Filed pursuant to Rule 424(b)(3)
File Number 333-21663
MARKEL CAPITAL TRUST I
OFFER TO EXCHANGE ITS
8.71% SERIES B CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
8.71% SERIES A CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
MARKEL CORPORATION
------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON JUNE 26, 1997, UNLESS EXTENDED
------------------------
Markel Capital Trust I, a statutory business trust created under the laws
of the State of Delaware (the "Trust"), hereby offers, upon the terms and
subject to the conditions set forth in this Prospectus (as the same may be
amended or supplemented from time to time, the "Prospectus") and in the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange up to $150,000,000 aggregate Liquidation Amount of its
8.71% Series B Capital Securities (the "New Capital Securities") which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement (as defined herein) of which this
Prospectus constitutes a part, for a like Liquidation Amount of its outstanding
8.71% Series A Capital Securities (the "Old Capital Securities"), of which
$150,000,000 aggregate Liquidation Amount is outstanding. Pursuant to the
Exchange Offer, Markel Corporation, a Virginia corporation (the "Company"), is
also offering to exchange (i) its guarantee of payments of cash distributions
and payments on liquidation of the Trust or redemption of the Old Capital
Securities, along with certain backup undertakings made by the Company pursuant
to the Indenture and the Declaration (each as defined herein) (the "Old
Guarantee") for a like guarantee and undertakings in respect of the New Capital
Securities (the "New Guarantee") and (ii) all of its 8.71% Series A Junior
Subordinated Deferrable Interest Debentures due January 1, 2046 (the "Old Junior
Subordinated Debentures") for a like aggregate principal amount of its 8.71%
Series B Junior Subordinated Deferrable Interest Debentures due January 1, 2046
(the "New Junior Subordinated Debentures"), which New Guarantee, like
undertakings and New Junior Subordinated Debentures also have been registered
under the Securities Act. The Old Capital Securities, the Old Guarantee, the Old
Junior Subordinated Debentures and such undertakings with respect thereto are
collectively referred to herein as the "Old Securities," and the New Capital
Securities, the New Guarantee, the New Junior Subordinated Debentures and such
undertakings with respect thereto are collectively referred to herein as the
"New Securities." Pursuant to the Indenture, the Company has agreed to pay all
fees, expenses, debts and obligations of the Trust, other than the Old Capital
Securities, the New Capital Securities and the Common Securities (as defined).
The terms of the New Securities are identical in all material respects to
the respective terms of the Old Securities, except that the New Securities have
been registered under the Securities Act and therefore will not be subject to
certain restrictions on transfer applicable to the Old Securities, the New
Capital Securities will not contain the $100,000 minimum Liquidation Amount
transfer restriction, the New Capital Securities will not provide for any
increase in the Distribution rate thereon, the New Junior Subordinated
Debentures will not contain the $100,000 minimum principal amount transfer
restriction and (e) the New Junior Subordinated Debentures will not provide for
any increase in the interest rate thereon. See "Description of New Securities"
and "Description of Old Securities." The New Capital Securities are being
offered for exchange in order to satisfy certain obligations of the Corporation
and the Trust under the Registration Rights Agreement dated as of January 13,
1997 (the "Registration Rights Agreement") among the Corporation, the Trust and
the Initial Purchasers (as defined herein). In the event that the Exchange Offer
is consummated, any Old Capital Securities which remain outstanding after
consummation of the Exchange Offer and the New Capital Securities issued in the
Exchange Offer will vote together as a single class for purposes of determining
whether holders of the requisite percentage in outstanding Liquidation Amount
thereof have taken certain actions or exercised certain rights under the
Declaration.
(CONTINUED ON THE FOLLOWING PAGE)
This Prospectus and the Letter of Transmittal are first being mailed to all
holders of Old Capital Securities on May 28, 1997.
------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 10 FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED BY HOLDERS IN DECIDING WHETHER TO TENDER OLD CAPITAL
SECURITIES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY 28, 1997.
<PAGE>
(COVER CONTINUED)
The New Capital Securities and the Old Capital Securities (collectively,
the "Capital Securities") represent beneficial interests in the assets of the
Trust. The Corporation is the owner of all of the beneficial interests
represented by common securities of the Trust (the "Common Securities," and
together with the Capital Securities, the "Trust Securities"). The Chase
Manhattan Bank is the Property Trustee of the Trust. The Trust was formed for
the sole purpose of issuing the Trust Securities and investing the proceeds
thereof in the Junior Subordinated Debentures (as defined herein). The Junior
Subordinated Debentures will mature on January 1, 2046 (the "Stated Maturity
Date"). The Capital Securities will have a preference over the Common Securities
under certain circumstances with respect to cash distributions and amounts
payable on liquidation, redemption or otherwise. See "Description of New
Securities -- Subordination of Common Securities."
As used herein, (i) "Indenture" means the Indenture, dated as of January
13, 1997, as amended and supplemented from time to time, between the Company and
The Chase Manhattan Bank, as Debenture Trustee (the "Debenture Trustee"), and
(ii) "Declaration" means the Amended and Restated Declaration of Trust relating
to the Trust among the Corporation, as Sponsor, The Chase Manhattan Bank as
Property Trustee (the "Property Trustee"), Chase Manhattan Bank Delaware, as
Delaware Trustee, (the "Delaware Trustee"), and the Administrative Trustees
named therein (collectively, with the Property Trustee and Delaware Trustee, the
"Issuer Trustees"). In addition, as the context may require, unless otherwise
expressly stated, (i) the term "Capital Securities" includes the Old Capital
Securities and the New Capital Securities, (ii) the term "Trust Securities"
includes the Capital Securities and the Common Securities, (iii) the term
"Junior Subordinated Debentures" includes the Old Junior Subordinated Debentures
and the New Junior Subordinated Debentures and (iv) the term "Guarantee"
includes the Old Guarantee and the New Guarantee.
Holders of the New Capital Securities will be entitled to receive
cumulative cash distributions, accumulating from January 13, 1997 and payable
semi-annually in arrears on January 1 and July 1 of each year, commencing July
1, 1997, at the annual rate of 8.71% of the Liquidation Amount of $1,000 per New
Capital Security ("Distributions"). So long as no Debenture Event of Default (as
defined herein) has occurred and is continuing, the Company will have the right
to defer payments of interest on the Junior Subordinated Debentures at any time
and from time to time for a period not exceeding 10 consecutive semi-annual
periods with respect to each deferral period (each, an "Extension Period"),
provided that no Extension Period may extend beyond the Stated Maturity Date.
Upon the termination of any such Extension Period and the payment of all amounts
then due, the Company may elect to begin a new Extension Period, subject to the
requirements set forth in the Indenture. If and for so long as interest payments
on the Junior Subordinated Debentures are so deferred, Distributions on the
Trust Securities will also be deferred and the Company will not be permitted,
subject to certain exceptions described herein, to declare or pay any cash
distributions with respect to the Company's capital stock (which includes common
and preferred stock) or to make any payment with respect to debt securities of
the Company that rank pari passu with or junior to the Junior Subordinated
Debentures. During an Extension Period, interest on the Junior Subordinated
Debentures will continue to accrue (and the amount of Distributions to which
holders of the Trust Securities are entitled will continue to accumulate) at the
rate of 8.71% per annum, compounded semi-annually, and holders of Trust
Securities will be required to accrue interest income for United States federal
income tax purposes. See "Description of Junior Subordinated
Debentures -- Option to Extend Interest Payment Date" and "Certain Federal
Income Tax Consequences -- Interest Income and Original Issue Discount."
The Company, through the Guarantee, the Common Guarantee, the Declaration,
the Junior Subordinated Debentures and the Indenture (each as defined herein),
taken together, has guaranteed, or will guarantee, as the case may be, fully,
irrevocably and unconditionally all of the Trust's obligations under the Trust
Securities. See "Relationship Among the New Capital Securities, the New Junior
Subordinated Debentures and the New Guarantee -- Full and Unconditional
Guarantee." The Old Guarantee and the Common Guarantee currently guarantee, and
the New Guarantee will guarantee, payments of Distributions and payments on
liquidation or redemption of the Trust Securities, but in each case only to the
extent that the Trust holds funds on hand legally available therefor and has
failed to make such payments, as described herein. See "Description of the
Guarantee." If the Company fails to make a required payment on the Junior
Subordinated Debentures, the Trust will not have sufficient funds to make the
related payments, including Distributions, on the Trust Securities. The
Guarantee and the Common Guarantee will not cover any such payment when the
Trust does not have sufficient funds on hand legally available therefor. In such
event, a holder of Capital Securities may institute a legal proceeding directly
against the Company to enforce its rights in respect of such payment. See
"Description of New Junior Subordinated Debentures -- Enforcement of Certain
Rights by Holders of Capital Securities." The obligations of the Company under
the Guarantee and the Junior Subordinated Debentures will be unsecured and
subordinate and rank junior in right of payment to all Senior Indebtedness (as
defined in "Description of New Junior Subordinated
Debentures -- Subordination"), which totaled approximately $104.8 million at
March 31, 1997.
i
<PAGE>
The Trust Securities will be subject to mandatory redemption in a Like
Amount (as defined herein), (i) in whole but not in part, on the Stated Maturity
Date upon repayment of the Junior Subordinated Debentures at a redemption price
equal to the principal amount of, plus accrued interest on, the Junior
Subordinated Debentures (the "Maturity Redemption Price"), (ii) in whole but not
in part, at any time, contemporaneously with the optional prepayment of the
Junior Subordinated Debentures upon the occurrence and continuation of a Special
Event (as defined herein), at a redemption price equal to the Special Event
Prepayment Price (as defined herein) (the "Special Event Redemption Price"), and
(iii) in whole or in part, on or after January 1, 2007, contemporaneously with
the optional prepayment by the Company of the Junior Subordinated Debentures, at
a redemption price equal to the Optional Prepayment Price (as defined herein)
(the "Optional Redemption Price"). Any of the Maturity Redemption Price, the
Special Event Redemption Price and the Optional Redemption Price may be referred
to herein as the "Redemption Price." See "Description of New
Securities -- Redemption."
The New Junior Subordinated Debentures will be prepayable prior to the
Stated Maturity Date at the option of the Company (i) on or after January 1,
2007, in whole or in part, at a prepayment price (the "Optional Prepayment
Price") equal to 104.355% of the principal amount thereof on January 1, 2007,
declining ratably on each January 1 thereafter to 100% on or after January 1,
2017, plus accrued interest thereon to the date of prepayment, or (ii) prior to
January 1, 2007, in whole but not in part, upon the occurrence and continuation
of a Special Event, at a prepayment price (the "Special Event Prepayment Price")
equal to the greater of (a) 100% of the principal amount thereof or (b) the sum,
as determined by a Quotation Agent (as defined herein), of the present values of
the principal amount and premium payable with respect to an optional redemption
of New Junior Subordinated Debentures on January 1, 2007, together with
scheduled payments of interest on the New Junior Subordinated Debentures from
the prepayment date to and including January 1, 2007, discounted to the
prepayment date on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate (as defined herein) plus, in
either case, accrued interest thereon to the date of prepayment. Either of the
Optional Prepayment Price or the Special Event Prepayment Price may be referred
to herein as the "Prepayment Price." See "Description of New Junior Subordinated
Debentures -- Optional Prepayment" and " -- Conditional Right to Advance
Maturity and Special Event Prepayment."
The Company will have the right at any time to terminate the Trust and
cause a Like Amount of the Junior Subordinated Debentures to be distributed to
the holders of the Trust Securities in liquidation of the Trust, subject to the
Company having received an opinion of counsel to the effect that such
distribution will not be a taxable event to holders of the Capital Securities.
Unless the Junior Subordinated Debentures are distributed to the holders of the
Trust Securities, in the event of a liquidation of the Trust under certain
circumstances described herein, after satisfaction of liabilities to creditors
of the Trust as required by applicable law, the holders of the Capital
Securities generally will be entitled to receive a Liquidation Amount of $1,000
per Capital Security plus accumulated and unpaid Distributions thereon to the
date of payment. See "Description of New Securities -- Liquidation of the Trust
and Distribution of Junior Subordinated Debentures" and "Certain Federal Income
Tax Consequences -- Receipt of Junior Subordinated Debentures or Cash Upon
Liquidation of the Trust."
The Company and the Trust are making the Exchange Offer of the New Capital
Securities in reliance on the position of the staff of the Division of
Corporation Finance of the Securities and Exchange Commission (the "Commission")
as set forth in certain interpretive letters addressed to third parties in other
transactions. However, neither the Company nor the Trust has sought its own
interpretive letter and there can be no assurance that the staff of the Division
of Corporation Finance of the Commission would make a similar determination with
respect to the Exchange Offer as it has in such interpretive letters to third
parties. Based on these interpretations by the staff of the Division of
Corporation Finance of the Commission, and subject to the two immediately
following sentences, the Company and the Trust believe that New Capital
Securities issued pursuant to this Exchange Offer in exchange for Old Capital
Securities may be offered for resale, resold and otherwise transferred by a
holder thereof (other than a holder who is a broker-dealer) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Capital Securities are acquired in the
ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such New Capital Securities. However, any holder of Old Capital Securities who
is an "affiliate" of the Company or the Trust or who intends to participate in
the Exchange Offer for the purpose of distributing New Capital Securities, or
any broker-dealer who purchased Old Capital Securities from the Trust to resell
pursuant to Rule 144A under the Securities Act ("Rule 144A") or any other
available exemption under the Securities Act, (a) will not be able to rely on
the interpretations of the staff of the Division of Corporation Finance of the
Commission set forth in the above-mentioned interpretive letters, (b) will not
be permitted or entitled to tender such Old Capital Securities in the Exchange
Offer and (c) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or other transfer
of such Old Capital Securities unless such sale is made pursuant to an exemption
from such requirements. In addition, as described below, if any broker-dealer
holds Old Capital Securities acquired for its own account as a result of
market-making or other trading activities and exchanges
ii
<PAGE>
such Old Capital Securities for New Capital Securities, then such broker-dealer
must deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such New Capital Securities.
Each holder of Old Capital Securities who wishes to exchange Old Capital
Securities for New Capital Securities in the Exchange Offer will be required to
represent that (i) it is not an "affiliate" of the Company or the Trust, (ii)
any New Capital Securities to be received by it are being acquired in the
ordinary course of its business, (iii) it has no arrangement or understanding
with any person to participate in a distribution (within the meaning of the
Securities Act) of such New Capital Securities, and (iv) if such holder is not a
broker-dealer, such holder is not engaged in, and does not intend to engage in,
a distribution (within the meaning of the Securities Act) of such New Capital
Securities. In addition, the Company and the Trust may require such holder, as a
condition to such holder's eligibility to participate in the Exchange Offer, to
furnish to the Company and the Trust (or an agent thereof) in writing
information as to the number of "beneficial owners" (within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934, as amended) on behalf of whom
such holder holds the Capital Securities to be exchanged in the Exchange Offer.
Each broker-dealer that receives New Capital Securities for its own account
pursuant to the Exchange Offer must acknowledge that it acquired the Old Capital
Securities for its own account as the result of market-making activities or
other trading activities and must agree that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Capital Securities. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Based on the position taken by the staff of the Division of Corporation Finance
of the Commission in the interpretive letters referred to above, the Company and
the Trust believe that broker-dealers who acquired Old Capital Securities for
their own accounts, as a result of market-making activities or other trading
activities ("Participating Broker-Dealers"), may fulfill their prospectus
delivery requirements with respect to the New Capital Securities received upon
exchange of such Old Capital Securities (other than Old Capital Securities which
represent an unsold allotment from the original sale of the Old Capital
Securities) with a prospectus meeting the requirements of the Securities Act,
which may be the prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to the resale of
such New Capital Securities. Accordingly, this Prospectus, as it may be amended
or supplemented from time to time, may be used by a Participating Broker-Dealer
during the period referred to below in connection with resales of New Capital
Securities received in exchange for Old Capital Securities where such Old
Capital Securities were acquired by such Participating Broker-Dealer for its own
account as a result of market-making or other trading activities. Subject to
certain provisions set forth in the Registration Rights Agreement, the Company
and the Trust have agreed that this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of such New Capital Securities for a period ending 90
days after the Expiration Date (as defined herein) (subject to extension under
certain limited circumstances described below) or, if earlier, when all such New
Capital Securities have been disposed of by such Participating Broker-Dealer.
See "Plan of Distribution." However, a Participating Broker-Dealer who intends
to use this Prospectus in connection with the resale of New Capital Securities
received in exchange for Old Capital Securities pursuant to the Exchange Offer
must notify the Company or the Trust, or cause the Company or the Trust to be
notified, on or prior to the Expiration Date, that it is a Participating
Broker-Dealer. Such notice may be given in the space provided for that purpose
in the Letter of Transmittal or may be delivered to the Exchange Agent at one of
the addresses set forth herein under "The Exchange Offer -- Exchange Agent." Any
Participating Broker-Dealer who is an "affiliate" of the Company or the Trust
may not rely on such interpretive letters and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction. See "The Exchange Offer -- Resales of New Capital
Securities."
In that regard, each Participating Broker-Dealer who surrenders Old Capital
Securities pursuant to the Exchange Offer will be deemed to have agreed, by
execution of the Letter of Transmittal, that, upon receipt of notice from the
Company or the Trust of the occurrence of any event or the discovery of any fact
which makes any statement contained or incorporated by reference in this
Prospectus untrue in any material respect or which causes this Prospectus to
omit to state a material fact necessary in order to make the statements
contained or incorporated by reference herein, in light of the circumstances
under which they were made, not misleading or of the occurrence of certain other
events specified in the Registration Rights Agreement, such Participating
Broker-Dealer will suspend the sale of New Capital Securities (or the New
Guarantee or the New Junior Subordinated Debentures, as applicable) pursuant to
this Prospectus until the Company or the Trust has amended or supplemented this
Prospectus to correct such misstatement or omission and has furnished copies of
the amended or supplemented Prospectus to such Participating Broker-Dealer or
the Company or the Trust has given notice that the sale of the New Capital
Securities (or the New Guarantee or the New Junior Subordinated Debentures, as
applicable) may be resumed, as the case may be. If the Company or the Trust
gives such notice to suspend the sale of the New Capital Securities (or the New
Guarantee or the New Junior Subordinated Debentures, as applicable), it shall
extend the 90- day period referred to above during which Participating
Broker-Dealers are entitled to use this Prospectus in connection with the resale
of New Capital
iii
<PAGE>
Securities by the number of days during the period from and including the date
of the giving of such notice to and including the date when Participating
Broker-Dealers shall have received copies of the amended or supplemented
Prospectus necessary to permit resales of the New Capital Securities or to and
including the date on which the Company or the Trust has given notice that the
sale of New Capital Securities (or the New Guarantee or the New Junior
Subordinated Debentures, as applicable) may be resumed, as the case may be.
Prior to the Exchange Offer, there has been only a limited secondary market
and no public market for the Old Capital Securities. The New Capital Securities
will be a new issue of securities for which there currently is no market.
Although the Initial Purchasers have informed the Company and the Trust that
they each currently intend to make a market in the New Capital Securities, they
are not obligated to do so, and any such market making may be discontinued at
any time without notice. Accordingly, there can be no assurance as to the
development or liquidity of any market for the New Capital Securities. The
Company and the Trust currently do not intend to apply for listing of the New
Capital Securities on any securities exchange or for quotation through the
National Association of Securities Dealers Automated Quotation System.
Any Old Capital Securities not tendered and accepted in the Exchange Offer
will remain outstanding and will be entitled to all the same rights and will be
subject to the same limitations applicable thereto under the Trust Agreement
(except for those rights which terminate upon consummation of the Exchange
Offer). Following consummation of the Exchange Offer, the holders of Old Capital
Securities will continue to be subject to all of the existing restrictions upon
transfer thereof and neither the Company nor the Trust will have any further
obligation to such holders (other than under certain limited circumstances) to
provide for registration under the Securities Act of the Old Capital Securities
held by them. To the extent that Old Capital Securities are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered Old
Capital Securities could be adversely affected. See "Risk
Factors -- Consequences of a Failure to Exchange Old Capital Securities."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD CAPITAL SECURITIES ARE URGED TO READ THIS PROSPECTUS
AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO
TENDER THEIR OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER.
Old Capital Securities may be tendered for exchange on or prior to 5:00
p.m., New York City time, on June 26, 1997 (such time on such date being
hereinafter called the "Expiration Date"), unless the Exchange Offer is extended
by the Company or the Trust (in which case the term "Expiration Date" shall mean
the latest date and time to which the Exchange Offer is extended). Tenders of
Old Capital Securities may be withdrawn at any time on or prior to the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
Liquidation Amount of Old Capital Securities being tendered for exchange.
However, the Exchange Offer is subject to certain events and conditions which
may be waived by the Company or the Trust and to the terms and provisions of the
Registration Rights Agreement. Old Capital Securities may be tendered in whole
or in part having an aggregate Liquidation Amount of not less than $100,000 (100
Capital Securities) or any integral multiple of $1,000 Liquidation Amount (one
Capital Security) in excess thereof. The Company has agreed to pay all expenses
of the Exchange Offer. See "The Exchange Offer -- Fees and Expenses." Holders of
the Old Capital Securities whose Old Capital Securities are accepted for
exchange will not receive Distributions on such Old Capital Securities and will
be deemed to have waived the right to receive any Distributions on such Old
Capital Securities accumulated from and after January 13, 1997. See "The
Exchange Offer -- Distributions on New Capital Securities."
Neither the Company nor the Trust will receive any cash proceeds from the
issuance of the New Capital Securities offered hereby. No dealer-manager is
being used in connection with this Exchange Offer. See "Use of Proceeds" and
"Plan of Distribution."
iv
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THIS EXCHANGE
OFFER AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE TRUST. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY OR THE TRUST SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................................................................. 2
Incorporation of Certain Documents by Reference........................................................................ 2
Summary................................................................................................................ 4
Risk Factors........................................................................................................... 10
Markel Corporation..................................................................................................... 15
Use of Proceeds........................................................................................................ 15
Ratios of Earnings to Fixed Charges.................................................................................... 15
Capitalization......................................................................................................... 16
Summary Financial Data................................................................................................. 17
Markel Capital Trust I................................................................................................. 18
The Exchange Offer..................................................................................................... 18
Description of New Securities.......................................................................................... 26
Description of New Junior Subordinated Debentures...................................................................... 35
Description of The Guarantee........................................................................................... 42
Description of Old Securities.......................................................................................... 45
Relationship Among the New Capital Securities, the New Junior Subordinated Debentures,
the New Guarantee and Certain Undertakings under the Declaration..................................................... 45
Certain Federal Income Tax Consequences................................................................................ 46
ERISA Considerations................................................................................................... 49
Plan of Distribution................................................................................................... 50
Notice to Investors.................................................................................................... 51
Certain Legal Matters.................................................................................................. 51
Experts................................................................................................................ 51
</TABLE>
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information concerning the Trust can be inspected and copied at
prescribed rates at the Commission's Public Reference Room, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, as well as the following Regional
Offices of the Commission: 7 World Trade Center, 13th Floor, New York, New York
10048; and, Suite 1400, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material may be obtained by mail from the
Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. If available, such reports and other information may
also be accessed through the Commission's electronic data gathering, analysis
and retrieval system ("EDGAR") via electronic means, including the Commission's
web site on the Internet (http://www.sec.gov).
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 the Capital Securities because (i) all of the voting securities of
the Trust are 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 and investing the proceeds thereof in
Junior Subordinated Debentures issued by the Company, and (iii) the Company's
obligations described herein to provide certain indemnities in respect of, and
be responsible for, certain costs, expenses, debts and liabilities of the Trust
under the Indenture and any supplemental indenture thereto and pursuant to the
Declaration of the Trust, the guarantee issued with respect to Capital
Securities issued by the Trust, the Junior Subordinated Debentures purchased by
Markel Capital Trust I and the related Indenture, taken together, constitute a
full and unconditional guarantee of payments due on the Capital Securities. See
"Description of New Junior Subordinated Debentures" and "Description of the
Guarantee."
The Trust is not currently subject to the information reporting
requirements of the Exchange Act. The Trust will become subject to such
requirements upon the effectiveness of the Registration Statement, although it
intends to seek and expects to receive exemptions therefrom.
This Prospectus constitutes a part of a registration statement on Form S-4,
as amended (the "Registration Statement") filed by the Company and the Trust
with the Commission under the Securities Act. This Prospectus does not contain
all the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission, and reference is hereby made to the Registration Statement and to
the exhibits relating thereto for further information with respect to the
Company, the Trust and the New Securities. Any statements contained herein
concerning the provisions of any document are not necessarily complete, and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company pursuant
to Section 13 of the Exchange Act are incorporated by reference in this
Prospectus:
(i) Annual Report on Form 10-K for the year ended December 31, 1996, as
amended by Amendment No. 1 filed March 27, 1997; and
(ii) Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
Such incorporation by reference shall not be deemed to specifically
incorporate by reference the information referred to in Item 402(a)(8) of
Regulation S-K.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the New Securities offered hereby shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained in
this Prospectus or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus or any supplement thereto to the extent that a statement
contained herein or therein (or in any subsequently filed document that also is
or is deemed to be incorporated by reference herein or therein) modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
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As used herein, the terms "Prospectus" and "herein" mean this Prospectus,
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein do not purport to be complete, and
where reference is made to the particular provisions of such contract or other
document, such provisions are qualified in all respects by reference to all of
the provisions of such contract or other document. The Company will provide
without charge to each person to whom a copy of this Prospectus has been
delivered, upon the written or oral request of such person, a copy of any or all
of the documents referred to above which have been or may be incorporated by
reference herein (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to Markel Corporation, Investor Relations Department,
4551 Cox Road, Glen Allen, Virginia 23060, telephone (800) 446-6671.
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SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN OR INCORPORATED BY REFERENCE INTO THIS
PROSPECTUS.
