<PAGE>
REGISTRATION NO. 333-17603
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549Z
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POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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<TABLE>
<S> <C> <C>
FRONTIER INSURANCE GROUP, INC. DELAWARE 14-1681606
FRONTIER FINANCING TRUST DELAWARE 14-6185203
(State or other
(Exact name of registrant as jurisdiction of (I.R.S. Employer
specified incorporation or Identification
in its charter) organization) Number)
</TABLE>
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195 LAKE LOUISE MARIE ROAD
ROCK HILL NEW YORK 12775-8000
(914) 796-2100
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
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SIDNEY TODRES, ESQ.
EPSTEIN BECKER & GREEN, P.C.
250 PARK AVENUE
NEW YORK, NEW YORK 10177
(212) 351-4735
(Name, address, including zip code, and telephone number
including area code, of agent for service)
This Post-Effective Amendment shall become effective on such date
as the Commission, acting pursuant to Section 8(c), may determine.
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SUBJECT TO COMPLETION, DATED APRIL 23, 1997
PROSPECTUS SUPPLEMENT
TO PROSPECTUS DATED JANUARY 24, 1997
3,450,000 PREFERRED SECURITIES
FRONTIER FINANCING TRUST
6 1/4% CONVERTIBLE TRUST ORIGINATED PREFERRED
SECURITIES-SM- (CONVERTIBLE TOPrS-SM-)
(LIQUIDATION AMOUNT $50 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY,
AND CONVERTIBLE INTO COMMON STOCK OF,
FRONTIER INSURANCE GROUP, INC.
------------------
This Prospectus Supplement supplements and amends the Prospectus dated
January 24, 1997 (the "Prospectus") relating to the 6 1/4% Convertible Trust
Originated Preferred Securities-SM- (the "Convertible TOPrS-SM-" or "Preferred
Securities"), which represent preferred undivided beneficial interests in the
assets of Frontier Financing Trust, a statutory business trust formed under the
laws of the State of Delaware ("Frontier Finance" or the "Trust"), and the
shares of common stock, par value $.01 per share (the "Company Common Stock"),
of Frontier Insurance Group, Inc., a Delaware corporation (the "Company"),
issuable upon conversion of the Preferred Securities.
The table on pages 48-50 of the Prospectus, which sets forth information
with respect to the Selling Holders (as defined in the Prospectus) and the
respective number of Preferred Securities beneficially owned by each Selling
Holder that may be offered pursuant to the Prospectus, is hereby amended by
decreasing the number of Preferred Securities to be sold by "Any other holder of
Preferred Securities or future transferee from any such holder" in such table
and adding to the table the following Selling Holders and the number (or
additional number) of Preferred Securities to be sold by each Selling Holder so
listed, as follows:
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
SELLING HOLDER SECURITIES
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<S> <C>
Alpine Associates......................................................................... 155,500
Arkansas Public Employees Retirement...................................................... 28,400
Brederode Insurance S.A................................................................... 70,000
Cincinatti Insurance Company.............................................................. 58,500
Declaration of Trust for the Defined Benefit Plan of ICI American Holdings Inc. .......... 2,200
Declaration of Trust for the Defined Benefit Plan of Leneca Holdings, Inc. ............... 1,800
Delaware State Employees' Retirement Fund................................................. 6,000
General Motors Employees Domestic Group Trust............................................. 50,000
Greyhound Lines Inc. ..................................................................... 2,500
Island Insurance Co., Ltd. ............................................................... 2,000
Laterman Strategies....................................................................... 30,000
LDG Limited Fund.......................................................................... 8,500
Lipper Convertibles, L.P. ................................................................ 330,000
Merrill Lynch Pierce Fenner & Smith Incorporated.......................................... 346,300
Paloma Securities, LLC.................................................................... 213,900
Pension Retirement Investment Management Board of Massachusetts........................... 37,650
Reliant Trading........................................................................... 36,848
Shepherd Trading Limited.................................................................. 88,152
Smith Barney Inc.......................................................................... 50,000
Starvest Investment Grade Account......................................................... 5,500
TQA Arbitrage Fund, L.P. ................................................................. 2,500
TQA Vantage Fund, Ltd. ................................................................... 49,000
United Food and Commercial Workers International Union--Industry Pension Fund............. 30,000
Waterwheel & Company...................................................................... 320,000
Yachtrope & Company....................................................................... 600
Any other holder of Preferred Securities or future transferee from any such holder........ 57,790
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Total..................................................................................... 3,450,000
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</TABLE>
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER THE
CAPTION "RISK FACTORS" BEGINNING ON PAGE 5 OF THE PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus Supplement is April , 1997.
<PAGE>
PROSPECTUS
3,450,000 PREFERRED SECURITIES
FRONTIER FINANCING TRUST
6 1/4% CONVERTIBLE TRUST ORIGINATED PREFERRED SECURITIES-SM- (CONVERTIBLE
TOPrS-SM-)
(LIQUIDATION AMOUNT $50 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY,
AND CONVERTIBLE INTO COMMON STOCK OF,
[LOGO]
FRONTIER INSURANCE GROUP, INC.
------------------
This Prospectus relates to the 6 1/4% Convertible Trust Originated Preferred
Securities-SM- (the "Convertible TOPrS-SM-" or "Preferred Securities"), which
represent preferred undivided beneficial interests in the assets of Frontier
Financing Trust, a statutory business trust formed under the laws of the State
of Delaware ("Frontier Finance" or the "Trust"), and the shares of common stock,
par value $.01 per share (the "Company Common Stock"), of Frontier Insurance
Group, Inc., a Delaware corporation (the "Company"), issuable upon conversion of
the Preferred Securities. The Preferred Securities were issued and sold (the
"Original Offering") on October 16, 1996 and October 18, 1996 (together, the
"Original Offering Date") to the Initial Purchasers (as defined herein) and were
simultaneously sold by the Initial Purchasers in transactions exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), in the United States to persons reasonably believed by the
Initial Purchasers to be qualified institutional buyers as defined in Rule 144A
under the Securities Act, to certain qualified institutional buyers acting on
behalf of institutional "accredited investors" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act) and outside the United States to
non-U.S. persons in offshore transactions in reliance on Regulation S under the
Securities Act. The Company owns all the common securities (the "Common
Securities" and, together with the Preferred Securities, the "Trust Securities")
representing undivided beneficial interests in the assets of the Trust. The
Trust exists for the sole purpose of issuing the Trust Securities, investing the
proceeds thereof in an equivalent amount of 6 1/4% Convertible Subordinated
Debentures Due 2026 (the "Convertible Debentures") of the Company and engaging
in only those activities necessary or incidental thereto. Upon an event of
default under the Declaration (as defined herein), the holders of the Preferred
Securities will have a preference over the holders of the Common Securities with
respect to payments of distributions and payments upon redemption, liquidation
and otherwise.
The Preferred Securities and the Company Common Stock issuable upon
conversion of the Preferred Securities (collectively, the "Offered Securities")
may be offered and sold from time to time by the holders named herein or by
their transferees, pledgees, donees or their successors (collectively, the
"Selling Holders") pursuant to this Prospectus. The Offered Securities may be
sold by the Selling Holders from time to time directly to purchasers or through
agents, underwriters or dealers. See "Selling Holders" and "Plan of
Distribution." If required, the names of any such agents or underwriters
involved in the sale of the Offered Securities and the applicable agent's
commission, dealer's purchase price or underwriter's discount, if any, will be
set forth in the accompanying supplement to this Prospectus (the "Prospectus
Supplement"). The Selling Holders will receive all of the net proceeds from the
sale of the Offered Securities and will pay all underwriting discounts, selling
commissions and transfer taxes, if any, applicable to any such sale. The Company
is responsible for payment of all other expenses incident to the registration of
the Offered Securities. The Selling Holders and any broker-dealers, agents or
underwriters that participate in the distribution of the Offered Securities may
be deemed to be "underwriters" within the meaning of the Securities Act, and any
commission received by them and any profit on the resale of the Offered
Securities purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. See "Plan of Distribution" for a description
of indemnification arrangements.
(CONTINUED ON FOLLOWING PAGE)
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER
"RISK FACTORS" BEGINNING ON PAGE 5.
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Application will be made to list the Offered Securities on the New York Stock
Exchange.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is January 24, 1997.
<PAGE>
(CONTINUED FROM FRONT COVER)
Each Preferred Security is convertible, at the option of the holder thereof,
into shares of Company Common Stock at a conversion rate of 1.0663 shares of
Company Common Stock for each Preferred Security, subject to adjustment in
certain circumstances. The Company Common Stock is quoted on the New York Stock
Exchange ("NYSE") under the symbol "FTR." On January 23, 1997, the last reported
sale price of the Company Common Stock on the NYSE was $38 5/8.
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of 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 October 15, commencing January
15, 1997. See "Description of the Preferred Securities--Distributions." 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") but only to the extent
the Trust has funds available therefor. 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 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, holders of
Preferred Securities will be required to include in their gross income for
United States Federal income tax purposes the interest deferred on the
Convertible Debentures notwithstanding their not receiving the related cash
distributions. Moreover, if a holder converts Preferred Securities into Company
Common Stock during any Extension Period, the holder will not receive any cash
or additional shares of Company Common Stock with respect 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). See "Risk Factors--Option to Extend Interest Payment Period;
Tax Consequences," "Description of the Preferred Securities--Distributions" and
"Description of the Convertible Debentures--Option to Extend Interest Payment
Period." 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.
The Guarantee, when taken together with the Company's obligations under the
Indenture (as defined herein) pursuant to which the Convertible Debentures are
issued (which provides, however, that the Company may defer payments of interest
on the Convertible Debentures) and its obligations under the Declaration (as
defined herein), 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 which would result in a concomitant deferral of payments
on the Preferred Securities). The Company's obligations under the Guarantee rank
(i) senior to the Company 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. See "Description of the Guarantee--Status of the
Guarantee." The obligations of the Company under the Convertible Debentures are
subordinate and junior in right of payment to Senior Debt (as defined herein) of
the Company. Because the Company's subsidiaries do not guarantee the payment of
principal of or interest on the Convertible Debentures, claims of holders of the
Preferred Securities effectively will be subordinate to the claim of creditors
and policyholders of the Company's subsidiaries.
2
<PAGE>
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 herein) set forth herein, (i) on or after October 16, 1999, PROVIDED the
closing sale price of the Company 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. See "Description of the Convertible Debentures--Optional
Redemption." The Convertible Debentures may also be redeemed in certain
circumstances upon the occurrence of a Redemption Tax Event (as defined herein),
at a Redemption Price equal to 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) or 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. See
"Description of the Preferred Securities--Redemption" and "Description of the
Preferred Securities--Special Event Distribution or 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 herein) (other than a Redemption Tax Event) or an Investment
Company Event (as defined herein). See "Description of the Preferred
Securities--Liquidation Distribution upon Dissolution," "Description of the
Preferred Securities--Special Event Distribution or Redemption" and "Description
of the Convertible Debentures."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's (i) Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, (ii) Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996 (as amended on October 9, 1996) and September 30,
1996, (iii) Definitive Proxy Statements for the May 23, 1996 Annual Meeting of
Stockholders and the December 30, 1996 Special Meeting of Stockholders, and (iv)
Current Reports on Form 8-K for an event which occurred on May 22, 1996 (as
amended on October 7, 1996) and an event which occurred on October 18, 1996,
heretofore filed with the Commission, are incorporated in and made a constituent
part of this Prospectus by reference. All reports and proxy statements filed by
the Company with the Commission pursuant to Sections 13(a), 13(c), 14 and 15(d)
of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Offered Securities shall likewise be deemed
to be incorporated in this Prospectus and made a constituent part hereof by
reference from the respective dates of filing.
