. If the Property Trustee is not the
sole holder of the Convertible Debentures, the Company shall give the holders of
the Convertible Debentures notice of its selection of such Extension Period at
least ten Business Days prior to the earlier of (i) the Interest Payment Date or
(ii) the date the Company is required to give notice to the NYSE (or any
applicable self-regulatory organization) or to holders of the Convertible
Debentures on the record or payment date of such related interest payment, but
in any event not less than two Business Days prior to such record date.
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<PAGE>
ADDITIONAL INTEREST
If the Trust would be required to pay any taxes, duties, assessments or
governmental charges of whatever nature (other than withholding taxes) imposed
by the United States or any other taxing authority, then, in any such case, the
Company will pay as additional interest ("Additional Interest") such amounts as
shall be required so that the net amounts received and retained by the Trust
after paying any such taxes, duties, assessments or governmental charges will be
not less than the amounts the Trust would have received had no such taxes,
duties, assessments or governmental charges been imposed.
CONVERSION OF THE CONVERTIBLE DEBENTURES
The Convertible Debentures are convertible into Common Stock at the option
of the holders of the Convertible Debentures at any time prior to the close of
business on the Business Day immediately preceding the date of repayment of such
Convertible Debentures, whether at maturity or upon redemption at an initial
conversion rate of 1.0663 shares of Common Stock for every $50 principal amount
of Convertible Debentures, subject to the conversion price adjustments described
under "Description of the Preferred Securities--Conversion Rights." The Trust
has covenanted not to convert Convertible Debentures held by it except pursuant
to a notice of conversion delivered to the Conversion Agent by a holder of
Preferred Securities. Upon surrender of a Preferred Security to the Conversion
Agent for conversion, the Trust will distribute $50 principal amount of the
Convertible Debentures to the Conversion Agent on behalf of the holder of the
Preferred Securities so converted, whereupon the Conversion Agent will convert
such Convertible Debentures to Common Stock on behalf of such holder. The
Company's delivery to the holders of the Convertible Debentures (through the
Conversion Agent) of the fixed number of shares of Common Stock into which the
Convertible Debentures are convertible (together with the cash payment if any in
lieu of fractional shares) will be deemed to satisfy the Company's obligation to
pay the principal amount of the Convertible Debentures so converted, and the
accrued and unpaid interest thereon attributable to the period from the last
date to which interest has been paid or duly provided for; PROVIDED, HOWEVER,
that if any Convertible Debenture is converted after a record date for payment
of interest, the interest payable on the related interest payment date with
respect to such Convertible Debenture shall be paid to the Trust (which will
distribute such interest to the holder of the Preferred Securities on the record
date) or other holder of Convertible Debentures as of the record date, as the
case may be, despite such conversion.
OPTIONAL REDEMPTION
The Company has the right, at its option, to redeem the Convertible
Debentures, in whole or in part, at any time or from time to time upon not less
than 30 nor more than 60 days' notice, in cash at the applicable Redemption
Price set forth below, (i) on or after October 16, 1999, PROVIDED the closing
sale price of the Common Stock as reported on the NYSE is at least 150% of the
per share conversion price (equivalent to a closing sale price of $70.34 per
share) for a minimum of 20 trading days within a period of 30 consecutive
trading days ending on the fifth trading day prior to the notice of redemption
and (ii) on or after October 16, 2000. The applicable Redemption Price is as
follows (such redemption price being
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<PAGE>
expressed as a percentage of the principal amount of the Convertible Debentures,
as applicable during the twelve-month period beginning October 16 of the
indicated year):
<TABLE>
<CAPTION>
OPTIONAL REDEMPTION
YEAR PRICE
- ------------------------------------------------------------------------- -------------------
<S> <C>
1999..................................................................... 104.375%
2000..................................................................... 103.750
2001..................................................................... 103.125
2002..................................................................... 102.500
2003..................................................................... 101.875
2004..................................................................... 101.250
2005..................................................................... 100.625
2006 and thereafter...................................................... 100.000
</TABLE>
plus, in each case, accrued and unpaid interest, including Additional Interest
and Liquidated Damages, if any, to the date fixed for redemption; PROVIDED,
HOWEVER, that in the event the Convertible Debentures are redeemed upon the
occurrence of a Redemption Tax Event, the Redemption Price shall be 100% of the
principal amount of the Convertible Debentures, together with accrued and unpaid
interest thereon through the date of redemption. See "Description of the
Preferred Securities--Special Event Distribution or Redemption."