MARKEL CAPITAL TRUST I
The Trust is a statutory business trust created under Delaware law by the
filing of a certificate of trust with the Delaware Secretary of State on
December 30, 1996. The Trust is governed by an Amended and Restated Declaration
of Trust (the "Declaration") executed by the Company, as Sponsor, The Chase
Manhattan Bank, as Property Trustee, and The Chase Manhattan Bank Delaware, as
Delaware Trustee and the three individual Administrative Trustees named therein.
The Trust's business and affairs are conducted by the Issuer Trustees: the
Property Trustee, the Delaware Trustee, and the three individual Administrative
Trustees who are employees or officers of or affiliated with the Company. The
Trust exists for the exclusive purposes of (i) issuing and selling the Trust
Securities, (ii) using the proceeds from the sale of the Trust Securities to
acquire the Junior Subordinated Debentures issued by the Company and (iii)
engaging in only those other activities necessary, advisable or incidental
thereto (such as registering the transfer of the Trust Securities). Accordingly,
the Junior Subordinated Debentures will be the sole assets of the Trust, and
payments under the Junior Subordinated Debentures will be the sole revenue of
the Trust. All of the Common Securities are owned by the Company.
MARKEL CORPORATION
Markel Corporation is an insurance holding company which, through its
subsidiaries, markets and underwrites specialty insurance products and programs
to a variety of niche markets. The Company believes that its specialty product
focus and niche market strategy enable it to develop particular expertise and
specialized knowledge of its markets. Such specialization allows the Company to
provide added value to its customers and to compete on a basis other than price.
The year ended December 31, 1996 marked the Company's fifth consecutive year of
underwriting profitability and the tenth year of underwriting profitability in
the last eleven years. The Company emphasizes quality service in all phases of
its operations and believes that this approach fosters strong relationships with
its producers and greater customer loyalty.
The Company's primary businesses are professional and products liability,
excess and surplus lines, specialty programs, specialty personal and commercial
lines and brokered excess and surplus lines. The Company's distribution channels
include retail and wholesale brokers, general agents, direct marketing,
including telemarketing and direct mail, and affinity groups. The Company offers
products and coverages designed to meet the needs of insureds in niche or
emerging markets or insureds with specialized exposures or risks that are not
adequately served by the standard markets. Significant products include
professional liability coverages for doctors, lawyers, architects, engineers and
other professionals, comprehensive programs for summer camps and other youth
recreation organizations, conference centers, child care centers, private
schools, martial arts schools, gymnastics schools, dance studios and horse
farms, and property and liability coverages for restaurants and bars, vacant
properties and hard-to- place property risks, yachts, jet skis and other
watercraft, mobile homes and other non-standard dwellings, taxi fleets and other
commercial vehicles. Each risk is generally considered on an individual basis,
and coverages typically include limit restrictions, deductibles, exclusions,
surcharges and other features which respond to distinctive risk characteristics.
The Company had earned premiums of $81.7 million and $307.5 million for the
quarter ended March 31, 1997 and the year ended December 31, 1996, respectively.
As of March 31, 1997, the Company had total assets of approximately $1.7 billion
and shareholders' equity of $271.5 million.
THE EXCHANGE OFFER
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The Exchange Offer................................. Up to $150,000,000 aggregate Liquidation Amount of New Capital
Securities are being offered in exchange for a like aggregate Liquida-
tion Amount of Old Capital Securities. Old Capital Securities may be
tendered for exchange in whole or in part in a Liquidation Amount of
$100,000 (100 Capital Securities) or any integral multiple of $1,000
(one Capital Security) in excess thereof. The Company and the Trust are
making the Exchange Offer in order to satisfy their obligations under
the Registration Rights Agreement relating to the Old Capital
Securities. For a description of the procedures for tendering Old
Capital Securities, see "The Exchange Offer -- Procedures for Tendering
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Old Capital Securities."
Expiration Date.................................... 5:00 p.m., New York City time, on June 26, 1997, unless the Exchange
Offer is extended by the Company or the Trust (in which case the Expi-
ration Date will be the latest date and time to which the Exchange Offer
is extended). See "The Exchange Offer -- Terms of the Exchange Offer."
Conditions to the Exchange Offer................... The Exchange Offer is subject to certain conditions, which may be waived
by the Company and the Trust in their reasonable discretion. The
Exchange Offer is not conditioned upon any minimum Liquidation Amount of
Old Capital Securities being tendered. See "The Exchange
Offer -- Conditions to the Exchange Offer."
Offer.............................................. The Company and the Trust reserve the right in their sole and absolute
discretion, subject to applicable law, at any time and from time to
time, (i) to delay the acceptance of the Old Capital Securities for
exchange, (ii) to terminate the Exchange Offer if certain specified
conditions have not been satisfied, (iii) to extend the Expiration Date
of the Exchange Offer and retain all Old Capital Securities tendered
pursuant to the Exchange Offer, subject, however, to the right of
holders of Old Capital Securities to withdraw their tendered Old Capital
Securities, or (iv) to waive any condition or otherwise amend the terms
of the Exchange Offer in any respect. See "The Exchange Offer -- Terms
of the Exchange Offer."
Withdrawal Rights.................................. Tenders of Old Capital Securities may be withdrawn at any time on or
prior to the Expiration Date by delivering a written notice of such
withdrawal to the Exchange Agent in conformity with certain procedures
set forth below under "The Exchange Offer -- Withdrawal Rights."
Procedures for Tendering Tendering holders of Old Capital Securities must complete and sign a
Old Capital Securities........................... Letter of Transmittal in accordance with the instructions contained
therein and forward the same by mail, facsimile or hand delivery,
together with any other required documents, to the Exchange Agent,
either with the Old Capital Securities to be tendered or in compliance
with the specified procedures for guaranteed delivery of Old Capital
Securities. Certain brokers, dealers, commercial banks, trust companies
and other nominees may also effect tenders by book-entry transfer.
Holders of Old Capital Securities registered in the name of a broker,
dealer, commercial bank, trust company or other nominee are urged to
contact such person promptly if they wish to tender Old Capital Securi-
ties pursuant to the Exchange Offer. See "The Exchange Offer -- Pro-
cedures for Tendering Old Capital Securities."
Letters of Transmittal and certificates representing Old Capital Securi-
ties should not be sent to the Company or the Trust. Such documents
should only be sent to the Exchange Agent.
Resales of New Capital Securities.................. The Company and the Trust are making the Exchange Offer in reliance on
the position of the staff of the Division of Corporation Finance of the
Commission as set forth in certain interpretive letters addressed to
third parties in other transactions. However, neither the Company nor
the Trust has sought its own interpretive letter and there can be no
assurance that the staff of the Division of Corporation Finance of the
Commission would make a similar determination with respect to the
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Exchange Offer as it has in such interpretive letters to third parties.
Based on these interpretations by the staff of the Division of Corpora-
tion Finance of the Commission, and subject to the two immediately
following sentences, the Company and the Trust believe that New Capital
Securities issued pursuant to this Exchange Offer in exchange for Old
Capital Securities may be offered for resale, resold and otherwise
transferred by a holder thereof (other than a holder who is a broker-
dealer) without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such New
Capital Securities are acquired in the ordinary course of such holder's
business and that such holder is not participating, and has no arrange-
ment or understanding with any person to participate, in a distribution
(within the meaning of the Securities Act) of such New Capital Securi-
ties. However, any holder of Old Capital Securities who is an
"affiliate" of the Company or the Trust or who intends to participate in
the Exchange Offer for the purpose of distributing the New Capital
Securities, or any broker-dealer who purchased the Old Capital
Securities from the Trust to resell pursuant to Rule 144A or any other
available exemption under the Securities Act, (a) will not be able to
rely on the interpretations of the staff of the Division of Corporation
Finance of the Commission set forth in the above-mentioned interpretive
letters, (b) will not be permitted or entitled to tender such Old
Capital Securities in the Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements of the Securities Act
in connection with any sale or other transfer of such Old Capital
Securities unless such sale is made pursuant to an exemption from such
requirements. In addition, as described below, if any broker-dealer
holds Old Capital Securities acquired for its own account as a result of
market-making or other trading activities and exchanges such Old Capital
Securities for New Capital Securities, then such broker-dealer must
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such New Capital Securities.
Each holder of Old Capital Securities who wishes to exchange Old Capital
Securities for New Capital Securities in the Exchange Offer will be
required to represent that (i) it is not an "affiliate" of the Company
or the Trust, (ii) any New Capital Securities to be received by it are
being acquired in the ordinary course of its business, (iii) it has no
arrangement or understanding with any person to participate in a distri-
bution (within the meaning of the Securities Act) of such New Capital
Securities, and (iv) if such holder is not a broker-dealer, such holder
is not engaged in, and does not intend to engage in, a distribution
(within the meaning of the Securities Act) of such New Capital
Securities. Each broker-dealer that receives New Capital Securities for
its own account pursuant to the Exchange Offer must acknowledge that it
acquired the Old Capital Securities for its own account as the result of
market-making activities or other trading activities and must agree that
it will deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of such New Capital Securities. The
Letter of Transmittal states that, by so acknowledging and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. Based on the
position taken by the staff of the Division of Corporation Finance of
the Commission in the interpretive letters referred to above, the
Company and the Trust believe that Participating Broker-Dealers who
acquired
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Old Capital Securities for their own accounts as a result of market-mak-
ing activities or other trading activities may fulfill their prospectus
delivery requirements with respect to the New Capital Securities
received upon exchange of such Old Capital Securities (other than Old
Capital Securities which represent an unsold allotment from the origi-
nal sale of the Old Capital Securities) with a prospectus meeting the
requirements of the Securities Act, which may be the prospectus pre-
pared for an exchange offer so long as it contains a description of the
plan of distribution with respect to the resale of such New Capital
Securities. Accordingly, this Prospectus, as it may be amended or sup-
plemented from time to time, may be used by a Participating Broker-
Dealer in connection with resales of New Capital Securities received in
exchange for Old Capital Securities where such Old Capital Securities
were acquired by such Participating Broker-Dealer for its own account as
a result of market-making or other trading activities. Subject to cer-
tain provisions set forth in the Registration Rights Agreement and to
the limitations described below under "The Exchange Offer -- Resales of
New Capital Securities," the Company and the Trust have agreed that this
Prospectus, as it may be amended or supplemented from time to time, may
be used by a Participating Broker-Dealer in connection with resales of
such New Capital Securities for a period ending 90-days after the
Expiration Date (subject to extension under certain limited cir-
cumstances) or, if earlier, when all such New Capital Securities have
been disposed of by such Participating Broker-Dealer. See "Plan of
Distribution." Any Participating Broker-Dealer who is an "affiliate" of
the Company or the Trust may not rely on such interpretive letters and
must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction. See
"The Exchange Offer -- Resales of New Capital Securities."
Exchange Agent..................................... The exchange agent with respect to the Exchange Offer is The Chase
Manhattan Bank (the "Exchange Agent"). The addresses, and telephone and
facsimile numbers, of the Exchange Agent are set forth in "The Exchange
Offer -- Exchange Agent" and in the Letter of Transmittal.
Use of Proceeds.................................... Neither the Company nor the Trust will receive any cash proceeds from
the issuance of the New Capital Securities offered hereby. See "Use of
Proceeds."
Certain United States Federal Income Tax Con-
siderations; ERISA Considerations................ Holders of Old Capital Securities should review the information set
forth under "Certain Federal Income Tax Consequences" and "ERISA
Considerations" prior to tendering Old Capital Securities in the
Exchange Offer.
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THE NEW CAPITAL SECURITIES
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Securities Offered................................. Up to $150,000,000 aggregate Liquidation Amount of the Trust's New
Capital Securities which have been registered under the Securities Act
(Liquidation Amount $1,000 per New Capital Security). The New Capital
Securities will be issued, and the Old Capital Securities were issued,
under the Declaration. The New Capital Securities and any Old Capital
Securities which remain outstanding after consummation of the Exchange
Offer will vote together as a single class for purposes of determining
whether holders of the requisite percentage in outstanding
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Liquidation Amount thereof have taken certain actions or exercised cer-
tain rights under the Trust Declaration. See "Description of New Secur-
ities -- Voting Rights; Amendment of the Declaration." The terms of
the New Capital Securities are identical in all material respects to the
terms of the Old Capital Securities, except that the New Capital Securi-
ties have been registered under the Securities Act and will not be sub-
ject to the $100,000 minimum Liquidation Amount transfer restriction
and certain other restrictions on transfer applicable to the Old Capital
Securities and will not provide for any increase in the Distribution rate
thereon. See "The Exchange Offer -- Purpose of the Exchange Offer,"
"Description of New Securities" and "Description of Old Securities."
Distribution Dates................................. January 1 and July 1 of each year commencing July 1, 1997.
Extension Periods.................................. Distributions on Capital Securities will be deferred for the duration of
any Extension Period elected by the Company with respect to the payment
of interest on the New Junior Subordinated Debentures. No Extension
Period will exceed 10 consecutive semi-annual periods or extend beyond
the Stated Maturity Date. See "Description of New Junior Subordinated
Debentures -- Option to Extend Interest Payment Date" and "Certain
Federal Income Tax Consequences -- Interest Income and Original Issue
Discount."
Ranking............................................ The New Capital Securities will rank pari passu, and payments thereon
will be made pro rata, with the Old Capital Securities and the Common
Securities except as described under "Description of New Securities --
Subordination of Common Securities." The New Junior Subordinated
Debentures will rank pari passu with the Old Junior Subordinated
Debentures and all other junior subordinated debentures to be issued by
the Company ("Other Debentures"), which will be issued and sold (if at
all) to other trusts to be established by the Company (if any), in each
case similar to the Trust ("Other Trusts"), and will be unsecured and
subordinate and junior in right of payment to all Senior Indebtedness to
the extent and in the manner set forth in the Indenture. At March 31,
1997, the aggregate principal amount of outstanding Senior Indebtedness
of the Company was approximately $104.8 million. See "Description of New
Junior Subordinated Debentures." The New Guarantee will rank pari passu
with the Old Guarantee and all other guarantees (if any) to be issued by
the Company with respect to capital securities (if any) issued by Other
Trusts ("Other Guarantees") and will constitute an unsecured obligation
of the Company and will rank subordinate and junior in right of payment
to all Senior Indebtedness to the extent and in the manner set forth in
the Guarantee Agreement and, in the event of bankruptcy or insolvency
proceedings involving the Company, will rank subordinate and junior in
right of payment to all liabilities (other than Other Guarantees) of the
Company, but senior to any obligations in respect of any class of
capital stock of the Company. See "Description of the Guarantee."
Redemption......................................... The Trust Securities are subject to mandatory redemption in a Like
Amount, (i) in whole but not in part, on the Stated Maturity Date upon
repayment of the Junior Subordinated Debentures, (ii) in whole but not
in part, at any time contemporaneously with the optional prepayment of
the Junior Subordinated Debentures by the Company upon the occurrence
and continuation of a Special Event and (iii) in whole or in part, on or
after January 1, 2007 contemporaneously with the optional prepayment by
the Company of the Junior Subordinated Debentures, in
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each case at the applicable Redemption Price. See "Description of New
Securities -- Redemption."
Ratings............................................ The New Capital Securities are expected to be rated "BBB-" by Standard &
Poor's Ratings Service and by Duff & Phelps Credit Rating Co., and
"baa3" by Moody's Investors Service, Inc.
Absence of Market for the Capital Securities....... The New Capital Securities will be a new issue of securities for which
there currently is no market. Although Donaldson, Lufkin & Jenrette
Securities Corporation and Smith Barney Inc., the initial purchasers of
the Old Capital Securities (the "Initial Purchasers"), have informed the
Trust and the Company that they each currently intend to make a market
in the Capital Securities, the Initial Purchasers are not obligated to
do so, and any such market making may be discontinued at any time
without notice. Accordingly, there can be no assurance as to the devel-
opment or liquidity of any market for the New Capital Securities. The
Trust and the Company do not intend to apply for listing of the New
Capital Securities on any securities exchange or for quotation through
The Nasdaq Stock Market. See "Plan of Distribution."
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RISK FACTORS
Prospective investors should consider carefully, in addition to the other
information contained in this Prospectus, the following factors in connection
with the exchange offer and the new capital securities offered hereby.
HOLDING COMPANY STRUCTURE; RESTRICTIONS ON DIVIDENDS
As a holding company, the Company's ability to meet debt service
obligations and pay operating expenses depends on receipt of sufficient funds
from its direct and indirect subsidiaries. The inability of the Company's direct
and indirect subsidiaries to pay dividends to the Company in an amount
sufficient to meet debt service obligations and pay operating expenses would
have a material adverse effect on the Company. The payment of dividends by the
Company's subsidiaries without prior regulatory approval is subject to
restrictions set forth in the insurance laws and regulations of Virginia,
Illinois, Delaware, New Jersey, California and Arizona, the states of domicile
of the Company's insurance subsidiaries. The Company currently does not expect
such regulatory requirements to impair its ability to meet interest payment
obligations and to pay operating expenses in the future. However, the Company
can give no assurance that dividends will be declared or paid by its
subsidiaries. As of December 31, 1996, the Company's direct and indirect
insurance subsidiaries had sufficient capital and earnings to pay up to $32.9
million of dividends to the Company during 1997 without prior regulatory
approval.
RANKING OF SUBORDINATE OBLIGATIONS UNDER THE GUARANTEE AND JUNIOR SUBORDINATED
DEBENTURES
The obligations of the Company under the Guarantee issued by it for the
benefit of the holders of Capital Securities and the Junior Subordinated
Debentures are unsecured and subordinate and rank junior in right of payment to
all present and future Senior Indebtedness of the Company and rank pari passu
with obligations to or rights of the Company's other general unsecured
creditors. In addition, in the case of a bankruptcy or insolvency proceeding
involving the Company, the Company's obligations under the Guarantee will rank
subordinate and junior in right of payment to all liabilities (other than Other
Guarantees) of the Company, but senior to any obligation in respect of any class
of capital stock of the Company. No payment may be made of the principal of, or
premium, if any, or interest on the Junior Subordinated Debentures, or in
respect of any redemption, retirement, purchase or other acquisition of any of
the Junior Subordinated Debentures, at any time when (i) there is a default in
the payment of the principal of, or premium, if any, or interest on or otherwise
in respect of any Senior Indebtedness, whether at maturity or at a date fixed
for prepayment or by declaration or otherwise, or (ii) any event of default with
respect to any Senior Indebtedness has occurred and is continuing, or would
occur as a result of such payment on the Junior Subordinated Debentures or any
redemption, retirement, purchase or other acquisition of any of the Junior
Subordinated Debentures, permitting the holders of such Senior Indebtedness (or
a trustee on behalf of the holders thereof) to accelerate the maturity thereof.
At March 31, 1997, the aggregate principal amount of outstanding Senior
Indebtedness of the Company was approximately $104.8 million. Because the
Company is a holding company, the right of the Company to participate in any
distribution of assets of any direct or indirect subsidiary upon such
subsidiary's liquidation or reorganization or otherwise (and thus the ability of
holders of the Capital Securities to benefit indirectly from such distribution)
is subject to the prior claims of creditors of that subsidiary, except to the
extent that the Company may itself be recognized as a creditor of that
subsidiary. At March 31, 1997, the direct and indirect subsidiaries of the
Company had total liabilities (excluding liabilities owed to the Company) of
approximately $1.30 billion. In addition, because many of the Company's
subsidiaries are insurance companies subject to regulatory control by various
state insurance departments, the ability of such subsidiaries to pay dividends
to the Company without prior regulatory approval is limited by applicable laws
and regulations. Accordingly, the Junior Subordinated Debentures will be
effectively subordinated to all existing and future liabilities of the Company's
subsidiaries, and holders of Junior Subordinated Debentures should look only to
the assets of the Company for payments on the Junior Subordinated Debentures.
None of the Indenture, the Guarantee, the Common Guarantee or the Declaration
places any limitation on the amount of secured or unsecured debt, including
Senior Indebtedness, or other obligations, that may be incurred by the Company
or any of its subsidiaries, either in the event of a highly leveraged
transaction or otherwise. See "Description of the Guarantee -- Status" and
"Description of the New Junior Subordinated Debentures -- Subordination."
The ability of the Trust to pay amounts due on the Capital Securities is
solely dependent upon the Company's making payments on the Junior Subordinated
Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSIDERATIONS
So long as no Debenture Event of Default (as defined herein) shall have
occurred and be continuing, the Company will have the right under the Indenture
to defer payments of interest on the Junior Subordinated Debentures at any time
or from time to time for a period not exceeding 10 consecutive semi-annual
periods with respect to each Extension Period, provided
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that no Extension Period may extend beyond the Stated Maturity Date. Upon any
such deferral, semi-annual Distributions on the Capital Securities by the Trust
will be deferred (and the amount of Distributions to which holders of the
Capital Securities are entitled will accumulate additional Distributions thereon
at the rate of 8.71% per annum, compounded semi-annually, but not exceeding the
interest rate then accruing on the Junior Subordinated Debentures) from the
relevant payment date for such Distributions during any such Extension Period.
The Company may extend any existing Extension Period, provided that such
extension does not cause such Extension Period to exceed 10 consecutive
semi-annual periods or to extend beyond the Stated Maturity Date. Upon the
termination of any Extension Period and the payment of all interest then accrued
and unpaid on the Junior Subordinated Debentures (together with interest thereon
at the annual rate of 8.71%, compounded semi-annually, to the extent permitted
by applicable law), the Company may elect to begin a new Extension Period,
subject to the above requirements. There is no limitation on the number of times
that the Company may elect to begin an Extension Period. See "Description of New
Securities -- Distributions" and "Description of New Junior Subordinated
Debentures -- Option to Extend Interest Payment Date."
Should the Company exercise its right to defer payments of interest on the
Junior Subordinated Debentures, each holder of Capital Securities will be
required to accrue income (as original issue discount ("OID")) in respect of the
deferred stated interest allocable to its Capital Securities for United States
federal income tax purposes, which will be allocated but not distributed to
holders of Capital Securities. As a result, during an Extension Period, each
holder of Capital Securities will recognize income for United States federal
income tax purposes in advance of the receipt of cash and will not receive the
cash related to such income from the Trust if the holder disposes of the Capital
Securities prior to the record date for the payment of Distributions thereafter.
See "Certain Federal Income Tax Consequences -- Interest Income and Original
Issue Discount" and " -- Sales of Capital Securities."
Should the Company elect to exercise its right to defer payments of
interest on the Junior Subordinated Debentures, the then current market price of
the Capital Securities is likely to be affected adversely. A holder that
disposes of its Capital Securities during an Extension Period, therefore, might
not receive the same return on its investment as a holder that continues to hold
its Capital Securities. In addition, the mere existence of the Company's right
to defer payments of interest on the Junior Subordinated Debentures may cause
the market price of the Capital Securities to be more volatile than the market
prices of other securities on which OID accrues that are not subject to such
deferral rights.
CONDITIONAL RIGHT TO ADVANCE MATURITY AND SPECIAL EVENT REDEMPTION
If a Tax Event (as defined herein) occurs, then the Company will have the
right (i) prior to the termination of the Trust, to advance the Stated Maturity
Date of the Junior Subordinated Debentures to the minimum extent required in
order to allow for the payments of interest in respect of the Junior
Subordinated Debentures to continue to be tax deductible, but in no event shall
the resulting maturity of the Junior Subordinated Debentures be less than 20
years from January 13, 1997, or (ii) to terminate the Trust (if not previously
terminated) and advance the Stated Maturity Date of the Junior Subordinated
Debentures to the minimum extent required in order to allow for the payments of
interest in respect of the Junior Subordinated Debentures to continue to be tax
deductible for United States federal income tax purposes, but in no event shall
the resulting maturity of the Junior Subordinated Debentures be less than 40
years from January 13, 1997. In either case, such maturity date shall be
advanced only if, in the opinion of counsel to the Company experienced in such
matters, after advancing the maturity date, interest paid on the Junior
Subordinated Debentures will be deductible for United States federal income tax
purposes (the action referred to in either clause (i) or (ii) above being
referred to herein as a "Tax Event Maturity Advancement").