Any statements contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this offering to the extent that a statement contained herein or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as to modified
or supersede, to constitute a part of this Prospectus.
Upon oral or written request, the Company will provide without charge a copy
of any document incorporated in this Prospectus, exclusive of exhibits, to each
person to whom this Prospectus is delivered. Requests for such documents should
be directed to Ms. Linda Markovits at the corporate headquarters of the Company,
195 Lake Louise Marie Road, Rock Hill, New York 12775 (telephone no.
914-796-2100).
3
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such material can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at Seven World
Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street (Suite 1400) Chicago, Illinois 60661. Copies of all or part of
such materials may also be obtained at prescribed rates from the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street N.W., Washington, D.C. 20549. Such materials can also be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005. The Commission maintains a Web site that contains reports,
proxy and information statements and other information of registrants that file
electronically with the Commission pursuant to the EDGAR system. The address of
the Commission's Web site is http:/www.sec.gov.
The Company has filed with the Commission a Registration Statement (which
term shall encompass any amendments thereto) on Form S-3 under the Securities
Act with respect to the securities offered by this Prospectus (the "Registration
Statement"). This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain items of which are contained in exhibits to the Registration
Statement as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the securities offered by
this Prospectus, reference is made to the Registration Statement, including the
exhibits thereto, and the financial statements and notes thereto filed or
incorporated by reference as a part thereof, which are on file at the offices of
the Commission. Statements made in this Prospectus concerning the contents of
any document referred to herein are not necessarily complete and, in each
instance, are qualified in all respects by reference to the applicable documents
filed with the Commission. The Registration Statement and the exhibits thereto
filed by the Company with the Commission may be inspected and copied at the
locations described above.
No separate financial statements of the Trust have been included herein. The
Company does not consider that such financial statements would be material to
holders of Preferred Securities because (i) all of the voting securities of the
Trust will be owned, directly or indirectly, by the Company, a reporting company
under the Exchange Act, (ii) the Trust has no independent operations and exists
for the sole purpose of issuing securities representing undivided beneficial
interests in the assets of the Trust, investing the proceeds thereof in the
Convertible Debentures issued by the Company and engaging in only those
activities necessary or incidental thereto, and (iii) the obligations of the
Trust under the Trust Securities are fully and unconditionally guaranteed by the
Company to the extent that the Trust has funds available to meet such
obligations. See "Description of the Convertible Subordinated Debentures" and
"Description of the Guarantee."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The documents incorporated by reference in this Prospectus contain
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934 which are not
historical facts and involve risks and uncertainties that could cause actual
results to differ materially from those expected and projected. Such risks and
uncertainties include, but are not limited to, the following: (i) general
economic conditions; (ii) conditions specific to the property and casualty
insurance industry, including its cyclical nature, regulatory changes, rating
agency policies and practices, competitive factors, claims development and the
impact thereof on loss reserve and the Company's reserving policies and the
adequacy of the Company's reinsurance programs; (iii) developments in the
securities markets and the impact thereof on the Company's investment portfolio;
(iv) the success of the Company's acquisition program; (v) changes in generally
accepted accounting principles; and (vi) the risk factors set forth in this
Prospectus. Accordingly, there can be no assurance that the actual results will
conform to the forward-looking statements in the documents incorporated by
reference in this Prospectus.
4
<PAGE>
RISK FACTORS
Prospective purchasers of the Offered Securities should consider carefully
the information set forth or incorporated by reference in this Prospectus and,
in particular, should evaluate the following risks in connection with an
investment in the Offered Securities.
COMPETITION
The property and casualty insurance business is highly competitive with
respect to a number of factors, including overall financial strength of the
insurer, ratings by rating agencies, premium rates, policy terms and conditions,
services offered, reputation and broker compensation. Although the Company's
business strategy is to achieve an underwriting profit by identifying niche
markets and specialty programs which it believes afford favorable opportunities
for profitability due to limited potential competition, it nevertheless
encounters competition from carriers engaged in insuring risks in the broader
lines of business which encompass the Company's niche markets and specialty
programs, and such competition is expected to increase as the Company expands
its operations.
ADEQUACY OF LOSS RESERVES
The liabilities for unpaid losses and loss adjustment expenses ("LAE") are
estimated by management utilizing methods and procedures which they believe are
reasonable and in compliance with regulatory requirements. These liabilities are
necessarily subject to the impact of loss development and changes in claims
severity, as well as numerous other factors, such as judicial and legislative
trends and actions, economic factors and estimates of future trends in claims
frequency. Most or all of these factors are not directly quantifiable,
particularly on a prospective basis. Although management believes that the
estimated liabilities for losses and LAE are reasonable, because of the extended
period of time over which such losses are reported and settled, the subsequent
development of these liabilities may not conform to the assumptions inherent in
their determination and, accordingly, may vary significantly from the estimated
amounts included in the accompanying financial statements. To the extent that
the actual emerging loss experience varies from the assumptions used in
determining these liabilities, the liabilities are adjusted to reflect actual
experience. Such adjustments, to the extent they occur, are reported in the
period recognized. In 1993 and 1994, the Company's prior years' reserves for
unpaid losses and LAE, net of related reinsurance recoverables, were increased
by approximately $3.3 million and $13.9 million, respectively. In 1995, a net
$7.5 million decrease in the Company's prior years' reserves included an
increase in such reserves of approximately $19.0 million, offset by subrogation
recoverables of $19.0 million recognized in connection with a favorable court
ruling related to litigation between the Company and the State of New York. In
1996, the Company increased its reserves as at June 30, 1996 by approximately
$13.0 million, offset by subrogation recoverables of $13.0 million related to
the New York State litigation.
RATINGS
Increased public and regulatory concerns with the financial stability of
insurers have resulted in greater emphasis by policyholders upon insurance
company ratings, with a resultant potential competitive advantage for carriers
with higher ratings. The Company's insurance company subsidiaries (the
"Insurance Subsidiaries") currently are rated A- (Excellent) by A.M. Best
Company, Inc. ("A.M. Best"). In addition, Standard & Poor's Insurance Rating
Services ("S&P") has given Frontier Insurance Company and Frontier Pacific
Insurance Company an Insurer Claims-Paying Ability Rating of A+ (Good). There
can be no assurance, however, that the Insurance Subsidiaries will maintain such
ratings; any downgrade could materially adversely affect their respective
operations. A.M. Best's and S&P's ratings are based on an analysis of the
financial condition and operations of an insurance company as they relate to the
industry in general, are not designed for the protection of investors and do not
constitute recommendations to buy, sell or hold any security.
5
<PAGE>
DEPENDENCE UPON MANAGEMENT
The Company's business involves the selection, development and innovative
underwriting of insurance coverage for niche markets and the continuing
evaluation of the programs insured; the Company is dependent upon its executive
management to perform such services.
FLUCTUATIONS IN INDUSTRY RESULTS
The financial results of property and casualty insurers historically have
been subject to significant fluctuations. Profitability is affected
significantly by volatile and unpredictable developments (including
catastrophes), changes in loss reserves resulting from changing legal
environments as different types of claims arise and judicial interpretations
relating to the scope of insurer's liability develop, fluctuations in interest
rates and other changes in the investment environment which affect returns on
invested capital, and inflationary pressures that affect the size of losses.
Further, underwriting results have been cyclical in the property and casualty
insurance industry, with protracted periods of overcapacity adversely impacting
premium rates, resulting in higher combined ratios, followed by periods of
undercapacity and escalating premium rates, resulting in lower combined ratios.
REINSURANCE
To moderate the impact of unusually severe or frequent losses, the Insurance
Subsidiaries cede (i.e., transfer) a portion of their gross premiums to
reinsurers in exchange for the reinsurers' agreements to share covered losses
with the Insurance Subsidiaries. Although reinsurance makes the assuming
reinsurer liable to the extent of the risk ceded, the ceding insurance company
is not relieved of its primary liability to its insureds and therefore bears a
credit risk with respect to its reinsurers. Although the Insurance Subsidiaries
place reinsurance only with reinsurers they believe to be financially sound,
there can be no assurance that such reinsurers will pay all reinsurance claims
on a timely basis, if at all. Further, although the Company has reinsurance it
believes to be adequate, there can be no assurance it will continue to be able
to obtain such reinsurance on satisfactory terms.
DEPENDENCE ON INVESTMENT INCOME
The Company, similar to other property and casualty insurance companies,
depends on income from its investment portfolio for a substantial portion of its
earnings. A significant decline in investment yields could have a material
adverse effect on the Company's financial results.
LIMITATIONS ON CHANGE IN CONTROL
Mr. Walter A. Rhulen, the Company's founder, Chairman of the Board,
President and Chief Executive Officer, members of Mr. Rhulen's family and
directors and officers of the Company who are not family members of Mr. Rhulen
collectively own approximately 28% of the outstanding shares of Company Common
Stock. As a result, such persons are in a position to influence the management
and affairs of the Company and collectively may be able to prevent a proposed
change in control of the Company.
REGULATION
The Company is subject to regulation under applicable insurance statutes,
including insurance holding company statutes, of the various states in which the
Insurance Subsidiaries write insurance. Insurance regulation is intended to
provide safeguards for policyholders rather than to protect shareholders of
insurance companies or their holding companies. Regulators oversee matters
relating to trade practices, policy forms, claims practices, mandated
participation in shared markets, types and amounts of investments, reserve
adequacy, insurer solvency, minimum amounts of capital and surplus, transactions
with related parties, changes in control and payment of dividends. The rates
that the Insurance Subsidiaries can charge for certain lines of business are
also subject to regulation and, therefore, may not keep pace with inflation. Any
changes in these laws and regulations could materially adversely affect the
Company's operations.
6
<PAGE>
HOLDING COMPANY STRUCTURE AND SUBORDINATION
The ability of the Trust to pay amounts due on the Preferred Securities is
wholly dependent upon the Company making payments on the Convertible Debentures.
Because the Company is a holding company, its ability to pay interest and
principal on the Convertible Debentures, and therefore for the Trust to make
distributions and other payments on the Preferred Securities, is dependent, to a
significant degree, on the ability of the Company's subsidiaries to pay
dividends to the Company. The jurisdictions of incorporation of the Insurance
Subsidiaries place limitations on the amount of dividends or other distributions
payable by insurance companies in order to protect their solvency. The Company's
current policy is for its Insurance Subsidiaries to retain their capital for
growth and not to pay any dividends.
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 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."
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
The Company has the right, under the Indenture, to defer interest payments
from time to time on the Convertible Debentures for successive quarterly
periods, not to exceed 20 consecutive quarterly interest periods nor to extend
beyond the maturity date of the Convertible Debentures, during which period no
interest shall be due and payable on the Convertible Debentures. Upon the
termination of any Extension Period and the payment of all amounts then due, the
Company may select a new Extension Period, subject to the requirements described
herein. During an Extension Period, quarterly distributions on the Preferred
Securities would be deferred by the Trust (although such distributions would
continue to accrue with interest thereon compounded quarterly). In the event
this deferral right is exercised, then, during such Extension Period, the
Company (i) 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 (a) dividends or distributions in
shares of Company Common Stock on Company Common Stock, (b) purchases or
acquisitions of shares of Company 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 such
plans or agreements were in existence on October 9, 1996 (subject to certain
limitations), (c) conversions or exchanges of common stock of one class into
common stock of another class and (d) 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),
(ii) may 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
junior to or PARI PASSU with the Convertible Debentures (except by conversion
into or exchange for shares of Company Common Stock), and (iii) may not make any
guarantee payments with respect to the foregoing. Prior to the termination of
any such Extension Period, the Company may further extend the 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. Consequently, there could be multiple Extension Periods of varying
lengths throughout the term of the Convertible Debentures. See "Description of
the Preferred Securities--Distributions" and "Description of the Convertible
Debentures--Option to Extend Interest Payment Period."