If a partial redemption of the Preferred Securities resulting from a partial
redemption of the Convertible Debentures would result in the delisting of the
Preferred Securities, the Company may only redeem the Convertible Debentures in
whole.
SUBORDINATION
The Indenture provides that the Convertible Debentures are subordinate and
junior in right of payment to all existing and future Senior Debt of the
Company. No payment of principal (including redemption payments, if any),
premium, if any, or interest on, the Convertible Debentures may be made if (i)
any Senior Debt of the Company is not paid when due and any applicable grace
period with respect to such default has ended and such default has not been
cured or waived, or ceased to exist or (ii) the maturity of any Senior Debt of
the Company has been accelerated because of a default. Upon any distribution of
assets of the Company to creditors upon any dissolution, winding up, liquidation
or reorganization, whether voluntary or involuntary or in bankruptcy,
insolvency, receivership or other proceedings, all principal, premium (if any)
and interest due or to become due on all Senior Debt of the Company must be paid
in full before the holders of the Convertible Debentures are entitled to receive
or retain any payment. Upon satisfaction of all claims related to all Senior
Debt of the Company then outstanding, the rights of the holders of the Preferred
Securities will be subrogated to the rights of the holders of Senior Debt of the
Company to receive payments or distributions applicable to Senior Debt until all
amounts owning on the Convertible Debentures are paid in full.
The term "Senior Debt" means, with respect to the Company: (i) the
principal, premium, if any, and interest in respect of (A) indebtedness of such
obligor for money borrowed and (B) indebtedness evidenced by securities,
debentures, bonds or other similar instruments issued by such obligor, (ii) all
capital lease obligations of such obligor, (iii) all obligations of such obligor
issued or assumed as the deferred purchase price of property, all conditional
sale obligations of such obligor and all obligations of such obligor under any
title retention agreement (but excluding trade accounts payable arising in the
ordinary course of business), (iv) all obligations of such obligor for the
reimbursement of any letter of credit, banker's acceptance, security purchase
facility or similar credit transaction, (v) all obligations of the type referred
to in clauses (i) through (iv) above of other persons for the payment of which
such obligor is responsible or liable as obligor, guarantor or otherwise, and
(vi) all obligations of the type referred to in clauses (i) through (v) above of
other persons secured by any lien on any property or asset of such obligor
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<PAGE>
(whether or not such obligation is assumed by such obligor), except for (1) any
such indebtedness that is by its terms subordinated to or PARI PASSU with the
Convertible Debentures and (2) any indebtedness between or among such obligor or
its affiliates, trust, or trustee of such trust, partnership or other entity
affiliated with the Company that is, directly or indirectly, a financing vehicle
of the Company (a "Financing Entity") in connection with the issuance by such
Financing Entity of preferred securities or other securities that rank PARI
PASSU with, or junior to, the Preferred Securities. Such Senior Debt shall
continue to be Senior Debt and entitled to the benefits of the subordination
provisions irrespective of any amendment, modification or waiver of any term of
such Senior Debt.
The Indenture does not limit the aggregate amount of Senior Debt that may be
issued by the Company.
The Company's subsidiaries do not guarantee the payment of principal or
interest on the Convertible Debentures and, accordingly, claims of holders of
the Preferred Securities effectively are subordinate to the claims of creditors
and policyholders of the Company's subsidiaries.
CERTAIN COVENANTS
In the Indenture, the Company has covenanted (i) to directly or indirectly
maintain 100% ownership of the Common Securities of the Trust, PROVIDED,
HOWEVER, that any permitted successor of the Company under the Indenture may
succeed to the Company's ownership, and (ii) to use its reasonable efforts to
cause the Trust (x) to remain a statutory business trust, except in connection
with the distribution of Convertible Debentures to the holders of Trust
Securities in liquidation of the Trust upon the occurrence of a Special Event,
the redemption of all of the Trust Securities of the Trust, or certain mergers,
consolidations or amalgamations, each as permitted by the Declaration, and (y)
to otherwise continue to be classified as a grantor trust for United States
Federal income tax purposes.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture provides that the Company will not consolidate with or merge
into any other entity or convey, transfer or lease its assets substantially as
an entirety unless (a) if the Company is not the survivor, the successor is a
corporation organized in the United States and expressly assumes the due and
punctual payment of the principal, premium (if any) and interest on all
Convertible Debentures issued thereunder and the performance of every other
covenant of the Indenture on the part of the Company, and (b) immediately
thereafter no event of default under the Indenture and no event which, after
notice or lapse of time, or both, would become an event of default under the
Indenture, shall have happened and be continuing. Upon any such consolidation,
merger, conveyance or transfer, the successor corporation shall succeed to and
be substituted for the Company under the Indenture and thereafter the
predecessor corporation shall be relieved of all obligations and covenants under
the Indenture and the Convertible Debentures.
INDENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events, which has occurred and is continuing, constitutes an "Indenture Event of
Default" with respect to the Convertible Debentures: (i) failure for 30 days to
pay interest on the Convertible Debentures, including any Additional Interest,
Compounded Interest and Liquidated Damages in respect thereof, when due,
PROVIDED that a valid extension of an interest payment period will not
constitute a default in the payment of interest (including any Additional
Interest, Compounded Interest or Liquidated Damages) for this purpose; (ii)
failure to pay principal of or premium, if any, on the Convertible Debentures
when due whether at maturity, upon redemption, by declaration or otherwise;
(iii) failure by the Company to deliver shares of Common Stock upon an election
by a holder of Preferred Securities to convert such Preferred Securities; (iv)
failure to observe or perform any other covenant contained in the Indenture for
90 days after notice to the Company
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<PAGE>
by the Trustee or by the holders of not less than 25% in aggregate outstanding
principal amount of the Convertible Debentures; (v) the dissolution, winding up
or termination of the Trust, except in connection with the distribution of
Convertible Debentures to the holders of Preferred Securities in liquidation of
the Trust upon the occurrence of a Special Event or in connection with certain
mergers, consolidations or amalgamations permitted by the Declaration; or (vi)
certain events in bankruptcy, insolvency or reorganization of the Company.
The Indenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Convertible Debentures may declare the
principal of and interest on the Convertible Debentures due and payable
immediately on the occurrence of an Indenture Event of Default; PROVIDED,
HOWEVER, that, after such acceleration, but before a judgment or decree based on
acceleration, the holders of a majority in aggregate principal amount of
outstanding Convertible Debentures may, under certain circumstances, rescind and
annul such acceleration if all Indenture Events of Default, other than the
nonpayment of accelerated principal, have been cured or waived as provided in
the Indenture.
Notwithstanding the foregoing, if an Indenture Event of Default has occurred
and is continuing and such event is attributable to the failure of the Company
to pay interest or principal on the Convertible Debentures on the date such
interest or principal is otherwise payable, the Company acknowledges that, in
such event, a holder of Preferred Securities may institute a Direct Action for
payment on or after the respective due date specified in the Convertible
Debentures. 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 outstanding Preferred Securities. Notwithstanding any payment made to
such holder of Convertible Preferred Securities by the Company in connection
with a Direct Action, the Company shall remain obligated to pay the principal of
or interest on the Convertible Debentures held by the Trust or the Property
Trustee and the Company shall be subrogated to the rights of the holder of such
Preferred Securities with respect to payments on the Preferred Securities to the
extent of any payments made by the Company to such holder in any Direct Action.
The holders of Preferred Securities will not be able to exercise directly any
other remedy available to the holders of the Convertible Debentures.
The holders of not less than a majority in principal amount of the
outstanding Convertible Debentures may, on behalf of the holders of all the
Convertible Debentures, waive any past defaults except (i) a default in payment
of the principal, premium (if any) or interest on any Convertible Debentures and
(ii) a default in respect of a covenant or provision of the Indenture which
cannot be amended or modified without the consent of the holder of each
Convertible Debenture; PROVIDED, HOWEVER, that if the Convertible Debentures are
held by the Trust or a trustee of the Trust, such waiver shall not be effective
until the holders of a majority in liquidation amount of Trust Securities shall
have consented to such waiver; PROVIDED, FURTHER, that if the consent of the
holders of each outstanding Convertible Debenture is required, such waiver shall
not be effective until each holder of the Trust Securities shall have consented
to such waiver.
A default under any other indebtedness of the Company would not constitute
an Indenture Event of Default under the Convertible Debentures.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee in case an Indenture Event of Default shall occur and be
continuing, the Indenture Trustee is under no obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any holders
of Convertible Debentures, unless such holders shall have offered to the
Indenture Trustee reasonable indemnity. Subject to such provisions for the
indemnification of the Indenture Trustee, the holders of a majority in aggregate
principal amount of the Convertible Debentures then outstanding have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Indenture Trustee, or exercising any trust or power conferred
on the Indenture Trustee.