If a Tax Event occurs and in the opinion of counsel to the Company
experienced in such matters, there would in all cases, after effecting a Tax
Event Maturity Advancement, be more than an insubstantial risk that an Adverse
Tax Consequence (as defined herein) would continue to exist, or, if an
Investment Company Event (as defined herein) occurs, then the Company will have
the right, within 90 days following the occurrence of such Tax Event or
Investment Company Event, as the case may be, to redeem the Junior Subordinated
Debentures in whole (but not in part) in the manner set forth under "Description
of New Junior Subordinated Debentures -- Conditional Right to Advance Maturity
and Special Event Prepayment," and therefore to cause a mandatory redemption of
the Capital Securities prior to the Stated Maturity Date (the circumstances
under which the Company has the right to so redeem the Junior Subordinated
Debentures in connection with a Tax Event being referred to herein as a
"Conditional Tax Redemption Event"). Each of a Conditional Tax Redemption Event
or an Investment Company Event are sometimes referred to herein as a "Special
Event".
11
<PAGE>
POSSIBLE DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES
The Company will have the right at any time to dissolve the Trust and,
after satisfaction of claims of creditors of the Trust as provided by applicable
law, to cause the Junior Subordinated Debentures to be distributed to the
holders of the Trust Securities. Under current United States federal income tax
law, a distribution of Junior Subordinated Debentures upon the dissolution of
the Trust would not be a taxable event to holders of the Capital Securities. If,
however, the Trust is characterized for United States federal income tax
purposes as an association taxable as a corporation at the time of dissolution
of the Trust, the distribution of the Junior Subordinated Debentures may
constitute a taxable event to holders of Capital Securities. Moreover, upon the
occurrence of a Special Event, a dissolution of the Trust in which holders of
the Capital Securities receive cash would be a taxable event to such holders.
See "Certain Federal Income Tax Consequences -- Receipt of Junior Subordinated
Debentures or Cash Upon Liquidation of the Trust."
POSSIBLE TAX LAW CHANGES AFFECTING THE CAPITAL SECURITIES
On February 6, 1997, as part of the Clinton Administration's Fiscal 1998
Budget Proposal, the Treasury Department proposed legislation (the "Proposed
Legislation") which would, among other things, generally deny corporate issuers
a deduction for interest in respect of certain debt obligations, such as the New
Junior Subordinated Debentures, issued on or after the date "of first committee
action," if such debt obligations had a maximum term in excess of 15 years and
are not shown as indebtedness on the issuer's applicable consolidated balance
sheet. In addition, the Proposed Legislation would generally deny corporate
issuers a deduction for interest in respect of certain debt obligations, such as
the New Junior Subordinated Debentures, issued on or after the date "of first
committee action,", if such debt obligations have a weighted average maturity of
more than 40 years. The Proposed Legislation has not yet been introduced by any
member of the 105th Congress. If the Proposed Legislation or other similar
legislation is enacted by Congress and if such enactment gave rise to a Tax
Event, the Company would be permitted to cause a redemption of the Trust
Securities at the Special Event Redemption Price by electing to prepay the
Junior Subordinated Debentures at the Special Event Prepayment Price. See
"Description of New Securities -- Conditional Right to Advance Maturity and
Special Event Redemption," " -- Description of New Junior Subordinated
Debentures -- Conditional Right to Advance Maturity and Special Event
Prepayment" and Certain Federal Income Tax Consequences -- Proposed Tax
Legislation.
POSSIBLE ADVERSE EFFECT ON MARKET PRICES
There can be no assurance as to the market prices for Capital Securities or
Junior Subordinated Debentures distributed to the holders of Capital Securities
if a termination of the Trust were to occur. Accordingly, the Capital Securities
or the Junior Subordinated Debentures may trade at a discount from the price
that the investor paid to purchase the Capital Securities offered hereby.
Because holders of Capital Securities may receive Junior Subordinated Debentures
in liquidation of the Trust and because Distributions are otherwise limited to
payments on the Junior Subordinated Debentures, prospective purchasers of
Capital Securities are also making an investment decision with regard to the
Junior Subordinated Debentures and should carefully review all the information
regarding the Junior Subordinated Debentures contained herein. See "Description
of New Junior Subordinated Debentures."
RIGHTS UNDER THE GUARANTEE
The Chase Manhattan Bank will act as Guarantee Trustee and will hold the
Guarantee for the benefit of the holders of the Capital Securities. The Chase
Manhattan Bank will also act as Property Trustee and as Debenture Trustee under
the Indenture. Chase Manhattan Bank Delaware will act as Delaware Trustee under
the Declaration. The Old Guarantee guarantees, and the New Guarantee will
guarantee, as the case may be, to the holders of the Capital Securities the
following payments, to the extent not paid by the Trust: (i) any accumulated and
unpaid Distributions required to be paid on the Capital Securities, to the
extent that the Trust has funds on hand legally available therefor; (ii) the
applicable Redemption Price with respect to any Capital Securities called for
redemption, to the extent that the Trust has funds on hand at that time legally
available therefor; and (iii) upon a voluntary or involuntary termination and
liquidation of the Trust (unless the Junior Subordinated Debentures are
distributed to holders of the Capital Securities), the lesser of (a) the
aggregate of the Liquidation Amount and all accumulated and unpaid Distributions
to the date of payment, to the extent that the Trust has funds on hand at that
time legally available therefor and (b) the amount of assets of the Trust
remaining available for distribution to holders of the Capital Securities. The
obligations of the Company under the Guarantee are subordinated in the manner
set forth under " -- Ranking of Subordinate Obligations Under the Guarantee and
Junior Subordinated Debentures." The holders of a majority in Liquidation Amount
of the Capital Securities will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of the Guarantee or to direct the exercise of any trust
12
<PAGE>
power conferred upon the Guarantee Trustee. Any holder of the Capital Securities
may institute a legal proceeding directly against the Company to enforce its
rights under the Guarantee without first instituting a legal proceeding against
the Trust, the Guarantee Trustee or any other person or entity. If the Company
defaults on its obligation to pay amounts payable under the Junior Subordinated
Debentures, the Trust will not have sufficient funds for the payment of
Distributions or amounts payable on redemption of the Capital Securities or
otherwise, and, in such event, holders of the Capital Securities will not be
able to rely upon the Guarantee for payment of such amounts. Instead, in the
event a Debenture Event of Default shall have occurred and be continuing and
such event is attributable to the failure of the Company to pay principal of or
premium, if any, or interest on the Junior Subordinated Debentures on the
payment date on which such payment is due and payable, then a holder of Capital
Securities may institute a legal proceeding directly against the Company for
enforcement of payment to such holder of the principal of or premium, if any, or
interest on such Junior Subordinated Debentures having a principal amount equal
to the Liquidation Amount of the Capital Securities of such holder (a "Direct
Action"). Notwithstanding any payments made to a holder of Capital Securities by
the Company in connection with a Direct Action, the Company shall remain
obligated to pay the principal of and premium, if any, and interest on the
Junior Subordinated Debentures, and the Company shall be subrogated to the
rights of the holder of such Capital Securities with respect to payments on the
Capital Securities to the extent of any payments made by the Company to such
holder in any Direct Action. Except as described herein, holders of Capital
Securities will not be able to exercise directly any other remedy available to
the holders of the Junior Subordinated Debentures or to assert directly any
other rights in respect of the Junior Subordinated Debentures. See "Description
of New Junior Subordinated Debentures -- Enforcement of Certain Rights by
Holders of Capital Securities" and " -- Debenture Events of Default" and
"Description of the Guarantee." The Declaration will provide that each holder of
Capital Securities by acceptance thereof agrees to the provisions of the
Indenture.
LIMITED VOTING RIGHTS
Holders of Capital Securities will generally have limited voting rights
relating only to the modification of the terms of the Capital Securities, the
dissolution, termination or liquidation of the Trust, and the exercise of the
Trust's rights as holder of the Junior Subordinated Debentures. Holders of
Capital Securities will not be entitled to vote to appoint, remove or replace,
or to increase or decrease the number of, the Issuer Trustees, which voting
rights are vested exclusively in the holder of the Common Securities, except as
described under "Description of New Securities -- Removal of Issuer Trustees."
The Issuer Trustees and the Company may amend the Declaration without the
consent of holders of Capital Securities to ensure that the Trust will be
classified for United States federal income tax purposes as a grantor trust even
if such action adversely affects the interests of such holders. See "Description
of New Securities -- Voting Rights; Amendment of the Declaration."
TRADING PRICE
The Capital Securities may trade at a price that does not fully reflect the
value of accrued but unpaid interest with respect to the underlying Junior
Subordinated Debentures. A holder which uses the accrual method of accounting
for tax purposes (and a cash method holder, if the Junior Subordinated
Debentures are deemed to have been issued with OID) and which disposes of its
Capital Securities between record dates for payments of distributions thereon
will be required to include accrued but unpaid interest on the Junior
Subordinated Debentures through the date of disposition in income as ordinary
income (i.e., interest or, possibly, OID), and to add such amount to its
adjusted tax basis in its share of the underlying Junior Subordinated Debentures
deemed disposed of. To the extent the selling price is less than the holder's
adjusted tax basis (which will include all accrued but unpaid interest), a
holder will recognize a capital loss. Subject to certain limited exceptions,
capital losses cannot be applied to offset ordinary income for United States
federal income tax purposes. See "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue Discount" and " -- Sales of
Capital Securities."
CONSEQUENCES OF A FAILURE TO EXCHANGE OLD CAPITAL SECURITIES
The Old Capital Securities have not been registered under the Securities
Act or any state securities laws and therefore may not be offered, sold or
otherwise transferred except in compliance with the registration requirements of
the Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions. Old Capital
Securities which remain outstanding after consummation of the Exchange Offer
will continue to bear a legend reflecting such restrictions on transfer. In
addition, upon consummation of the Exchange Offer, holders of Old Capital
Securities which remain outstanding will not be entitled to any rights to have
such Old Capital Securities registered under the Securities Act or to any
similar rights under the Registration Rights Agreement (subject to certain
limited exceptions). The Company and the Trust do not intend to register under
the Securities Act any Old Capital Securities which remain outstanding after
consummation of the Exchange Offer
13
<PAGE>
(subject to such limited exceptions, if applicable). To the extent that Old
Capital Securities are tendered and accepted in the Exchange Offer, a holder's
ability to sell untendered Old Capital Securities could be adversely affected.
The New Capital Securities and any Old Capital Securities which remain
outstanding after consummation of the Exchange Offer will vote together as a
single class for purposes of determining whether holders of the requisite
percentage in outstanding Liquidation Amount thereof have taken certain actions
or exercised certain rights under the Trust Agreement. See "Description of New
Securities -- Voting Rights; Amendment of the Declaration."
The Old Capital Securities provide, among other things, that, if a
registration statement relating to the Exchange Offer has not been filed by June
7, 1997 and declared effective by July 7, 1997, the Distribution rate borne by
the Old Capital Securities commencing on July 8, 1997 will increase by 0.25% per
annum until the Exchange Offer is consummated. Upon consummation of the Exchange
Offer, holders of Old Capital Securities will not be entitled to any increase in
the Distribution rate thereon or any further registration rights under the
Registration Rights Agreement, except under limited circumstances. See
"Description of Old Securities."
ABSENCE OF PUBLIC MARKET
The Old Capital Securities were issued to, and the Company believes such
securities are currently owned by, a relatively small number of beneficial
owners. The Old Capital Securities have not been registered under the Securities
Act and will be subject to restrictions on transferability if they are not
exchanged for the New Capital Securities. Although the New Capital Securities
may be resold or otherwise transferred by the holders (who are not affiliates of
the Company or the Trust) without compliance with the registration requirements
under the Securities Act, they will constitute a new issue of securities with no
established trading market. Old Capital Securities may be transferred by the
holders thereof only in blocks having a Liquidation Amount of not less than
$100,000 (100 Old Capital Securities). New Capital Securities may be transferred
by the holders thereof in blocks having a Liquidation Amount of $1,000 (one New
Capital Security) or integral multiples thereof. The Company and the Trust have
been advised by the Initial Purchasers that the Initial Purchasers presently
intend to make a market in the New Capital Securities. However, the Initial
Purchasers are not obligated to do so and any market-making activity with
respect to the New Capital Securities may be discontinued at any time without
notice. In addition, such market-making activity will be subject to the limits
imposed by the Securities Act and the Exchange Act and may be limited during the
Exchange Offer. Accordingly, no assurance can be given that an active public or
other market will develop for the New Capital Securities or the Old Capital
Securities or as to the liquidity of or the trading market for the New Capital
Securities or the Old Capital Securities. If an active public market does not
develop, the market price and liquidity of the New Capital Securities may be
adversely affected.
If a public trading market develops for the New Capital Securities, future
trading prices will depend on many factors, including, among other things,
prevailing interest rates, the Company's results and the market for similar
securities. Depending on prevailing interest rates, the market for similar
securities and other factors, including the financial condition of the Company,
the New Capital Securities may trade at a discount.
Notwithstanding the registration of the New Capital Securities in the
Exchange Offer, holders who are "affiliates" (as defined under Rule 405 of the
Securities Act) of the Company or the Trust may publicly offer for sale or
resell the New Capital Securities only in compliance with the provisions of Rule
144 under the Securities Act.
Each broker-dealer that receives New Capital Securities for its own account
in exchange for Old Capital Securities, where such Old Capital Securities were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Capital Securities. See "Plan of
Distribution."
EXCHANGE OFFER PROCEDURES
Issuance of the New Capital Securities in exchange for Old Capital
Securities pursuant to the Exchange Offer will be made only after a timely
receipt by the Trust of such Old Capital Securities, a properly completed and
duly executed Letter of Transmittal and all other required documents. Therefore,
holders of the Old Capital Securities desiring to tender such Old Capital
Securities in exchange for New Capital Securities should allow sufficient time
to ensure timely delivery. Neither the Company nor the Trust is under any duty
to give notification of defects or irregularities with respect to the tenders of
Old Capital Securities for exchange.
14
<PAGE>
MARKEL CORPORATION
Markel Corporation is an insurance holding company which, through its
subsidiaries, markets and underwrites specialty insurance products and programs
to a variety of niche markets. The Company believes that its specialty product
focus and niche market strategy enable it to develop particular expertise and
specialized knowledge of its markets. Such specialization allows the Company to
provide added value to its customers and to compete on a basis other than price.
The year ended December 31, 1996 marked the Company's fifth consecutive year of
underwriting profitability and the tenth year of underwriting profitability in
the last eleven years. The Company emphasizes quality service in all phases of
its operations and believes that this approach fosters strong relationships with
its producers and greater customer loyalty.
The Company's primary businesses are professional and products liability,
excess and surplus lines, specialty programs, specialty personal and commercial
lines and brokered excess and surplus lines. The Company's distribution channels
include retail and wholesale brokers, general agents, direct marketing,
including telemarketing and direct mail, and affinity groups. The Company offers
products and coverages designed to meet the needs of insureds in niche or
emerging markets or insureds with specialized exposures or risks that are not
adequately served by the standard markets. Significant products include
professional liability coverages for doctors, lawyers, architects, engineers and
other professionals, comprehensive programs for summer camps and other youth
recreation organizations, conference centers, child care centers, private
schools, martial arts schools, gymnastics schools, dance studios and horse
farms, and property and liability coverages for restaurants and bars, vacant
properties and hard-to- place property risks, yachts, jet skis and other
watercraft, mobile homes and other non-standard dwellings, taxi fleets and other
commercial vehicles. Each risk is generally considered on an individual basis,
and coverages typically include limit restrictions, deductibles, exclusions,
surcharges and other features which respond to distinctive risk characteristics.
The Company had earned premiums of $81.7 million and $307.5 million for the
quarter ended March 31, 1997 and the year ended December 31, 1996, respectively.
As of March 31, 1997, the Company had total assets of approximately $1.7 billion
and shareholders' equity of $271.5 million.
USE OF PROCEEDS
Neither the Company nor the Trust will receive any cash proceeds from the
issuance of the New Capital Securities offered hereby. In consideration for
issuing the New Capital Securities in exchange for Old Capital Securities as
described in this Prospectus, the Trust will receive Old Capital Securities in
like Liquidation Amount. The Old Capital Securities surrendered in exchange for
the New Capital Securities will be retired and canceled.
The proceeds to the Trust from the sale of the Old Capital Securities
(without giving effect to expenses payable by the Company) was $150,000,000. All
of the proceeds were used to purchase Junior Subordinated Debentures from the
Company. The Company intends to use the net proceeds from the sale of the Junior
Subordinated Debentures to reduce indebtedness and for general corporate
purposes, which may include, without limitation, investments in and advances of
credit to the Company's subsidiaries, other investments and possible future
acquisitions.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratios of earnings to
combined fixed charges of the Company for the periods indicated:
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges 6.3 5.2 4.3 6.5 5.5 3.3
Ratio of Earnings to Fixed Charges, Excluding Net Realized Gains or Losses
from Sales of Investments and Gains from Sales of Brokerage Programs 2.2 3.1 3.8 5.2 4.9 3.4
</TABLE>
For purposes of computing the ratios of earnings to fixed charges for the
Company and its subsidiaries, earnings represent income before income taxes plus
fixed charges. Fixed charges have been calculated by adding gross interest
expense and that portion of rent expense deemed representative of the interest
factor in such rent expense. The Company's consolidated insurance company
subsidiaries are subject to certain regulatory restrictions on the payment of
dividends or advances to the Company. See "Risk Factors -- Holding Company
Structure; Restrictions on Dividends".
15
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at March 31, 1997, and as adjusted to give effect to the issuance of the
Old Capital Securities. The following data should be read in conjunction with
the financial information included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1996, as amended, and the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997, which are incorporated
herein by reference. See "Incorporation of Certain Documents by Reference." The
issuance of the New Securities in the Exchange Offer will have no effect on the
capitalization of the Company.
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------
AS
ADJUSTED
ACTUAL (1)
-------- -----------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Long-Term Debt (Net of Debt Issuance Costs of $346)................................................. 99,704 99,704
Markel Corporation -- Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust
Holding Solely $154,640,000 Aggregate Principal Amount of the 8.71% Series B Junior Subordinated
Deferrable Interest Debentures due January 1, 2046 of Markel Corporation.......................... -- 150,000
Shareholders' Equity:
Common Stock...................................................................................... 24,478 24,478
Retained Earnings................................................................................. 209,023 209,023
Net Unrealized Gains on Fixed Maturities and Equity Securities, Net of Taxes...................... 38,043 38,043
-------- -----------
Total Shareholders' Equity................................................................... 271,544 271,544
-------- -----------
Total Capitalization......................................................................... 371,248 521,248
-------- -----------
</TABLE>
- ---------------
(1) Reflects the issuance of the Old Capital Securities.
16
<PAGE>
SUMMARY FINANCIAL DATA
The summary below should be read in connection with the financial
information included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, as amended, and the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997, each incorporated herein by
reference. Interim unaudited data for the three months ended March 31, 1997 and
1996 reflect, in the opinion of management of the Company, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such data. Results for the year ended December 31, 1996, and the
three months ended March 31, 1997 are not necessarily indicative of results
which may be expected for any other interim period or for the year as a whole.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Results of Operations
Gross premium volume..................................... $ 304 $ 313 $ 349 $ 402 $ 414 $ 97 $ 98
Net premiums written..................................... 156 222 257 298 313 73 76
Earned premiums.......................................... 153 193 243 285 307 77 82
Net investment income.................................... 27 24 29 43 51 12 17
Net realized gains....................................... 8 16 4 12 5 3 (1)
Total operating revenues................................. 206 235 280 344 367 93 98
Operating income before interest and taxes............... 22 38 33 56 45 13 17
Gain on sale of brokerage programs....................... 23 -- -- -- -- -- --
Interest expense......................................... 5 6 8 8 8 2 5
Income taxes............................................. 14 8 6 14 (10) 3 3
Net income............................................... 26 24 19 34 47 8 9
Primary Earnings per Share
Core operations.......................................... $ 3.03 $ 3.31 $ 3.77 $ 5.15 $ 6.03 1.13 1.71
Net realized gains....................................... 0.89 1.83 0.45 1.39 .58 .34 (.07)
Nonrecurring items....................................... 1.90 0.00 0.00 0.00 2.05 0.00 0.00
Amortization expense..................................... (1.18) (0.91) (0.89) (0.39) (0.36) (.09) (.08)
------ ------ ------ ------ ------
Net income.......................................... $ 4.64 $ 4.23 $ 3.33 $ 6.15 $ 8.30 1.38 1.56
------ ------ ------ ------ ------
GAAP Underwriting Results
Loss ratio............................................... 67% 62% 64% 65% 66% 71% 64%
Expense ratio............................................ 30% 35% 33% 34% 34% 32% 35%
Combined ratio........................................... 97% 97% 97% 99% 100% 103% 99%
Financial Position
Total investments (1).................................... $ 434 $ 597 $ 612 $ 909 $1,131 $ 914 $1,273
Reinsurance recoverable (2).............................. 419 300 226 180 222 171 220
Intangible assets........................................ 60 53 45 42 39 41 39
Total assets............................................. 1,129 1,135 1,103 1,315 1,605 1,319 1,733
Unpaid losses and loss adjustment expenses(2).............. 733 688 653 734 936 750 937
Unearned premium (2)....................................... 90 128 147 171 201 166 191
Long-term debt............................................. 101 78 101 107 115 107 100
Total shareholders' equity (1)............................. 109 151 139 213 268 210 272
</TABLE>
- ---------------
(1) The change in accounting for net unrealized gains (losses) on fixed
maturities in accordance with provisions of Statement of Financial Accounting
Standards No. 115 affects 1993 and subsequent years.
(2) The gross reinsurance reporting provisions of Statement of Financial
Accounting Standards No. 113 affect 1992 and subsequent years.
17
<PAGE>
MARKEL CAPITAL TRUST I
The Trust is a statutory business trust created under Delaware law by the
filing of a certificate of trust with the Delaware Secretary of State on
December 30, 1996. The Trust is governed by the Declaration. The Trust exists
for the exclusive purposes of (i) issuing and selling the Trust Securities,
which represent undivided beneficial interests in the assets of the Trust, (ii)
investing the gross proceeds of the Trust Securities in the Junior Subordinated
Debentures and (iii) engaging in only those other activities necessary,
advisable or incidental thereto. Accordingly, the Junior Subordinated Debentures
will be the sole assets of the Trust and payments under the Junior Subordinated
Debentures will be the sole revenues of the Trust. All of the Common Securities
are owned by the Company. The Common Securities will rank pari passu, and
payments will be made thereon pro rata, with the Capital Securities, except that
upon the occurrence and during the continuance of an Event of Default under the
Declaration resulting from a Debenture Event of Default, the rights of the
Company as holder of the Common Securities to payments in respect of
Distributions and payments upon liquidation, redemption or otherwise will be
subordinated and rank junior to the rights of the holders of the Capital
Securities. See "Description of New Securities -- Subordination of Common
Securities." The Company has acquired Common Securities in a Liquidation Amount
equal to 3% of the total capital of the Trust. The Trust has a term of 50 years,
but may terminate earlier as provided in the Declaration. The Trust's business
and affairs are conducted by trustees (the "Issuer Trustees") appointed by the
Company as the holder of the Common Securities. The Issuer Trustees will be The
Chase Manhattan Bank as the Property Trustee (the "Property Trustee"), The Chase
Manhattan Bank Delaware as the Delaware Trustee (the "Delaware Trustee"), and
three individual trustees (the "Administrative Trustees"). The Chase Manhattan
Bank, as Property Trustee, will act as sole indenture trustee under the
Declaration. The Chase Manhattan Bank will also act as indenture trustee under
the Guarantee and the Indenture. See "Description of the Guarantee" and
"Description of New Junior Subordinated Debentures."The holder of the Common
Securities of the Trust or, if an Event of Default under the Declaration has
occurred and is continuing, the holders of a majority in Liquidation Amount of
the Capital Securities, will be entitled to appoint, remove or replace the
Property Trustee and/or the Delaware Trustee. In no event will the holders of
the Capital Securities have the right to vote to appoint, remove or replace the
Administrative Trustees; such voting rights will be vested exclusively in the
holder of the Common Securities. The duties and obligations of each Issuer
Trustee are governed by the Declaration. The Company will pay, directly or
indirectly, all fees, expenses, debts and obligations (other than, except to the
extent guaranteed by the Company, the Trust Securities) related to the Trust and
the offering and exchange of the Capital Securities, including all ongoing
costs, expenses and liabilities of the Trust. The principal executive office of
the Trust is c/o Markel Corporation, 4551 Cox Road, Glen Allen, Virginia 23060
((804) 747-0136). The Chase Manhattan Bank serves as the trustee under the
indenture for the Company's $100 million aggregate principal amount of 7.25%
Notes due November 1, 2003, and participates as a lender in the Company's
revolving credit facility. In addition, from time to time one or more affiliates
of The Chase Manhattan Bank may provide the Company with investment banking and
related financial services.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Old Capital Securities, the Company and
the Trust entered into the Registration Rights Agreement with the Initial
Purchasers, pursuant to which the Company and the Trust agreed to file and to
use their reasonable efforts to cause to become effective with the Commission a
registration statement with respect to the exchange of the Old Capital
Securities for capital securities with terms identical in all material respects
to the terms of the Old Capital Securities. A copy of the Registration Rights
Agreement has been filed as an Exhibit to the Registration Statement of which
this Prospectus is a part.