Should the Company exercise the right to defer payments of interest on the
Convertible Debentures, each holder of Preferred Securities will accrue income
(as original issue discount ("OID")) for United States Federal income tax
purposes with respect to the deferred interest allocable to its Preferred
Securities although such allocable interest will not be distributed to holders
of Preferred Securities at that time. As a result, each holder of Preferred
Securities will recognize income for United States Federal
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<PAGE>
income tax purposes in advance of the receipt of the related cash distributions
and will not receive such distributions from the Trust in the event the holder
disposes of the Preferred Securities prior to the record date for payment of the
deferred cash distributions. Moreover, if a holder of Preferred Securities
converts Preferred Securities into Company Common Stock during any Extension
Period, the holder will not receive any cash or additional shares of Company
Common Stock with respect to the deferred distributions. A holder that disposes
of or converts Preferred Securities during any Extension Period, therefore,
might not receive the same return on investment as a holder that continues to
hold the Preferred Securities. Should the Company determine to exercise such
deferral right in the future, the market price of the Preferred Securities is
likely to be affected. In addition, as a result of the existence of the right to
defer interest payments, the market price of the Preferred Securities (which
represent an undivided beneficial interest in the Convertible Debentures) may be
more volatile than other similar securities where the issuer does not have the
right to defer interest payments. See "Certain Federal Income Tax
Considerations-- Interest Income and Original Issue Discount."
PROPOSED TAX LEGISLATION
On March 19, 1996, as part of President Clinton's Fiscal 1997 Budget
Proposal, the Treasury Department proposed legislation (the "Proposed
Legislation") that, among other things, would treat as equity, for United States
Federal income tax purposes, instruments with a maximum term of more than 20
years that are not shown as indebtedness on the consolidated balance sheet of
the issuer. On March 29, 1996, Senate Finance Committee Chairman William V.
Roth, Jr. and House Ways and Means Committee Chairman Bill Archer issued a joint
statement (the "Joint Statement") indicating their intent that certain
legislative proposals initiated by the Clinton administration, including the
Proposed Legislation, that may be adopted by either of the tax-writing
committees of Congress, would have an effective date that is no earlier than the
date of "appropriate Congressional action." In addition, subsequent to the
publication of the Joint Statement, Senator Patrick Moynihan and Representatives
Sam M. Gibbons and Charles B. Rangel wrote letters to Treasury Department
officials concurring with the views expressed in the Joint Statement (the
"Democrat Letters"). If the principles contained in the Joint Statement and the
Democrat Letters are followed and the Proposed Legislation is enacted, such
legislation will not apply to the Convertible Debentures because they will be
issued prior to the date of any "appropriate Congressional action." There can be
no assurance, however, that any proposed legislation enacted after the date
hereof will not otherwise adversely affect the tax treatment of the Convertible
Debentures. If legislation is enacted that adversely affects the tax treatment
of the Convertible Debentures, such legislation could result in the distribution
of the Convertible Debentures to holders of the Preferred Securities or, in
certain limited circumstances involving a Redemption Tax Event, the redemption
of the Convertible Debentures by the Company and the distribution of the
resulting cash in redemption of the Preferred Securities. See "Description of
the Preferred Securities--Special Event Distribution or Redemption."
RIGHTS UNDER THE GUARANTEE
The Guarantee Trustee (as defined herein) holds the Guarantee for the
benefit of the holders of the Preferred Securities. The Guarantee guarantees to
the holders of the Preferred Securities the payment of (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 applicable
redemption price for the 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 a distribution of the Convertible Debentures to
holders of Preferred Securities or a redemption of all of 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
the 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
8
<PAGE>
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. Notwithstanding the foregoing, any holder
of Preferred Securities may, to the extent permitted by law, institute a legal
proceeding against the Company to enforce the obligations of the Guarantor 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 the 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 Preferred Securities
would be required to rely on enforcement (1) by the Property Trustee (as defined
herein) 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
Guarantee" and "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.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Declaration Event of Default (as defined herein) occurs and is
continuing, then the holders of Preferred Securities would rely on the
enforcement by the Property Trustee of its rights as the sole holder of the
Convertible Debentures against the Company. In addition, the holders of a
majority in liquidation amount of the Preferred Securities will have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Property Trustee or to direct the exercise of any trust or
power conferred upon the Property Trustee under the Declaration, including the
right to direct the Property Trustee to exercise the remedies available to it
under the Indenture as a holder of the Convertible Debentures. If the Property
Trustee fails to enforce its rights under the Convertible Debentures, any holder
of Preferred Securities may 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, 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 (a "Direct Action") 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 by the
Company 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.
SPECIAL EVENT DISTRIBUTION OR REDEMPTION
Upon the occurrence of a Tax Event (other than a Redemption Tax Event) or an
Investment Company Event (each as defined herein, and each, a "Special Event"),
the Trust will be dissolved with the result that the Convertible Debentures
would be distributed to the holders of the Trust Securities in connection with
the dissolution of the Trust. Upon the occurrence of a Redemption Tax Event, the
Company shall have the right to redeem the Convertible Debentures, in whole (but
not in part), in lieu of a distribution of the Convertible Debentures by the
Trust, in which event the Trust will redeem the Trust Securities. See
"Description of the Preferred Securities--Special Event Distribution or
Redemption."
9
<PAGE>
Under current United States Federal income tax law, a distribution of
Convertible Debentures upon the dissolution of the Trust would not be a taxable
event to holders of the Preferred Securities. Upon the occurrence of a
Redemption Tax Event, however, a dissolution of the Trust in which holders of
Preferred Securities receive cash would be a taxable event to such holders. See
"Certain Federal Income Tax Considerations--Receipt of Convertible Debentures or
Cash Upon Liquidation of the Trust."
There can be no assurance as to the market prices for the Preferred
Securities or the Convertible Debentures that may be distributed in exchange for
Preferred Securities if a dissolution or liquidation of the Trust were to occur.
Accordingly, the Preferred Securities that an investor may purchase, whether
pursuant to the offer made hereby or in the secondary market, or the Convertible
Debentures that a holder of Preferred Securities may receive on dissolution and
liquidation of the Trust, may trade at a discount to the price that the investor
paid to purchase the Preferred Securities. Because holders of Preferred
Securities may receive Convertible Debentures upon the occurrence of a Special
Event, prospective purchasers of Preferred Securities also are making an
investment decision with regard to the Convertible Debentures and should
carefully review all the information regarding the Convertible Debentures
contained herein. See "Description of the Preferred Securities--Special Event
Distribution or Redemption" and "Description of the Convertible
Debentures--General."
NO VOTING RIGHTS
Holders of Preferred Securities generally have no voting rights, including
with respect to the appointment, removal or replacement, or the increase or
decrease in the number, of Issuer Trustees (as defined herein). See "Description
of Preferred Securities--Voting Rights."
TRADING CHARACTERISTICS OF PREFERRED SECURITIES
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid distributions. In addition, as a result of the
right of the Company to defer interest payments on the Convertible Debentures,
the market price of the Preferred Securities (which represent undivided
interests in the Convertible Debentures) may be more volatile than that of other
similar securities where the issuer does not have the right to defer interest
payments. Should the Company exercise the right to defer payments of interest on
the Convertible Debentures, each holder of Preferred Securities will accrue
income (as OID) for United States Federal income tax purposes with respect to
the deferred interest, which will be allocated but not distributed to holders of
the Preferred Securities. As a result, each such holder of Preferred Securities
will recognize income for United States Federal income tax purposes in advance
of the receipt of the related cash distribution and will not receive such
distributions from the Trust in the event the holder disposes of the Preferred
Securities prior to the record date for payment of the deferred cash
distributions. Moreover, if a holder of Preferred Securities converts the
Preferred Securities into Company Common Stock during any Extension Period, the
holder will not receive any cash or additional shares of Company Common Stock
with respect to the deferred distributions. A holder that disposes of or
converts Preferred Securities during any Extension Period, therefore, might not
receive the same return on investment as a holder that continues to hold the
Preferred Securities. Should the Company determine to exercise its right to
defer payments of interest in the future, the market price of the Preferred
Securities is likely to be affected. In addition, a holder who disposes of or
converts Preferred Securities during any Extension Period will be required, for
Federal income tax purposes, to add the amount of accrued but unpaid interest
that is included in income as OID to the holder's adjusted tax basis in its pro
rata share of the underlying Convertible Debentures deemed disposed of. To the
extent the selling price is less than the holder's adjusted tax basis (which
will include any accrued and unpaid interest in the form of OID), such holder
will recognize a capital loss. Subject to certain limited exceptions, capital
losses cannot be applied to offset ordinary income for United States Federal
income tax purposes. See "Certain Federal Income Tax Considerations."
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<PAGE>
THE COMPANY
The Company is an insurance holding company which, through its wholly-owned
subsidiaries, conducts business on an admitted and non- admitted basis as a
specialty property and casualty insurer. The Company's business strategy is to
achieve an underwriting profit by identifying niche markets and specialty
programs which it believes afford favorable opportunities for profitability due
to (i) limited potential competition and (ii) the Company's innovative
underwriting and value added services, including coverage enhancements, risk
management, loss control and specialized claims management.
For the five years ended December 31, 1995, the Company's net premiums
written and its net income increased at compounded annual rates of 27.9% and
20.1%, respectively, during which period it realized an average statutory
combined ratio of 95.2%, as compared to the property and casualty insurance
industry average of 109.2%. The Company has realized a statutory combined ratio
of less than 100% in every year since its formation in 1986.
The Company relies on multiple distribution channels to market its insurance
products. Malpractice insurance and license and permit bonds are marketed both
directly through Company-owned agencies and by independent brokers and agents.
Bail bonds are marketed through a nationwide network of bail bondsmen by a
50%-owned subsidiary of the Company. Sales of the Company's other lines of
business are generated primarily by independent insurance agencies and insurance
brokerage firms.
The Company's Insurance Subsidiaries consist of Frontier Insurance Company,
which is licensed as a property and casualty insurer in 49 states, the District
of Columbia, Puerto Rico and the Virgin Islands, and three other insurance
companies. All of the Insurance Subsidiaries are rated A- (Excellent) by A.M.
Best, and S&P has given Frontier Insurance Company and Frontier Pacific
Insurance Company an Insurer Claims-Paying Ability Rating of A+ (Good).
The Company's growth strategy includes (i) the acquisition of profitable
specialty insurance operations which are non-dilutive to earnings, (ii) the
addition of new specialty insurance programs and (iii) the expansion of existing
business through enhanced products, additional coverages and geographic
expansion.
The principal executive office of the Company are located at 195 Lake Louis
Marie Road, Rock Hill, New York 12775, and the telephone number is (914)
796-2100.