No holder of any Convertible Debenture has any right to institute any
proceeding with respect to the Indenture or for any remedy thereunder, unless
(i) such holder shall have previously given to the Indenture Trustee written
notice of a continuing Indenture Event of Default, (ii) if the Trust is not the
sole holder of
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<PAGE>
Convertible Debentures, the holders of at least 25% in aggregate principal
amount of the Convertible Debentures then outstanding shall also have made
written request, (iii) such holder has offered reasonable indemnity to the
Indenture Trustee to institute such proceeding as Indenture Trustee, (iv) the
Indenture Trustee shall have failed to institute such proceeding within 60 days
of such notice, and (v) the Indenture Trustee shall not have received from the
holders of a majority in aggregate principal amount of the outstanding
Convertible Debentures a direction inconsistent with such request. However, such
limitations do not apply to a suit instituted by a holder of a Convertible
Debenture for enforcement of payment of principal, premium (if any) or interest
on such Convertible Debenture on or after the respective due dates expressed in
such Convertible Debenture.
The Company is required to file annually with the Indenture Trustee and the
Property Trustee a certificate as to whether or not the Company is in compliance
with all the conditions and covenants under the Indenture.
MODIFICATIONS AND AMENDMENTS OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Indenture
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding Convertible Debentures, to modify
the Indenture or the rights of the holders of Convertible Debentures by entering
into one or more supplemental indentures; PROVIDED, HOWEVER, that no such
supplemental indenture may, without the consent of the holder of each
outstanding Convertible Debenture affected thereby, (i) extend the stated
maturity of the Convertible Debentures or reduce the principal amount thereof,
or reduce the rate or extend the time of payment of interest thereon, or reduce
any premium payable upon the redemption thereof, or adversely affect the right
to convert Convertible Debentures or (ii) reduce the percentage in aggregate
principal amount of outstanding Convertible Debentures, the consent of whose
holders is required for any such supplemental indenture. Furthermore, any such
supplemental indenture will require, if the Convertible Debentures are held by
the Trust, the consent of the holders of a majority in liquidation amount of
Trust Securities or, if the consent of the holders of each outstanding
Convertible Debenture is required, the consent of each holder of Trust
Securities.
In addition, the Company and the Indenture Trustee may execute, without the
consent of any holder of Convertible Debentures, any supplemental indenture to
cure any ambiguities, comply with the Trust Indenture Act and for certain other
customary purposes.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee has undertaken, prior to default, to perform only such
duties as are specifically set forth in the Indenture and, after default, to
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provision, the Indenture
Trustee is under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Convertible Debentures unless it is
offered reasonable indemnity by such holder against the costs, expenses and
liabilities that might be incurred thereby. The Indenture Trustee is not
required to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Indenture Trustee reasonably
believes that repayment or adequate indemnity is not reasonably assured to it.
GOVERNING LAW
The Indenture and the Convertible Debentures are governed by, and construed
in accordance with, the laws of the State of New York.
25
<PAGE>
PROXY CARD
FRONTIER INSURANCE GROUP, INC.
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints WALTER A. RHULEN and PETER H. FOLEY and each
of them, proxies, each with the power of substitution, to vote the shares of the
undersigned at the Special Meeting of Stockholders of Frontier Insurance Group,
Inc. on December 30, 1996, and any adjournments and postponements thereof, upon
all matters as may properly come before the Special Meeting. Without otherwise
limiting the foregoing general authorization, the proxies are instructed to vote
as indicated herein.
PLEASE COMPLETE, DATE AND SIGN ON THE REVERSE SIDE AND MAIL IN THE ENCLOSED
ENVELOPE.
<PAGE>
PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR MATTERS (1) AND (2) LISTED
BELOW, TO COME BEFORE THE SPECIAL MEETING:
(1) To approve and ratify the financing transaction described in the
accompanying proxy statement.
/ / FOR / / AGAINST / / ABSTAIN
(2) To adopt an amendment to Article FOURTH of the Company's Restated
Certificate of Incorporation, as amended, to increase the authorized number
of shares of Common Stock, $.01 par value per share, from 20,000,000 shares
to 50,000,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
(3) Upon any and all other business that may come before the Special Meeting.
THIS PROXY, WHICH IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, WILL BE
VOTED FOR THE MATTERS DESCRIBED IN PARAGRAPHS (1) AND (2) UNLESS THE STOCKHOLDER
SPECIFIES OTHERWISE, IN WHICH CASE IT WILL BE VOTED AS SPECIFIED.
Check here if you plan to attend the
Special Meeting of Stockholders. / /
SIGNATURE(S): _____________________
DATE ________________________ 1996
Note: Executors, Administrators,
Trustees, etc. should give full
title.