The Exchange Offer is being made to satisfy the contractual obligations of
the Company and the Trust under the Registration Rights Agreement. The form and
terms of the New Capital Securities are the same as the form and terms of the
Old Capital Securities except that the New Capital Securities have been
registered under the Securities Act and will not be subject to the $100,000
minimum Liquidation Amount transfer restriction and certain other restrictions
on transfer applicable to the Old Capital Securities and will not provide for
any increase in the Distribution rate thereon. In that regard, the Old Capital
Securities provide, among other things, that, if a registration statement
relating to the Exchange Offer has not been filed by June 7, 1997 and declared
effective by July 7, 1997, the Distribution rate borne by the Old Capital
Securities commencing on July 8, 1997 will increase by 0.25% per annum until the
Exchange Offer is consummated. Upon consummation of the Exchange Offer, holders
of Old Capital Securities will not be entitled to any increase in the
Distribution rate thereon or any further registration rights under the
Registration Rights Agreement, except under limited circumstances. See "Risk
Factors -- Consequences of a Failure to Exchange Old Capital Securities" and
"Description of Old Securities."
18
<PAGE>
The Exchange Offer is not being made to, nor will the Trust accept tenders
for exchange from, holders of Old Capital Securities in any jurisdiction in
which the Exchange Offer or the acceptance thereof would not be in compliance
with the securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to
the Exchange Offer means any person in whose name the Old Capital Securities are
registered on the books of the Trust or any other person who has obtained a
properly completed bond power from the registered holder, or any person whose
Old Capital Securities are held of record by The Depository Trust Company
("DTC") who desires to deliver such Old Capital Securities by book-entry
transfer at DTC.
Pursuant to the Exchange Offer, the Company will exchange as soon as
practicable after the date hereof, the Old Guarantee for the New Guarantee and
the Old Junior Subordinated Debentures, in an amount corresponding to the Old
Capital Securities accepted for exchange, for a like aggregate principal amount
of the New Junior Subordinated Debentures. The New Guarantee and New Junior
Subordinated Debentures have been registered under the Securities Act.
TERMS OF THE EXCHANGE OFFER
The Trust hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to $150,000,000 aggregate Liquidation Amount of New Capital
Securities for a like aggregate Liquidation Amount of Old Capital Securities
properly tendered on or prior to the Expiration Date and not properly withdrawn
in accordance with the procedures described below. The Trust will issue,
promptly after the Expiration Date, an aggregate Liquidation Amount of up to
$150,000,000 of New Capital Securities in exchange for a like principal amount
of outstanding Old Capital Securities tendered and accepted in connection with
the Exchange Offer. Holders may tender their Old Capital Securities in whole or
in part in a Liquidation Amount of not less than $100,000 (100 Capital
Securities) or any integral multiple of $1,000 Liquidation Amount (one Capital
Security) in excess thereof.
The Exchange Offer is not conditioned upon any minimum Liquidation Amount
of Old Capital Securities being tendered. As of the date of this Prospectus,
$150,000,000 aggregate Liquidation Amount of the Old Capital Securities is
outstanding.
Holders of Old Capital Securities do not have any appraisal or dissenters'
rights in connection with the Exchange Offer. Old Capital Securities which are
not tendered or are tendered but not accepted in connection with the Exchange
Offer will remain outstanding and be entitled to the benefits of the
Declaration, but will not be entitled to any further registration rights under
the Registration Rights Agreement, except under limited circumstances. See "Risk
Factors -- Consequences of a Failure to Exchange Old Capital Securities" and
"Description of Old Securities."
If any tendered Old Capital Securities are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Old Capital Securities
will be returned, without expense, to the tendering holder thereof promptly
after the Expiration Date.
Holders who tender Old Capital Securities in connection with the Exchange
Offer will not be required to pay brokerage commissions or fees or, subject to
the instructions in the Letter of Transmittal, transfer taxes with respect to
the exchange of Old Capital Securities in connection with the Exchange Offer.
The Company will pay all charges and expenses, other than certain applicable
taxes described below, in connection with the Exchange Offer. See " -- Fees and
Expenses."
NEITHER THE COMPANY, THE BOARD OF DIRECTORS OF THE COMPANY NOR ANY ISSUER
TRUSTEE OF THE TRUST MAKES ANY RECOMMENDATION TO HOLDERS OF OLD CAPITAL
SECURITIES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION
OF THEIR OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO
ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF OLD CAPITAL
SECURITIES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE
EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD CAPITAL SECURITIES TO
TENDER BASED ON SUCH HOLDERS OWN FINANCIAL POSITION AND REQUIREMENTS.
The term "Expiration Date" means 5:00 p.m., New York City time, on June 26,
1997 unless the Exchange Offer is extended by the Company or the Trust (in which
case the term "Expiration Date" shall mean the latest date and time to which the
Exchange Offer is extended).
The Company and the Trust expressly reserve the right in their sole and
absolute discretion (except as otherwise noted below), subject to applicable
law, at any time and from time to time, (i) to delay the acceptance of the Old
Capital Securities for exchange, (ii) to terminate the Exchange Offer (whether
or not any Old Capital Securities have theretofore been accepted for exchange)
if the Trust determines, in its sole and absolute discretion, that any of the
events or conditions referred to under " -- Conditions to the Exchange Offer"
have occurred or exist or have not been satisfied, (iii) to extend the
Expiration Date
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<PAGE>
of the Exchange Offer and retain all Old Capital Securities tendered pursuant to
the Exchange Offer, subject, however, to the right of holders of Old Capital
Securities to withdraw their tendered Old Capital Securities as described under
" -- Withdrawal Rights," and (iv) in their reasonable discretion to waive any
condition or otherwise amend the terms of the Exchange Offer in any respect. If
the Exchange Offer is amended in a manner determined by the Company and the
Trust to constitute a material change, or if the Company and the Trust waive a
material condition of the Exchange Offer, the Company and the Trust will
promptly disclose such amendment by means of a post-effective amendment that
will be distributed to the holders of the Old Capital Securities, and the
Company and the Trust will extend the Exchange Offer to the extent required by
Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and by
making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which the Company and the Trust may choose to make any public
announcement and subject to applicable law, the Company and the Trust shall have
no obligation to publish, advertise or otherwise communicate any such public
announcement other than by issuing a release to an appropriate news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW CAPITAL SECURITIES
Upon the terms and subject to the conditions of the Exchange Offer, the
Trust will exchange, and will issue to the Exchange Agent, New Capital
Securities for Old Capital Securities validly tendered and not withdrawn
promptly after the Expiration Date.
In all cases, delivery of New Capital Securities in exchange for Old
Capital Securities tendered and accepted for exchange pursuant to the Exchange
Offer will be made only after timely receipt by the Exchange Agent of (i) Old
Capital Securities or a book-entry confirmation of a book-entry transfer of Old
Capital Securities into the Exchange Agent's account at DTC, (ii) the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees, and (iii) any other documents required by the
Letter of Transmittal.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of Old Capital Securities into the Exchange Agent's account
at DTC.
Subject to the terms and conditions of the Exchange Offer, the Trust will
be deemed to have accepted for exchange, and thereby exchanged, Old Capital
Securities validly tendered and not withdrawn as, if and when the Trust gives
oral or written notice to the Exchange Agent of the Trust's acceptance of such
Old Capital Securities for exchange pursuant to the Exchange Offer. The Exchange
Agent will act as agent for the Trust for the purpose of receiving tenders of
Old Capital Securities, Letters of Transmittal and related documents, and as
agent for tendering holders for the purpose of receiving Old Capital Securities,
Letters of Transmittal and related documents and transmitting New Capital
Securities to validly tendering holders. Such exchange will be made promptly
after the Expiration Date. If for any reason whatsoever, acceptance for exchange
or the exchange of any Old Capital Securities tendered pursuant to the Exchange
Offer is delayed (whether before or after the Trust's acceptance for exchange of
Old Capital Securities) or the Trust extends the Exchange Offer or is unable to
accept for exchange or exchange Old Capital Securities tendered pursuant to the
Exchange Offer, then, without prejudice to the Trust's rights set forth herein,
the Exchange Agent may, nevertheless, on behalf of the Trust and subject to Rule
14e-1(c) under the Exchange Act, retain tendered Old Capital Securities and such
Old Capital Securities may not be withdrawn except to the extent tendering
holders are entitled to withdrawal rights as described under " -- Withdrawal
Rights."
Pursuant to the Letter of Transmittal, a holder of Old Capital Securities
will warrant and agree in the Letter of Transmittal that it has full power and
authority to tender, exchange, sell, assign and transfer Old Capital Securities,
that the Trust will acquire good, marketable and unencumbered title to the
tendered Old Capital Securities, free and clear of all liens, restrictions,
charges and encumbrances, and the Old Capital Securities tendered for exchange
are not subject to any adverse claims or proxies. The holder also will warrant
and agree that it will, upon request, execute and deliver any additional
documents deemed by the Trust or the Exchange Agent to be necessary or desirable
to complete the exchange, sale, assignment, and transfer of the Old Capital
Securities tendered pursuant to the Exchange Offer.
PROCEDURES FOR TENDERING OLD CAPITAL SECURITIES
VALID TENDER. Except as set forth below, in order for Old Capital
Securities to be validly tendered pursuant to the Exchange Offer, a properly
completed and duly executed Letter of Transmittal (or facsimile thereof), with
any required signature guarantees and any other required documents, must be
received by the Exchange Agent at one of its addresses set
20
<PAGE>
forth under " -- Exchange Agent," and either (i) tendered Old Capital Securities
must be received by the Exchange Agent, or (ii) such Old Capital Securities must
be tendered pursuant to the procedures for book-entry transfer set forth below
and a book-entry confirmation must be received by the Exchange Agent, in each
case on or prior to the Expiration Date, or (iii) the guaranteed delivery
procedures set forth below must be complied with.
If less than all of the Old Capital Securities are tendered, a tendering
holder should fill in the amount of Old Capital Securities being tendered in the
appropriate box on the Letter of Transmittal. The entire amount of Old Capital
Securities delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER,
AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
BOOK-ENTRY TRANSFER. The Exchange Agent will establish an account with
respect to the Old Capital Securities at DTC for purposes of the Exchange Offer
within two business days after the date of this Prospectus. Any financial
institution that is a participant in DTC's book-entry transfer facility system
may make a book-entry delivery of the Old Capital Securities by causing DTC to
transfer such Old Capital Securities into the Exchange Agent's account at DTC in
accordance with DTC's procedures for transfers. However, although delivery of
Old Capital Securities may be effected through book-entry transfer into the
Exchange Agent's account at DTC, the Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees and any other required documents, must in any case be delivered to
and received by the Exchange Agent at its address set forth under " -- Exchange
Agent" on or prior to the Expiration Date, or the guaranteed delivery procedure
set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
SIGNATURE GUARANTEES. Certificates for the Old Capital Securities need not
be endorsed and signature guarantees on the Letter of Transmittal are
unnecessary unless (a) a certificate for the Old Capital Securities is
registered in a name other than that of the person surrendering the certificate
or (b) such holder completes the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" in the Letter of Transmittal. In the case of (a)
or (b) above, such certificates for Old Capital Securities must be duly endorsed
or accompanied by a properly executed bond power, with the endorsement or
signature on the bond power and on the Letter of Transmittal guaranteed by a
firm or other entity identified in Rule 17Ad-15 under the Exchange Act as an
"eligible guarantor institution," including (as such terms are defined therein):
(i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or
government securities broker or dealer; (iii) a credit union; (iv) a national
securities exchange, registered securities association or clearing agency; or
(v) a savings association that is a participant in a Securities Transfer
Association (an "Eligible Institution"), unless surrendered on behalf of such
Eligible Institution. See Instruction 1 to the Letter of Transmittal.
GUARANTEED DELIVERY. If a holder desires to tender Old Capital Securities
pursuant to the Exchange Offer and the certificates for such Old Capital
Securities are not immediately available or time will not permit all required
documents to reach the Exchange Agent on or prior to the Expiration Date, or the
procedure for book-entry transfer cannot be completed on a timely basis, such
Old Capital Securities may nevertheless be tendered, provided that all of the
following guaranteed delivery procedures are complied with:
(1) such tenders are made by or through an Eligible Institution;
(2) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form accompanying the Letter of Transmittal, is received by
the Exchange Agent, as provided below, on or prior to the Expiration Date; and
(3) the certificates (or a book-entry confirmation) representing all
tendered Old Capital Securities, in proper form for transfer, together with a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees and any other documents
required by the Letter of Transmittal, are received by the Exchange Agent within
three New York Stock Exchange trading days after the date of execution of such
Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of New Capital
Securities in exchange for Old Capital Securities tendered and accepted for
exchange pursuant to the Exchange Offer will in all cases be made only after
timely receipt by
21
<PAGE>
the Exchange Agent of Old Capital Securities, or of a book-entry confirmation
with respect to such Old Capital Securities, and a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), together with any
required signature guarantees and any other documents required by the Letter of
Transmittal. Accordingly, the delivery of New Capital Securities might not be
made to all tendering holders at the same time, and will depend upon when Old
Capital Securities, book-entry confirmations with respect to Old Capital
Securities and other required documents are received by the Exchange Agent.
The Trust's acceptance for exchange of Old Capital Securities tendered
pursuant to any of the procedures described above will constitute a binding
agreement between the tendering holder and the Trust upon the terms and subject
to the conditions of the Exchange Offer.
DETERMINATION OF VALIDITY. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered Old Capital Securities will be determined by the Company and the
Trust, in their sole discretion, whose determination shall be final and binding
on all parties. The Company and the Trust reserve the absolute right, in their
sole and absolute discretion, to reject any and all tenders determined by them
not to be in proper form or the acceptance of which, or exchange for, may, in
the opinion of counsel to the Company and the Trust, be unlawful. The Company
and the Trust also reserve the absolute right, subject to applicable law, to
waive any of the conditions of the Exchange Offer as set forth under
" -- Conditions to the Exchange Offer" or any condition or irregularity in any
tender of Old Capital Securities of any particular holder whether or not similar
conditions or irregularities are waived in the case of other holders.
The interpretation by the Company and the Trust of the terms and conditions
of the Exchange Offer (including the Letter of Transmittal and the instructions
thereto) will be final and binding. No tender of Old Capital Securities will be
deemed to have been validly made until all irregularities with respect to such
tender have been cured or waived. Neither the Company, the Trust, any affiliates
or assigns of the Company or the Trust, the Exchange Agent nor any other person
shall be under any duty to give any notification of any irregularities in
tenders or incur any liability for failure to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney,
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by the Company
and the Trust, proper evidence satisfactory to the Company and the Trust, in
their sole discretion, of such person's authority to so act must be submitted.
A beneficial owner of Old Capital Securities that are held by or registered
in the name of a broker, dealer, commercial bank, trust company or other nominee
or custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the Exchange Offer.
RESALES OF NEW CAPITAL SECURITIES
The Company and the Trust are making the Exchange Offer for the New Capital
Securities in reliance on the position of the staff of the Division of
Corporation Finance of the Commission as set forth in certain interpretive
letters addressed to third parties in other transactions. However, neither the
Company nor the Trust sought its own interpretive letter and there can be no
assurance that the staff of the Division of Corporation Finance of the
Commission would make a similar determination with respect to the Exchange Offer
as it has in such interpretive letters to third parties. Based on these
interpretations by the staff of the Division of Corporation Finance of the
Commission, and subject to the two immediately following sentences, the Company
and the Trust believe that New Capital Securities issued pursuant to this
Exchange Offer in exchange for Old Capital Securities may be offered for resale,
resold and otherwise transferred by a holder thereof (other than a holder who is
a broker-dealer) without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such New Capital
Securities are acquired in the ordinary course of such holder's business and
that such holder is not participating, and has no arrangement or understanding
with any person to participate, in a distribution (within the meaning of the
Securities Act) of such New Capital Securities. However, any holder of Old
Capital Securities who is an "affiliate" of the Company or the Trust or who
intends to participate in the Exchange Offer for the purpose of distributing New
Capital Securities, or any broker-dealer who purchased Old Capital Securities
from the Trust to resell pursuant to Rule 144A or any other available exemption
under the Securities Act, (a) will not be able to rely on the interpretations of
the staff of the Division of Corporation Finance of the Commission set forth in
the above-mentioned interpretive letters, (b) will not be permitted or entitled
to tender such Old Capital Securities in the Exchange Offer and (c) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any sale or other transfer of such Old Capital Securities
unless such sale is made pursuant to an exemption from such requirements. In
addition, as described below, if any broker-dealer holds Old Capital Securities
acquired for its own account as a result of market-making or other
22
<PAGE>
trading activities and exchanges such Old Capital Securities for New Capital
Securities, then such broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of such New
Capital Securities.
Each holder of Old Capital Securities who wishes to exchange Old Capital
Securities for New Capital Securities in the Exchange Offer will be required to
represent that (i) it is not an "affiliate" of the Company or the Trust, (ii)
any New Capital Securities to be received by it are being acquired in the
ordinary course of its business, (iii) it has no arrangement or understanding
with any person to participate in a distribution (within the meaning of the
Securities Act) of such New Capital Securities, and (iv) if such holder is not a
broker-dealer, such holder is not engaged in, and does not intend to engage in,
a distribution (within the meaning of the Securities Act) of such New Capital
Securities. In addition, the Company and the Trust may require such holder, as a
condition to such holder's eligibility to participate in the Exchange Offer, to
furnish to the Company and the Trust (or an agent thereof) in writing
information as to the number of "beneficial owners" (within the meaning of Rule
13d-3 under the Exchange Act) on behalf of whom such holder holds the Capital
Securities to be exchanged in the Exchange Offer. Each broker-dealer that
receives New Capital Securities for its own account pursuant to the Exchange
Offer must acknowledge that it acquired the Old Capital Securities for its own
account as the result of market-making activities or other trading activities
and must agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Capital Securities. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. Based on the position
taken by the staff of the Division of Corporation Finance of the Commission in
the interpretive letters referred to above, the Company and the Trust believe
that Participating Broker-Dealers who acquired Old Capital Securities for their
own accounts as a result of market-making activities or other trading activities
may fulfill their prospectus delivery requirements with respect to the New
Capital Securities received upon exchange of such Old Capital Securities (other
than Old Capital Securities which represent an unsold allotment from the
original sale of the Old Capital Securities) with a prospectus meeting the
requirements of the Securities Act, which may be the prospectus prepared for an
exchange offer so long as it contains a description of the plan of distribution
with respect to the resale of such New Capital Securities. Accordingly, this
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer during the period referred to below in
connection with resales of New Capital Securities received in exchange for Old
Capital Securities where such Old Capital Securities were acquired by such
Participating Broker-Dealer for its own account as a result of market-making or
other trading activities. Subject to certain provisions set forth in the
Registration Rights Agreement, the Company and the Trust have agreed that this
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of such New Capital
Securities for a period ending 90-days after the Expiration Date (subject to
extension under certain limited circumstances described below) or, if earlier,
when all such New Capital Securities have been disposed of by such Participating
Broker-Dealer. See "Plan of Distribution." However, a Participating
Broker-Dealer who intends to use this Prospectus in connection with the resale
of New Capital Securities received in exchange for Old Capital Securities
pursuant to the Exchange Offer must notify the Company or the Trust, or cause
the Company or the Trust to be notified, on or prior to the Expiration Date,
that it is a Participating Broker-Dealer. Such notice may be given in the space
provided for that purpose in the Letter of Transmittal or may be delivered to
the Exchange Agent at one of the addresses set forth herein under " -- Exchange
Agent." Any Participating Broker-Dealer who is an "affiliate" of the Company or
the Trust may not rely on such interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
In that regard, each Participating Broker-Dealer who surrenders Old Capital
Securities pursuant to the Exchange Offer will be deemed to have agreed, by
execution of the Letter of Transmittal, that, upon receipt of notice from the
Company or the Trust of the occurrence of any event or the discovery of any fact
which makes any statement contained or incorporated by reference in this
Prospectus untrue in any material respect or which causes this Prospectus to
omit to state a material fact necessary in order to make the statements
contained or incorporated by reference herein, in light of the circumstances
under which they were made, not misleading or of the occurrence of certain other
events specified in the Registration Rights Agreement, such Participating
Broker-Dealer will suspend the sale of New Capital Securities (or the New
Guarantee or the New Junior Subordinated Debentures, as applicable) pursuant to
this Prospectus until the Company or the Trust has amended or supplemented this
Prospectus to correct such misstatement or omission and has furnished copies of
the amended or supplemented Prospectus to such Participating Broker-Dealer or
the Company or the Trust has given notice that the sale of the New Capital
Securities (or the New Guarantee or the New Junior Subordinated Debentures, as
applicable) may be resumed, as the case may be. If the Company or the Trust
gives such notice to suspend the sale of the New Capital Securities (or the New
Guarantee or the New Junior Subordinated Debentures, as applicable), it shall
extend the 90-day period referred to above during which Participating
Broker-Dealers are entitled to use this Prospectus in connection with the resale
of New Capital Securities by the number of days during the period from and
including the date of the giving of such notice to and including
23
<PAGE>
the date when Participating Broker-Dealers shall have received copies of the
amended or supplemented Prospectus necessary to permit resales of the New
Capital Securities or to and including the date on which the Company or the
Trust has given notice that the sale of New Capital Securities (or the New
Guarantee or the New Junior Subordinated Debentures, as applicable) may be
resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Capital Securities may
be withdrawn at any time on or prior to the Expiration Date.
In order for a withdrawal to be effective a written, telegraphic, telex or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at one of its addresses set forth under " -- Exchange Agent"
on or prior to the Expiration Date. Any such notice of withdrawal must specify
the name of the person who tendered the Old Capital Securities to be withdrawn,
the aggregate principal amount of Old Capital Securities to be withdrawn, and
(if certificates for such Old Capital Securities have been tendered) the name of
the registered holder of the Old Capital Securities as set forth on the Old
Capital Securities, if different from that of the person who tendered such Old
Capital Securities. If Old Capital Securities have been delivered or otherwise
identified to the Exchange Agent, then prior to the physical release of such Old
Capital Securities, the tendering holder must submit the serial numbers shown on
the particular Old Capital Securities to be withdrawn and the signature on the
notice of withdrawal must be guaranteed by an Eligible Institution, except in
the case of Old Capital Securities tendered for the account of an Eligible
Institution. If Old Capital Securities have been tendered pursuant to the
procedures for book-entry transfer set forth in " -- Procedures for Tendering
Old Capital Securities," the notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawal of Old Capital
Securities, in which case a notice of withdrawal will be effective if delivered
to the Exchange Agent by written, telegraphic, telex or facsimile transmission.
Withdrawals of tenders of Old Capital Securities may not be rescinded. Old
Capital Securities properly withdrawn will not be deemed validly tendered for
purposes of the Exchange Offer, but may be retendered at any subsequent time on
or prior to the Expiration Date by following any of the procedures described
above under " -- Procedures for Tendering Old Capital Securities."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Trust, in its sole
discretion, whose determination shall be final and binding on all parties.
Neither the Company, the Trust, any affiliates or assigns of the Company or the
Trust, the Exchange Agent nor any other person shall be under any duty to give
any notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Old Capital Securities
which have been tendered but which are withdrawn will be returned to the holder
thereof promptly after withdrawal.
DISTRIBUTIONS ON NEW CAPITAL SECURITIES
Holders of Old Capital Securities whose Old Capital Securities are accepted
for exchange will not receive Distributions on such Old Capital Securities and
will be deemed to have waived the right to receive any Distributions on such Old
Capital Securities accumulated from and after January 13, 1997. Accordingly,
holders of New Capital Securities as of the record date for the payment of
Distributions on July 1, 1997 will be entitled to receive Distributions
accumulated from and after January 13, 1997.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Company and the Trust will not be required
to accept for exchange, or to exchange, any Old Capital Securities for any New
Capital Securities, and, as described below, may terminate the Exchange Offer
(whether or not any Old Capital Securities have theretofore been accepted for
exchange) or may waive any conditions to or amend the Exchange Offer, if any of
the following conditions have occurred or exists or have not been satisfied:
(a) there shall occur a change in the current interpretation by the staff
of the Commission which permits the New Capital Securities issued pursuant to
the Exchange Offer in exchange for Old Capital Securities to be offered for
resale, resold and otherwise transferred by holders thereof (other than
broker-dealers and any such holder which is an "affiliate" of the Company or the
Trust within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such New Capital Securities are acquired in the
ordinary course of such holders' business and such holders have no arrangement
or understanding with any person to participate in the distribution of such New
Capital Securities; or
24
<PAGE>
(b) any law, statute, rule or regulation shall have been adopted or enacted
which, in the judgment of the Company or the Trust, would reasonably be expected
to impair its ability to proceed with the Exchange Offer; or
(c) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration Statement
or proceedings shall have been initiated or, to the knowledge of the Company or
the Trust, threatened for that purpose any governmental approval has not been
obtained, which approval the Company or the Trust shall, in its sole discretion,
deem necessary for the consummation of the Exchange Offer as contemplated
hereby.