FRONTIER FINANCING TRUST
Frontier Financing Trust is a statutory business trust formed under Delaware
law pursuant to (i) a declaration of trust executed by the Company, as sponsor
of the Trust, and the trustees of the Trust (the "Issuer Trustees") and (ii) the
filing of a certificate of trust with the Secretary of State of the State of
Delaware. Such initial declaration was be amended and restated in its entirety
to provide for the issuance of the Trust Securities (as so amended and restated,
the "Declaration"). The Company directly acquired Common Securities in an
aggregate liquidation amount equal to 3% of the total capital of the Trust. The
Common Securities rank PARI PASSU with, and payments are made thereon PRO RATA
with, the Preferred Securities, except that upon the occurrence and during the
continuance of an event of default under the Declaration, the rights of the
holders of the Common Securities to payment in respect of distributions and
payments upon liquidation, redemption and otherwise are subordinated to the
rights of the holders of the Preferred Securities. The assets of the Trust
consist solely of the Convertible Debentures. The Trust exists for the exclusive
purpose of (i) issuing the Trust Securities representing undivided beneficial
interests in the assets of the Trust, (ii) investing the gross proceeds from the
sale of the Trust Securities in the Convertible Debentures, and (iii) engaging
in only those other activities necessary or incidental thereto.
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<PAGE>
Pursuant to the Declaration, the number of Issuer Trustees initially is
four. Two of the Issuer Trustees (the "Regular Trustees") are required to be
individuals who are employees or officers of or who are affiliated with the
Company. The third trustee is required to be a financial institution that is
unaffiliated with the Company (the "Property Trustee"). The fourth trustee is
required to be an entity that maintains its principal place of business in the
State of Delaware (the "Delaware Trustee"). At the date of this Prospectus,
Walter A. Rhulen, the Company's President and Chief Executive Officer, and Peter
H. Foley, an Executive Vice President of the Company, act as Regular Trustees;
The Bank of New York, a New York banking corporation, acts as Property Trustee
and its affiliate, The Bank of New York (Delaware), a Delaware banking
corporation, acts as Delaware Trustee. The Bank of New York also acts as trustee
under the Guarantee (the "Guarantee Trustee") and as trustee under the Indenture
(the "Indenture Trustee").
The Property Trustee holds title to the Convertible Debentures for the
benefit of the holders of the Trust Securities, and the Property Trustee has the
power to exercise all rights, powers and privileges under the Indenture as the
holder of the Convertible Debentures. In addition, the Property Trustee
maintains exclusive control of a segregated non-interest bearing bank account
(the "Property Account") to hold all payments made in respect of the Convertible
Debentures for the benefit of the holders of the Trust Securities. The Guarantee
Trustee holds the Guarantee for the benefit of the holders of the Preferred
Securities. The Company, as the holder of all the Common Securities, has the
right to appoint, remove or replace any of the Issuer Trustees and to increase
or decrease the number of trustees, PROVIDED, that the number of trustees shall
be at least three and PROVIDED, FURTHER, that at least one trustee shall be a
Delaware Trustee, at least one trustee shall be a Property Trustee and at least
one Trustee shall be a Regular Trustee. The Company pays all fees and expenses
related to the Trust.
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are as set forth in the
Declaration and the Delaware Business Trust Act, as amended (the "Trust Act").
See "Description of the Preferred Securities." The Declaration, the Indenture
and the Guarantee also incorporate by reference the terms of the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). The Declaration, the
Indenture and the Guarantee will be qualified under the Trust Indenture Act.
The place of business and the telephone number of the Trust are the
principal executive offices and telephone number of the Company. See "The
Company".
ACCOUNTING TREATMENT
The financial statements of the Trust will be consolidated with those of the
Company and reflected in the Company's consolidated financial statements, with
the Preferred Securities shown as "Convertible Preferred Securities of
Subsidiary Trust."
USE OF PROCEEDS
The Selling Holders will receive all of the proceeds from the sale of the
Offered Securities and neither the Company nor the Trust will receive any
proceeds therefrom.
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<PAGE>
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(UNAUDITED)
The following table sets forth the Company's ratio of earnings to combined
fixed charges and preferred stock dividends on a historical basis for each of
the nine months ended September 30, 1996 and September 30, 1995 and the five
fiscal years in the period ended December 31, 1995.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993 1992 1991
------- ------- ----- ---- ---- ---- -----
Ratio of earnings to combined fixed charges and preferred stock dividends
(1)...................................................................... 29.4x 69.9x 49.4x N/A N/A N/A 84.6x
</TABLE>
- ------------------------
(1) For the purposes of this ratio, earnings were calculated by adding interest
expense to income before income taxes and cumulative effect of change in
accounting principle. Combined fixed charges consist of such interest
expense. The pro forma ratios of earnings to combined fixed charges and
preferred stock dividends for the nine months ended September 30, 1996 and
the year ended December 31, 1995, giving pro forma effect to the sale of the
Preferred Securities and the issuance of the Convertible Debentures as if
such sale and issuance had occurred at January 1, 1996 and January 1, 1995,
respectively, assuming repayment of all bank indebtedness from the net
proceeds received by the Company and no investment income attributable to
the balance of such net proceeds, are 5.1x and 4.1x, respectively.
DESCRIPTION OF THE PREFERRED SECURITIES
THE FOLLOWING SUMMARY OF CERTAIN MATERIAL TERMS AND PROVISIONS OF THE
PREFERRED SECURITIES DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO, AND
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE DECLARATION. THE PREFERRED
SECURITIES WERE ISSUED PURSUANT TO THE TERMS OF THE DECLARATION, WHICH
INCORPORATES BY REFERENCE TERMS OF THE TRUST INDENTURE ACT AND WILL BE QUALIFIED
UNDER THE TRUST INDENTURE ACT. THE BANK OF NEW YORK, AS PROPERTY TRUSTEE, ACTS
AS INDENTURE TRUSTEE FOR THE DECLARATION FOR PURPOSES OF COMPLIANCE WITH THE
TRUST INDENTURE ACT.
GENERAL
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 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 Property Trustee
for the benefit of the holders of 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 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
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<PAGE>
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 to
defer interest, during which period no interest 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 Company Common Stock on Company Common
Stock, (ii) purchases or acquisitions of shares of Company 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 Company Common
Stock of one class into Company 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 Company 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.
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<PAGE>
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. Subject to any
applicable laws and regulations and the provisions of the Declaration, each such
payment is made as described below under "Book-Entry Only Issuance--The
Depository Trust Company." 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 maturity or upon redemption,
at the option of the holder thereof and in the manner described below, into
shares of Company Common Stock at an initial conversion rate of 1.0663 shares of
Company Common Stock for each Preferred Security, 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 Company
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 Company Common Stock differ as described below under
"--Book-Entry Only Issuance--The Depository Trust Company."
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 Company Common Stock issued upon such conversion, except to the
extent that such shares of Company 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 Company 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 the Preferred Securities are surrendered for conversion.
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CONVERSION PRICE ADJUSTMENTS--GENERAL. The conversion price is subject to
adjustment in certain events, including (a) the issuance of shares of Company
Common Stock as a dividend or a distribution with respect to Company Common
Stock, (b) subdivisions, combinations or reclassifications of Company 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
Company Common Stock of rights or warrants entitling them (for a period not
exceeding 45 days) to subscribe for shares of Company Common Stock at less than
the then Current Market Price (as defined below), (d) the distribution to
holders of Company 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 Company 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 Company 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 Company 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 Company Common Stock at a price in excess of 110%
of the then Current Market Price of Company 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 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
Company 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. See "Certain Federal Income Tax Considerations--Adjustment of
Conversion Price."
No adjustment of the conversion price will be made upon the issuance of any
shares of Company 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 Company
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 Company 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 Company 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 Company Common
Stock shall be converted into the right to receive other securities, cash or
other property, or, in
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the case of a sale or transfer of all or substantially all of the assets of the
Company, the holders of Company 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 Company 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 Company
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 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 Company 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 Company 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
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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 Company 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 Company 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 Company
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 Company Common Stock receive only
cash, the amount of cash received by a holder of one share of Company Common
Stock and (ii) in the event of any other Fundamental Change, the average of the
daily Closing Price (as defined in the Indenture) for one share of Company
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
Company 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 Company 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 Company
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 Company 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
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Change shall be deemed to have occurred when substantially all of the Company
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 Company Common Stock received in the transaction or event as a result
of which more than 50% of the Company 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 Company 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 Company Common Stock entitled
to receive such common stock or, if there is no such date, prior to the date
upon which the holders of Company 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 Company 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
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."
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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 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. See "Risk
Factors--Holding Company Structure and Subordination."
"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
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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 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
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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
the Global Certificates (as defined herein) 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).
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.
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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 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 Regular
Trustees and without the consent of the holders of the Trust Securities, the
Property Trustee or 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
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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 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 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
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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 Trust Act, 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
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
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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.
The procedures by which holders of Preferred Securities represented by the
Global Certificates may exercise their voting rights are described below. See
"--Book-Entry Only Issuance--The Depository Trust Company."
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.
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
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of the Property Trustee or (iii) cause the Trust to be deemed an "investment
company" required to be registered under the 1940 Act.
REGISTRATION RIGHTS
In connection with the Original Offering, the Company and the Trust entered
into a registration rights agreement (the "Registration Rights Agreement") with
the Initial Purchasers (as defined herein) pursuant to which the Company and the
Trust 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 Company Common Stock issuable upon conversion of the Convertible Debentures
(together, the "Registrable Securities"), (i) to file with 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 agreed to 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 is required to be named as a selling security holder in
the related prospectus and to deliver a prospectus to purchasers, is subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and is bound by the provisions of the Registration Rights
Agreement, including certain indemnification obligations.
If (i) on or prior to December 16, 1996 a Shelf Registration Statement had
not been filed with the Commission, or (ii) on or prior to March 17, 1997 such
Shelf Registration Statement had not been declared effective (each, a
"Registration Default"), additional interest ("Liquidated Damages") would accrue
on the Convertible Debentures and, accordingly, additional distributions would
accrue on the Preferred Securities, in each case from and including the day
following such Registration Default. Liquidated Damages would 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 would 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. 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 Company
Common Stock issuable upon conversion of the Convertible Debentures to be listed
on the NYSE upon effectiveness of the Shelf Registration Statement.
The summary herein of certain provisions of the Registration Rights
Agreement is subject to, and is qualified in its entirety by reference to, all
the provisions of the Registration Rights Agreement, a copy of which is filed as
an exhibit to the Registration Statement of which this Prospectus constitutes a
part.
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BOOK-ENTRY ONLY ISSUANCE--THE DEPOSITORY TRUST COMPANY
The description of book-entry procedures in this Prospectus includes
summaries of certain rules and operating procedures of DTC that affect transfers
of interests in the global certificate or certificates issued in connection with
sales of Preferred Securities made pursuant to this Prospectus. Except as
described in the next paragraph, the Preferred Securities will be issued only as
fully registered securities registered in the name of Cede & Co. (as nominee for
DTC). One or more fully registered global Preferred Security certificates (the
"Global Certificates") will be issued, representing, in the aggregate, Preferred
Securities sold pursuant to this Prospectus, and will be deposited with DTC. In
the event of a transfer of securities that were issued in fully registered,
certificated form, the holder of such certificates will be required to exchange
them for interests in the Global Certificates representing the number of
Preferred Securities being transferred.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Participants in DTC
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of its
Participants and by the NYSE, the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants"). The rules
applicable to DTC and its Participants are on file with the Commission.