If the Company or the Trust determines in its sole and absolute discretion
that any of the foregoing events or conditions has occurred or exists or has not
been satisfied, it may, subject to applicable law, terminate the Exchange Offer
(whether or not any Old Capital Securities have theretofore been accepted for
exchange) or may waive any such condition or otherwise amend the terms of the
Exchange Offer in any respect. If such waiver or amendment constitutes a
material change to the Exchange Offer, the Company or the Trust will promptly
disclose such waiver or amendment by means of a prospectus supplement that will
be distributed to the registered holders of the Old Capital Securities and will
extend the Exchange Offer to the extent required by Rule 14e-1 under the
Exchange Act.
EXCHANGE AGENT
The Chase Manhattan Bank has been appointed as Exchange Agent for the
Exchange Offer. Delivery of the Letters of Transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent as follows:
<TABLE>
<CAPTION>
BY REGISTERED OR CERTIFIED MAIL BY HAND OR OVERNIGHT DELIVERY
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
The Chase Manhattan Bank The Chase Manhattan Bank
Global Trust Services Global Trust Services
450 West 33rd Street, 15th Floor 450 West 33rd Street, 15th Floor
New York, New York 10001 New York, New York 10001
Attention: Phil Jones, Trust Officer Attention: Phil Jones, Trust Officer
</TABLE>
CONFIRM BY TELEPHONE:
(212) 946-3049
FACSIMILE TRANSMISSIONS:
(Eligible Institutions Only)
(212) 946-8154
Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.
FEES AND EXPENSES
The Company has agreed to pay the Exchange Agent reasonable and customary
fees for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith. The Company will also pay brokerage houses and
other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus and related documents
to the beneficial owners of Old Capital Securities, and in handling or tendering
for their customers.
Holders who tender their Old Capital Securities for exchange will not be
obligated to pay any transfer taxes in connection therewith. If, however, New
Capital Securities are to be delivered to, or are to be issued in the name of,
any person other than the registered holder of the Old Capital Securities
tendered, or if a transfer tax is imposed for any reason other than the exchange
of Old Capital Securities in connection with the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered holder or any
other persons) will be payable by the tendering holder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted with the Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering holder.
Neither the Company nor the Trust will make any payment to brokers, dealers
or other nominees soliciting acceptances of the Exchange Offer.
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DESCRIPTION OF NEW SECURITIES
DESCRIPTION OF NEW CAPITAL SECURITIES
Pursuant to the terms of the Declaration, the Trust has issued the Old
Capital Securities and the Common Securities and will issue the New Capital
Securities. The New Capital Securities will represent preferred beneficial
interests in the Trust and the holders of the New Capital Securities and the Old
Capital Securities will be entitled to a preference over the Common Securities
in certain circumstances with respect to Distributions and amounts payable on
redemption of the Trust Securities or liquidation of the Trust. See
" -- Subordination of Common Securities." The Declaration has been qualified
under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
This is a summary of all material provisions of the New Capital Securities, the
Declaration and the Common Securities but does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the provisions
of the Declaration, including the definitions therein of certain terms.
The Capital Securities (including the Old Capital Securities and the New
Capital Securities) are limited to $150,000,000 aggregate Liquidation Amount at
any one time outstanding. The Capital Securities will rank PARI PASSU, and
payments will be made thereon PRO RATA, with the Old Capital Securities and the
Common Securities except as described under " -- Subordination of Common
Securities." Legal title to the Junior Subordinated Debentures will be held by
the Property Trustee in trust for the benefit of the holders of the Capital
Securities and Common Securities. The New Guarantee will be a guarantee on a
subordinated basis but will not guarantee payment of Distributions or amounts
payable on redemption of the New Capital Securities or on liquidation of the
Trust when the Trust does not have funds on hand legally available for such
payments. See "Description of the Guarantee."
DISTRIBUTIONS
Distributions on the New Capital Securities will be cumulative, will
accumulate from January 13, 1997 and will be payable semi-annually in arrears on
January 1 and July 1 of each year, commencing July 1, 1997, at the annual rate
of 8.71% of the Liquidation Amount to the holders of the New Capital Securities
on the relevant record dates. The record dates will be the dates fifteen days
prior to the relevant Distribution Date (as defined herein). The amount of
Distributions payable for any period will be computed on the basis of a 360-day
year of twelve 30-day months. In the event that any date on which Distributions
are payable on the New Capital Securities is not a Business Day (as defined
herein), payment of the Distributions payable on such date will be made on the
next succeeding day that is a Business Day (and without any interest or other
payment in respect to any such delay), in each case with the same force and
effect as if made on such date (each date on which Distributions are payable in
accordance with the foregoing, a "Distribution Date"). A "Business Day" shall
mean any day other than a Saturday or a Sunday, or a day on which banking
institutions in New York, New York are authorized or required by law or
executive order to remain closed.
So long as no Debenture Event of Default shall have occurred and be
continuing, the Company will have the right under the Indenture to elect to
defer the payment of interest on the Junior Subordinated Debentures at any time
or from time to time for a period not exceeding 10 consecutive semi-annual
periods with respect to each Extension Period, provided that no Extension Period
may extend beyond the Stated Maturity Date. Upon any such election, semi-annual
Distributions on the New Capital Securities will be deferred by the Trust during
such Extension Period. Distributions to which holders of the New Capital
Securities are entitled during any such Extension Period will accumulate
additional Distributions thereon at the rate per annum of 8.71% thereof,
compounded semi-annually from the relevant Distribution Date, but not exceeding
the interest rate then accruing on the Junior Subordinated Debentures. The term
"Distributions," as used herein shall include any such additional Distributions.
During any such Extension Period, the Company may extend such Extension
Period, provided that such extension does not cause such Extension Period to
exceed 10 consecutive semi-annual periods or to extend beyond the Stated
Maturity Date. Upon the termination of any such Extension Period and the payment
of all amounts then due, and subject to the foregoing limitations, the Company
may elect to begin a new Extension Period. The Company must give the Property
Trustee, the Administrative Trustees and the Debenture Trustee notice of its
election of any Extension Period or any extension thereof at least five Business
Days prior to the earlier of (i) the date the Distributions on the New Capital
Securities would have been payable except for the election to begin or extend
such Extension Period and (ii) the date the Administrative Trustees are required
to give notice to any securities exchange or to holders of the New Capital
Securities of the record date or the date such Distributions are payable, but in
any event not less than five Business Days prior to such record date. There is
no limitation on the number of times that the Company may elect to begin an
Extension Period. See "Description of New Junior
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Subordinated Debentures -- Option to Extend Interest Payment Date" and "Certain
Federal Income Tax Consequences -- Interest Income and Original Issue Discount."
During any such Extension Period, the Company may not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock (which
includes common and preferred stock) or (ii) make any payment of principal of or
premium, if any, or interest on or repay, repurchase or redeem any debt
securities of the Company (including Other Debentures) that rank pari passu with
or junior in right of payment to the Junior Subordinated Debentures or (iii)
make any guarantee payments with respect to any guarantee by the Company of the
debt securities of any subsidiary of the Company (including Other Guarantees) if
such guarantee ranks pari passu with or junior in right of payment to the Junior
Subordinated Debentures (other than (a) dividends or distributions in shares of,
or options, warrants or rights to subscribe for or purchase shares of, common
stock of the Company, (b) any declaration of a dividend in connection with the
implementation of a stockholders' rights plan, or the issuance of stock under
any such plan in the future, or the redemption or repurchase of any such rights
pursuant thereto, (c) payments under the Guarantee, (d) as a result of a
reclassification of the Company's capital stock or the exchange or conversion of
one class, or series of the Company's capital stock for another class or series
of the Company's capital stock, (e) the purchase of fractional interests in
shares of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
and (f) purchases or issuances of common stock in connection with any of the
Company's stock option, stock purchase, stock loan or other benefit plans for
its directors, officers or employees or any of the Company's dividend
reinvestment plans, in each case as now existing or hereafter established or
amended).
Although the Company may in the future exercise its option to defer
payments of interest on the Junior Subordinated Debentures, the Company has no
such current intention.
The revenue of the Trust available for distribution to holders of the
Capital Securities will be limited to payments under the Junior Subordinated
Debentures in which the Trust will invest the proceeds from the issuance and
sale of the Trust Securities. See "Description of New Junior Subordinated
Debentures."If the Company does not make interest payments on the Junior
Subordinated Debentures, the Property Trustee will not have funds available to
pay Distributions on the Capital Securities. The payment of Distributions (if
and to the extent the Trust has funds on hand legally available for the payment
of such Distributions) will be guaranteed by the Company on a limited basis as
set forth herein under "Description of the Guarantee."
CONDITIONAL RIGHT TO ADVANCE MATURITY AND SPECIAL EVENT REDEMPTION
If a Tax Event (as defined herein) occurs, then the Company will have the
right (i) prior to the termination of the Trust, to advance the Stated Maturity
Date of the Junior Subordinated Debentures to the minimum extent required in
order to allow for payments of interest in respect of the Junior Subordinated
Debentures to continue to be tax deductible, but in no event shall the resulting
maturity of the Junior Subordinated Debentures be less than 20 years from
January 13, 1997, or (ii) to terminate the Trust (if not previously terminated)
and advance the Stated Maturity Date of the Junior Subordinated Debentures to
the minimum extent required in order to allow for the payments of interest in
respect of the Junior Subordinated Debentures to continue to be tax deductible
for United States federal income tax purposes, but in no event shall the
resulting maturity of the Junior Subordinated Debentures be less than 40 years
from January 13, 1997. In either case, such maturity date shall be advanced only
if, in the opinion of counsel to the Company experienced in such matters, after
advancing the maturity date, interest paid on the Junior Subordinated Debentures
will be deductible for federal income tax purposes (the action referred to in
either clause (i) or (ii) above being referred to herein as a "Tax Event
Maturity Advancement").
If a Tax Event occurs and in the opinion of counsel to the Company
experienced in such matters, there would in all cases, after effecting a Tax
Event Maturity Advancement, be more than an insubstantial risk that an Adverse
Tax Consequence (as defined herein) would continue to exist, or, if an
Investment Company Event (as defined herein) occurs, then the Company will have
the right, within 90 days following the occurrence of such Tax Event or
Investment Company Event, as the case may be, to redeem the Junior Subordinated
Debentures in whole (but not in part) in the manner set forth under "Description
of New Junior Subordinated Debentures -- Conditional Right to Advance Maturity
and Special Event Prepayment," and therefore to cause a mandatory redemption of
the Capital Securities prior to the Stated Maturity Date (the circumstances
under which the Company has the right to so redeem the Junior Subordinated
Debentures in connection with a Tax Event being referred to herein as a
"Conditional Tax Redemption Event"). Each of a Conditional Tax Redemption Event
or an Investment Company Event are sometimes referred to herein as a "Special
Event."
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REDEMPTION
Upon the repayment on the Stated Maturity Date or prepayment prior to the
Stated Maturity Date of the Junior Subordinated Debentures, the proceeds from
such repayment or prepayment shall be applied by the Property Trustee to redeem
a Like Amount (as defined below) of the Trust Securities, upon not less than 30
nor more than 60 days' notice of a date of redemption (the "Redemption Date") at
the applicable Redemption Price, which shall be equal to (i) in the case of the
repayment of the Junior Subordinated Debentures on the Stated Maturity Date, the
Maturity Redemption Price (equal to the principal of and accrued interest on the
Junior Subordinated Debentures), (ii) in the case of the optional prepayment of
the Junior Subordinated Debentures upon the occurrence and continuation of a
Special Event prior to January 1, 2007, the Special Event Redemption Price
(equal to the Special Event Prepayment Price in respect of the Junior
Subordinated Debentures) and (iii) in the case of the optional prepayment of the
Junior Subordinated Debentures on or after January 1, 2007, the Optional
Redemption Price (equal to the Optional Prepayment Price in respect of the
Junior Subordinated Debentures). See "Description of New Junior Subordinated
Debentures -- Optional Prepayment" and " -- Conditional Right to Advance
Maturity and Special Event Prepayment."
"Like Amount" means (i) with respect to a redemption of the Trust
Securities, Trust Securities having a Liquidation Amount equal to the principal
amount of Junior Subordinated Debentures to be paid in accordance with their
terms and (ii) with respect to a distribution of Junior Subordinated Debentures
upon the liquidation of the Trust, Junior Subordinated Debentures having a
principal amount equal to the Liquidation Amount of the Trust Securities of the
holder to whom such Junior Subordinated Debentures are distributed.
The Company will have the option to prepay the Junior Subordinated
Debentures, (i) in whole or in part, on or after January 1, 2007, at the
applicable Optional Prepayment Price and (ii) in whole but not in part, at any
time, upon the occurrence of a Special Event prior to January 1, 2007, at the
Special Event Prepayment Price.
LIQUIDATION OF THE TRUST AND DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES
The Company will have the right at any time to dissolve the Trust and cause
the Junior Subordinated Debentures to be distributed to the holders of the Trust
Securities in liquidation of the Trust. Such right is conditioned on the
Administrative Trustees having received an opinion of counsel to the effect that
such distribution will not be a taxable event to holders of Capital Securities.
The Trust shall automatically dissolve and its affairs shall be wound up
upon the first to occur of: (i) certain events of bankruptcy, dissolution or
liquidation of the Company; (ii) the distribution of a Like Amount of the Junior
Subordinated Debentures to the holders of the Trust Securities, if the Company,
as Sponsor, has given written direction to the Property Trustee to dissolve the
Trust (which direction is optional and, except as described above, wholly within
the discretion of the Company, as Sponsor) and provided that the distribution is
conditioned on the receipt of an opinion of counsel to the effect that such
distribution will not be a taxable event to holders of Capital Securities; (iii)
redemption of all of the Trust Securities as described under " -- Redemption"
above; (iv) expiration of the term of the Trust; and (v) the entry of an order
for the dissolution of the Trust by a court of competent jurisdiction.
If a dissolution occurs as described in clause (i), (ii), (iv) or (v) of
the preceding paragraph, the Trust shall be liquidated by the Administrative
Trustees as expeditiously as the Administrative Trustees determine to be
possible by distributing, after satisfaction of liabilities to creditors of the
Trust as provided by applicable law, to the holders of the Trust Securities a
Like Amount of the Junior Subordinated Debentures, unless such distribution is
determined by the Property Trustee not to be practicable, in which event such
holders will be entitled to receive out of the assets of the Trust legally
available for distribution to holders, after satisfaction of liabilities to
creditors of the Trust as provided by applicable law, an amount equal to the
aggregate of the Liquidation Amount plus accumulated and unpaid Distributions
thereon to the date of payment (such amount being the "Liquidation
Distribution"). If the Liquidation Distribution can be paid only in part because
the Trust has insufficient assets on hand legally available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Capital Securities and the Common Securities shall be paid on a pro
rata basis, except that if a Debenture Event of Default has occurred and is
continuing, the Capital Securities shall have a priority over the Common
Securities. See " -- Subordination of Common Securities." If an early
dissolution occurs as described in clause (v) above, the Junior Subordinated
Debentures will be subject to optional prepayment, in whole but not in part, on
or after January 1, 2007.
If the Company elects not to prepay the Junior Subordinated Debentures
prior to maturity in accordance with their terms and either elects not to or is
unable to liquidate the Trust and distribute the Junior Subordinated Debentures
to holders of the
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Trust Securities, the Trust Securities will remain outstanding until the
repayment of the Junior Subordinated Debentures on the Stated Maturity Date.
After the liquidation date is fixed for any distribution of Junior
Subordinated Debentures to holders of the Trust Securities, (i) the Trust
Securities will no longer be deemed to be outstanding, (ii) each registered
global certificate representing Trust Securities and held by DTC or its nominee
will be deemed to represent a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution and (iii) any certificates representing Trust Securities not held
by DTC or its nominee will be deemed to represent Junior Subordinated Debentures
having a principal amount equal to the Liquidation Amount of such Trust
Securities, and bearing accrued and unpaid interest in an amount equal to the
accumulated and unpaid Distributions on such Trust Securities until such
certificates are presented to the Administrative Trustees or their agent for
cancellation, whereupon the Company will issue to such holder, and the Debenture
Trustee will authenticate, a certificate representing such Junior Subordinated
Debentures.
There can be no assurance as to the market prices for the Capital
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for the Trust Securities if a dissolution and liquidation of the Trust
were to occur. Accordingly, the Capital Securities that an investor may
purchase, or the Junior Subordinated Debentures that the investor may receive on
dissolution and liquidation of the Trust, may trade at a discount to the price
that the investor paid to purchase the Capital Securities.
REDEMPTION PROCEDURES
If applicable, Trust Securities shall be redeemed at the applicable
Redemption Price with the proceeds from the contemporaneous repayment or
prepayment of the Junior Subordinated Debentures. Any redemption of Trust
Securities shall be made and the applicable Redemption Price shall be payable on
the Redemption Date only to the extent that the Trust has funds legally
available for the payment of such applicable Redemption Price. See also
" -- Subordination of Common Securities."
If the Trust gives a notice of redemption in respect of the Capital
Securities, then, by 12:00 noon, New York City time, on the Redemption Date, to
the extent funds are legally available, with respect to the Capital Securities
held by DTC or its nominees, the Property Trustee will deposit irrevocably with
DTC funds sufficient to pay the applicable Redemption Price. See " -- Form,
Denomination, Book-Entry Procedures and Transfer." With respect to the Capital
Securities held in certificated form, the Property Trustee, to the extent funds
are legally available, will irrevocably deposit with the paying agent for the
Capital Securities funds sufficient to pay the applicable Redemption Price and
will give such paying agent irrevocable instructions and authority to pay the
applicable Redemption Price to the holders thereof upon surrender of their
certificates evidencing the Capital Securities. See " -- Payment and Paying
Agency" below. Distributions payable on or prior to the Redemption Date shall be
payable to the holders of such Capital Securities on the relevant record dates
for the related Distribution Dates. If notice of redemption shall have been
given and funds deposited as required, then upon the date of such deposit, all
rights of the holders of the Capital Securities will cease, except the right of
the holders of the Capital Securities to receive the applicable Redemption
Price, but without interest on such Redemption Price, and the Capital Securities
will cease to be outstanding. In the event that any Redemption Date of Capital
Securities is not a Business Day, then the applicable Redemption Price payable
on such date will be paid on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day falls in the next calendar year, such payment will be
made on the immediately preceding Business Day. In the event that payment of the
applicable Redemption Price is improperly withheld or refused and not paid
either by the Trust or by the Company pursuant to the Guarantee as described
under "Description of the Guarantee," Distributions on Capital Securities called
for redemption will continue to accumulate at the then applicable rate, from the
Redemption Date originally established by the Trust to the date such applicable
Redemption Price is actually paid, in which case the actual payment date will be
the Redemption Date for purposes of calculating the applicable Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), the Company or its subsidiaries may at any time and
from time to time purchase outstanding Capital Securities by tender, in the open
market or by private agreement.
Notice of any redemption will be mailed at least 30 days but not more than
60 days prior to the Redemption Date to each holder of Trust Securities at its
registered address. Unless the Company defaults in payment of the applicable
Prepayment Price on, or in the repayment of, the Junior Subordinated Debentures,
on and after the Redemption Date Distributions will cease to accrue on the Trust
Securities called for redemption.
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SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Capital
Securities and the Common Securities, as applicable, shall be made pro rata
based on the Liquidation Amount of the Capital Securities and Common Securities;
provided, however, that if on any Distribution Date or Redemption Date a
Debenture Event of Default shall have occurred and be continuing, no payment of
any Distribution on, or applicable Redemption Price of, any of the Common
Securities, and no other payment on account of the redemption, liquidation or
other acquisition of the Common Securities, shall be made unless payment in full
in cash of all accumulated and unpaid Distributions on all of the outstanding
Capital Securities for all Distribution periods terminating on or prior thereto
or, in the case of Capital Securities called for redemption on a Redemption Date
on or prior thereto, the full amount of the Redemption Price therefor, shall
have been made or provided for, and all funds available to the Property Trustee
shall first be applied to the payment in full in cash of all Distributions on,
or Redemption Price of, the Capital Securities then due and payable.
In the case of any Event of Default, the Company as holder of the Common
Securities will be deemed to have waived any right to act with respect to such
Event of Default until the effect of such Event of Default shall have been
cured, waived or otherwise eliminated. Until any such Event of Default has been
so cured, waived or otherwise eliminated, the Property Trustee shall act solely
on behalf of the holders of the Capital Securities and not on behalf of the
Company as holder of the Common Securities, and only the holders of the Capital
Securities will have the right to direct the Property Trustee to act on their
behalf.
EVENTS OF DEFAULT; NOTICE
The occurrence of a Debenture Event of Default (see "Description of New
Junior Subordinated Debentures -- Debenture Events of Default") constitutes an
"Event of Default" under the Declaration.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the Capital Securities, the
Administrative Trustees and the Company, as Sponsor, unless such Event of
Default shall have been cured or waived. The Company, as Sponsor, and the
Administrative Trustees are required to file annually with the Property Trustee
a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Declaration.
If a Debenture Event of Default has occurred and is continuing, the Capital
Securities shall have a preference over the Common Securities as described under
" -- Liquidation of the Trust and Distribution of Junior Subordinated
Debentures" and " -- Subordination of Common Securities" above.
REMOVAL OF ISSUER TRUSTEES
Unless a Debenture Event of Default shall have occurred and be continuing,
any Issuer Trustee may be removed at any time by the holder of the Common
Securities. If a Debenture Event of Default has occurred and is continuing, the
Property Trustee and the Delaware Trustee may be removed at such time by the
holders of a majority in Liquidation Amount of the outstanding Capital
Securities. In no event will the holders of the Capital Securities have the
right to vote to appoint, remove or replace the Administrative Trustees, which
voting rights are vested exclusively in the Company as the holder of the Common
Securities. No resignation or removal of an Issuer Trustee and no appointment of
a successor trustee shall be effective until the acceptance of appointment by
the successor trustee in accordance with the provisions of the Declaration.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any corporation into which the Property Trustee, the Delaware Trustee or
any Administrative Trustee that is not a natural person may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Issuer Trustee shall
be a party, or any corporation succeeding to all or substantially all the
corporate trust business of such Issuer Trustee, shall be the successor of such
Issuer Trustee under the Declaration, provided such corporation shall be
otherwise qualified and eligible.
MERGERS, CONVERSIONS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The Trust may not merge or convert with or into, consolidate, amalgamate,
or be replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to any corporation or other Person,
except as described below. The Trust may, at the request of the Company, as
Sponsor, with the consent of the Administrative Trustees but without the consent
of the Property Trustee, the Delaware Trustee or holders of the Capital
Securities, merge or convert
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with or into, consolidate, amalgamate, or be replaced by or convey, transfer or
lease its properties and assets as an entirety or substantially as an entirety
to a trust organized as such under the laws of any State; provided, that (i)
such successor entity either (a) expressly assumes all of the obligations of the
Trust with respect to the Capital Securities or (b) substitutes for the Capital
Securities other securities having substantially the same terms as the Capital
Securities (the "Successor Securities") so long as the Successor Securities rank
the same as the Capital Securities rank in priority with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii) the
Company expressly appoints a trustee of such successor entity possessing the
same powers and duties as the Property Trustee with respect to the Junior
Subordinated Debentures, (iii) the Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on any
national securities exchange or other organization on which the Capital
Securities are then listed, if any, (iv) such merger, conversion, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not cause the
Capital Securities (including any Successor Securities) to be downgraded by any
nationally recognized statistical rating organization, (v) such merger,
conversion, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the rights, preferences and privileges of the
holders of the Capital Securities (including any Successor Securities) in any
material respect (other than with respect to a dilution of such holder's
interest in the new entity), (vi) such successor entity has a purpose identical
to that of the Trust, (vii) prior to such merger, conversion, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Company has
received an opinion from independent counsel to the Trust experienced in such
matters to the effect that (a) such merger, conversion, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Capital
Securities (including any Successor Securities) in any material respect (other
than with respect to a dilution of such holder's interest in the new entity),
and (b) following such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease, neither the Trust nor such successor
entity will be required to register as an investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act"), and
(viii) the Company or any permitted successor or assignee owns all of the common
securities of such successor entity and guarantees the obligations of such
successor entity under the Successor Securities at least to the extent provided
by the Guarantee. Notwithstanding the foregoing, the Trust shall not, except
with the consent of holders of 100% in Liquidation Amount of the Trust
Securities, consolidate, amalgamate, merge or convert with or into, or be
replaced by or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to any other entity or permit any other
entity to consolidate, amalgamate, merge or convert with or into, or replace it
if such consolidation, amalgamation, merger, conversion, replacement,
conveyance, transfer or lease would cause the Trust or the successor entity not
to be classified as a grantor trust for United States federal income tax
purposes.
VOTING RIGHTS; AMENDMENT OF THE DECLARATION
Except as provided below and under " -- Mergers, Conversions,
Consolidations, Amalgamations or Replacements of the Trust" above and
"Description of the Guarantee -- Amendments and Assignment" and as otherwise
required by law and the Declaration, the holders of the Capital Securities will
have no voting rights.
The Declaration may be amended from time to time by the Company and the
Issuer Trustees, without the consent of the holders of the Trust Securities (i)
to cure any ambiguity, correct or supplement any provisions in the Declaration
that may be inconsistent with any other provision of the Declaration, or to add
any other provisions with respect to matters or questions arising under the
Declaration, which shall not be inconsistent with the other provisions of the
Declaration, or (ii) to modify, eliminate or add to any provisions of the
Declaration to such extent as shall be necessary to ensure that the Trust will
be classified for United States federal income tax purposes as a grantor trust
at all times that any Trust Securities are outstanding or to ensure that the
Trust will not be required to register as an "investment company" under the
Investment Company Act; provided, however, that in the case of clause (i), such
action shall not adversely affect in any material respect the interests of the
holders of the Trust Securities, and any amendments of the Declaration shall
become effective when notice thereof is given to the holders of the Trust
Securities. The Declaration may be amended by the Issuer Trustees and the
Company (i) with the consent of holders representing a majority (based upon
Liquidation Amount) of the outstanding Trust Securities, and (ii) upon receipt
by the Issuer Trustees of an opinion of counsel to the effect that such
amendment or the exercise of any power granted to the Issuer Trustees in
accordance with such amendment will not affect the Trust's status as a grantor
trust for United States federal income tax purposes or the Trust's exemption
from status as an "investment company" under the Investment Company Act; (it
being understood that the New Capital Securities and any Old Capital Securities
which remain outstanding after consummation of the Exchange Offer will vote
together as a single class for purposes of determining whether holders of the
requisite percentage in outstanding Liquidation Amount thereof have taken
certain actions or exercised certain rights under the Declaration) provided
that, without the consent of each holder of Trust Securities, the Declaration
may not be amended to (i) change the amount or timing of any Distribution or
other payment on or in respect of the Trust Securities or otherwise adversely
affect the amount of any Distribution or other payment required to be made in
respect of the
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Trust Securities as of a specified date or (ii) restrict the right of a holder
of Trust Securities to institute suit for the enforcement of any such payment on
or after such date.
So long as any Junior Subordinated Debentures are held by the Property
Trustee, the Issuer Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
execute any trust or power conferred on the Property Trustee with respect to the
Junior Subordinated Debentures, (ii) waive certain past defaults under the
Indenture, (iii) exercise any right to rescind or annul a declaration of
acceleration of the maturity of the principal of the Junior Subordinated
Debentures or (iv) consent to any amendment, modification or termination of the
Indenture or the Junior Subordinated Debentures, where such consent shall be
required, without, in each case, obtaining the prior approval of the holders of
a majority in Liquidation Amount of all outstanding Capital Securities;
provided, however, that where a consent under the Indenture would require the
consent of each holder of Junior Subordinated Debentures affected thereby, no
such consent shall be given by the Property Trustee without the prior approval
of each holder of the Capital Securities. The Issuer Trustees shall not revoke
any action previously authorized or approved by a vote of the holders of the
Capital Securities except by subsequent vote of such holders. The Property
Trustee shall notify each holder of Capital Securities of any notice of default
with respect to the Junior Subordinated Debentures. In addition to obtaining the
foregoing approvals of such holders of the Capital Securities, prior to taking
any of the foregoing actions, the Issuer Trustees shall obtain an opinion of
counsel experienced in such matters to the effect that the Trust will not be
classified as an association taxable as a corporation for United States federal
income tax purposes on account of such action.
Any required approval of holders of Capital Securities may be given at a
meeting of such holders convened for such purpose or pursuant to written
consent. The Property Trustee will cause a notice of any meeting at which
holders of Capital Securities are entitled to vote, or of any matter upon which
action by written consent of such holders is to be taken, to be given to each
holder of record of Capital Securities in the manner set forth in the
Declaration.
No vote or consent of the holders of Capital Securities will be required
for the Trust to redeem and cancel the Capital Securities in accordance with the
Declaration.
Notwithstanding that holders of the Capital Securities are entitled to vote
or consent under any of the circumstances described above, any of the Capital
Securities that are owned by the Company, the Issuer Trustees or any affiliate
of the Company or any Issuer Trustees shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
The New Capital Securities initially will be represented by one or more
Capital Securities certificates in registered, global form (collectively, the
"Global Capital Securities"). The Global Capital Securities will be deposited
upon issuance with the Property Trustee as custodian for DTC, in New York, New
York, and registered in the name of DTC or its nominee, in each case for credit
to an account of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Capital Securities may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the Global Capital
Securities may not be exchanged for Capital Securities in certificated form
except in the limited circumstances described below. See
" -- Exchange of Book-Entry Capital Securities for Certificated Capital
Securities".
Other Capital Securities will be issued only in registered, certificated
(i.e., non-global) form. Other Capital Securities may not be exchanged for
beneficial interests in any Global Capital Securities except in the limited
circumstances described below. See " -- Exchange of Book-Entry Capital
Securities for Certificated Capital Securities".
DEPOSITARY PROCEDURES
DTC has advised the Trust and the Company that DTC is a limited-purpose
trust company created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants. The Participants
include securities brokers and dealers (including the Initial Purchasers),
banks, trust companies, clearing corporations and certain other organizations.
Access to DTC's system is also available to other entities such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interest and transfer of ownership interest
of each actual purchaser of each security held by or on behalf of DTC are
recorded on the records of the Participants and Indirect Participants.
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<PAGE>
DTC has also advised the Trust and the Company that, pursuant to procedures
established by it, (i) upon deposit of the Global Capital Securities, DTC will
credit the accounts of Participants designated by the Initial Purchasers with
portions of the Liquidation Amount of the Global Capital Securities and (ii)
ownership of such interests in the Global Capital Securities will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the Participants) or by the Participants and
the Indirect Participants (with respect to other owners of beneficial interests
in the Global Capital Securities).
Except as described below, owners of beneficial interests in the Global
Capital Securities will not have Capital Securities registered in their name,
will not receive physical delivery of Capital Securities in certificated form
and will not be considered the registered owners or holders thereof under the
Declaration for any purpose.
Payments in respect of the Global Capital Security registered in the name
of DTC or its nominee will be payable by the Property Trustee to DTC in its
capacity as the registered holder under the Declaration. Under the terms of the
Declaration, the Property Trustee will treat the persons in whose names the
Capital Securities, including the Global Capital Securities, are registered as
the owners thereof for the purpose of receiving such payments and for any and
all other purposes whatsoever. Consequently, neither the Property Trustee nor
any agent thereof has or will have any responsibility or liability for (i) any
aspect of DTC's records or any Participant's or Indirect Participant's records
relating to or payments made on account of beneficial ownership interests in the
Global Capital Securities, or for maintaining, supervising or reviewing any of
DTC's records or any Participant's or Indirect Participant's records relating to
the beneficial ownership interests in the Global Capital Securities or (ii) any
other matter relating to the actions and practices of DTC or any of its
Participants or Indirect Participants. DTC has advised the Trust and the Company
that its current practice, upon receipt of any payment in respect of securities
such as the Capital Securities, is to credit the accounts of the relevant
Participants with the payment on the payment date, in amounts proportionate to
their respective holdings in Liquidation Amount of beneficial interests in the
relevant security as shown on the records of DTC unless DTC has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of Capital
Securities will be governed by standing instructions and customary practices and
will be the responsibility of the Participants or the Indirect Participants and
will not be the responsibility of DTC, the Property Trustee, the Trust or the
Company. Neither the Trust or the Company nor the Property Trustee will be
liable for any delay by DTC or any of its Participants in identifying the
beneficial owners of the Capital Securities, and the Trust or the Company and
the Property Trustee may conclusively rely on and will be protected in relying
on instructions from DTC or its nominee for all purposes.
Beneficial interests in the Global Capital Securities will trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will therefore settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its participants.
DTC has advised the Trust and the Company that it will take any action
permitted to be taken by a holder of Capital Securities only at the direction of
one or more Participants to whose account with DTC interests in the Global
Capital Securities are credited and only in respect of such portion of the
Liquidation Amount of the Capital Securities as to which such Participant or
Participants has or have given such direction. However, if there is an Event of
Default under the Declaration, DTC reserves the right to exchange the Global
Capital Securities for legended Capital Securities in certificated form and to
distribute such Capital Securities to its Participants.
The information in this section concerning DTC and its book-entry system
has been obtained from sources that the Trust and the Company believe to be
reliable, but neither the Trust nor the Company takes responsibility for the
accuracy thereof.
EXCHANGE OF BOOK-ENTRY CAPITAL SECURITIES FOR CERTIFICATED CAPITAL SECURITIES
A Global Capital Security is exchangeable for New Capital Securities in
registered certificated form if (i) DTC (x) notifies the Trust that it is
unwilling or unable to continue as Depositary for the Global Capital Security
and the Trust thereupon fails to appoint a successor Depositary within 90 days
or (y) has ceased to be a clearing agency registered under the Exchange Act,
(ii) the Company in its sole discretion elects to cause the issuance of the
Capital Securities in certificated form or (iii) there shall have occurred and
be continuing an Event of Default or any event which after notice or lapse of
time or both would be an Event of Default under the Declaration. In addition,
beneficial interests in a Global Capital Security may be exchanged for
certificated New Capital Securities upon request but only upon at least 20 days
prior written notice given to the Property Trustee by or on behalf of DTC in
accordance with customary procedures. In all cases, certificated New Capital
Securities delivered in exchange for any Global Capital Security or beneficial
interests therein will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the Depositary (in accordance with
its
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<PAGE>
customary procedures) and will bear the legend referred to in "Notice to
Investors", unless the Property Trustee determines otherwise in compliance with
applicable law.
PAYMENT AND PAYING AGENCY
Payments in respect of the Capital Securities held in global form shall be
made to the Depositary, which shall credit the relevant accounts at the
Depositary on the applicable Distribution Dates or in respect of the Capital
Securities that are not held by the Depositary, such payments shall be made by
check mailed to the address of the holder entitled thereto as such address shall
appear on the register. The paying agent (the "Paying Agent") shall initially be
the Property Trustee and any co-paying agent chosen by the Property Trustee and
acceptable to the Administrative Trustees and the Company. The Paying Agent
shall be permitted to resign as Paying Agent upon 30 days written notice to the
Property Trustee and the Company. In the event that the Property Trustee shall
no longer be the Paying Agent, the Administrative Trustees shall appoint a
successor (which shall be a bank or trust company acceptable to the
Administrative Trustees and the Company) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Capital Securities.
Registration of transfers of the New Capital Securities will be effected
without charge by or on behalf of the Trust but upon payment of any tax or other
governmental charges that may be imposed in connection with any transfer or
exchange. The Trust will not be required to register or cause to be registered
the transfer of the New Capital Securities after they have been called for
redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of
an Event of Default, undertakes to perform only such duties as are specifically
set forth in the Declaration and, after such Event of Default, must exercise the
same degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to this provision, the Property
Trustee is under no obligation to exercise any of the powers vested in it by the
Declaration at the request of any holder of Trust Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby. The Property Trustee is not required to expend or
risk its own funds or otherwise incur personal financial liability in the
performance of its duties if repayment or adequate indemnity is not reasonably
assured to the Property Trustee. From time to time, the Property Trustee and/or
its affiliates extend credit and may provide investment banking and other
financial services to the Company. See "Markel Capital Trust I."
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Trust in such a way that the Trust will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act of 1940, as amended or classified as an association
taxable as a corporation for United States federal income tax purposes and so
that the Junior Subordinated Debentures will be treated as indebtedness of the
Company for United States federal income tax purposes. In this connection, the
Company and the Administrative Trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust of the Trust or the
Declaration, that the Company and the Administrative Trustees determine in their
discretion to be necessary or desirable for such purposes, as long as such
action does not materially adversely affect the interests of the holders of the
Trust Securities.
Holders of the Trust Securities have no preemptive or similar rights.
The Trust may not borrow money, issue debt, execute mortgages or pledge any
of its assets.
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<PAGE>
DESCRIPTION OF NEW JUNIOR SUBORDINATED DEBENTURES
The Old Junior Subordinated Debentures were issued and the New Junior
Subordinated Debentures will be issued under an Indenture, as supplemented from
time to time (as so supplemented, the "Indenture"), between the Company and The
Chase Manhattan Bank, as trustee (the "Debenture Trustee"). The Indenture has
been qualified under the Trust Indenture Act. This summary of certain terms and
provisions of the Junior Subordinated Debentures and the Indenture does not
purport to be complete, and where reference is made to particular provisions of
the Indenture, such provisions, including the definitions of certain terms, some
of which are not otherwise defined herein, are qualified in their entirety by
reference to all of the provisions of the Indenture and those terms made a part
of the Indenture by the Trust Indenture Act.
Concurrently with the issuance of the Capital Securities, the Trust
invested the proceeds thereof, together with the consideration paid by the
Company for the Common Securities, in Old Junior Subordinated Debentures issued
by the Company. Pursuant to the Exchange Offer, the Company will exchange the
Old Junior Subordinated Debentures, in an amount corresponding to the Old
Capital Securities accepted for exchange, for a like aggregate principal amount
of the New Junior Subordinated Debentures as soon as practicable after the
Expiration Date.
The New Junior Subordinated Debentures will bear interest at the annual
rate of 8.71% of the principal amount thereof, payable semi-annually in arrears
on January 1 and July 1 of each year (each, an "Interest Payment Date"),
commencing July 1, 1997, to the person in whose name each Junior Subordinated
Debenture is registered, subject to certain exceptions, at the close of business
on the date fifteen days prior to the relevant Interest Payment Date. It is
anticipated that, until the liquidation, if any, of the Trust, each Junior
Subordinated Debenture will be held in the name of the Property Trustee in trust
for the benefit of the holders of the Trust Securities. The amount of interest
payable for any period will be computed on the basis of a 360-day year of twelve
30-day months. In the event that any date on which interest is payable on the
Junior Subordinated Debentures is not a Business Day, then payment of the
interest payable on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay), 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 the date such payment was
originally payable. Accrued interest that is not paid on the applicable Interest
Payment Date will bear additional interest on the amount thereof (to the extent
permitted by law) at the rate per annum of 8.71% thereof, compounded
semi-annually. The term "interest", as used herein, shall include semi-annual
interest payments, interest on semi-annual interest payments not paid on the
applicable Interest Payment Date and Additional Sums (as defined herein), as
applicable.
The New Junior Subordinated Debentures will be issued in denominations of
$1,000 and integral multiples thereof. The New Junior Subordinated Debentures
will mature on January 1, 2046 (the "Stated Maturity Date"), except as described
below. The New Junior Subordinated Debentures will rank pari passu with the Old
Junior Subordinated Debentures and all Other Debentures and will be unsecured
and subordinate and rank junior in right of payment to the extent and in the
manner set forth in the Indenture to all Senior Indebtedness. See
" -- Subordination" below. The Company is a holding company and almost all of
the operating assets of the Company and its consolidated subsidiaries are owned
by such subsidiaries. The Company relies primarily on dividends from such
subsidiaries to meet its obligations. The Company is a legal entity separate and
distinct from its subsidiaries. The principal sources of the Company's income
are dividends, interest and fees from its subsidiaries. As a holding company,
the Company's ability to meet debt service obligations and pay operating
expenses depends on receipt of sufficient funds from its direct and indirect
subsidiaries. The inability of the Company's direct and indirect subsidiaries to
pay dividends to the Company in an amount sufficient to meet debt service
obligations and pay operating expenses would have a material adverse effect on
the Company and the Trust. The payment of dividends by the Company's
subsidiaries without prior regulatory approval is subject to restrictions set
forth in the insurance laws and regulations of Virginia, Illinois, Delaware, New
Jersey, California and Arizona, the states of domicile of the Company's
insurance subsidiaries. The Company currently does not expect such regulatory
requirements to impair its ability to meet interest payment obligations and to
pay operating expenses in the future. However, the Company can give no assurance
that dividends will be declared or paid by its subsidiaries. As of December 31,
1996, the Company's direct and indirect insurance subsidiaries had sufficient
capital and earnings to pay up to $32.9 million of dividends to the Company
during 1997 without prior regulatory approval. In addition, payment of dividends
to the Company by the insurance subsidiaries is subject to ongoing review by
insurance regulators and is subject to various statutory limitations and in
certain circumstances requires approval by insurance regulatory authorities.
Because the Company is a holding company, the right of the Company to
participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise, is subject to the prior
claims of creditors of the subsidiary, except to the extent the Company may
itself be recognized as a creditor of that subsidiary. Accordingly, the Junior
Subordinated Debentures will be effectively subordinated to all existing and
future liabilities of the Company's subsidiaries, and holders of Junior
Subordinated Debentures should look only to the assets of the
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<PAGE>
Company for payments on the Junior Subordinated Debentures. In addition, because
many of the Company's subsidiaries are insurance companies subject to regulatory
control by various state insurance departments, the ability of such subsidiaries
to pay dividends to the Company without prior regulatory approval is limited by
applicable laws and regulations. The Indenture does not limit the incurrence or
issuance of other secured or unsecured debt of the Company, including Senior
Indebtedness, or other obligations. See " -- Subordination" below.
FORM, REGISTRATION AND TRANSFER
If the Junior Subordinated Debentures are distributed to the holders of the
Trust Securities, the Junior Subordinated Debentures may be represented by one
or more global certificates registered in the name of Cede & Co. as the nominee
of DTC. The depositary arrangements for such Junior Subordinated Debentures are
expected to be substantially similar to those in effect for the Capital
Securities. For a description of DTC and the terms of the depositary
arrangements relating to payments, transfers, voting rights, redemptions and
other notices and other matters, see "Description of New Securities -- Form,
Denomination, Book-Entry Procedures and Transfer."
PAYMENT AND PAYING AGENTS
Payment of principal of and premium, if any, and any interest on Junior
Subordinated Debentures will be made at the office of the Debenture Trustee in
The City of New York or at the office of such Paying Agent or Paying Agents as
the Company may designate from time to time, except that at the option of the
Company payment of any interest may be made, except in the case of Junior
Subordinated Debentures in global form, (i) by check mailed to the address of
the Person entitled thereto as such address shall appear in the register for
Junior Subordinated Debentures or (ii) by transfer to an account maintained by
the Person entitled thereto as specified in such register, provided that proper
transfer instructions have been received by the relevant Record Date. Payment of
any interest on any Junior Subordinated Debenture will be made to the Person in
whose name such Junior Subordinated Debenture is registered at the close of
business on the Record Date for such interest, except in the case of defaulted
interest. The Company may at any time designate additional Paying Agents or
rescind the designation of any Paying Agent; however the Company will at all
times be required to maintain a Paying Agent in each Place of Payment for the
Junior Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or
then held by the Company in trust, for the payment of the principal of and
premium, if any, or interest on any Junior Subordinated Debenture and remaining
unclaimed for two years after such principal and premium, if any, or interest
has become due and payable shall, at the request of the Company, be repaid to
the Company and the holder of such Junior Subordinated Debenture shall
thereafter look, as a general unsecured creditor, only to the Company for
payment thereof.
OPTION TO EXTEND INTEREST PAYMENT DATE
So long as no Debenture Event of Default has occurred and is continuing,
the Company will have the right under the Indenture at any time during the term
of the Junior Subordinated Debentures to defer the payment of interest at any
time or from time to time for a period not exceeding 10 consecutive, semi-annual
periods with respect to each Extension Period, provided that no Extension Period
may extend beyond the Stated Maturity Date. At the end of an Extension Period,
the Company must pay all interest then accrued and unpaid (together with
interest then accrued at the annual rate of 8.71%, compounded semi-annually, to
the extent permitted by applicable law). During an Extension Period, interest
will continue to accrue and holders of Junior Subordinated Debentures (and
holders of the Trust Securities while Trust Securities are outstanding) will be
required to accrue interest income for United States federal income tax purposes
prior to the receipt of cash attributable to such income. See "Certain Federal
Income Tax Consequences -- Interest Income and Original Issue Discount."
During any such Extension Period, the Company may not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock (which
includes common and preferred stock) or (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company (including any Other Debentures) that rank pari passu
with or junior in right of payment to the Junior Subordinated Debentures or
(iii) make any guarantee payments with respect to any guarantee by the Company
of the debt securities of any subsidiary of the Company (including any Other
Guarantees) if such guarantee ranks pari passu with or junior in right of
payment to the Junior Subordinated Debentures (other than (a) dividends or
distributions in shares of or options, warrants or rights to subscribe for or
purchase shares of, common stock of the Company, (b) any declaration of a
dividend in connection with the implementation of a stockholders' rights plan,
or the issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under the
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Guarantee, (d) as a result of a reclassification of the Company's capital stock
or the exchange or conversion of one class or series of the Company's capital
stock for another class or series of the Company's capital stock, (e) the
purchase of fractional interests in shares of the Company's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged, and (f) purchases or issuances of common
stock under any of the Company's stock option, stock purchase, stock loan or
other benefit plans for its directors, officers or employees or any of the
Company's dividend reinvestment plans, in each case as now existing or hereafter
established or amended).
Prior to the termination of any such Extension Period, the Company may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 10 consecutive semi-annual periods or to
extend beyond the Stated Maturity Date. Upon the termination of any such
Extension Period and the payment of all amounts then due on any Interest Payment
Date, the Company may elect to begin a new Extension Period, subject to the
above requirements. No interest shall be due and payable during an Extension
Period, except at the end thereof. The Company must give the Property Trustee,
the Administrative Trustees and the Debenture Trustee notice of its election of
any Extension Period (or an extension thereof) at least five Business Days prior
to the earlier of (i) the date the Distributions on the Trust Securities would
have been payable except for the election to begin or extend such Extension
Period or (ii) the date the Administrative Trustees are required to give notice
to any securities exchange or to holders of Capital Securities of the record
date or the date such Distributions are payable, but in any event not less than
five Business Days prior to such record date. The Debenture Trustee shall give
notice of the Company's election to begin or extend a new Extension Period to
the holders of the Capital Securities. There is no limitation on the number of
times that the Company may elect to begin an Extension Period.
OPTIONAL PREPAYMENT
The Junior Subordinated Debentures will be prepayable, in whole or in part,
at the option of the Company on or after January 1, 2007 (the "Initial Optional
Prepayment Date"), at a prepayment price (the "Optional Prepayment Price") equal
to the percentage of the outstanding principal amount of the Junior Subordinated
Debentures specified below, plus, in each case, accrued interest thereon to the
date of prepayment if redeemed during the 12-month period beginning January 1 of
the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------------------------------------------------------- ---------
<S> <C>
2007.......................................................................................................... 104.355%
2008.......................................................................................................... 103.920%
2009.......................................................................................................... 103.484%
2010.......................................................................................................... 103.049%
2011.......................................................................................................... 102.613%
2012.......................................................................................................... 102.178%
2013.......................................................................................................... 101.742%
2014.......................................................................................................... 101.307%
2015.......................................................................................................... 100.871%
2016.......................................................................................................... 100.436%
2017 and thereafter........................................................................................... 100.000%
</TABLE>
CONDITIONAL RIGHT TO ADVANCE MATURITY AND SPECIAL EVENT PREPAYMENT
If a Tax Event (as defined herein) occurs, then the Company will have the
right (i) prior to the termination of the Trust, to advance the Stated Maturity
Date of the Junior Subordinated Debentures to the minimum extent required in
order to allow for the payments of interest in respect of the Junior
Subordinated Debentures to continue to be tax deductible, but in no event shall
the resulting maturity of the Junior Subordinated Debentures be less than 20
years from January 13, 1997, or (ii) to terminate the Trust (if not previously
terminated) and advance the Stated Maturity Date of the Junior Subordinated
Debentures to the minimum extent required in order to allow for the payments of
interest in respect of the Junior Subordinated Debentures to continue to be tax
deductible, but in no event shall the resulting maturity of the Junior
Subordinated Debentures be less than 40 years from January 13, 1997. In either
case, such maturity date shall be advanced only if, in the opinion of counsel to
the Company experienced in such matters, after advancing the maturity date,
interest paid on the Junior Subordinated Debentures will be deductible for
federal income tax purposes (the action referred to in either clause (i) or (ii)
above being referred to herein as a "Tax Event Maturity Advancement").
If a Special Event (as defined below) shall occur and be continuing prior
to the Initial Optional Prepayment Date, the Company may, at its option, prepay
the Junior Subordinated Debentures in whole (but not in part) at any time within
90 days
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<PAGE>
of the occurrence of such Special Event, at a prepayment price (the "Special
Event Prepayment Price") equal to the greater of (i) 100% of the principal
amount of such Junior Subordinated Debentures or (ii) the sum, as determined by
a Quotation Agent, of the present values of the principal amount and premium
payable with respect to an optional redemption of Junior Subordinated Debentures
on January 1, 2007, together with scheduled payments of interest on the Junior
Subordinated Debentures from the prepayment date to and including the Initial
Optional Prepayment Date discounted to the prepayment date on a semi-annual
basis (assuming a 360-day year consisting of twelve 30-day months) at the
Adjusted Treasury Rate, plus, in each case, accrued interest thereon to the date
of prepayment.
"Special Event" means a Conditional Tax Redemption Event (as defined under
"Description of the New Securities -- Conditional Right to Advance Maturity and
Special Event Redemption") or an Investment Company Event, as the case
may be.