Purchases of Preferred Securities within the DTC system must be made by or
through Participants, which receive a credit for the Preferred Securities on
DTC's records. The ownership interest of each actual purchaser of Preferred
Securities ("Beneficial Owner") is recorded on the Participants' and Indirect
Participants' records. Beneficial Owners do not receive written confirmation
from DTC of their purchases, but Beneficial Owners are expected to receive
written confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Participants or Indirect Participants
through which the Beneficial Owners purchased Preferred Securities. Transfers of
ownership interests in the Preferred Securities are accomplished by entries made
on the books of Participants and Indirect Participants acting on behalf of
Beneficial Owners. Beneficial Owners do not receive certificates representing
their ownership interests in Preferred Securities, except in the event that use
of the book-entry system for the Preferred Securities is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the Preferred
Securities; DTC's records reflect only the identity of the Participants to whose
accounts such Preferred Securities are credited, which may or may not be the
Beneficial Owners. The Participants and Indirect Participants remain responsible
for keeping account of their holdings on behalf of their customers.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Certificate, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the Preferred Securities represented thereby for all
purposes under the Declaration. No beneficial owner of an interest in a Global
Certificate is able to transfer that interest except in accordance with DTC's
applicable procedures, in addition to those provided for under the Declaration.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Preferred Securities (including the presentation of
Preferred Securities for exchange as described below) only at the direction of
one or more Participants to whose account the DTC interests in the Global
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Certificates are credited and only with respect to such portion of the aggregate
liquidation amount of Preferred Securities as to which such Participant or
Participants has or have given such direction. However, if there is an Event of
Default under the Preferred Securities, DTC will exchange the Global
Certificates for Certificated Securities, which it will distribute to its
Participants.
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants, and by Participants and Indirect
Participants to Beneficial Owners are governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Redemption notices in respect of Preferred Securities held in book-entry
form will be sent to Cede & Co. If less than all of the Preferred Securities are
being redeemed, DTC will determine the amount of interest to be redeemed in
accordance with its procedures.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to the Trust as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Participants' accounts to which the Preferred Securities
are credited on the record date (identified in a listing attached to the Omnibus
Proxy).
Distributions on the Preferred Securities held in book-entry form are made
to DTC in immediately available funds. DTC's practice is to credit Participants'
accounts on the relevant payment date in accordance with their respective
holdings shown on DTC's records unless DTC has reason to believe that it will
not receive payments on such payment date. Payments by Participants and Indirect
Participants to Beneficial Owners are governed by standing instructions and
customary practices and are the responsibility of such Participants and Indirect
Participants and not of DTC, the Trust or the Company, subject to any statutory
or regulatory requirements as may be in effect from time to time. Payment of
distributions to DTC is the responsibility of the Trust, disbursement of such
payments to Participants is the responsibility of DTC and disbursement of such
payments to the Beneficial Owners is the responsibility of Participants and
Indirect Participants.
Except as provided herein, a Beneficial Owner of an interest in a Global
Certificate is not entitled to receive physical delivery of Preferred
Securities. Accordingly, each Beneficial Owner must rely on the procedures of
DTC to exercise any rights under the Preferred Securities.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Certificates among Participants of DTC, DTC
is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company, the Trust
nor the Issuer Trustees have any responsibility for the performance by DTC or
its Participants or Indirect Participants under the rules and procedures
governing DTC. DTC may discontinue providing its services as securities
depository with respect to the Preferred Securities at any time by giving notice
to the Trust. Under such circumstances, in the event that a successor securities
depository is not obtained, Preferred Security certificates will be required to
be printed and delivered. Additionally, the Trust (with the consent of the
Company) may decide to discontinue use of book-entry transfers through DTC (or a
successor depository). In that event, certificates for the Preferred Securities
will be printed and delivered. In each of the above circumstances, the Company
will appoint a paying agent with respect to the Preferred Securities.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in the global Preferred Securities
as represented by a Global Certificate.
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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 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.
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DESCRIPTION OF THE GUARANTEE
SET FORTH BELOW IS A SUMMARY OF INFORMATION CONCERNING THE GUARANTEE THAT
WAS EXECUTED AND DELIVERED BY THE COMPANY FOR THE BENEFIT OF THE HOLDERS FROM
TIME TO TIME OF PREFERRED SECURITIES. THE SUMMARY DOES NOT PURPORT TO BE
COMPLETE AND IS SUBJECT IN ALL RESPECTS TO THE PROVISIONS OF, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO, THE GUARANTEE, WHICH INCORPORATES BY REFERENCE
THE TERMS OF THE TRUST INDENTURE ACT AND WILL BE QUALIFIED UNDER THE TRUST
INDENTURE ACT. THE BANK OF NEW YORK, AS GUARANTEE TRUSTEE, HOLDS THE GUARANTEE
FOR THE BENEFIT OF THE HOLDERS OF THE PREFERRED SECURITIES.
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.
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).
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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 Company Common Stock on Company Common
Stock, (ii) purchases or acquisitions of shares of Company 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 Company 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 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
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<PAGE>
distribution of Company Common Stock to such holder in respect of the conversion
of such holder's Preferred Securities into Company 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 Company 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.
DESCRIPTION OF THE CONVERTIBLE DEBENTURES
SET FORTH BELOW IS A DESCRIPTION OF THE SPECIFIC TERMS OF THE CONVERTIBLE
DEBENTURES IN WHICH THE TRUST INVESTED THE PROCEEDS FROM THE ISSUANCE AND SALE
OF THE TRUST SECURITIES. THE FOLLOWING DESCRIPTION DOES NOT PURPORT TO BE
COMPLETE AND IS SUBJECT TO, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO,
THE INDENTURE (THE "INDENTURE") BETWEEN THE COMPANY AND THE BANK OF NEW YORK, AS
TRUSTEE (THE "INDENTURE TRUSTEE"), A COPY OF WHICH HAS BEEN FILED AS AN EXHIBIT
TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS CONSTITUTES A PART. THE
INDENTURE WILL BE QUALIFIED UNDER THE TRUST INDENTURE ACT.
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.
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<PAGE>
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 (as defined under "--Book-Entry and Settlement"). 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 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
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<PAGE>
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 Company Common Stock on
Company Common Stock, (ii) purchases or acquisitions of shares of Company 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
Company 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.
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 Company 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
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<PAGE>
upon redemption at an initial conversion rate of 1.0663 shares of Company 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 Company 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 Company 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 Company 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 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.
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PROPOSED TAX LEGISLATION
On March 19, 1996, as a part of President Clinton's fiscal 1997 Budget
Proposal, the Treasury Department proposed the Proposed Legislation that, among
other things, would treat as equity for United States Federal income tax
purposes instruments with a maximum term of more than 20 years that are not
shown as indebtedness on the consolidated balance sheet of the issuer. On March
29, 1996, Senate Finance Committee Chairman William V. Roth, Jr. and House Ways
and Means Committee Chairman Bill Archer issued the Joint Statement indicating
their intent that certain legislative proposals initiated by the Clinton
administration, including the Proposed Legislation, that may be adopted by
either of the tax-writing committees of Congress, would have an effective date
that is no earlier than the date of "appropriate Congressional action." In
addition, subsequent to the publication of the Joint Statement, Senator Patrick
Moynihan and Representatives Sam M. Gibbons and Charles B. Rangel wrote letters
to Treasury Department officials concurring with the views expressed in the
Joint Statement (the "Democrat Letters"). If the principles contained in the
Joint Statement and the Democrat Letters are followed and the Proposed
Legislation is enacted, such legislation will not apply to the Convertible
Debentures since they will be issued prior to the date of any "appropriate
Congressional action." There can be no assurance, however, that any proposed
legislation enacted after the date hereof will not otherwise adversely affect
the tax treatment of the Convertible Debentures. If legislation is enacted that
adversely affects the tax treatment of the Convertible Debentures, such
legislation could result in the distribution of the Convertible Debentures to
holders of the Preferred Securities or, in certain limited circumstances
involving a Redemption Tax Event, the redemption of such securities by the
Company and the distribution of the resulting cash in redemption of the
Preferred Securities. See "Description of the Preferred Securities-- Spceial
Event Distribution or Redemption."
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
(whether or not such obligation is assumed by such obligor), except for (1) any
such indebtedness that is by
37
<PAGE>
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.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of the Preferred Securities in connection with the
involuntary or voluntary dissolution, winding-up or liquidation of the Trust as
a result of the occurrence of a Special Event, the Convertible Debentures will
be issued in the same form as the Preferred Securities which such Convertible
Debentures replace. Any Global Certificate will be replaced by one or more
global certificates (each a "Global Security") registered in the name of the
depository or its nominee. Except under the limited circumstances described
below, the Convertible Debentures represented by the Global Security will not be
exchangeable for, and will not otherwise be issuable as, Convertible Debentures
in definitive form. The Global Securities will not be transferable except by the
depository to a nominee of the depository or by a nominee of the depository to
the depository or another nominee of the depository or to a successor depositor
or its nominee.
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<PAGE>
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such laws may
impair the ability to transfer beneficial interests in a Global Security.
Except as provided below, owners of beneficial interests in a Global
Security will not be entitled to receive physical delivery of Convertible
Debentures in definitive form and will not be considered the holders thereof for
any purpose under the Indenture, and no Global Security representing Convertible
Debentures shall be exchangeable, except for another Global Security of like
denomination and tenor to be registered in the name of the depository or its
nominee or to a successor depository or its nominee. Accordingly, each
Beneficial Owner must rely on the procedures of DTC or if such person is not a
Participant, on the procedures of the Participant through which such person owns
its interest to exercise any rights of a holder under the Indenture.
THE DEPOSITORY
If Convertible Debentures are distributed to holders of Perferred Securities
in liquidation of such holders' interests in the Trust and Global Security is
issued, DTC will act as securities depository for the Convertible Debentures
represented by such Global Security. For a description of DTC and the specific
terms of the depository arrangements, see "Description of the Preferred
Securities--Book-Entry Only Issuance--The Depository Trust Company." As of the
date of this Prospectus, the description therein of DTC's book-entry system and
DTC's practices as they relate to purchases, transfers, notices and payments
with respect to the Preferred Securities apply in all material respects to any
debt obligations represented by one or more Global Securities held by DTC. The
Company may appoint a successor to DTC or any successor depository in the event
DTC or such successor depository is unable or unwilling to continue as a
depository for the Global Securities.
None of the Company, the Trust, the Indenture Trustee, any paying agent and
any other agent of the Company or the Indenture Trustee has any responsibility
or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in a Global Security for such
Convertible Debentures or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
DISCONTINUANCE OF THE DEPOSITORY'S SERVICES
A Global Security is exchangeable for Convertible Debentures registered in
the names of persons other than the Depository or its nominee only if (i) the
Depository notifies the Company that it is unwilling or unable to continue as a
depository for such Global Security and no successor depository shall have been
appointed, (ii) the Depository, at any time, ceases to be a clearing agency
registered to act as such depository and no successor depository shall have been
appointed, (iii) the Company, in its sole discretion, determines that such
Global Security shall be so exchangeable, or (iv) there shall have occurred an
Indenture Event of Default with respect to such Convertible Debentures. Any
Global Security that is exchangeable pursuant to the preceding sentence shall be
exchangeable for Convertible Debentures registered in such names as the
Depository shall direct. It is expected that such instructions will be based
upon directions received by the Depository from its Participants with respect to
ownership of beneficial interests in such Global Security.
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 Company
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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 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.
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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 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.
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EFFECT OF OBLIGATIONS UNDER THE CONVERTIBLE
DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to issue
the Trust Securities evidencing undivided beneficial interests in the assets of
the Trust, to invest the proceeds from such issuance and sale in the Convertible
Debentures and to engage in only those activities necessary or incidental
thereto.