"Tax Event" means the receipt by the Company and the Trust of an opinion,
requested by the Company, of counsel experienced in such matters to the effect
that, as a result of any amendment to, or change (including any announced
prospective change) in, the laws or any regulations thereunder of the United
States or any political subdivision or taxing authority thereof or therein, or
as a result of any official administrative written decision or pronouncement or
judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or such pronouncement or decision is made on or
after January 13, 1997, there is more than an insubstantial risk that (i) the
Trust is, or will be within 90 days of the date of such opinion, subject to
United States federal income tax with respect to income received or accrued on
the Junior Subordinated Debentures, (ii) interest payable by the Company on the
Junior Subordinated Debentures is not, or within 90 days of the date of such
opinion will not be, deductible by the Company, in whole or in part, for United
States federal income tax purposes, or (iii) the Trust is, or will be within 90
days of the date of such opinion, subject to more than a de minimis amount of
other taxes, duties or other governmental charges (each of the circumstances
referred to in clauses (i), (ii) and (iii) being an "Adverse Tax Consequence").
"Investment Company Event" means that the Company and the Trust shall have
received an opinion, requested by the Company, of counsel experienced in
practice under the Investment Company Act of 1940, as amended (the "Investment
Company Act"), to the effect that, as a result of the occurrence of a change in
law or regulation or a change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority (a "Change in Investment Company Act Law"), there is more than an
insubstantial risk that the Trust is or will be considered an "investment
company" which is required to be registered under the Investment Company Act,
which Change in Investment Company Act Law becomes effective on or after the
Issue Date.
"Adjusted Treasury Rate" means, with respect to any prepayment date, the
rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, calculated using a price for the Comparable Treasury
Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such prepayment date, calculated on the third
Business Day preceding the prepayment date, plus in each case (a) 1.25% if such
prepayment date occurs on or prior to the first anniversary of the issuance of
the Capital Securities offered hereby and (b) 0.50% in all other cases.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the remaining
term to the Stated Maturity Date of the Junior Subordinated Debentures that
would be utilized, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of
comparable maturity to the remaining term of the Junior Subordinated Debentures.
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Company. "Reference Treasury Dealer" means: (i) Donaldson, Lufkin & Jenrette
Securities Corporation and respective successors; provided, however, that if the
foregoing shall cease to be a primary U.S. Government securities dealer in New
York City (a "Primary Treasury Dealer"), the Company shall substitute therefor
another Primary Treasury Dealer; and (ii) any other Primary Treasury Dealer
selected by the Debenture Trustee after consultation with the Company.
"Comparable Treasury Price" means, with respect to any prepayment date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such prepayment date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such Business Day, (A) the average
of the Reference Treasury Dealer Quotations for such prepayment date, after
excluding the highest and lowest such Reference Treasury Dealer Quotations, or
(B) if the Debenture Trustee obtains fewer than three such Reference Treasury
Dealer Quotations, the average of all such Quotations.
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"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any prepayment date, the average, as determined by
the Debenture Trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted in
writing to the Debenture Trustee by such Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third Business Day preceding such prepayment date.
"Additional Sums" means such additional amounts as may be necessary in
order that the amount of Distributions then due and payable by the Trust on the
outstanding Capital Securities and Common Securities shall not be reduced as a
result of any additional taxes, duties or other governmental charges to which
the Trust has become subject as a result of a Tax Event.
Notice of any prepayment will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Junior Subordinated
Debentures to be prepaid at its registered address. Unless the Company defaults
in payment of the prepayment price, on and after the prepayment date interest
ceases to accrue on such Junior Subordinated Debentures called for prepayment.
If the Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, the Company will pay as
additional amounts on the Junior Subordinated Debentures the Additional Sums.
CERTAIN COVENANTS OF THE COMPANY
The Company will also covenant that it will not, (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock (which
includes common and preferred stock) or (ii) make any payment of principal,
interest or premium, if any, on or repay or repurchase or redeem any debt
securities of the Company (including Other Debentures) that rank pari passu with
or junior in right of payment to the Junior Subordinated Debentures or (iii)
make any guarantee payments with respect to any guarantee by the Company of the
debt securities of any subsidiary of the Company (including under Other
Guarantees) if such guarantee ranks pari passu or junior in right of payment to
the Junior Subordinated Debentures (other than (a) dividends or distributions in
shares of, or options, warrants or rights to subscribe for or purchase shares
of, common stock of the Company, (b) any declaration of a dividend in connection
with the implementation of a stockholder's rights plan, or the issuance of stock
under any such plan in the future, or the redemption or repurchase of any such
rights pursuant thereto, (c) payments under the Guarantee, (d) as a result of a
reclassification of the Company's capital stock or the exchange or conversion of
one class or series of the Company's capital stock for another class or series
of the Company's capital stock, (e) the purchase of fractional interests in
shares of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
and (f) purchases or issuances of common stock in connection with any of the
Company's stock option, stock purchase, stock loan or other benefit plans for
its directors, officers or employees or any of the Company's dividend
reinvestment plans, in each case as now existing or hereafter established or
amended) if at such time (1) there shall have occurred any event of which the
Company has actual knowledge that (a) is, or with the giving of notice or the
lapse of time, or both, would be, a Debenture Event of Default and (b) in
respect of which the Company shall not have taken reasonable steps to cure, (2)
if such Junior Subordinated Debentures are held by the Trust, the Company shall
be in default with respect to its payment of any obligations under the Guarantee
or (3) the Company shall have given notice of its election of an Extension
Period, or any extension thereof, as provided in the Indenture and shall not
have rescinded such notice, and such Extension Period, or any extension thereof,
shall have commenced.
For so long as such Trust Securities remain outstanding, the Company will
covenant (i) to directly or indirectly maintain 100 percent ownership of the
Common Securities of such Markel Capital Trust; provided, however, that any
permitted successor of the Company under the Indenture may succeed to the
Company's ownership of such Common Securities, (ii) to use its reasonable
efforts to cause such Trust (a) to remain a statutory business trust, except in
connection with the distribution of Junior Subordinated Debentures to the
holders of Trust Securities in liquidation of such Trust, the redemption of all
of the Trust Securities of such Trust, or certain mergers, consolidations or
amalgamations, each as permitted by the Declaration of such Trust, and (b) to
continue not to be classified as an association taxable as a corporation or a
partnership for United States federal income tax purposes and (iii) to use its
reasonable efforts to cause each holder of Trust Securities to be treated as
owning an undivided beneficial interest in the Junior Subordinated Debentures.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Junior Subordinated Debentures constitutes a
"Debenture Event of Default" (whatever the reason for such Debenture Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
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(i) failure for 30 days to pay any interest on the Junior Subordinated
Debentures or any Other Debentures, when due (subject to the deferral of
any due date in the case of an Extension Period); or
(ii) failure to pay any principal or premium, if any, on the Junior
Subordinated Debentures or any Other Debentures when due whether at
maturity, upon redemption, by declaration of acceleration of maturity or
otherwise; or
(iii) failure to observe or perform in any material respect certain
other covenants contained in the Indenture for 90 days after written notice
to the Company from the Debenture Trustee or the holders of at least 25% in
aggregate outstanding principal amount of Junior Subordinated Debentures;
or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Debenture
Trustee. The Debenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Junior Subordinated Debentures may declare
the principal due and payable immediately upon a Debenture Event of Default. The
holders of a majority in aggregate outstanding principal amount of the Junior
Subordinated Debentures may annul such declaration and waive the default if the
default (other than the nonpayment of the principal of the Junior Subordinated
Debentures which has become due solely by such acceleration) has been cured and
a sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures affected thereby may, on behalf of the holders of
all the Junior Subordinated Debentures, waive any past default except a default
in the payment of principal of or premium, if any, on or interest (unless such
default has been cured and a sum sufficient to pay all matured installments of
interest and premium, if any, and principal due otherwise than by acceleration
has been deposited with the Debenture Trustee) or a default in respect of a
covenant or provision which under the Indenture cannot be modified or amended
without the consent of the holder of each outstanding Junior Subordinated
Debenture.
The Indenture requires the annual filing by the Company with the Debenture
Trustee of a certificate as to the absence of certain defaults under the
Indenture.
The Indenture provides that the Debenture Trustee may withhold notice of an
Indenture Event of Default from the holders of a series of Junior Subordinated
Debentures (except an Indenture Event of Default in payment of principal of, or
of interest or premium on, the Junior Subordinated Debentures) if the Debenture
Trustee considers it in the interest of such holders to do so.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
If a Debenture Event of Default shall have occurred and be continuing and
shall be attributable to the failure of the Company to pay principal of or
interest or premium, if any, on the Junior Subordinated Debentures on the due
date, a holder of Capital Securities may institute a Direct Action. The Company
may not amend the Indenture to remove the foregoing right to bring a Direct
Action without the prior written consent of the holders of all of the Capital
Securities. Notwithstanding any payments made to a holder of Capital Securities
by the Company in connection with a Direct Action, the Company shall remain
obligated to pay the principal of (or premium, if any) or interest on the Junior
Subordinated Debentures, and the Company shall be subrogated to the rights of
the holder of such Capital Securities with respect to payments on the Capital
Securities to the extent of any payments made by the Company to such holder in
any Direct Action.
The holders of the Capital Securities will not be able to exercise directly
any remedies, other than those set forth in the preceding paragraph, available
to the holders of the Junior Subordinated Debentures unless there shall have
been an Event of Default under the Declaration. See "Description of New
Securities -- Events of Default; Notice".
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Company shall not consolidate with or merge
into any other Person or convey, transfer or lease its properties and assets as
an entirety or substantially as an entirety to any Person, and no Person shall
consolidate with or merge into the Company or convey, transfer or lease its
properties and assets as an entirety or substantially as an entirety to the
Company, unless: (i) in case the Company consolidates with or merges into
another Person or conveys or transfers its properties and assets substantially
as an entirety to any Person, the successor Person is organized under the laws
of the United States or any State or the District of Columbia, and such
successor Person expressly assumes the Company's obligations on the Junior
Subordinated Debentures; (ii) immediately after giving effect thereto, no
Debenture Event of
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Default, and no event which, after notice or lapse of time or both, would become
a Debenture Event of Default, shall have occurred and be continuing; and (iii)
certain other conditions as prescribed in the Indenture are met.
The general provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Company that may adversely affect holders of the
Junior Subordinated Debentures.
MODIFICATION OF THE INDENTURE
From time to time the Corporation and the Debenture Trustee may, without
the consent of the holders of Junior Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies (provided that any such action
does not materially adversely affect the interest of the holders of Junior
Subordinated Debentures) and qualifying, or maintaining the qualification of,
the Indenture under the Trust Indenture Act. The Indenture contains provisions
permitting the Company and the Debenture Trustee, with the consent of the
holders of not less than a majority in principal amount of the Junior
Subordinated Debentures of all series affected by such modification at the time
outstanding, to modify the Indenture or any supplemental indenture or the rights
of the holders of the Junior Subordinated Debentures; provided that no such
modification shall (i) extend the fixed maturity of any Security, or reduce the
principal amount thereof (including in the case of a discounted Security the
amount payable thereon in the event of acceleration or the amount provable in
bankruptcy) or any redemption premium thereon, or reduce the rate or extend the
time of payment of interest thereon, or make the principal of, or interest or
premium on, the Junior Subordinated Debentures payable in any coin or currency
other than that provided in the Junior Subordinated Debentures, or impair or
affect the right of any holder of Junior Subordinated Debentures to institute
suit for the payment thereof or the right of prepayment, if any, at the option
of the holder, without the consent of the holder of each Security so affected,
or (ii) reduce the aforesaid percentage of Junior Subordinated Debentures the
consent of the holders of which is required for any such modification without
the consent of the holders of each Security affected.
SATISFACTION AND DISCHARGE
The Indenture generally provides that when all Junior Subordinated
Debentures not previously delivered to the Debenture Trustee for cancellation
(i) have become due and payable or (ii) will become due and payable at maturity
within one year, and the Company deposits or causes to be deposited with the
Debenture Trustee funds, in trust, for the purpose and in an amount sufficient
to pay and discharge the entire indebtedness on the Junior Subordinated
Debentures not previously delivered to the Debenture Trustee for cancellation,
for the principal and interest to the date of the deposit or to the Stated
Maturity Date, as the case may be, then the Indenture will cease to be of
further effect (except as to the Company's obligations to pay all other sums due
pursuant to the Indenture and to provide the officers' certificates and opinions
of counsel described therein), and the Company will be deemed to have satisfied
and discharged the Indenture.
SUBORDINATION
In the Indenture, the Company has covenanted and agreed that any Junior
Subordinated Debentures issued thereunder will be subordinate and junior in
right of payment to all Senior Indebtedness to the extent provided in the
Indenture. Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the benefit
of creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Company, the holders of Senior Indebtedness will
first be entitled to receive payment in full in respect of such Senior
Indebtedness before the holders of Junior Subordinated Debentures will be
entitled to receive or retain any payment in respect thereof.
In the event of the acceleration of the maturity of Junior Subordinated
Debentures, the holders of all Senior Indebtedness outstanding at the time of
such acceleration will first be entitled to receive payment in full in respect
of such Senior Indebtedness before the holders of Junior Subordinated Debentures
will be entitled to receive or retain any payment in respect of the Junior
Subordinated Debentures.
No payments on account of principal or premium, if any, or interest, if
any, in respect of the Junior Subordinated Debentures may be made if there shall
have occurred and be continuing a default in any payment with respect to Senior
Indebtedness, or an event of default with respect to any Senior Indebtedness
resulting in the acceleration of the maturity thereof, or if any judicial
proceeding shall be pending with respect to any such default.
"Senior Indebtedness" means, with respect to the Company and its
Subsidiaries: (a) all liabilities, obligations and indebtedness for borrowed
money, whether or not evidenced by bonds, debentures, notes or other similar
instruments, (b) all
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obligations to pay the deferred purchase price of property or services (other
than trade payables due and arising in the ordinary course of business), (c) all
Capital Lease Obligations, (d) all debt of any other Person secured by a Lien on
any asset of the Company or any of its Subsidiaries, (e) all Contingent
Obligations, (f) all obligations, contingent or otherwise, relating to the face
amount of letters of credit, whether or not drawn, and banker's acceptances, but
excluding any obligation relating to an undrawn letter of credit if the undrawn
letter of credit is issued in connection with a liability for which a reserve
has been established by the Company or the applicable Subsidiary in accordance
with United States generally accepted accounting principles, and (g) all
obligations incurred pursuant to Hedging Agreements which are due and payable;
provided, that the term Senior Indebtedness shall not include the Junior
Subordinated Debentures, the Guarantees or other Qualified Debt Obligations.
"Qualified Debt Obligations" means, without duplication, (a) debt
securities of the Company, provided that the terms of any such debt security (i)
permit the deferral of principal and interest payments for a period of up to
five years (but not beyond the maturity date), as elected by the Company, (ii)
have a maturity for payment of principal of not less than ten (10) years after
the date of issuance, and (iii) include provisions making the debt security
expressly subordinate to all other debt of the Company; (b) preferred securities
issued by a Subsidiary, the sole purpose of which is to issue such preferred
securities and invest the proceeds thereof in debt securities of the type
described in clause (a) above, and which preferred securities are payable solely
out of the proceeds of payments on account of such debt securities; and (c) the
obligations recorded on the consolidated balance sheet of the Company and its
Subsidiaries with respect to debt securities of the type described in clause (a)
above and preferred securities of the type described in clause (b) above.
By reason of such subordination, in the event of an insolvency, creditors
of the Company who are holders of Senior Indebtedness, as well as certain
general creditors of the Company, may recover more, ratably, than the holders of
the Junior Subordinated Debentures. Additionally, the Company currently conducts
substantially all of its operations through subsidiaries, and the holders of
Junior Subordinated Debentures will be structurally subordinated to the
creditors of the Company's subsidiaries. See "Risk Factors -- Ranking of
Subordinate Obligations Under the Guarantee and the Junior Subordinated
Debentures."
The Indenture places no limitation on the amount of additional secured or
unsecured debt, including Senior Indebtedness, or other obligations, that may be
incurred by the Company. The Company expects from time to time to incur
additional indebtedness and obligations, including Senior Indebtedness.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by
and construed in accordance with the laws of the State of New York.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
Following the Exchange Offer and the qualification of the Indenture under
the Trust Indenture Act, the Debenture Trustee shall have and be subject to all
the duties and responsibilities specified with respect to an indenture trustee
under the Trust Indenture Act. Subject to such provisions, the Debenture Trustee
is under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Junior Subordinated Debentures, unless
offered reasonable indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby. The Debenture Trustee is not
required to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Debenture Trustee reasonably
believes that repayment or adequate indemnity is not reasonably assured to it.
From time to time, the Debenture Trustee and/or its affiliates extend
credit and may provide investment banking and other financial services to the
Company. See "Markel Capital Trust I."
DESCRIPTION OF THE GUARANTEE
The Old Guarantee was executed and delivered by the Company concurrently
with the issuance by the Trust of the Old Capital Securities for the benefit of
the holders from time to time of the Old Capital Securities. As soon as
practicable after the date hereof, the Old Guarantee will be exchanged by the
Company for the New Guarantee for the benefit of the holders from time to time
of the New Capital Securities. The Chase Manhattan Bank will act as guarantee
trustee ("Guarantee Trustee") under the Guarantee. The New Guarantee has been
qualified under the Trust Indenture Act. This is a summary of all material
provisions of the Guarantee, but does not purport to be complete and is subject
to, and qualified in its entirety by
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reference to, all of the provisions of the Guarantee, including the definitions
therein of certain terms, and the Trust Indenture Act. The Guarantee Trustee
will hold the Guarantee for the benefit of the holders of the Capital
Securities.
GENERAL
The Company will irrevocably agree to pay in full on a subordinated basis,
to the extent set forth herein, the Guarantee Payments (as defined below) to the
holders of the New Capital Securities, as and when due, regardless of any
defense, right of set-off or counterclaim that the Trust may have or assert
other than the defense of payment. The following payments with respect to the
Capital Securities, to the extent not paid by or on behalf of the Trust (the
"Guarantee Payments"), will be subject to the Guarantee: (i) any accumulated and
unpaid Distributions required to be paid on New Capital Securities, to the
extent the Trust has funds on hand at such time legally available therefor, (ii)
the Redemption Price with respect to any New Capital Securities called for
redemption, to the extent that the Trust has funds on hand at such time legally
available therefor, or (iii) upon a voluntary or involuntary termination and
liquidation of the Trust (unless the Junior Subordinated Debentures are
distributed to holders of the Capital Securities), the lesser of (a) the
Liquidation Distribution and (b) the amount of assets of the Trust remaining
available for distribution to holders of New Capital Securities. The Company's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by the Company to the holders of the New Capital Securities or
by causing the Trust to pay such amounts to such holders.
The New Guarantee will rank subordinate and junior in right of payment to
all Senior Indebtedness to the extent provided therein and, in the event of
bankruptcy or insolvency proceedings involving the Company, will rank
subordinate and junior in right of payment to all liabilities (other than Other
Guarantees) of the Company, but senior to any obligations in respect of any
class of capital stock of the Company. See " -- Status" below. Because the
Company is a holding company, the right of the Company to participate in any
distribution of assets of any subsidiary upon such subsidiary's liquidation or
reorganization or otherwise is subject to the prior claims of creditors of that
subsidiary, except to the extent the Company may itself be recognized as a
creditor of that subsidiary. Accordingly, the Company's obligations under the
Guarantee will be effectively subordinated to all existing and future
liabilities of the Company's direct and indirect subsidiaries, and claimants
should look only to the assets of the Company for payments thereunder. See
"Description of New Junior Subordinated Debentures -- General." The New
Guarantee does not limit the incurrence or issuance of other secured or
unsecured debt of the Company, including Senior Indebtedness, whether under the
Indenture, any other indenture that the Company may enter into in the future or
otherwise.
The Company will, through the Guarantee, the Declaration, the Junior
Subordinated Debentures and the Indenture, taken together, fully, irrevocably
and unconditionally guarantee all of the Trust's obligations under the Capital
Securities. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes such guarantee. It is only the
combined operation of these documents that has the effect of providing a full,
irrevocable and unconditional guarantee of the Trust's obligations under the
Capital Securities. See "Relationship Among the New Capital Securities, the New
Junior Subordinated Debentures and the New Guarantee."
STATUS
The New Guarantee will constitute an unsecured obligation of the Company
and will rank subordinate and junior in right of payment to all Senior
Indebtedness in the same manner as Junior Subordinated Debentures, except in the
event of bankruptcy or insolvency proceedings involving the Company, in which
case the New Guarantee will rank subordinate and junior in right of payment to
all liabilities (other than Other Guarantees) of the Company.
The New Guarantee will rank pari passu with the Old Guarantee and all Other
Guarantees issued by the Company. The Guarantee will constitute a guarantee of
payment and not of collection (i.e., the guaranteed party may institute a legal
proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against any other person
or entity). The Guarantee will be held for the benefit of the holders of the
Capital Securities. The Guarantee will not be discharged except by payment of
the Guarantee Payments in full to the extent not paid by the Trust or upon
distribution to the holders of the Capital Securities of the Junior Subordinated
Debentures. The Guarantee does not place a limitation on the amount of
additional Senior Indebtedness that may be incurred by the Company. The Company
expects from time to time to incur additional indebtedness constituting Senior
Indebtedness.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of the Capital Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of a
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majority of the Liquidation Amount of such outstanding Capital Securities. The
manner of obtaining any such approval will be as set forth under "Description of
New Securities -- Voting Rights; Amendment of the Declaration." All guarantees
and agreements contained in the Guarantee Agreement shall bind the successors,
assigns, receivers, trustees and representatives of the Company and shall inure
to the benefit of the holders of the Capital Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder. The
holders of a majority in Liquidation Amount of the Capital Securities will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Guarantee Trustee in respect of the Guarantee or to
direct the exercise of any trust or power conferred upon the Guarantee Trustee
under the Guarantee.
Any holder of the Capital Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Trust, the Guarantee Trustee or
any other person or entity.
The Company, as guarantor, will be required to file annually with the
Guarantee Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Guarantee.
CERTAIN COVENANTS OF THE COMPANY
In the New Guarantee the Company will covenant that, so long as any Capital
Securities remain outstanding, the Company shall not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock (which
includes common and preferred stock) or (ii) make any payment of principal,
interest or premium, if any, on, or repay or repurchase or redeem any debt
securities of the Company (including any Other Debentures) that rank pari passu
with or junior in right of payment to the Junior Subordinated Debentures or
(iii) make any guarantee payments with respect to any guarantee by the Company
of the debt securities of any subsidiary of the Company (including Other
Guarantees) if such guarantee ranks pari passu or junior in right of payment to
the Junior Subordinated Debentures (other than (a) dividends or distributions in
shares of, or options, warrants, rights to subscribe for or purchase shares of,
common stock of the Company, (b) any declaration of a dividend in connection
with the implementation of a stockholder's rights, plan, or the issuance of
stock under any such plan in the future, or the redemption or repurchase of any
such rights pursuant thereto, (c) payments under the Guarantee, (d) as a result
of a reclassification of the Company's capital stock or the exchange or the
conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock, (e) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being converted or
exchanged, and (f) purchases or issuances of common stock in connection with any
of the Company's stock option, stock purchase, stock loan or other benefit plans
for its directors, officers or employees or any of the Company's dividend
reinvestment plans, in each case as now existing or hereafter established or
amended), if at such time (i) there shall have occurred any event of which the
Company has actual knowledge that (a) is, or with the giving of notice or the
lapse of time, or both, would be an event of default under the Guarantee and (b)
in respect of which the Company shall not have taken reasonable steps to cure,
(ii) if such Junior Subordinated Debentures are held by the Property Trustee,
the Company shall be in default with respect to its payment of any obligations
under the Guarantee or (iii) the Company shall have given notice of its election
of the exercise of its right to extend the interest payment period pursuant to
the Indenture and any such extension shall be continuing.
TERMINATION
The Guarantee will terminate and be of no further force and effect upon
full payment of the applicable Redemption Price of the Capital Securities, upon
full payment of the Liquidation Amount payable upon liquidation of the Trust or
upon distribution of Junior Subordinated Debentures to the holders of the
Capital Securities. The Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of the Capital
Securities must restore payment of any sums paid under the Capital Securities or
the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the continuance of a default with
respect to a Guarantee, will undertake to perform only such duties as are
specifically set forth in such Guarantee and, after default, must 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 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
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Capital Securities, unless offered reasonable indemnity against the costs,
expenses and liabilities which might be incurred thereby. The Guarantee Trustee
is not required to expend or risk its own funds or otherwise incur personal
financial liability in the performance of its duties if it reasonably believes
that repayment or adequate indemnity is not reasonably assured to it.
From time to time the Guarantee Trustee and/or its affiliates extend credit
and may provide investment banking and other financial services to the Company.
See "Markel Capital Trust I."
GOVERNING LAW
The Guarantee will be governed by, and construed in accordance with, the
internal laws of the State of New York.