As long as payments of interest and other payments are made when due on the
Convertible Debentures, such payments will be sufficient to cover distributions
and payments due on the Trust Securities because of the following factors: (i)
the aggregate principal amount of Convertible Debentures is equal to the sum of
the aggregate stated liquidation amount of the Trust Securities; (ii) the
interest rate and the interest and other payment dates on the Convertible
Debentures match the distribution rate and distribution and other payment dates
for the Preferred Securities; (iii) pursuant to the Indenture, the Company is
required to pay, and the Trust is not obligated to pay, directly or indirectly,
all costs, expenses, debts and obligations of the Trust other than with respect
to the Trust Securities; and (iv) the Declaration further provides that the
Issuer Trustees will not cause or permit the Trust to, among other things,
engage in any activity that is not consistent with the purposes of the Trust.
Payments of distributions (to the extent the Trust has funds available
therefor) and other payments due on the Preferred Securities (to the extent the
Trust has funds available therefor) are guaranteed by the Company as and to the
extent set forth under "Description of the Guarantee." If the Company does not
make interest payments on the Convertible Debentures purchased by the Trust, the
Trust will not have sufficient funds to pay distributions on the Preferred
Securities. The Guarantee is a guarantee with respect to the Preferred
Securities from the time of its issuance but does not apply to any payment of
distributions unless and until the Trust has sufficient funds for the payment of
such distributions.
The Guarantee covers the payment of distributions and other payments on the
Preferred Securities only if and to the extent that the Company has made a
payment of interest or principal on the Convertible Debentures held by the Trust
as its sole asset. The Guarantee, when taken together with the Company's
obligations under the Convertible Debentures and the Indenture 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 right of the Company to defer payments
of interest on the Convertible Debentures which could result in a concomitant
deferral of payments on the Preferred Securities).
In the event the Company fails to make interest or other payments on the
Convertible Debentures when due (taking into account any Extension Period), the
Declaration provides a mechanism whereby the holders of the Preferred
Securities, using the procedures described in "Description of the Preferred
Securities--Book-Entry Only Issuance--The Depository Trust Company" and
"Description of the Preferred Securities--Voting Rights," may direct the
Property Trustee to enforce its rights under the Convertible Debentures. If the
Property Trustee fails to enforce its rights under the Convertible Debentures,
any holder of Preferred Securities may, to the extent permitted by law, directly
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 available (or in the case of redemption, on
the redemption date), then a holder of Preferred Securities may institute a
Direct Action for payment 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 by the Company to such holder of
Preferred Securities. The Company, under the Guarantee, acknowledges that the
Guarantee Trustee shall enforce the Guarantee on behalf of the holders of the
Preferred Securities. If the Company fails to make payments under the Guarantee,
the Guarantee provides a mechanism whereby the holders of the Preferred
Securities may direct the Guarantee Trustee to enforce its rights thereunder. If
the Guarantee Trustee fails to enforce the Guarantee, any holder of Preferred
Securities may directly institute a legal proceeding against the Company to
enforce the Guarantee Trustee's rights under the Guarantee without first
instituting a legal proceeding against the Trust, the Guarantee Trustee or any
other person or entity.
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DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares of
Company Common Stock and 1,000,000 shares of preferred stock, par value $.01 per
share.
COMPANY COMMON STOCK
Holders of the Company Common Stock are entitled to one vote per share on
all matters to be voted upon by the stockholders generally, including the
election of directors. Subject to the rights of holders of preferred stock, the
holders of the Company Common Stock are entitled to receive such dividends as
may be declared from time to time by the Board of Directors out of funds legally
available therefor. In the event of the liquidation, dissolution or winding up
of the Company, holders of the Company Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities of the Company,
subject to the rights of holders of preferred stock. The holders of the Company
Common Stock have no preemptive or conversion rights and are not subject to
further calls or assessments by the Company.
PREFERRED STOCK
The Company's Certificate of Incorporation, as amended, authorizes the Board
of Directors of the Company (without stockholder approval) to, among other
things, issue shares of preferred stock from time to time in one or more series,
each series to have such designations, preferences, relative, participating,
optional and other special rights, and qualifications, limitations or
restrictions (which may differ with respect to each series), as the Board of
Directors may fix by resolution.
LIMITATION ON DIRECTORS' LIABILITY
The Company's Certificate of Incorporation provides that no director of the
Company shall be personally liable to the Company's stockholders for monetary
damages for the breach of any fiduciary duty as a director, except (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, as amended from time to time, or (iv) for any
transaction from which the director derived an improper personal benefit. The
effect of these provisions will be to eliminate the rights of the Company and
its stockholders (through stockholders' derivative suits on behalf of the
Company) to recover monetary damages against a director for breach of fiduciary
duty as a director (including breaches resulting from grossly negligent
behavior), except in the situations described above. The provisions will not
limit the liability of directors under the federal securities laws.
CERTAIN REGISTRATION RIGHTS
The Company has agreed to file a registration statement under the Securities
Act no later than June 1, 1997 with respect to, and to take all requisite action
to permit the public sale of, the 238,087 shares of Company Common Stock issued
in connection with the Company's acquisition of Regency Insurance Company and
Emrol Installment Premium Discount, Inc., and has agreed to keep the related
registration statement effective until the earlier of January 15, 1998 or such
time as such shares may be sold pursuant to Rule 144 under the Securities Act.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
In the opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special United
States tax counsel to the Company and the Trust ("Special Tax Counsel"), the
following is a summary of certain of the material United States Federal income
tax consequences of the purchase, ownership, disposition and conversion of
Preferred Securities. Unless otherwise stated, this summary deals only with
Preferred Securities held as capital assets by U.S. Holders. As used herein, a
"U.S. Holder" means a person that is a citizen or resident of the United States,
a corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or an estate or
trust as defined in section 7701(a)(30) of the Internal Revenue Code of 1986, as
amended (the "Code"). This summary does not deal with special classes of holders
such as banks, thrifts, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or currencies, tax-exempt
investors, or persons that will hold the Preferred Securities as other than a
capital asset. This summary also does not address the tax consequences to
persons that have a functional currency other than the U.S. Dollar or the tax
consequences to shareholders, partners or beneficiaries of a holder of Preferred
Securities. Further, it does not include any description of any alternative
minimum tax consequences or the tax laws of any state or local government or of
any foreign government that may be applicable to the Preferred Securities. This
summary is based on the Code, Treasury regulations thereunder and administrative
and judicial interpretations thereof, as of the date hereof, all of which are
subject to change, possibly on a retroactive basis.
CLASSIFICATION OF THE CONVERTIBLE DEBENTURES
In connection with the issuance of the Convertible Debentures, Special Tax
Counsel rendered its opinion generally to the effect that under then current law
and assuming full compliance with the terms of the Indenture (and certain other
documents), and based on certain facts and assumptions contained in such
opinion, the Convertible Debentures will be classified as indebtedness of the
Company for United States Federal income tax purposes.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Preferred Securities, Special Tax
Counsel rendered its opinion generally to the effect that, under then current
law and assuming full compliance with the terms of the Declaration and the
Indenture (and certain other documents), and based on certain facts and
assumptions contained in such opinion, the Trust will be classified for United
Stated Federal income tax purposes as a grantor trust and not as an association
taxable as a corporation. Accordingly, for United States Federal income tax
purposes, each holder of Preferred Securities generally will be considered the
owner of an undivided interest in the Convertible Debentures held by the Trust,
and each holder will be required to include in its gross income interest with
respect to its allocable share of those Convertible Debentures.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under recently issued Treasury regulations applicable to all debt
instruments that, like the Convertible Debentures, were issued on or after
August 13, 1996, "remote" contingencies that stated interest will not be timely
paid are ignored in determining whether a debt instrument is issued with OID.
OID must be included in income by all holders as it accrues economically on a
daily basis, without regard to when it is paid in cash or whether a particular
holder generally uses the cash method of accounting. The Company believes that
the likelihood of its exercising its option to defer payments of interest is
"remote" because exercising that option would prevent the Company from declaring
dividends on its capital stock, and the Company has paid regular quarterly cash
dividends on Company Common Stock since 1992. Accordingly, the Company has taken
the position, based on the advice of Special Tax Counsel, that the Convertible
Debentures will not be considered debt instruments issued with OID unless and
until the Company exercises its right to defer interest payment on the
Convertible Debentures. Therefore, except as set forth below, stated interest on
the Convertible Debentures generally will be taxable to a U.S. Holder as
ordinary
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income at the time it is paid or accrued in accordance with such Holder's method
of accounting (e.g., cash or accrual) instead of under the daily economic
accrual rules for OID instruments.
Under the new Treasury regulations, however, if the Company exercises its
right to defer payments of interest, the Convertible Debentures will become OID
instruments, and all holders of the Preferred Securities will be required to
accrue interest on a daily basis during the Extension Period even though the
Company will not pay the interest in cash until the end of the Extension Period,
and even if some holders generally use the cash method of accounting. A holder
who disposes of or converts its Preferred Securities during an Extension Period
may suffer a loss because the market value of the Preferred Securities will
likely fall if the Company exercises it option to defer payments of interest on
the Convertible Debentures. Furthermore, the market value of the Preferred
Securities may not reflect the accumulated distributions that will be paid at
the end of the Extension Period, and a holder who sells or converts its
Preferred Securities during the Extension Period will not receive from the
Company any cash or additional shares of Company Common Stock related to the
interest income the holder accrued and included in its taxable income under the
OID rules.
If the Convertible Debentures become OID instruments (i.e., if the Company
ever exercises its right to defer payments of interest), the Convertible
Debentures will be taxed as OID instruments for as long as they remain
outstanding. Thus, even after the end of the Extension Period, all holders would
be required to continue accruing interest on the Convertible Debentures on a
daily basis, regardless of their method of accounting. Under the OID rules, a
holder would accrue an amount of interest income each year that approximates the
stated interest payments called for under the terms of the Convertible
Debentures, and actual cash payments of interest on the Convertible Debentures
would not be reported separately as taxable income.
The new Treasury regulations have not yet been addressed in any rulings or
other interpretations by the IRS, and it is possible that the IRS could take a
position contrary to Special Tax Counsel's interpretation herein.
Corporate holders of the Preferred Securities will not be entitled to a
dividends-received deduction with respect to any income recognized with respect
to the Preferred Securities.
MARKET DISCOUNT AND BOND PREMIUM
To the extent a holder acquires its Preferred Securities at a price that is
greater or less than the adjusted issue price of such holder's share of the
Convertible Debentures (which generally should approximate par plus accrued but
unpaid interest), the holder may be deemed to have acquired its interest in the
Convertible Debentures with acquisition premium or with market discount, as the
case may be. A holder who purchases Preferred Securities at a premium will be
permitted to reduce the amount of interest income required to be included in
income to reflect the acquisition premium. A holder who purchases Preferred
Securities at a market discount will also include the amount of such discount in
income in accordance with the market discount rules described below.
A holder that acquires its undivided beneficial interest in the Convertible
Debentures at a market discount generally will be required to recognize ordinary
income to the extent of accrued market discount on the Convertible Debentures
upon the retirement of the underlying Convertible Debentures or, the extent of
any gain, upon the disposition of the Preferred Securities. Such market discount
would accrue ratably, or, at the election of the holder, under a constant yield
method over the remaining term of the Convertible Debentures. A holder will also
be required to defer the deduction of a portion of the interest paid or accrued
on indebtedness incurred to purchase or carry Preferred Securities that
represent Convertible Debentures acquired with market discount. In lieu of the
foregoing, a holder may elect to include market discount in income currently as
it accrues on all market discount instruments acquired by such holder in the
taxable year of the election or thereafter, in which case the interest deferral
rule will not apply.