DESCRIPTION OF OLD SECURITIES
The terms of the Old Securities are identical in all materials respects to
the New Securities, except that the Old Securities have not been registered
under the Securities Act, are subject to certain restrictions on transfer and
are entitled to certain rights under the applicable Registration Rights
Agreement (which rights will terminate upon consummation of the Exchange Offer,
except under limited circumstances), the New Capital Securities will not contain
the $100,000 minimum Liquidation Amount transfer restriction and certain other
restrictions on transfer applicable to Old Capital Securities, the New Capital
Securities will not provide for any increase in the Distribution rate thereon,
the New Junior Subordinated Debentures will not contain the $100,000 minimum
principal amount transfer restriction and the New Junior Subordinated Debentures
will not provide for any increase in the interest rate thereon. The Old
Securities provide that, in the event that a registration statement relating to
the Exchange Offer has not been filed by June 7, 1997 and been declared
effective by July 7, 1997, or, in certain limited circumstances, in the event a
shelf registration statement (the "Shelf Registration Statement") with respect
to the resale of the Old Capital Securities is not declared effective by July 7,
1997, then interest will accrue (in addition to the stated interest rate on the
Old Junior Subordinated Debentures) at the rate of 0.25% per annum on the
principal amount of the Old Junior Subordinated Debentures and Distributions
will accrue (in addition to the stated Distribution rate on the Old Capital
Securities) at the rate of 0.25% per annum on the Liquidation Amount of the Old
Capital Securities, for the period from the occurrence of such event until such
time as such required Exchange Offer is consummated or any required Shelf
Registration Statement is effective. The New Securities are not, and upon
consummation of the Exchange Offer the Old Securities will not be, entitled to
any such additional interest or Distributions. Accordingly, holders of Old
Capital Securities should review the information set forth under "Risk
Factors -- Consequences of a Failure to Exchange Old Capital Securities" and
"Description of New Securities."
RELATIONSHIP AMONG THE NEW CAPITAL SECURITIES, THE
NEW JUNIOR SUBORDINATED DEBENTURES, THE NEW GUARANTEE
AND CERTAIN UNDERTAKINGS UNDER THE DECLARATION
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the New Capital
Securities (to the extent the Trust has funds on hand legally available for the
payment of such Distributions) will be irrevocably guaranteed by the Company as
and to the extent set forth under "Description of the Guarantee." Taken
together, the Company's obligations under the New Junior Subordinated
Debentures, the Indenture, the Declaration and the New Guarantee will provide,
in the aggregate, a full, irrevocable and unconditional guarantee of payments of
Distributions and other amounts due on the New Capital Securities. No single
document standing alone or operating in conjunction with fewer than all of the
other documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Trust's obligations under the New Capital
Securities. If and to the extent that the Company does not make the required
payments on the New Junior Subordinated Debentures, the Trust will not have
sufficient funds to make the related payments, including Distributions, on the
New Capital Securities. The Guarantee will not cover any such payment when the
Trust does not have sufficient funds on hand legally available therefor. In such
event, the remedy of a holder of Capital Securities is to institute a Direct
Action. The obligations of the Company under the New Guarantee will be
subordinate and junior in right of payment to all Senior Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the New Capital Securities, primarily
because:
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(i) the aggregate principal amount or Prepayment Price of the New Junior
Subordinated Debentures will be equal to the sum of the Liquidation Amount or
Redemption Price, as applicable, of the New Capital Securities and Common
Securities; (ii) the interest rate and interest and other payment dates on the
New Junior Subordinated Debentures will match the Distribution rate and
Distribution and other payment dates for the Trust Securities; (iii) the Company
shall pay for all and any costs, expenses and liabilities of the Trust except
the Trust's obligations to holders of Trust Securities under such Trust
Securities; and (iv) the Declaration will provide that the Trust is not
authorized to engage in any activity that is not consistent with the limited
purposes thereof.
ENFORCEMENT OF RIGHTS OF HOLDERS OF CAPITAL SECURITIES
A holder of any Capital Security may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Trust or any
other person or entity.
A default or event of default under any Senior Indebtedness would not
constitute a default or Event of Default under the Declaration. However, in the
event of payment defaults under, or acceleration of, Senior Indebtedness, the
subordination provisions of the Indenture will provide that no payments may be
made in respect of the Junior Subordinated Debentures until such Senior
Indebtedness has been paid in full or any payment default thereunder has been
cured or waived. Failure to make required payments on Junior Subordinated
Debentures would constitute an Event of Default under the Declaration.
LIMITED PURPOSE OF THE TRUST
The Capital Securities will represent preferred beneficial interests in the
Trust, and the Trust exists for the sole purpose of issuing and selling the
Trust Securities, using the proceeds from the sale of the Trust Securities to
acquire the Junior Subordinated Debentures and engaging in only those other
activities necessary, advisable or incidental thereto. A principal difference
between the rights of a holder of a Capital Security and a holder of a Junior
Subordinated Debenture is that a holder of a Junior Subordinated Debenture will
be entitled to receive from the Company the principal amount of and premium, if
any, and interest on Junior Subordinated Debentures held, while a holder of
Capital Securities is entitled to receive Distributions from the Trust (or, in
certain circumstances, from the Company under the Guarantee) if and to the
extent the Trust has funds on hand legally available for the payment of such
Distributions.
RIGHTS UPON TERMINATION
Unless the Junior Subordinated Debentures are distributed to holders of the
Trust Securities, upon any voluntary or involuntary termination and liquidation
of the Trust, the holders of the Trust Securities will be entitled to receive,
out of assets held by the Trust, the Liquidation Distribution in cash. See
"Description of Securities -- Liquidation of the Trust and Distribution of
Junior Subordinated Debentures." Upon any voluntary or involuntary liquidation
or bankruptcy of the Company, the Property Trustee, as holder of the Junior
Subordinated Debentures, would be a subordinated creditor of the Company,
subordinated in right of payment to all Senior Indebtedness as set forth in the
Indenture, but entitled to receive payment in full of principal (and premium, if
any) and interest, before any stockholders of the Company receive payments or
distributions. Since the Company will be the guarantor under the Guarantee and
will agree to pay for all costs, expenses and liabilities of the Trust (other
than the Trust's obligations to the holders of its Trust Securities), the
positions of a holder of Capital Securities and a holder of Junior Subordinated
Debentures relative to other creditors and to stockholders of the Company in the
event of liquidation or bankruptcy of the Company are expected to be similar,
although, in the event of bankruptcy or insolvency proceedings involving the
Company, the Company's obligations under the Guarantee will rank subordinate and
junior in right of payment to all liabilities (other than Other Guarantees) of
the Company but senior to any obligations in respect of any class of capital
stock of the Company.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
In the opinion of McGuire, Woods, Battle & Boothe, L.L.P., counsel to the
Company and the Trust ("Tax Counsel"), the following is a summary of certain of
the material United States federal income tax consequences of the purchase,
ownership and disposition of Capital Securities held as capital assets by a
holder that purchased the Old Capital Securities upon initial issuance at their
original offering price. It 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
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investors, or persons that will hold the Capital Securities as a position in a
"straddle," as part of a "synthetic security" or "hedge," as part of a
"conversion transaction" or other integrated investment, or as other than a
capital asset. This summary also does not address the tax consequences to
persons that have a functional currency other than the U.S. dollar or the tax
consequences to shareholders, partners or beneficiaries of a holder of Capital
Securities. Further, it does not include any description of any alternative
minimum tax consequences or the tax laws of any state or local government or of
any foreign government that may be applicable to the Capital Securities. This
summary is based on the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury regulations thereunder, the administrative and judicial interpretations
thereof, as of the date hereof, all of which are subject to change, possibly on
a retroactive basis.
EXCHANGE OF CAPITAL SECURITIES
The exchange of Old Capital Securities for New Capital Securities should
not be a taxable event to holders for United States federal income tax purposes.
The exchange of Old Capital Securities for New Capital Securities pursuant to
the Exchange Offer should not be treated as an "exchange" for United States
federal income tax purposes because the New Capital Securities should not be
considered to differ materially in kind or extent from the Old Capital
Securities and because the exchange will occur by operation of the terms of the
Old Capital Securities. If, however, the exchange of the Old Capital Securities
for the New Capital Securities were treated as an exchange for United States
federal income tax purposes, such exchange should constitute a recapitalization
for federal income tax purposes. Accordingly, the New Capital Securities should
have the same issue price as the Old Capital Securities, and a holder should
have the same adjusted tax basis and holding period in the New Capital
Securities as the holder had in the Old Capital Securities immediately before
the exchange.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
In connection with the issuance of the Old Junior Subordinated Debentures,
Tax Counsel has 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 Junior Subordinated Debentures will be classified for
United States federal income tax purposes as indebtedness of the Company. An
opinion of Tax Counsel, however, is not binding on the Internal Revenue Service
(the "IRS") or the courts. Prospective investors should note that no rulings
have been or are expected to be sought from the IRS with respect to any of these
issues and no assurance can be given that the IRS will not take contrary
positions. Moreover, no assurance can be given that any of the opinions
expressed herein will not be challenged by the IRS or, if challenged, that such
a challenge would not be successful.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Old Capital Securities, Tax Counsel
has 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 States
federal income tax purposes as a grantor trust and not as an association taxable
as a corporation. Accordingly, for United States federal income tax purposes,
each holder of Capital Securities generally will be considered the owner of an
undivided interest in the Junior Subordinated Debentures, and each holder will
be required to include in its gross income any interest (or OID accrued) with
respect to its allocable share of those Junior Subordinated Debentures.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under recently issued Treasury regulations (the "Regulations") applicable
to debt instruments issued on or after August 13, 1996, a "remote" contingency
that stated interest will not be timely paid will be ignored in determining
whether a debt instrument is issued with OID. The Company believes that the
likelihood of its exercising its option to defer payments of interest is
"remote" because exercising that option would prevent the Company from declaring
dividends on any class of its equity securities. Accordingly, the Company
intends to take the position, based on the advice of Tax Counsel, that the
Junior Subordinated Debentures will not be considered to be issued with OID and,
accordingly, stated interest on the Junior Subordinated Debentures generally
will be taxable to a holder as ordinary income at the time it is paid or accrued
in accordance with such holder's method of accounting.
Under the Regulations, if the Company were to exercise its option to defer
payments of interest, the New Junior Subordinated Debentures would at that time
be treated as issued with OID, and all stated interest on the New Junior
Subordinated Debentures would thereafter be treated as OID as long as the New
Junior Subordinated Debentures remain outstanding. In such event, all of a
holder's taxable interest income with respect to the New Junior Subordinated
Debentures would thereafter be accounted for on an economic accrual basis
regardless of such holder's method of tax accounting, and actual distributions
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of stated interest would not be reported as taxable income. Consequently, a
holder of New Capital Securities would be required to include in gross income
OID even though the Company would not make actual cash payments during an
Extension Period. Moreover, under the Regulations, if the option to defer the
payment of interest was determined not to be "remote", the Junior Subordinated
Debentures would be treated as having been originally issued with OID. In such
event, all of a holder's taxable interest income with respect to the Junior
Subordinated Debentures would be accounted for on an economic accrual basis
regardless of such holder's method of tax accounting, and actual distributions
of stated interest would not be reported as taxable income.
The Regulations have not yet been addressed in any rulings or other
interpretations by the IRS, and it is possible that the IRS could take a
position contrary to Tax Counsel's interpretation herein.
Because income on the Capital Securities will constitute interest or OID,
corporate holders of the Capital Securities will not be entitled to a
dividends-received deduction with respect to any income recognized with respect
to the Capital Securities.
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
The Company will have the right at any time to liquidate the Trust and
cause the New Junior Subordinated Debentures to be distributed to the holders of
the Trust Securities. Under current law, such a distribution, for United States
federal income tax purposes, would be treated as a nontaxable event to each
holder, and each holder would receive an aggregate tax basis in the New Junior
Subordinated Debentures equal to such holder's aggregate tax basis in its
Capital Securities. A holder's holding period in the New Junior Subordinated
Debentures so received in liquidation of the Trust would include the period
during which the Capital Securities were held by such holder. If, however, the
Trust is characterized for United States federal income tax purposes as an
association taxable as a corporation at the time of its dissolution, the
distribution of the New Junior Subordinated Debentures may constitute a taxable
event to holders of Capital Securities and a holder's holding period in New
Junior Subordinated Debentures would begin on the date such Junior Subordinated
Debentures were received.
Under certain circumstances described herein (see "Description of New
Securities"), the Junior Subordinated Debentures may be redeemed for cash and
the proceeds of such redemption distributed to holders in redemption of their
Capital Securities. Under current law, such a redemption would, for United
States federal income tax purposes, constitute a taxable disposition of the
redeemed Capital Securities, and a holder could recognize gain or loss as if it
sold such redeemed Capital Securities for cash. See " -- Sales of Capital
Securities" below.
SALES OF CAPITAL SECURITIES
A holder that sells Capital Securities will recognize gain or loss equal to
the difference between its adjusted tax basis in the Capital Securities and the
amount realized on the sale of such Capital Securities (other than with respect
to accrued and unpaid interest which has not yet been included in income, which
will be treated as ordinary income). A holder's adjusted tax basis in the
Capital Securities generally will be its initial purchase price increased by OID
(if any) previously includable in such holder's gross income to the date of
disposition and decreased by payments (if any) received on the Capital
Securities in respect of OID. Such gain or loss generally will be a capital gain
or loss and generally will be a long-term capital gain or loss if the Capital
Securities have been held for more than one year.
The Capital Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
Junior Subordinated Debentures. A holder who uses the accrual method of
accounting for tax purposes (and a cash method holder, if the Junior
Subordinated Debentures are deemed to have been issued with OID) who disposes of
such holder's Capital Securities between record dates for payments of
distributions thereon will be required to include accrued but unpaid interest on
the Junior Subordinated Debentures through the date of disposition in income as
ordinary income (i.e., interest or, possibly, OID), and to add such amount to
such holder's adjusted tax basis in such holder's pro rata share of the
underlying Junior Subordinated Debentures deemed disposed of. To the extent the
selling price is less than the holder's adjusted tax basis (which will include
all accrued but unpaid interest), a holder will recognize a capital loss.
Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes.
PROPOSED TAX LEGISLATION
On February 6, 1997, as part of the Clinton Administration's Fiscal 1998
Budget Proposal, the Treasury Department proposed legislation (the "Proposed
Legislation") which would, among other things, generally deny corporate issuers
a deduction for interest in respect of certain debt obligations, such as the New
Junior Subordinated Debentures, issued on or after the date "of first committee
action," if such debt obligations have a maximum term in excess of 15 years and
are not
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shown as indebtedness on the issuer's applicable consolidated balance sheet. In
addition, the Proposed Legislation would generally deny corporate issuers a
deduction for interest in respect of certain debt obligations, such as the New
Junior Subordinated Debentures, issued on or after the date "of first committee
action," if such debt obligations have a weighted average maturity of more than
40 years. The Proposed Legislation has not yet been introduced by the 105th
Congress. If the Proposed Legislation or other similar legislation is enacted by
Congress and if such enactment gave rise to a Tax Event, the Company would be
permitted to cause a redemption of the Trust Securities at the Special Event
Redemption Price by electing to prepay the Junior Subordinated Debentures at the
Special Event Prepayment Price. See "Description of New Junior Subordinated
Debentures -- Special Event Prepayment."
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is not a U.S. Holder
for United States federal income tax purposes.
A "U.S. Holder" is a holder of Capital Securities who or which is a citizen
or individual resident (or is treated as a citizen or individual resident) of
the United States for federal income tax purposes, a corporation or partnership
created or organized (or treated as created or organized for federal income tax
purposes) in or under the laws of the United States or any political subdivision
thereof, or a trust or estate the income of which is includable in its gross
income for federal income tax purposes without regard to its source.
Notwithstanding the foregoing, for taxable years beginning after December 31,
1996 (or for the immediately preceding taxable year, if the trustee of a trust
so elects), a trust is a U.S. Holder for federal income tax purposes if, and
only if, (i) a court within the United States is able to exercise primary
supervision over the administration of the trust and (ii) one or more United
States trustees have the authority to control all substantial decisions of the
trust.
Under present United States federal income tax laws: (i) payments by the
Trust or any of its paying agents to any holder of a Capital Security who or
which is a United States Alien Holder will not be subject to United States
federal withholding tax; provided that, (a) the beneficial owner of the Capital
Security does not actually or constructively own 10 percent or more of the total
combined voting power of all classes of stock of the Company entitled to vote,
(b) the beneficial owner of the Capital Security is not a controlled foreign
corporation that is related to the Company through stock ownership, and (c)
either (A) the beneficial owner of the Capital Security certifies to the Trust
or its agent, under penalties of perjury, that it is not a United States holder
and provides its name and address or (B) a securities clearing organization,
bank or other financial institution that holds customers' securities in the
ordinary course of its trade or business (a "Financial Institution"), and holds
the Capital Security in such capacity, certifies to the Trust or its agent,
under penalties of perjury, that such statement has been received from the
beneficial owner by it or by a Financial Institution between it and the
beneficial owner and furnishes the Trust or its agent with a copy thereof; and
(ii) a United States Alien Holder of a Capital Security will not be subject to
United States federal withholding tax on any gain realized upon the sale or
other disposition of a Capital Security.
INFORMATION REPORTING TO HOLDERS
Generally, income on the New Capital Securities will be reported to holders
on Form 1099, which forms should be mailed to holders of New Capital Securities
by January 31 following each calendar year.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Capital Securities may
be subject to a "backup" withholding tax of 31 percent unless the holder
complies with certain identification requirements. Any withheld amounts will be
allowed as a credit against the holder's United States federal income tax,
provided the required information is provided to the IRS.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP DISPOSITION AND EXCHANGE
OF THE CAPITAL SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES
FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
The Company, which is the obligor with respect to the Junior Subordinated
Debentures held by the Trust, and its affiliates and the Property Trustee may be
considered a "party in interest" (within the meaning of the Employee Retirement
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Income Security Act of 1974, as amended ("ERISA")) or a "disqualified person"
(within the meaning of Section 4975 of the Code) with respect to many employee
benefit plans ("Plans") that are subject to ERISA. Any purchaser proposing to
acquire Capital Securities with assets of any Plan should consult with its
counsel. The purchase and/or holding of Capital Securities by a Plan that is
subject to the fiduciary responsibility provisions of ERISA or the prohibited
transaction provisions of Section 4975 of the Code (including individual
retirement arrangements and other plans described in Section 4975(e)(1) of the
Code) and with respect to which the Company, the Property Trustee or any
affiliate is a service provider (or otherwise is 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 Capital Securities are acquired
pursuant to and in accordance with an applicable exemption, such as Prohibited
Transaction Class Exemption ("PTCE") 84-14 (an exemption for certain
transactions determined by an independent qualified professional asset manager),
PTCE 91-38 (an exemption for certain transactions involving bank collective
investment funds), PTCE 90-1 (an exemption for certain transactions involving
insurance company pooled separate accounts) or PTCE 95-60 (an exemption for
transactions involving certain insurance company general accounts) and PTCE
95-23 (an exemption for certain transactions determined by an in-house manager).
In addition, a Plan fiduciary considering the purchase of Capital Securities
should be aware that the assets of the Trust may be considered "plan assets" for
ERISA purposes. Therefore, a Plan fiduciary should consider whether the purchase
of Capital Securities could result in a delegation of fiduciary authority to the
Property Trustee, and, if so, whether such a delegation of authority is
permissible under the Plan's governing instrument or any investment management
agreement with the Plan. In making such determination, a Plan fiduciary should
note that the Property Trustee is a U.S. bank qualified to be an investment
manager (within the meaning of section 3(38) of ERISA) to which such a
delegation of authority generally would be permissible under ERISA. Further,
prior to an Event of Default with respect to the Junior Subordinated Debentures,
the Property Trustee will have only limited custodial and ministerial authority
with respect to Trust assets.
Under the U.S. Department of Labor regulations defining "plan assets" for
ERISA purposes (the "Plan" Assets Regulations"), the assets of the Trust may be
considered plan assets of Plans owning New Capital Securities unless the
aggregate investment in New Capital Securities by "benefit plan investors" is
not deemed "significant" or the New Capital Securities qualify as "publicly
offered securities" as defined in such Regulations. For this purpose, equity
participation by benefit plan investors will not be considered "significant" on
any date only if, immediately after the most recent acquisition of Capital
Securities, the aggregate interest in the New Capital Securities held by benefit
plan investors will be less than 25% of the value of the New Capital Securities.
For purposes of the Plan Asset Regulations, the term "benefit plan investor"
includes Plans and arrangements that are not subject to ERISA, as well as Plans
that are subject to ERISA, and entities whose assets include plan assets by
reason of a Plan's investment in that entity. Although it is possible that the
equity participation by benefit plan investors in New Capital Securities on any
date will not be "significant" for purposes of the Plan Assets Regulations, such
result cannot be assured.
The New Capital Securities may qualify as "publicly offered securities"
under the Plan Assets Regulations if at the time of the Exchange Offer they are
also "widely held" and "freely transferable." Under the Regulations, a class of
securities is "widely held" only if it is a class of securities that is owned by
100 or more investors independent of the issuer and of one another. Although it
is possible that at the time of the Exchange Offer the New Capital Securities
will be "widely held," such result cannot be assured. Whether a security is
"freely transferable" for purposes of the Regulations is a factual question to
be determined on the basis of all relevant facts and circumstances. If at the
time of the Exchange Offer the New Capital Securities qualify as "publicly
offered securities," the assets of the Trust should not be "plan assets" with
respect to Plans acquiring New Capital Securities. If at the time of the
Exchange Offer the New Capital Securities do not qualify as "publicly offered
securities," the "plan asset" considerations discussed in the preceding
paragraphs could be applicable in connection with the investment by Plans in the
New Capital Securities.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Capital Securities for its own account
in connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Capital Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by Participating Broker-Dealers during the period referred to below in
connection with resales of New Capital Securities received in exchange for Old
Capital Securities if such Old Capital Securities were acquired by such
Participating Broker-Dealers for their own accounts as a result of market-making
activities or other trading activities. The Company and the Trust have agreed
that this Prospectus, as it may be amended or supplemented from time to time,
may be used by a Participating Broker-Dealer in connection with resales of such
New Capital Securities for a period ending 90 days after the Expiration Date
(subject to extension under certain limited
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circumstances described herein) or, if earlier, when all such New Capital
Securities have been disposed of by such Participating Broker-Dealer. However, a
Participating Broker-Dealer who intends to use this Prospectus in connection
with the resale of New Capital Securities received in exchange for Old Capital
Securities pursuant to the Exchange Offer must notify the Company or the Trust,
or cause the Company or the Trust to be notified, on or prior to the Expiration
Date, that it is a Participating Broker-Dealer. Such notice may be given in the
space provided for that purpose in the Letter of Transmittal or may be delivered
to the Exchange Agent at one of the addresses set forth herein under "The
Exchange Offer -- Exchange Agent." See "The Exchange Offer -- Resales of New
Capital Securities."
The Company or the Trust will not receive any cash proceeds from the
issuance of the New Capital Securities offered hereby. New Capital Securities
received by broker-dealers for their own accounts in connection with the
Exchange Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the New Capital Securities or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Capital Securities.
Any broker-dealer that resells New Capital Securities that were received by
it for its own account in connection with the Exchange Offer and any broker or
dealer that participates in a distribution of such New Capital Securities may be
deemed to be an "underwriter" within the meaning of the Securities Act, and any
profit on any such resale of New Capital Securities and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
NOTICE TO INVESTORS
Because of the following restriction, purchasers are advised to consult
legal counsel prior to making any offer, resale or pledge or transfer of Capital
Securities. Each holder of the New Capital Securities, by its acceptance
thereof, will be deemed to have acknowledged, represented to and agreed with the
Trust and the Company as follows:
It (a) is not itself, and is not acquiring Capital Securities with
"plan assets" of, an employee benefit or other plan subject to Title I of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
or Section 4975 of the Internal Revenue Code of 1986, as amended (the
"Code") (each, a "Plan"), or an entity whose underlying assets include
"plan assets" by reason of any Plan's investment in the entity (a "Plan
Asset Entity"), or (b) is acquiring and holding the Capital Securities in a
transaction that is not otherwise prohibited by either ERISA or the Code.
The Capital Securities will bear legends reflecting the above restrictions.
CERTAIN LEGAL MATTERS
The validity of the New Junior Subordinated Debentures and the New
Guarantee and certain legal matters relating thereto will be passed upon by
McGuire, Woods, Battle & Boothe, L.L.P., Richmond, Virginia. Certain matters of
Delaware law relating to the validity of the New Capital Securities will be
passed upon by Richards, Layton & Finger, special Delaware counsel to the
Company and the Trust. McGuire, Woods, Battle & Boothe, L.L.P. will rely on
Richards, Layton & Finger as to matters of Delaware law and on Brown & Wood LLP
as to matters of New York law. In addition, McGuire, Woods, Battle & Boothe,
L.L.P. will pass upon certain United States federal income taxation matters for
the Company and the Trust.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company appearing in the Company's Annual Report on Form 10-K,
as amended, for the year ended December 31, 1996, incorporated by reference
herein have been incorporated by reference herein in reliance upon the reports
of KPMG Peat Marwick LLP, independent certified public accountants and upon the
authority of such firm as experts in accounting and auditing.
51