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A holder may elect, in lieu of applying the market discount or premium rules
described above, to account for all income under the Convertible Debentures as
if it were OID. A holder that makes this election and that is considered to have
acquired its undivided beneficial interest in the Convertible Debentures with
market discount will be considered to have made the election described in the
immediately preceding paragraph.
RECEIPT OF CONVERTIBLE DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under the caption "Description of
the Preferred Securities--Special Event Distribution or Redemption," Convertible
Debentures may be distributed to holders in exchange for the Preferred
Securities and in liquidation of the Trust. Under current law, such a
distribution to holders, for United States Federal income tax purposes, would be
treated as a nontaxable event to each holder, and each holder would receive an
aggregate tax basis in the Convertible Debentures equal to such holder's
aggregate tax basis in its Preferred Securities. A holder's holding period in
the Convertible Debentures so received in liquidation of the Trust would include
the period during which the Preferred Securities were held by such holder. Upon
the occurrence of a Redemption Tax Event pursuant to which the Company elects to
redeem the Convertible Debentures for cash and, as a result, the Preferred
Securities are redeemed by the Trust for cash, such redemption would be a
taxable event to the holders of the Preferred Securities.
Under certain circumstances described herein (see "Description of the
Preferred Securities"), the Convertible Debentures may be redeemed for cash and
the proceeds of such redemption distributed to holders in redemption of their
Preferred Securities. Under current law, such a redemption would, for United
States Federal income tax purposes, constitute a taxable disposition of the
redeemed Preferred Securities, and a holder would recognize gain or loss as if
it sold such redeemed Preferred Securities for cash. See "--Sales of Preferred
Securities."
SALES OF PREFERRED SECURITIES
A holder that sells Preferred Securities will recognize gain or loss equal
to the difference between the amount realized on the sale of the Preferred
Securities and the holder's adjusted tax basis in such Preferred Securities.
Assuming the Company does not defer interest on the Convertible Debentures, a
holder's adjusted tax basis in its Preferred Securities will equal its initial
purchase price (plus the amount of accrued market discount, if any, if the
holder has made an election to accrue market discount in income currently).
Subject to the market discount rules mentioned above, such gain or loss
generally will be a capital gain or loss (except to the extent of any accrued
interest with respect to such holder's pro rata share of the Convertible
Debentures not previously included in income) and generally will be a long-term
capital gain or loss if the Preferred Securities have been held for more than
one year at the time of sale.
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
Convertible Debentures. If the Company exercises its right to defer payment of
interest, a holder who disposes of or converts its Preferred Securities will be
required to include in income as ordinary income accrued but unpaid interest on
the Convertible Debentures through the date of disposition or conversion and to
add such amount to its adjusted tax basis in its PRO RATA share of the
underlying Convertible Debentures deemed disposed of or converted. To the extent
the selling price is less than the holder's adjusted tax basis (which basis will
include all accrued but unpaid interest), a holder will recognize a capital
loss. Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States Federal income tax purposes.
PROPOSED TAX LEGISLATION
On March 19, 1996, as part of President Clinton's fiscal 1997 Budget
Proposal, the Treasury Department proposed the Proposed Legislation that, among
other things, would treat as equity for United States Federal income tax
purposes instruments with a maximum term of more than 20 years that are not
shown as indebtedness on the consolidated balance sheet of the issuer. On March
29,1996, Senate Finance
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Committee Chairman William V. Roth, Jr. and House Ways and Means Committee
Chairman Bill Archer issued the Joint Statement indicating their intent that
certain legislative proposals initiated by the Clinton administration, including
the Proposed Legislation, that may be adopted by either of the tax-writing
committees of Congress, would have an effective date that is no earlier than the
date of "appropriate Congressional action." In addition, subsequent to the
publication of the Joint Statement, Senator Patrick Moynihan and Representatives
Sam M. Gibbons and Charles B. Rangel wrote letters to Treasury Department
officials concurring with the views expressed in the Joint Statement (the
"Democrat Letters"). If the principles contained in the Joint Statement and the
Democrat Letters are followed and the Proposed Legislation is enacted, such
legislation will not apply to the Convertible Debentures since they were issued
prior to the date of any "appropriate Congressional action." There can be no
assurance, however, that any proposed legislation enacted after the date hereof
will not otherwise adversely affect the tax treatment of the Convertible
Debentures. If legislation is enacted that adversely affects the tax treatment
of the Convertible Debentures, such legislation could result in the distribution
of the Convertible Debentures to holders of the Preferred Securities or, in
certain limited circumstances involving a Tax Redemption Event, the redemption
of such securities by the Company and the distribution of the resulting cash in
redemption of the Preferred Securities. See "Description of the Preferred
Securities--Special Event Distribution or Redemption."
CONVERSION OF PREFERRED SECURITIES INTO COMPANY COMMON STOCK
A holder generally will not recognize income, gain or loss upon the
conversion, through the Conversion Agent, of its Preferred Securities into
Company Common Stock. A holder will, however, recognize gain upon the receipt of
cash in lieu of a fractional share of Company Common Stock equal to the amount
of cash received less the holder's tax basis in such fractional share. A
holder's tax basis in the Company Common Stock received upon conversion should
generally be equal to the holder's tax basis in the Preferred Securities
delivered to the Conversion Agent for conversion less the basis allocated to any
fractional share for which cash is received. A holder's holding period in the
Company Common Stock received upon conversion of its Preferred Securities should
generally begin on the date the holder acquired the Preferred Securities
delivered to the Conversion Agent for conversion.
ADJUSTMENT OF CONVERSION PRICE
Treasury Regulations promulgated under Section 305 of the Code would treat
holders of Preferred Securities as having received a constructive distribution
from the Company in the event the conversion ratio of the Convertible Debentures
were adjusted if (i) as a result of such adjustment, the proportionate interest
(measured by the quantum of Company Common Stock into or for which the
Convertible Debentures are convertible) of the holders of the Preferred
Securities in the assets or earnings and profits of the Company were increased,
and (ii) the adjustment was not made pursuant to a bona fide, reasonable
antidilution formula. An adjustment in the conversion ratio would not be
considered made pursuant to such a formula if the adjustment was made to
compensate for certain taxable distributions with respect to the Company Common
Stock. Thus, under certain circumstances, a reduction in the conversion price
for the holders may result in deemed dividend income to holders to the extent of
the current or accumulated earnings and profits of the Company. Holders of the
Preferred Securities would be required to include their allocable share of such
deemed dividend income in gross income but would not receive any cash related
thereto.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, income on the Preferred Securities will be reported to holders on
Forms 1099, which forms should be mailed to holders of Preferred Securities by
January 31 following each calendar year.
Payments made on, and proceeds from the sale of, the Preferred Securities
may be subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification requirements. Any withheld amounts will be allowed
as a credit against the holder's United States Federal income tax, provided the
required information is provided on a timely basis to the Internal Revenue
Service.
47
<PAGE>
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL
OR OTHER TAX LAWS.
SELLING HOLDERS
The Preferred Securities were originally issued by the Trust and sold by
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation, Oppenheimer & Co., Inc., Stephens Inc. and Conning &
Company (the "Initial Purchasers"), in a transaction exempt from the
registration requirements of the Securities Act, to persons reasonably believed
by such Initial Purchasers to be "qualified institutional buyers" (as defined in
Rule 144A under the Securities Act), to certain qualified institutional buyers
acting on behalf of institutional "accredited investors" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act), or outside the United
States to non-U.S. persons in offshore transactions in reliance on Regulation S
under the Securities Act. The Selling Holders may from time to time offer and
sell pursuant to this Prospectus any or all of the Preferred Securities, any
Convertible Debentures distributed to them and Company Common Stock issued upon
conversion of the Preferred Securities/Convertible Debentures. The term Selling
Holder includes the holders listed below and the beneficial owners of the
Preferred Securities and their transferees, pledgees, donees or other
successors.
The following table sets forth the names of and number of Preferred
Securities beneficially owned by each Selling Holder that may be offered
pursuant to this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
SELLING HOLDER SECURITIES
- ------------------------------------------------------------------------------------ ------------------
<S> <C>
AIM Balanced Fund................................................................. 50,000
AIM High Yield Fund............................................................... 60,000
AllState Life Insurance Company................................................... 40,000
AllState Insurance Company........................................................ 60,000
Anthracite Mutual Fire Insurance Company.......................................... 200
Associated Electric and Gas Insurance Services Ltd................................ 2,500
Associated Physicians Insurance Company........................................... 200
Bancroft Convertible Fund, Inc.................................................... 12,500
Bank of America Convertible Securities Fund....................................... 5,000
Bank of America Employee Benefit Convertible Fund................................. 5,000
Bank of America Equity Income Fund................................................ 50,000
BCS Life Insurance Company........................................................ 4,400
Bond Fund Series - Oppenheimer Bond Fund for Growth............................... 65,000
Central States Health & Life of Omaha............................................. 3,800
Champion International Corporation Master Retirement Trust........................ 7,600
Christian Science Trustees for Gifts and Endowments............................... 2,000
Chrysler Insurance Company........................................................ 23,600
Concord Life Insurance Company.................................................... 2,500
Condor Insurance Company.......................................................... 2,000
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
SELLING HOLDER SECURITIES
- ------------------------------------------------------------------------------------ ------------------
<S> <C>
Declaration of Trust for the Defined Benefit Plan of ICI American Holdings Inc.... 9,000
Declaration of Trust for the Defined Benefit Plan of Leneca Holdings, Inc......... 5,000
Delaware State Employees' Retirement Fund......................................... 27,000
Delta Air Lines Master Trust...................................................... 18,900
Dow Chemical Company Employees' Retirement Plan................................... 10,600
Ellsworth Convertible Growth and Income Fund, Inc................................. 12,500
First Church of Christ, Scientist - Endowment..................................... 3,000
General Motors Employees Domestic Group Trust..................................... 96,000
Genesee County Employees' Retirement System....................................... 2,100
Guaranty Income Life Insurance Company............................................ 5,700
Guarantee Trust Life Insurance Company............................................ 12,200
Hillside Capital Incorporated Corporate Account................................... 2,000
Holy Family Society............................................................... 600
ISBA Mutual Insurance Company..................................................... 1,100
KA Management Limited............................................................. 14,478
KA Trading L.P.................................................................... 33,182
Key Trust Company of Ohio......................................................... 20,000
Lebanon Mutual Insurance Company.................................................. 800
Lone Star Life Insurance Company.................................................. 14,300
Medico Life Insurance Company..................................................... 6,000
Medmarc Insurance Company......................................................... 5,700
Michigan Mutual Insurance Company 40,700
Midwest Security Life Insurance Company........................................... 2,200
Midwest Security Insurance Company................................................ 2,200
Millville Mutual Insurance Company................................................ 1,300
Mutual Protective Insurance Company............................................... 7,400
New York Life Insurance Company................................................... 110,000
Northwestern Mutual Life Insurance Company........................................ 150,000
Old Guard Mutual Fire Insurance Company........................................... 1,500
Old Guard Mutual Insurance Company................................................ 5,300
Orrington International Fund Ltd.................................................. 10,000
Orrington Investments Limited Partnership......................................... 10,000
Pacific Horizon Capital Income Fund............................................... 60,000
PaineWebber America Fund - PaineWebber Growth and Income Fund..................... 80,000
PaineWebber Master Series, Inc. - PaineWebber Balanced Fund....................... 15,000
PaineWebber Series Trust - Balanced Portfolio..................................... 3,000
PaineWebber Series Trust - Growth and Income Portfolio............................ 2,000
Port Authority of Allegheny County Retirement and Disability Allowance Plan for
the Employees Represented by Local 85 of the Amalgamated Transit Union.......... 9,000
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
SELLING HOLDER SECURITIES
- ------------------------------------------------------------------------------------ ------------------
<S> <C>
Potlatch Corporation.............................................................. 40,700
Reliable Life Insurance Company................................................... 4,600
RJR Nabisco, Inc. Defined Benefit Master Trust.................................... 7,300
Tennessee Consolidated Retirement System.......................................... 55,000
Thermo Electron Balanced Investment Fund.......................................... 10,000
Transguard Insurance Company of America........................................... 5,400
United National Insurance Company................................................. 29,300
United Teacher Associates Insurance Company....................................... 21,500
University of South Florida Foundation, Inc....................................... 40,700
Van Kampen American Capital Harbor Fund........................................... 45,000
Westward Life Insurance Company................................................... 800
Any other holder of Preferred Securities or future transferee from any such
holder.......................................................................... 2,379,940
- ------------------------------------------------------------------------------------
Total......................................................................... 3,450,000
----------
----------
</TABLE>
None of the Selling Holders has, or within the past three years has had, any
position, office or other material relationship with the Trust or the Company or
any of their predecessors or affiliates. As the Selling Holders, pursuant to
this Prospectus, may offer all or some portion of the Preferred Securities, the
Convertible Debentures distributed to them or the Company Common Stock issuable
upon conversion of the Preferred Securities/Convertible Debentures, no estimate
can be given as to the amount of the Preferred Securities, Convertible
Debentures or Company Common Stock that will be held by the Selling Holders upon
termination of any such sales. In addition, the Selling Holders identified above
may have sold, transferred or otherwise disposed of all or a portion of their
Preferred Securities since the date on which they provided the information
regarding their Preferred Securities, in transactions exempt from the
registration requirements of the Securities Act.
50
<PAGE>
PLAN OF DISTRIBUTION
The Offered Securities may be sold from time to time to purchasers directly
by the Selling Holders. Alternatively, the Selling Holders may from time to time
offer the Offered Securities to or through underwriters, broker/dealers or
agents, who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Holders or the purchasers of such
securities for whom they may act as agents. The Selling Holders and any
underwriters, broker/dealers or agents that participate in the distribution of
Offered Securities may be deemed to be "underwriters" within the meaning of the
Securities Act and any profit on the sale of such securities and any discounts,
commissions, concessions or other compensation received by any such underwriter,
broker/dealer or agent may be deemed to be underwriting discounts and
commissions under the Securities Act.
The Offered Securities may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
sale of the Offered Securities may be effected in transactions (which may
involve crosses or block transactions) (i) on any national securities exchange
or quotation service on which the Offered Securities may be listed or quoted at
the time of sale, (ii) in the over-the-counter market, (iii) in transactions
otherwise than on such exchanges or in the over-the-counter market or (iv)
through the writing of options. At the time a particular offering of the Offered
Securities is made, a Prospectus Supplement, if required, will be distributed
which will set forth the aggregate amount and type of Offered Securities being
offered and the terms of the offering, including the name or names of any
underwriters, brokers/dealers or agents, any discounts, commissions and other
terms constituting compensation from the Selling Holders and any discounts,
commissions or concessions allowed or reallowed or paid to broker/ dealers.
To comply with the securities laws of certain jurisdictions, if applicable,
the Offered Securities will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Offered Securities may not be offered or sold unless they have
been registered or qualified for sale in such jurisdictions or any exemption
from registration or qualification is available and is complied with.
The Selling Holders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, which provisions may limit the
timing of purchases and sales of any of the Offered Securities by the Selling
Holders. The foregoing may affect the marketability of such securities.
Pursuant to the Registration Rights Agreement, all expenses of the
registration of the Offered Securities will be paid by the Company, including,
without limitation, Commission filing fees and expenses of compliance with state
securities or "blue sky" laws; provided, however, that the Selling Holders will
pay all underwriting discounts and selling commissions, if any. The Selling
Holders will be indemnified by the Company and the Trust, jointly and severally,
against certain civil liabilities, including certain liabilities under the
Securities Act, or will be entitled to contribution in connection therewith. The
Company and the Trust will be indemnified by the Selling Holders severally
against certain civil liabilities, including certain liabilities under the
Securities Act, or will be entitled to contribution in connection therewith.
ERISA CONSIDERATIONS
Generally, employee benefit plans that are subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of
the Code ("Plans"), may purchase Preferred Securities, subject to the investing
fiduciary's determination that the investment in Preferred Securities satisfies
ERISA's fiduciary standards and other requirements applicable to investments by
the Plan.
51
<PAGE>
The Department of Labor ("DOL") has issued a regulation (29 C.F.R. Section
2510.3-101) (the "DOL Regulation") concerning the definition of what constitutes
the assets of a Plan. The DOL Regulation provides that, as a general rule, the
underlying assets and properties of corporations, partnerships, trusts and
certain other entities in which a Plan makes an "equity" investment will be
deemed for purposes of ERISA to be assets of the investing plan unless certain
exceptions apply.
There can be no assurance that any of the exceptions set forth in the DOL
Regulation will apply to the purchase of Preferred Securities offered hereby
and, as a result, an investing Plan's assets could be considered to include an
undivided interest in the Convertible Debentures and any other assets held in
the Trust. In the event that assets of the Trust are considered assets of an
Investing Plan, the Company, the Issuer Trustees and other persons, in providing
services with respect to the Convertible Debentures, may be considered
fiduciaries to such Plan and subject to the fiduciary responsibility provisions
of Title I of ERISA and the prohibited transaction provisions of Section 4975 of
the Code with respect to transactions involving such assets unless a statutory
or administrative exemption applies.
The Company and/or any of its affiliates may be considered a "party in
interest" (within the meaning of ERISA) or a "disqualified person" (within the
meaning of Section 4975 of the Code) with respect to certain Plans. The
acquisition and ownership of Preferred Securities by a Plan (or by an individual
retirement arrangement or other plan described in Section 4975(e)(1) of the
Code) with respect to which the Company or any of its affiliates is considered a
party in interest or a disqualified person may constitute or result in a
prohibited transaction under ERISA or Section 4975 of the Code, unless such
Preferred Securities are acquired pursuant to and in accordance with an
applicable exemption.
As a result, Plans with respect to which the Company or any of its
affiliates is a party in interest or a disqualified person should not acquire
Preferred Securities unless such Preferred Securities are acquired pursuant to
and in accordance with an applicable prohibited transaction exemption. Any Plans
or other entities whose assets include Plan assets subject to ERISA or Section
4975 of the Code proposing to acquire Preferred Securities should consult with
their own counsel.
LEGAL MATTERS
Certain legal matters with respect to the Convertible Debentures, the
Guarantee and the Company Common Stock issuable upon conversion of the
Convertible Debentures have been passed upon for the Company by Epstein Becker &
Green, P.C., special counsel to the Company. Certain legal matters with respect
to the Preferred Securities have been passed upon for the Trust by Richards,
Layton & Finger, special counsel to the Trust. Certain United States Federal
income taxation matters have been passed upon for the Company and the Trust by
Skadden, Arps, Slate, Meagher & Flom LLP, special United States tax counsel to
the Company and the Trust.
EXPERTS
The consolidated financial statements and schedules of Frontier Insurance
Group, Inc. appearing in Frontier Insurance Group, Inc.'s Annual Report (Form
10-K) for the year ended December 31, 1995 have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included therein
and incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
52
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY FRONTIER FINANCING TRUST, FRONTIER INSURANCE GROUP, INC. OR ANY OF
THEIR AGENTS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALES MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF FRONTIER FINANCING TRUST OR FRONTIER INSURANCE GROUP, INC. SINCE THE DATE
HEREOF.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Incorporation of Certain Documents by
Reference...................................... 3
Available Information............................ 4
Special Note Regarding Forward-Looking
Statements..................................... 4
Risk Factors..................................... 5
The Company...................................... 11
Frontier Financing Trust......................... 11
Accounting Treatment............................. 12
Use of Proceeds.................................. 12
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends...................... 13
Description of the Preferred Securities.......... 13
Description of the Guarantee..................... 31
Description of the Convertible Debentures........ 33
Effect of Obligations Under the Convertible
Debentures and the Guarantee................... 42
Description of Capital Stock..................... 43
Certain Federal Income Tax Considerations........ 44
Selling Holders.................................. 48
Plan of Distribution............................. 51
ERISA Considerations............................. 51
Legal Matters.................................... 52
Experts.......................................... 52
</TABLE>
3,450,000 PREFERRED
SECURITIES
FRONTIER FINANCING TRUST
6 1/4% CONVERTIBLE TRUST
ORIGINATED PREFERRED
SECURITIES-SM- ("CONVERTIBLE TOPRS-SM-")
GUARANTEED TO THE EXTENT
SET FORTH HEREIN BY,
AND CONVERTIBLE INTO
COMMON STOCK OF,
[LOGO]
INSURANCE GROUP, INC.
---------------------------
PROSPECTUS
---------------------------
January 24, 1997
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman of the Board,
President and Chief
* WALTER A. RHULEN Executive Officer April 21, 1997
- ------------------------------ (Principal Executive
Walter A. Rhulen Officer)
Vice President-Finance and
* MARK H. MISHLER Treasurer (Principal
- ------------------------------ Financial and Accounting April 21, 1997
Mark H. Mishler Officer)
* PETER L. RHULEN
- ------------------------------ Director April 21, 1997
Peter L. Rhulen
* LAWRENCE E. O'BRIEN
- ------------------------------ Director April 21, 1997
Lawrence E. O'Brien
* DOUGLAS C. MOAT
- ------------------------------ Director April 21, 1997
Douglas C. Moat
* ALAN GERRY
- ------------------------------ Director April 21, 1997
Alan Gerry
*By: /s/ PETER H. FOLEY
-------------------------
Peter H. Foley,
ATTORNEY-IN-FACT
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed on behalf
of Frontier Financing Trust by the following persons in the capacities and on
the dates indicated.
FRONTIER FINANCING TRUST
By: /s/ WALTER A. RHULEN
-----------------------------------------
Walter A. Rhulen, Trustee
By: /s/ PETER H. FOLEY
-----------------------------------------
Peter H. Foley, Trustee
April 21, 1997
II-2
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Post-Effective Amendment No. 1 to the Registration Statement (Form S-3, File No.
333-17603) and related Prospectus of Frontier Insurance Group, Inc. (the
"Company") for the registration (i) by Frontier Financing Trust of 3,450,000 6
1/4% Convertible Trust Originated Preferred Securities, and (ii) by the Company
of $172,500,000 aggregate principal amount of the Company's 6 1/4% Convertible
Subordinated Debentures Due 2026, the shares of the Company's common stock
issuable upon conversion thereof, and its guarantee under the Preferred
Securities Guarantee Agreement dated as of October 16, 1996 between the Company
and The Bank of New York, and to the incorporation by reference therein of our
report dated March 26, 1997 (except for Note O, as to which the date is March
31, 1997) with respect to the consolidated financial statements and schedules of
Frontier Insurance Group, Inc. included in its Annual Report (Form 10-K) for the
year ended December 31, 1996, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
New York, New York
April 21, 1997
II-3
